Under what circumstances does Benihana review long-lived assets for impairment?
Benihana Franchise · 2024 FDDAnswer from 2024 FDD Document
, 2023, we had a valuation allowance of $0.6 million that relates to foreign tax credits we do not expect to utilize as a result of generating income in a jurisdiction with a higher income tax rate than the U.S. The recording of deferred taxes requires significant management judgment regarding the interpretation of applicable statutes, the status of various income tax audits, and our particular facts and circumstances.
Our income taxes are impacted by the enactment of the Tax Cuts and Job Act in December 2017 (the "TCJA"), which, amongst other things, enacted global intangible low-taxed income provisions that do not allow us to defer the earnings of our subsidiaries in the U.K. and Italy.
Impairment of Long-Lived Assets and Disposal of Property and Equipment
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 undisco
Source: Item 22 — CONTRACTS (FDD pages 73–74)
What This Means (2024 FDD)
According to Benihana's 2024 Franchise Disclosure Document, Benihana reviews long-lived assets for impairment when certain conditions are met. These assets, which include property, equipment, and right-of-use assets for operating leases, are evaluated if events or changes in circumstances suggest that their carrying value may not be fully recoverable. This evaluation typically occurs at the individual restaurant level, as Benihana considers this the lowest level for which identifiable cash flows can be determined.
The review process involves comparing the carrying amount of a restaurant's assets to the estimated identifiable undiscounted future cash flows expected from those assets. This comparison excludes operating lease payments. If the carrying amount exceeds the estimated future cash flows, Benihana recognizes an impairment charge. This charge is equivalent to the difference between the carrying amount of the asset and its fair value, with the fair value determined according to ASC 820, Fair Value Measurement.
Several factors can trigger an impairment review. These include significant underperformance relative to historical or projected operating results, substantial changes in how the acquired assets are used, shifts in the overall business strategy, and significant negative trends in the industry or economy. These considerations involve estimates and assumptions that require considerable judgment by Benihana. For example, as of December 31, 2023, the net property and equipment was $139.9 million, and the operating lease right-of-use assets were $95.1 million. However, for the year ended December 31, 2022, and December 31, 2021, Benihana did not identify any events or changes in circumstances that indicated that the carrying values of its restaurant assets were impaired.