Priszm Income Fund reports third quarter 2007 financial results

    Refocuses business on high volume, high profit restaurants, new product
    activity to stimulate sales growth, supply chain savings and operational

    Restructures restaurant network for savings of $4 million in 2008 and net
    proceeds of $20 to $30 million over the next two years

    TORONTO, Oct. 18 /CNW/ - Priszm Income Fund (TSX: QSR.UN) ("Priszm")
today announced financial results for the third quarter ended September 9,
2007. The Company operates on a 13-period accounting basis, with the first
three quarters consisting of 12 weeks and the fourth quarter consisting of
approximately 16 weeks.


    -   Sales $122.4 million
    -   EBITDA(*) $12.1 million
    -   Distributable cash(*) $11.1 million
    -   Company implements interim changes to distribution policy
    -   100% of distributions declared in 2007 deemed to be non-taxable
    -   Completed three multi-brand conversions for a total of 99 multi-
        branded locations
    -   Completed offering of $30 million convertible unsecured debentures

    (*)See section entitled Non-GAAP measures.

    "While our distributable cash for the third quarter was down only
slightly from last year, the results were not strong enough to meet
expectations and make up for the first half of the year," said John Bitove,
Chairman and Chief Executive Officer of Priszm. "As a result, we are taking
immediate steps to refocus and to restructure the business for the future and
to ensure a consistent and reliable cash flow for our unitholders for years to
come. Priszm is a highly profitable company with great assets and I am
confident our management team can and will achieve these objectives."

    Financial Performance

    Sales for the third quarter were $122.4 million, a decrease of
$5.1 million or 4 per cent as compared with the same period in 2006. Same
store sales growth for the quarter was down by 4.7 per cent. The national KFC
promotions in the quarter did not drive anticipated incremental sales.
However, same store sales growth in Manitoba increased 7.4 per cent during the
quarter due to a highly successful KFC test campaign of the new Chicken Bowls.
This product has also been very successful in the United States and will be
launched across Canada in the fourth quarter.
    During the third quarter the Company multi-branded three restaurants.
Sales from the multi-branded KFC/Taco Bell locations continued to outperform
our stand-alone KFC locations with same store sales remaining neutral in these
units during the third quarter. Sales growth in this segment is also impacted
by the number of multi-brand conversion projects that are under one year
within the portfolio at any point in time. In the third quarter of 2007, there
were eight conversion projects open less than one year as compared to 21 in
the third quarter of 2006.
    Income from restaurant operations declined in the third quarter of 2007
to $13.4 million from $14.9 million in 2006. As a percentage of sales, income
from restaurant operations decreased to 11.0 per cent from 11.7 per cent in
the same quarter a year ago. The sales decline in combination with increased
costs resulted in reduced profitability relative to the prior year.
    Cost of restaurant sales, as a percentage of sales, for the third quarter
of 2007 was 59.9 per cent, which was up from 58.7 per cent in the third
quarter of 2006. Food costs and labour expenses both increased during the
quarter. Food cost increases were driven mainly by an 8.1 per cent increase in
raw chicken prices versus the same quarter a year ago. A cost efficiency
program at restaurant level helped to mitigate a portion of the higher input
cost in the quarter.
    In the third quarter, EBITDA amounted to $12.1 million compared to
$13.7 million in the third quarter of last year. Distributable cash was
$11.1 million in the third quarter of 2007 compared to $11.5 million in the
comparable quarter of 2006.

    Business Refocus and Restructuring

    Priszm today announced plans to refocus on high volume and high profit
restaurants. It plans to sell up to 120 locations and close approximately 25
unprofitable restaurants over the next twenty-four months. Priszm expects it
will receive $20 to $30 million in proceeds from the sale of these restaurants
over the next two years and generate savings of approximately $4 million in
    The company also announced that it will concentrate on the introduction
of exciting new menu items and offset rising food costs through a supply chain
cost reduction strategy.
    "We are taking aggressive action to refocus the business and improve our
performance," said Jeff O'Neill, President and Chief Operating Officer of
Priszm. "The time has come to consolidate our restaurant network so we can
focus more on high volume, highly profitable restaurants, particularly our
KFC/Taco Bell multi-brands.
    "As well, new product activity and innovation will be a key focus for
Priszm in 2008," continued O'Neill. "Our plan is to develop new products
in-house and also look at adopting products that Yum has had success with in
other countries. Test markets have demonstrated to us that new products drive
top line and same store sales growth. Our new product initiative will launch
in a couple of weeks with the national rollout of our new Chicken Bowls, a
product which has done well both in our test markets and in the U.S."


