Prime Restaurants Inc. ("PRI" or the "Company") (TSX:EAT) today reported its
results for the 13 and 52 weeks ended January 2, 2011. Effective April 5, 2010
Prime Restaurants Royalty Income Fund (the "Fund") was reorganized (the
"Reorganization") into a public corporation named Prime Restaurants Inc. The new
corporate structure includes the combination of the businesses of Prime
Restaurants of Canada Inc. ("PRC"), the Fund and PRC Trademarks Inc.
("TradeMarkCo"). The Fund was dissolved and unitholders and limited voting
unitholders of the Fund received, for each unit ("Unit") and limited voting unit
of the Fund, one class A limited voting share ("Class A Limited Voting Shares")
of PRI. Additionally, in connection with the Reorganization, Prime Restaurant
Holdings Inc. ("PRH"), the former parent of PRC, received class B limited voting
shares ("Class B Limited Voting Shares") and class C non-voting shares ("Class C
Non-Voting Shares"), which shares are convertible into Class A Limited Voting
Shares of PRI if certain financial targets are met by PRI. Details regarding the
conversion rights are set out in the share conversion agreement between PRI and
PRH dated April 5, 2010 (the "Conversion Agreement").
The 13 and 52-week periods ended January 2, 2011 of PRI are compared below to
the three and twelve-month periods ended December 31, 2009 of the Fund. As PRI's
operations are substantially different from the operations of the Fund, some of
the information in this press release is not directly comparable.
2010 HIGHLIGHTS:
-- Strong Same Store Sales Growth ("SSSG") of 4.1% for the year, up 4.3% in
fourth quarter
-- Solid growth across all brands and geographic regions
-- Solid performance at East Side Mario's with strong 4.9% SSSG, up 5.4% in
fourth quarter
-- Casey's and Pubs post SSSG of 2.1% and 5.0% respectively in 2010
-- New menus, price increases and increased advertising programs to benefit
future growth.
PRI generated a solid increase in SSSG in the fourth quarter and fiscal year
ended January 2, 2011, as the Company's proven sales and marketing programs
successfully capitalized on the slowly improving Canadian economy and resurgence
in consumer sentiment. Same store sales for the 13 weeks ended January 2, 2011
increased by 4.3% compared to negative same store sales of (4.4%) for the same
period last year. For the 52 weeks ended January 2, 2011 same store sales were
up 4.1% compared to a decline of (6.5%) last year.
All of the Company's brands posted positive SSSG in the quarter, with East Side
Mario's leading the way with strong SSSG of 5.4%, while Prime Pubs posted SSSG
of 4.0% and Casey's at 1.4% SSSG. For the 52 weeks ended January 2, 2011, East
Side Mario's posted SSSG of 4.9%, while Casey's and the pubs posted SSSG of 2.1%
and 5.0% respectively. All of PRI's geographic regions in Canada posted positive
SSSG, with Ontario up 4.5%, Quebec rising 3.4%, Atlantic Canada up 5.1% and
Western Canada posting SSSG of 2.6% for the 13 weeks ended January 2, 2011. For
the 52 weeks ended January 2, 2011, Ontario generated SSSG of 4.1%, Quebec was
up 5.0%, Atlantic Canada 5.7% and Western Canada rose 2.0%. There were 154
restaurant and pub locations as at January 2, 2011.
"We are very pleased with the solid growth and strong operational performance
generated in 2010, a testament to the effectiveness of our value enhancing
programs and our multi-brand approach covering all aspects of the Canadian
casual dining and pub business," commented John Rothschild, Chief Executive
Officer of PRI.
In 2011 East Side Mario's will focus on utilizing larger format restaurants to
maximize revenues, supported by a four-fold increase in television advertising
compared to 2010. A new and updated menu was introduced at East Side Mario's in
January. Casey's launched new marketing programs early in 2011, including e-mail
blast and direct mail campaigns, as well as the testing of a Loyalty Rewards
program at eight locations for potential national roll-out in the fourth
quarter. PRI's pub locations introduced a new core food and beverage menu in the
first quarter of 2011 that features an innovative quick reference code directing
guests to a mobile web site suggesting recommended beer and food pairings.
"Looking ahead, we believe our ongoing renovation programs, new location
openings, menu innovations and other sales initiatives, combined with our
rigorous focus on customer service, will continue to attract new and repeat
guests and contribute to our growth over the long term," Mr. Rothschild
concluded.
