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					Priszm         Priszm Canadian Income Fund
                        Annual Report 2003




Our secret recipe for        success
Table of Contents   1   Highlights                        12   Fund Governance             18   Consolidated Balance Sheet
                    2   Letter from the Chairman          14   Management’s Discussion     19   Consolidated Statement
                        and CEO                                and Analysis                     of Income
                    3   Trustees’ Letter to Unitholders   17   Management’s Statement of   20   Consolidated Statement
                    4   Priszm’s Secret Recipe –               Responsibility                   of Cash Flows
                        11 Ingredients for an
                        Outstanding Investment            17   Auditors’ Report            21   Notes to the Consolidated
                        Opportunity                                                             Financial Statements
                                                                                           ibc Corporate Information




Table of Contents
                            PRISZM CANADIAN INCOME FUND HIGHLIGHTS

                                                 November 10 to December 31, 2003




                                                        Priszm




> Priszm Canadian Income Fund’s IPO was completed on November 10, 2003 at $10 per unit.
> Priszm operates 466 quick-service restaurants across Canada through its controlling interest in
  KIT Limited Partnership.
> Priszm’s restaurant portfolio includes 414 KFC restaurants and 52 multi-branded locations combining
  the KFC, Pizza Hut, and Taco Bell concepts, making its operating entity one of the largest KFC
  franchisees in the world, accounting for approximately 70% of all KFC sales in Canada.
> Priszm is different from a royalty trust in that it owns and operates the restaurant business. This allows
  unitholders to benefit from cost efficiencies, economies of scale, and potential earnings growth, as well
  as revenue growth.
> Initial distribution was $0.17 for the period from November 10, 2003 to December 31, 2003. Cash
  distributions to unitholders are expected to be at least $1.20 per unit on an annualized basis.
> Priszm’s units are listed on the Toronto Stock Exchange under the symbol QSR.UN.


  Note: This report covers the period from the beginning of the Fund’s operations on November 10, 2003
        until December 31, 2003.




  2003 FINANCIAL SUMMARY
  November 10 to December 31, 2003 (in thousands of dollars)


  Revenues                                                                                 $     62,871
  EBITDA                                                                                   $      6,370
  Net income                                                                               $      3,935
  Distributable cash                                                                       $      5,777
  Distributions per unit                                                                   $        0.17




                                               Priszm Canadian Income Fund 2003   1
                              LETTER      FROM THE          CHAIRMAN                 AND   CEO

                                   John I. Bitove Chairman and Chief Executive Officer




              Priszm has all the ingredients it needs to achieve long-term success.
         We intend to grow sales and distributions through focused advertising,
             new product introductions, multi-branding, building new restaurants,
                                 and acquiring other KFC franchisees.


Dear fellow unitholders:
On behalf of the more than 8,000 employees who work in our restaurants, our talented executive team, and the
nearly 1.5 million customers we serve every week, we are pleased to announce that our financial results exceeded
our expectations in the brief period covered by this Annual Report, and the outlook remains positive. We are
confident that our geographically diverse network of KFC and multi-branded restaurants across Canada will
continue to provide a predictable cash flow for the benefit of unitholders in 2004 and beyond.
    Growth is very much part of our plans for the future. We believe we will be able to achieve a steady increase in
sales and distributable cash through a multi-pronged approach to growth. First, we intend to boost same-restaurant
sales via focused advertising and new product introductions, such as our wildly popular Boneless Wings promotion.
    Second, we are planning to expand the number of multi-branded restaurants in select, high-growth Canadian
markets to bring increased choice and convenience to our customers. To that end, we opened a new multi-branded
KFC/Taco Bell restaurant in Brampton, Ontario, in early 2004. During the next 12 months, we intend to build
another two multi-branded locations and add a Taco Bell, Pizza Hut or Long John Silver’s to at least 10 existing KFC
restaurants. We’ve identified at least 100 additional good multi-branding opportunities.
    Third, we will pursue opportunities to acquire restaurants from other franchisees of the KFC brand in Canada
or abroad if they can be expected to be immediately accretive to the Fund.
    As we pursue our growth strategy, we will also sharpen our focus on productivity and cost efficiencies
throughout our operations, recognizing that all the headway we can make in this regard will provide additional cash
for distribution.
    While competition in the quick-service sector is intense, we have all the ingredients we need for successful
performance, including popular brands, a strong global franchisor in Yum! Brands, great locations, a dominant market
share, a proven marketing strategy, and positive industry fundamentals. As important, we have a highly experienced
management team with a proven track record. Senior managers each have 10 years or more of experience in the
quick-service food industry, and at the restaurant level, the average tenure of restaurant general managers is more
than 14 years.
    Above all, we have a strong tradition of outstanding customer service, which is a highly important factor
in competing effectively in the quick-service restaurant marketplace.
    I wish to take this opportunity to thank all of our employees for
their hard work and superior efforts to make our business a success.


Sincerely,




John I. Bitove (SIGNED)
Chairman and Chief Executive Officer
                                              Priszm Canadian Income Fund 2003   2
                                                TRUSTEES’ LETTER

                                        Borden Rosiak, Glen Swire, Stanley Thomas




        Priszm’s operations are on track to produce a steady, predictable stream
  of cash distributions into the future. To ensure the best interests of unitholders,
                      Trustees have adopted the highest standards of ethics
                                          and corporate governance.


Dear fellow unitholders:
We are pleased to present the first Annual Report for Priszm Canadian Income Fund. This report covers the period
from the beginning of the Fund’s operations on November 10, 2003 until December 31, 2003.
    Priszm’s distributable cash during this period fully met and exceeded the expectation indicated in the prospectus
for the initial public offering (the “IPO”). As a result, we declared a cash distribution of $0.17 per unit for the period,
which is consistent with the projection of at least $1.20 per unit in the Fund’s first full year of operation.
    As Priszm Trustees, we have the responsibility to ensure that Priszm operates in the best interests of unitholders.
In addition to serving as Trustees, we are also Directors of KIT Inc., the general partner of KIT LP, and responsible
for overseeing the restaurant operations of KIT LP. Priszm owns 60.2% of both KIT Inc. and KIT LP.
    We are pleased to report that we have implemented stringent guidelines in order to ensure that corporate
governance of both the Board of Trustees of Priszm and the Board of Directors of KIT Inc. is conducted in
accordance with the highest of ethical standards that meet and exceed the requirements of the relevant authorities.
    All three Trustees of Priszm are independent of management. Each is an “unrelated” director within the meaning
of the corporate governance policy of the Toronto Stock Exchange. KIT Inc.’s policy is that a majority of its six-member
Board of Directors must be unrelated directors, and only unrelated directors are permitted to be members of the
Audit, Compensation, and Governance committees of the Board.
    Our focus on corporate governance includes ensuring that the Trustees of Priszm are able to, and in fact do,
function independently of management, that management’s performance is reviewed on a regular basis, that the boards
of both Priszm and KIT Inc. function at all times in the best interests of Priszm unitholders, and that Priszm
management continues to leverage its many strengths.
    Finally, we note that KIT LP’s sales in the first part of 2004 were above year-earlier levels, and this bodes well for
the continuation of a steady, predictable stream of cash distributions to Priszm unitholders.


