UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of November, 2019 

Commission File Number: 001-35129

Arcos Dorados Holdings Inc.

(Exact name of registrant as specified in its charter)

Dr. Luis Bonavita 1294, Office 501  

Montevideo, Uruguay, 11300 WTC Free Zone  

(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

Form 20-F X Form 40-F

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

Yes No X

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

Yes No X

ARCOS DORADOS HOLDINGS INC.

INCORPORATION BY REFERENCE

This report on Form 6-K shall be deemed to be incorporated by reference into the registration statements on Form S-8 (Registration Number: 333-173496) of Arcos Dorados Holdings Inc. and to be a part thereof from the date on which this report is filed, to the extent not superseded by documents or reports subsequently filed or furnished.

ARCOS DORADOS HOLDINGS INC.

TABLE OF CONTENTS

ITEM
1.	Condensed Consolidated Financial Statements as of September 30, 2019 and December 31, 2018 and for the nine-month periods ended September 30, 2019 and 2018 (Unaudited).

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Arcos Dorados Holdings Inc.
By:	/s/ Juan David Bastidas
	Name:	Juan David Bastidas
	Title:	Chief Legal Counsel

Date: November 13, 2019

Item 1

Arcos Dorados Holdings Inc.

Condensed Consolidated Financial Statements 

As of September 30, 2019 and December 31, 2018 and for the nine-month periods ended September 30, 2019 and 2018 (Unaudited)

F-1 

Arcos Dorados Holdings Inc. 

Consolidated Statements of Income 

For the nine-month periods ended September 30, 2019 and 2018 (Unaudited)

Amounts in thousands of US dollars, except for share data and as otherwise indicated

	2019			2018
REVENUES
Sales by Company-operated restaurants	$	2,096,987		$	2,216,785
Revenues from franchised restaurants		107,725			111,444
Total revenues		2,204,712			2,328,229
OPERATING COSTS AND EXPENSES
Company-operated restaurant expenses:
Food and paper		(751,807	)		(779,977	)
Payroll and employee benefits		(427,289	)		(470,703	)
Occupancy and other operating expenses		(598,552	)		(607,509	)
Royalty fees		(116,419	)		(118,625	)
Franchised restaurants – occupancy expenses		(53,501	)		(50,324	)
General and administrative expenses		(157,214	)		(167,073	)
Other operating expenses, net		(619	)		(49,415	)
Total operating costs and expenses		(2,105,401	)		(2,243,626	)
Operating income		99,311			84,603
Net interest expense		(38,200	)		(39,326	)
Gain (loss) from derivative instruments		1,789			(191	)
Foreign currency exchange results		10,115			15,651
Other non-operating expenses, net		(2,313	)		(9	)
Income before income taxes		70,702			60,728
Income tax expense		(23,650	)		(32,978	)
Net income		47,052			27,750
Less: Net income attributable to non-controlling interests		(115	)		(140	)
Net income attributable to Arcos Dorados Holdings Inc.	$	46,937		$	27,610
Earnings per share information:
Basic net income per common share attributable to Arcos Dorados Holdings Inc.	$	0.23		$	0.13
Diluted net income per common share attributable to Arcos Dorados Holdings Inc.		0.23			0.13

See Notes to the Condensed Consolidated Financial Statements.

F-2 

Arcos Dorados Holdings Inc. 