    Priszm announced today that as part of its plan to refocus and
restructure the business, the Trustees have approved three interim changes to
the distribution policy.
    Commencing in January 2008, the annual distribution will be adjusted to
$1.20 per unit, which is equivalent to $0.10 per unit on a monthly basis. In
the fourth quarter of 2007, Priszm will take an estimated one-time
restructuring charge of $5 million. As a result, distributions to unitholders
will be temporarily adjusted to $0.03 per unit for each of the remaining three
months of 2007.
    The Trustees also agreed to a recommendation from the Subordinated
Unitholder to withhold distributions on the Subordinated Limited Partnership
Units until the end of the third quarter of 2008. At that time, the Trustees
will assess the Company's progress on refocusing the business and review the
distribution policy going forward with respect to both the Ordinary and
Exchangeable Units and the Subordinated Limited Partnership Units.
    "While we recognize the importance of regular distributions to our
unitholders, adjusting the level of distributions while we refocus the
business is a prudent decision," said John Bitove, Chairman and Chief
Executive Officer of Priszm. "I am confident that, with the restructuring plan
we have in place, management will build a more robust business for the future,
which will enhance unitholder value over the long term.
    "With respect to the distributions paid in 2007, our unitholders will
receive a total of $1.05 in distributions this year, representing a yield of
17.3 per cent based on yesterday's closing price of our units," said Bitove.
"In addition, I am pleased to announce that 100 per cent of distributions
declared in 2007 will not be taxable to unitholders."
    The company also announced its cash distribution for the month of October
2007 of $0.03 per unit payable on November 15, 2007 to Ordinary and
Exchangeable Unitholders of record on October 31, 2007.

    Non-GAAP Measures

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

    EBITDA is defined as earnings before interest 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. Priszm
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 and maintenance 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. Priszm 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 Analyst Conference Call/Audio Webcast

    Priszm will hold an analyst call at 10 a.m. ET on Thursday October 18,
2007 to discuss its results for the third quarter of 2007. The call may be
accessed by dialing 416-644-3414 within the Toronto area, or 1-800-733-7560
(toll-free) outside of Toronto. The call will be simultaneously audio webcast
    The conference call webcast and a presentation to investors and analysts
will be archived on Priszm's website at A playback of the call
can also be accessed until Saturday November 17, 2007 by dialing 416-640-1917
from within the Toronto area or 1-877-289-8525 (toll-free) outside of Toronto.
The passcode for the replay is 21234657 followed by the number sign.

    About Priszm Income Fund

    Priszm Income Fund (TSX: QSR.UN) has a 60.2 per cent interest in Priszm
LP and its general partner, Priszm Inc., which owns and operates 484 quick
service restaurants in seven provinces across Canada. The KFC, Taco Bell,
Pizza Hut and Long John Silver's restaurants under Priszm, which generated
annual revenues in excess of $500 million in 2006, serve 1.5 million customers
a week and employ more than 9,000 people. Currently, 99 locations are
multi-branded, combining two or more of the Fund's restaurant brands. To find
out more about Priszm Income Fund (TSX: QSR.UN), visit our website at

    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

    The following selected financial information, with the exception of
Distributable Cash and Distributable Cash Per Unit, has been derived from and
should be read in conjunction with the third quarter 2007 unaudited financial
statements and Management's Discussion and Analysis for the year ended
December 31, 2006. Additional information can be found in Priszm's filings at

    (in thousands of dollars except per Unit amounts)