Sincerely,



Borden Rosiak (SIGNED)       Glen Swire (SIGNED)              Stanley Thomas (SIGNED)




Albert Gnat, who served as a member of the Priszm Boards of Directors and Trustees since Priszm’s first day of operations
in November 2003, passed away prior to the printing of this report. Mr. Gnat helped lay the foundation for Priszm’s
corporate governance structure and was instrumental in the successful completion of Priszm’s initial public offering.
He will be sorely missed.




                                           Priszm Canadian Income Fund 2003   3
          11 Ingredients
for an Outstanding Investment Opportunity
   – PRISZM’S SECRET RECIPE
                                       PRISZM’S SECRET RECIPE

                              11 Ingredients for an Outstanding Investment Opportunity




Ingredient   1.
Four Strong, Differentiated Brands
KFC is one of the most popular and recognized restaurant brands in the world. A key competitive
advantage is the Colonel, one of the best known commercial icons of all time, and his secret blend of
11 herbs and spices that makes Kentucky Fried Chicken so delicious and appealing to consumers.

Pizza Hut is the world’s largest pizza restaurant company and the largest national pizza chain in Canada.

Taco Bell is the world’s largest Mexican-style, quick-service restaurant company.

Although Priszm’s restaurant portfolio does not currently include the Long John Silver’s concept, there
may be an opportunity for Priszm to multi-brand its KFC restaurants with the Long John Silver’s
concept in the future. Long John Silver’s is the largest quick-service seafood chain in the United States.

Priszm benefits through the exchange of ideas, best practices, and menu innovations from a worldwide
franchise network of nearly 33,000 restaurants in more than 100 countries and territories.




                                       Priszm Canadian Income Fund 2003   5
                                                 PRISZM’S SECRET RECIPE

                                   11 Ingredients for an Outstanding Investment Opportunity




                                                 Ingredient    2.
                                                 Great Locations
                                                 Priszm’s 466 KFC restaurants are located in choice, high-traffic
                                                 locations and attract approximately 1.5 million customers a week,
                                                 generating approximately $460 million in sales annually. Priszm has
                                                 a diverse asset base consisting of: 337 Free Standing restaurants,
                                                 84 In-Line and Storefront sites, and 45 Foodcourt locations.

                                                 Priszm also operates 52 Pizza Hut and Taco Bell restaurants that
                                                 have been multi-branded into existing KFC restaurants.

Channels to market: In each concept, consumers can either dine in or carry out food. In addition,
Taco Bell and KFC offer a drive-through option in many stores. Pizza Hut and KFC offer extensive
delivery services.




Ingredient   3.
Large-scale, National Operations
Priszm’s large-scale operations across Canada give it a significant advantage over smaller franchisees
in the areas of access to capital, protection against regional economic downturns, and the ability
to spread costs over a larger system.




                                                                                             466
Geographic diversification



                             42%   Ontario
                                                                                             restaurants across Canada
                             20%   Quebec

                             4%    New Brunswick

                             6%    Nova Scotia

                             9%    British Columbia

                             12%   Alberta

                             7%    Manitoba




                                                      Priszm Canadian Income Fund 2003   6
                                          PRISZM’S SECRET RECIPE

                                 11 Ingredients for an Outstanding Investment Opportunity




Ingredient   4.
Driving Results of Individual Restaurants
We at Priszm understand that happy customers equate to
great results. We have the key processes in place to ensure
customer satisfaction.

Restaurant management receives bonuses based on a
combination of measures including customer satisfaction,
speed of service, product quality, cleanliness, maintenance,
hospitality and progress achieved in meeting aggressive
profitability targets.

Our 2004 goal is to increase same-store sales and improve
bottom-line profitability for each and every restaurant in
our portfolio.

“I have the tools to effectively manage my restaurant bottom line. My team understands our customers
  and we work hard to make every customer a repeat customer.”




Ingredient   5.
Operating Efficiencies
      Average transaction revenue                                       Priszm’s favourable operating efficiencies compared

$15
                                                                        with other quick-service restaurant chains include:
                                          KFC                           lower labour costs due to a shorter work day
$12
                                                                        concentrated around prime customer demand

 $9
                                                                        between 2 p.m. and 8 p.m.; one of the highest
                Average QSR                                             transaction revenue averages in the industry; and
 $6
                                                                        diverse menu offerings for snacks, quick meals or

 $3
                                                                        family feasts. In addition, Priszm produces its own
                                                                        coleslaw, potato salad and macaroni salad at a
 $0
                    2003                   2003
                                                                        wholly-owned, 41,000-square-foot commissary
      Source: Crest/MPNPD Food Services Information Group               located in Toronto, Ontario.



                                             Priszm Canadian Income Fund 2003   7
                                              PRISZM’S SECRET RECIPE

                                    11 Ingredients for an Outstanding Investment Opportunity




              6.
                                                                                  Average weekly sales per restaurant (in thousands)

                                                                          20
Ingredient
                                                                          15

Strong, Predictable                                                       10


Cash Flow                                                                   5


                                                                            0
The KFC brand has generated stable,                                               1997       1998       1999      2000   2001   2002   2003

                                                                                         Unaudited pre mid-2000
predictable cash flow since its introduction
in Canada in the 1950s. Priszm’s                                                  Restaurant sales (in millions)
distributable cash is expected to be at least                           $500


$30.9 million or $1.20 per unit in the first                            $400


                                                                        $300
year following the IPO.
                                                                        $200


                                                                        $100


                                                                          $0
                                                                                  1997       1998       1999      2000   2001   2002   2003
                                                                   Number of                                                           466
                                                                   restaurants:    443       443         443      443    452     463

                                                                                         Unaudited pre mid-2000




Ingredient    7.
Experienced Management Team with
a Proven Track Record
Priszm has a strong, experienced group of officers and directors who are complemented by an outstanding
team of senior and operational managers with extensive experience in the quick-service food industry.
Priszm’s 8,000 hard working employees are focused on driving sales and reducing costs.




from left: Glen Swire, Lilly Di Massimo, John I. Bitove, Rupert Altschuler, Stanley A. Thomas, Peter Walkey Absent: Borden Rosiak



                                                    Priszm Canadian Income Fund 2003     8
                                               PRISZM’S SECRET RECIPE

                                    11 Ingredients for an Outstanding Investment Opportunity




Ingredient     8.
Dominant Market Share
KFC sells approximately 73% of the “chicken-on-the-bone” in the Canadian QSR industry. In 2003,
KFC passed all of its competitors in total chicken occasions with a 23.6% market share.


