Under what conditions does Benihana recognize outstanding gift card balances as breakage revenue?
Benihana Franchise · 2024 FDDAnswer from 2024 FDD Document
cessary, 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 recognizes revenue from gift cards when they are redeemed. However, Benihana may recognize outstanding gift card balances as breakage revenue under specific conditions.
Benihana may determine that the likelihood of a gift card being redeemed is remote, potentially due to long periods of inactivity. If Benihana determines that there is no requirement to remit the gift card balances to government agencies under unclaimed property laws, the outstanding gift card balances may be recognized as breakage revenue. This breakage is then reported as part of owned restaurant net revenue in the consolidated statements of operations and comprehensive income.
For example, for the years ended December 31, 2023 and 2022, Benihana recognized $0.1 million and $0.3 million, respectively, in revenue from gift card breakage. This indicates that Benihana does recognize revenue from unredeemed gift cards when the likelihood of redemption is considered remote and there is no legal obligation to remit the balances.