Priszm Income Fund reports improved second quarter 2008 financial results



    Reports positive same store sales growth of 1.3 per cent and improved
    financial performance with EBITDA increasing by 33 per cent

    Adjusts distribution policy as part of strategy to redirect capital
    to higher return initiatives, including plans for a unit buyback plan,
    and to facilitate more consistent and sustainable growth for the long-
    term

    TORONTO, July 21 /CNW/ - Priszm Income Fund (TSX: QSR.UN) ("Priszm" or
the "Company") today reported its financial results for the second quarter
ended June 15, 2008.

    
    Second Quarter 2008 Highlights

    -   Same store sales growth (SSSG) of 1.3 per cent
    -   Multi-branded SSSG of 4.2 per cent
    -   EBITDA(*) of $10.0 million, an increase of 2.5 million
    -   Distributable cash(*) of $7.9 million, an increase of $2.7 million
    -   Completed one multi-brand project
    -   Initiates plans for a unit buyback, subject to regulatory approval

    (*)See section entitled Non-GAAP measures.
    

    "We are pleased to announce that the second quarter has seen a return to
positive same store sales growth and a continuing improvement in our cost of
sales," said Jeff O'Neill, Chief Executive Officer of Priszm. "The roll out of
the successful Chicken Bowl promotion, the introduction of KFC's new Toasted
Wrap product line, along with a well-executed Mother's Day promotion generated
solid top-line achievements this quarter.
    "While the second quarter has seen improvement, we recognize that within
the tightening economic environment there is additional work to be done to
ensure these positive results translate into a sustainable long-term trend for
our unitholders," said O'Neill. "This is why we continue to execute upon our
sound strategy and have an exceptional line up of new KFC products in place
for the balance of the year. This summer we will commence the testing of
Kentucky Grilled Chicken, a transformational product which we believe will
open the door to significant incremental revenue and a market that is more
than one-and-a-half times the size of our fried chicken market. Our team is
focused and working hard to grow sales while improving operating efficiencies
and carefully managing costs."

    Results from Continuing Operations

    Restaurant sales for the second quarter were $91.5 million, an increase
of $1.1 million, from the same quarter in 2007, along with an increase in SSSG
of 1.3 per cent, while multi-branded SSSG grew 4.2 percent for the period
ended June 15th, 2008.
    Cost of restaurant sales improved by 190 basis points to 57.5 per cent of
sales driven by a 230 basis point reduction in food and supplies, as strong
consumer promotions, cost reduction initiatives and pricing took effect. The
continuing impact of tight labour conditions in certain western markets, and
statutory wage increases, caused a 40 basis point increase in labour costs. In
addition the Company has continued to implement new restaurant management
software to help drive operating efficiency in its restaurant kitchens. In
combination with pricing actions, the efficiency improvements have managed to
mitigate the ongoing pressure of rising commodity costs, which are negatively
affecting input costs, including cooking oil and fresh chicken. The Company
anticipates input costs will remain a challenge for the foreseeable future and
is focused on achieving further cost savings in areas such as packaging and
waste management to continue to mitigate future increases.
    During the second quarter of 2008, income from restaurant operations
increased to $11.2 million from $9.6 million in the same period of 2007. As a
percentage of sales, income from restaurant operations improved to 12.2 per
cent, from 10.6 per cent in the same quarter a year ago.
    In the second quarter of 2008, EBITDA amounted to $10.0 million compared
to $7.5 million in the second quarter of 2007, an increase of 33 per cent.
Distributable cash was $7.9 million in the second quarter of 2008 compared to
$5.2 million in the comparable quarter of 2007, an increase of 53 per cent.

    Sale of 128 restaurants

    Priszm has secured firm offers for 80 restaurant locations and is making
progress on closing the transactions. The process is taking longer than
anticipated due to the significant due diligence needed to ensure the
transactions are successful. Yum! Brands is now reviewing the offers as part
of the process and Priszm is awaiting final approval by the franchisor. The
Company is confident that the transactions will commence closing later this
summer.