Consolidated Statements of Comprehensive Income (Loss) 

For the nine-month periods ended September 30, 2019 and 2018 (Unaudited) 

Amounts in thousands of US dollars

	2019			2018
Net income	$	47,052		$	27,750
Other comprehensive income (loss), net of tax:
Foreign currency translation		(28,447	)		(61,808	)
Post-employment benefits:
Reclassification of net loss to consolidated statement of income		648			371
Post-employment benefits (net of deferred income taxes of $333 and $191)		648			371
Cash flow hedges:
Net gain recognized in accumulated other comprehensive loss		5,207			30,157
Reclassification of net gain to consolidated statement of income		(8,234	)		(35,053	)
Cash flow hedges (net of deferred income taxes of $1,650 and $3,586)		(3,027	)		(4,896	)
Total other comprehensive loss		(30,826	)		(66,333	)
Comprehensive income (loss)		16,226			(38,583	)
Less: Comprehensive income attributable to non-controlling interests		(49	)		(14	)
Comprehensive income (loss) attributable to Arcos Dorados Holdings Inc.	$	16,177		$	(38,597	)

See Notes to the Condensed Consolidated Financial Statements.

F-3 

Arcos Dorados Holdings Inc.

Consolidated Balance Sheet 

As of September 30, 2019 and December 31, 2018 

Amounts in thousands of US dollars, except for share data and as otherwise indicated

	As of September 30, 2019 (Unaudited)			As of December 31, 2018
ASSETS
Current assets
Cash and cash equivalents	$	126,677		$	197,282
Accounts and notes receivable, net		67,033			84,287
Other receivables		21,353			25,350
Inventories		36,885			46,089
Prepaid expenses and other current assets		108,090			109,230
McDonald’s Corporation’s indemnification for contingencies		—			2,324
Total current assets		360,038			464,562
Non-current assets
Miscellaneous		96,413			99,049
Collateral deposits		2,500			2,500
Property and equipment, net		884,458			856,192
Net intangible assets and goodwill		38,728			41,021
Deferred income taxes		57,824			58,334
Derivative instruments		66,433			54,735
McDonald’s Corporation’s indemnification for contingencies		1,555			1,646
Leases right of use asset, net		804,471			—
Total non-current assets		1,952,382			1,113,477
Total assets	$	2,312,420		$	1,578,039
LIABILITIES AND EQUITY
Current liabilities
Accounts payable	$	217,264		$	242,455
Royalties payable to McDonald’s Corporation		12,714			14,576
Income taxes payable		41,546			53,843
Other taxes payable		52,970			61,006
Accrued payroll and other liabilities		92,151			94,166
Provision for contingencies		2,118			2,436
Interest payable		8,007			9,951
Short-term debt		8			356
Current portion of long-term debt		3,265			3,836
Derivative instruments		8,826			10,687
Operating lease liabilities		56,354			—
Total current liabilities		495,223			493,312
Non-current liabilities
Accrued payroll and other liabilities		20,195			35,322
Provision for contingencies		30,174			26,073
Long-term debt, excluding current portion		623,574			626,424
Derivative instruments		2,190			3,192
Deferred income taxes		2,004			957
Operating lease liabilities		765,407			—
Total non-current liabilities		1,443,544			691,968
Total liabilities		1,938,767			1,185,280
Equity
Class A shares of common stock		383,198			379,845
Class B shares of common stock		132,915			132,915
Additional paid-in capital		12,793			14,850
Retained earnings		437,438			413,074
Accumulated other comprehensive loss		(533,026	)		(502,266	)
Common stock in treasury		(60,000	)		(46,035	)
Total Arcos Dorados Holdings Inc. shareholders’ equity		373,318			392,383
Non-controlling interests in subsidiaries		335			376
Total equity		373,653			392,759
Total liabilities and equity	$	2,312,420		$	1,578,039

See Notes to the Condensed Consolidated Financial Statements.

F-4 

Arcos Dorados Holdings Inc. 

