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UNITED STATES
SECURITY AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________

FORM 10-Q
 
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended January 2, 2011


TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 
Commission File No. 0-26396
 
BENIHANA INC.
 
(Exact name of registrant as specified in its charter)

Delaware
 
65-0538630
(State or other jurisdiction
 
(I.R.S. Employer
of incorporation or organization)
 
Identification No.)
     
8685 Northwest 53rd Terrace, Miami, Florida
 
33166
(Address of principal executive offices)
 
(Zip Code)
 
     
Registrant’s telephone number, including area code:
( 305) 593-0770
_________________________________
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
  x  Yes           o  No  
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
  o  Yes           o  No  
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
o    
Large accelerated filer
x     
Accelerated filer
       
o    
Non-accelerated filer
o  
Smaller reporting company
 
(Do not check if a smaller reporting company)
   
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
   o  Yes           x  No  
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
Common stock, $.10 par value: 5,608,872 shares outstanding at January 28, 2011
Class A common stock, $.10 par value: 9,862,628 shares outstanding at January 28, 2011

 
 
 

 

BENIHANA INC. AND SUBSIDIARIES

TABLE OF CONTENTS
                                                                                             
PART I
FINANCIAL INFORMATION
  PAGE
 
Item 1.
Financial Statements
 
       
   
Condensed Consolidated Balance Sheets (unaudited) at January 2, 2011 and March 28, 2010
2
       
   
Condensed Consolidated Statements of Income(Loss) (unaudited) for the Three and Ten Periods Ended January 2, 2011 and January 3, 2010
3
       
   
Condensed Consolidated Statements of Stockholders’ Equity (unaudited) for the Ten Periods Ended January 2, 2011 and January 3, 2010and January 3, 2010
4
       
   
Condensed Consolidated Statements of Cash Flows (unaudited) for the Ten Periods Ended January 2, 2011 and January 3, 2010
5
       
   
Notes to Condensed Consolidated Financial Statements (unaudited)
6
       
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
15
       
 
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
27
       
 
Item 4.
Controls and Procedures
28
       
PART II
OTHER INFORMATION
 
       
 
Item 1A.
Risk Factors
28
       
 
Item 5.
Other Information
 
       
 
Item 6.
Exhibits
29

 
- 1 -

 

BENIHANA INC. AND SUBSIDIARIES
 
PART I – FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS
 
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except share and per share information)

   
January 2,
   
March 28,
 
   
2011
   
2010
 
Assets
           
Current Assets:
           
     Cash and cash equivalents
  $ 3,380     $ 2,558  
     Receivables, net
    1,553       1,929  
     Inventories
    6,028       6,902  
     Income tax receivable
    1,980       1,327  
     Prepaid expenses and other current assets
    3,111       2,043  
     Investment securities available for sale - restricted
    600       608  
     Deferred income tax asset, net
    925       340  
Total current assets
    17,577       15,707  
                 
Property and equipment, net
    185,793       194,261  
Goodwill
    6,896       6,896  
Deferred income tax asset, net
    9,665       9,286  
Other assets, net
    5,617       7,940  
Total assets
  $ 225,548     $ 234,090  
                 
Liabilities, Convertible Preferred Stock and Stockholders’ Equity
               
Current Liabilities:
               
     Accounts payable
  $ 7,522     $ 5,262  
     Accrued expenses
    25,790       23,617  
     Accrued put option liability
    -       4,100  
     Borrowings under line of credit
    12,847       22,410  
Total current liabilities
    46,159       55,389  
                 
Deferred obligations under operating leases
    14,068       13,802  
Other long term liabilities
    1,118       1,560  
Total liabilities
    61,345       70,751  
                 
Commitments and contingencies (Notes 5 and 9)
               
                 
Convertible preferred stock - $1.00 par value; authorized -
               
     5,000,000 shares; Series B mandatory redeemable convertible
               
     preferred stock - authorized - 800,000 shares; issued and outstanding –
               
     800,000 shares, respectively, with a liquidation preference of $20 million
               
     plus accrued and unpaid dividends
    19,690       19,623  
                 
Stockholders’ Equity
               
     Common stock - $.10 par value; convertible into Class A common
               
          stock; authorized, 12,000,000 shares; issued and outstanding,
               
          5,608,872 and 5,647,780 shares, respectively
    561       564  
     Class A common stock - $.10 par value; authorized, 32,500,000 shares;
               
          issued and outstanding, 9,862,628 and 9,768,611 shares, respectively
    986       977  
     Additional paid-in capital
    71,381       70,589  
     Retained earnings
    71,551       71,598  
     Accumulated other comprehensive income (loss), net of tax
    34       (12 )
Total stockholders’ equity
    144,513       143,716  
Total liabilities, convertible preferred stock and stockholders' equity
  $ 225,548     $ 234,090  
                 
See accompanying notes to unaudited condensed consolidated financial statements.
               
                 

 
- 2 -

 

BENIHANA INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)
(In thousands, except per share information)
 
   
Three Periods Ended
   
Ten Periods Ended
 
   
January 2,
   
January 3,
   
January 2,
   
January 3,
 
   
2011
   
2010
   
2011
   
2010
 
                         
Revenues:
                       
     Restaurant sales
  $ 72,492     $ 69,971     $ 244,536     $ 234,425  
     Franchise fees and royalties
    403       407       1,318       1,273  
          Total revenues
    72,895       70,378       245,854       235,698  
                                 
                                 
Restaurant Expenses:
                               
     Cost of food and beverage sales
    17,582       16,964       59,681       55,968  
     Restaurant operating expenses
    46,703       46,986       159,131       159,903  
     Restaurant opening costs
    -       -       8       1,063  
     General and administrative expenses
    7,298       4,785       27,199       17,074  
     Impairment charges
    -       12,347       -       12,347  
          Total operating expenses
    71,583       81,082       246,019       246,355  
                                 
Income (Loss) from operations
    1,312       (10,704 )     (165 )     (10,657 )
     Interest expense, net
    (212 )     (440 )     (485 )     (1,244 )
                                 
Income (Loss) before income taxes
    1,100       (11,144 )     (650 )     (11,901 )
     Income tax expense (benefit)
    (1,079     (257 )     (1,436 )     (1,267 )
                                 
Net Income (Loss)
    2,179       (10,887 )     786       (10,634 )
     Less: Accretion of preferred stock issuance costs and
                               
          preferred stock dividends
    250       250       833       833  
                                 
Net income (loss) attributable to common stockholders
  $ 1,929     $ (11,137 )   $ (47 )   $ (11,467 )
                                 
Earnings (Loss) Per Share
                               
     Basic earnings (loss) per common share
  $ 0.12     $ (0.72 )   $ (0.00 )   $ (0.75 )
     Diluted earnings (loss) per common share
  $ 0.12     $ (0.72 )   $ (0.00 )   $ (0.75 )
                                 
See accompanying notes to unaudited condensed consolidated financial statements.
                 
