BENIHANA INC - FORM 10-Q - February 8, 2012

Attached files

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EXCEL - IDEA: XBRL DOCUMENT - BENIHANA INC	Financial_Report.xls
EX-31.2 - EXHIBIT 31.2 - BENIHANA INC	ex31-2.htm
EX-31.1 - EXHIBIT 31.1 - BENIHANA INC	ex31-1.htm
EX-32.2 - EXHIBIT 32.2 - BENIHANA INC	ex32-2.htm
EX-32.1 - EXHIBIT 32.1 - BENIHANA INC	ex32-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended January 1, 2012

o	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 of incorporation or organization)	(I.R.S. Employer Identification No.)

8750 Northwest 36th Street, Suite 300, Miami, Florida	33178
(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).

x 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: 17,923,902 shares outstanding at January 27, 2012

BENIHANA INC. AND SUBSIDIARIES

TABLE OF CONTENTS

			PAGE
PART I	FINANCIAL INFORMATION
	Item 1.	Financial Statements

		Condensed Consolidated Balance Sheets (unaudited) at January 1, 2012 and March 27, 2011	2

		Condensed Consolidated Statements of Income (Loss) (unaudited) for the Three and Ten Periods Ended January 1, 2012 and January 2, 2011	3

		Condensed Consolidated Statements of Stockholders’ Equity (unaudited) for the Ten Periods Ended January 1, 2012 and January 2, 2011	4

		Condensed Consolidated Statements of Cash Flows (unaudited) for the Ten Periods Ended January 1, 2012 and January 2, 2011	5

		Notes to Condensed Consolidated Financial Statements (unaudited)	6

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	14

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	26

	Item 4.	Controls and Procedures	27

PART II	OTHER INFORMATION

	Item 1.	Legal Proceedings	27

	Item 1A.	Risk Factors	27

	Item 6.	Exhibits	28

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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 1,			March 27,
	2012			2011
Assets
Current Assets:
Cash and cash equivalents	$	16,226		$	4,038
Receivables, net		1,659			2,207
Inventories		5,543			5,668
Income tax receivable		356			515
Prepaid expenses and other current assets		3,964			1,802
Investment securities available for sale - restricted		502			619
Deferred income tax asset, net		1,178			322
Total current assets		29,428			15,171

Property and equipment, net		176,207			182,992
Goodwill		6,896			6,896
Deferred income tax asset, net		10,236			10,053
Other assets, net		5,206			5,770
Total assets	$	227,973		$	220,882

Liabilities, Convertible Preferred Stock and Stockholders’ Equity
Current Liabilities:
Accounts payable	$	12,704		$	8,121
Accrued expenses		26,973			25,346
Total current liabilities		39,677			33,467

Deferred obligations under operating leases		15,039			14,268
Borrowings under line of credit		-			5,689
Other long term liabilities		733			1,025
Total liabilities		55,449			54,449

Commitments and contingencies (Notes 6 and 11)

Convertible preferred stock - $1.00 par value; authorized -
5,000,000 shares; Series B mandatory redeemable convertible preferred
stock - authorized, issued and oustanding - 0 and 800,000 shares, respectively		-			19,710

Stockholders’ Equity
Common stock - $.10 par value; convertible into Class A common
stock; authorized - 24,000,000 and 12,000,000 shares, respectively; issued and
oustanding - 17,900,568 and 5,552,747 shares, respectively		1,790			555
Class A common stock - $.10 par value; authorized - 0 and 32,500,000 shares,
respectively; issued and outstanding - 0 and 10,552,378 shares, respectively		-			1,055
Additional paid-in capital		95,875			73,601
Retained earnings		75,325			71,849
Treasury stock, at cost - 56,042 and 46,667 shares, respectively		(482	)		(383	)
Accumulated other comprehensive income, net of tax		16			46
Total stockholders’ equity		172,524			146,723
Total liabilities, convertible preferred stock and stockholders' equity	$	227,973		$	220,882

See accompanying notes to unaudited condensed consolidated financial statements.

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BENIHANA INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)

(In thousands, except per share information)

	Three Periods Ended					Ten Periods Ended
	January 1,		January 2,			January 1,		January 2,
	2012		2011			2012		2011

Revenues:
Restaurant sales	$	76,676	$	72,492		$	258,465	$	244,536
Franchise fees and royalties		327		403			1,323		1,318
Total revenues		77,003		72,895			259,788		245,854


Costs and Expenses:
Cost of food and beverage sales		18,911		17,582			64,384		59,681
Restaurant operating expenses		48,745		46,703			164,930		159,131
Restaurant opening costs		-		-			-		8
General and administrative expenses		7,749		7,298			25,604		27,199
Total operating expenses		75,405		71,583			254,918		246,019

Income (Loss) from operations		1,598		1,312			4,870		(165	)
Interest expense, net		94		212			350		485

Income (Loss) before income taxes		1,504		1,100			4,520		(650	)
Income tax provision (benefit)		465		(1,079	)		604		(1,436	)


Net Income		1,039		2,179		3,916		786
Less: Accretion of preferred stock issuance costs and
preferred stock dividends		-		250		440		833

Net income (loss) attributable to common stockholders	$	1,039	$	1,929	$	3,476	$	(47	)

Earnings (Loss) Per Share
Basic earnings per common share	$	0.06	$	0.12	$	0.21	$	(0.00	)
Diluted earnings per common share	$	0.06	$	0.12	$	0.20	$	(0.00	)

Basic weighted average shares outstanding		17,882		15,471		16,950		15,457
Diluted weighted average shares outstanding		17,928		18,257		16,993		15,457

See accompanying notes to unaudited condensed consolidated financial statements.

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BENIHANA INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(In thousands, except share information)

																Accumulated
																Other
				Class A			Additional									Comprehensive			Total
	Common			Common			Paid-in			Retained			Treasury			(Loss) Income,			Stockholders’
	Stock			Stock			Capital			Earnings			Stock			Net of Tax			Equity

Balance, March 28, 2010	$	564		$	977		$	70,589		$	71,598		$	-		$	(12	)	$	143,716
Comprehensive income:
Net income											786									786
Net decrease in unrealized loss on investment securities available for sale, net of tax																	46			46
Total comprehensive loss																				832
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		(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
Tax benefit from stock option exercises								83												83
Balance, January 2, 2011	$	561		$	986		$	71,381		$	71,551		$	-		$	34		$	144,513

																Accumulated
																Other
				Class A			Additional									Comprehensive			Total
	Common			Common			Paid-in			Retained			Treasury			Income,			Stockholders’
	Stock			Stock			Capital			Earnings			Stock			Net of Tax			Equity

Balance, March 27, 2011	$	555		$	1,055		$	73,601		$	71,849		$	(383	)	$	46		$	146,723
Comprehensive income:
Net income											3,916									3,916
Net decrease in unrealized gain on
investment securities available for sale,
net of tax																	(30	)		(30	)
Total comprehensive income																				3,886
Issuance of 165,000 shares of restricted Class A
common stock					17			(17	)											-
Issuance of 27,866 shares of common stock
and 20,000 shares of Class A common
stock from exercise of options		3			2			340												345
Conversion of 228,052 shares of common stock
into 228,052 shares of Class A common stock		(22	)		22															-
Treasury stock withheld for payroll taxes upon
vesting of restricted shares - 9,375 shares
Class A common stock														(99	)					(99	)
Conversion of 800,000 shares of Series B
preferred stock into 1,582,577 shares of
common stock		158						19,598												19,756
Reclassification of 10,965,430 shares of Class A
common stock into 10,965,430 shares of		1,096			(1,096	)														-
common stock
Dividends declared on Series B preferred stock											(406	)								(406	)
Accretion of issuance costs on Series B
preferred stock											(34	)								(34	)
Stock-based compensation								2,306												2,306
Tax benefit from stock option exercises								10												10
Tax benefit from vesting of restricted Class A
common stock								37												37
Balance, January 1, 2012	$	1,790		$	-		$	95,875		$	75,325		$	(482	)	$	16		$	172,524

See accompanying notes to unaudited condensed consolidated financial statements.

