Click hereto view the IPO filing.
Dunkin' Brands intends to use the [image-nocss] net proceeds from the offering to fund a portion of the redemption price for the outstanding Dunkin' Brands Inc. 9-5/8% senior notes due 2018, and it will use any remaining net proceeds for working capital and for general corporate purposes..
The offering is being made through an underwriting group led by J.P. Morgan Securities LLC, Barclays Capital Inc. and Morgan Stanley & Co. Incorporated. BofA Merrill Lynch and Goldman, Sachs & Co. are also acting as joint book-running managers of the offering.
The company plans to list on the Nasdaq Stock Market under the symbol DNKN.
The company operates its business in four segments: Dunkin' Donuts U.S., Dunkin' Donuts International, Baskin-Robbins International and Baskin-Robbins U.S. In 2010, the Dunkin' Donuts segments generated revenues of $416.5 million, or 76% of the total segment revenues, of which $402.4 million was in the U.S. segment and $14.1 million was in the international segment. In 2010, the Baskin-Robbins segments generated revenues of $134.2 million, of which $91.3 million was in the international segment and $42.9 million was in the U.S. segment.
As of March 26, 2011, there were 9,805 Dunkin' Donuts points of distribution, of which 6,799 were in the United States and 3,006 were international, and 6,482 Baskin-Robbins points of distribution, of which 3,959 were international and 2,523 were in the United States.
Points of distribution consist of traditional end-cap, in-line and standalone restaurants, many with drive-thrus, and gas and convenience locations, as well as alternative points of distribution (APODs), such as full-service or self-service kiosks in grocery stores, hospitals, airports, offices, colleges and other smaller-footprint properties.
For fiscal year 2010, it generated total revenues and operating income of $577.1 million and $193.5 million, respectively.
Nearly 100% of the locations are franchised, allowing the company to focus on brand differentiation and menu innovation, while franchisees expand our points of distribution, it said. This expansion requires limited financial investment by the company, given that new store development and substantially all store advertising costs are funded by franchisees. Consequently, it achieved a strong operating income margin of approximately 34% in fiscal 2010. With strong operating income margins and low capital requirements, the company generates "strong and consistent" cash flow, it said.
During 2010, franchisees opened 206 net new Dunkin' Donuts points of distribution in the United States. Based on the commitments it has secured or expects to secure, it anticipates the opening of approximately 200 to 250 net new U.S. points of distribution in 2011, principally in existing developed markets. The long-term goal is to more than double the U.S. footprint and reach a total of 15,000 points of distribution in the United States for Dunkin' Donuts, it said.
Approximately 60% of U.S. systemwide sales for fiscal 2010 were generated from coffee and other beverages, which have attractive profit margins and, Dunkin' believes, generate increased guest visits and higher unit volumes. The company plans to increase high-margin coffee and beverage revenue through continued new product innovations and related marketing.
It intends to extend leadership in breakfast daypart while growing the afternoon daypart. As it maintains and expands its market position in the breakfast daypart through bakery and breakfast sandwich products like the Big 'N Toasty and the Wake-Up Wrap, it plans to expand Dunkin' Donuts' position in the afternoon daypart (between 2:00 p.m. and 5:00 p.m.), which currently represents only approximately 12% of its franchisee-reported sales. It believes that its coffee- and beverage-based menu, coupled with new "hearty snack" introductions such as Bagel Twists, position the company to grow share in this daypart with minimal additional capital investment by franchisees.
Dunkin' said that it believes there is a significant opportunity to grow our points of distribution for Dunkin' Donuts in the United States given the strong potential outside of the Northeast region to increase per-capita penetration to levels closer to those in core markets. The development strategy resulted in more than 200 net new U.S. openings in fiscal 2010, which was among the largest store count increases in the QSR industry that year, it said.
A key element of Dunkin' Brands' domestic development strategy is to increase penetration in existing markets. In its traditional core markets of New England and New York, it now has one Dunkin' Donuts store for every 9,700 people. In the near term, it intends to focus development on other existing markets east of the Mississippi River, where it currently has only approximately one Dunkin' Donuts store for every 48,400 people. In certain Eastern U.S. markets outside of core markets, such as Philadelphia, Chicago and South Florida, it has already achieved per-capita penetration of greater than one Dunkin' Donuts store for every 25,000 people.
Another key element is to expand into new markets using a disciplined approach. It believes that the western United States represents a significant growth opportunity; however, it believes that a disciplined approach to development is the best one for its brand and franchisees. In the near-term, it will focus on development in contiguous markets that are adjacent to its existing base, and generally move outward to less penetrated markets in progression, providing for marketing and supply chain efficiencies within each new market.
And another key element is to focus on store-level economics. Dunkin' said that it believes its store-level economics have driven unit growth. In recent years, it has undertaken significant initiatives to further enhance store-level economics for franchisees, including reducing the cash investment for new stores, increasing beverage sales, lowering supply-chain costs and implementing more efficient store management systems.
These initiatives have further increased franchisee profitability, the company said. For example, to open an end-cap restaurant with a drive-thru, it has reduced the upfront capital expenditure costs by approximately 23% between fiscal 2008 and fiscal 2010 and during that same period, it has facilitated approximately $220 million in cost reductions through strategic sourcing and other initiatives. It will continue to focus on these initiatives to further enhance operating efficiencies, it said.
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