Priszm Income Fund reports third quarter 2008 financial results



    
     Continues to beat rising inflation through effective cost reductions
                               and efficiencies

         Completes sale of first tranche of non-strategic restaurants
    

    TORONTO, Oct. 17 /CNW/ - Priszm Income Fund (TSX: QSR.UN) ("Priszm" or
the "Company") today reported its financial results for the third quarter
ended September 7, 2008.

    
    Third Quarter 2008 Highlights

    -   Restaurant sales of $95.9 million
    -   EBITDA(*) of $11.2 million
    -   Distributable cash(*) of $8.5 million
    -   Completed two multi-brand projects
    -   Completed sale of eight restaurants for proceeds of $0.8 million
    -   Initiated normal course issuer bid and repurchased 143,400 Units at
        an average price of $2.22 per Unit subsequent to the end of the third
        quarter

    (*) See section entitled Non-GAAP measures.
    

    "Our strong focus on operating efficiencies has enabled us to stay well
ahead of the inflation curve by offsetting rising food costs on a year-to-date
basis. We continue to demonstrate that our efforts to restructure and grow the
business are working and we are focused on initiatives that will ensure more
consistent and sustainable top-line growth in the future," said Jeff O'Neill,
Chief Executive Officer of Priszm. "Our third quarter saw some mixed results.
While the quarter got off to a slow start, we finished with a return to
positive same store sales growth trends."

    Results from Continuing Operations

    Restaurant sales for the third quarter were $95.9 million, a decrease of
$1.8 million or 1.9 per cent from the same quarter in 2007.
    Same store sales growth for the third quarter of 2008 was 2.4 per cent
lower than the same quarter of 2007. As part of its strategy to move away from
deep discounting core chicken products, the Company shifted the focus from
typical summer bucket sales to a more value-added large pack promotion.
    "Given the tightening economy, this strategy proved to be a challenge in
rolling over sales trends from the prior year so we quickly reinstituted the
bucket sale as an overlay for the balance of the quarter in Ontario and
Quebec. This, together with the introduction of the new Toasted Twister and a
strong Trivial Pursuit promotion, immediately bolstered restaurant sales and
we regained the upward momentum established in the second quarter," said
O'Neill. "The return to a positive sales trend was maintained throughout the
balance of the third quarter."
    Cost of restaurant sales improved by 70 basis points to 58.2 per cent of
sales driven by a 140 basis point reduction in food and supplies expenses. The
continuing impact of tight labour conditions in certain western markets and
statutory wage increases caused a 70 basis point increase in labour costs. The
Company has also continued to implement new restaurant management software to
help drive operating efficiency in its restaurant kitchens and these
efficiency improvements have played a key role in mitigating the ongoing
pressure of rising commodity costs, which are negatively affecting input
costs, including cooking oil and fresh chicken.
    "While we anticipate that input costs will remain a challenge for the
foreseeable future, we are focused on achieving further cost savings," said
O'Neill. "We continue to identify opportunities to cut costs and improve
efficiency in areas such as packaging and waste management to help us improve
our cost of sales and offset inflation."
    During the third quarter of 2008, income from restaurant operations
decreased $0.9 million to $11.7 million from $12.6 million in the third
quarter of 2007. As a percentage of sales, income from restaurant operations
declined to 12.2 per cent from 12.9 per cent in the same quarter a year ago.
    In the third quarter of 2008, EBITDA amounted to $11.2 million compared
to $12.1 million in the third quarter of 2007.
    Distributable cash was $8.5 million in the third quarter of 2008 compared
to $11.1 million in the comparable quarter of 2007.

    Discontinued Operations

    The Company continues to market the sale of up to 128 identified
restaurants, of which eight restaurants were sold during the third quarter for
proceeds of $0.8 million. The Company is currently in the process of
finalizing purchase and sale agreements for approximately 50 additional
locations.