                                 

 
- 3 -

 

BENIHANA INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
Ten Periods Ended January 2, 2011 and January 3, 2010
(In thousands, except share information)
 
                           
Accumulated
       
                           
Other
       
         
Class A
   
Additional
         
Comprehensive
   
Total
 
   
Common
   
Common
   
Paid-in
   
Retained
   
(Loss) Income,
   
Stockholders’
 
   
Stock
   
Stock
   
Capital
   
Earnings
   
Net of Tax
   
Equity
 
                                     
Balance, March 29, 2009
  $ 560     $ 970     $ 69,479     $ 81,625     $ (197 )   $ 152,437  
     Comprehensive loss:
                                               
          Net loss
                            (10,634 )             (10,634 )
               Net change in unrealized loss on
                                               
                    investment securities available for sale,
                                               
                    net of tax
                                    153       153  
               Total comprehensive loss
                                            (10,481 )
                                                 
     Issuance of 31,625 shares of common stock
                                               
          and 76,250 shares of Class A common
                                               
          stock from exercise of options
    3       7       552                       562  
     Dividends declared on Series B preferred stock
                            (766 )             (766 )
     Accretion of issuance costs on Series B
                                               
          preferred stock
                            (67 )             (67 )
     Stock-based compensation
                    379                       379  
     Excess tax benefit from stock option exercises
                    32                       32  
Balance, January 3, 2010
  $ 563     $ 977     $ 70,442     $ 70,158     $ (44 )   $ 142,096  
                                                 
 
                           
Accumulated
       
                           
Other
       
         
Class A
   
Additional
         
Comprehensive
   
Total
 
   
Common
   
Common
   
Paid-in
   
Retained
   
(Loss) Income,
   
Stockholders’
 
   
Stock
   
Stock
   
Capital
   
Earnings
   
Net of Tax
   
Equity
 
                                     
Balance, March 28, 2010
  $ 564     $ 977     $ 70,589     $ 71,598     $ (12 )   $ 143,716  
     Comprehensive loss:
                                               
          Net income
                            786               786  
               Net change in unrealized loss on
                                               
                    investment securities available for sale,
                                               
                    net of tax
                                    46       46  
               Total comprehensive loss
                                            (354 )
                                                 
     Issuance of 7,109 shares of common stock
                                               
          and 48,000 shares of Class A common
                                               
          stock from exercise of options
    1       5       286                       292  
     Conversion of 46,017 shares of common
                                               
          stock into 46,017 shares of Class A
                                            -  
          common stock
    (4 )     4                               -  
     Dividends declared on Series B preferred stock
                            (766 )             (766 )
     Accretion of issuance costs on Series B
                                               
          preferred stock
                            (67 )             (67 )
     Stock-based compensation
                    423                       423  
     Excess tax benefit from stock option exercises
                    83                       83  
Balance, January 2, 2011
  $ 561     $ 986     $ 71,381     $ 71,551     $ 34     $ 144,513  
                                                 
See accompanying notes to unaudited condensed consolidated financial statements.
                         
                                                 

 
- 4 -

 

BENIHANA INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
 
   
Ten Periods Ended
 
   
January 2,
   
January 3,
 
   
2011
   
2010
 
             
Operating Activities:
           
     Net (loss) income
  $ 786     $ (10,634 )
     Adjustments to reconcile net (loss) income to net cash provided by operating activities:
               
          Depreciation and amortization
    17,727       15,511  
          Non-cash impairment charges
    -       12,347  
          Stock-based compensation
    423       379  
          Excess tax benefit from stock option exercises
    (46 )     (32 )
          (Gain)/Loss on disposal of assets
    (46 )     1  
          Write-off of abandoned projects
    159       -  
          Deferred income taxes
    (996     18  
          Change in operating assets and liabilities that provided (used) cash:
               
               Receivables
    376       (115 )
               Inventories
    1,012       (1,247 )
               Prepaid expenses and other current assets
    (1,068 )     (1,484 )
               Income taxes and other long term liabilities
    (1,187 )     627  
               Other assets
    (178 )     325  
               Accounts payable
    2,231       2,487  
               Accrued expenses and deferred obligations under operating leases
    (1,779 )     3,000  
Net cash provided by operating activities
    17,414       21,183  
Investing Activities:
               
     Expenditures for property and equipment and computer software
    (6,791 )     (15,677 )
     Proceeds from sale of property and equipment and computer software
    48       -  
     Collection of insurance proceeds
    -       174  
     Sale of investment securities, available for sale, net
    86       353  
Net cash used in investing activities
    (6,657 )     (15,150 )
Financing Activities:
               
     Borrowings on line of credit
    80,759       73,003  
     Repayments on line of credit
    (90,322 )     (80,062 )
     Debt issuance costs
    -       (254 )
     Dividends paid on Series B preferred stock
    (747 )     (747 )
     Proceeds from issuance of common stock and Class A common stock upon exercise
               
          of stock options
    292       562  
     Excess tax benefit from stock option exercises
    83       32  
Net cash used in financing activities
    (9,935 )     (7,466 )
Net increase (decrease) in cash and cash equivalents
    822       (1,433 )
Cash and cash equivalents, beginning of period
    2,558       3,891  
Cash and cash equivalents, end of period
  $ 3,380     $ 2,458  
                 
Supplemental Disclosures of Cash Flow Information:
               
Cash paid during the ten periods:
               
     Interest
  $ 798     $ 1,009  
     Income taxes
    221       574  
Noncash investing and financing activities:
               
     Acquired property and equipment for which cash payments had not yet been made
  $ 458     $ 963  
     Accrued but unpaid dividends on the Series B preferred stock
    257       260  
     Change in unrealized loss on investment securities available for sale, net of tax
    46       153  
                 
See accompanying notes to unaudited condensed consolidated financial statements.
               