                   Percentage share of total of 2003                                                Percentage share of total of 2003
                   chicken occasions in quick-service restaurants                                   chicken-on-the-bone occasions in quick-
                                                                                                    service restaurants



           KFC                                                23.6%

                                                                                                                    Competitors
                                                                                                                       27%

        Nearest                                         21.5%                                            KFC
      competitor                                                                                         73%




           Total                       13.4%
    independents




                                                                                              Source: Crest/MPNPD Food Services Information Group




Ingredient     9.
Positive Industry Fundamentals
Quick-service restaurants are experiencing stronger growth than the overall restaurant industry. The gain
in market share is at the expense of casual, family mid-scale restaurants and fine-dining establishments.
                                                                                                 Canadian quick-service restaurant industry sales
                                                                                                 1997–2002 (in billions)

                                                                                        $12                                       11.6     11.8
                                                                                                                           11.1
                                                                                                                  10.6
                                                                                                          10.1
                                                                                        $10
                                                                                                  9.2

                                                                                         $8


                                                                                         $6


                                                                                         $4


                                                                                         $2


                                                                                         $0
                                                                                                  1997    1998    1999    2000    2001     2002

                                                                                                                           Source: Statistics Canada


                                                 Priszm Canadian Income Fund 2003   9
                                       PRISZM’S SECRET RECIPE

                              11 Ingredients for an Outstanding Investment Opportunity




Ingredient   10 .
Sales Growth – Industry-leading Marketing
and Product Innovation
Priszm expects to grow sales and distributable cash through a focus on consumer-driven strategic initiatives.

Home Meal Replacement is a large and growing segment within the food service industry. We anticipate
further strengthening our share of this business in 2004 through the addition of new product offerings
as well as packaging and bundling innovations.

While we are a leader in dinner occasions, there are significant opportunities for growth during the
lunchtime hours by focusing on small-pack meals and sandwiches. KFC will participate in this highly
competitive segment with craveable products that are unique to KFC.

KFC has enjoyed great success in recent years with continuous testing, new product launches and
value-added promotions. From the launch of fresh green salads, Boneless Wings, and the Variety Bucket
to our association with Lord of the Rings and Canada’s leading chocolate bar, KFC remains as relevant
a choice today as it was 30 years ago. Listening and responding to the consumer is the cornerstone
of KFC’s marketing into 2004 and beyond.

Because of its position as dominant franchisee, Priszm manages marketing, advertising, and product
innovation for the entire KFC network in Canada.




                                           Priszm Canadian Income Fund 2003   10
                                                                                     PRISZM’S SECRET RECIPE

                                                                     11 Ingredients for an Outstanding Investment Opportunity




Ingredient                   11 .
Development Growth
Multi-branding existing restaurants, whereby Pizza Hut, Taco Bell, or Long John Silver’s are combined
with KFC in a single restaurant, adds significant incremental average sales per unit with a small capital
investment and leverages long-term lease, building, equipment, and labour costs.

“Multi-branding is our growth engine,” says John Bitove, Chairman and Chief Executive Officer.
“Priszm is uniquely positioned to take advantage of this opportunity since we can choose from four
strong brands.”

Multi-branding is the single biggest sales and profit innovation in our industry since the
drive-through window.

Priszm will also pursue profitable opportunities to expand by establishing new restaurants and making
acquisitions of independent KFC franchisees on the basis that would be accretive to the Fund’s unitholders.



                       EXISTING SITE ACCESS                                                                                 PAINTED LINES
     PEDESTRIAN SI




                            TO REMAIN

                                                                                             KFC DRIVE
                                                                                             THRU EXIT
                                                                                                                                  NEW WOOD FENCE
                                                                             BARRIER FREE                                           RECYCLING
                                                                             ACCESS RAMP                                            ENCLOSURE



                                                                        PEDESTRIAN                                                                               NEW GARBAGE
                      RE-FACED                                          CROSSWALK                              EXISTING                                           ENCLOSURE
                     DIRECTIONAL                                                                           KFC RESTAURANT
                         SIGN                                                                                                                                      MENUBOARD
                                                                                                                                                                      AND
                                                                                                                                                                    SPEAKER

                                                                             NEW CUPOLA
                                                                              & TOWER
                                                                                                                                                            NEW WOOD FENCE
                                                                                                                                                                GREASE
                                                                                                                                                              ENCLOSURE
                                                 EXISTING
                                              PARKING - 4 CARS

             EXISTING                                              2 WAY FUTUREACCESS                                                                                            EXISTING
           LANDSCAPING                                                                                                                                                            FRAME
                                                                                                                                                                                   SHED
                                                                     NEW                                                                    PRE-MENUBOARD
                                                                 DIRECTIONAL                     NEW
                                                                     SIGN     KFC DRIVE       CLEARANCE
                                                                            THRU ENTRANCE        SIGN                                                                NEW CEDAR
                                                                                                                                                                      ACOUSTIC
                                                                                                                                                                       FENCE


                                                                                                                                                                                            Multi-branding,
                                                                                                                                                                                            putting two or three
                                                                                                                                                                                            restaurant concepts
                                                                                                                                                                                            under one roof, gives
                                                                                                                                                                                            Priszm a distinct
                                                                                                                                                                                            advantage over its
                                                                                                                                                                                            competitors.




                                                                                            Priszm Canadian Income Fund 2003           11
11 Ingredients Together
   = an Outstanding Investment Opportunity




                Priszm Canadian Income Fund 2003   12
                                                       FUND GOVERNANCE




           The Priszm Canadian Income Fund’s Board of Trustees consists of three
      independent senior business executives. All three are members of the Board of
             Directors of the general partner, KIT Inc., responsible for overseeing
                          the management of KIT LP, the restaurant operator.



Borden D. Rosiak, Trustee and Director 2, 3, 4, 5, 6
A Chartered Accountant with extensive experience as a senior financial executive, Mr. Rosiak has served as Chief
Financial Officer for Crystallex International Corporation, Newcourt Credit Group, and Confederation Life Insurance,
among other companies, and was Chief Executive Officer of Cameron Capital Corporation.

Glen M. Swire, Trustee and Director 2, 3, 4, 5, 6
Mr. Swire was President of Swire Restaurants Ltd., a family-owned firm that operated 17 KFC restaurants in Ontario
for 33 years. He served as President of the Canadian KFC Franchisee Association and was a recipient of the KFC
Franchisee of the Year honour.

Stanley A. Thomas, Trustee and Director 2, 3, 4, 5, 6
Mr. Thomas was President and Chief Operating Officer of Shoppers Drug Mart Inc. until he retired in 2001. Mr. Thomas
is now an investor, shareholder, and director of several private companies and continues to serve the community on
volunteer boards.

John I. Bitove, Director, Chairman, and Chief Executive Officer 1, 2
Mr. Bitove is one of Canada’s leading businessmen with a distinguished record of accomplishments in business and
community service. He is the majority owner and Chairman of Scott’s Restaurants Inc., and PBI LP, which has
a 39.8% interest in KIT Limited Partnership.

