A&W REVENUE ROYALTIES INCOME FUND ANNOUNCES EIGHTH STRAIGHT YEAR OF SAME STORE SALES INCREASES

  • Same store sales growth(1) +2.2% for the year; +1.1% for the fourth quarter
  • Total system sales of A&W Food Services of Canada Inc. up 5.0% for the year
  • Royalty income for 2010 increased 5.5%
  • Distributable cash(2) before one-time transaction costs up 5.2% for 2010.

TRADING SYMBOL:  The Toronto Stock Exchange - AW.UN

VANCOUVER, Feb. 8 /CNW/ - A&W Revenue Royalties Income Fund (the Fund) reported today results for the fourth quarter period from September 13, 2010 to December 31, 2010 and the full year results from January 1, 2010 to December 31, 2010. 

Same store sales growth in A&W restaurants, the most important driver of growth in the Fund, was +2.2% for the year and +1.1% for the quarter compared to the same periods last year.  This marks the 8th consecutive year and 31st consecutive quarter of same store sales increases.

"The fourth quarter was an important one for the Fund," said Paul Hollands, President and Chief Executive Officer of A&W Food Services of Canada Inc. (A&W Food Services).  "In addition to posting our 31st straight quarter of increases in same store sales, we undertook a significant reorganization in the Fund.  The combination of this reorganization and the successful substantial issuer bid enabled us to maximize ongoing distributions to unitholders.  We are delighted that as a result we have been able to increase distributions to 11.7 cents per unit per month despite the imposition of the new Specified Investment Flow Through tax on income funds effective January 1, 2011, while many other income funds have been forced to reduce their distributions."

"We're pleased with the continued same store sales growth which occurred despite the uncertain economic conditions and the impact of the HST on the restaurant industry in British Columbia," Hollands added. 

Total sales of restaurants in the royalty pool and corresponding royalty income increased by 5.5% in 2010 versus 2009.  This growth was achieved through the same store sales growth and the addition of 15 new restaurants to the Royalty Pool on January 5, 2010.  Due to there being six fewer days in the fourth quarter in 2010 compared to 2009, sales and royalty income decreased by 0.2% for the quarter.  Same store sales growth is based on an equal number of days in each quarter.   

A copy of the management discussion and analysis and financial statements of the Fund, A&W Trade Marks Inc. (Trade Marks) and Food Services for the year will be available on www.sedar.com and www.awincomefund.ca on or before February 11, 2011.  The Fund will hold a conference call to discuss the results on Tuesday, February 8, 2011 at 1:00 p.m. Pacific Time (4:00 p.m. Eastern Time).  The call can be accessed by dialling toll-free 1-800-814-4861 or (416) 644-3416.  A replay will be available until February 22, 2011, by dialling toll-free 1-877-289-8525 or (416) 640-1917 Passcode: 4407210#. 

Highlights

(dollars in thousands except per unit amounts)

Q4 2010

Q4 2009

Year end 2010 Year end 2009

Same store sales growth(1)

1.1%

0.03%

2.2%

1.5%

Number of restaurants in the Royalty Pool

700

685

700

685

Sales reported by the restaurants in the Royalty Pool

$238,900

$239,385

$776,701

$736,209

Royalty income

$7,167

$7,181

$23,301

$22,086

General and administrative expenses

237

167

601

647

Recapitalization and reorganization costs

661

-

775

-

Financing fees

449

-

449

-

Net third party interest expense

269

183

670

570

Recovery of current income taxes

-

-

-

(43)

Partnership distributions to A&W Food Services

7

23

-

Total distributable cash generated for distributions and dividends(2)

$5,544

$6,831

$20,783

$20,912

Distributable cash(2) per weighted average equivalent unit (2010 - 14,644,999 units; 2009 - 14,289,993 units)

$0.382

$0.478

$1.419

$1.463

Distributions and dividends declared per equivalent unit

$0.424

$0.424

$1.272

$1.272

Special distribution per equivalent unit

$0.100

$0.100

$0.200

$0.200

Trade Marks' net earnings 

$1,031

$1,962

$3,648

$4,007

The Fund's net earnings

$3,633

$4,010

$11,982

$11,624

The Fund's basic and diluted earnings per unit

$0.436

$0.481

$1.437

$1.394

Weighted average units outstanding

8,332,994

8,340,000

8,337,889

8,340,000

(1)     Same store sales growth is not an earnings measure recognized by generally accepted accounting principles (GAAP) and therefore may not be comparable to similar measures presented by other issuers.  This information is provided as it is a key driver of growth in the Fund. 

(2)     Distributable cash is not an earnings measure recognized by GAAP and therefore may not be comparable to similar measures presented by other issuers.  This information is provided as it identifies the amount of actual cash available to pay distributions to unitholders and dividends to Food Services. 

Financial Results

Royalty income for 2010 was $23,301,000 based on sales of $776,701,000, an increase of 5.5% over royalty income of $22,086,000 and sales of $736,209,000 for 2009.  The increases in sales and royalty income are due to the combined impact of the additional net 15 restaurants in the Royalty Pool and the same store sales increase of 2.2% for the year.  Royalty income in the fourth quarter was $7,167,000 based on sales of $238,900,000 reported by the A&W restaurants in the Royalty Pool.  This was a decrease of 0.2% over royalty income of $7,181,000 and sales of $239,385,000 during the same quarter of 2009.  The decrease in the fourth quarter was due to the quarter having six fewer days in 2010 compared to the same quarter in 2009.  Same store sales growth for the fourth quarter was 1.1%.  Same store sales growth is based on an equal number of days in each quarter. 