Operational Review
During the 13 weeks ended January 2, 2011, PRI opened one pub in Ontario and one
East Side Mario's restaurant in Calgary. During the quarter one Casey's and two
East Side Mario's locations were closed. For the year ended January 2, 2011
three East Side Mario's restaurants and two pubs were opened, and nine
restaurants were closed, including seven East Side Mario's, three in Ontario and
four in Alberta, and two Casey's locations in Ontario.
During the year ended January 2, 2011 three Casey's and one East Side Mario's
restaurants were renovated. Sales at these locations have cumulatively risen
12.2% and 14.3% for the 13 and 52 weeks ended January 2, 2011, respectively,
compared with their pre-renovation sales levels.
FINANCIAL HIGHLIGHTS:
($000's) 13 weeks Three 52 weeks 12 months
ended months ended ended
ended
January December
2, December January 2, 31,
2011 31, 2009 2011 2009
Entity PRI Fund PRI & Fund Fund
Gross revenue - reported by
PRI restaurants 82,490 - 257,209 -
----------------------------------------------------------------------------
Total revenue 10,638 1,294 35,295 6,860
Operating costs &
administrative expenses 9,096 169 28,699 263
----------------------------------------------
Earnings before the undernoted 1,542 1,125 6,596 6,597
Interest and amortization
expenses 90 - 230 -
Share of loss from
significantly influenced
company - - 19 -
Write-down of investments 123 16,754 123 16,754
Reorganization adjustments - 11,905
Reorganization transaction
costs - - 2,436 -
Stock-based compensation
expense 116 - 273 -
----------------------------------------------
Income/(Loss) before taxes 1,213 (15,629) (8,390) (10,157)
Income tax recovery (4,200) - (2,416) -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Income/(Loss) for the period 5,413 (15,629) (5,974) (10,157)
Income/(loss) attributed to
non-controlling interest 6 - 17 -
Income/(loss) attributed to
shareholders equity 5,407 (15,629) (5,991) (10,157)
----------------------------------------------------------------------------
Total assets 51,973 42,579 51,973 42,579
Total liabilities 10,849 514 10,849 514
Shareholder's Equity 41,094 42,065 41,094 42,065
Non-controlling interest 30 - 30 -
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----------------------------------------------------------------------------
Revenue reported by PRI for the 13 and 52 weeks ended January 2, 2011 includes
royalties and franchise-related income, sales from corporate-owned restaurants,
and income from PRI's 50% ownership interest in The Ricmar Limited Partnership
which owns one Casey's restaurant. Prior to the Reorganization, the Fund's
revenues included interest income on a promissory note issued by TradeMarkCo,
common share dividend and amortization of deferred financing fees.
Operating and administrative costs for the 13 and 52 weeks ended January 2, 2011
include costs incurred by company-owned restaurants such as marketing and
advertising expenses, cost of sales, operating expenses, as well as general and
administrative expenses associated with managing the activities of PRI and
providing services to the corporate and franchised restaurants. Prior to the
Reorganization, operating and administrative costs reflected only the operating
and administrative expenses of the Fund.
Interest expense for the 13 and 52 weeks ended January 2, 2011 includes interest
arising from a loan agreement that was assumed by PRI as part of the
Reorganization. The proceeds from the loan were used by PRC to finance the
construction and opening of a second Bier Markt location in downtown Toronto.
The loan bears interest at the banker's acceptance rate plus 3.25% per annum and
will mature in September 2015. Prior to the Reorganization, the Fund did not
have any outstanding loans.
Amortization expense is comprised of amortization on property, plant and
equipment. Prior to the Reorganization, the Fund did not have any depreciable
assets.
At the time of the Reorganization, PRI acquired, through its acquisition of
Prime Restaurants of America Inc., 50% of the partnership of Prime Pubs of
America LLC. During the quarter ended January 2, 2011, the remaining 50%
ownership was purchased by PRI and the investment was written off, resulting in
a net charge of $123,000.
As previously disclosed, PRI is the successor reporting issuer to the Fund, and
is accounted for as a continuity of the interest and business operations of the
Fund. In order to facilitate the Reorganization, the Fund recorded a one-time
adjustment of $11.9 million comprised of an $11.95 million write-down of its
investment in TradeMarkCo to the market value of the outstanding Units as of
April 4, 2010, $302,000 write-off of inter-company payables and a $258,000
write-off of interest receivable from TradeMarkCo that it would have used to pay
a distribution on April 15, 2010, to Unitholders of record on March 31, 2010,
had the Reorganization not been approved. Instead, the distribution payable to
Unitholders of record on March 31, 2010 was paid as a dividend by PRI on April
15, 2010 to holders of Class A Limited Voting Shares of record on April 8, 2010.
