A&W REVENUE ROYALTIES INCOME FUND ANNOUNCES SUBSTANTIAL ISSUER BID FOR ITS UNITS AND INTENTION TO INCREASE MONTHLY DISTRIBUTIONS
November 10 2010 - 3:51PM
PR Newswire (Canada)
VANCOUVER, Nov. 10 /CNW/ -- Highlights -- Fund offers to buy
2,500,000 Units @ $20.00 per Unit -- Purchase funded by additional
$50 million term loan -- Distributions to increase by 10% to 11.7
cents per Unit per month, effective January 2011 VANCOUVER, Nov. 10
/CNW/ - A&W Revenue Royalties Income Fund (the "Fund",
TSX-AW.UN) today announced it intends to make a substantial issuer
bid (the "Offer") to all its unitholders, including A&W Food
Services of Canada Inc. ("Food Services"), who holds shares of the
Fund's subsidiary, A&W Trade Marks Inc. ("Trade Marks") which
are exchangeable for Units of the Fund ("Exchangeable
Securities"). Under the Offer, the Fund will offer to
purchase for cancellation 2,500,000 of its Units, at a price of
$20.00 per Unit. In setting the purchase price to be paid for
the Units under the Offer, the Trustees considered, among other
things, the weighted average trading prices of the Units on the TSX
for the twenty and thirty trading days ended November 9, 2010, of
$20.27 and $19.91 respectively. The Fund will finance the aggregate
amount to be paid for the Units pursuant to the Offer by increasing
the existing loan from HSBC Bank Canada to Trade Marks from $10
million to $60 million (the "New Loan"). As a result of the
purchase of the Units under the Offer and the New Loan,
distributable cash available for distributions to unitholders is
expected to increase by approximately 10.2 cents (8%) per Unit per
annum. Therefore, subject to completion of the purchase of
Units under the Offer and the New Loan, 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. Trade Marks will pay dividends to Food Services
on its Exchangeable Securities of Trade Marks at the same rate.
Food Services has agreed to deposit to the Offer Exchangeable
Securities exchangeable for a total of 2,500,000 Units. If
more than 2,500,000 Units are tendered to the Offer, the Fund will
purchase the Units on a pro rata basis according to the number of
Units deposited by unitholders, with fractions rounded down to the
nearest whole Unit. The Offer is not conditional on any minimum
number of Units being deposited. The number of Units to be
purchased by the Fund from Food Services will depend on the number
of Units deposited to the Offer by other unitholders. In the
event that all unitholders tender all their Units, the Fund will
purchase 576,568 Units from Food Services and 1,923,432 Units from
other unitholders (in which event Food Services' interest in the
Fund will increase from approximately 43% of the outstanding Units
on a fully diluted basis to approximately 47%). In the event
that no unitholders other than Food Services deposit Units to the
Offer, the Fund will purchase 2,500,000 Units from Food Services
(in which event Food Services' interest in the Fund will decrease
from approximately 43% of the outstanding Units on a fully diluted
basis to approximately 31%). "Since the Fund was created in 2002,
the growth of the A&W business has generated strong
distribution growth for unitholders" said John McLernon, Chairman
of the Board of Trustees of the Fund. "We are pleased that
through the purchase of Units under this Offer, we are able to
further increase cash distributions per Unit to unitholders." The
New Loan will mature five years after the payment by the Fund of
the Units taken up pursuant to the Offer and bear interest at 5.03%
per annum under an interest rate swap maturing on the same
date. Interest only will be payable monthly. At the annual
general and special meeting of unitholders held on May 4, 2010, the
unitholders approved a reorganization (the "Reorganization") of the
Fund. As a result of the Reorganization, the effective rate
of tax to be paid effective January 2011 by Trade Marks on its net
income is 18%, leaving 82% of its net income available for
distribution to the Fund and Food Services as dividends on the
shares of Trade Marks, and by the Fund to unitholders.
