TRADING SYMBOL: The Toronto Stock Exchange - AW.UN
VANCOUVER, Dec. 16 /CNW/ - A&W Revenue Royalties Income Fund (the Fund) and A&W Food Services of Canada Inc. (A&W Food Services) announced today that, effective January 5, 2011, the number of A&W restaurants for which royalties are paid to A&W Trade Marks Limited Partnership (the Partnership) will be increased by 20 new restaurants that were opened across Canada between October 2009 and September 2010, less five restaurants that were permanently closed during this period. The addition of these 15 net new restaurants brings the total number of A&W restaurants in the Royalty Pool to 715. This is the ninth increase in the number of restaurants in the Royalty Pool since the inception of the Fund in 2002. Since that time, the number of restaurants for which royalties are paid to the Fund (through the Partnership) has increased by 130 restaurants, from 585 to 715.
"We are delighted with the growth of new A&W restaurants across Canada and in particular in Ontario, our most important growth market in the country," said Paul Hollands, President and Chief Executive Officer of A&W Food Services. "Our new restaurants further strengthen our position as Canada's second largest burger chain."
The estimated annualized sales of the 20 new A&W restaurants being added to the Royalty Pool on January 5, 2011 are $20,160,000 and annual sales for the five permanently closed restaurants were $1,673,000. The net sales of $18,487,000 from the 15 net new restaurants translate into estimated additional annual royalty payments to the Fund of $555,000 on the basis of the royalty of 3% of sales. The initial consideration for the estimated additional royalty revenue is $6,859,000, calculated by discounting the estimated additional royalties by 7.5% and dividing the result by the yield on units of the Fund. The yield is based on the weighted average trading price of the units of the Fund for the 20 trading days ending November 1, 2010, or $19.68. 80% of the consideration will be paid on January 5, 2011 by issuance of 278,818 limited partnership (LP) units which will immediately be exchanged for shares of A&W Trade Marks Inc. (Trade Marks). These additional shares of Trade Marks are exchangeable at the option of A&W Food Services for 278,818 units of the Fund, subject to the approval of the TSX.
A final reconciliation of the consideration and number of LP units issued will be made in December 2011 based upon the actual annual sales of the new restaurants.
Reconciliation of January 5, 2010 Royalty Pool Amendment
The actual sales of the new restaurants added to the Royalty Pool on January 5, 2010 have now been determined. The actual annual sales for the 23 new restaurants added on January 5, 2010 were $25,781,000 compared to the original estimate of $24,879,000. As a result, the remaining 20% of the initial consideration or 83,181 LP units have now been issued to A&W Food Services. Additional consideration of $244,000 has also been paid to A&W Food Services in the form of 17,004 LP units as the actual sales exceeded the original estimate. The 83,181 LP units and additional 17,004 LP units have been exchanged for 100,185 additional shares of Trade Marks. These additional shares of Trade Marks are exchangeable at the option of A&W Food Services for 100,185 units of the Fund, subject to the approval of the TSX.
As a result of the additional shares of Trade Marks issued to A&W Food Services relating to the reconciliation of the January 5, 2010 Royalty Pool Amendment, and prior to the substantial issuer bid (described below), Food Services owns the equivalent of 6,382,901 units of the Fund representing 43.4% of the units of the Fund on a fully-diluted basis.
Substantial Issuer Bid
On November 10, 2010, the Fund announced a substantial issuer bid (the Offer) to purchase for cancellation 2,500,000 of its units, at a price of $20.00 per unit. The Offer is made to all of the Fund's unitholders, including Food Services who has agreed to deposit to the Offer shares of Trade Marks exchangeable for a total of 2,500,000 units. If more than 2,500,000 units are tendered, the Fund will purchase the units on a pro rata basis. The Offer will remain open for acceptance until December 17, 2010 unless withdrawn or extended by the Fund.
The Offer and issuer bid circular and other related documents containing the terms of the Offer are available on SEDAR at www.SEDAR.com.
About the Fund
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. The Royalty Pool is adjusted annually to add new restaurants, less any A&W restaurants that have permanently closed. The Partnership pays A&W Food Services for the additional net new restaurants in the form of an increase in the limited partnership interest of A&W Food Services, based upon a formula set out in the licence agreement. A&W Food Services' additional limited partnership interest may be exchanged for additional shares of Trade Marks which are exchangeable for units of the Fund. These annual adjustments to the Royalty Pool are required under the licence agreement.
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.
This release may contain certain forward-looking statements reflecting A&W Revenue Royalties Income Fund's current expectations in the quick service segment of the restaurant food industry in Canada. Investors are cautioned that all forward-looking statements involve risks and uncertainties, including, without limitation, changes in market, competitive developments, and potential downturns in economic conditions generally. Additional information on these and other potential factors that could affect the Fund's financial results are detailed in documents filed from time to time with the provincial securities commissions in Canada.
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