Lilly Di Massimo, Director 2
Ms. Di Massimo has 16 years of experience in the financial accounting and analysis of KFC restaurants with Scott’s
Restaurants Inc., where she is Chief Financial Officer. She is a Certified General Accountant and worked in public
accounting at Clarkson Gordon for five years prior to joining Scott’s Restaurants Inc.

Rupert Altschuler, President and Chief Operating Officer 1
Mr. Altschuler has more than 10 years of experience with the KFC concept. He became an Area Manager in 1995,
KFC Regional Director of Operations for British Columbia in 1997, and assumed the role of Senior Regional
Director responsible for KFC, Pizza Hut, and Taco Bell in British Columbia in 2002.

Peter Walkey, Chief Financial Officer and Corporate Secretary 1
Mr. Walkey, a Certified General Accountant, has 15 years of experience in the hospitality industry, 10 of those
associated with the KFC brand. He most recently held the position of Chief Financial Officer for Yum! Restaurants
International (Canada).

1
    Management, 2 Director, 3 Trustee, 4 Audit Committee, 5 Compensation Committee, 6 Governance Committee




                                                       Priszm Canadian Income Fund 2003   13
                              MANAGEMENT’S DISCUSSION                           AND      A N A LY S I S

                             For the period from November 10, 2003 (commencement of operations)
                                                    to December 31, 2003



Overview
Priszm Canadian Income Fund (“Priszm”) commenced operations on November 10, 2003, when it completed its
initial public offering (the “IPO”) for 15,000,000 units for aggregate proceeds of $150,000,000. Units of Priszm
trade on the Toronto Stock Exchange (TSX) under the symbol QSR.UN.
     Priszm is an unincorporated open-ended limited purpose trust established under the laws of the Province of
Ontario created to acquire the KFC restaurant business of priszm brandz LP. The $273.4 million acquisition was
done concurrent with the IPO and completed through Priszm Canadian Operating Trust (the “Trust”), operating entity
KIT Limited Partnership (“KIT LP”) and its general partner, KIT Inc., collectively the “Company.” The Company
acquired the business for cash of $170.4 million and the issuance of KIT LP Exchangeable and Subordinated Units.
Following completion of the transaction and the subsequent sale of additional units through the IPO over-allotment
option, Priszm has a 60.2% interest in KIT LP through the ownership of regular units. The remaining interest is held
by PBI LP (formerly priszm brandz LP) through its ownership of Exchangeable and Subordinated Units.
     Priszm is entirely dependent upon the operations and assets of the Company. The Company operates 466 KFC
restaurants in Canada. KFC is one of the most recognized brands in the world with over 33,000 locations worldwide.
The Company has the right to use the KFC, Pizza Hut, and Taco Bell names, logos and products pursuant to the terms of
its franchise agreement. This discussion summarizes the significant factors affecting the operations and financial
position of Priszm from commencement of operations to December 31, 2003. This discussion should be read in
conjunction with the audited consolidated financial statements and accompanying notes of Priszm.


Restaurant Operations
The following table presents summary information covering the restaurant operations for the period from November 10, 2003
to December 31, 2003. Although Priszm was not in existence in the prior year, results for these restaurants are used
in the following discussion and analysis for the comparable period of time corresponding to the prior year.
                                                Period from                                    Period from
                                          November 10, 2003                              November 11, 2002
(In thousands of dollars)              to December 31, 2003                % of sales to December 31, 2002        % of sales


Sales                                        $       62,871                         —         $       60,679             —
Cost of restaurant sales                             37,961                   60.4%                   35,925        59.2%
Restaurant operating expenses                        12,622                   20.1%                   12,770        21.0%
Franchise royalty expense                              3,775                   6.0%                       3,641      6.0%
Depreciation and amortization expense                  1,466                   2.3%                       1,410      2.3%
                                                     55,824                   88.8%                   53,746        88.5%


Income from restaurant operations            $         7,047                  11.2%           $           6,933     11.4%


     Restaurant sales increased by $2.2 million or 3.6% for the seven-week period ending December 31, 2003.
In addition to the improved economic environment in the latter half of 2003, sales also increased due to the launch
of “Boneless Wings” in Canada and greater Christmas promotion activity.
     Cost of restaurant sales as a percentage of sales increased by 1.2%. The benefits of improved labour cost
efficiency in 2003 were more than offset by higher food and supplies costs due to higher promotional activity
involving product giveaway.
     Overall restaurant operating expenses were comparable at $12.6 million during the 2003 period and $12.7 million
for 2002. Land and buildings owned by priszm brandz LP which were not acquired by Priszm, resulted in higher rent
expense of approximately $1.1 million. This amount was offset in part by lower advertising expense of $0.8 million due
to the timing of spending.

                                                 Priszm Canadian Income Fund 2003   14
                                   MANAGEMENT’S DISCUSSION                               AND     A N A LY S I S

                                 For the period from November 10, 2003 (commencement of operations)
                                                        to December 31, 2003



General and Administrative Expenses
General and administrative expenses for the period at 4.3% of sales were in line with management’s expectations
and include amortization of the acquired Franchise Rights and the cost of operating Priszm.


Liquidity and Capital Resources
On November 10, 2003 Priszm completed an IPO, issuing 15,000,000 units to the public for net proceeds of
$136.8 million. The net proceeds from the IPO and the issuance of $60 million of long-term debt were sufficient to provide
the funding for the $170.4 million cash component of the purchase of the KFC restaurant business by KIT LP. The
remaining net proceeds were sufficient to establish a capital pool in excess of $25 million to be used for upgrading existing
restaurants and replacing restaurant equipment. Cash provided by operations will be a secondary source of capital funding.
Management estimates that the cost of multi-branding and the cost of fully upgrading the Company restaurants will, on
average, be approximately $50,000 to $250,000 per restaurant depending on the type and size of restaurant facility.
      During the seven-week period ended December 31, 2003, the Company generated $6 million of cash flow from
operations prior to the utilization of $2.5 million from additional working capital investment. The Company normally
operates with negative working capital as cash sales precede the payment of restaurant food, supplies and labour.
      Spending on capital expenditures during the seven-week period ended December 31, 2003 amounted to $0.6 million.
Maintenance capital items accounted for half of this expenditure; the remaining amount was spent towards a new
store that will be opened in the first quarter of 2004.
      The Company has a term debt facility of $60 million with a syndicate of banks that matures on November 10, 2006.
All the assets of the business have been pledged as collateral for this debt. The debt carries a floating rate based on
Canadian prime rate plus approximately 0.25%. The Company believes that it will be able to generate sufficient cash
resources to fund the interest on this debt through to maturity and still maintain unitholder distributions at a level of
$1.20 per year. Consideration is being given to fixing the interest rate on all or a portion of this facility through to
maturity through the use of interest rate swaps. The Company is not required to and does not plan to make any
principal payments on the facility prior to maturity. The facility will be repaid on maturity with accumulated cash
from operations and a new long-term debt facility on or prior to its maturity.


