McCormick & Schmick's Seafood Restaurants, Inc. Reports Fourth Quarte

McCormick & Schmick's Seafood Restaurants, Inc. Reports Fourth Quarter Earnings, Announces Completion of Lease Accounting Review, and Provides Guidance for 2005

    Business Editors

    PORTLAND, Oregon--(BUSINESS WIRE)--April 11, 2005--McCormick & Schmick's Seafood Restaurants, Inc. (NASDAQ: MSSR) today reported earnings for its fiscal fourth quarter and full year ended December 25, 2004, and that it has completed its review of its accounting treatment for leases.
    McCormick & Schmick's Seafood Restaurants, Inc., like many other companies in the restaurant and retail industries, reviewed its accounting policies for leases, rent commencement, deferred rent, leasehold improvement allowances, and other related items. This review was prompted in part by a February 7, 2005 letter from the Office of the Chief Accountant of the Securities Exchange Commission ("SEC") to the American Institute of Certified Public Accountants regarding proper accounting for certain operating lease matters under generally accepted accounting principles ("GAAP"). As a result, the Company determined that it had incorrectly accounted for certain operating lease transactions under GAAP. Consequently, it has restated its consolidated financial statements for the fiscal years ended December 27, 2003 and December 28, 2002 and the unaudited consolidated financial statements for the first three quarters of the fiscal year ended December 25, 2004. The audited consolidated financial statements included in the Company's Annual Report on Form 10-K for each of these fiscal years and for the fiscal year ended December 25, 2004 reflects the corrections and adjustments resulting from the changes in lease accounting. The adjustments did not change the Company's cash and cash equivalents for any of the reported periods. The attached schedules report the adjustments to the Company's consolidated financial statements and compare the previously released preliminary operating results to the restated results.
    The cumulative effect of the restatement resulted in a reduction of retained earnings of $207,000 as of December 30, 2001, and decreases in net income of $1,182,000 ($0.15 per share) and $750,000 ($0.10 per share) from the amounts previously reported for the fiscal years ended December 27, 2003 and December 28, 2002, respectively.

    Highlights for the fourth quarter of 2004 were as follows:

--	Revenues increased 19.9% to $64.9 million compared to $54.1 million in the fourth quarter of 2003
--	Comparable restaurant sales increased 3.6%
--	Net income was $7.6 million compared to a net loss of ($2.4) million in the fourth quarter of 2003
--	Diluted earnings per share were $0.55 which included a $3.0 million tax benefit, or $0.21 per share, for the fourth quarter of 2004. Diluted losses per share were ($0.31) which included a $1.5 million tax expense due to establishing a valuation allowance with respect to deferred tax assets, for the fourth quarter of 2003.
--	Non-GAAP diluted earnings per share increased 166.7% to $0.24, compared to $0.09 in the fourth quarter of 2003 (see schedule titled "Reconciliation of Non-GAAP Measures to GAAP Measures")

    Highlights for fiscal year 2004 were as follows:

    -- Revenues increased 21.4% to $238.8 million compared to $196.7
    in fiscal year 2003

    -- Comparable restaurant sales increased 3.8%

    -- Net income was $0.7 million compared to a net loss of ($4.4)
    million in 2003

    -- Diluted earnings per share were $0.07 which included a $3.7
    million tax benefit, or $0.35 per share, for fiscal 2004.
    Diluted losses per share were ($0.56) which included a $1.8
    million tax expense due to establishing a valuation allowance
    with respect to deferred tax assets for 2003

    -- Non-GAAP diluted earnings per share increased 13.6% to $0.50,
    compared to $0.44 in fiscal year 2003 (see schedule titled
    "Reconciliation of Non-GAAP Measures to GAAP Measures")

