How is the recoverability of Benihana's restaurant assets measured?
Benihana Franchise · 2024 FDDAnswer from 2024 FDD Document
umstances 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 recoverability of restaurant assets is evaluated at the individual restaurant level. Benihana measures recoverability by comparing the carrying amount of a restaurant's assets to the estimated identifiable undiscounted future cash flows expected to be generated by those assets. This excludes 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.
This process requires Benihana to make estimates and assumptions, which involves a high degree of judgment. Factors considered include historical cash flows, underperformance relative to projections, changes in asset use, business strategy shifts, and negative industry or economic trends. For example, as of December 31, 2023, the net property and equipment was $139.9 million, and operating lease right-of-use assets were $95.1 million. For the year ended December 31, 2023, no impairment loss related to long-lived assets was recognized.
Prospective franchisees should understand that the valuation of restaurant assets and the potential for impairment charges can significantly impact the financial performance of a Benihana franchise. It is important to inquire about the specific assumptions and methodologies used by Benihana in assessing asset recoverability and to understand the potential risks associated with asset impairment.