 
- 5 -

 

BENIHANA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.  
General

The accompanying condensed consolidated balance sheet as of March 28, 2010, which has been derived from audited financial statements, and the unaudited interim condensed consolidated financial statements of Benihana Inc. and Subsidiaries (“we, “our,” “us,” the “Company”) as of, and for the three and ten periods (twelve and forty weeks, respectively) ended, January 2, 2011 have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”), pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain information and footnotes normally included in financial statements prepared in accordance with US GAAP have been condensed or omitted. These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes thereto for the year ended March 28, 2010 appearing in our Annual Report on Form 10-K filed with the SEC.

The condensed consolidated financial statements include the assets, liabilities and results of operations of our wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

The preparation of financial statements in conformity with US GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

These unaudited interim condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of our financial position and results of operations. The results of operations for the three and ten periods ended January 2, 2011 are not necessarily indicative of the results to be expected for the full year.

We have a 52/53-week fiscal year. Our fiscal year ends on the Sunday occurring within the dates of March 26 and April 1. We divide the fiscal year into 13 four-week periods where the first fiscal quarter consists of 4 periods totaling 16 weeks and each of the remaining three quarters consists of 3 periods totaling 12 weeks each.  In the event of a 53-week year, the additional week is included in the fourth quarter of the fiscal year. This operating calendar provides for a consistent number of operating days within each period, as well as ensures that certain holidays significant to us occur consistently within the same fiscal quarters from year to year. Because of differences in the length of fiscal quarters, however, results of operations between the first quarter and the later quarters of a fiscal year are not comparable. Fiscal year 2010 and fiscal year 2011 each consist of 52 weeks. Fiscal year 2011 will end on March 27, 2011. Fiscal year 2010 ended on March 28, 2010.

Certain amounts in the three and ten periods ended January 3, 2010 have been reclassified to allocate certain marketing expenses as restaurant operating expenses. These marketing expenses were previously reflected as general and administrative expenses.  Management believes that this new presentation provides better comparison to our competitors. We reclassified $1.4 million and $5.7 million for the three and ten periods ended January 3, 2010, respectively.

2.  
Recently Issued Accounting Standards

In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2010-06 (“ASU 2010-06”) which requires new disclosures regarding recurring or nonrecurring fair value measurements. Under the ASU, entities will be required to separately disclose significant transfers into and out of Level 1 and Level 2 measurements in the fair value hierarchy and describe the reasons for the transfers. Entities will also be required to provide information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of Level 3 fair value measurements. In addition, entities must provide fair value measurement disclosures for each class of assets and liabilities. Entities must also provide disclosures about the valuation techniques used in determining fair value for Level 2 or Level 3 measurements. Our adoption of this ASU on March 29, 2010 did not have a material impact on our condensed consolidated financial statements.

 
- 6 -

 
BENIHANA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
In June 2009, the FASB updated ASC Topic 810 (“ASC 810”), “Consolidation” (previously SFAS No. 167) which amended certain guidance contained in FASB Interpretation No. 46(R) “Consolidation of Variable Interest Entities” for determining whether an entity is a variable interest entity and modified the methods allowed for determining the primary beneficiary of a variable interest entity. The amendments include: (1) the elimination of the exemption for qualifying special purpose entities, (2) a new approach for determining when an entity should consolidate a variable interest entity, and (3) changes relating to the required timing for reassessing when an entity should consolidate a variable interest entity. Our adoption of the provisions of ASC 810 on March 29, 2010 did not have a material impact on our condensed consolidated financial statements.

3.  
Inventories

Inventories consist of the following (in thousands):
 
 
 
January 2,
   
March 28,
 
   
2011
   
2010
 
             
Food and beverage
  $ 2,906     $ 2,794  
Supplies
    3,122       4,108  
                 
    $ 6,028     $ 6,902  
                 
 
4.  
Fair Value Measurements

The carrying amounts of cash and cash equivalents, receivables, accounts payable and accrued liabilities approximate fair value due to the short-term nature of the items as of January 2, 2011 and March 28, 2010. We believe that the carrying amount of our debt at January 2, 2011 and March 28, 2010 approximated fair value due to the variable rates associated with the debt instrument and the recent amendments to our line of credit agreement (refer to Note 5, Long-Term Debt).

As of January 2, 2011, we held certain publicly traded mutual funds that invest in debt and equity securities that are required to be measured at fair value on a recurring basis. We invest in these mutual funds to mirror and track the performance of the elections made by employees that participate in our deferred compensation plan. These mutual fund investments are classified as available for sale and are carried at fair value, with unrealized gains and losses reflected as a separate component of stockholders’ equity. We determined the fair value of our investment securities available for sale using quoted market prices (Level 1 in the fair value hierarchy).   

The following tables disclose, as of January 2, 2011 and March 28, 2010, our available for sale investment securities at both the cost basis and fair value by investment type. None of our available for sale investment securities were at a net loss position as of January 2, 2011 or March 28, 2010.
 
   
January 2, 2011
   
March 28, 2010
 
   
Cost
   
Fair value
   
Cost
   
Fair value
 
                         
Equity securities
  $ 361     $ 419     $ 382     $ 402  
Fixed income securities
    65       68       86       86  
Money market fund deposits
    113       113       120       120  
    $ 539     $ 600     $ 588     $ 608  
                                 
 
We periodically evaluate unrealized losses in our available for sale investment securities for other-than-temporary impairment using both qualitative and quantitative criteria and, as of January 2, 2011, determined that there was no other-than-temporary impairment.

 
- 7 -

 
BENIHANA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
Fair value measurements of nonfinancial assets and nonfinancial liabilities are primarily used in the valuation of our reporting units for the purpose of assessing goodwill impairment and the valuation of property and equipment when assessing long-lived asset impairment. None of our nonfinancial assets or nonfinancial liabilities were measured at fair value as of January 2, 2011 or March 28, 2010.