Condensed Consolidated Statements of Cash Flows 

For the nine-month periods ended September 30, 2019 and 2018 (Unaudited) 

Amounts in thousands of US dollars

	2019			2018
Operating activities
Net income attributable to Arcos Dorados Holdings Inc.	$	46,937		$	27,610
Adjustments to reconcile net income attributable to Arcos Dorados Holdings Inc. to cash provided by operating activities:
Non-cash charges and credits:
Depreciation and amortization		89,670			77,285
Gain of property and equipment sales		(850	)		(1,216	)
Impairment of long-lived assets and goodwill		—			12,089
Deferred income taxes		(810	)		4,646
Foreign currency exchange results		(11,919	)		21,556
Gain on Sales of restaurants businesses		(3,986	)		(3,228	)
Others, net		11,384			(33,091	)
Changes in assets and liabilities		7,359			(21,253	)
Net cash provided by operating activities		137,785			84,398
Investing activities
Property and equipment expenditures		(167,111	)		(118,998	)
Purchases of restaurant businesses		(1,345	)		—
Proceeds from sale of property and equipment and related advances		1,697			1,683
Proceeds from sale of restaurant businesses and related advances		3,468			5,145
Proceeds from short-term investments		—			19,588
Other investing activity		(420	)		1,038
Net cash used in investing activities		(163,711	)		(91,544	)
Financing activities
Dividend payments to Arcos Dorados Holdings Inc.’s shareholders		(16,289	)		(10,554	)
Net short-term borrowings		—			386
Treasury stock purchases		(13,965	)		(28,255	)
Other financing activities		(5,101	)		(5,210	)
Net cash used in financing activities		(35,355	)		(43,633	)
Effect of exchange rate changes on cash and cash equivalents		(9,324	)		(50,159	)
Decrease in cash and cash equivalents		(70,605	)		(100,938	)
Cash and cash equivalents at the beginning of the year	$	197,282		$	308,491
Cash and cash equivalents at the end of the period	$	126,677		$	207,553
Supplemental cash flow information:
Cash paid during the period for:
Interest	$	43,630		$	46,522
Income tax		25,801			21,269
Non-cash investing activities:
Dividend declared pending of payment		6,108			10,383
Seller financing pending of payment and settlement of franchise receivables related to purchases of restaurant businesses		905			—

See Notes to the Condensed Consolidated Financial Statements.

F-5 

Arcos Dorados Holdings Inc. 

Consolidated Statement of Changes in Equity 

For the nine-month period ended September 30, 2019 (Unaudited) 

Amounts in thousands of US dollars, except for share data and as otherwise indicated 

Arcos Dorados Holdings Inc.’ Shareholders
	Class A shares of common stock				Class B shares of common stock				Additional paid-in			Retained			Accumulated other comprehensive			Common stock in treasury									Non- controlling
	Number		Amount		Number		Amount		capital			earnings			loss			Number			Amount			Total			interests			Total
Balances at beginning of fiscal year		131,593,073	$	379,845		80,000,000	$	132,915	$	14,850		$	413,074		$	(502,266	)		(6,360,826	)	$	(46,035	)	$	392,383		$	376		$	392,759
Net income for the period (Unaudited)		—		—		—		—		—			46,937			—			—			—			46,937			115			47,052
Other comprehensive income (Unaudited)		—		—		—		—		—			—			(30,760	)		—			—			(30,760	)		(66	)		(30,826	)
Dividends to Arcos Dorados Holdings Inc.’s shareholders ($0.11 per share) (Unaudited)		—		—		—		—		—			(22,397	)		—			—			—			(22,397	)		—			(22,397	)
Dividends on restricted share units under the 2011 Equity Incentive Plan (Unaudited)		—		—		—		—		—			(176	)		—			—			—			(176	)		—			(176	)
Issuance of shares in connection with the partial vesting of outstanding restricted share units under the 2011 Equity Incentive Plan (Unaudited)		469,884		3,353		—		—		(3,353	)		—			—			—			—			—			—			—
Stock-based compensation related to the 2011 Equity Incentive Plan (Unaudited)		—		—		—		—		1,296			—			—			—			—			1,296			—			1,296
Treasury stock purchases (Unaudited)		—		—		—		—		—			—			—			(1,632,776	)		(13,965	)		(13,965	)		—			(13,965	)
Dividends to non-controlling interests (Unaudited)		—		—		—		—		—			—			—			—			—			—			(90	)		(90	)
Balances at end of period (Unaudited)		132,062,957	$	383,198		80,000,000	$	132,915	$	12,793		$	437,438		$	(533,026	)		(7,993,602	)	$	(60,000	)	$	373,318		$	335		$	373,653

See Notes to the Condensed Consolidated Financial Statements.

