TRADING SYMBOL: The Toronto Stock Exchange - AW.UN
VANCOUVER, Jan. 10 /CNW/ - A&W Revenue Royalties Income Fund (the Fund) today announced that it has completed the reorganization of the capital structure of its subsidiary, A&W Trade Marks Inc. (Trade Marks). This reorganization was approved by unitholders at the Annual General Meeting held May 4, 2010, and was initiated to minimize the impact of the new Special Investment Flow Through (SIFT) tax on income trusts announced by the Federal Government in October 2006. The SIFT tax is effective January 1, 2011 and treats an income trust like a corporation, requiring it to pay tax on its taxable income.
As announced last year, the Fund will remain as an income trust. Under the reorganization of Trade Marks, the subordinated notes of Trade Marks (the A&W Notes) currently held by the Fund were replaced with non-voting common shares of Trade Marks. As a result, the Fund now receives dividends from Trade Marks, which are not subject to the SIFT tax, rather than interest income on the A&W Notes. Trade Marks' earnings (representing the royalty paid by A&W Food Services less interest on its term loan and general and administrative expenses) are taxed at an effective rate of 18% versus an approximate rate of 25% if the reorganization had not been implemented. In effect this leaves 82% of Trade Mark's net income before income taxes available to be paid as dividends, instead of 75% if the reorganization had not been implemented.
The Trustees of the Fund have approved an increase in monthly distributions to unitholders to 11.7 cents per Unit per month, from the current rate of 10.6 cents per Unit per month. The new monthly distribution rate will be effective January 1, 2011 and will be payable as and from February 28, 2011. The distributions will be considered non-eligible dividends for Canadian tax purposes.
The reorganization also included the exchange of the Class A and Class B preferred shares of Trade Marks currently owned by A&W Food Services with non-voting common shares of Trade Marks. All the voting and non-voting common shares held by the Fund and A&W Food Services are entitled to the same dividends per share.
About the Fund
The Fund is a limited purpose trust established to invest in Trade Marks, which through its interest in the A&W Trade Marks Limited Partnership (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. Additional limited partnership units (LP units) are issued to A&W Food Services to reflect the annual adjustment. A&W Food Services' additional LP units are exchangeable 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 owns the equivalent of 34% of the units of the Fund on a fully-diluted basis.
Trade Marks' dividends to the Fund and A&W Food Services, 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. 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 general economic and business conditions, unemployment, harmonization of sales taxes, financial and political instability, changes in income tax laws or their application to the Fund and other factors disclosed previously and from time to time in the Fund's public filings Forward-looking information is provided as of the date hereof and, except as required by law, we assume no obligation to update or revise forward-looking information to reflect new events or circumstances.
Don Leslie, Chief Financial Officer: (604) 988-2141 or firstname.lastname@example.org