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BENIHANA INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)

	Ten Periods Ended
	January 1,			January 2,
	2012			2011

Operating Activities:
Net income	$	3,916		$	786
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		15,027			17,142
Amortization of deferred debt issuance costs		200			585
Stock-based compensation		2,306			423
Tax benefit from stock option exercises		(10	)		(46	)
Tax benefit from vesting of restricted Class A common stock		(37	)		-
Gain on disposal of assets		-			(46	)
Write-off of abandoned projects		-			159
Deferred income taxes		(1,016	)		(996	)
Change in operating assets and liabilities that provided (used) cash:
Receivables		548			376
Inventories		125			1,012
Prepaid expenses and other current assets		(2,162	)		(1,068	)
Income taxes and other long term liabilities		326			(1,187	)
Other assets		133			(178	)
Accounts payable		4,411			2,231
Accrued expenses and deferred obligations under operating leases		1,467			(1,779	)
Net cash provided by operating activities		25,234			17,414
Investing Activities:
Expenditures for property and equipment and computer software		(7,084	)		(6,791	)
Proceeds from sale of property and equipment and computer software		-			48
Sale of investment securities, available for sale, net		64			86
Net cash used in investing activities		(7,020	)		(6,657	)
Financing Activities:
Borrowings on line of credit		22,746			80,759
Repayments on line of credit		(28,435	)		(90,322	)
Dividends paid on Series B preferred stock		(630	)		(747	)
Payment by the Company for payroll taxes withheld from the employee by withholding
Class A common stock as treasury shares upon vesting of restricted shares		(99	)		-
Proceeds from issuance of common stock and Class A common stock upon exercise
of stock options		345			292
Tax benefit from stock option exercises		10			83
Tax benefit from vesting of restricted Class A common stock		37			-
Net cash used in financing activities		(6,026	)		(9,935	)
Net increase in cash and cash equivalents		12,188			822
Cash and cash equivalents, beginning of period		4,038			2,558
Cash and cash equivalents, end of period	$	16,226		$	3,380

Supplemental Disclosures of Cash Flow Information:
Cash paid during the ten periods:
Interest	$	137		$	798
Income taxes		1,510			221
Noncash investing and financing activities:
Acquired property and equipment for which cash payments had not yet been made	$	1,710		$	458
Conversion of Series B preferred stock into Common Stock		(19,756	)		-
Reclassification of Class A Common Stock to Common Stock		(1,096	)		-
Accrued but unpaid dividends on the Series B preferred stock		-			257
Change in unrealized (gain) loss on investment securities available for sale, net of tax		(30	)		46

See accompanying notes to unaudited condensed consolidated financial statements.

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BENIHANA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

General

The accompanying condensed consolidated balance sheet as of March 27, 2011, 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 January 1, 2012, and for the three and ten periods (twelve and forty weeks) ended January 1, 2012 and 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 27, 2011 appearing in our Annual Report on Form 10-K filed with the SEC.

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 1, 2012 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 our operations 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 2012 consists of 53 weeks and fiscal year 2011 consists of 52 weeks. Fiscal year 2012 will end on April 1, 2012. Fiscal year 2011 ended on March 27, 2011.

2.	Recently Issued Accounting Standards

In June 2011, the Financial Accounting Standards Board (FASB) issued a new accounting standard on the presentation of comprehensive income. The new standard requires the presentation of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. We will adopt this new presentation standard as of the beginning of fiscal year 2013. The adoption of this standard will only impact the presentation of our financial statements and will not impact our consolidated financial position or results of operations.

In September 2011, the FASB issued guidance which will allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under these amendments, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The guidance includes a number of events and circumstances for an entity to consider in conducting the qualitative assessment. We will adopt this guidance in the third quarter of fiscal year 2013, which coincides with our fiscal year 2013 annual goodwill impairment test. We do not expect this guidance to have a material impact on our consolidated financial position or results of operations.

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BENIHANA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

3.	Reclassification of Class A Common Stock

On November 17, 2011, at a special meeting of stockholders, the stockholders approved a proposal to amend and restate the Company’s Certificate of Incorporation, pursuant to which (a) each share of Class A Common Stock of the Company, par value $0.10 per share (the “Class A Common Stock”), would be reclassified as and changed into one share of Common Stock of the Company, par value $0.10 per share (the “Common Stock”); (b) the class of Class A Common Stock (of which 32,500,000 shares were authorized) would be eliminated; and (c) the number of authorized shares of Common Stock would be increased from 12,000,000 to 24,000,000 shares. On November 29, 2011, following the certification of the final results of the voting at the special meeting, the Amended and Restated Certificate of Incorporation was filed with the Secretary of State of the State of Delaware and is now effective.

As a result of the reclassification and the other changes described above and effected by the Amended and Restated Certificate of Incorporation, each share of Class A Common Stock has been reclassified as and changed into one share of Common Stock. As a further result of such changes, shares of the united class of Common Stock have one vote per share on all matters submitted to the Company’s stockholders, including the election of directors. The former Class A Common Stock had the right to 1/10 of a vote per share when voting together with the Common Stock on all matters except for the election of directors, with respect to which the shares of the former Class A Common Stock voted separately as a class to elect 25% of the members of the board of directors. In addition, all holders of the united class of Common Stock will vote as a single class. Holders of the former Class A Common Stock and the Common Stock were previously entitled to separate class voting rights in certain circumstances as required by law, and those class voting rights were eliminated with the reclassification.

Effective November 30, 2011, all shares of the Common Stock began trading as a single class on the Nasdaq Global Select Market under the ticker symbol “BNHN.” As a result of the reclassification, trading of the Class A Common Stock under the ticker symbol “BNHNA” was suspended following the close of the Nasdaq Global Select Market on November 29, 2011.

Additionally, our shareholder rights plan, under which a preferred share purchase right is represented by outstanding shares of our Common Stock and Class A Common Stock, expired automatically upon the Company’s Amended and Restated Certificate of Incorporation becoming effective.

4.	Inventories

Inventories consist of the following (in thousands):

	January 1,		March 27,
	2012		2011

Food and beverage	$	2,922	$	2,889
Supplies		2,621		2,779

	$	5,543	$	5,668

5.	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 1, 2012 and March 27, 2011. We believe that the carrying amount of our debt at March 27, 2011 approximated fair value due to the variable rates associated with the debt instrument and the amendment to our line of credit agreement in fiscal year 2011 (refer to Note 6, Long-Term Debt). We had no borrowings outstanding under the credit facility as of January 1, 2012.

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BENIHANA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

As of January 1, 2012, we held certain publicly traded mutual funds that invest in debt and equity securities, included in investment securities available for sale – restricted in our accompanying condensed consolidated balance sheets, 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 1, 2012 and March 27, 2011, 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 in a material loss position as of January 1, 2012 or March 27, 2011.

	January 1, 2012				March 27, 2011
	Cost		Fair value		Cost		Fair value

Equity securities	$	387	$	400	$	360	$	439
Fixed income securities		64		69		65		67
Money market fund deposits		33		33		113		113
	$	484	$	502	$	538	$	619

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 1, 2012, determined that there was no material other-than-temporary impairment.

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 adjusted to fair value during the ten periods ended January 1, 2012.

6.	Long-Term Debt

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 credit facility provides us a borrowing capacity of $30.0 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 a variable interest rate on outstanding balances benchmarked to the prime rate in the United States or to the London interbank offering rate. Both the commitment fee and the interest rate adjust based on a leverage ratio, as defined by the amended and restated agreement. While providing for working capital, capital expenditures and general corporate purposes, the amended and restated agreement requires that the Company maintain 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. We intend to request a waiver or modification of these restrictions prior to the cumulative dividend payment exceeding the limit.

At January 1, 2012, we had no borrowings outstanding under the line of credit. Our borrowing capacity under the line of credit is reduced on a dollar-for-dollar basis by the cumulative amount of any outstanding letters of credit, which totaled $1.7 million at January 1, 2012, resulting in an available borrowing balance of $28.3 million. As of January 1, 2012, we were in compliance with the financial and non-financial covenants of the amended and restated agreement governing the line of credit.

7.	Convertible Preferred Stock

During the ten periods ended January 1, 2012, the holder of the preferred stock converted 800,000 shares of the Series B preferred stock into 1,582,577 shares of common stock. As of January 1, 2012, there are no outstanding shares of Series B preferred stock.

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BENIHANA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

8.	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 1, 2012, 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 1, 2012, our effective income tax rate was unfavorably impacted as compared to the statutory rates by adjustments of approximately $0.3 million to reconcile the provision to recently filed tax returns, offset by the level of tax credits relative to taxable income.

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 1, 2012, we had $0.3 million of gross unrecognized tax benefits related to uncertain tax positions, all of which would impact the tax rate if recognized. The amount accrued for the payment of interest was not significant, and we do not believe we have any potential liability for the payment of penalties. Of the total unrecognized tax benefits at January 1, 2012, we believe it is reasonably possible that this amount could be reduced by less than $0.1 million in the next twelve months due to the expiration of applicable statutes of limitations. As of March 27, 2011, we had $0.2 million of gross unrecognized tax benefits, all of which would impact the tax rate if recognized. Unrecognized tax benefits and related interest are 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.

In August 2011, the Internal Revenue Service commenced an audit of the Company's March 29, 2009 federal income tax return. In January 2012, the Florida Department of Revenue commenced an audit of our March 28, 2010 state income tax return. No assessments have yet been made as a result of either audit.

9.	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, during the periods in which shares of such preferred stock were outstanding.