F-6 

Arcos Dorados Holdings Inc.

Consolidated Statement of Changes in Equity

For the nine-month period ended September 30, 2018 (Unaudited)

Amounts in thousands of US dollars, except for share data and as otherwise indicated

Arcos Dorados Holdings Inc.’ Shareholders
	Class A shares of common stock				Class B shares of common stock				Additional paid-in			Retained			Accumulated other comprehensive			Common stock in treasury									Non- controlling
	Number		Amount		Number		Amount		capital			earnings			losses			Number			Amount			Total			interests			Total
Balances at beginning of fiscal year		131,072,508	$	376,732		80,000,000	$	132,915	$	14,216		$	401,134		$	(429,347	)		—			—		$	495,650		$	492		$	496,142
Net income for the period (Unaudited)		—		—		—		—		—			27,610			—			—			—			27,610			140			27,750
Other comprehensive loss (Unaudited)		—		—		—		—		—			—			(66,207	)		—			—			(66,207	)		(126	)		(66,333	)
Dividends to Arcos Dorados Holdings Inc.’s shareholders ($0.10 per share) (Unaudited)		—		—		—		—		—			(20,937	)		—			—			—			(20,937	)		—			(20,937	)
Dividends on restricted share units under the 2011 Equity Incentive Plan  (Unaudited)		—		—		—		—		—			(174	)		—			—			—			(174	)		—			(174	)
Issuance of shares in connection with the partial vesting of outstanding restricted share units under the 2011 Equity Incentive Plan (Unaudited)		498,398		2,965		—		—		(2,965	)		—			—			—			—			—			—			—
Stock-based compensation related to the 2011 Equity Incentive Plan (Unaudited)		—		—		—		—		2,939			—			—			—			—			2,939			—			2,939
Treasury stock purchases (Unaudited)		—		—		—		—		—			—			—			(3,900,103	)		(28,255	)		(28,255	)		—			(28,255	)
Dividends to non-controlling interests (Unaudited)		—		—		—		—		—			—			—			—			—			—			(91	)		(91	)
Adoption of accounting standard ASC 606 -net of $1,555 of deferred income tax- (Unaudited)		—		—		—		—		—			(3,796	)		—			—			—			(3,796	)		—			(3,796	)
Balances at end of period (Unaudited)		131,570,906	$	379,697		80,000,000	$	132,915	$	14,190		$	403,837		$	(495,554	)		(3,900,103	)	$	(28,255	)	$	406,830		$	415		$	407,245

See Notes to the Condensed Consolidated Financial Statements.

F-7 

Arcos Dorados Holdings Inc.

Notes to the Condensed Consolidated Financial Statements

For the nine-month periods ended September 30, 2019 and 2018 (Unaudited)

Amounts in thousands of US dollars, except for share data and as otherwise indicated

1. Organization and nature of business

Arcos Dorados Holdings Inc. (the “Company”) is a limited liability company organized and existing under the laws of the British Virgin Islands. The Company’s fiscal year ends on the last day of December. The Company has through its wholly-owned Company Arcos Dorados Group B.V., a 100% equity interest in Arcos Dorados B.V. (“ADBV”).