Distributable Cash

Period from November 10, 2003 to December 31, 2003


Net earnings for the period                                                                                                        $         3,935
Additions:
  Amortization                                                                                                                               2,112
Deductions:
  Maintenance capital expenditures(1)                                                                                                           270
Period from November 10, 2003 to December 31, 2003


Distributable cash                                                                                                                 $         5,777
Distributions declared and payable                                                                                                 $         4,389
Distributions declared and payable per unit                                                                                        $           0.17

Note: Distributable cash and maintenance are not measures recognized by generally accepted accounting principles (“GAAP”), do not have standardized
      meanings prescribed by GAAP and therefore may not be comparable to similar measures presented by other issuers. However, management
      believes that they are important and useful measures for readers to evaluate the performance of Priszm.
    (1)
          Maintenance capital expenditures refers to capital expenditures that are necessary to sustain current revenue levels. Management believes that
          funding for maintenance capital expenditures must come out of operating cash flow.


                                                      Priszm Canadian Income Fund 2003   15
                           MANAGEMENT’S DISCUSSION                          AND      A N A LY S I S

                          For the period from November 10, 2003 (commencement of operations)
                                                 to December 31, 2003



Risks and Uncertainties
The performance of Priszm is directly dependent upon the cash distributions Priszm receives from the Company. The
amount of the cash distributions will be dependent upon cash flow from operations of the 466 restaurants operated
by the Company, which is subject to a number of factors that affect the restaurant industry generally and the quick-
service segment of this industry in particular, including intense competition with respect to price, service, location
and food quality. For a more detailed list of risks and uncertainties please refer to “Risk Factors” detailed in the
prospectus dated October 31, 2003.


Outlook
Management was very satisfied with the results for the seven-week period. Sales and profits exceeded our internal
targets, which allowed Priszm to make distributions in line with representations made during its IPO. Management
believes that it will be able to grow restaurant sales throughout 2004 and continue to improve operating efficiencies
which should enable Priszm to complete its planned distributions of $1.20 per unit.


Additional Information
Additional information, including Priszm’s Annual Information Form, is available at www.sedar.com.


Forward-Looking Statements
Management’s discussion and analysis contains certain forward-looking statements. These statements relate to future
events or future performance. In some cases, forward-looking statements can be identified by terminology such as
“may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue”
or the negative of these terms or other comparable terminology. Such statements reflect the views of management of
Priszm with respect to future events. Actual events or results may differ materially. In evaluating these statements
readers should specifically consider various factors, including the risks outlined under “Risk Factors” in Priszm’s
Annual Information Form which is available at www.sedar.com. These factors may cause actual results to differ
materially from any forward-looking statement.




                                             Priszm Canadian Income Fund 2003   16
                             M ANAGEMENT ’ S S TATEMENT             OF      R ESPONSIBILITY




The accompanying consolidated financial statements are the responsibility of management and have been reviewed
and approved by the Board of Directors and the Trustees. The consolidated financial statements have been prepared
by management in accordance with Canadian generally accepted accounting principles and, where appropriate,
reflect management’s best estimates and judgements. Management has also prepared financial and all other
information in the Annual Report and has ensured that this information is consistent with the consolidated financial
statements.
     The Fund maintains appropriate systems of internal control, policies and procedures, which provide
management with reasonable assurance that assets are safeguarded and the financial records are reliable and form a
proper basis for preparation of financial statements.
     The Board of Directors and the Trustees ensure that management fulfills its responsibilities for financial
reporting and internal control through an Audit Committee. This committee reviews the consolidated financial
statements and reports to the Trustee. The auditors have full and direct access to the Audit Committee.
     The consolidated financial statements have been independently audited by PricewaterhouseCoopers LLP in
accordance with Canadian generally accepted auditing standards. Their report below expresses their opinion on the
consolidated financial statements of the Fund.




John I. Bitove (SIGNED)                         Peter Walkey (SIGNED)
Chairman and Chief Executive Officer            Chief financial Officer




                                           AUDITORS’ REPORT




To the Unitholders of Priszm Canadian Income Fund

We have audited the consolidated balance sheet of Priszm Canadian Income Fund as at December 31, 2003 and the
consolidated statements of income and cash flows for the period from November 10, 2003 to December 31, 2003.
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an
opinion on these financial statements based on our audit.
     We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards
require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation.
     In our opinion, these consolidated financial statements present fairly, in all material respects, the financial
position of the Fund as at December 31, 2003 and the results of its operations and its cash flows for the period from
November 10, 2003 to December 31, 2003 in accordance with Canadian generally accepted accounting principles.



PriceWaterhouseCoopers LLP (SIGNED)
Chartered Accountants
Toronto, Ontario
April 2, 2004


                                         Priszm Canadian Income Fund 2003   17
                                            C O N S O L I D AT E D B A L A N C E S H E E T




As at December 31, 2003 (in thousands of dollars)                                                      $


ASSETS
Current assets
Cash and cash equivalents                                                                         28,432
Trade and other accounts receivable                                                                2,072
Inventories                                                                                        4,703
Prepaid expenses                                                                                    819
Other assets                                                                                        233
                                                                                                  36,259
Property and equipment         (note 5)                                                           77,339
Deferred financing charge        (note 6)                                                          1,304
Franchise rights    (note 7)                                                                      64,514
Goodwill    (note 3)                                                                             156,617
                                                                                                 336,033


LIABILITIES
Current liabilities
Accounts payable and accrued liabilities            (note 8)                                      32,272
Distributions payable to unitholders          (note 4)                                             4,389
                                                                                                  36,661
Long-term debt      (note 9)                                                                      60,000
                                                                                                  96,661


UNITHOLDERS’ EQUITY
Capital contributions      (note 4)                                                              239,826
Net income for the period                                                                          3,935
Distributions declared                                                                            (4,389)
                                                                                                 239,372
                                                                                                 336,033




Borden Rosiak (SIGNED)                                    Stanley Thomas (SIGNED)
Trustee                                                   Trustee




The accompanying notes are part of these financial statements



                                                         Priszm Canadian Income Fund 2003   18
                                  C O N S O L I D AT E D S TAT E M E N T             OF   INCOME




For the period from November 10, 2003 to December 31, 2003 (in thousands of dollars except per unit amount)        $


Restaurant sales                                                                                              62,871
Restaurant cost and expenses
  Cost of restaurant sales      (note 11)                                                                     37,961
  Restaurant operating expenses          (note 11)                                                            12,622
  Franchise royalty expense                                                                                    3,775
  Depreciation and amortization          (note 11)                                                             1,466
                                                                                                              55,824


Income from restaurant operations                                                                              7,047
General and administrative expenses (including amortization of $585)                                           2,728
Income before the undernoted                                                                                   4,319
Interest income                                                                                                  85
Interest expense    (note 9)                                                                                    (469)
Net income for the period                                                                                      3,935


Basic and diluted earnings per unit         (note 4)                                                          0.1524




The accompanying notes are part of these financial statements



                                                 Priszm Canadian Income Fund 2003   19
                                C O N S O L I D AT E D S TAT E M E N T            OF     CASH FLOWS