    Normal Course Issuer Bid

    Subsequent to the end of the third quarter 2008, as part of the strategy
to redirect capital to higher return initiatives and to facilitate more
consistent and sustainable growth plans for the long-term, the Company bought
back 143,400 Units for cancellation under the previously announced normal
course issuer bid, at an average price of $2.22 per Unit.
    Under the terms of the normal course issuer bid, the Company may purchase
its Units during the period from August 18, 2008 to August 17, 2009. The
Company may acquire up to a maximum of 10,793 Units per trading day, being
approximately 25 per cent of the average daily trading volume, and up to a
maximum in a 12-month period of 1,271,585 Units, being approximately 10 per
cent of the public float. There were 15,572,569 Units outstanding as of
September 7, 2008. Purchases will be made at market prices through the
facilities of the TSX. Any tendered Units taken up and paid for by the Company
will be cancelled. The Company believes that the ongoing purchase of its
outstanding Units is an appropriate use of its resources at this time. The
Company will continue to monitor the Unit yield and buy back Units when
opportunity arises.

    October Distribution

    Priszm announced a cash distribution for the month of October 2008 of
$0.05 per unit payable on November 17, 2008 to Ordinary and Exchangeable
Unitholders of record on October 31, 2008. The September distribution is the
59th consecutive cash distribution declared since Priszm began operations on
November 10, 2003.

    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 third
quarter ended September 7, 2008 on Friday, October 17, 2008 at 10 a.m. EDT.
The call may be accessed by dialing 416-644-3417 or 1-800-595-8550
(toll-free). A live audio webcast will be available at
http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=2115520.
    A slide presentation intended for simultaneous viewing will be available
the morning of Friday, October 17, 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) hold approximately a 60 per cent
interest in Priszm Limited Partnership, which owns and operates 459 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 third 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 CASH PROVIDED BY OPERATING ACTIVITIES
    TO DISTRIBUTABLE CASH
    (in thousands of dollars except per Unit amounts)

    The following table reconciles distributable cash to cash provided by
operating activities per the Statement of Cash Flows in the consolidated
financial statements, which includes the results of both continuing and
discontinued operations:

                                        Third Quarter         Year to Date

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

    Cash provided by operating
     activities                   $  10,370  $  14,102  $   6,897  $   5,155
    Net change in non-cash
     working capital(1)              (1,008)    (2,194)    11,743     14,736
    Maintenance capital
     expenditures(2)                   (859)      (824)    (2,180)    (2,619)
                                 --------------------------------------------
    Distributable cash                8,503     11,084     16,460     17,272
                                 --------------------------------------------

    Distributions declared
     during the period(3)             2,326      8,265     16,278     22,040

    Distributable cash per Unit       0.329      0.429      0.637      0.669
    Distributions per Fund and
     Exchangeable Unit(3)             0.100      0.320      0.700      0.854
    Distributions per
     Subordinated Unit                    -      0.320          -      0.854
    Distributions per Unit
     - diluted                        0.090      0.320      0.630      0.854

    Payout ratio                        30%        75%       110%       128%
    Payout ratio - fully diluted        27%        75%        99%       128%
                                 --------------------------------------------
                                 --------------------------------------------

    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. As restaurants are sold, the
        Company's will have a decrease to its cash position as it no longer
        has the benefit of being able to convert inventory to cash from sales
        before trade payables are due for those sold stores.

    (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
        third quarter (first, second and third quarters for YTD) of 2007 and
        2008, respectively.


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

    The following table reconciles net income from the consolidated financial
statements, which includes the results for both continuing and discontinued
operations, to EBITDA:

                                        Third Quarter         Year to Date

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

    Net income for the period     $   3,517  $   4,630  $   4,458  $   1,248

    Income taxes                          -     (1,000)        25      4,700
    Interest income                     (22)      (194)      (136)      (259)
    Interest expense before
     accretion and amortization
     of deferred financing
     charges                          1,829      1,662      5,475      4,233
    Non-controlling interest          2,320      3,058      2,938        825
    Amortization                      3,209      4,087      9,489     12,149
    Interest accretion                  207        155        643        260
    Unit-based compensation              89         14        492         43
    Long-term incentive
     plan accrual                        20       (270)       (24)      (675)
    Loss (gain) on disposal
     of property and equipment            -         (1)        19        106
                                 --------------------------------------------
    EBITDA                           11,169     12,141     23,379     22,630
                                 --------------------------------------------
                                 --------------------------------------------