5.  
Long-Term Debt

We have a line of credit with Wachovia Bank, National Association (“Wachovia”), which we may draw upon as we deem advisable for working capital, capital expenditures and general corporate purposes. At the end of the second quarter of fiscal year 2010, we were determined to not be in compliance with certain of the financial covenants contained in the agreement governing the line of credit. In connection with the determination, during the third quarter of fiscal year 2010, the line of credit was amended to decrease our borrowing capacity under the line from $60.0 million to $40.5 million, effective immediately, and to $37.5 million at July 18, 2010. On January 2, 2011, the last day of the third quarter of fiscal year 2011, the amount available to borrow was further reduced to $32.5 million through maturity. Our borrowing capacity under the line of credit is also reduced on a dollar-for-dollar basis by the cumulative amount of any outstanding letters of credit, which totaled $1.3 million at January 2, 2011 and will be further reduced by 25% of any net cash proceeds we may receive in connection with any sale of our equity securities. The agreement governing our line of credit requires that we maintain certain financial ratios and profitability amounts and restricts the payment of cash dividends as well as the use of proceeds to purchase our stock. Borrowings under the line of credit are secured by the assets of Benihana Inc. (including first mortgages on all real estate owned by the Company). The line of credit provides for a commitment fee of 0.25% on the unused portion of the loan commitment and interest rates payable at 4.75% above the applicable LIBOR rate with a LIBOR floor of 1.0%. The line of credit provided for a minimum fixed charge coverage ratio of 1.10:1.00 through July 18, 2010, at which time it was increased to a minimum of 1.35:1.00, and a maximum leverage ratio of 5.00:1.00 through July 18, 2010 and 4.50:1.00 by the end of the second quarter of fiscal year 2011 through, and including, the third quarter of fiscal year 2011. All borrowings under the line of credit are scheduled to mature and become due on March 15, 2011. There are no scheduled payments prior to scheduled maturity; however, we may prepay outstanding borrowings prior to that date.

At January 2, 2011, we had $12.8 million of borrowings outstanding under the line of credit at an interest rate of 5.75%, and an available borrowing balance of $18.4 million. As of January 2, 2011, we were in compliance with the financial covenants of the agreement governing the line of credit.

We entered into an Amended and Restated Credit Agreement with Wells Fargo (as successor by merger to Wachovia Bank, National Association) on February 10, 2011. The new credit facility provides us a borrowing capacity of $30 million, with an option to increase the principal amount of the credit facility by $5.0 million to $35.0 million, subject to certain conditions. The Credit Facility is scheduled to mature on February 10, 2014. The credit facility is secured by the assets of the Company. There are no scheduled principal payments prior to maturity. The Company may, however, prepay outstanding borrowings prior to that date without penalty. The line of credit provides for an initial commitment fee of 0.5% on the unused portion of the loan commitment and an initial interest rate of 4.25% plus LIBOR. Both the commitment fee and the interest rate adjust based on a leverage ratio, as defined by the agreement. While providing for working capital, capital expenditures and general corporate purposes, the agreement requires that the Company maintains certain financial ratios and profitability amounts and restricts the amount of cash dividends paid and stock repurchases of the Company, as well as acquisitions and other investments.

6.  
Income Taxes

Ordinarily, the effective tax rate at the end of an interim period is calculated using an estimate of the annual effective tax rate expected to be applicable for the full fiscal year. However, when a reliable estimate cannot be made, the actual effective tax rate for the year-to-date may be the best estimate of the annual effective tax rate. For the three and ten periods ended January 2, 2011, we have used the actual effective year-to-date tax rate in calculating the interim effective tax rate as a reliable estimate of the annual effective tax rate cannot be made. During the three and ten periods ended January 2, 2011, our effective income tax rate was impacted by increasing tax credits and a reduction in book income.

 
- 8 -

 
BENIHANA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
We file income tax returns which are periodically audited by various federal and state jurisdictions. With few exceptions, we are no longer subject to federal and state income tax examinations for years prior to fiscal year 2007. As of January 2, 2011, we had $0.2 million of gross unrecognized tax benefits, most of which would impact the tax rate if recognized and an immaterial accrued for the payment of interest. We do not believe we have any potential liability for the payment of penalties. Of the total unrecognized tax benefits at January 2, 2011, we believe it is reasonably possible that this amount could be reduced by $0.1 million in the next twelve months due to the expiration of applicable statutes of limitations. As of March 28, 2010, we had $0.3 million of gross unrecognized tax benefits, all of which would impact the tax rate if recognized. Unrecognized tax benefits and related interest are generally classified as other long term liabilities in the accompanying condensed consolidated balance sheets. It is our continuing policy to recognize interest and penalties related to unrecognized tax benefits in income tax expense.

7.  
Earnings (Loss) Per Share

Basic earnings (loss) per common share is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding during each period.  The diluted earnings (loss) per common share computation includes dilutive common share equivalents issued under our various stock option plans and takes into account the conversion rights of our Series B preferred stock.

The components used in the computation of basic earnings (loss) per share and diluted earnings (loss) per share for the three and ten periods ended January 2, 2011 and January 3, 2010 are shown below (in thousands):

 
   
Three Periods Ended
   
Ten Periods Ended
 
 
 
January 2,
   
January 3,
   
January 2,
   
January 3,
 
   
2011
   
2010
   
2011
   
2010
 
                         
Net income (loss), as reported
  $ 2,179     $ (10,887 )   $ 786     $ (10,634 )
     Less:  Accretion of preferred stock issuance costs and
                               
          preferred stock dividends
    250       250       833       833  
Loss for computation of basic earnings (loss) per common
                               
     share
    1,929       (11,137 )     (47 )     (11,467 )
     Add:  Accretion of preferred stock issuance costs and
                               
          preferred stock dividends
    250       -       -       -  
Earnings (Loss) for computation of diluted earnings (loss)
                         
     per common share
  $ 2,179     $ (11,137 )   $ (47 )   $ (11,467 )
                                 
Weighted average number of common shares used in basic
    15,471       15,404       15,457       15,383  
     earnings (loss) per share effect of dilutive securities:
                               
          Stock options
    32       -       -       -  
          Series B preferred stock
    2,754       -       -       -  
Weighted average number of common shares and dilutive
                         
     potential common stock used in diluted earnings (loss) per share
    18,257       15,404       15,457       15,383  
                                 
 
In computing diluted earnings (loss) per share, the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued, and in computing the dilutive effect of convertible securities, the numerator is adjusted to add back any preferred stock dividends and any other changes in income or loss that would result from the conversion of those securities. In applying the if-converted method, conversion shall not be assumed for purposes of computing diluted earnings per share if the effect would be anti-dilutive.