The components used in the computation of basic earnings (loss) per common share and diluted earnings (loss) per common share for the three and ten periods ended January 1, 2012 and January 2, 2011 are shown below (in thousands):

	Three Periods Ended				Ten Periods Ended
	January 1,		January 2,		January 1,		January 2,
	2012		2011		2012		2011

Net income, as reported	$	1,039	$	2,179	$	3,916	$	786
Less: Accretion of preferred stock issuance costs and preferred
stock dividends		-		250		440		833
Income (Loss) for computation of basic earnings (loss) per common share		1,039		1,929		3,476		(47	)
Add: Accretion of preferred stock issuance costs and preferred
stock dividends		-		250		-		-
Income (Loss) for computation of diluted earnings (loss) per common share	$	1,039	$	2,179	$	3,476	$	(47	)

Weighted average number of common shares for comutation of basic
earnings (loss) per share		17,882		15,471		16,950		15,457
Effect of dilutive securities:
Stock options		46		32		43		-
Series B preferred stock		-		2,754		-		-
Weighted average number of common shares and dilutive potential
common stock for computation of diluted earnings (loss) per share		17,928		18,257		16,993		15,457

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BENIHANA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

In computing diluted earnings 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 and ten periods ended January 1, 2012, stock options to purchase approximately 0.4 million shares of common stock were excluded from the calculation of diluted earnings per share due to their anti-dilutive effect. For the ten periods ended January 1, 2012, conversion of the convertible preferred stock was not assumed for purposes of computing diluted earnings per share since the effect would have been anti-dilutive. The impact of the actual conversion of the convertible preferred stock is fully included as shares outstanding in the calculation of basic and diluted earnings per share for the three periods ended January 1, 2012, and included as shares outstanding in the calculation of basic and diluted earnings per share for the ten periods ended January 1, 2012, on a weighted average basis. 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, all potentially dilutive shares were excluded from the denominator of the loss 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.

10.	Stock-Based Compensation

Our 2007 Equity Incentive Plan, as amended, authorizes the issuance of an aggregate of 2,750,000 shares of our common stock under the equity plan, authorizes the issuance upon the exercise of incentive stock options of an aggregate of 2,000,000 share of common stock and limits 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 to 750,000 shares. As of January 1, 2012, 810,233 shares of restricted common stock, net of forfeitures, and options to purchase 453,600 shares of common stock, net of cancellations, have been granted under the equity plan. Accordingly, 1,486,167 shares remain available for future grants under the equity plan.

We recorded $0.4 million ($0.2 million, net of tax) and $0.2 million ($0.1 million, net of tax) in stock-based compensation expense during the three periods ended January 1, 2012 and January 2, 2011, respectively. We recorded $2.3 million ($1.4 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 1, 2012 and January 2, 2011, respectively.

Stock Options

No stock options were granted during the ten periods ended January 1, 2012. The following is a summary of stock option activity for the ten periods ended January 1, 2012:

						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
				Exercise		Contractual		Intrinsic
	Shares			Price		Life		Value
				(per share)		(in years)		(in thousands)
Outstanding at March 27, 2011		801,800		$	10.29		5.42	$	514
Granted		-			-
Canceled/Expired		(31,450	)		9.03
Exercised		(47,866	)		7.20
Outstanding at January 1, 2012		722,484		$	10.55		4.60	$	1,161
Exercisable at January 1, 2012		692,484		$	10.66		5.04	$	1,080

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BENIHANA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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 1, 2012, the total intrinsic value of stock options exercised was $0.1 million. Upon the exercise of stock options, shares are issued from the Company’s authorized but unissued shares. At January 1, 2012, total unrecognized stock-based compensation cost related to non-vested stock options totaled less than $0.1 million and is expected to be recognized over approximately 0.7 years.

Restricted Stock

The following is a summary of restricted stock activity for the ten periods ended January 1, 2012:

				Weighted
				Average
				Grant Date
	Shares			Fair Value
				(per share)

Nonvested at March 27, 2011		472,917		$	8.12
Granted		165,000			7.64
Forfeited		-			-
Vested		(52,500	)		8.53
Nonvested at January 1, 2012		585,417		$	7.95

At January 1, 2012, there was $1.4 million of unrecognized compensation cost related to restricted stock awards, which is expected to be recognized over approximately 1.2 years.

11.	Commitments and Contingencies

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. The Department issued a decision imposing a 30 day suspension of the alcoholic beverage license. We will vigorously contest the suspension of the alcoholic beverage license for this location and the claim against us. While under appeal by us, the suspension is stayed, and we are permitted to continue operating under our alcoholic beverage license. In one incident, on which a claim had been filed against us, a guest was subsequently involved in a fatal automobile accident. In July 2011, a jury returned a verdict for which we were found to be 30% responsible, resulting in a liability of approximately $0.2 million. We have general liability insurance coverage for such claims, subject to certain retention levels.

The Company has been named in certain litigation involving wage and hour laws in both California and New York. The Company intends to vigorously defend these claims. The cases are currently under review to determine if they will be certified as class actions, and it is not possible to determine a probable outcome at this time.

We are not subject to any other significant pending legal proceedings, other than ordinary routine claims incidental to our business or those otherwise covered by our insurance policies.

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 fifteen-month terms. The purpose of the supply agreements is to reduce the potential impact of the volatility in the cost of the commodities over the terms of the agreements. These supply agreements are not considered derivative contracts.

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BENIHANA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Lease Agreements – The majority of our Company-owned restaurants are located in leased properties, generally subject to a base lease term and one or more renewal options. We monitor lease expiration dates and routinely execute renewal options or enter into negotiations for lease extensions. We are currently in discussions with the landlord for one location, whose lease expires in June 2012. The landlord has indicated that a major renovation is planned for the complex in which this restaurant is located and that a short-term lease extension will likely be granted while plans for the major renovation are being finalized. We are currently in discussion with the landlord to come to a long-term agreement, which would include a major remodel of the restaurant. If the landlord ultimately determines that we will not be incorporated in the long-term plans for the space, we believe we will be able to identify alternate sites within the trade area for this restaurant.

12.	Restaurant Operating Expenses

Restaurant operating expenses consist of the following (in thousands):

	Three Periods Ended				Ten Periods Ended
	January 1,		January 2,		January 1,		January 2,
	2012		2011		2012		2011

Labor and related costs	$	25,438	$	23,803	$	85,223	$	81,403
Restaurant supplies		1,834		2,020		6,176		6,245
Credit card discounts		1,317		1,475		4,906		4,871
Advertising and promotional costs		2,750		2,854		9,740		9,122
Utilities		2,343		2,104		8,640		8,195
Occupancy costs		5,033		4,731		16,798		16,064
Depreciation and amortization		4,476		4,399		14,803		15,227
Other restaurant operating expenses		5,554		5,317		18,644		18,004
Total restaurant operating expenses	$	48,745	$	46,703	$	164,930	$	159,131

An amount equal to the estimated food cost of certain promotional offerings, such as The Chef’s Table gift certificate award, is recorded as advertising and promotional costs with a corresponding reduction to cost of food in the accompanying condensed consolidated financial statements.

13.	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.

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 1, 2012
	Teppanyaki		RA Sushi		Haru		Corporate			Consolidated

Revenues	$	52,657	$	16,625	$	7,394	$	327		$	77,003
Depreciation and amortization		3,208		829		447		63			4,547
Income (loss) from operations		5,920		1,081		906		(6,309	)		1,598
Capital expenditures		3,033		125		30		38			3,226

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BENIHANA INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

	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		72			4,474
Income (loss) from operations		5,551		721		720		(5,680	)		1,312
Capital expenditures		2,393		681		145		31			3,250

	Ten Periods Ended
	January 1, 2012
	Teppanyaki		RA Sushi		Haru		Corporate			Consolidated

Revenues	$	173,946	$	59,979	$	24,540	$	1,323		$	259,788
Depreciation and amortization		10,537		2,796		1,500		194			15,027
Income (loss) from operations		17,912		5,228		2,300		(20,570	)		4,870
Capital expenditures		6,239		470		220		155			7,084

	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		1,889			17,142
Income (loss) from operations		14,685		4,263		2,435		(21,548	)		(165	)
Capital expenditures		4,892		1,098		596		205			6,791

14.	Subsequent Event

On January 3, 2012, the board of directors authorized and declared a quarterly dividend in the amount of $0.08 per share of Common Stock. The dividend was paid in cash on January 30, 2012, to stockholders of record at the close of business on January 13, 2012. Our amended and restated credit agreement currently restricts dividend payments to $5 million. We intend to request a waiver or modification of this restriction prior to the cumulative dividend payment exceeding this limit.

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BENIHANA INC. AND SUBSIDIARIES

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

Total revenues increased $4.1 million, or 5.6%, to $77.0 million, net income decreased $1.1 million to $1.0 million and earnings per diluted share decreased $0.06 to $0.06 in the three periods ended January 1, 2012, compared to the corresponding prior year period. Operating income increased $0.3 million to $1.6 million in the three periods ended January 1, 2012. Restaurant operating income increased $0.9 million, while general and administrative expenses increased $0.6 million year-over-year. As discussed more fully in the “Costs and Expenses” heading below, certain non-recurring costs are included in general and administrative expenses in both periods, impacting comparability.

Total revenues increased $13.9 million, or 5.7%, to $259.8 million, net income improved $3.1 million to net income of $3.9 million and earnings per diluted share increased to $0.20 in the ten periods ended January 1, 2012, compared to the corresponding prior year period. Operating income improved $5.0 million to $4.9 million in the ten periods ended January 1, 2012, compared to a loss of $0.2 million the corresponding prior year period. Restaurant operating income increased $4.1 million, while general and administrative expenses decreased $1.0 million year-over-year. In addition to certain non-recurring costs included in both periods, the comparability of general and administrative expenses for the year-to-date period is impacted by a $1.9 million increase in stock-based compensation primarily related to the vesting of restricted share awards granted to certain executives pursuant to their employment agreements.

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.

