Priszm Income Fund reports improved second quarter 2008 financial results

TORONTO, Jul 21, 2008 (Canada NewsWire via COMTEX) ----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

SOURCE: Priszm Income Fund

SOURCE: KIT Limited Partnership

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

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