For the three periods ended January 2, 2011, stock options to purchase approximately 0.5 million shares of common stock were excluded from the calculation of diluted earnings per share due to their anti-dilutive effect. Due to the net loss attributable to common shareholders for the ten periods ended January 2, 2011 and the three and ten periods ended January 3, 2010, all potentially dilutive shares were excluded from the denominator of the earnings per share calculation as including such shares would have been anti-dilutive. Similarly, the numerator was not adjusted to add back any preferred stock issuance costs or preferred stock dividends as including such amounts would have been anti-dilutive.

 
- 9 -

BENIHANA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
8.  
Stock-Based Compensation

On August 20, 2009, our stockholders approved an amendment to our 2007 Equity Incentive Plan. The amendment (i) increased the number of authorized shares of our Class A common stock available for issuance under the equity plan by 2,000,000 shares to an aggregate of 2,750,000 shares, (ii) increased the number of shares which may be issued under the equity plan upon the exercise of incentive stock options by 1,450,000 shares to an aggregate of  2,000,000 shares and (iii) increased the maximum number of shares for which an employee of the Company may be granted equity awards under the equity plan during any calendar year by 550,000 shares to 750,000 shares. As of January 2, 2011, 170,233 shares of restricted Class A common stock, net of forfeitures, and options to purchase 343,287 shares of Class A common stock, net of cancellations, have been granted under the equity plan. Accordingly, 2,236,480 shares remain available for future grants under the equity plan.

We recorded $0.2 million ($0.1 million, net of tax) and $0.1 million (less than $0.1 million, net of tax) in stock-based compensation expense during the three periods ended January 2, 2011 and January 3, 2010, respectively. We recorded $0.4 million ($0.2 million, net of tax) and $0.4 million ($0.2 million, net of tax) in stock-based compensation expense during the ten periods ended January 2, 2011 and January 3, 2010, respectively.

Stock Options

Options to purchase 90,000 and 60,000 shares of Class A common stock were granted during the ten periods ended January 2, 2011 and January 3, 2010, respectively. The following assumptions were used in the Black-Scholes option pricing model used in valuing options granted.

   
January 2,
 
January 3,
 
   
2011
 
2010
 
Risk free interest rate
    2.74%     3.90 %
Expected term
 
3 years
 
3 years
 
Expected dividend yield
    -     -  
Expected volatility
    79%     75 %
                 
 
The following is a summary of stock option activity for the ten periods ended January 2, 2011:
 
               
Weighted
       
         
Weighted
   
Average
       
         
Average
   
Remaining
   
Aggregate
 
         
Exercise
   
Contractual
   
Intrinsic
 
   
Shares
   
Price
   
Life
   
Value
 
         
(per share)
   
(in years)
   
(in thousands)
 
Outstanding at March 28, 2010
    953,713     $ 10.10       4.22     $ 208  
Granted
    90,000       7.55                  
Canceled/Expired
    (178,179 )     9.66                  
Exercised
    (55,109 )     5.29                  
Outstanding at January 2, 2011
    810,425     $ 10.24       5.60     $ 464  
Exercisable at January 2, 2011
    643,136     $ 10.75       4.66     $ 406  
                                 
 
The intrinsic value of a stock option is the amount by which the fair value of the underlying stock exceeds the exercise price of the option. For the ten periods ended January 2, 2011, the total intrinsic value of stock options exercised was less than $0.1 million. Upon the exercise of stock options, shares are issued from the Company’s authorized but unissued shares. At January 2, 2011, total unrecognized compensation cost related to non-vested stock-based compensation totaled $0.4 million and is expected to be recognized over a weighted average period of approximately 0.8 years.

 
- 10 -

BENIHANA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
Restricted Stock

The following is a summary of restricted stock activity for the ten periods ended January 2, 2011:
 
         
Weighted
 
         
Average
 
         
Grant Date
 
   
Shares
   
Fair Value
 
         
(per share)
 
             
Nonvested at March 28, 2010
    3,068     $ 10.35  
     Granted
    150,000       7.95  
     Forfeited
    (2,267 )     10.35  
     Vested
    -       -  
Nonvested at January 2, 2011
    150,801     $ 7.96  
                 
 
The aggregate intrinsic value of vested restricted stock awards at each of January 2, 2011 and March 28, 2010 was $0.2 million. At January 2, 2011, there was $1.1 million of unrecognized compensation cost related to restricted stock awards, which is expected to be recognized over a weighted average period of approximately 2.6 years.
 
9.  
Commitments and Contingencies

Acquisitions – Haru Holding Corp. - In December 1999, we completed the acquisition of 80% of the equity of Haru Holding Corp. ("Haru"). The acquisition was accounted for using the purchase method of accounting. Pursuant to the purchase agreement, at any time during the period from July 1, 2005 through September 30, 2005, the holders of the balance of Haru's equity (the “minority stockholders”) had a one-time option to sell their remaining shares to us (the "put option"). The exercise price under the put option was to be calculated as 4.5 times Haru's consolidated cash flow for the fiscal year ended March 27, 2005 less the amount of Haru's debt (as that term was defined in the purchase agreement) at the date of the computation. On July 1, 2005, all of the minority stockholders exercised the put option, and we acquired the remaining 20% of the equity of Haru.

On August 25, 2006, the minority stockholders commenced litigation against us in connection with the sale with complaints relating to, among other things, the calculation of the put option price. The suit (which was filed in the Supreme Court of the State of New York, County of New York, but was removed to the United States District Court for the Southern District of New York (the “Court”)) sought an award of $10.7 million, based on the minority stockholders’ own calculation of the put option price formula and actions allegedly taken by us to reduce the value of the put option. The suit also included claims for breach of fiduciary duty and breach of contract.

On December 19, 2007, the Court dismissed all of the claims against us, except for the breach of fiduciary duty and breach of contract claims. Under a decision issued by the Court on March 5, 2010, the price required to be paid by us to the minority stockholders was determined to be approximately the $3.7 million originally calculated by us. On April 2, 2010, the plaintiff appealed the Court’s decision. On October 13, 2010, the Court entered an Order requiring a closing within 30 days, upon which we were ordered to pay the put option price as determined by the Court. On November 10, 2010, we paid the amount owed and relieved any related outstanding liability. The outcome of the April 2010 appeal is still pending.

