What was the primary reason for the increase in Benihana's depreciation and amortization expense from 2020 to 2021?
Benihana Franchise · 2024 FDDAnswer from 2024 FDD Document
ercises and restricted stock vesting. Also, accruals for performance-based compensation increased by $1.6 million compared to 2020.
As a percentage of revenues, general and administrative costs were 9.2% in 2021 compared to 9.8% in 2020.
Depreciation and amortization. Depreciation a
Source: Item 22 — CONTRACTS (FDD pages 73–74)
What This Means (2024 FDD)
According to Benihana's 2024 Franchise Disclosure Document, the depreciation and amortization expense increased by $0.7 million, rising from $10.1 million in 2020 to $10.8 million in 2021. The primary reason for this increase was the opening of an owned STK restaurant in July 2021. Additionally, capital expenditures aimed at expanding seating capacity and other initiatives designed to enhance the guest experience also contributed to this rise in depreciation and amortization expenses.
For a prospective Benihana franchisee, this indicates that new restaurant openings and investments in improving the guest experience can lead to higher depreciation and amortization expenses. These expenses reflect the allocation of the cost of assets, such as buildings and equipment, over their useful lives. While depreciation and amortization are non-cash expenses, they impact the reported profitability of the business and should be factored into financial projections.
It's important to note that depreciation methods and asset useful lives can significantly affect the amount of depreciation expense recognized each year. Benihana uses the straight-line method for depreciation, which means the cost of an asset is evenly spread over its useful life. The FDD also mentions that computers, equipment, furniture, and fixtures are depreciated over three to ten years, while leasehold improvements are depreciated over the shorter of their estimated useful lives or the remaining term of the associated lease. Understanding these accounting policies is crucial for interpreting Benihana's financial statements and assessing the financial performance of a franchise location.
Therefore, potential franchisees should consider the capital expenditure plans for new and existing restaurants, as these investments will likely impact depreciation and amortization expenses. A clear understanding of these expenses is essential for accurate financial forecasting and managing the profitability of a Benihana franchise.