For the period from November 10, 2003 to December 31, 2003 (in thousands of dollars)                         $


CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net income for the period                                                                                3,935


Add non-cash items:
  Amortization of property and equipment                                                                 1,565
  Amortization of franchise rights                                                                        486
  Amortization of financing fees                                                                           61
Cash provided by operations                                                                              6,047
Net change in non-cash working capital           (note 16)                                              (2,508)
Cash provided by operating activities                                                                    3,539


INVESTING ACTIVITIES
Acquisition of business, net of acquired restaurant cash            (note 3)                          (169,911)
Purchase of property and equipment                                                                        (621)
Cash used in investing activities                                                                     (170,532)


FINANCING ACTIVITIES
Initial public offering of Fund Units, net of expenses                                                136,790
Proceeds from long-term debt, net of financing fees                                                    58,635
Cash provided by financing activities                                                                 195,425


Change in cash and cash equivalents – During the period                                                28,432
Cash and cash equivalents – Beginning of period                                                             —
Cash and cash equivalents – End of period                                                              28,432


Represented by
Cash                                                                                                     3,832
Term deposit                                                                                           24,600
                                                                                                       28,432


Supplementary disclosure of cash flow information              (note 16)




The accompanying notes are part of these financial statements



                                                      Priszm Canadian Income Fund 2003   20
                    NOTES     TO THE     C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

                                    December 31, 2003 (in thousands of dollars)




1. Organization
   Priszm Canadian Income Fund (“Priszm”) is an unincorporated open-ended limited purpose trust with an
   unlimited number of Trust Units established under the laws of the Province of Ontario pursuant to a Declaration
   of Trust dated September 24, 2003. Priszm was established to acquire, through wholly owned KIT LP,
   the KFC restaurant business of PBI LP (formerly priszm brandz LP) comprising 466 KFC restaurants (52 of
   which are multi-brand restaurants that include a KFC outlet) and a salad production facility.
   Priszm commenced operations on November 10, 2003, with an initial public offering (the “IPO”) of 15,000,000
   Fund Units, at a price of $10 per Fund Unit, for aggregate proceeds of $150,000. Concurrent with the closing
   of the IPO, the Company acquired the KFC restaurant business of PBI LP.


2. Summary of significant accounting policies
   The consolidated financial statements of the Fund have been prepared in accordance with Canadian generally
   accepted accounting principles, and include the following significant accounting policies:

   Principles of consolidation
   The consolidated financial statements include the accounts of the Fund and all of its subsidiary companies.
   All material intercompany transactions and balances have been eliminated.

   Cash and cash equivalents
   Cash and cash equivalents consist of cash on hand and cash balances with major financial institutions and
   highly liquid short-term investments with an original maturity of three months or less.

   Inventories
   Inventories are valued at the lower of cost and net realizable value. Cost is determined on a first-in, first-out basis.

   Property and equipment
   Property and equipment are recorded at cost, and adjusted to fair market value when cost is below the net
   recoverable amount.
   Repairs and maintenance that do not enhance the service potential of the related assets are charged to expenses
   as incurred. Renewals and betterments which materially prolong the useful lives of the assets are capitalized.
   The cost and related accumulated amortization of property acquired or sold are removed from the accounts,
   and gains or losses are recognized in the consolidated statement of income.

   Impairment of long-lived assets
   The Fund reviews long-lived assets for impairment whenever events or changes in circumstances indicate the
   carrying amount of an asset may not be recoverable. If the sum of the expected future undiscounted cash flows
   is less than the carrying amount of the asset, an impairment loss is recognized. Measurement of the impairment
   loss for long-lived assets is based on the fair value of the asset.

   Restaurants under development
   Restaurants under development consist of restaurants under construction. The cost of restaurants under
   development includes direct costs associated with the site acquisition and restaurant construction, including
   direct internal payroll and payroll-related costs. Only those site-specific costs incurred subsequent to the time
   that the site acquisition is considered probable are capitalized. Acquisitions are considered probable upon final
   site approval. If a subsequent determination is made that a site for which internal development costs have been
   capitalized will not be acquired or developed, any previously capitalized internal development costs are
   expensed and included in general and administrative expenses.
   Restaurants under development are recorded at the lower of cost and net realizable value, reduced for
   impairment losses where appropriate.



                                         Priszm Canadian Income Fund 2003   21
                   NOTES     TO THE    C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

                                  December 31, 2003 (in thousands of dollars)




Amortization
Amortization is computed primarily on a straight-line basis, at rates sufficient to amortize the cost of the assets
over their estimated useful lives:
    Building                          20 years
    Leasehold improvements            initial lease term plus the first renewal period, if applicable
    Furnishings and equipment         3 to 10 years

Deferred financing charge
Costs associated with the arrangement of long-term financing are deferred and amortized on a straight-line basis
over the term of the related financing.

Franchise rights
The cost of franchise and development rights are amortized on a straight-line basis over the term of the related
agreements, typically 20 years.

Goodwill
Goodwill represents the excess of the cost of business acquired over the fair value of identifiable assets acquired
and liabilities assumed. In accordance with the recommendations of the CICA’s handbook Section 3062,
goodwill is not amortized but will be tested for impairment annually, or when an event or circumstance occurs
that could indicate that the fair value is less than the carrying value. Any impairment in the value of goodwill
is written off against income.

Income taxes
Income tax obligations relating to distributions from Priszm are obligations of the Unitholders and, accordingly,
no provision for income taxes has been made in respect of the income of Priszm.

Foreign currency translation
Monetary assets and liabilities denominated in foreign currencies are translated at the exchange rate in effect
at the consolidated balance sheet date and non-monetary items are translated at historical exchange rates.
Operating revenue and expenses are translated at average exchange rates prevailing during the year. Gains or
losses arising from these transactions are included in income.

Revenue recognition
The Fund earns revenues from the sale of food and beverages at its operating restaurants. Revenues are recognized
as the goods and services are delivered.

Financial instruments
Financial instruments that potentially subject Priszm to concentrations of credit risk consist primarily of trade
and other accounts receivable. Priszm performs periodic credit evaluations of the financial condition of its
customers. Allowances are maintained for potential credit losses consistent with the credit risk of specific
customers, historical trends and other information.
The carrying amounts of cash and cash equivalents, trade and other accounts receivable and accounts payable
and accrued liabilities approximate their fair values because of the near-term maturity of these instruments.
The fair value of the long-term debt approximates its carrying amount, given that interest is charged at floating
rates and the debt can be repaid in whole or in part at any time prior to maturity.




                                         Priszm Canadian Income Fund 2003   22
                     NOTES      TO THE     C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

                                      December 31, 2003 (in thousands of dollars)




   Use of estimates
   The preparation of consolidated financial statements in conformity with Canadian generally accepted accounting
   principles requires management to make estimates and assumptions that affect the reported amounts of assets and
   liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements
   and sales and expenses for the period reported. Actual results may differ from those estimates.


