Under what circumstances does Benihana review its long-lived assets for impairment?
Benihana Franchise · 2024 FDDAnswer from 2024 FDD Document
(the](https://franchimp.com) "TCJA"), which, amongst other things, enacted global intangible low-taxed income provisions that do not allow us to defer the earnings of our U.K. and Italy subsidiaries.
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 undiscounted future cash flows 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 an impairment charge is recognized as the amount by which the carrying amount of the asset exceeds its fair value. The estimated fair value is determined for these assets in accordance with ASC 820. Property and equipment, net of accumulated depreciation, and the operating lease right-of-use assets as of December 31,2021 were $69.6 million and $85.4 million, respectively.
Source: Item 22 — CONTRACTS (FDD pages 73–74)
What This Means (2024 FDD)
According to Benihana's 2024 Franchise Disclosure Document, Benihana 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 impairment evaluation typically occurs 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, along with other relevant facts and circumstances, as the primary basis for estimating future cash flows. These circumstances include significant underperformance relative to historical or projected future operating results, significant changes in how the acquired assets are used or the strategy for the overall business, and significant negative industry or economic trends.
To determine recoverability, Benihana compares the carrying amount of a restaurant's assets to the estimated identifiable undiscounted future cash flows expected to be generated by those assets. If the carrying amount exceeds the estimated future cash flows, an impairment charge is recognized. 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 the year ended December 31, 2022, Benihana's property and equipment, net of accumulated depreciation, were valued at $94.1 million, and the operating lease right-of-use assets were valued at $85.2 million. For the year ended December 31, 2022, no impairment loss related to long-lived assets was recognized.