    Financial Guidance

    The Company expects first quarter 2005 revenues of approximately $60.4 million and a comparable restaurant sales increase of approximately 1.4%. The Company opened one new restaurant during the first quarter of 2005. Diluted earnings per share are anticipated to be between $0.10 and $0.11, including approximately $0.02 per diluted share of additional non-cash expenses due to the Company's changes in accounting for leases.
    For fiscal 2005, which encompasses 53 weeks of operations (14 weeks in the fourth quarter), the Company is maintaining its previously announced guidance of revenues between $265.0 million and $270.0 million. The Company intends to open seven new restaurants in 2005, two of which have already opened, and expects a comparable restaurant sales increase of approximately 2% to 3%. Diluted earnings per share are anticipated to be between $0.65 and $0.68, including approximately $0.10 per diluted share of additional non-cash expenses due to the Company's changes in accounting for leases.
    The Company's guidance for fiscal 2005 assumes a 31% effective tax rate, but does not reflect the impact of expensing stock options.

    About the Company

    McCormick & Schmick's Seafood Restaurants, Inc. is a leading national seafood restaurant operator in the affordable upscale dining segment. Over the past 33 years, it has successfully grown to 54 restaurants in 23 states by focusing on serving a broad selection of fresh seafood. McCormick & Schmick's inviting atmosphere and high quality, diverse menu offering and compelling price-value proposition appeals to a broad customer base - from casual diners, families and tourists to business travelers and special occasion diners.

    Forward-Looking Statements

    The financial guidance we provide for our first quarter and fiscal 2005 and the number of restaurants we intend to open in 2005 are forward-looking statements. These forward-looking statements are based on information available to us on the date of this release and we assume no obligation to update these forward-looking statements for any reason. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those described in the statements. These risks and uncertainties include, but are not limited to, the following: factors that could affect our ability to achieve and manage our planned expansion, such as the availability of qualified employees and the availability of a sufficient number of suitable new restaurant sites; changes in the availability and costs of food; potential fluctuation in our quarterly operating results due to seasonality and other factors; the continued service of key management personnel; our ability to protect our name and logo and other proprietary information; changes in consumer preferences, general economic conditions or consumer discretionary spending; health concerns about our food products; the impact of federal, state or local government regulations relating to our employees and the sale of food or alcoholic beverages; the impact of litigation; the potential effects of inclement weather or terrorist attacks; the effect of competition in the restaurant industry; cost and availability of capital; and other risk factors described from time to time in SEC reports filed by McCormick & Schmick's Seafood Restaurants, Inc.

McCormick & Schmick's Seafood Restaurants, Inc. and Subsidiaries Consolidated Statements of Operations (In thousands, except per share data)

Thirteen week Fifty two week periods ended periods ended ----------------- ------------------- December December December December 25, 27, 25, 27, 2004 2003 2004 2003 -------------------------------------

Restated Restated -------- -------- --------- --------- Revenues $64,924 $54,131 $238,757 $196,717 -------- -------- --------- --------- Restaurant operating costs Food and beverage 18,880 15,877 70,873 57,959 Labor 19,526 16,583 75,081 61,644 Operating 9,639 8,077 35,204 29,244 Occupancy 5,722 4,584 21,401 16,890 -------- -------- --------- --------- Total restaurant operating costs 53,767 45,121 202,559 165,737 General and administrative expenses 3,557 3,686 12,062 9,769 Restaurant pre-opening costs 167 402 2,393 1,219 Depreciation and amortization 2,448 2,643 10,723 9,853 Management fees and covenants not to compete - 639 4,241 2,550 Impairment of assets - 1,513 - 1,513 -------- -------- --------- --------- Total costs and expenses 59,939 54,004 231,978 190,641 -------- -------- --------- --------- Operating income 4,985 127 6,779 6,076 Interest expense 314 766 2,680 3,069 Accrued dividends and accretion on mandatorily redeemable preferred stock - 951 5,759 1,901 Write off of deferred loan costs on early extinguishment of debt - 2,313 1,288 2,313 -------- -------- --------- --------- Income (loss) before income taxes and accrued dividends and accretion on mandatorily redeemable preferred stock 4,671 (3,903) (2,948) (1,207) Income tax expense (benefit) (2,973) (1,503) (3,651) 1,323 Accrued dividends and accretion on mandatorily redeemable preferred stock - - - 1,832 -------- -------- --------- --------- Net income (loss) $7,644 ($2,400) $703 ($4,362) -------- -------- --------- ---------