3. Business acquisition
   On November 10, 2003, the Fund acquired, through KIT LP, the KFC businesses of PBI LP. The acquisitions
   were accounted for by the purchase method with the results of operations included in income from the date of
   acquisition on November 10, 2003.
   Priszm is currently in the process of finalizing its estimate of the fair value of the assets acquired and the
   liabilities assumed and expects to complete this process by December 2004.
   The purchase price allocated to the assets acquired and the liabilities assumed, based on their estimated fair
   values on the date of acquisition, was as follows:

                                                                                                                       $


   Current assets
     Restaurant cash                                                                                                489
     Accounts receivable                                                                                          1,195
     Inventories                                                                                                  4,243
     Prepaid expenses and other assets                                                                            2,052
                                                                                                                  7,979

   Property and equipment                                                                                       78,285
   Franchise rights (i)                                                                                         65,000
   Goodwill                                                                                                    156,617
                                                                                                               307,881
   Current liabilities
     Accounts payable and accrued liabilities                                                                   34,445
   Net assets acquired                                                                                         273,436

   Consideration
     Cash (including settlement of $1,100 of assumed liabilities)                                              170,400
     5,656,000 Exchangeable Units                                                                               56,560
     5,164,000 Subordinated Units                                                                               46,476
                                                                                                               273,436


   (i) With an average remaining term of 18 years, including the 10-year renewal option.




                                           Priszm Canadian Income Fund 2003   23
                       NOTES     TO THE     C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

                                       December 31, 2003 (in thousands of dollars)




4. Fund Units
   As at December 31, 2003, Units outstanding and capital contributions are as follows:

                                                                                                                 Amount
                                                                                        Number of Units               $


   Fund Units
     Issuance under IPO                                                                    15,000,000           150,000
     Issuance upon the exercise of the over-allotment option                                  550,000             5,500
     Issuance costs                                                                                —            (13,210)
                                                                                           15,550,000           142,290
   Exchangeable Units
     Issuance under IPO – net of redemption                                                 5,106,000            51,060

   Subordinated Units
     Issuance under IPO                                                                     5,164,000            46,476
   Total Fund, Exchangeable and Subordinated Units                                         25,820,000           239,826


   Fund Units
   The Fund Trust Indenture provides that an unlimited number of Fund Units may be issued. Each Fund Unit
   represents an undivided beneficial interest in the distributions from the Fund and the net assets remaining after
   satisfaction of all liabilities in the event of termination of the Fund. All Fund Units have equal voting rights and
   privileges. Fund Units are redeemable at any time on demand at the option of the holders at a price per Fund Unit
   (the “Redemption Price”) equal to the lesser of: (i) 90% of the weighted average price per Fund Unit during the period
   of the last ten days during which the Fund Units traded; and (ii) an amount equal to the price of the Fund Units
   on the date of redemption, as defined in the Fund Trust Indenture.
   The aggregate Redemption Price payable by Priszm in respect of any Fund Units surrendered for redemption
   during any calendar month will be satisfied by way of a cash payment by the Fund no later than the last day of the
   calendar month following the calendar month in which the Units were tendered for redemption, provided that
   the entitlement of the Unitholders to receive cash upon the redemption of their Units is subject to the limitations that:
      i) the total amount payable in cash by Priszm in respect of such Units and all other Units tendered for
         redemption in the same calendar month may not exceed $50,000 (the “Monthly Limit”), provided that
         the Trustees may, at their sole discretion, waive such limitation in respect of all Units rendered for
         redemption in any calendar month;
     ii) at the time such Units are tendered for redemption, the outstanding Units must be listed for trading on
         a stock exchange or traded or quoted on another market that, at the sole discretion of the Trustees, provides
         a representative fair market value price for the Units; and
     iii) the normal trading of Units must not be suspended or halted on any stock exchange on which Units are
          listed on the date that the Units are tendered for redemption or for more than five trading days during
          the ten trading day period prior to the date on which the Units are tendered for redemption.

   Special Fund Units
   The Declaration of Trust and the Exchange Agreement provide for the issuance of voting non-participating units
   (the “Special Fund Units”) to the holders of Exchangeable Units and Subordinated Units of KIT LP used solely
   for providing voting rights proportionate to the votes of Fund Units issuable on exchange of the Exchangeable
   Units and Subordinated Units on a one-for-one basis. The Special Fund Units are non-transferable other than to
   the Fund or to affiliates or associates of the original investors. If the Exchangeable Units and Subordinated Units
   are purchased in accordance with the Exchange Agreement, a like number of Special Fund Units will be
   redeemed by Priszm for a nominal price. The Fund issued 10,820,000 Special Fund Units relating to the
   5,656,000 Exchangeable Units and 5,164,000 Subordinated Units at the time of the IPO, of which 550,000
   Exchangeable Units were subsequently redeemed upon the exercise of the underwriters’ over-allotment option.

                                              Priszm Canadian Income Fund 2003   24
                    NOTES     TO THE    C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

                                   December 31, 2003 (in thousands of dollars)




   Exchangeable Units
   The Exchangeable Units issued by KIT LP to PBI LP have economic and voting rights equivalent, in all material
   respects, to the Fund Units. As a result, they have been treated for accounting purposes as Fund Unit equivalents.
   They are exchangeable, directly or indirectly, on a one-for-one basis for Fund Units at the option of the holder,
   under the terms of an Exchange Agreement.
   Each Exchangeable Unit entitles the holder to receive distributions from KIT LP, pro rata with distributions
   made by the Fund on a Fund Unit.

   Subordinated Units
   The Subordinated Units have economic and voting rights equivalent to, in all material respects, to the Fund
   Units, except in connection with the subordination terms as described below. As a result they have been treated
   for accounting purposes as Fund Unit equivalents.
   Distributions of up to an equivalent amount of distributions made monthly to the Fund Units and Exchangeable
   Units will be made quarterly to the Subordinated Units subject to available cash. However, until the release from
   subordination, Subordinated Unit distributions will be subordinated to those of the Fund Units and Exchangeable
   Units and only made if the monthly distributions of $0.10 per unit have been made to the Fund and Exchangeable
   Unitholders. To the extent that the Subordinated Unitholders have not received their quarterly distributions for
   the preceding four fiscal quarters, any excess at the end of any given quarter will be paid to the Subordinated
   Unitholders, up to $0.30 per quarter. Any excess distributable cash, determined quarterly, after payment of the
   monthly $0.10 distribution to the Fund and Exchangeable Unitholders and the $0.30 quarterly distribution to
   the Subordinated Unitholders, will be shared pro rata between the Fund Units, Exchangeable Units and
   Subordinated Units.
   The Subordinated Unit distributions are subordinated until December 31, 2008 provided that the earnings
   before income taxes, depreciation and amortization (“EBITDA”) of the Company are equal to or greater than
   $39,191, and the average monthly cash distributions per Fund Unit have been equal to or greater than $0.10
   per Fund Unit throughout the period from formation of the Fund to December 31, 2008. However, 50% of the
   Subordinated Units will automatically convert into Exchangeable Units if for the fiscal year ended December 31, 2006,
   the Fund has earned EBITDA equal to or greater than $43,110 and has paid out average monthly cash
   distributions equal to or greater than $0.11 per Fund Unit.

