Ignite Restaurant Group Announces Completion of Restatement, Refinancing Transaction and Second and

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Ignite Restaurant Group Announces Completion of Restatement, Refinancing Transaction and Second and Third Quarter Results

HOUSTON--(BUSINESS WIRE)-- Ignite Restaurant Group, Inc. (NAS: IRG) today announced that it has completed its internal assessment of its lease accounting policies and the review of its historical accounting for fixed assets and related depreciation and certain other accounting areas. Accordingly, the Company has restated all of its previously issued financial statements. In addition, the Company today announced a new $100 million credit facility to refinance existing debt at more favorable interest rates and reported unaudited financial results for its quarters ended June 18, 2012 and September 10, 2012.

A summary of the impact of the restatement is as follows:

  • The aggregate impact of the restatement adjustments and related tax effects from the Company's inception in 2006 through the first quarter of 2012 reduces net income by a total of $6.4 million over the 5-year plus period.
  • During the same period, the restatement adjustments reduced Adjusted EBITDA and restaurant-level profit (which are both non-GAAP measures) by an aggregate of approximately 2.7% and 1.4%, respectively.
  • The restatement adjustments do not impact the Company's revenues, comparable restaurant sales or free cash flows.

Company refinances debt with new $100 million revolving credit facility:

  • The new five-year $100 million revolving credit facility replaces $74.5 million of term loan debt and $25 million unused revolving credit facility.
  • At closing the Company's borrowing rate decreased by approximately 390 basis points providing estimated annual interest expense savings of approximately $3.5 million to $3.7 million, assuming average outstanding debt balances under the new facility of approximately $50.0 million.
  • With this facility in place, the Company is well positioned to continue to execute its business strategies and grow its brands.

Projected impact of revised accounting policies, refinancing and related fees and charges on future periods:

  • The following table summarizes the projected range of the estimated impact of revised accounting policies necessary in light of the restatement, the refinancing and related charges and fees on income before income taxes for fiscal years 2012 and 2013 (amounts in thousands):
    
Fiscal Year 2012
(Unfav)/Fav
Fiscal Year 2013
(Unfav)/Fav
(Low) (High)(Low) (High)
Revised accounting policies$(2,100)$(2,400)$(3,000)$(3,700)
Refinancing6004003,7003,500
Impact before fees and charges(1,500)(2,000)700(200)
One-time professional fees(2,250)(2,250)
Loss on extinguishment of debt from refinancing(2,200)(2,200)
Total change in income before income taxes$(5,950)$(6,450)$700$(200)
 
  • Estimates of future impact included in the table are subject to key assumptions, variability and risks discussed below under "Projected Impact of Revised Accounting Policies, Refinancing and Related Fees and Charges on Future Periods" and "Forward-Looking Statements."

Highlights for the second quarter 2012 compared to the second quarter 2011:

  • Total revenues rose 16.2% to $119.9 million compared to $103.2 million.
  • Comparable restaurant sales increased 3.0%.
  • Net income increased 27.8% to $5.5 million from $4.3 million.
  • Adjusted pro forma net income (which is a non-GAAP measure), increased 97% to $7.4 million, or $0.29 per diluted share from $3.7 million, or $0.15 per diluted share.

Highlights for the third quarter 2012 compared to the third quarter 2011:

  • Total revenues rose 14.0% to $129.1 million compared to $113.2 million.
  • Comparable restaurant sales increased 0.4%, the Company's 17th consecutive quarter of positive comparable restaurant sales growth.
  • Net income increased 8.4% to $8.9 million from $8.2 million.
  • Adjusted pro forma net income increased 31.5% to $9.6 million, or $0.37 per diluted share from $7.3 million, or $0.28 per diluted share.

Restatement

Overview

After an intensive accounting review process, the Company filed a Current Report on Form 8-K to restate its previously issued financial statements covering the last three fiscal years and the twelve week periods ended March 28, 2011 and March 26, 2012. Since the restatement also includes the correction of errors in fiscal years prior to fiscal year 2009, the Company recognized a cumulative adjustment to beginning retained earnings as of the last day of fiscal year 2008. This review process included a broad assessment of the Company's accounting policies, including, among other items, a comprehensive review of the Company's lease accounting and an assessment of its historical accounting for fixed assets which entailed: (1) a review of fixed asset additions from the Company's inception, (2) a restaurant-level inventory of fixed assets at all 144 restaurant locations, (3) a detailed roll-forward of fixed assets to identify appropriate disposals, (4) a reassessment of useful lives for all assets and (5) the recalculation of depreciation as necessary.