    Distributions

    Priszm announced today that as part of its restructuring strategy and
commitment to a longer term view of the business, sustainable growth and
return on investment, the Trustees have approved a change to the Company's
monthly distribution effective immediately. Commencing in July 2008, the
distribution will be adjusted to $0.05 per unit on a monthly basis. Cash
distributions declared in 2008 are expected to total $0.90 per unit, which
management anticipates will result in a payout ratio of less than 90 per cent
for the year.
    Accordingly, the Company announced its cash distribution for the month of
July 2008 of $0.05 per unit payable on August 15, 2008 to Ordinary and
Exchangeable Unitholders of record on July 31, 2008. The July distribution is
the 56th consecutive cash distribution declared since Priszm began operations
on November 10, 2003.
    "Providing a solid total return for our unitholders is one of Priszm's
key objectives," said O'Neill. "This includes paying out consistent and stable
distributions and growing the business to improve our valuation and unit
price. In the face of a soft economy, an inflationary environment and a
tightening credit market, we have managed to restructure our business and
mitigate rising costs. With the restructuring nearing completion, we have a
solid foundation from which we are pursuing our strategy. By changing the
distribution and redirecting the capital into higher return initiatives such
as multi-brands and acquisitions, we believe we can build a more robust
business for the future. In addition, we are committed to initiating a unit
buyback plan, subject to regulatory approval, should the yield on Priszm's
units remain in excess of 20 per cent."


    Non-GAAP Measures

    Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA")

    EBITDA is defined as earnings before net interest income / expense,
income taxes, depreciation and amortization and other items. EBITDA is not a
recognized measure under Canadian generally accepted accounting principles
("GAAP") and may not be comparable to similar measures used by other
companies. The Company believes that EBITDA is a useful supplementary measure
of operating performance as it provides investors with an indication of cash
available for distribution prior to debt service and capital expenditures.
Investors should be cautioned, however, that EBITDA should not be construed as
an alternative to net income determined in accordance with GAAP or to cash
flows from operating, investing and financing activities.

    Distributable Cash

    Distributable cash is not a recognized measure under GAAP, does not have
a standardized meaning prescribed by GAAP, and therefore, may not be
comparable to similar measures presented by other issuers. The Company
believes that distributable cash is a useful supplemental measure of
performance as it provides investors with an indication of the amount of cash
available for distribution to unitholders. However, readers are advised that
distributable cash is not meant to be an alternative to using net earnings as
a measure of profitability or the statement of cash flows.

    Quarterly Conference Call / Audio Webcast

    Priszm's management team will discuss its financial results for the
second quarter ended June 15, 2008 on Monday, July 21, 2008 at 3 p.m. EDT. The
call may be accessed by dialing 416-644-3414 or 1-800-733-7571 (toll-free). A
live audio webcast will be available at
http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=2115080.
    A slide presentation intended for simultaneous viewing will be available
the afternoon of Monday, July 21, 2008 at www.priszm.com.
    An archive of the audio webcast will be available for 90 days following
the original broadcast on Priszm's website at www.priszm.com.

    About Priszm Income Fund

    Priszm Income Fund (TSX: QSR.UN) has a 60.3 per cent interest in
Priszm LP, which owns and operates 465 quick service restaurants in
seven provinces across Canada. The KFC, Taco Bell and Pizza Hut restaurants
under Priszm serve 1.5 million customers a week and employ more than
9,000 people. Currently, 101 locations are multi-branded, combining two or
more of the Fund's restaurant concepts. To find out more about Priszm Income
Fund (TSX: QSR.UN), visit our website at http://www.priszm.com.

    Forward-Looking Statements

    Any forward-looking statements in this document are based on current
expectations that are subject to significant risks and uncertainties that are
difficult to predict. Actual results might differ materially from projections
suggested in any forward-looking statements due to factors such as the
competitive nature of the quick service restaurant industry, the ability of
Priszm and Priszm LP to execute a growth and development strategy, the
reliance of Priszm and Priszm LP on key personnel, the terms and conditions of
Priszm LP's franchise arrangements, and risk associated with the structure of
income trusts. Priszm and Priszm LP assume no obligation to update the
forward-looking statements, or to update the reasons why actual results could
differ from those reflected in the forward-looking statements. Additional
information identifying risks and uncertainties is contained in Priszm's
filings with the Canadian securities regulators, available at www.sedar.com.

    The following selected financial information, with the exception of
EBITDA, Distributable Cash and Distributable Cash Per Unit, has been derived
from and should be read in conjunction with the second quarter 2008 unaudited
financial statements and the MD&A in the Company's annual report for the year
ended December 30, 2007. Additional information can be found at www.sedar.com.


    
    RECONCILIATION OF DISTRIBUTABLE CASH
    (in thousands of dollars except per Unit amounts)

    The following table reconciles distributable cash to cash provided by
operating activities as located in the interim consolidated financial
statements on the Statement of Cash Flows.