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

                                                  September 7,   December 30,
                                                         2008           2007
                                                 ----------------------------
    ASSETS
    Current assets
    Cash and cash equivalents                      $    7,718     $   19,449
    Short-term investments                                  -          5,002
    Trade and other accounts receivable                 3,214          2,436
    Inventories                                         3,461          3,618
    Prepaid expenses                                    3,861          1,578
    Other assets                                          170            169
                                                 ----------------------------
                                                       18,424         32,252
    Property and equipment                             70,756         70,860
    Future income taxes                                 4,300          4,225
    Franchise rights                                   37,362         39,294
    Goodwill                                          120,357        120,357
    Assets of discontinued operations                  16,369         16,471
                                                 ----------------------------
                                                      267,568        283,459
                                                 ----------------------------
                                                 ----------------------------
    LIABILITIES
    Current liabilities
    Accounts payable and accrued liabilities           37,118         45,027
    Distributions payable to Unitholders                1,163            697
                                                 ----------------------------
                                                       38,281         45,724
    Long-term loan                                     74,826         74,224
    Convertible debentures                             28,308         28,008
    Future income taxes                                 4,555          4,455
    Deferred contract amounts                           5,556          5,072
    Liabilities of discontinued operations              3,901          5,600
                                                 ----------------------------
                                                      155,427        163,083
                                                 ----------------------------
    Non-controlling interest                           47,360         49,804
                                                 ----------------------------

    UNITHOLDERS' EQUITY
    Equity                                            143,845        143,198
    Deficit                                           (79,064)       (72,626)
                                                 ----------------------------
                                                       64,781         70,572
                                                 ----------------------------
                                                      267,568        283,459
                                                 ----------------------------
                                                 ----------------------------



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

                                  Period      Period      Period      Period
                                    from        from        from        from
                                 June 16,    June 18,     Dec 31,      Jan 1,
                                 2008 to     2007 to     2007 to     2007 to
                                  Sept 7,     Sept 9,     Sept 7,     Sept 9,
                                    2008        2007        2008        2007
                              -----------------------------------------------

    Restaurant sales           $  95,857   $  97,711   $ 264,938   $ 268,251
                              -----------------------------------------------

    Restaurant cost and
     expenses
      Cost of restaurant sales    55,798      57,592     155,111     159,055
      Restaurant operating
       expenses                   13,521      12,812      39,092      38,502
      Rent                         6,598       6,415      19,934      19,231
      Franchise royalty
       expense                     5,753       5,869      15,902      16,107
      Amortization                 2,531       2,455       7,439       7,143
                              -----------------------------------------------
                                  84,201      85,143     237,478     240,038
                              -----------------------------------------------

    Income from restaurant
     operations                   11,656      12,568      27,460      28,213

    General and
     administrative expenses
      including amortization
       of $766 (December 31,
       2007 to September 7,
       2008 - $2,302)              4,552       4,287      14,053      13,927

    Interest income                  (22)       (194)       (136)       (259)

    Interest expense               2,036       1,949       6,118       4,862
                              -----------------------------------------------

    Income before income
     taxes and non-controlling
     interest                      5,090       6,526       7,425       9,683

    Income taxes                       -      (1,000)         25       4,700
                              -----------------------------------------------

    Income from continuing
     operations before non-
     controlling interest          5,090       7,526       7,400       4,983

    Non-controlling interest      (2,023)     (2,993)     (2,940)     (1,982)
                              -----------------------------------------------

    Income from continuing
     operations                    3,067       4,533       4,460       3,001

    Income from discontinued
     operations net of
     income taxes and non-
     controlling interest            450          97          (2)     (1,753)
                              -----------------------------------------------

    Net income for the period      3,517       4,630       4,458       1,248
                              -----------------------------------------------
                              -----------------------------------------------

    Basic earnings (loss)
     per Unit
    Continuing operations          0.197       0.291       0.286       0.193
    Discontinued operations        0.029       0.006       0.000      (0.113)
                              -----------------------------------------------
                                   0.226       0.297       0.286       0.080
                              -----------------------------------------------
                              -----------------------------------------------
    Diluted earnings (loss)
     per Unit
    Continuing operations          0.168       0.275       0.285       0.193
    Discontinued operations        0.022       0.006       0.000      (0.113)
                              -----------------------------------------------
                                   0.190       0.281       0.285       0.080
                              -----------------------------------------------
                              -----------------------------------------------



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

                                  Period      Period      Period      Period
                                    from        from        from        from
                                 June 16,    June 18,     Dec 31,      Jan 1,
                                 2008 to     2007 to     2007 to     2007 to
                                  Sept 7,     Sept 9,     Sept 7,     Sept 9,
                                    2008        2007        2008        2007
                              -----------------------------------------------