Net income (loss) per common share Basic and diluted $0.55 ($0.31) $0.07 ($0.56) Shares used in computing net income (loss) per share Basic 13,782 7,782 10,387 7,782 Diluted 13,896 7,782 10,416 7,782

McCormick & Schmick's Seafood Restaurants, Inc. and Subsidiaries Reconciliation of Preliminary Selected Financial Data (1) to Actual Selected Financial Data (In thousands)

Thirteen week periods ended -------------------------------- December 25, 2004 --------------------------------- Preliminary Adjustments ----------- ----------- -------- Revenues $64,923 $1 $64,924 ----------- ----------- -------- Restaurant operating costs Food and beverage 18,880 - 18,880 Labor 19,526 - 19,526 Operating 9,645 (6) 9,639 Occupancy 5,456 266 5,722 ----------- ----------- -------- Total restaurant operating costs 53,507 260 53,767 General and administrative expenses 3,551 6 3,557 Restaurant pre-opening costs 150 17 167 Depreciation and amortization 2,359 89 2,448 Management fees and covenants not to compete - - - Impairment of assets - - - ----------- ----------- -------- Total costs and expenses 59,567 372 59,939 ----------- ----------- -------- Operating income 5,356 (371) 4,985 Interest expense 315 (1) 314 Accrued dividends and accretion on mandatorily redeemable preferred stock - - - Write off of deferred loan costs on early extinguishment of debt - - - ----------- ----------- -------- Income (loss) before income taxes and accrued dividends and accretion on mandatorily redeemable preferred stock $5,041 ($370) $4,671 ----------- ----------- --------

Fifty two week periods ended --------------------------------- December 25, 2004 --------------------------------- Preliminary Adjustments ----------- ----------- --------- Revenues $238,757 - $238,757 ----------- ----------- --------- Restaurant operating costs Food and beverage 70,873 - 70,873 Labor 75,081 - 75,081 Operating 35,203 1 35,204 Occupancy 20,236 1,165 21,401 ----------- ----------- --------- Total restaurant operating costs 201,393 1,166 202,559 General and administrative expenses 12,020 42 12,062 Restaurant pre-opening costs 2,233 160 2,393 Depreciation and amortization 10,470 253 10,723 Management fees and covenants not to compete 4,240 1 4,241 Impairment of assets - - - ----------- ----------- --------- Total costs and expenses 230,356 1,622 231,978 ----------- ----------- --------- Operating income 8,401 (1,622) 6,779 Interest expense 2,680 - 2,680 Accrued dividends and accretion on mandatorily redeemable preferred stock 5,759 - 5,759 Write off of deferred loan costs on early extinguishment of debt 1,288 - 1,288 ----------- ----------- --------- Income (loss) before income taxes and accrued dividends and accretion on mandatorily redeemable preferred stock ($1,326) ($1,622) ($2,948) ----------- ----------- ---------

Thirteen week periods ended ------------------------------ December 25, 2004 ------------------------------- Preliminary Adjustments ----------- ----------- ------ Revenues 100.0% - 100.0% ----------- ----------- ------ Restaurant operating costs Food and beverage 29.1% - 29.1% Labor 30.1% - 30.1% Operating 14.9% - 14.9% Occupancy 8.4% 0.4% 8.8% ----------- ----------- ------ Total restaurant operating costs 82.4% 0.4% 82.8% ----------- ----------- ------