                                       Third Quarter          Year to date
    For the quarter ended            Sept 9,    Sept 4,    Sept 9,    Sept 4,
                                       2007       2006       2007       2006

    Cash provided by/(used in)
     operating activities         $  14,102  $  11,330  $   5,155  $  30,621
    Net change in non-cash
     working capital(1)              (2,194)     1,288     14,736     (2,738)
    Maintenance capital
     expenditures(2)                   (824)    (1,110)    (2,619)    (2,622)
    Distributable cash               11,084     11,508     17,272     25,261
    Distributions made during
     the period(3)                    8,265      8,133     22,040     21,689
    Distributable cash per Unit       0.429      0.445      0.669      0.978
    Distributions per Unit(3)         0.320      0.315      0.854      0.840
    Payout ratio                        75%        71%       128%        86%

    (1) Priszm 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 should not impact
        Priszm's ability to make Unit distributions.

    (2) Maintenance capital expenditures refer to capital expenditures that
        are necessary to sustain current revenue levels. Priszm 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.

    (3) Distributions per Unit for the year to date third quarter include all
        declared distributions for the period January 1 to September 9, 2007
        and January 1 to September 4, 2006 and distributions on the
        Subordinated Units for the months of July and August that had not yet
        been declared at the end of each quarter but that were subsequently
        declared and paid after the quarter end.

    (in thousands of dollars)

                                                  September 9,   December 31,
                                                         2007           2006
    Current assets
    Cash                                           $   29,202     $   29,206
    Trade and other accounts receivable                 2,379          2,327
    Inventories                                         4,615          5,021
    Prepaid expenses                                    3,703          1,044
    Other assets                                          242            241
                                                       40,141         37,839
    Property and equipment                             87,712         88,031
    Deferred financing charge                               -          1,357
    Future income taxes                                 1,024              -
    Franchise rights                                   52,199         54,560
    Goodwill                                          159,227        159,227
                                                      340,303        341,014
    Current liabilities
    Accounts payable and accrued liabilities           43,969         56,338
    Distributions payable to Unitholders                2,479          5,397
                                                       46,448         61,735
    Long-term debt                                     74,647         75,633
    Convertible debentures                             27,875              -
    Future income taxes                                 5,724              -
    Deferred contract amounts                           5,661          5,072
                                                      160,355        142,440
    Non-controlling interest                           73,699         81,089
    Capital contributions                             142,290        142,290
    Contributed surplus                                   142             99
    Convertible debentures                                747              -
    Deficit                                           (36,930)       (24,904)
    Accumulated other comprehensive income                  -              -
                                                      106,249        117,485
                                                      340,303        341,014

    (in thousands of dollars, except per unit amounts)

                                  Period      Period      Period      Period
                                    from        from        from        from
                                 June 18,    June 13,  January 1,  January 1,
                                 2007 to     2006 to     2007 to     2006 to
                                  Sept 9,     Sept 4,     Sept 9,     Sept 4,
                                    2007        2006        2007        2006

    Restaurant sales           $ 122,371   $ 127,424   $ 336,482   $ 346,981
    Restaurant cost and
    Cost of restaurant sales      73,327      74,768     203,370     203,919
    Restaurant operating
     expenses                     16,598      18,708      50,569      52,371
    Rent                           8,528       8,334      25,774      24,968
    Franchise royalty expense      7,351       7,648      20,205      20,828
    Depreciation and
     amortization                  3,154       3,028       9,212       9,018
                                 108,958     112,486     309,130     311,104
    Income from restaurant
     operations                   13,413      14,938      27,352      35,877
    General and administrative
     expenses, including
     amortization of $953
     (January 1, 2007 to
     September 9, 2007 -
     $2,864)                       4,970       5,297      15,976      17,010
    Income before the
     undernoted                    8,443       9,641      11,376      18,867
    Interest income                  194         107         259         277
    Interest expense              (1,949)     (1,205)     (4,862)     (3,930)
    Income before income
     taxes and non-controlling
     interest                      6,688       8,543       6,773      15,214
    Income taxes (recovery)       (1,000)          -       4,700           -
    Income before non-
     controlling interest          7,688       8,543       2,073      15,214
    Non-controlling interest      (3,058)     (3,398)       (825)     (6,051)
    Net income for the period      4,630       5,145       1,248       9,163
    Deficit - Beginning of
     the period                  (36,582)    (20,216)    (24,904)    (16,069)
    Distributions                 (4,978)     (4,899)    (13,274)    (13,064)
    Deficit - End of
     the period                  (36,930)    (19,970)    (36,930)    (19,970)

