TXRH » Topics » Accounting for Preexisting Relationships between the Parties to a Business Combination

This excerpt taken from the TXRH 10-Q filed May 8, 2006.
Accounting for Preexisting Relationships between the Parties to a Business Combination (“EITF No. 04-1”), the timing of our annual conference and general business growth. In conjunction with the adoption of SFAS No. 123R, we recorded G&A expense of $0.9 million (0.6% of revenue). In conjunction with the application of EITF No. 04-1, we recorded a charge of $0.8 million (0.5% of revenue) relating to the acquisition of 11 franchise restaurants. In addition, we recorded $2.4 million (1.6% of revenue) in annual conference expenses in Q1 2006. In 2005, our annual conference occurred during the second quarter, in which we recorded an expense of $1.9 million (1.7% of revenue).

 

This excerpt taken from the TXRH 8-K filed May 2, 2006.
Accounting for Preexisting Relationships between the Parties to a Business Combination. This charge, which is non-deductible for tax purposes, relates to our acquisition of 11 franchise restaurants early in the first quarter of 2006 and was more fully described in our 2005 annual report on Form 10-K and previous two quarterly press releases.

 

Other highlights for the quarter include:

 

                  Four company restaurants and one franchise restaurant opened;

                  Restaurant operating costs, as a percentage of sales, were 15 basis points higher than the first quarter of 2005. Excluding stock option expense and the impact of the franchise acquisitions, restaurant operating costs, as a percentage of sales, were 40 basis points lower than the first quarter of 2005;

                  Pre-opening expenses increased $1.2 million quarter-over-quarter. Substantially more restaurants were in the development pipeline in the first quarter of 2006 versus the first quarter of 2005; and

 



 

                  Our effective tax rate increased to 40.0% in first quarter of 2006 from 35.3% in the first quarter of 2005 as a result of our adoption of SFAS No. 123R and the charge relating to the application of EITF 04-1.

 

This excerpt taken from the TXRH 10-K filed Mar 7, 2006.
Accounting for Preexisting Relationships between the Parties to a Business Combination, (“EITF No. 04-1”). EITF No. 04-1 requires that a business combination between two parties that have a preexisting relationship be evaluated to determine if a settlement of a preexisting relationship exists. EITF No. 04-1 also requires that certain reacquired rights (including the rights to the acquirer’s trade name under a franchise agreement) be recognized as intangible assets apart from goodwill. However, if a contract giving rise to the reacquired rights includes terms that are favorable or unfavorable when compared to pricing for current market transactions for the same or similar items, EITF No. 04-1 requires that a settlement gain or loss should be measured as the lesser of a) the amount by which the contract is favorable or unfavorable under market terms from the perspective of the acquirer or b) the stated settlement provisions of the contract available to the counterparty to which the contract is unfavorable.

EITF No. 04-1 is effective prospectively for business combinations consummated after October 13, 2004. EITF No. 04-1 will apply to the acquisition of franchise restaurants the Company made in the first quarter of 2006, as further discussed in note 22, and any additional acquisitions of restaurants the Company may make from our franchisees or licensees. The Company currently attempts to have our franchisees or licensees enter into standard franchise or license agreements when renewing or entering into a new agreement. However, in certain instances franchisees or licensees have existing agreements that possess terms that differ from the Company’s current standard agreements. If in the future the Company were to acquire additional franchisees or licensees with such an existing agreement, we would be required to record a settlement gain or loss at the date of acquisition. The amount and timing of any such gains or losses the Company might record is dependent upon which franchisees or licensees the Company might acquire and when they are acquired. Accordingly, any impact cannot be currently determined.

This excerpt taken from the TXRH 8-K filed Feb 23, 2006.
Accounting for Preexisting Relationships between the Parties to a Business Combination. In the first quarter of 2006, the Company will record a one-time, non-cash pre-tax charge of approximately $0.8 million relating to the acquisition of these 11 restaurants. The Company estimates the acquisitions will have the following full year impact to its financial statements, excluding the one-time charge:

 

      Increase in restaurant sales of approximately $42.0 million;

      Reduction in franchise royalties of approximately $1.4 million;

      No change in restaurant operating costs as a percentage of sales;

      Increase in general and administrative expenses of $0.1 million;

      Increase in depreciation and amortization of approximately $2.0 million;

      Increase in interest expense of approximately $1.0 million; and,

      Increase in weighted average diluted shares of 2.5 million.

 

Texas Roadhouse continues to evaluate opportunities for acquiring additional franchise restaurants.

 

This excerpt taken from the TXRH 8-K filed Dec 30, 2005.
Accounting for Preexisting Relationships between the Parties to a Business Combination. Anytime the Company acquires franchise restaurants whose current royalty rates are less than the rates charged to new restaurants, then the Company must record a one-time, non-cash charge for the value of the difference between the two royalty rates.

 

This excerpt taken from the TXRH 10-Q filed Nov 9, 2005.
Accounting for Preexisting Relationships between the Parties to a Business Combination, (“EITF No. 04-1”). EITF No. 04-1 requires that a business combination between two parties that have a preexisting relationship be evaluated to determine if a settlement of a preexisting relationship exists. EITF No. 04-1 also requires that certain reacquired rights (including the rights to the acquirer’s trade name under a franchise agreement) be recognized as intangible assets apart from goodwill. However, if a contract giving rise to the reacquired rights includes terms that are favorable or unfavorable when compared to pricing for current market transactions for the same or similar items, EITF No. 04-1 requires that a settlement gain or loss should be measured as the lesser of i) the amount by which the contract is favorable or unfavorable under market terms from the perspective of the acquirer or ii) the stated settlement provisions of the contract available to the counterparty to which the contract is unfavorable.