Reorganization costs for the 13 and 52 weeks ended January 2, 2011 were one-time
and include costs such as legal, audit, TSX listing, transfer agent, third-party
valuation and consulting fees.
Stock-based compensation expense relates to a restricted share plan that
provides for the grant of restricted share units ("RSUs") to officers, employees
and directors of PRI and its affiliates, and to certain consultants engaged by
PRI or its affiliates. PRI recorded stock based compensation expenses of
$116,000 and $273,000 respectively, related to the RSUs for the 13 and 52 weeks
ended January 2, 2011. The current year expense is comprised of the value of
RSUs that have vested and the straight-line amortization of the unvested RSUs
over their respective vesting periods. The total value of the RSUs granted was
based on the market price of the Class A Limited Voting Shares on the grant
date. There were no similar stock- based compensation plans existing in the
prior year.
PRI's financial statements and management discussion and analysis (the "MD&A")
for the 13 and 52 weeks ended January 2, 2011 as well as historical financial
statements and MD&As of PRC and the Fund are available at
www.primerestaurants.com and www.sedar.com.
Amendment to Conversion Agreement
PRI also reported today certain amendments to the Conversion Agreement. The
amendments involve changes to the "Adjusted Earnings Targets" set out in the
Conversion Agreement as a result of changes in the accounting treatment of
certain deferred revenue and deferred rent following the completion of the
Reorganization. The changes were made with the approval of the independent
directors of PRI and the consent of PRH pursuant to the terms of the Conversion
Agreement and were consented to by the Toronto Stock Exchange. The amendment to
the Conversion Agreement will be filed under PRI's profile on SEDAR at
www.sedar.com.
Conversion of Class B Limited Voting Shares and Class C Non-Voting Shares
Additionally, PRI reported today that as PRI had achieved the "Adjusted Earnings
Target" for 2010 as set out in the Conversion Agreement, PRH converted 628,457
Class B Limited Voting Shares and 203,667 Class C Non-Voting Shares into an
aggregate of 832,124 Class A Limited Voting Shares.
About Prime Restaurants Inc.
PRI franchises, owns and operates one of Canada's leading networks of casual
dining restaurants and pubs. With such well- respected brands as East Side
Mario's, Casey's, Fionn MacCool's, D'Arcy McGee's, Paddy Flaherty's, Tir nan Og,
and Bier Markt, Prime has been delivering quality, value and a superior guest
experience for more than thirty years. Prime's Class A Limited Voting Shares are
listed on the Toronto Stock Exchange under the symbol "EAT".
Forward-Looking Statements
The public communications of PRI often include written or oral forward-looking
statements. Statements of this type are included in this news release, and may
be included in filings with Canadian securities regulators, or in other
communications. Forward-looking statements may involve, but are not limited to,
comments with respect to our objectives for 2011 and beyond, our strategies or
planned future actions, and our targets or expectations for our financial
performance and condition. All statements, other than statements of historical
fact, contained in this news release are forward-looking statements, including,
without limitation, statements regarding the future financial position and
operations, business strategy, plans and objectives of or involving PRI. Readers
can identify many of these statements by looking for words such as "believe",
"expects", "will", "intends", "projects", "anticipates", "estimates",
"continues" and similar words or the negative thereof. Although management
believes that the expectations represented in such forward-looking statements
are reasonable, there can be no assurance that such expectations will prove to
be correct.
By their nature, forward-looking statements require us to make assumptions and
are subject to inherent risks and uncertainties including those discussed in the
MD&A and the Annual Information Form (the "AIF") under "Narrative Description of
the Business - Risk Factors" which are available at www.sedar.com. There is
significant risk that predictions and other forward-looking statements will not
prove to be accurate. We caution readers of this news release not to place undue
reliance on our forward-looking statements because a number of factors could
cause actual future results, conditions, actions or events to differ materially
from the targets, expectations, estimates or intentions expressed in the
forward- looking statements.
The information set forth in the MD&A and AIF identifies factors that could
affect operating results and performance. We caution that the list of factors
discussed in the MD&A and the AIF is not exhaustive, and that, when relying on
forward-looking statements to make decisions with respect to PRI, investors and
others should carefully consider the factors discussed, as well as other
uncertainties and potential events, and the inherent risks and uncertainties of
forward-looking statements.
The forward-looking statements contained herein are expressly qualified in their
entirety by this cautionary statement. The forward-looking statements included
in this news release are made as of the date of this news release. Except as
required by applicable securities laws, PRI does not undertake to update any
forward-looking statement, whether written or oral, that may make or that may be
made, from time to time.
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