Our operating results continue to reflect the efforts of the Benihana Teppanyaki Renewal Program (“Renewal Program”) launched during fiscal year 2010. The Renewal Program focused on improving guest experiences as they relate to value, image, quality, consistency and Japanese culture. Although most initiatives have been implemented, we continue to review each aspect of the Renewal Program to continue the momentum. During fiscal year 2012, we continue to identify additional labor management opportunities, improve purchasing efficiencies, and develop our newly promoted or hired general managers. We continue to promote The Chef’s Table and Kabuki Kids marketing programs, which have 1.8 million addresses and 200,000 participants, respectively. The Chef’s Table program provides a complimentary $30 gift certificate to be used in the month of the participant’s birthday, and the Kabuki Kids program provides a Japanese-themed ceramic drink mug on the child’s birthday. We are currently exploring additional ways to utilize certain features of these programs to further strengthen our brand awareness.

As a result of commodities pressures, in April 2011, we increased prices at our Benihana restaurants for the first time since the implementation of the Renewal Program. The resulting impact was an increase in certain menu items of 2.0% and a decrease in the Chef’s Specials discount. We evaluate our pricing and discounting policies on an ongoing basis in an effort to balance the impact of commodity costs with guest value perceptions.

The RA Sushi concept offers sushi and a full menu of Pacific-Rim dishes in a fun-filled, high-energy environment. RA Sushi caters to a younger demographic, and we believe that it is highly suitable for a variety of real estate options, including “life-style” centers, shopping centers and malls, as well as areas with a nightlife component. RA Sushi’s beverage sales represent approximately 30% of its 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. In December 2010, we implemented a price increase across all RA Sushi restaurants in response to cost pressures. The result was an increase in certain menu items of 3.3% and a reduction to the happy hour discounts of 2.8%. In March 2011, RA Sushi launched "The Hook Up," a guest program that emails a complimentary $20 gift certificate to be used in the month of the guest’s half-birthday and has approximately 228,000 members. Beginning in fiscal year 2012, we have implemented a review of the RA Sushi business in order to identify operational improvements, including applying lessons learned from the Renewal Program that may be applicable to the RA Sushi concept.

- 14 -

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 significant sales volumes from take-out and delivery. Approximately 33% of our Haru New York City locations’ revenues are derived from delivery and takeout sales. In March 2011, we increased menu prices. As a result, our food prices increased 1.1% and beverage prices increased 3.0%. Also in March 2011, Haru launched a guest program, "Access," which has approximately 30,000 members who are provided with exclusive monthly offers and, beginning in January 2012, a $20 gift certificate to be used in the month of the guest’s birthday.

In light of prevailing economic conditions and costs incurred to implement the Renewal Program, beginning in fiscal year 2010, we have focused on conserving cash and increasing operating efficiencies. However, as the results of the Renewal Program are realized, we plan to resume restaurant expansion. In this connection, we undertook an in depth reevaluation and analysis of our site selection and other development guidelines to ensure future new unit development is prudent and in line with our overall growth strategy. We are actively working to identify sites pursuant to these guidelines for the future development of Benihana and RA Sushi restaurants.

The following tables reflect changes in our Company-owned restaurant count during the three and ten periods ended January 1, 2012 and January 2, 2011:

	Three Periods Ended								Ten Periods Ended
	January 1, 2012								January 1, 2012
	Teppanyaki		RA Sushi		Haru		Total		Teppanyaki		RA Sushi		Haru			Total
Restaurant Count:
Beginning of Period		63		25		8		96		63		25		9			97
Openings		-		-		-		-		-		-		-			-
Closings		-		-		-		-		-		-		(1	)		(1	)
End of period		63		25		8		96		63		25		8			96

	Three Periods Ended								Ten Periods Ended
	January 2, 2011								January 2, 2011
	Teppanyaki		RA Sushi		Haru		Total		Teppanyaki		RA Sushi		Haru		Total

Beginning of Period		63		25		9		97		63		25		9		97
Openings		-		-		-		-		-		-		-		-
Closings		-		-		-		-		-		-		-		-
End of period		63		25		9		97		63		25		9		97

The majority of our Company-owned restaurants are located in leased properties, generally subject to a base lease term and one or more renewal options. We monitor lease expiration dates and routinely execute renewal options or enter into negotiations for lease extensions. We are currently in discussions with the landlord for one location, whose lease expires in June 2012. The landlord has indicated that a major renovation is planned for the complex in which this restaurant is located and that a short-term lease extension will likely be granted while plans for the major renovation are being finalized. We are currently in discussion with the landlord to come to a long-term agreement, which would include a major remodel of the restaurant. If the landlord ultimately determines that we will not be incorporated in the long-term plans for the space, we believe we will be able to identify alternate sites within the trade area for this restaurant.

As of January 1, 2012 and January 2, 2011, we had 18 and 20 franchised Benihana teppanyaki restaurants, respectively, operating in the United States, Latin America and the Caribbean. Two franchised restaurants in the United States closed during the ten periods ended January 1, 2012, and our franchised restaurant in Peru closed subsequent to January 1, 2012.

- 15 -

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.

Non-GAAP Measures

We present earnings before interest expense, income taxes and depreciation and amortization expense (EBITDA) in this report which is not a measure defined within accounting principles generally accepted in the United States (“GAAP”). This non-GAAP measure should not be construed as a substitute for or a better indicator of the Company’s performance than the Company’s GAAP measures. We analyze our business performance and trends utilizing EBITDA because we believe it is a common valuation measure used within the restaurant industry. In addition, certain financial covenants and management incentives are based on EBITDA. The presentation of the non-GAAP measure in this report is reconciled to the most directly comparable GAAP measure.

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Three Periods Ended January 1, 2012 Compared to January 2, 2011:

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 1, 2012 and January 2, 2011 (dollar amounts in thousands):

Three periods ended January 1, 2012:
	Teppanyaki					RA Sushi					Haru					Total Restaurant					Corporate				Consolidated
Revenues:
Restaurant sales	$	52,657		100.0	%	$	16,625		100.0	%	$	7,394		100.0	%	$	76,676		100.0	%	$	-		-	$	76,676		100.0	%
Franchise fees and royalties		-					-					-					-					327				327
Total revenues		52,657					16,625					7,394					76,676					327				77,003

Costs and expenses:
Cost of food and beverage sales		(13,034	)	-24.8	%		(4,141	)	-24.9	%		(1,736	)	-23.5	%		(18,911	)	-24.7	%		-		-		(18,911	)	-
Restaurant operating expenses		(33,326	)	-63.3	%		(10,850	)	-65.3	%		(4,569	)	-61.8	%		(48,745	)	-63.6	%		-		-		(48,745	)	-
Restaurant opening costs		-		0.0	%		-		0.0	%		-		0.0	%		-		0.0	%		-		-		-		-
Restaurant level operating expenses		(46,360	)	-88.0	%		(14,991	)	-90.2	%		(6,305	)	-85.3	%		(67,656	)	-88.2	%		-		-		(67,656	)	-
Restaurant level operating margin		6,297		12.0	%		1,634		9.8	%		1,089		14.7	%		9,020		11.8	%		-		-		9,020		-
Restaurant depreciation and amortization		3,208		6.1	%		821		4.9	%		447		6.0	%		4,476		5.8	%		-		-		4,476		-
Restaurant level EBITDA (1)		9,505		18.1	%		2,455		14.8	%		1,536		20.8	%		13,496		17.6	%		-		-		13,496		-
Recurring general and administrative expenses excluding depreciation and amortization expense		(377	)	-0.7	%		(545	)	-3.3	%		(183	)	-2.5	%		(1,105	)	-1.4	%		(5,703	)	-		(6,808	)	-8.8	%
EBITDA before stock-based compensation (1) and other non-recurring general and administrative expenses		9,128		17.3	%		1,910		11.5	%		1,353		18.3	%		12,391		16.2	%		(5,376	)	-		7,015		9.1	%
Stock-based compensation		-		0.0	%		-		0.0	%		-		0.0	%		-		0.0	%		(360	)	-		(360	)	-0.5	%
Non-recurring general and administrative expenses excluding depreciation and amortization expense		-		0.0	%		-		0.0	%		-		0.0	%		-		0.0	%		(510	)	-		(510	)	-0.7	%
EBITDA (1)		9,128		17.3	%		1,910		11.5	%		1,353		18.3	%		12,391		16.2	%		(6,246	)	-		6,145		8.0	%
Depreciation and amortization expense		(3,208	)	-6.1	%		(829	)	-5.0	%		(447	)	-6.0	%		(4,484	)	-5.8	%		(63	)	-		(4,547	)	-5.9	%
Income (loss) from operations	$	5,920		11.2	%	$	1,081		6.5	%	$	906		12.3	%	$	7,907		10.3	%	$	(6,309	)	-	$	1,598		2.1	%