Other Litigation and Proceedings – During May 2010, the California Department of Alcoholic Beverage Control (the “Department”) notified us of proceedings against the Company based upon allegations that alcohol was served to underage guests in a RA Sushi location. In connection with one incident, a guest was subsequently involved in a fatal automobile accident. We have general liability insurance related to such claims. However, we cannot predict the outcome of the pending litigation or Department proceedings but currently intend to vigorously contest any extended suspension or revocation of the alcoholic beverage license for this location and the claims against us.

 
- 11 -

BENIHANA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

While we are involved in or subject to certain other routine claims incidental to our business or those otherwise covered by our insurance policies, we are not currently subject to any significant legal proceedings other than those described above.

We do not believe that the ultimate resolution of these matters will have a material adverse effect on our results of operations, financial condition or cash flows. However, the results of these matters cannot be predicted with certainty, and an unfavorable resolution of one or more of these matters could have a material adverse effect on our financial condition, results of operations or cash flows.

Supply Agreements – We have entered into non-cancellable national supply agreements for the purchase of certain beef and seafood items, as well as produce, oils and other items used in the normal course of business, at fixed prices for up to twelve-month terms. The purpose of the supply agreements is to reduce the potential impact of volatility in the cost of the commodities over the terms of the agreements. These supply agreements are not considered derivative contracts.

Other – Refer to Note 13, Resignation of Former Director and Executive Vice President – Operations and Former Vice President – Finance, Chief Financial Officer and Treasurer.

10.  
Restaurant Operating Expenses

Restaurant operating expenses consist of the following (in thousands):
 
   
Three Periods Ended
   
Ten Periods Ended
 
 
 
January 2,
   
January 3,
   
January 2,
   
January 3,
 
   
2011
   
2010
   
2011
   
2010
 
                         
Labor and related costs
  $ 23,803     $ 24,126     $ 81,403     $ 82,900  
Restaurant supplies
    2,020       2,103       6,245       6,539  
Credit card discounts
    1,475       1,395       4,871       4,549  
Advertising and promotional costs
    2,854       2,403       9,122       8,758  
Utilities
    2,104       1,870       8,195       7,087  
Occupancy costs
    4,731       4,796       16,064       16,104  
Depreciation and amortization
    4,399       4,456       15,227       14,571  
Other restaurant operating expenses
    5,317       5,837       18,004       19,395  
Total restaurant operating expenses
  $ 46,703     $ 46,986     $ 159,131     $ 159,903  
                                 
 
11.  
Impairment Charges

During the three periods ended January 3, 2010, we recorded impairment charges of $12.3 million ($11.8 million net of tax) comprised of $11.1 million associated with goodwill for the Benihana teppanyaki reporting unit and $1.2 million ($0.7 million net of tax) to write-down certain restaurants’ property and equipment to estimated fair value. For a complete discussion of the fiscal year 2010 impairment charges, please see Note 11 of the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended March 28, 2010. No such impairment charges were recorded during the three or ten periods ended January 2, 2011.

12.  
Segment Reporting

Our reportable segments are those that are based on our methods of internal reporting and management structure. We manage operations by restaurant concept.

 
- 12 -

BENIHANA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
Revenues for each of the segments consist of restaurant sales. Franchise revenues, while generated from Benihana franchises, have not been allocated to the Benihana teppanyaki segment but instead are reflected as corporate revenues.

The tables below present information about reportable segments (in thousands):
 
   
Three Periods Ended
 
   
January 2, 2011
 
   
Teppanyaki
   
RA Sushi
   
Haru
   
Corporate
   
Consolidated
 
                               
Revenues
  $ 49,306     $ 15,862     $ 7,324     $ 403     $ 72,895  
Depreciation and amortization
    3,149       804       449       223       4,625  
Income (loss) from operations
    5,551       721       720       (5,680 )     1,312  
Capital expenditures
    2,393       681       145       31       3,250  
                                         
 
   
Three Periods Ended
 
   
January 3, 2010
 
   
Teppanyaki
   
RA Sushi
   
Haru
   
Corporate
   
Consolidated
 
                               
Revenues
  $ 46,462     $ 16,105     $ 7,404     $ 407     $ 70,378  
Depreciation and amortization
    3,173       846       444       326       4,789  
Impairment charges
    11,796       256       295       -       12,347  
(Loss) income from operations
    (8,874 )     640       640       (3,110 )     (10,704 )
Capital expenditures
    2,056       382       287       -       2,725  
                                         
 
   
Ten Periods Ended
 
   
January 2, 2011
 
   
Teppanyaki
   
RA Sushi
   
Haru
   
Corporate
   
Consolidated
 
                               
Revenues
  $ 161,693     $ 57,727     $ 25,116     $ 1,318     $ 245,854  
Depreciation and amortization
    10,817       2,881       1,555       2,474       17,727  
Income (loss) from operations
    14,685       4,263       2,435       (21,548 )     (165 )
Capital expenditures
    4,892       1,098       596       205       6,791  
                                         
 
   
Ten Periods Ended
 
   
January 3, 2010
 
   
Teppanyaki
   
RA Sushi
   
Haru
   
Corporate
   
Consolidated
 
                               
Revenues
  $ 154,115     $ 55,283     $ 25,027     $ 1,273     $ 235,698  
Depreciation and amortization
    10,381       2,598       1,620       912       15,511  
Impairment charges
    11,796       256       295       -       12,347  
Income (loss) from operations
    (4,638 )     1,889       2,548       (10,456 )     (10,657 )
Capital expenditures, net of
                                       
     insurance proceeds
    10,028       4,292       778       405       15,503  
 
13.  
Resignation of Former Director and Executive Vice President – Operations and Former Vice President – Finance, Chief Financial Officer and Treasurer

Effective as of December 18, 2009, Taka Yoshimoto resigned from his positions as Director and Executive Vice President – Operations. In connection with Mr. Yoshimoto’s resignation, on December 22, 2009, we entered into an agreement with Mr. Yoshimoto which provides for, among other things, payment to Mr. Yoshimoto of $19,340 per month for twelve months commencing on January 15, 2010, and payment, on Mr. Yoshimoto’s behalf, of any premiums under the Consolidated Omnibus Budget Reconciliation Act of 1986 (“COBRA”) applicable to Mr. Yoshimoto’s health insurance coverage until December 15, 2010.  In consideration for such payments, Mr. Yoshimoto agreed, among other things, to release us and our affiliates from any and all claims which Mr. Yoshimoto may otherwise have against us or our affiliates.  Accordingly, during the three and ten periods ended January 3, 2010, we recognized a charge of $0.2 million in connection with the resignation of Taka Yoshimoto, included in marketing, general and administrative expenses in the accompanying condensed consolidated statements of income (loss).
 

