How often are Benihana's long-lived assets reviewed for impairment?
Benihana Franchise · 2024 FDDAnswer from 2024 FDD Document
nd 2021 the gross carrying amount of the other finite-lived intangible assets were $0.1 million. The accumulated amortization of the trade name was $2.2 million and $2.0 million as of December 31, 2022 and 2021, respectively, and the amortization expense was $0.2 million and $0.9 million for the years ending December 31, 2022 and 2021, respectively. The Company's estimated aggregate amortization expense for each of the five succeeding fiscal years is less than $0.1 million annually. Refer to Note 1 regarding the change in accounting estimate for the Kona Grill trade name.
Impairment of Long-Lived Assets
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 undiscounted future cash flows exclusive of operating lease payments, expected to be generated by those restaurant assets. This process requires the use of estimates and assumptions, which are subject to a high degree of judgment. If the carrying amount of an individual restaurant's assets exceeds its estimated undiscounted future cash flows, exclusive of operating lease payments, an impairment charge is recognized as the amount by which the carrying amount of the asset exceeds its fair value.
Source: Item 22 — CONTRACTS (FDD pages 73–74)
What This Means (2024 FDD)
According to Benihana's 2024 Franchise Disclosure Document, the company reviews its long-lived assets for impairment whenever events or changes in circumstances suggest that the carrying value of these assets may not be fully recoverable. These assets include property, equipment, and right-of-use assets for operating leases. The evaluation is typically conducted at the individual restaurant level because Benihana believes this is the lowest level for which identifiable cash flows can be determined.
Benihana uses historical cash flows and other relevant facts to estimate future cash flows when assessing recoverability. These facts can include significant underperformance compared to historical or projected operating results, changes in how the assets are used, shifts in business strategy, and negative trends in the industry or economy. The recoverability of a restaurant's assets is determined by comparing the carrying amount of the restaurant's assets to the estimated identifiable undiscounted future cash flows expected to be generated by those assets.
If a restaurant's carrying amount 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, which is determined according to ASC 820, Fair Value Measurement. For example, as of December 31, 2022, the net property and equipment was $94.1 million, and the operating lease right-of-use assets were $85.2 million. For the years ended December 31, 2022 and 2021, Benihana did not identify any events or changes in circumstances that indicated that the carrying values of its restaurant assets were impaired.