                                        Second quarter         Year to date

                                       2008       2007       2008       2007
                                   ------------------------------------------
    Cash provided by (used in)
     operating activities          $  8,776   $    (78)  $ (3,473)  $ (8,947)
    Net change in non-cash working
     capital(1)                          (1)     6,235     12,751     16,930
    Maintenance capital
     expenditures(2)                   (883)      (996)    (1,321)    (1,795)
                                   ------------------------------------------
    Distributable cash                7,892      5,161      7,957      6,188
                                   ------------------------------------------

    Distributions declared during
     the period(3)                    6,978      5,510     13,952     13,775
    Distributable cash per Unit       0.305      0.200      0.308      0.240
    Distributions per Fund and
     Exchangeable Unit (3)            0.300      0.214      0.600      0.534
    Distributions per Subordinated
     Unit                                 -      0.214          -      0.534
    Distributions per Unit
     - diluted                        0.270      0.214      0.540      0.534

    Payout ratio                        98%       107%       195%       223%
    Payout ratio - fully diluted        88%       107%       175%       223%
                                   ------------------------------------------
                                   ------------------------------------------


    Notes:

    (1)  The Company does not need to finance its working capital as it
         operates in an environment where cash sales precede the payment of
         restaurant food, supplies and labour. While fluctuations will occur
         within quarters, on a full year basis these changes will not impact
         the Company's ability to make Unit distributions and therefore the
         Company adds back the net change in non-cash working capital to
         reconcile to distributable cash.

    (2)  Maintenance capital expenditures are defined by management as
         capital expenditures that are necessary to sustain current
         productive capacity. The Company believes that funding for
         maintenance capital expenditures must come out of operating cash
         flow. Development capital expenditures are not recorded as a
         reduction from distributable cash since these expenditures are
         expected to generate increases in future distributable cash and
         distributions. Maintenance capital expenditures and development
         capital expenditures are not measures recognized by GAAP, do not
         have standardized meanings prescribed by GAAP, and therefore, may
         not be comparable to similar measures presented by other issuers.

    (3)  Distributions per Unit include all declared distributions for the
         second quarter (first and second quarter for YTD) of 2007 and 2008
         respectively.


    RECONCILIATION OF NET INCOME (LOSS) TO EBITDA
    (in thousands of dollars)

    The following table reconciles EBITDA to net income (loss) as located in
the interim consolidated financial statements on the Statements of Operations.

                                        Second quarter         Year to date

                                       2008       2007       2008       2007
                                   ------------------------------------------

    Net income (loss) for the
     period                        $  2,758   $ (1,901)  $    941   $ (3,382)

    Future tax expense                    -      5,700         25      5,700
    Interest income                     (27)       (20)      (114)       (65)
    Interest expense before
     accretion and amortization
     of deferred financing charges    1,823      1,337      3,646      2,571
    Non-controlling interest          1,819     (1,255)       618     (2,233)
    Amortization                      3,132      4,058      6,280      8,062
    Interest accretion                  217         52        436        105
    Unit-based compensation             201         15        403         29
    Long-term incentive plan accrual     48       (621)       (44)      (405)
    Loss on disposal of property
     and equipment                        -        109         19        107

                                   ------------------------------------------
    EBITDA                            9,971      7,474     12,210     10,489
                                   ------------------------------------------
                                   ------------------------------------------



    INTERIM CONSOLIDATED BALANCE SHEETS (UNAUDITED)
    (in thousands of dollars)

                                                      June 15,   December 30,
                                                         2008           2007
                                                  ---------------------------
    ASSETS
    Current assets
    Cash and cash equivalents                      $    6,499     $   19,449
    Short-term investments                                  -          5,002
    Trade and other accounts receivable                 2,476          2,436
    Inventories                                         3,360          3,618
    Prepaid expenses                                    3,197          1,578
    Other assets                                          169            169
                                                  ---------------------------
                                                       15,701         32,252
    Property and equipment                             70,096         70,860
    Future income taxes                                 4,300          4,225
    Franchise rights                                   37,952         39,294
    Goodwill                                          120,357        120,357
    Assets of discontinued operations                  17,087         16,471
                                                  ---------------------------
                                                      265,493        283,459
                                                  ---------------------------
                                                  ---------------------------