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

Costs and expenses:
Cost of food and beverage sales		(11,789	)	-23.9	%		(4,070	)	-25.7	%		(1,723	)	-23.5	%		(17,582	)	-24.3	%		-		-		(17,582	)	-
Restaurant operating expenses		(31,457	)	-63.8	%		(10,559	)	-66.6	%		(4,687	)	-64.0	%		(46,703	)	-64.4	%		-		-		(46,703	)	-
Restaurant opening costs		-		0.0	%		-		0.0	%		-		0.0	%		-		0.0	%		-		-		-		-
Restaurant level operating expenses		(43,246	)	-87.7	%		(14,629	)	-92.2	%		(6,410	)	-87.5	%		(64,285	)	-88.7	%		-		-		(64,285	)	-
Restaurant level operating margin		6,060		12.3	%		1,233		7.8	%		914		12.5	%		8,207		11.3	%		-		-		8,207		-
Restaurant depreciation and amortization		3,148		6.4	%		802		5.1	%		449		6.1	%		4,399		6.1	%		-		-		4,399		-
Restaurant level EBITDA (1)		9,208		18.7	%		2,035		12.8	%		1,363		18.6	%		12,606		17.4	%		-		-		12,606		-
Recurring general and administrative expenses excluding depreciation and amortization expense		(508	)	-1.0	%		(510	)	-3.2	%		(194	)	-2.6	%		(1,212	)	-1.7	%		(4,868	)	-		(6,080	)	-8.3	%
EBITDA before stock-based compensation (1) and other non-recurring general and administrative expenses		8,700		17.6	%		1,525		9.6	%		1,169		16.0	%		11,394		15.7	%		(4,465	)	-		6,929		9.5	%
Stock-based compensation		-		0.0	%		-		0.0	%		-		0.0	%		-		0.0	%		(227	)	-		(227	)	-0.3	%
Non-recurring general and administrative expenses, excluding depreciation and amortization expense		-		0.0	%		-		0.0	%		-		0.0	%		-		0.0	%		(916	)	-		(916	)	-1.3	%
EBITDA (1)		8,700		17.6	%		1,525		9.6	%		1,169		16.0	%		11,394		15.7	%		(5,608	)	-		5,786		7.9	%
Depreciation and amortization expense		(3,149	)	-6.4	%		(804	)	-5.1	%		(449	)	-6.1	%		(4,402	)	-6.1	%		(72	)	-		(4,474	)	-6.1	%
Income (loss) from operations	$	5,551		11.3	%	$	721		4.5	%	$	720		9.8	%	$	6,992		9.6	%	$	(5,680	)	-	$	1,312		1.8	%

(1) EBITDA is defined as earnings before interest, income taxes and depreciation and amortization expense. See “Non-GAAP Measures” above for more information about this non-GAAP measure, its limitations and why we present EBITDA alongside the most directly comparable GAAP measure.

Consolidated income (loss) from operations was $1.6 million for the three periods ended January 1, 2012, an improvement of $0.3 million over the same prior year period. Total income from restaurant segment operations, including direct general and administrative expenses, was $7.9 million for the three periods ended January 1, 2012, an increase of $0.9 million or 13.1% over the prior year. The Benihana concept’s operating income increased $0.4 million or 6.6%; the RA Sushi concept saw a $0.4 million or 49.9% improvement in operating income; and the Haru concept increased its operating income $0.2 million or 25.8%. Corporate loss from operations increased $0.6 million over the prior year.

Consolidated restaurant level EBITDA margin improved 0.2% from the same period in the prior fiscal year. However, recurring general and administrative expenses, including legal and professional fees associated in connection with the California and New York wage and hour litigation, increased 0.5% as a percent of total revenue, resulting in a 0.4% decline in consolidated EBITDA margin before stock-based compensation and other non-recurring general and administrative expenses when compared to the same prior year period.

These changes, when compared to the same period in the prior fiscal year, are due to changes in revenues and operating expenses as further described under the headings “Revenues” and “Costs and Expenses” below.

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REVENUES

The following table summarizes the changes in restaurant sales for the three periods ended January 1, 2012 compared to the three periods ended January 2, 2011 (in thousands):

	Teppanyaki			RA Sushi		Haru			Total

Restaurant sales during the three periods ended January 2, 2011	$	49,306		$	15,862	$	7,324		$	72,492
Increase in comparable sales		3,964			763		263			4,990
Decrease from closed retaurants		-			-		(193	)		(193	)
Decrease from temporary closures		(613	)		-		-			(613	)
Restaurant sales during the three periods ended January 1, 2012	$	52,657		$	16,625	$	7,394		$	76,676

The following table summarizes comparable restaurant sales by concept and percent changes for the three periods ended January 1, 2012, when compared to the same period in the prior fiscal year as well (dollars in thousands). Restaurants are considered comparable when they are open throughout the same periods in the two periods being compared. New restaurants enter the comparable base when they have been open for more than one year. Restaurants may leave and enter the comparable restaurant base as they are closed for renovation and subsequently re-open.

	Three Periods Ended
	January 1,		January 2,		Percent
	2012		2011		Change
Comparable restaurant sales by concept:
Teppanyaki	$	52,338	$	48,374		8.2	%
RA Sushi		16,625		15,862		4.8	%
Haru		7,394		7,131		3.7	%
Total comparable restaurant sales	$	76,357	$	71,367		7.0	%

One Benihana Teppanyaki restaurant, located in Manhattan, was temporarily closed from September 5, 2011 through December 11, 2011 for extensive remodeling. This restaurant is excluded from reported comparable sales results during the temporary closure period.

Benihana (Teppanyaki) – Sales for the Benihana teppanyaki restaurants increased $3.4 million, or 6.8%, for the three periods ended January 1, 2012 as compared to the same period in the prior year. The increase is primarily attributable to increases in sales from restaurants opened longer than one year of $4.0 million, offset by lost sales from temporary restaurant closures of $0.6 million. Total comparable restaurant sales for Benihana teppanyaki restaurants opened longer than one year increased 8.2%, consisting of an increase of 6.4% in dine-in guest counts and a 1.5% increase in the average per person dine-in guest check. The average comparable per person dine-in guest check amount was $27.32 during the three periods ended January 1, 2012 compared to $26.90 during the same period in the prior year.

RA Sushi - Sales for the RA Sushi restaurants increased $0.8 million, or 4.8%, for the three periods ended January 1, 2012 compared to the same period in the prior year. The increase in sales is solely attributable to sales from restaurants opened longer than one year, consisting of an increase of 1.1% in dine-in guest counts and an increase of 3.7% in the average per person dine-in guest check. The average comparable per person dine-in guest check amount was $21.64 during the three periods ended January 1, 2012 compared to $20.87 during the same period in the prior year.

Haru - Sales for the Haru restaurants increased $0.1 million, or 1.0%, for the three periods ended January 1, 2012 compared to the same period in the prior year. The increase is primarily attributable to sales from restaurants opened longer than one year, offset by the lost sales from the permanent closure of our Philadelphia location in May 2011. Total comparable restaurant sales for Haru restaurants increased 3.7%. Comparable dine-in sales, which comprised 66% percent of restaurant sales, increased 4.4% primarily due to a 4.8% increase in dine-in guest counts offset by a 0.4% decrease in the average per person dine-in guest check. The average comparable per person dine-in guest check amount was $30.92 during the three periods ended January 1, 2012 compared to $31.04 during the same period in the prior year. Comparable take-out sales, which comprised approximately 34% of comparable restaurant sales, increased 2.4%.

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COSTS AND EXPENSES

Cost of food and beverage sales – The consolidated cost of food and beverage sales for the three periods ended January 1, 2012 increased 0.4% as a percentage of restaurant sales, when compared to the corresponding period a year ago. The increase is reflective of the increase in commodities pricing that was not able to be recovered with the menu price increases and the shallowing of discounts implemented during the period.

Restaurant operating expenses – In the aggregate, restaurant operating expenses increased $2.0 million but decreased 0.8% as a percentage of restaurant sales due to decreased marketing expense during the quarter, fixed cost leverage on higher sales volumes and reduced depreciation due primarily to certain prior year retirements, partially offset by increases in certain labor-related costs. Additional marketing costs were incurred during the period related to the production of a commercial which did not air until subsequent to January 1, 2012, and, accordingly, those costs will be recognized in the fiscal fourth quarter.

General and administrative costs – General and administrative expenses increased $0.5 million or 0.1% when expressed as a percent of total revenues in the three periods ended January 1, 2012, compared to the prior year corresponding period. General and administrative expense for these periods consisted of the following (in thousands):

	Three Periods Ended
	January 1,		January 2,
	2012		2011
Recurring general and administrative expense,
excluding depreciation and amortization expense	$	6,808	$	6,080
Depreciation and amortization expense included in
general and administrative expense		71		75
Total recurring general and administrative expense		6,879		6,155
Stock-based compensation		360		227
Non-recurring general and administrative expense:
Special shareholders' meetings		510		-
Review of strategic alternatives		-		713
Operational and financial consulting		-		146
Accounting and payroll outsource implementation		-		57
Total non-recurring general and administrative expense		510		916
Total general and administrative expense	$	7,749	$	7,298

Recurring general and administrative costs, excluding depreciation and amortization, increased $0.7 million or 0.5% when expressed as a percentage of total revenues in the three periods ended January 1, 2012, compared to the prior year corresponding period. The increase was due primarily to higher legal and professional fees associated with the California and New York wage and hour litigation as discussed in Note 11, Commitments and Contingencies. Stock-based compensation related to the vesting of restricted share awards granted to certain executives pursuant to their employment agreements increased $0.1 million or 0.2% when expressed as a percent of total revenues.

