The Vancouver Business Thread

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A&W reorganizes to avoid higher taxes; first-quarter profit grows 25 per cent
By The Canadian Press

VANCOUVER, B.C. - Fast food restaurant operator A&W Revenue Royalties Income Fund (TSX:AW.UN) said Tuesday its first-quarter profit rose 25 per cent due to improved same-store sales.

The Vancouver-based trust said its earnings amounted to $3 million, or 36 cents per share, up from a year-ago $2.4 million, or 28 cents per share, as same-store sales rose 6.1 per cent despite a continued "challenging food service market environment."

The trust holds trademarks representing A&W restaurants for which it receives royalties of three per cent of sales by A&W restaurants in a royalty pool. It said pool sales were up 17.5 per cent in the quarter to $171.7 million from $146.1 million in the same quarter of 2009, while the number of restaurants rose to 700 from 685.

The fund declared a 10-cent-per-unit special distribution payable on May 31 to unitholders of record at the close of business on May 15.

"During the first quarter our advertising and promotions programs were particularly successful in building customer traffic and increasing sales," president and CEO Paul Hollands said in a statement.

"We are very pleased with the same-store sales growth of 6.1 per cent despite what continues to be a challenging food service market environment. In addition, we're pleased that the fund is able to share this success with its unitholders in the form of a special distribution."

The trust also said Tuesday that its unitholders have approved a reorganization of its subsidiary, A&W Trade Marks Inc., with the goal of maximizing cash distributions to unitholders.

The reorganization will replace the subordinated notes of Trade Marks with non-voting common shares. As a result, the trust will receive dividends rather than interest paid on the notes. These dividends won't be subject to the new tax, reducing the tax rate of Trade Marks' earnings to 18 per cent from 25 per cent if the reorganization weren't implemented.

"This structure maximizes cash distributions to unitholders and avoids the high cost of converting to a public corporation," stated John McLernon, chairman of the board of trustees for the fund.

Units of the fund were up nine cents at $16.60 in Tuesday trading on the Toronto Stock Exchange.

http://www.canadianbusiness.com/markets/headline_news/article.jsp?content=b042886224