What is the estimated annual reduction in depreciation and amortization expense expected from Benihana's change in the Kona Grill trade name's useful life?
Benihana Franchise · 2024 FDDAnswer from 2024 FDD Document
million for 2022 and 2021, respectively, composed primarily of sanitation, supplies and safety precautions taken to prevent the spread of COVID-19.
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"). All intercompany accounts and transactions have been eliminated in consolidation.
Change in Accounting Estimate
Effective April 1, 2022, the Company changed its estimated useful life of the Kona Grill trade name. Based upon the strong performance of the Kona Grill restaurants over the twelve months ended March 31, 2022, significant capital investments in both existing and new restaurants and the Company's commitment to expand the Kona Grill brand with the opening of new restaurants, the Company has determined that the Kona Grill t
Source: Item 22 — CONTRACTS (FDD pages 73–74)
What This Means (2024 FDD)
According to Benihana's 2024 Franchise Disclosure Document, the company changed its estimated useful life of the Kona Grill trade name effective April 1, 2022. Previously, the trade name had a twenty-year life. After the change, Benihana determined that the Kona Grill trade name has an indefinite life.
This change in accounting estimate will reduce depreciation and amortization expense by $0.9 million annually. Additionally, net income will increase by $0.9 million annually. Basic and diluted earnings per share will increase by approximately $0.03 annually based upon the current number of shares outstanding.
For a prospective Benihana franchisee, this accounting change reflects the company's confidence in the Kona Grill brand's long-term value and performance. By recognizing the trade name as an indefinite-life asset, Benihana avoids the need to amortize its value over a set period, leading to lower reported expenses and higher net income. This can make the company appear more profitable and financially stable, which may be a positive signal for potential investors and franchisees.