On August 3, 2007 the Company, indirectly through its wholly-owned subsidiary ADBV, entered into a Stock Purchase Agreement and Master Franchise Agreements (“MFAs”) with McDonald’s Corporation pursuant to which the Company completed the acquisition of the McDonald’s business in Latin America and the Caribbean (“LatAm business”). Prior to this acquisition, the Company did not carry out operations. The Company’s rights to operate and franchise McDonald’s-branded restaurants in the Territories, and therefore the ability to conduct the business, derive exclusively from the rights granted by McDonald’s Corporation in the MFAs through 2027. The initial term of the MFA for French Guyana, Guadeloupe and Martinique was ten years through August 2, 2017 with an option to extend the agreement for these territories for an additional period of ten years, through August 2, 2027.  On July 20, 2016, the Company has exercised its option to extend the MFA for these three territories.

The Company, through ADBV’s wholly-owned and majority owned subsidiaries, operates and franchises McDonald’s restaurants in the food service industry. The Company has operations in twenty territories as follows: Argentina, Aruba, Brazil, Chile, Colombia, Costa Rica, Curacao, Ecuador, French Guyana, Guadeloupe, Martinique, Mexico, Panama, Peru, Puerto Rico, Trinidad and Tobago, Uruguay, the U.S. Virgin Islands of St. Croix and St. Thomas (USVI) and Venezuela. All restaurants are operated either by the Company’s subsidiaries or by independent entrepreneurs under the terms of sub-franchisee agreements (franchisees).

2. Basis of presentation and principles of consolidation

The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) for interim financial information and include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The Company has elected to report its consolidated financial statements in United States dollars (“$” or “US dollars”).

The accompanying condensed consolidated financial statements do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted for purposes of this presentation. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated annual financial statements of the Company as of December 31, 2018.

The accompanying condensed consolidated financial statements are unaudited and include, in the opinion of management, all adjustments, consisting only of normal recurring adjustments, which are considered necessary for the fair presentation of the information in the consolidated financial statements.

Operating results for the nine-month period ended September 30, 2019 are not necessarily indicative of results that may be expected for any future periods.

F-8 

Arcos Dorados Holdings Inc.

Notes to the Condensed Consolidated Financial Statements

For the nine-month periods ended September 30, 2019 and 2018 (Unaudited)

Amounts in thousands of US dollars, except for share data and as otherwise indicated

3. Summary of significant accounting policies

There have been no material changes in the Company’s accounting policies disclosed in the notes to the consolidated annual financial statements as of December 31, 2018, except for lease accounting policy that has changed in accordance with ASU No. 2016-02 Leases (topic 842).

Use of estimates

The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Foreign currency matters

The financial statements of the Company’s foreign operating subsidiaries are translated in accordance with guidance in ASC 830 Foreign Currency Matters. Except for the Company’s Venezuelan and Argentinian operations, the functional currencies of the Company’s foreign operating subsidiaries are the local currencies of the countries in which they conduct their operations. Therefore, assets and liabilities are translated into US dollars at the balance sheet date exchange rates, and revenues, expenses and cash flow are translated at average rates prevailing during the periods. Translation adjustments are included in the “Accumulated other comprehensive loss” component of shareholders’ equity. The Company includes foreign currency exchange results related to monetary assets and liabilities transactions, including intercompany transactions, denominated in currencies other than its functional currencies in its income statement.

Since January 1, 2010 and July 1, 2018, Venezuela and Argentina, respectively, were considered to be highly inflationary, and as such, the financial statements of these subsidiaries are remeasured as its functional currency was the reporting currency of the immediate parent company (US dollars for Venezuelan operation and BRL for Argentinian operation). As a result, remeasurement gains and loss are recognized in earnings rather than in the cumulative translation adjustment, component of “Accumulated other comprehensive loss” within shareholders’ equity. See Note 13 for additional information pertaining to the Company’s Venezuelan operations, including currency restrictions and controls existing in the country and a discussion of the exchange rate used for remeasurement purposes.

Recent accounting pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which modifies lease accounting for lessees to increase transparency and comparability by recording a right-of-use asset and lease liability on their balance sheet for operating leases. Entities need to disclose qualitative and quantitative information about their leases, including characteristics and amounts recognized in the financial statements. This standard is effective for annual periods beginning after December 15, 2018, including interim periods.