Non-recurring general and administrative expenses, excluding depreciation and amortization expense, decreased $0.4 million or 0.6% when expressed as a percent of total revenues. Non-recurring expenses of $0.5 million for the three periods ended January 1, 2012 were incurred related to costs associated with two special stockholders’ meetings. Non-recurring expenses of $0.9 million for the three periods ended January 2, 2011 consisted of $0.7 million incurred in conjunction with the board’s assessment of strategic alternatives, including a possible sale of the Company, $0.1 million related to various financial and operational consulting agreements and $0.1 million of costs incurred in conjunction with the execution of our accounting and payroll function outsourcing agreement. In connection with the evaluation of strategic alternatives, the potential process was terminated in May 2011.

Interest expense, net – Interest expense, net decreased in the three periods ended January 1, 2012, when compared to the prior year corresponding period, as a result of lower average borrowings during the current period.

Income tax provision – Our effective income tax rate was 30.9% and (98.1%) for the three periods ended January 1, 2012 and January 2, 2011, respectively. During the three periods ended January 1, 2012, our effective income tax rate was unfavorably impacted as compared to the statutory rates by adjustments of approximately $0.3 million to reconcile the provision to recently filed tax returns, offset by the level of tax credits relative to taxable income. Excluding the reconciliation adjustments of $0.3 million, our effective tax rate for the three periods ended January 1, 2012 was 10.3%. 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 periods ended January 1, 2012, 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.

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Ten Periods Ended January 1, 2012 Compared to January 2, 2011:

The following tables show our operating results, as well as our operating expenses as a percentage of restaurant sales, for the ten periods ended January 1, 2012 and January 2, 2011 (dollar amounts in thousands):

Ten periods ended January 1, 2012:
	Teppanyaki					RA Sushi					Haru					Total Restaurant					Corporate				Consolidated
Revenues:
Restaurant sales	$	173,946		100.0	%	$	59,979		100.0	%	$	24,540		100.0	%	$	258,465		100.0	%	$	-		-	$	258,465
Franchise fees and royalties		-					-					-					-					1,323				1,323
Total revenues		173,946					59,979					24,540					258,465					1,323				259,788		100.0	%

Costs and expenses:
Cost of food and beverage sales		(43,430	)	-25.0	%		(15,023	)	-25.0	%		(5,931	)	-24.2	%		(64,384	)	-24.9	%		-		-		(64,384	)	-
Restaurant operating expenses		(111,369	)	-64.0	%		(37,858	)	-63.1	%		(15,703	)	-64.0	%		(164,930	)	-63.8	%		-		-		(164,930	)	-
Restaurant opening costs		-		0.0	%		-		0.0	%		-		0.0	%		-		0.0	%		-		-		-		-
Restaurant level operating expenses		(154,799	)	-89.0	%		(52,881	)	-88.2	%		(21,634	)	-88.2	%		(229,314	)	-88.7	%		-		-		(229,314	)	-
Restaurant level operating margin		19,147		11.0	%		7,098		11.8	%		2,906		11.8	%		29,151		11.3	%		-		-		29,151		-
Restaurant depreciation and amortization		10,536		6.1	%		2,769		4.6	%		1,498		6.1	%		14,803		5.7	%		-		-		14,803		-
Restaurant level EBITDA (1)		29,683		17.1	%		9,867		16.5	%		4,404		17.9	%		43,954		17.0	%		-		-		43,954		-
Recurring general and administrative expenses excluding depreciation and amortization expense		(1,234	)	-0.7	%		(1,843	)	-3.1	%		(604	)	-2.5	%		(3,681	)	-1.4	%		(17,002	)	-		(20,683	)	-8.0	%
EBITDA before stock-based compensation (1) and other non-recurring general and administrative expenses		28,449		16.4	%		8,024		13.4	%		3,800		15.5	%		40,273		15.6	%		(15,679	)	-		24,594		9.5	%
Stock-based compensation		-		0.0	%		-		0.0	%		-		0.0	%		-		0.0	%		(2,306	)	-		(2,306	)	-0.9	%
Non-recurring general and administrative expenses, excluding depreciation and amortization expense		-		0.0	%		-		0.0	%		-		0.0	%		-		0.0	%		(2,391	)	-		(2,391	)	-0.9	%
EBITDA (1)		28,449		16.4	%		8,024		13.4	%		3,800		15.5	%		40,273		15.6	%		(20,376	)	-		19,897		7.7	%
Depreciation and amortization expense		(10,537	)	-6.1	%		(2,796	)	-4.7	%		(1,500	)	-6.1	%		(14,833	)	-5.7	%		(194	)	-		(15,027	)	-5.8	%
Income (loss) from operations	$	17,912		10.3	%	$	5,228		8.7	%	$	2,300		9.4	%	$	25,440		9.8	%	$	(20,570	)	-	$	4,870		1.9	%

Ten periods ended January 2, 2011:
	Teppanyaki					RA Sushi					Haru					Total Restaurant					Corporate				Consolidated
Revenues:
Restaurant sales	$	161,693		100.0	%	$	57,727		100.0	%	$	25,116		100.0	%	$	244,536		100.0	%	$	-		-	$	244,536		100.0	%
Franchise fees and royalties		-					-					-					-					1,318				1,318
Total revenues		161,693					57,727					25,116					244,536					1,318				245,854

Costs and expenses:
Cost of food and beverage sales		(39,237	)	-24.3	%		(14,565	)	-25.2	%		(5,879	)	-23.4	%		(59,681	)	-24.4	%		-		-		(59,681	)	-
Restaurant operating expenses		(106,208	)	-65.7	%		(36,767	)	-63.7	%		(16,156	)	-64.3	%		(159,131	)	-65.1	%		-		-		(159,131	)	-
Restaurant opening costs		-		0.0	%		(8	)	0.0	%		-		0.0	%		(8	)	0.0	%		-		-		(8	)	-
Restaurant level operating expenses		(145,445	)	-90.0	%		(51,340	)	-88.9	%		(22,035	)	-87.7	%		(218,820	)	-89.5	%		-		-		(218,820	)	-
Restaurant level operating margin		16,248		10.0	%		6,387		11.1	%		3,081		12.3	%		25,716		10.5	%		-		-		25,716		-
Restaurant depreciation and amortization		10,815		6.7	%		2,860		5.0	%		1,552		6.2	%		15,227		6.2	%		-		-		15,227		-
Restaurant level EBITDA (1)		27,063		16.7	%		9,247		16.0	%		4,633		18.4	%		40,943		16.7	%		-		-		40,943		-
Recurring general and administrative expenses excluding depreciation and amortization expense		(1,561	)	-1.0	%		(2,103	)	-3.6	%		(643	)	-2.6	%		(4,307	)	-1.8	%		(16,026	)	-		(20,333	)	-8.3	%
EBITDA before stock-based compensation (1) and other non-recurring general and administrative expenses		25,502		15.8	%		7,144		12.4	%		3,990		15.9	%		36,636		15.0	%		(14,708	)	-		21,928		8.9	%
Stock-based compensation		-		0.0	%		-		0.0	%		-		0.0	%		-		0.0	%		(423	)	-		(423	)	-0.2	%
Non-recurring general and administrative expenses, excluding depreciation and amortization expense		-		0.0	%		-		0.0	%		-		0.0	%		-		0.0	%		(4,528	)	-		(4,528	)	-1.8	%
EBITDA (1)		25,502		15.8	%		7,144		12.4	%		3,990		15.9	%		36,636		15.0	%		(19,659	)	-		16,977		6.9	%
Depreciation and amortization expense (2)		(10,817	)	-6.7	%		(2,881	)	-5.0	%		(1,555	)	-6.2	%		(15,253	)	-6.2	%		(1,889	)	-		(17,142	)	-7.0	%
Income (loss) from operations	$	14,685		9.1	%	$	4,263		7.4	%	$	2,435		9.7	%	$	21,383		8.7	%	$	(21,548	)	-	$	(165	)	-0.1	%

(2) Includes non-recurring depreciation of $1.4 million related to the transition away from our ERP system in connection with the outsourcing of our accounting and payroll function.

Consolidated income from operations was $4.9 million for the ten periods ended January 1, 2012 compared to a loss from operations of $0.2 million for the ten periods ended January 2, 2011, an improvement of $5.0 million over the same prior year period. Total income from restaurant segment operations, including direct general and administrative expenses, was $25.4 million for the ten periods ended January 1, 2012, an increase of $4.1 million or 19.0% over the prior year, led by a $3.2 million or 22.0% increase for the Benihana concept. The RA Sushi concept saw a $1.0 million or 22.6% improvement in operating income, while the Haru concept experienced a $0.1 million decrease in operating income. Corporate loss from operations decreased $1.0 million over the prior year, primarily related to general and administrative expenses.

Consolidated restaurant level EBITDA margin increased 0.3% from the same period prior fiscal year. Furthermore, even after considering increased legal and professional fees associated with the California and New York wage and hour litigation, recurring general and administrative expenses decreased 0.3% as a percent of total revenue, resulting in a 0.6% improvement in consolidated EBITDA margin before stock-based compensation and other non-recurring general and administrative expenses when compared to the same prior year period.