 
- 13 -

BENIHANA INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
Effective as of January 13, 2010, Jose I. Ortega resigned from his positions as Vice President – Finance, Chief Financial Officer and Treasurer. In connection with Mr. Ortega’s resignation, on January 14, 2010, we entered into an agreement with Mr. Ortega pursuant to which Mr. Ortega agreed to provide consulting services to us with regard to accounting, SEC filings and other financial matters for ninety days. During the consulting period, we paid Mr. Ortega the base compensation payable to him at the time of his resignation, and we have agreed to pay Mr. Ortega $200,000 over the twelve-month period following the end of the consulting period. In addition, we will make payments, on behalf of Mr. Ortega, of any premiums under COBRA applicable to the health insurance coverage of Mr. Ortega and his qualified dependents until we make our final payment. In consideration for the payments to be made under the agreement, Mr. Ortega agreed, among other things, to release us and our affiliates from any and all claims which he might otherwise have against us or our affiliates. During the ten periods ended January 2, 2011, we recognized a charge of approximately $0.2 million upon conclusion of the consulting period.

14.  
Related Party Transaction

During fiscal year 2010, we engaged Snapper Creek Equity Management, LLC, a wholly-owned subsidiary of BFC (Snapper Creek), to provide management, financial advisory and other consulting services. For the ten periods ended January 2, 2011, we have incurred approximately $0.5 million in consulting fees. Effective November 30, 2010, we are no longer engaging Snapper Creek to provide any services.

During fiscal year 2010, we engaged Risk Management Services (RMS), an affiliate of BFC, to provide insurance and risk management services. As of January 2, 2011, we are no longer engaging RMS to provide any services.

15.  
Other Matters

Our board of directors is continuing to explore strategic alternatives available to us, including a possible sale of the Company, in order to maximize shareholder value. We have engaged Jefferies & Company, Inc. as our exclusive financial advisor in connection with a possible sale of the Company and Hughes Hubbard & Reed LLP as our outside counsel.  No decision has been made to engage in a transaction or transactions resulting from the board’s exploration of strategic alternatives.  There can be no assurance that we will elect to pursue any of the strategic alternatives we may consider nor that any transaction will occur or, if undertaken, the terms or timing thereof. There also can be no assurance that any such alternatives, if pursued and consummated, will improve the Company’s financial condition and operating results, or result in changes to the Company’s business plan or a sale of the Company. We do not intend to disclose developments with respect to the progress of this process until such time, if any, as the board has approved a transaction or otherwise deems disclosure appropriate.

16.  
Subsequent Events

We have completed an evaluation of subsequent events, and we believe that no material subsequent events have occurred since January 2, 2011 that required recognition or disclosure in our current period financial statements, other than those discussed herein.
 
 
- 14 -

 
BENIHANA INC. AND SUBSIDIARIES
 
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
OVERVIEW

Total revenues increased 3.6% and 4.3% in the three and ten periods ended January 2, 2011 compared to the corresponding periods a year ago. Net loss turned into a net income position in the three and ten periods ended January 2, 2011 compared to the corresponding periods a year ago. Earnings per share for the three periods ended January 2, 2011 increased to $0.12 from loss per share of $0.72 in the same period prior year. Earnings per share for the ten periods ended January 2, 2011 approximated break-even from a loss per share of $0.75 in the corresponding period a year ago.

Restaurant-level results for the three and ten periods ended January 2, 2011 continued to improve in a challenging economic environment. In response to the ongoing macroeconomic and industry challenges, we are actively managing our controllable expenses, and, in an effort to increase traffic, we continue to highlight the distinct nature of the guest experience with a new multi-media campaign at the Benihana teppanyaki concept and through a combination of value-based promotions, media advertising and local marketing initiatives at our RA Sushi and Haru concepts. We believe these initiatives were integral in the improvement of our restaurant operating results for the three and ten periods ended January 2, 2011 compared to the same period in the prior year.

Our core concept, the Benihana teppanyaki restaurant, offers teppanyaki-style Japanese cuisine in which fresh steak, chicken and seafood are prepared by a chef on a steel teppan grill at the center of the guests’ table. We believe that the Benihana style of presentation makes us a unique choice for guests, and guests who are seeking greater value for their dining budget appreciate the added entertainment provided by the chef cooking directly at their table. In addition to our Benihana teppanyaki restaurants, we also operate two other restaurant concepts offering Asian, predominately sushi, entrees.

During fiscal year 2010, we launched our Benihana Teppanyaki Renewal Program (“Renewal Program”). The Renewal Program focuses on improving guest experiences as they relate to value, image, quality, consistency and Japanese culture. We have elevated the quality of food and beverages in our Benihana teppanyaki restaurants. These improvements to our food and beverage offerings were designed to restore the quality of products to those historically offered and included upgrading the quality of many of our offerings, including tenderloin, chicken, scallops and shrimp. We have been able to implement these changes without increasing menu entrée prices as a result of our comprehensive purchasing effort. We also launched a new menu in an effort to increase the variety of our offerings by adding eight new items. Additionally, cooking methods have been modified to enhance the flavor of our entrees. Other enhancements to the dining experience include table top presentation, steps of service, red linen napkins, an enhanced focus on beverage offerings, including temperature controlled wine storage, and standardized dress attire for all Benihana teppanyaki chefs and restaurant staff. We are undertaking work at select restaurants on maximizing visibility with signage, including lighting the blue roofs where appropriate, and identifying opportunities for additional seating, particularly at our South Florida waterfront locations. Service standards were also improved through extensive staff training and re-engineering the roles and responsibilities of both the restaurant general manager and regional manager. Incentive compensation plans were put in place to reward the successful execution of these strategies, enhance staff productivity and improve guest satisfaction. In addition, the concept’s marketing and public relations activities have been substantially improved. These combined efforts are focused on increasing guest frequency, creating greater mindshare and ultimately bolstering restaurant sales at our flagship brand. The Renewal Program also addressed deferred maintenance at our restaurants as well as improvements to and retraining on our health and sanitation procedures.