The Company adopted ASU 2016-02 in the first quarter of 2019 utilizing the modified retrospective method, without restatement of comparative financial information periods, and applied the package of practical expedients permitted under the transition guidance within the standard which, among other things, allowed the Company to carry forward the historical lease classification. The adoption, and the ultimate effect on the consolidated financial statements, was based on an evaluation of the contract-specific facts and circumstances. The Company adoption of the standard resulted in the recognition of lease right-of-use assets and lease liabilities of $887 million, as of January 1, 2019. The right-of-use assets and lease liabilities were recognized at the commencement date based on the present value of the remaining future minimum lease payments. As the interest rate implicit in the Company’s leases was not readily determinable, the Company utilizes its incremental borrowing rate to discount the lease payments.

F-9 

Arcos Dorados Holdings Inc.

Notes to the Condensed Consolidated Financial Statements

For the nine-month periods ended September 30, 2019 and 2018 (Unaudited)

Amounts in thousands of US dollars, except for share data and as otherwise indicated

3. Summary of significant accounting policies (continued)

Recent accounting pronouncements (continued)

Furthermore, the changes made to the consolidated balance sheet as of January 1, 2019 for the adoption of ASC 842 were as follows:

Consolidated Balance Sheet	Balance at December 31, 2018		Adjustments Due to ASC 842			Balance at January 1, 2019
ASSETS
Non-current Assets
Leases right of use asset, net		—		871,004			871,004	(i)
LIABILITIES AND EQUITY
Current liabilities
Operating lease liabilities		—		64,404			64,404	(ii)
Non-current liabilities
Accrued payroll and other liabilities		35,322		(16,404	)		18,918	(iii)
Operating lease liabilities		—		823,004			823,004	(iv)

(i)Represents capitalization of operating lease right of use assets $887,408 net of the reclassification of straight-line rent accrual ($16,404). 

(ii)Represents recognition of current portion of operating lease liabilities. 

(iii)Represents reclassification of straight-line rent accrual to leases right of use asset. 

(iv)Represents recognition of non-current portion of operating lease liabilities.

The standard did not have a significant impact on the Company’s consolidated statements of income and cash flows, except for the exchange results related to lease liabilities denominated in other currencies than its functional one. The disclosure of the impact of adoption on the consolidated balance sheet and income statement, as of September 30, 2019 and for the nine-month period ended in September 30, 2019, are as follows:

	As of September 30, 2019
Consolidated Balance Sheet	As Reported			Balances Without Adoption of ASC 842			Effect of Change
ASSETS
Non-current Assets
Leases right of use asset, net		804,471			—			804,471
LIABILITIES AND EQUITY
Current liabilities
Operating lease liabilities		56,354			—			56,354
Non-current liabilities
Accrued payroll and other liabilities		92,151			109,541			(17,390	)
Operating lease liabilities		765,407			—			765,407
EQUITY
Retained earnings		437,438			435,303			2,135
Accumulated other comprehensive loss		(533,026	)		(530,992	)		(2,034	)

F-10 

Arcos Dorados Holdings Inc.

Notes to the Condensed Consolidated Financial Statements

For the nine-month periods ended September 30, 2019 and 2018 (Unaudited)

Amounts in thousands of US dollars, except for share data and as otherwise indicated

3. Summary of significant accounting policies (continued)

Recent accounting pronouncements (continued)

	For the nine-month period ended September 30, 2019
Consolidated Statement of Income	As Reported		Balances Without Adoption of ASC 842		Effect of Change
Foreign currency exchange results		10,115		7,980		2,135

No other new accounting pronouncement issued or effective during the period had or is expected to have a material impact on the Company’s consolidated financial statements.