Details of the Reorganization were contained in the information
circular of the Fund dated March 25, 2010, a copy of which is
available on SEDAR at www.sedar.com. To understand the impact of
the Reorganization, the Offer and the New Loan, the following table
shows the distributable cash of the Fund for the 4 quarters
beginning with the fourth quarter of 2009 and ending with the third
quarter of 2010. The first column shows the impact on distributable
cash after giving effect to the Reorganization only, and the second
column after giving effect to the Reorganization, the Offer and the
New Loan, in each case effective at the beginning of the fourth
quarter of 2009: Q4 2009 to Q3 2010, inclusive After Giving Effect
to the After Giving Reorganization, Effect to the (Dollars in but
before the Reorganization, thousands except Offer and New the Offer
and New per Unit amounts) Loan Loan Fund and Trade Marks cash flows
from operating activities $22,831 $22,831 Changes in non-cash
working (163) (163) capital Interest on existing loan (582) -
Interest on the New Loan - (3,018) Partnership distributions (16)
(16) Distributable cash before 22,070 19,634 income taxes Income
taxes (estimate) (3,396) (2,945) Distributable cash after $18,674
$16,689 income taxes Weighted average outstanding Units (fully
diluted) 14,575,874 12,075,874 Change Distributable cash per Unit
$1.281 $1.382 $0.101 (after-tax) (8%) The distributable cash
measure is provided as it identifies the amount of actual cash
available to pay distributions to unitholders and dividends to Food
Services. Distributable cash is not an earnings measure recognized
by Canadian Generally Accepted Accounting Practices and therefore
may not be comparable to similar measures presented by other
issuers. Distributable cash is calculated as the combined operating
cash flows of the Fund and Trade Marks (which includes A&W
Trade Marks Limited Partnership (the "Partnership")), the
Partnership's 0.1% distributions to Food Services, and changes in
non-cash working capital. Changes in non-cash working capital are
excluded as Trade Marks and the Fund's working capital requirements
are not permanent and are primarily due to the timing of payments
between related parties. No deduction is made for capital
expenditures as neither the Fund nor Trade Marks have capital
expenditures. There are no restrictions on distributions arising
from compliance with financial covenants. With respect to the
guidance issued by Canadian Institute of Chartered Accountants on
the measurement and disclosure of distributable cash in income
trusts and other flow-through entities, the Fund believes that this
method of calculating distributable cash is appropriate and
provides appropriate disclosure to Unitholders. As of November 10,
2010, there were 14,622,716 Units outstanding on a fully diluted
basis including the Units issuable upon the exchange of the
Exchangeable Securities held by Food Services and, accordingly, the
Offer is for approximately 17.1% of the outstanding Units on a
fully diluted basis. The Offer is subject to various conditions
typical of transactions of this nature. It is anticipated that the
offer to purchase and issuer bid circular and other related
documents (the "Offer Documents"), containing the terms of the
Offer and the instructions for tendering Units will be mailed to
unitholders and filed with applicable securities regulators on or
about November 12, 2010. The Offer will remain open for acceptance
until December 17, 2010 unless withdrawn or extended by the Fund.
Neither the Fund nor its Trustees makes any recommendation to
unitholders as to whether to tender or refrain from tendering their
Units to the Offer. Unitholders are strongly encouraged to review
the Offer Documents carefully and to consult with their financial
and tax advisors prior to making any decision with respect to the
Offer. About A&W Revenue Royalties Income 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 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. 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 A&W restaurants, net of the
sales of any A&W restaurants that have permanently closed. The
limited partnership interest of Food Services is increased each
year to reflect the annual adjustment. Food Services' limited
partnership interest may be exchanged for additional shares of
Trade Marks which shares are exchangeable for Units. Food Services
currently owns securities of Trade Marks exchangeable for
approximately 43% of Units of the Fund on a fully diluted basis.
Trade Marks' distributions to the Fund and to 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. Additional information relating to the
Fund is on SEDAR at www.sedar.com and on the Fund's website at
www.awincomefund.ca. pDon Leslie, Chief Financial Officer: (604)
983-7291 or a href="mailto:investorrelations@aw.ca"
cr="true"investorrelations@aw.ca/a/p
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