- 20 -

REVENUES

The following table summarizes the changes in restaurant sales for the ten periods ended January 1, 2012 compared to the ten periods ended January 2, 2011 (in thousands):

	Teppanyaki			RA Sushi		Haru			Total

Restaurant sales during the ten periods ended January 2, 2011	$	161,693		$	57,727	$	25,116		$	244,536
Increase in comparable sales		13,161			2,252		109			15,522
Decrease from closed retaurants		-			-		(685	)		(685	)
Decrease from temporary closures		(908	)		-		-			(908	)
Restaurant sales during the ten periods ended January 1, 2012	$	173,946		$	59,979	$	24,540		$	258,465

The following table summarizes comparable restaurant sales by concept and percent changes for the ten periods ended January 1, 2012, when compared to the same period in the prior fiscal year as well (dollars in thousands). Restaurants are considered comparable when they are open throughout the same periods in the two periods being compared. New restaurants enter the comparable base when they have been open for more than one year. Restaurants may leave and enter the comparable restaurant base as they are closed for renovation and subsequently re-open.

	Ten Periods Ended
	January 1,		January 2,		Percentage
	2012		2011		Change
Comparable restaurant sales by concept:
Teppanyaki	$	173,425	$	160,264		8.2	%
RA Sushi		59,979		57,727		3.9	%
Haru		24,540		24,431		0.5	%
Total restaurant sales	$	257,944	$	242,422		6.4	%

Benihana (Teppanyaki) – Sales for the Benihana teppanyaki restaurants increased $12.3 million, or 7.6%, for the ten periods ended January 1, 2012 as compared to the same period in the prior year. The increase is primarily attributable to increases in sales from restaurants opened longer than one year of $13.2 million, offset by lost sales from temporary restaurant closures of $0.9 million. Total comparable restaurant sales for Benihana teppanyaki restaurants opened longer than one year increased 8.2%, consisting of an increase of 6.5% in dine-in guest counts and a 1.5% increase in the average per person dine-in guest check. The average comparable per person dine-in guest check amount was $27.37 during the ten periods ended January 1, 2012 compared to $26.98 during the same period in the prior year.

RA Sushi - Sales for the RA Sushi restaurants increased $2.3 million, or 3.9%, for the ten periods ended January 1, 2012 compared to the same period in the prior year. The increase is attributable to sales from restaurants opened longer than one year, consisting of an increase of 2.4% in dine-in guest counts and an increase of 1.5% in the average per person dine-in guest check. The average comparable per person dine-in guest check amount was $21.36 during the ten periods ended January 1, 2012 compared to $21.05 during the same period in the prior year.

Haru - Sales for the Haru restaurants decreased $0.6 million, or 2.3%, for the ten periods ended January 1, 2012 compared to the same period in the prior year. The decrease is attributable to lost sales of $0.7 million as a result of the permanent closure of our Philadelphia location in May 2011 offset by an increase in sales from restaurants opened longer than one year of $0.1 million. Total comparable restaurant sales for Haru restaurants increased 0.5%. Comparable dine-in sales, which comprised 67% percent of restaurant sales, increased 0.7% driven by a 0.9% decrease in dine-in guest counts offset by a 0.1% decrease in the average per person dine-in guest check. The average comparable per person dine-in guest check amount was $30.77 during both the ten periods ended January 1, 2012 compared to $30.81 during the same period in the prior year. Comparable take-out sales, which comprised approximately 32% of comparable restaurant sales, decreased 0.3%.

- 21 -

COSTS AND EXPENSES

Cost of food and beverage sales – The consolidated cost of food and beverage sales for the ten periods ended January 1, 2012 increased 0.5% as a percentage of restaurant sales, when compared to the corresponding period a year ago. The increase is reflective of the increase in commodities pricing that was not able to be recovered with the menu price increases and the shallowing of discounts implemented during the period.

Restaurant operating expenses – In the aggregate, restaurant operating expenses increased $5.8 million but decreased 1.3% as a percentage of restaurant sales due to improved labor efficiencies, primarily related to overtime management, fixed cost leverage on higher sales volumes and reduced depreciation due primarily to certain prior year retirements, partially offset by increased occupancy costs.

General and administrative costs – General and administrative costs decreased $1.6 million or 1.7% when expressed as a percentage of total revenues in the ten periods ended January 1, 2012, compared to the prior year corresponding period. General and administrative expense for these periods consisted of the following (in thousands):

	Ten Periods Ended
	January 1,		January 2,
	2012		2011
Recurring general and administrative expense,
excluding depreciation and amortization expense	$	20,683	$	20,333
Depreciation and amortization expense included in
general and administrative expense*		224		1,915
Total recurring general and administrative expense		20,907		22,248
Stock-based compensation		2,306		423
Non-recurring general and administrative expense:
Special shareholders' meetings		1,969		-
Review of strategic alternatives		422		713
Operational and financial consulting		-		1,973
Accounting and payroll outsource implementation		-		568
Annual shareholders' meeting proxy contest		-		896
Executive severance costs		-		219
Abandoned projects		-		159
Total non-recurring general and administrative expense		2,391		4,528
Total general and administrative expense	$	25,604	$	27,199

*The prior year amount includes non-recurring depreciation of approximately $1.4 million related to the transition away from

our ERP system in connection with the outsourcing of our accounting and payroll function.

Recurring general and administrative costs, excluding depreciation and amortization, increased $0.4 million but decreased 0.3% when expressed as a percentage of total revenues in the ten periods ended January 1, 2012, compared to the prior year corresponding period. The dollar increase was due primarily to higher legal and professional fees associated with the California and New York wage and hour litigation as discussed in Note 11, Commitment and Contingencies. Stock-based compensation related to the vesting of restricted share awards granted to certain executives pursuant to their employment agreements increased $1.9 million or 0.7% when expressed as a percent of total revenues.

Non-recurring general and administrative expenses, excluding depreciation and amortization expense, decreased $2.1 million or 0.9% when expressed as a percent of total revenue. Non-recurring expense of $2.4 million for the ten periods ended January 1, 2012 consisted of approximately $2.0 million related to costs associated with the special stockholders’ meetings and $0.4 million related to the Board’s assessment of strategic alternatives, including a potential sale of the Company. Non-recurring expenses of $4.5 million for the ten periods ended January 2, 2011 consisted of $0.7 million incurred in conjunction with the Board’s assessment of strategic alternatives, including a possible sale of the Company, $2.0 million related to various financial and operational consulting agreements, including the special committee of the board formed to explore strategic alternatives for the Company, $0.6 million of costs incurred in conjunction with the execution of our accounting and payroll function outsourcing agreement, $0.9 million of costs incurred to respond to and ultimately settle the proxy contest in connection with our 2010 Annual Shareholders’ Meeting, $0.2 million of severance associated with the resignation of our former Chief Financial Officer and the write-off of abandoned projects of approximately $0.2 million. The evaluation of strategic alternatives, including the potential sale of the Company was terminated in May 2011.

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Interest expense, net – Interest expense, net decreased in the ten periods ended January 1, 2012, when compared to the prior year corresponding period, as a result of lower average borrowings during the current period. Furthermore, the prior year includes interest income from the reversal of interest previously accrued in connection with certain litigation in which we subsequently prevailed.

Income tax provision – Our effective income tax rate was 13.4% and 220.9% for the ten periods ended January 1, 2012 and January 2, 2011, respectively. During the ten periods ended January 1, 2012, our effective income tax rate was unfavorably impacted as compared to the statutory rates by adjustments of approximately $0.3 million to reconcile the provision to recently filed tax returns, offset by the level of tax credits relative to taxable income. Excluding the reconciliation adjustments of $0.3 million, our effective tax rate for the ten periods ended January 1, 2012 was 6.5%. For the ten periods ended January 2, 2011, our effective income tax rate was impacted by tax credits and a decrease in our book income due to higher than anticipated general and administrative expenses. 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 ten periods ended January 1, 2012, 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.

FINANCIAL RESOURCES

Cash flow from operations has historically been the primary source used to fund our capital expenditures supplemented, as necessary, by funds obtained under financial arrangements.

Since restaurant businesses do not have large amounts of inventory and accounts receivable, there is generally no need to finance these items. As a result, many restaurant businesses, including our own, operate with negative working capital. During the ten periods ended January 1, 2012, the working capital deficit improved by $8.0 million from the prior year end.

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 credit facility provides us a borrowing capacity of $30.0 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 (including first mortgages on the thirteen restaurant properties owned by the Company which had an appraised value of approximately $44.4 million as of December 2009). 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 a variable interest rate on outstanding balances benchmarked to the prime rate in the United States or to the London interbank offering rate. Both the commitment fee and the interest rate adjust based on a leverage ratio, as defined by the amended and restated agreement. While providing for working capital, capital expenditures and general corporate purposes, the amended and restated agreement requires that the Company maintain 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. We intend to request a waiver or modification of these restrictions prior to the cumulative dividend payment exceeding the limit.

At January 1, 2012, we had no borrowings and $1.7 million of outstanding letters of credit under the line of credit, resulting in an available borrowing balance of $28.3 million, and were in compliance with the financial and non-financial covenants of the agreement governing the line of credit.

Series B Preferred Stock

During the ten periods ended January 1, 2012, the holder of the Series B preferred stock converted all 800,000 shares into 1,582,577 shares of Common Stock. As of January 1, 2012, there are no outstanding shares of Series B preferred stock.