4. Short-term debt

Short-term debt consists of the following:

	As of September 30, 2019 (Unaudited)		As of December 31, 2018
Bank overdrafts	$	8	$	356
	$	8	$	356

Revolving credit facilities

The Company entered into revolving credit facilities in order to borrow money from time to time to cover its working capital needs and for other general corporate purposes.

On August 2, 2019, ADBV renewed its committed revolving credit facility with Bank of America, N.A. (BOFA), as lender, for up to $25 million maturing on August 2, 2020. Each loan made to ADBV under this agreement will bear interest at an annual rate equal to LIBOR plus 2.40%. In addition, on November 1, 2018, ADBV renewed its revolving credit facility with JPMorgan Chase Bank, N.A, for up to $25 million maturing on November 10, 2019, with an annual interest rate equal to LIBOR plus 2.25%. Interest on each loan will be payable at maturity and on a quarterly basis, beginning with the date that is three calendar months following the date the loan is made. Principal is due upon maturity.

The obligations of ADBV under the revolving credit facilities are jointly and severally guaranteed by certain of the Company’s subsidiaries on an unconditional basis. Furthermore, the agreements include customary covenants including, among others, restrictions on the ability of ADBV, the guarantors and certain material subsidiaries to: (i) incur liens, (ii) enter into any merger, consolidation or amalgamation; (iii) sell, assign, lease or transfer all or substantially all of the borrower’s or guarantor’s business or property; (iv) enter into transactions with affiliates; (v) engage in substantially different lines of business; (vi) engage in transactions that violate certain anti-terrorism laws; and (vii) is required to comply with a consolidated net indebtedness to EBITDA ratio lower than 3.0 as of any last day of the fiscal quarter of the borrower. The revolving credit facilities provide for customary events of default, which, if any of them occurs, would permit or require the lender to terminate its obligation to provide loans under the revolving credit facilities and/or to declare all sums outstanding under the loan documents immediately due and payable.

As of September 30, 2019, the mentioned ratio was 0.93 and thus the Company is currently in compliance with the ratio requirement under both revolving credit facilities.

No amounts are due at the date of issuance of these condensed consolidated financial statements in connection with these revolving credit facilities.

F-11 

Arcos Dorados Holdings Inc.

Notes to the Condensed Consolidated Financial Statements

For the nine-month periods ended September 30, 2019 and 2018 (Unaudited)

Amounts in thousands of US dollars, except for share data and as otherwise indicated

5. Long-term debt

Long-term debt consists of the following:

	As of September 30, 2019 (Unaudited)			As of December 31, 2018
2027 Notes	$	265,000		$	265,000
2023 Notes		348,069			348,069
Finance lease obligations		5,454			6,503
Other long-term borrowings		13,536			16,676
Subtotal		632,059			636,248
Discount on 2023 Notes		(2,667	)		(3,156	)
Premium on 2023 Notes		999			1,187
Deferred financing costs		(3,552	)		(4,019	)
Total	$	626,839		$	630,260
Current portion of long-term debt		3,265			3,836
Long-term debt, excluding current portion	$	623,574		$	626,424

2027 and 2023 Notes:

The following table presents additional information related to the 2027 and 2023 Notes (the "Notes"):

						Principal as of
	Annual interest rate			Currency		September 30, 2019 (Unaudited)		December 31, 2018		Maturity
2027 Notes		5.875	%		USD	$	265,000	$	265,000		April 4, 2027
2023 Notes		6.625	%		USD		348,069		348,069		September 27, 2023

	Interest Expense (i)				DFC Amortization  (i)				Amortization of Discount, net (i)
	2019 (Unaudited)		2018 (Unaudited)		2019 (Unaudited)		2018 (Unaudited)		2019 (Unaudited)		2018 (Unaudited)
2027 Notes	$	11,677	$	11,677	$	224	$	224	$	—	$	—
2023 Notes		17,295		17,295		243		243		301		298

(i) These charges are included within "Net interest expense" in the consolidated statements of income.

