Ignite Restaurant Group, Inc. (IRG) announced that the company has determined it necessary to correct non-cash related errors related to its accounting treatment of certain leases.
Following the completion of an accounting review, the company, with the concurrence of its independent registered public accounting firm, PricewaterhouseCoopers LLP, will restate its previously issued financial statements for years 2009 through 2011 and for the first quarter of 2012, Ignite Restaurant said.
Ignite Restaurant noted that the lease accounting errors have been preliminarily quantified by the Company and date back to 2006, the year of the Company's origination. Adjustments for these errors will reflect non-cash charges primarily relating to deferred rent.
The company estimates that the aggregate pre-tax effect of the lease accounting related restatement items from 2006 through the first quarter of 2012 will range from $3.4 to $3.8 million. The non-cash charges will impact deferred rent expense and pre-opening expense. The cumulative impact of these expenses in 2006 through 2009 is estimated to be $500 to $600 thousand. The impact is higher from 2010 through the first quarter of 2012 when the Company opened 24 new or converted units.
The company said the lease accounting restatement adjustments reduce pre-tax income by an estimated $1.0 to $1.1 million in 2010, $1.3 million to $1.5 million in 2011 and $550 to $650 thousand in the first quarter of 2012. The estimated increases in deferred rent expense and preopening expense will result in a corresponding increase in the deferred rent liability.
The company said based on the review work completed to date, it expects the fixed asset accounting review to result in a minimum of $1.2 million cumulative of pre-tax non-cash adjustments to our financial statements from 2006 through the first quarter of 2012 that will negatively impact our net income during those historical periods.
The company noted that in connection with the restatement, it will also reclassify $175 thousand of general and administrative expense from the first quarter of 2012 into 2011. The error correction relates to professional fees for quarterly reviews completed by the Company's independent registered public accounting firm in 2011 that were previously recorded in the first quarter of 2012. This reclassification will have the effect of decreasing net income and Adjusted EBITDA in fiscal 2011 and increasing both measures in the first quarter of 2012.
For the second quarter ended June 18, 2012, the Company estimates revenues to be approximately $119.9 million, an increase of 16.2% compared to revenues of $103.2 million in the prior-year period. The Company estimates that comparable restaurant sales increased 3.0%.
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