Fifty two week periods ended ------------------------------ December 25, 2004 ------------------------------ Preliminary Adjustments ----------- ----------- ------ Revenues 100.0% - 100.0% ----------- ----------- ------ Restaurant operating costs Food and beverage 29.7% - 29.7% Labor 31.4% - 31.4% Operating 14.7% - 14.7% Occupancy 8.5% 0.5% 9.0% ----------- ----------- ------ Total restaurant operating costs 84.4% 0.5% 84.8% ----------- ----------- ------

(1) As reported by the Company on March 2, 2005 in a press release titled "McCormick & Schmick's Seafood Restaurants, Inc. Reports Preliminary Unaudited Fourth Quarter Operating Results", and filed with the SEC on March 2, 2005 (Form 8-K).

McCormick & Schmick's Seafood Restaurants, Inc. and Subsidiaries Reconciliation of Preliminary Selected Financial Data (1) to Actual Selected Financial Data (In thousands)

Thirteen week periods ended ------------------------------- December 27, 2003 ------------------------------- As Adjustments Restated previously reported ---------------------- -------- Revenues $54,131 - $54,131 ---------- ----------- -------- Restaurant operating costs Food and beverage 15,877 - 15,877 Labor 16,583 - 16,583 Operating 8,077 - 8,077 Occupancy 4,316 268 4,584 ---------- ----------- -------- Total restaurant operating costs 44,853 268 45,121 General and administrative expenses 3,686 - 3,686 Restaurant pre-opening costs 364 38 402 Depreciation and amortization 2,597 46 2,643 Management fees and covenants not to compete 639 - 639 Impairment of assets 1,513 - 1,513 ---------- ----------- -------- Total costs and expenses 53,652 352 54,004 ---------- ----------- -------- Operating income 479 (352) 127 Interest expense 766 - 766 Accrued dividends and accretion on mandatorily redeemable preferred stock 951 - 951 Write off of deferred loan costs on early extinguishment of debt 2,313 - 2,313 ---------- ----------- -------- Income (loss) before income taxes and accrued dividends and accretion on mandatorily redeemable preferred stock ($3,551) ($352) ($3,903) ---------- ----------- --------

Fifty two week periods ended -------------------------------- December 27, 2003 -------------------------------- As Adjustments Restated previously reported ---------------------- --------- Revenues $196,717 - $196,717 ---------- ----------- --------- Restaurant operating costs Food and beverage 57,959 - 57,959 Labor 61,644 - 61,644 Operating 29,244 - 29,244 Occupancy 15,829 1,061 16,890 ---------- ----------- --------- Total restaurant operating costs 164,676 1,061 165,737 General and administrative expenses 9,769 - 9,769 Restaurant pre-opening costs 1,110 109 1,219 Depreciation and amortization 9,675 178 9,853 Management fees and covenants not to compete 2,550 - 2,550 Impairment of assets 1,513 - 1,513 ---------- ----------- --------- Total costs and expenses 189,293 1,348 190,641 ---------- ----------- --------- Operating income 7,424 (1,348) 6,076 Interest expense 3,069 - 3,069 Accrued dividends and accretion on mandatorily redeemable preferred stock 1,901 - 1,901 Write off of deferred loan costs on early extinguishment of debt 2,313 - 2,313 ---------- ----------- --------- Income (loss) before income taxes and accrued dividends and accretion on mandatorily redeemable preferred stock $141 ($1,348) ($1,207) ---------- ----------- ---------

Thirteen week periods ended ------------------------------- December 27, 2003 ------------------------------- As Adjustments Restated previously reported ---------------------- -------- Revenues 100.0% - 100.0% ---------- ----------- -------- Restaurant operating costs Food and beverage 29.3% - 29.3% Labor 30.6% - 30.6% Operating 14.9% - 14.9% Occupancy 8.0% 0.5% 8.5% ---------- ----------- -------- Total restaurant operating costs 82.9% 0.5% 83.4% ---------- ----------- --------

