TORONTO, ONTARIO -- (Marketwire) -- 02/01/13 -- Attention: Business Editors
Pizza Pizza Royalty Corp. (the "Company") (TSX: PZA) and Pizza Pizza Limited ("PPL") today announced that effective January 1, 2013, the pool of restaurants (the "Royalty Pool"), on which royalties are paid to the Company by PPL, has been adjusted to reflect restaurant openings and closures.
Effective January 1, 2013, 21 new Pizza Pizza restaurants and one new Pizza 73 restaurant were added to the Royalty Pool. There were 18 non-traditional locations closed and removed from the Royalty Pool. Of the 21 new Pizza Pizza restaurants opened during 2012, ten were traditional restaurants and eleven were non-traditional locations. The one new Pizza 73 restaurant was a non-traditional location opened during the period from September 2, 2011 to September 1, 2012. Of the 18 non-traditional closures, 17 were Pizza Pizza locations and one was a Pizza 73 location.
After this annual adjustment, the 2013 Royalty Pool increases by a net of four restaurants to 694. In exchange for adding new restaurants to the Royalty Pool, PPL will be compensated in equivalent shares using an agreed-upon formula which includes estimating future royalties to be paid to the Company based on the new restaurant sales. Additional details about this formula are provided in the following paragraphs.
Annually, on January 1 (the "Adjustment Date"), the Royalty Pool is adjusted to include the forecasted system sales from new Pizza Pizza restaurants opened on or before December 31 of the prior year, less system sales from any Pizza Pizza restaurants that have been permanently closed during the year. Similarly, on the Adjustment Date, the Royalty Pool is adjusted to include the forecasted system sales from new Pizza 73 restaurants opened on or before September 1 of the prior year, less the system sales of any Pizza 73 restaurants permanently closed during the prior calendar year. These Pizza 73 forecasted system sales may also be reduced by any decrease in system sales attributable to certain Pizza 73 restaurants whose territory may have been adjusted during the year (an "adjusted restaurant" as defined in the License and Royalty Agreement for the Pizza 73 Royalty Pool restaurants).
PPL holds Class B and Class D units of Pizza Pizza Royalty Limited Partnership (the "Partnership"), which are exchangeable for a number of Company shares ("Shares") based on the Class B and Class D Exchange Multipliers (the "equivalent Shares"). At each annual Adjustment Date, the Class B and Class D Exchange Multipliers for the coming year are determined in accordance with the Partnership's limited partnership agreement. This, in turn, affects the number of equivalent Shares held by PPL. The formula for determining the Exchange Multipliers is based on the Determined Amounts which are calculated using the forecasted system sales from new restaurants less system sales from any closed and adjusted restaurants, multiplied by the applicable royalty rate, divided by the yield of the Shares, and discounted by 7.5%.
Beginning with last year's Adjustment Date on January 1, 2012 and going forward, the Determined Amounts are multiplied by a number equal to (1-Tax%) where "Tax%" is an estimate of the Company's effective entity level tax rate for the year. This maintains the accretive effect to shareholders of the annual Royalty Pool adjustment. This estimate of the effective tax rate will be subject to an adjustment when the year's actual tax rate of the Company is known.
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