The restatement corrects historic accounting errors for the following:

  • Lease accounting issues related to the timing for recognizing deferred rent expenses;
  • Accounting related to fixed asset capitalization, useful lives and disposals (including demolition expenses in certain locations unrelated to new store development) and timing of related depreciation; and
  • Other miscellaneous items identified during the accounting review, including the timing for recognizing advertising production costs and vacation accruals between calendar quarters within the same fiscal year, the classification of liquor license acquisition costs on the Company's statement of cash flows, the timing for the recognition of a portion of the professional fees incurred in connection with the IPO and tax adjustments related to changes in the valuation allowance on deferred tax assets in quarterly periods and the recognition of uncertain tax positions.

These restatement adjustments reduce both income from operations and income before income taxes for fiscal year 2011 and first quarter 2012 by $2.6 million and $836,000, respectively. The adjustments and related tax effects increase fiscal year 2011 net income by $810,000 and decrease first quarter 2012 net income by $606,000. The impact of each of these adjustments on the Company's income from operations, income before income taxes and net income for all periods since the Company's inception is detailed in the table below (amounts in thousands, except per share data):

     
Fiscal Year EndedTwelve
Weeks
Ended
Fiscal Years
2006 - 2011
Through
Fiscal Years
2006 - 2008
December
28, 2009
 January 3,
2011
 January 2,
2012
March 26,
2012
First Quarter
2012
Income from operations
As reported$8,801$12,800$16,152$19,429$5,366$62,548
Adjustments:
Depreciation expense33442321715(20)969
Repairs and maintenance expense(1,936)(489)(426)(634)(89)(3,574)
Loss on disposal of property and
equipment
(1,806)(227)(445)(474)(89)(3,041)
Deferred rent(244)(328)(1,136)(1,337)(547)(3,592)
Other244238(138)(91)(125)
Net adjustment to income from operations(3,628)(579)(1,752)(2,568)(836)(9,363)
As restated$5,173$12,221$14,400$16,861$4,530$53,185
 
Net income (loss)
As reported$(9,038)$9,870$11,848$11,253$2,491$26,424
Adjustments:
Net adjustment to income from operations(3,628)(579)(1,752)(2,568)(836)(9,363)
Gain on insurance settlements(355)(355)
Adjustment to income before
income taxes
(3,628)(579)(2,107)(2,568)(836)(9,718)
Income tax effect of restatement
adjustments
2413,4212773,939
Income tax error adjustments(252)(280)(43)(47)(622)
Net adjustment to net income (loss)(3,628)(831)(2,146)810(606)(6,401)
As restated$(12,666)$9,039$9,702$12,063$1,885$20,023
 
Net income per share
As reported$0.51$0.62$0.59$0.13
Adjustments(0.04)(0.11)0.04(0.03)
As restated$0.47$0.51$0.63$0.10
 

(1) Share count used for calculation of net income (loss) per share is the post-split pre-IPO share count of 19.2 million shares. The calculation of net income (loss) per share in the periods presented above is not affected by the additional 6.4 million shares issued as part of the IPO, which was completed in May 2012.

The restatement does not impact the Company's revenues, comparable restaurant sales or free cash flows for any period. In addition, the impact on other key non-GAAP measures, including Adjusted EBITDA and restaurant-level profit is minimal. The restatement adjustments reduce Adjusted EBITDA for fiscal year 2011 and first quarter 2012 by $835,000 (or 1.9%) and $189,000 (or 1.7%), respectively. The impact on restaurant-level profit for fiscal year 2011 and first quarter 2012 was a reduction of $600,000 (or 0.9%) and $362,000 (or 2.2%), respectively. The cumulative impact of the restatement adjustments on the Company's Adjusted EBITDA and restaurant-level profit for all periods since its inception is detailed in the table below (amounts in thousands):

     
Fiscal Year EndedTwelve
Weeks
Ended
Fiscal Years
2006 - 2011
Through
Fiscal Years
2006 - 2008
December
28, 2009
 January 3,
2011
 January 2,
2012
March 26,
2012
First Quarter
2012
 
Adjusted EBITDA
As reported$45,040$30,276$39,910$44,105$11,116$170,447
Adjustments:
Repairs and maintenance expense(1,936)(489)(426)(634)(89)(3,574)
Non-development demolition costs(436)(1)(132)(26)(595)
Other(175)(100)(275)
Net adjustment to Adjusted EBITDA(2,372)(490)(558)(835)(189)(4,444)
As restated$42,668$29,786$39,352$43,270$10,927$166,003
 
Restaurant-level profit
As reported$74,123$47,726$58,730$64,733$17,112$262,424
Adjustments:
Repairs and maintenance expense(1,755)(466)(419)(600)(87)(3,327)
Other(275)(275)
Net adjustment to restaurant-level
profit
(1,755) Read Full Story

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