Fifty two week periods ended ------------------------------- December 27, 2003 ------------------------------- As Adjustments Restated previously reported ---------------------- -------- Revenues 100.0% - 100.0% ---------- ----------- -------- Restaurant operating costs Food and beverage 29.5% - 29.5% Labor 31.3% - 31.3% Operating 14.9% - 14.9% Occupancy 8.0% 0.6% 8.6% ---------- ----------- -------- Total restaurant operating costs 83.7% 0.6% 84.3% ---------- ----------- --------

(1) As reported by the Company on March 2, 2005 in a press release titled "McCormick & Schmick's Seafood Restaurants, Inc. Reports Preliminary Unaudited Fourth Quarter Operating Results", and filed with the SEC on March 2, 2005 (Form 8-K).

McCormick & Schmick's Seafood Restaurants, Inc. and Subsidiaries Reconciliation of Non-GAAP Measures to GAAP Measures (In thousands, except per share data)

Non-GAAP Diluted Earnings Per Share

Management believes that adjusting earnings per share for certain significant and non-recurring costs, including those related to the Company's initial public offering and accounting for deferred tax assets in 2004 and 2003, provides management comparative metrics to analyze the historical financial performance of the Company's operations.

Thirteen week Fifty two week periods ended periods ended ----------------- ----------------- December December December December 25, 27, 25, 27, 2004 2003 2004 2003 ----------------------------------- Restated Restated -------- --------

Net income (loss) $7,644 ($2,400) $703 ($4,362) Income tax expense (benefit) (2,973) (1,503) (3,651) 1,323 Write off of deferred loan costs and early extinguishment of debt (1) - 2,313 1,288 2,313 Accrued dividends and accretion on mandatorily redeemable preferred stock (2) - 951 5,759 3,733 Interest expense 314 766 2,680 3,069 Management fees and covenants not to compete (2) - 639 4,241 2,550 General and administrative (3) - 1,200 - 1,200 Non-GAAP interest expense (4) (250) (250) (1,000) (1,000) ------- -------- ------- -------- Non-GAAP income before income tax expense 4,735 1,716 10,020 8,826 Non-GAAP income tax expense (5) 1,468 532 3,106 2,736 ------- -------- ------- -------- Non-GAAP net income $3,267 $1,184 $6,914 $6,090 ------- -------- ------- -------- Non-GAAP diluted shares (6) 13,896 13,896 13,896 13,896 Non-GAAP diluted earnings per share $0.24 $0.09 $0.50 $0.44

(1) Costs associated with replacement of the Company's credit facility with a facility with more advantageous terms.

(2) Nonrecurring items incurred in connection with the Company's reorganization and initial public offering.

(3) The Company recognized a $1.2 million charge in 2003 for the settlement of a labor legal claim.

(4) Pro forma interest expense reflects an average debt balance of $15.0 million, which is reflective of the post initial public offering average debt balance, subject to a 5.8% interest rate, coupled with capital lease interest and unused credit line fees.

(5) Calculated as (1-t) where t equals a normalized income tax rate of 31.0%. The effective tax rate in 2004 and 2003 was (123.8%) and 109.6%, respectively. The effective tax rates in 2004 and 2005 were significantly impacted by changes in the valuation allowance with respect to deferred tax assets, the accrued dividends and accretion on mandatorily redeemable preferred stock which is not deductible for income taxes, and in 2004 by FICA Tip Credits.

(6) Average number of weighted shares outstanding during the fourth quarter of 2004.

--30--MEM/ny*

CONTACT: Investor Relations and Media: Integrated Corporate Relations Don Duffy or John Flanagan, 203-682-8200

KEYWORD: OREGON INDUSTRY KEYWORD: FOODS/BEVERAGES RETAIL EARNINGS SOURCE: McCormick & Schmick's Seafood Restaurants, Inc.

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