How does Benihana amortize debt issuance costs related to long-term debt?
Benihana Franchise · 2024 FDDAnswer from 2024 FDD Document
Debt issuance costs incurred in connection with the issuance of long-term debt are capitalized and amortized to interest expense based on the term of the related debt agreement using the straight-line method, which approximates the effective interest method. The Company has recorded debt issuance costs related to the revolving credit facility in other assets on the consolidated balance sheets. The portion of debt issuance costs related to the term loan and delayed draw term loan is recorded in long-term debt, net of current portion on the consolidated balance sheets.
Source: Item 22 — CONTRACTS (FDD pages 73–74)
What This Means (2024 FDD)
According to Benihana's 2024 Franchise Disclosure Document, debt issuance costs connected to long-term debt are capitalized and then amortized. This amortization is recorded as interest expense over the term of the debt agreement. Benihana uses the straight-line method for amortization, which the company states approximates the effective interest method.
For the revolving credit facility, Benihana records these debt issuance costs as other assets on its consolidated balance sheets. However, the portion of debt issuance costs related to the term loan and delayed draw term loan is recorded as a direct deduction to long-term debt, net of current portion on the consolidated balance sheets.
For a prospective franchisee, this accounting practice means that the initial costs of securing debt financing are not immediately expensed but are spread out over the life of the loan. This can affect the reported profitability of Benihana in the short term, as the amortization expense will reduce net income each period. Understanding these accounting practices can help a franchisee better interpret Benihana's financial statements and assess the true cost of borrowing.