What was the amount of Benihana's valuation allowance as of December 31, 2021, and what did it relate to?
Benihana Franchise · 2024 FDDAnswer from 2024 FDD Document
state NOL carryforwards. The determination of the state NOL carryforwards is dependent upon apportionment percentages and state laws that can change from year to year and impact the amount of such carryforwards. The state NOLs expire at various dates from 2035 to 2040. The state and local tax credit carryforwards expire at various dates from 2022 through 2028.
In assessing the realizability of deferred tax assets, the Company evaluates whether it is more likely than not that the deferred tax assets will be realized. In the assessment of the valuation allowance, appropriate consideration was given to all positive and negative evide
Source: Item 22 — CONTRACTS (FDD pages 73–74)
What This Means (2024 FDD)
According to Benihana's 2024 Franchise Disclosure Document, as of December 31, 2021, the company had a valuation allowance of $0.3 million. This valuation allowance relates to foreign tax credits that Benihana does not expect to utilize. The reason for this is that Benihana anticipates generating income in a jurisdiction that has a higher income tax rate than the United States.
In simpler terms, Benihana has set aside $300,000 as an allowance because they don't believe they'll be able to use certain foreign tax credits. This is because they expect to earn money in countries where the tax rates are higher than in the U.S. This situation makes those foreign tax credits less valuable to them.
For a prospective franchisee, this information provides insight into Benihana's financial strategies and tax planning. It indicates that Benihana operates internationally and must navigate different tax environments. While the valuation allowance itself might not directly impact a franchisee's day-to-day operations, it reflects the financial sophistication and global presence of the Benihana brand.