   Distributions to Unitholders
   Distributions to Unitholders are determined based on income before amortization of intangible assets and
   property and equipment, reduced by capital maintenance expenditures.
   Distributions totalling $0.17 per Fund, Exchangeable and Subordinated Units, (aggregate distributions of
   $4,389), were declared and accrued by the Fund’s management for the period ended December 31, 2003.


5. Property and equipment

                                                                                          Accumulated
                                                                                  Cost    amortization            Net
                                                                                    $                $              $


   Building                                                                        613              6            607
   Leasehold improvements                                                       35,632            380         35,252
   Furnishings and equipment                                                    42,239          1,179         41,060
   Restaurants under development                                                   420             —             420
                                                                                78,904          1,565         77,339




                                        Priszm Canadian Income Fund 2003   25
                       NOTES     TO THE     C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

                                       December 31, 2003 (in thousands of dollars)




6. Deferred financing charge
   Deferred financing charge is net of accumulated amortization of $61.


7. Franchise rights
   Franchise rights are net of accumulated amortization of $486.


8. Accounts payable and accrued liabilities
   Accounts payable and accrued liabilities are comprised of the following:

                                                                                                                        $


   Trade accounts payable                                                                                        15,418
   Royalties payable                                                                                              2,127
   Advertising payable                                                                                            1,044
   Payroll payable                                                                                                6,165
   Sales taxes payable                                                                                            5,483
   Other accrued liabilities                                                                                      2,035
                                                                                                                 32,272



9. Long-term debt
   Priszm has a $60,000 credit facility with a security pledge on substantially all of the assets of Priszm. Interest on the
   facility is calculated daily and paid monthly at the Canadian prime interest rate plus approximately 25 basis
   points. The facility can be repaid in whole or in part prior to the November 10, 2006 maturity.
   Interest expense comprises the following:

                                                                                                                        $


   Interest expense on long-term debt                                                                                408
   Amortization of deferred financing charges                                                                         61
                                                                                                                     469



10. Related party accounts and transactions
   Priszm entered into the following transactions during the period, which were in the normal course of operations
   and were measured at the exchange amount, which is the amount of consideration established and agreed to by
   the related parties. The terms of trade with related parties are similar to those with other third parties.
   a) Priszm paid rents for certain leased properties amounting to $766 to the partner who controls PBI LP and
   this expense is included in restaurant operating expenses. The Chief Executive Officer of Priszm is also the
   indirect controlling shareholder of PBI LP.
   b)   As at December 31, 2003, $17 was due from PBI LP related to the reimbursement of costs incurred by
        Priszm on behalf of PBI LP.




                                              Priszm Canadian Income Fund 2003   26
                    NOTES     TO THE     C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

                                    December 31, 2003 (in thousands of dollars)




11. Costs and expenses
   Costs of restaurant sales, restaurant operating expenses and depreciation and amortization consisted of the following:

   Period from November 10, 2003 to December 31, 2003                                                                $


   Cost of restaurant sales
     Food and supplies                                                                                         23,853
     Labour                                                                                                    14,108
                                                                                                               37,961

    Restaurant operating expenses
      Occupancy, utilities and maintenance                                                                      7,217
      Advertising                                                                                               2,385
      Other                                                                                                     3,020
                                                                                                               12,622

    Depreciation and amortization
      Depreciation and amortization of restaurant assets                                                        1,466



12. Contingent liabilities
   Priszm is subject to various claims and disputes from time to time. Priszm does not expect to incur any material
   losses with respect to such matters.


13. Commitments
   The Fund is committed to the following amounts under non-cancellable operating leases for its own operated
   restaurants and corporate facilities. Total annual minimum lease payments in the table below exclude the Fund’s
   share of common costs, such as real estate taxes and utilities, which cannot be determined in advance.

                                                                                                                     $

   2004                                                                                                       24,845
   2005                                                                                                       23,520
   2006                                                                                                       21,953
   2007                                                                                                       20,792
   2008                                                                                                       19,688
   Thereafter                                                                                                144,323
                                                                                                             255,121

    Included in the amounts above are the following commitments to the partner who controls PBI LP:

                                                                                                                     $


   2004                                                                                                         5,416
   2005                                                                                                         5,373
   2006                                                                                                         5,361
   2007                                                                                                         5,408
   2008                                                                                                         5,510
   Thereafter                                                                                                  49,307
                                                                                                               76,375


                                        Priszm Canadian Income Fund 2003   27
                       NOTES    TO THE    C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

                                     December 31, 2003 (in thousands of dollars)




14. Income taxes
   Since the Fund is not a taxable entity, these consolidated financial statements do not include a provision for
   Canadian income taxes related to the Fund’s income.


15. Benefit plans
   Priszm sponsors a group registered retirement savings plan and a registered pension plan, which is a defined
   contribution plan for selected members. Under these plans, contributions are made by plan members with
   varying matching contributions by Priszm. The total expense related to these plans was $40.


16. Supplemental disclosures of cash flow information
   Net change in non-cash working capital is comprised of the following:

                                                                                                                  $


   Trade accounts receivable                                                                                  (877)
   Inventories                                                                                                (460)
   Prepaid expenses                                                                                          1,000
   Accounts payable and accrued liabilities                                                                 (2,171)
                                                                                                            (2,508)

   Supplemental disclosures of cash flow information:

                                                                                                                  $


   Interest paid                                                                                               164
   Interest received                                                                                            85

17. Segmented information
   For financial reporting purposes, the Fund considers itself to be in one business segment as its various restaurant
   operations have similar economic and business characteristics. All restaurant operations are located in Canada.




                                            Priszm Canadian Income Fund 2003   28
                                        C O R P O R AT E I N F O R M AT I O N




The Priszm Canadian Income Fund is traded on the Toronto Stock Exchange (TSX) under the trading symbol QSR.UN.

Auditors: PricewaterhouseCoopers LLP

Outside Counsel: Stikeman Elliott

Transfer Agent: CIBC Mellon

Corporate & Unitholder Information: Peter Walkey, CFO and Corey Evan Goodman, Director, Corporate and Legal Affairs
101 Exchange Avenue, Vaughan, Ontario, L4K 5R6, toll-free 1-866-774-7961

Annual Meeting: June 7, 2004, 11:00 a.m. EST, Priszm Canadian Restaurant Support Centre, 101 Exchange Avenue,
Vaughan, Ontario

Trademarks: KFC, Pizza Hut, Taco Bell and Long John Silver’s are trademarks of Yum! Restaurants International
(Canada) LP.

Web site: www.priszm.com
      Priszm
w w w. p r i s z m . c o m

				
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