As part of the Renewal Program, we are making changes to the dining experience so that we will not only continue to honor one of the world’s oldest cultures, but also solidify the concept’s reputation as being a celebration of Japanese heritage. We have hired an Executive Culinary Advisor, Hiroyuki Sakai, who is working with our newly promoted Executive Chef and eight regional chefs.

Additionally, we have launched several initiatives which are designed to create greater awareness for the concept and strengthen guest connectivity. In April 2009, we initiated the Chef’s Table marketing program, an email database which is being utilized for value-based promotions and building brand loyalty. The database is currently comprised of approximately 1,515,000 addresses. The Kabuki Kids program, initiated in September 2009 as our Children’s Club, now has approximately 180,000 participants and addresses this very important guest constituency, as children are often the prime drivers in bringing families to Benihana. In January 2010, we introduced our Chef’s Specials, which offer monthly specials comprised of a specific meal for 2 for a set price. We are also rolling out express lunch and happy hour options at certain of our Benihana locations.

 
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In light of prevailing economic conditions and costs incurred to implement the Renewal Program, beginning in fiscal year 2010 and for the ten periods ended January 2, 2011, we have focused on conserving cash and increasing operating efficiencies. However, as the overall economy is beginning to stabilize and the results of the Renewal Program are realized, we plan to resume restaurant expansion and may seek to selectively make acquisitions within our Benihana concept. Accordingly, with the assistance of The Parthenon Group, a strategic growth advisor, we have performed an in depth reevaluation and analysis of our site selection and other development guidelines in an effort to ensure that future development is in line with our overall growth strategy.

The RA Sushi concept offers sushi and a full menu of Pacific-Rim dishes in a fun-filled, high-energy environment designed to cater to a younger demographic. We believe that RA Sushi restaurants are suitable for a variety of real estate locations, including “life-style” centers, shopping centers and malls, as well as areas with a nightlife component. RA Sushi’s beverage sales represent 31.4% of restaurant sales. The RA Sushi restaurants are less expensive to build than our other two concepts and offer us an additional growth vehicle that we believe can succeed in various types of markets.

Our Haru concept features an extensive menu of traditional Japanese and Japanese fusion dishes in a modern, urban atmosphere. We believe that the Haru concept is well suited for densely populated cities with nearby shopping, office and tourist areas. The Haru concept generates high average restaurant sales volumes from take-out and delivery. Approximately 32.7% of our Haru locations’ revenues are derived from delivery and takeout sales.

The following tables reflect changes in our restaurant count during the three and ten periods ended January 2, 2011 and January 3, 2010:

 
   
Three Periods Ended
   
Ten Periods Ended
 
   
January 2, 2011
   
January 2, 2011
 
   
Teppanyaki
   
RA Sushi
   
Haru
   
Total
   
Teppanyaki
   
RA Sushi
   
Haru
   
Total
 
                                                 
Restaurant count,
                                               
     beginning of period
    63       25       9       97       63       25       9       97  
          Openings
    -       -       -       -       -       -       -       -  
          Closings
    -       -       -       -       -       -       -       -  
Restaurant count,
                                                               
     end of period
    63       25       9       97       63       25       9       97  
                                                                 
 
   
Three Periods Ended
   
Ten Periods Ended
 
   
January 3, 2010
   
January 3, 2010
 
   
Teppanyaki
   
RA Sushi
   
Haru
   
Total
   
Teppanyaki
   
RA Sushi
   
Haru
   
Total
 
                                                 
Restaurant count,
                                               
     beginning of period
    65       24       9       98       64       22       9       95  
          Openings
    -       1       -       1       1       3       -       4  
          Closings
    (1 )     -       -       (1 )     (1 )     -       -       (1 )
Restaurant count,
                                                               
     end of period
    64       25       9       98       64       25       9       98  
                                                                 
 
As of January 2, 2011, there were also 20 franchised Benihana teppanyaki restaurants operating in the United States, Latin America and the Caribbean.

Our board of directors is continuing to explore strategic alternatives available to us, including a possible sale of the Company, in order to maximize shareholder value. We have engaged Jefferies & Company, Inc. as our exclusive financial advisor in connection with a possible sale of the Company and Hughes Hubbard & Reed LLP as our outside counsel.  No decision has been made to engage in a transaction or transactions resulting from the board’s exploration of strategic alternatives.  There can be no assurance that we will elect to pursue any of the strategic alternatives we may consider nor that any transaction will occur or, if undertaken, the terms or timing thereof. There also can be no assurance that any such alternatives, if pursued and consummated, will improve the Company’s financial condition and operating results, or result in changes to the Company’s business plan or a sale of the Company. We do not intend to disclose developments with respect to the progress of this process until such time, if any, as the board has approved a transaction or otherwise deems disclosure appropriate.

 
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OPERATING RESULTS

Our revenues consist of sales of food and beverages at our restaurants and licensing fees from franchised restaurants. Cost of restaurant food and beverages sold represents the direct cost of the ingredients for the prepared food and beverages sold.  Restaurant operating expenses consist of direct and indirect labor, occupancy costs, advertising and other costs that are directly attributed to each restaurant location. Restaurant opening costs include rent incurred during the development period, as well as labor, training expenses and certain other pre-opening charges which are expensed as incurred.

Restaurant revenues and expenses are dependent upon a number of factors, including the number of restaurants in operation, restaurant patronage and the average check amount. Expenses are additionally dependent upon commodity costs, average wage rates, marketing costs and other costs of administering restaurant operations.

Three Periods Ended January 2, 2011 Compared to January 3, 2010:

The following tables show our operating results, as well as our operating expenses as a percentage of restaurant sales, for the three periods ended January 2, 2011 and January 3, 2010 (dollar amounts in thousands):

                              Three periods ended January 2, 2011              
   
Teppanyaki
   
RA Sushi
   
Haru
   
Corporate
   
Consolidated
 
Revenues:
                                                           
     Restaurant sales
  $ 49,306       100.0 %   $ 15,862       100.0 %   $ 7,324       100.0 %   $ -       -     $ 72,492       100.0 %
     Franchise fees and royalties
    -               -               -               403               403          
                    Total revenues
    49,306               15,862               7,324               403               72,895          
                                                                                 
Restaurant expenses:
                                                                               
     Cost of food and beverag