Under what circumstances might Benihana recognize outstanding gift card balances as breakage in its financial statements?
Benihana Franchise · 2024 FDDAnswer from 2024 FDD Document
ated to loyalty points is deemed to have been satisfied, and the amount deferred in the balance sheet is recognized as revenue, when the points are converted to a reward and redeemed, or the likelihood of redemption is remote. A portion of the transaction price is allocated to loyalty points, if necessary, on a pro-rata basis, based on the stand-alone selling price, as determined by menu pricing and loyalty points terms. As of December 31, 2023 and 2022 the deferred revenue allocated to loyalty points that have not been redeemed was $0.2 million, which is recorded as a component of accrued expenses in the accompanying consolidated balance sheets. The Company expects the loyalty points to be redeemed and recognized over a one-year period.
Gift Cards
Proceeds from the sale of gift cards are recorded as deferred revenue and recognized as revenue when redeemed by the holder. There are no expiration dates on the Company's gift cards and the Company does not charge any service fees that would result in
Source: Item 22 — CONTRACTS (FDD pages 73–74)
What This Means (2024 FDD)
According to Benihana's 2024 Franchise Disclosure Document, the company records proceeds from gift card sales as deferred revenue, recognizing it as revenue when the gift card is redeemed. Benihana gift cards do not have expiration dates, and the company does not charge service fees that would decrease the card's balance.
However, Benihana may recognize outstanding gift card balances as "breakage" under specific conditions. This occurs when the company determines that the likelihood of a gift card being redeemed is remote, often due to extended periods of inactivity. Before recognizing this breakage, Benihana must also confirm that there is no legal requirement to remit these balances to government agencies under unclaimed property laws.
In the years ending December 31, 2023 and 2022, Benihana recognized $0.1 million and $0.3 million, respectively, in revenue from gift card breakage. This accounting practice allows Benihana to recognize revenue from gift cards that are unlikely to be used, provided they comply with unclaimed property laws. This revenue is then included as a component of owned restaurant net revenue.