 

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EITF No. 04-1 was effective prospectively for business combinations consummated in reporting periods beginning after October 13, 2004 (fiscal year beginning December 29, 2004 for the Company). EITF No. 04-1 will apply to acquisitions of restaurants the Company may make from our franchisees or licensees. The Company currently attempts to have its franchisees or licensees enter into standard franchise or license agreements when renewing or entering into a new agreement. However, in certain instances franchisees or licensees have existing agreements that possess terms that differ from the Company’s current standard agreements. If in the future the Company were to acquire a franchisee or licensee with such an existing agreement, the Company would be required to record a

settlement gain or loss at the date of acquisition. The amount and timing of any such gains or losses the Company might record is dependent upon which franchisees or licensees the Company might acquire and when they are acquired. The Company has announced its intention to acquire 11 franchise restaurants later in the fourth quarter of 2005.  In addition, the Company has begun negotiations to acquire another six to ten restaurants during the first half of 2006.  Should the acquisitions be completed within the estimated time frame the Company will record a one-time, non-cash charge of approximately $0.8 million ($0.5 million, net of tax) relating to the 2005 acquisitions and $1.3 million ($0.8 million, net of tax) relating to the 2006 acquisitions.

 

In December 2004, the FASB issued SFAS No. 123 (revised 2004),

This excerpt taken from the TXRH 8-K filed Nov 8, 2005.
Accounting for Preexisting Relationships between the Parties to a Business Combination. Anytime the Company acquires franchise restaurants whose current royalty rates are less than the rates charged to new restaurants, the Company will record a one-time, non-cash charge for the value of the difference between the two royalty rates. Should the acquisitions discussed above be completed within the estimated time frame the Company will record a one-time, non-cash pre-tax charge of approximately $0.8 million in 2005 relating to 2005 acquisitions and $1.3 million in 2006 relating to 2006 acquisitions.

 

This excerpt taken from the TXRH 10-Q filed Aug 10, 2005.
Accounting for Preexisting Relationships between the Parties to a Business Combination, (“EITF No. 04-1”). EITF No. 04-1 requires that a business combination between two parties that have a preexisting relationship be evaluated to determine if a settlement of a preexisting relationship exists. EITF No. 04-1 also requires that certain reacquired rights (including the rights to the acquirer’s trade name under a franchise agreement) be recognized as intangible assets apart from goodwill. However, if a contract giving rise to the reacquired rights includes terms that are favorable or unfavorable when compared to pricing for current market transactions for the same or similar items, EITF No. 04-1 requires that a settlement gain or loss should be measured as the lesser of a) the amount by which the contract is favorable or unfavorable under market terms from the perspective of the acquirer or b) the stated settlement provisions of the contract available to the counterparty to which the contract is unfavorable.

 

EITF No. 04-1 was effective prospectively for business combinations consummated in reporting periods beginning after October 13, 2004 (fiscal year beginning December 29, 2004 for the Company). EITF No. 04-1 will apply to acquisitions of restaurants the Company may make from our franchisees or licensees. The Company currently attempts to have its franchisees or licensees enter into standard franchise or license agreements when renewing or entering into a new agreement. However, in certain instances franchisees or licensees have existing agreements that possess terms that differ from the Company’s current standard agreements. If in the future the Company were to acquire a franchisee or licensee with such an existing agreement, the Company would be required to record a

 

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settlement gain or loss at the date of acquisition. The amount and timing of any such gains or losses the Company might record is dependent upon which franchisees or licensees the Company might acquire and when they are acquired. Accordingly, any impact cannot be currently determined.

 

In December 2004, the FASB issued SFAS No. 123 (revised 2004),

This excerpt taken from the TXRH 10-Q filed May 13, 2005.
Accounting for Preexisting Relationships between the Parties to a Business Combination, (“EITF No. 04-1”). EITF No. 04-1 requires that a business combination between two parties that have a preexisting relationship be evaluated to determine if a settlement of a preexisting relationship exists. EITF No. 04-1 also requires that certain reacquired rights (including the rights to the acquirer’s trade name under a franchise agreement) be recognized as intangible assets apart from goodwill. However, if a contract giving rise to the reacquired rights includes terms that are favorable or unfavorable when compared to pricing for current market transactions for the same or similar items, EITF No. 04-1 requires that a settlement gain or loss should be measured as the lesser of a) the amount by which the contract is favorable or unfavorable under market terms from the perspective of the acquirer or b) the stated settlement provisions of the contract available to the counterparty to which the contract is unfavorable.

 

EITF No. 04-1 was effective prospectively for business combinations consummated after October 13, 2004. EITF No. 04-1 will apply to acquisitions of restaurants the Company may make from our franchisees or licensees. The Company currently attempts to have our franchisees or licensees enter into standard franchise or license agreements when renewing or entering into a new agreement. However, in certain instances franchisees or licensees have existing agreements that possess terms that differ from the Company’s current standard agreements. If in the future the Company were to acquire a franchisee or licensee with such an existing agreement, we would be required to record a settlement gain or loss at the date of acquisition. The amount and timing of any such gains or losses the Company might record is dependent upon which franchisees or licensees the Company might acquire and when they are acquired. Accordingly, any impact cannot be currently determined.

 

In December 2004, the FASB issued SFAS No. 123 (revised 2004),

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