At what level does Benihana generally perform the impairment evaluation?
Benihana Franchise · 2024 FDDAnswer from 2024 FDD Document
reign tax credits we do not expect to utilize as a result of generating income in a jurisdiction with a higher income tax rate than the U.S. The recording of deferred taxes requires significant management judgment regarding the interpretation of applicable statutes, the status of various income tax audits, and our particular facts and circumstances.
Our income taxes are impacted by the enactment of the Tax Cuts and Job Act in December 2017 (the "TCJA"), which, amongst other things, enacted global intangible low-taxed income provisions that do not allow us to defer the earnings of our subsidiaries in the U.K. and Italy.
Impairment of Long-Lived Assets and Disposal of Property and Equipment
Long-lived assets, which include property and equipment and right-of-use assets for operating leases, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be fully recoverable. The impairment evaluation is generally performed at the individual restaurant level, as we believe this is the lowest level of identifiable cash flows. We believe that historical cash flows, in addition to other relevant facts and circumstances, are the primary basis for estimating future cash flows. Relevant facts and circumstances include, among others, significant underperformance relative to historical or projected future operating results, significant changes in the manner of use of the acquired assets or the strategy for the overall business, and significant negative industry or economic trends. Recoverability of restaurant assets is measured by a comparison of the carrying amount of an individual restaurant's assets to the estimated identifiable undisco
Source: Item 22 — CONTRACTS (FDD pages 73–74)
What This Means (2024 FDD)
According to Benihana's 2024 Franchise Disclosure Document, the impairment evaluation of long-lived assets is generally conducted at the individual restaurant level. Benihana believes this is the lowest level at which identifiable cash flows can be accurately assessed. This process is crucial for determining if the carrying value of assets, such as property, equipment, and right-of-use assets for operating leases, is recoverable.
The evaluation involves comparing the carrying amount of an individual restaurant's assets to the estimated undiscounted future cash flows expected to be generated by those assets. This comparison requires significant judgment and the use of estimates and assumptions. Factors considered include historical cash flows, underperformance relative to projections, changes in asset use, and negative industry or economic trends.
If the carrying amount exceeds the estimated future cash flows, Benihana recognizes an impairment charge. This charge reflects the difference between the carrying amount and the fair value of the asset, with the fair value determined according to ASC 820, Fair Value Measurement. As of December 31, 2023, Benihana's property and equipment, net of accumulated depreciation, were $139.9 million, and the operating lease right-of-use assets were $95.1 million.