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Expansion

In response to the economic environment prevailing in fiscal year 2011, we opted to reduce growth-related capital expenditures. Based upon our solid operating cash flow, the borrowing capacity under our line of credit, continued improvement in same store sales trends, the positive results of the Renewal Program including the progress made in facilities upgrades for our existing restaurant portfolio, and the availability of real estate at reasonable prices, we anticipate that we will resume restaurant unit expansion and are actively working to identify sites for the future development of Benihana and RA Sushi restaurants.

Cash Obligations to Former Directors and Executives

We will use our cash from operations to fund the remaining $0.9 million cash obligation as of January 1, 2012 in connection with the resignation of our former Chairman and Chief Executive Officer during fiscal year 2009, which is included in accrued liabilities and other long-term liabilities in the accompanying condensed consolidated balance sheets.

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 fifteen-month terms. The purpose of these supply agreements is to reduce the potential impact of the volatility in the cost of the commodities over the terms of the agreements. These supply agreements are not considered derivative contracts.

Cash Flows

The following table summarizes the sources and uses of cash and cash equivalents (in thousands):

	Ten Periods Ended
	January 1,			January 2,
	2012			2011

Net cash provided by operating activities	$	25,234		$	17,414
Net cash used in investing activities		(7,020	)		(6,657	)
Net cash used in financing activities		(6,026	)		(9,935	)
Net increase in cash and cash equivalents	$	12,188		$	822

We believe that our cash from operations will provide sufficient capital to fund operations, commitments and contingencies, expected new unit growth and quarterly dividend payments for at least the next twelve months. However, if we were to resume a more aggressive growth strategy, any additional required capital could be obtained by drawing on our line of credit or accessing the value of our thirteen owned restaurant properties.

Operating Activities

Net cash provided by operating activities totaled $25.2 million and $17.4 million for the ten periods ended January 1, 2012 and January 2, 2011, respectively. The $7.8 million increase is primarily attributable to improved income from operations as well as the relative changes in our working capital balances related to the timing of certain payments.

Investing Activities

Capital expenditures were $7.1 million and $6.8 million for the ten periods ended January 1, 2012 and January 2, 2011, respectively. Capital expenditures during fiscal year 2012 are expected to total approximately $13.0 million.

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Financing Activities

During the ten periods ended January 1, 2012, we borrowed $22.7 million under the line of credit and made $28.4 million in payments. During the ten periods ended January 2, 2011, we borrowed $80.8 million under the line of credit and made $90.3 million in payments.

During both of the ten periods ended January 1, 2012 and January 2, 2011, proceeds from stock option exercises totaled $0.3 million.

During the ten periods ended January 1, 2012 and January 2, 2011, we paid $0.6 million and $0.7 million, respectively, in dividends on the Series B preferred stock.

During the ten periods ended January 1, 2012, we paid $0.1 million in payroll withholding taxes on behalf of an executive for whom we withheld Class A common stock as treasury shares in lieu of receiving cash payment from the executive.

Contractual Obligations

During the ten periods ended January 1, 2012, there were no material changes outside the ordinary course of business to the contractual obligations disclosed in our Annual Report on Form 10-K for the fiscal year ended March 27, 2011.

Critical Accounting Policies

The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. Preparation of these statements requires management to make judgments and estimates. Some accounting policies have a significant impact on amounts reported in these condensed consolidated financial statements. A summary of significant accounting policies and estimates and a description of accounting policies that are considered critical may be found in our Annual Report on Form 10-K for the fiscal year ended March 27, 2011, in Note 1 of the Notes to Consolidated Financial Statements and the Critical Accounting Policies section of Management’s Discussion and Analysis of Financial Conditions and Results of Operations.

There were no significant changes to our accounting policies or significant estimates during the ten periods ended January 1, 2012.

Recently Issued Accounting Standards

For a description of the new accounting standards that may affect us, see Note 2, Recently Issued Accounting Standards, of the condensed consolidated financial statements.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains various “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve substantial risks and uncertainties. When used in this Quarterly Report on Form 10-Q, the words “anticipate,” “believe,” “estimate,” “may,” “intend,” “expect” and similar expressions identify certain of such forward-looking statements. These forward-looking statements represent our expectations or beliefs concerning future events. Actual results, performance, or achievements could differ materially from those contemplated, expressed, or implied by the forward-looking statements contained herein as a result of a number of factors, either individually or in combination, including, but not limited to, the success of our cost-control and other initiatives that we have implemented in response to the current adverse condition in the economy and the restaurant industry, changes in consumer dining preferences, the reaction of our customers and employees to, and the success of, the Benihana Teppanyaki Renewal Program and our Chef’s Table and Kabuki Kids programs, our ability to successfully expand our Benihana teppanyaki concept, the ability of our RA Sushi restaurants to succeed in various types of markets, offer us an additional growth vehicle or otherwise improve our financial condition and operating results, fluctuations in commodity prices, availability of qualified employees, changes in the general economy and the restaurant industry, the availability and cost of securing capital, our ability to maintain compliance with the financial ratios contained in the agreement governing our line of credit with Wells Fargo, industry cyclicality, changes in consumer disposable income, competition within the restaurant industry, ability to renew existing leases on favorable terms, availability of suitable restaurant locations, harsh weather conditions in areas in which we and our franchisees operate restaurants or plan to build new restaurants, acceptance of our concepts in new locations, changes in governmental laws and regulations affecting labor rates, employee benefits, and franchising, ability to complete restaurant construction and renovation programs and obtain governmental permits on a reasonably timely basis, the outcome of legal proceedings to which we are subject and other factors, certain of which may be outside of our control.

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The Impact of Inflation

The primary inflationary factors affecting our operations are labor and commodity costs. Our profitability is dependent on, among other things, our ability to anticipate and react to changes in the costs of operating resources, including food and other raw materials, labor and other supplies and services. Other than commodity and labor costs, we do not believe that inflation has had a material effect on sales or expenses during the last three fiscal years. Our restaurant operations are subject to federal and state minimum wage laws governing matters such as working conditions, overtime and tip credits. Significant numbers of our food service and preparation personnel are paid at rates related to the federal minimum wage and, accordingly, increases in the minimum wage have increased our labor costs in recent years. To the extent permitted by competition, we have mitigated increased costs by increasing menu prices or reducing the level of discounting and may continue to do so if deemed necessary. To the extent that cost increases cannot be passed along to our guests, those cost increases could negatively impact our financial results.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to certain risks of increasing interest rates and commodity prices. The interest on our indebtedness is variable and is benchmarked to the prime rate in the United States or to the London interbank offering rate. We may protect ourselves from interest rate increases from time-to-time by entering into derivative agreements that fix the interest rate at predetermined levels. We have a policy not to use derivative agreements for trading purposes. We have no derivative agreements as of January 1, 2012.

We had no borrowings outstanding under our line of credit facility at January 1, 2012. Accordingly, a 100 basis point change in interest rates would have no impact to our interest expense.

We purchase commodities such as chicken, beef and seafood for our restaurants. The prices of these commodities may be volatile depending upon market conditions. We do not purchase forward commodity contracts because the changes in prices for them have historically been short-term in nature and, in our view, the cost of the contracts exceeds the benefits.

We have, however, 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 fifteen-month terms. These supply agreements are expected to reduce the potential impact of the volatility in the cost of the commodities over the terms of the agreements. These supply agreements are not considered derivative contracts.

Seasonality of Business

We have a 52/53-week fiscal year. Our fiscal year ends on the Sunday occurring within the dates of March 26 through April 1. We divide the fiscal year into 13 four-week periods. Because of the odd number of periods, our 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 us a consistent number of operating days within each period, as well as ensures that certain holidays significant to our operations occur consistently within the same fiscal quarters. Because of the differences in 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 2012 consists of 53 weeks and will end on April 1, 2012. Fiscal year 2011 consisted of 52 weeks and ended on March 27, 2011.

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Our business is not highly seasonal although, generally, more patrons visit our Benihana teppanyaki restaurants for special holidays such as Mother’s Day, New Year’s Eve and Valentine’s Day. Mother’s Day falls in our first fiscal quarter of each year, New Year’s Eve falls in the third quarter and Valentine’s Day falls in the fourth quarter.

ITEM 4. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules of the Securities and Exchange Commission and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Note 11, Commitments and Contingencies, of the Notes to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for a description of certain legal proceedings.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A. Risk Factors, in our Annual Report on Form 10-K for the fiscal year ended March 27, 2011, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to management may materially adversely affect our business, financial condition and/or operating results.

To the knowledge of management, there have been no material changes with respect to the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended March 27, 2011.

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ITEM 6. EXHIBITS

Exhibit 31.1 –

Chief Executive Officer’s certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 31.2 –

Chief Financial Officer’s certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 32.1 –

Chief Executive Officer’s certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 32.2 –

Chief Financial Officer’s certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 101 –

Financial statements from the quarterly report on Form 10-Q of Benihana Inc. for the quarter ended January 1, 2012, filed on February 8, 2012, formatted in XBRL: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Stockholders’ Equity, (iv) the Condensed Consolidated Statements of Cash Flows and (v) the Notes to the Condensed Consolidated Financial Statements tagged as blocks of text

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SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		Benihana Inc.
		(Registrant)

Date: February 8, 2012		/s/ Richard C. Stockinger
		Richard C. Stockinger
		President and Chief Executive Officer

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