General and administrative expenses for 2010, including expenses for the Fund under the administration agreement between Trade Marks and the Fund, decreased by $46,000 to $601,000, compared to $647,000 for 2009. General and administrative expenses for the fourth quarter increased by $70,000 to $237,000, compared to $167,000 in the fourth quarter of 2009.

The Fund completed a substantial issuer bid and purchased for cancellation 2,500,000 of its units on December 22, 2010.  Subsequently, Trade Marks completed the reorganization of its capital structure as approved by the Fund's unitholders on May 4, 2010.  The costs of these transactions were $775,000 and were paid by Trade Marks under the administration agreement between Trade Marks and the Fund.  These costs are comprised mainly of professional fees.

Trade Marks' interest expense on its term loan, net of interest income, for 2010 was $670,000 compared to $570,000 for 2009.  Interest on the term loan for the fourth quarter of 2010 was $269,000, compared to $183,000 for the same quarter of 2009.  The increase in term loan interest was due to the increase in the amount of the term loan by $50,000,000 to $60,000,000 effective December 22, 2010.  Also included in interest expense was a $49,000 payment to terminate the interest rate swap on the $10,000,000 term loan.

Before payment of the $775,000 one-time transaction costs for the Fund's substantial issuer bid and Trade Marks' reorganization, Trade Marks' net earnings for 2010 increased by $416,000 over 2009.  After payment of the one-time transaction costs, Trade Marks' 2010 net earnings were $3,648,000 compared to $4,007,000 for 2009.  Trade Marks' net earnings for the quarter were $1,031,000 compared to $1,962,000 for the same quarter of 2009.

The Fund's net earnings for 2010 were $11,982,000 or $1.437 per weighted average unit outstanding compared to $11,624,000 or $1.394 per unit for 2009.  The Fund's net earnings for the fourth quarter were $3,633,000 or 43.6¢ per weighted average unit outstanding compared to $4,010,000 or 48.1¢ per unit for the same quarter in 2009. The Fund's net earnings for 2010 and the fourth quarter were also negatively impacted by the Fund's share of the one-time costs incurred by Trade Marks. 

The transaction costs of $775,000 along with financing fees of $449,000 related to Trade Marks' new term loan also impacted distributable cash.  Before payment of these one-time costs totalling $1,224,000, distributable cash generated in 2010 increased by $1,095,000 or 5.2% over 2009.  After payment of the one-time costs, distributable cash generated to pay distributions to unitholders and dividends to A&W Food Services decreased by $129,000 from $20,912,000 for 2009 to $20,783,000 for 2010, and decreased by $1,287,000 from $6,831,000 for the fourth quarter of 2009 to $5,544,000 for the fourth quarter of 2010.  Distributable cash and earnings in the fourth quarter were also negatively impacted by the decrease in the number of days in the quarter compared to 2009.

The amount of cash distributed in 2010 to unitholders and A&W Food Services in monthly distributions and dividends was $1.272 per equivalent unit compared to distributable cash generated of $1.419.  In addition, two Special Distributions of $0.100 per equivalent unit each were paid in 2010, bringing the total amount of cash distributed in 2010 to $1.472 per equivalent unit. 

At the end of 2010 there was a cumulative surplus of distributable cash of $2,971,000 compared to a cumulative surplus of $3,706,000 at the end of 2009.

Overview

The Fund is a limited purpose trust established to invest in Trade Marks, which through its interest in the Partnership, owns the A&W trade-marks used in the A&W quick service restaurant business in Canada.  The A&W trade-marks comprise some of the best-known brand names in the Canadian foodservice industry.  In return for licensing A&W Food Services to use its trade-marks, Trade Marks (through the Partnership) receives royalties equal to 3% of the sales of A&W restaurants in the Royalty Pool.  A&W Food Services is the second largest quick-service hamburger restaurant chain in Canada.  Operating coast-to-coast, A&W restaurants feature famous trade-marked menu items such as The Burger Family, Chubby Chicken and A&W Root Beer.

The Royalty Pool is adjusted annually to reflect sales from new restaurants, net of the sales of any A&W restaurants that have permanently closed.  The Partnership pays A&W Food Services for the additional royalty stream in the form of an increase in the limited partnership interest of A&W Food Services.  A&W Food Services' limited partnership interest may be exchanged for additional non-voting common shares of Trade Marks which are exchangeable for units of the Fund. 

A&W Food Services currently owns 34% of the common shares of Trade Marks, and therefore currently holds indirectly the equivalent of 34% of the units of the Fund on a fully-diluted basis.   

Trade Marks' dividends to A&W Food Services and the Fund, and the Fund's distributions to unitholders are based on top-line revenues of the A&W restaurants in the Royalty Pool, less interest, general and administrative expenses and current income taxes of Trade Marks, and are thereby isolated from many of the factors that impact an operating business.

Certain statements in this report may be forward-looking in nature.  These include references to liquidity, dividends, earnings and anticipated earnings from growth in same store sales, annual adjustments to the Royalty Pool and new restaurant openings.  Actual results may differ materially from those expressed or implied in these forward-looking statements.  The forward-looking statements are based on assumptions that management considered reasonable at the time they were prepared.  These forward-looking statements are subject to a number of risk factors, including the ability of A&W Food Services of Canada Inc. to implement its marketing strategies, the opening of new A&W restaurants, general economic and business conditions, financial and political instability, and other factors disclosed previously and from time to time in the Fund's public filings. 

Additional information relating to the Fund is on SEDAR at www.sedar.com and on the Fund's website at www.awincomefund.ca


SOURCE A

For further information:

Don Leslie, Chief Financial Officer: (604) 988-2141 or investorrelations@aw.ca


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