For the fourth quarter, distributions were $3.9 million or $0.18 per share and the Company reported an 86% payout ratio. For the year, the Company declared distributions of $15.6 million, or $0.7136 per share and a 90% payout ratio.
In January 2013, the Company announced a 4.2% increase to its monthly dividend, thereby increasing the annual dividend to $0.75 from $0.72. This increase follows a May 2012, increase of 2.7% to $0.72 from $0.70.
The Company's working capital reserve increased $635,000 during the quarter and increased $1.8 million for the year. At December 31, 2012, the balance was $4.6 million. The reserve is available to stabilize dividends and fund other expenditures in the event of short- to medium-term variability in System Sales and, thus, the Company's royalty income. With this reserve now in place, going forward, the Company will target a payout ratio closer to 100%. The Company does not have capital expenditure requirements or employees.
CURRENT INCOME TAX EXPENSE
For the year ended December 31, 2012, the Company reported current income tax expense of $3.8 million compared to $3.7 million for 2011. The increase is due to increased taxable income offset by a decreased tax rate. Of particular note is that the Company's 2012 adjusted accounting earnings from operations before income taxes differs significantly from its taxable income due largely to the tax amortization of the Pizza Pizza and Pizza 73 Rights and Marks. The amount of the tax amortization deducted is based on a declining basis and will decrease yearly.
This tax amortization deduction and certain other minor tax deductions resulted in an effective tax rate of 19.21% compared to the Company's applicable statutory tax rate of 26.5% (28.25% for 2011).
On December 31, 2012, the Fund completed its conversion from an income trust to a dividend-paying corporation (the "Conversion").
Under the Conversion, the trust units of the Fund held by unitholders of the Fund were transferred to the Company in consideration for common shares of the Company ("Shares") on the basis of one Share for each unit so transferred. As a result, on December 31, 2012, immediately after the completion of the Conversion, there were 21,818,392 Shares issued and outstanding.
The key terms and economics reflected in the Pizza Pizza Royalty Limited Partnership (the "Partnership") Agreement and all other agreements between Pizza Pizza Limited ("PPL") and the Partnership were not affected by the Conversion.
RESTAURANT ROYALTY POOL
As previously announced, the number of restaurants in the Company's Royalty Pool increased to 694 from 690 on the January 1, 2013 Adjustment Date.
During the fourth quarter, PPL opened eight restaurants four of which were traditional Pizza Pizza restaurants and four were non-traditional Pizza Pizza locations; five non-traditional locations were closed. This brings the total number of Pizza Pizza restaurants to 605. There was no change in Pizza 73 restaurants open during the quarter, so the total number of Pizza 73 locations remained at 89.
During the year, PPL opened ten traditional restaurants and eleven non-traditional Pizza Pizza locations; seventeen non-traditional locations were closed. Of the ten traditional PPL restaurants opened, three were in Nova Scotia, three in Manitoba, three in Quebec and one in Ontario. One Pizza 73 non-traditional location opened and one non-traditional location closed during the year.
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