    LIABILITIES
    Current liabilities
    Accounts payable and accrued liabilities           35,125         45,027
    Distributions payable to Unitholders                4,652            697
                                                  ---------------------------
                                                       39,777         45,724
    Long-term loan                                     74,638         74,224
    Convertible debentures                             28,207         28,008
    Future income taxes                                 4,555          4,455
    Deferred contract amounts                           5,583          5,072
    Liabilities of discontinued operations              4,237          5,600
                                                  ---------------------------
                                                      156,997        163,083
                                                  ---------------------------
    Non-controlling interest                           45,809         49,804
                                                  ---------------------------

    UNITHOLDERS' EQUITY
    Equity                                            143,711        143,198
    Deficit                                           (81,024)       (72,626)
                                                  ---------------------------
                                                       62,687         70,572
                                                  ---------------------------
                                                      265,493        283,459
                                                  ---------------------------
                                                  ---------------------------



    INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
    (in thousands of dollars, except per Unit amounts)

                               Period       Period       Period       Period
                                 from         from         from         from
                             March 24,    March 26, December 31,   January 1,
                              2008 to      2007 to      2007 to      2007 to
                              June 15,     June 17,     June 15,     June 17,
                                 2008         2007         2008         2007
                           --------------------------------------------------

    Restaurant sales        $  91,498    $  90,421   $  169,081    $ 170,540
                           --------------------------------------------------
    Restaurant cost and
     expenses
    Cost of restaurant
     sales                     52,553       53,660       99,313      101,463
    Restaurant operating
     expenses                  13,189       13,039       25,571       25,690
    Rent                        6,616        6,313       13,336       12,816
    Franchise royalty
     expense                    5,491        5,428       10,149       10,238
    Amortization                2,469        2,368        4,908        4,688
                           --------------------------------------------------
                               80,318       80,808      153,277      154,895
                           --------------------------------------------------
    Income from restaurant
     operations                11,180        9,613       15,804       15,645
    General and admin-
     istrative expenses,
     including amortization
     of $763 (December 31,
     2007 to June 15, 2008
     - $1,536)                  5,097        4,982        9,501       10,135

    Interest income               (27)         (20)        (114)         (65)
    Interest expense            2,040        1,509        4,082        2,913
                           --------------------------------------------------
    Income before income
     taxes and
     non-controlling interest   4,070        3,142        2,335        2,662
    Income taxes                    -        5,700           25        5,700
                           --------------------------------------------------
    Income (loss) from
     continuing operations
     before non-controlling
     interest                   4,070       (2,558)       2,310       (3,038)
    Non-controlling
     interest                  (1,618)       1,017         (917)       1,208
                           --------------------------------------------------
    Income (loss) from
     continuing operations      2,452       (1,541)       1,393       (1,830)
    Income (loss) from
     discontinued operations        -
     net of income taxes and
     non-controlling
     interest                     306         (360)        (452)      (1,552)
                           --------------------------------------------------
    Net income (loss) for
     the period                 2,758       (1,901)         941       (3,382)
                           --------------------------------------------------
                           --------------------------------------------------
    Basic earnings (loss)
     per Unit
    Continuing operations       0.157       (0.099)       0.089       (0.117)
    Discontinued
     operations                 0.020       (0.023)      (0.029)      (0.100)
                           --------------------------------------------------
                                0.177       (0.122)       0.060       (0.217)
                           --------------------------------------------------
                           --------------------------------------------------
    Diluted earnings (loss)
     per Unit
    Continuing operations       0.146       (0.099)       0.089       (0.117)
    Discontinued
     operations                 0.016       (0.023)      (0.029)      (0.100)
                           --------------------------------------------------
                                0.162       (0.122)       0.060       (0.217)
                           --------------------------------------------------
                           --------------------------------------------------



    INTERIM CONSOLIDATED STATEMENTS OF DEFICIT (UNAUDITED)
    (in thousands of dollars)

                               Period       Period       Period       Period
                                 from         from         from         from
                             March 24,    March 26, December 31,   January 1,
                              2008 to      2007 to      2007 to      2007 to
                              June 15,     June 17,     June 15,     June 17,
                                 2008         2007         2008         2007
                           --------------------------------------------------
    Deficit - Beginning
     of period               $(79,110)    $(31,363)    $(72,626)    $(24,904)
    Net income (loss) for
     the period                 2,758       (1,901)         941       (3,382)
    Distributions              (4,672)      (3,318)      (9,339)      (8,296)
                           --------------------------------------------------
    Deficit - End of period   (81,024)     (36,582)     (81,024)     (36,582)
                           --------------------------------------------------



    INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
    (UNAUDITED)
    (in thousands of dollars)

                               Period       Period       Period       Period
                                 from         from         from         from
                             March 24,    March 26, December 31,   January 1,
                              2008 to      2007 to      2007 to      2007 to
                              June 15,     June 17,     June 15,     June 17,
                                 2008         2007         2008         2007
                           --------------------------------------------------
    Net income (loss) for
     the period              $  2,758     $ (1,901)    $    941     $ (3,382)
    Other comprehensive
     income                         -            -            -            -
                           --------------------------------------------------
    Comprehensive income
     (loss)                     2,758       (1,901)         941       (3,382)
                           --------------------------------------------------


    INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
    (in thousands of dollars)


                               Period       Period       Period       Period
                                 from         from         from         from
                             March 24,    March 26, December 31,   January 1,
                              2008 to      2007 to      2007 to      2007 to
                              June 15,     June 17,     June 15,     June 17,
                                 2008         2007         2008         2007
                           --------------------------------------------------
    Cash provided by (used
     in)
    Operating activities
    Income (loss) from
     continuing operations   $  2,452     $ (1,541)    $  1,393     $ (1,830)
    Add: Non-cash items
      Future Income taxes           -        5,700           25        5,700
      Non-controlling
       interest                 1,618       (1,017)         917       (1,208)
      Amortization of
       property and
       equipment                2,507        2,345        4,981        4,636
      Amortization of
       franchise rights           683          687        1,369        1,368
      Amortization of
       deferred financing
       charges                      -          120            -          237
      Interest accretion          217           52          436          105
      Amortization of deferred
       contract amount            (54)          29          (89)          74
      Loss on disposal of
       property and equipment       -          109           19          107
      Unit-based compensation     201           15          403           29
      Long-term incentive
       plan accrual                48         (621)         (44)        (405)
                           --------------------------------------------------
    Cash provided by
     continuing operations      7,672        5,878        9,410        8,813
    Net change in continuing
     non-cash working capital     547       (5,657)     (11,149)     (15,508)
    Tenant inducement             600            -          600            -
                           --------------------------------------------------
    Cash provided by (used in)
     continuing operations      8,819          221       (1,139)      (6,695)
    Income (loss) from
     discontinued operations      306         (360)        (452)      (1,552)
    Change in discontinued
     operations - non-cash
     items                        197          639         (280)         722
    Net change in
     discontinued non-cash
     working capital             (546)        (578)      (1,602)      (1,422)
                           --------------------------------------------------
    Cash provided by
     (used in) operating
     activities                 8,776          (78)      (3,473)      (8,947)
                           --------------------------------------------------

    Investing activities
    Purchase of property and
     equipment                 (2,428)      (3,386)      (4,632)      (6,167)
    Purchase of franchise
     rights                       (27)        (234)         (27)        (234)
    Net proceeds on disposal
     of property and equipment      -           46            -           48
    Proceeds on sale of
     short-term investments         -            -        5,002            -
                           --------------------------------------------------
    Cash provided by
     (used in) investing
     activities                (2,455)      (3,574)         343       (6,353)
                           --------------------------------------------------

    Financing activities
    Deferred financing charges    (27)           -          (45)           -
    Distributions to
     Unitholders               (4,652)      (8,816)      (9,997)     (18,621)
    Proceeds from revolving
     credit facilities              -        7,300            -        7,300
    Proceeds from long-term
     loan                         124            -          222            -
                           --------------------------------------------------
    Cash used in financing
     activities                (4,555)      (1,516)      (9,820)     (11,321)
                           --------------------------------------------------
    Change in cash and cash
     equivalents during the
     period                     1,766       (5,168)     (12,950)     (26,621)
    Cash and cash
     equivalents - Beginning
     of period                  4,733        7,753       19,449       29,206
                           --------------------------------------------------
    Cash and cash
     equivalents - End of
     period                     6,499        2,585        6,499        2,585
                           --------------------------------------------------
                           --------------------------------------------------
    

    %SEDAR: 00019884E




For further information:

For further information: Investors: Trish Moran, (416) 739-2906,
trish.moran@priszm.com; Media: Wilcox Group, (416) 203-6666,
priszm@wilcoxgroup.com

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