    Deficit - Beginning
     of period                 $ (81,024)  $ (36,582)  $ (72,626)  $ (24,904)
    Net income for the period      3,517       4,630       4,458       1,248
    Distributions                 (1,557)     (4,978)    (10,896)    (13,274)
                              -----------------------------------------------
    Deficit - End of period      (79,064)    (36,930)    (79,064)    (36,930)
                              -----------------------------------------------
                              -----------------------------------------------



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

                                  Period      Period      Period      Period
                                    from        from        from        from
                                 June 16,    June 18,     Dec 31,      Jan 1,
                                 2008 to     2007 to     2007 to     2007 to
                                  Sept 7,     Sept 9,     Sept 7,     Sept 9,
                                    2008        2007        2008        2007
                              -----------------------------------------------

    Net income for the period  $   3,517   $   4,630   $   4,458   $   1,248
    Other comprehensive income         -           -           -           -
                              -----------------------------------------------
    Comprehensive income           3,517       4,630       4,458       1,248
                              -----------------------------------------------
                              -----------------------------------------------



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

                                  Period      Period      Period      Period
                                    from        from        from        from
                                 June 16,    June 18,     Dec 31,      Jan 1,
                                 2008 to     2007 to     2007 to     2007 to
                                  Sept 7,     Sept 9,     Sept 7,     Sept 9,
                                    2008        2007        2008        2007
                              -----------------------------------------------

    Cash provided by (used in)
    Operating activities
    Income from continuing
     operations                $   3,067   $   4,533   $   4,460   $   3,001
    Add: Non-cash items
      Income taxes                     -      (1,000)         25       4,700
      Non-controlling interest     2,023       2,993       2,940       1,982
      Amortization of property
       and equipment               2,545       2,410       7,526       7,046
      Amortization of
       franchise rights              682         684       2,051       2,052
      Amortization of deferred
       financing charges               -         132           -         369
      Interest accretion             207         155         643         260
      Amortization of deferred
       contract amount               (27)        (26)       (116)         48
      Loss (gain) on disposal
       of property and equipment       -          (1)         19         106
      Unit-based compensation         89          14         492          43
      Long-term incentive
       plan accrual                   20        (270)        (24)       (675)
                              -----------------------------------------------
    Cash provided by
     continuing operations         8,606       9,624      18,016      18,932
    Net change in continuing
     non-cash working capital      1,252       1,958      (9,897)    (13,550)
    Tenant inducement and supply
     contract prepayment               -       1,235         600       1,235
                              -----------------------------------------------
    Cash provided by
     continuing operations         9,858      12,817       8,719       6,617
    Income (loss) from
     discontinued operations         450          97          (2)     (1,753)
    Change in discontinued
     operations - non-cash items     306         952          26       1,477
    Net change in discontinued
     non-cash working capital       (244)        236      (1,846)     (1,186)
                              -----------------------------------------------
    Cash provided by
     operating activities         10,370      14,102       6,897       5,155
                              -----------------------------------------------

    Investing activities
    Purchase of property and
     equipment                    (3,326)     (2,698)     (7,958)     (8,865)
    Purchase of franchise rights     (92)        (22)       (119)       (256)
    Net proceeds on disposal
     of property and equipment         -          10           -          58
    Proceeds on sale of
     short-term investments            -           -       5,002           -
                              -----------------------------------------------
    Cash used in investing
     activities                   (3,418)     (2,710)     (3,075)     (9,063)
                              -----------------------------------------------

    Financing activities
    Deferred financing charges         -      (1,689)        (45)     (1,689)
    Distributions to
     Unitholders                  (5,815)     (5,786)    (15,812)    (24,407)
    Repayments of revolving
     credit facilities                 -      (7,300)          -           -
    Proceeds from
     convertible debentures            -      30,000           -      30,000
    Proceeds from
     long-term loan                   82           -         304           -
                              -----------------------------------------------
    Cash provided by (used in)
     financing activities         (5,733)     15,225     (15,553)      3,904
                              -----------------------------------------------

    Change in cash and cash
     equivalents during period     1,219      26,617     (11,731)         (4)
    Cash and cash equivalents
     - Beginning of period         6,499       2,585      19,449      29,206
                              -----------------------------------------------
    Cash and cash equivalents
     - End of period               7,718      29,202       7,718      29,202
                              -----------------------------------------------
                              -----------------------------------------------
    

    %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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