    Basic earnings per Unit        0.297       0.331       0.080       0.589

    Diluted earnings per Unit      0.281       0.331       0.080       0.589

    (in thousands of dollars)

                                  Period      Period      Period      Period
                                    from        from        from        from
                                 June 18,    June 13,  January 1,  January 1,
                                 2007 to     2006 to     2007 to     2006 to
                                  Sept 9,     Sept 4,     Sept 9,     Sept 4,
                                    2007        2006        2007        2006
    Net income for the period  $   4,630   $   5,145   $   1,248   $   9,163
    Other comprehensive income         -           -           -           -
    Comprehensive income           4,630       5,145       1,248       9,163

    (in thousands of dollars)

                                  Period      Period      Period      Period
                                    from        from        from        from
                                 June 18,    June 13,  January 1,  January 1,
                                 2007 to     2006 to     2007 to     2006 to
                                  Sept 9,     Sept 4,     Sept 9,     Sept 4,
                                    2007        2006        2007        2006
    Cash provided by (used in)
    Operating activities
    Net income for the period  $   4,630   $   5,145   $   1,248   $   9,163
    Add: Non-cash items
      Future income taxes         (1,000)          -       4,700           -
      Non-controlling interest     3,058       3,398         825       6,051
      Amortization of property
       and equipment               3,075       2,853       9,020       8,586
      Amortization of
       franchise rights              872         866       2,617       2,586
      Amortization of deferred
       financing fees                132          51         369         152
      Interest accretion             155           -         260           -
      Amortization of deferred
       contract amounts                8         256         143         752
      (Gain) loss on disposal
       of property and equipment      (1)         35         106         158
      Unit-based compensation         14          14          43          42
      Write-off of deferred
       financing fees related
       to long-term debt               -           -           -         393
      Long-term incentive
       plan accrual                 (270)          -        (675)          -
    Cash provided by
     operations                   10,673      12,618      18,656      27,883
    Net change in non-cash
     working capital               2,194      (1,288)    (14,736)      2,738
    Supply contract prepayment     1,235           -       1,235           -
    Cash provided by
     operating activities         14,102      11,330       5,155      30,621
    Investing activities
    Acquisition of restaurants
     - net of required
     restaurant cash                   -           -           -      (3,573)
    Purchase of property
     and equipment                (2,698)     (2,234)     (8,865)     (9,654)
    Purchase of franchise
     rights                          (22)        (79)       (256)       (259)
    Net proceeds on disposal
     of property and equipment        10           3          58          26
    Cash used in investing
     activities                   (2,710)     (2,310)     (9,063)    (13,460)
    Financing activities
    Deferred financing charges    (1,689)         (2)     (1,689)       (960)
    Repayment of long-term debt        -           -           -     (60,000)
    Repayment of revolving
     facility                     (7,300)          -           -           -
    Proceeds of new
     long-term debt                    -           -           -      73,596
    Proceeds of convertible
     debentures                   30,000           -      30,000           -
    Distributions to
     Unitholders                  (5,786)     (8,133)    (24,407)    (22,230)
    Cash provided by (used in)
     financing activities         15,225      (8,135)      3,904      (9,594)
    Change in cash during
     the period                   26,617         885          (4)      7,567
    Cash - Beginning of
     the period                    2,585      20,700      29,206      14,018
    Cash - End of the period      29,202      21,585      29,202      21,585
    %SEDAR: 00019884E

For further information:

For further information: Investors: Trish Moran, (416) 739-2906,; Media: Wilcox Group, (416) 203-6666,

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