What was the amount of Benihana's valuation allowance as of December 31, 2023, and what did it relate to?
Benihana Franchise · 2024 FDDAnswer from 2024 FDD Document
| For the years ended December 31 | ecember 31, | |||
|---|---|---|---|---|
| 2023 | 2022 | |||
| Deferred tax assets: | _ | |||
| Operating lease liabilities | $ | 23,798 | $ | 18,871 |
| Stock compensation | 371 | 415 | ||
| FICA tip credit carryforward | 18,312 | 13,976 | ||
| Net operating loss | 5,543 | 3,203 | ||
| Goodwill | 753 | 906 | ||
| Inventory | 52 | 20 | ||
| Charitable contributions carryforward | 26 | 3 | ||
| Foreign tax credit carryforward | 622 | 622 | ||
| Deferred revenue | 126 | 190 | ||
| State and local tax credit carryforward | 78 | 135 | ||
| Expenses not deductible until paid | 83 | 298 | ||
| IRC 163(j) disallowed interest carryforward | 2,152 | 483 | ||
| Debt issuance costs | 82 | 113 | ||
| Kona Grill related acquisition costs | 693 | 755 | ||
| Total deferred tax assets | 52,691 | 39,990 | ||
| Deferred tax liabilities: | ||||
| Operating lease right-of-use assets | (17,360) | (13,974) | ||
| Depreciation and amortization | (19,888) | (13,064) | ||
| Other | (64) | (7) | ||
| Total deferred tax liabilities | (37,312) | (27,045) | ||
| Valuation allowance | (622) | (622) | ||
| Net deferred tax assets | $ | 14,757 | $ | 12,323 |
Tax Carryforwards
As of December 31, 2023, the Company has federal net operating loss ("NOL") carryforwards of $25.2 million which have no expiration date. The Company has various 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 a
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, 2023, Benihana had a valuation allowance of $0.6 million. This valuation allowance relates to foreign tax credits that Benihana does not anticipate using because the company generates income in a jurisdiction with a higher income tax rate than the U.S.
In general, companies establish valuation allowances to account for deferred tax assets that may not be realized in the future. Benihana assesses the realizability of its deferred tax assets by considering various factors, including current operating results, tax planning strategies, and forecasts of future earnings. This assessment determines whether it is more likely than not that the deferred tax assets will be realized.
For a prospective Benihana franchisee, understanding the company's tax strategies and financial health is crucial. The existence and size of valuation allowances can indicate potential challenges in utilizing tax credits or deductions, which could affect the company's overall profitability and financial planning. Reviewing these figures in the FDD can provide insight into Benihana's financial management and its approach to handling tax-related matters.