How does Benihana measure the recoverability of restaurant assets?

According to Benihana's 2024 Franchise Disclosure Document, the recoverability of restaurant assets is evaluated at the individual restaurant level. Benihana compares the carrying amount of a restaurant's assets to the estimated identifiable undiscounted future cash flows expected to be generated by those assets. This process involves the use of estimates and assumptions, requiring a high degree of judgment. These cash flows exclude operating lease payments.

If the carrying amount of a restaurant's assets exceeds its estimated undiscounted future cash flows, Benihana recognizes an impairment charge. This charge is the amount by which the carrying amount of the asset exceeds its fair value. The estimated fair value is determined based on ASC 820, Fair Value Measurement.

For a prospective Benihana franchisee, this means that the financial health and potential for impairment of their restaurant will be assessed regularly. Factors such as underperformance relative to historical or projected results, changes in asset use, or negative economic trends can trigger an impairment evaluation. The franchisee should be aware that these evaluations rely on estimates and assumptions, which can significantly impact the reported value of the restaurant's assets. Understanding the basis for these estimates and how they are applied is crucial for assessing the long-term financial viability of the franchise.