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Ignite Restaurant Group Announces Completion Of Restatement, Refinancing Transaction And Second And Third Quarter Results

Stocks in this article: IRG

Ignite Restaurant Group, Inc. (NASDAQ: 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 )
Refinancing 600 400 3,700 3,500
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 17 th 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.

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