On September 27, 2013, the Company issued senior notes for an aggregate principal amount of $473.8 million, which are due in 2023 (the "2023 Notes"). Periodic payments of principal are not required and interest is paid semi-annually commencing on March 27, 2014. The Company incurred $3,313 of financing costs related to the cash issuance of 2023 Notes, which were capitalized as deferred financing costs ("DFC") and are being amortized over the life of the notes.

On June 1, 2016, the Company launched a cash tender offer to purchase $80,000 of its outstanding 2023 Notes, at a redemption price equal to 98%, which expired on June 28, 2016. The holders who tendered their 2023 Notes prior to June 14,

received a redemption price equal to 101%. As a consequence of this transaction, the Company redeemed 16.90% of the outstanding principal. The total payment was $80,800 (including $800 of early tender payment) plus accrued and unpaid interest.

F-12 

Arcos Dorados Holdings Inc.

Notes to the Condensed Consolidated Financial Statements

For the nine-month periods ended September 30, 2019 and 2018 (Unaudited)

Amounts in thousands of US dollars, except for share data and as otherwise indicated

5. Long-term debt (continued)

2027 and 2023 Notes (continued):

The results related to the cash tender offer and the accelerated amortization of the related DFC were recognized as interest expense within the consolidated statement of income.

Furthermore, on March 16, 2017, the Company launched another cash tender offer to purchase $80,000 of its outstanding 2023 Notes, at a redemption price equal to 104%, which expired on April 12, 2017. The holders who tendered their 2023 Notes prior to March 29, 2017, received a redemption price equal to 107%. As a consequence of this transaction, the Company redeemed 11.6% of the outstanding principal. The total payment was $48,885 (including $3,187 of early tender payment) plus accrued and unpaid interest. The results related to the cash tender offer and the accelerated amortization of the related DFC were recognized as interest expense within the consolidated statement of income.

In April 2017, the Company issued senior notes for an aggregate principal amount of $265 million, which are due in 2027 (the “2027 Notes”). Periodic payments of principal are not required and interest is paid semi-annually commencing on October 4, 2017. The proceeds from the issuance of the 2027 Notes were used to repay the Secured Loan Agreement, unwind the related derivative instruments, pay the principal and premium on the 2023 Notes (in connection with the aforementioned tender offer) and for general purposes. The Company incurred $3,001 of financing costs related to the issuance of 2027 Notes, which were capitalized as DFC and are being amortized over the life of the notes.

The Notes, are redeemable, in whole or in part, at the option of the Company at any time at the applicable redemption price set forth in the indenture governing them. The Notes are fully and unconditionally guaranteed on a senior unsecured basis by certain of the Company’s subsidiaries. The Notes and guarantees (i) are senior unsecured obligations and rank equal in right of payment with all of the Company’s and guarantors’ existing and future senior unsecured indebtedness; (ii) will be effectively junior to all of the Company’s and guarantors’ existing and future secured indebtedness to the extent of the value of the Company’s assets securing that indebtedness; and (iii) are structurally subordinated to all obligations of the Company’s subsidiaries that are not guarantors.

The indenture governing the Notes limits the Company’s and its subsidiaries’ ability to, among other things, (i) create certain liens; (ii) enter into sale and lease-back transactions; and (iii) consolidate, merge or transfer assets. In addition, the indenture governing the 2027 Notes, limits the Company’s and its subsidiaries’ ability to: incur in additional indebtedness and make certain restricted payments, including dividends. These covenants are subject to important qualifications and exceptions. The indenture governing the Notes also provides for events of default, which, if any of them occurs, would permit or require the principal, premium, if any, and interest on all the then-outstanding Notes to be due and payable immediately.

The 2023 Notes are listed on the Luxembourg Stock Exchange and trade on the Euro MTF Market.

F-13 

Arcos Dorados Holdings Inc.

Notes to the Condensed Consolidated Financial Statements

For the nine-month periods ended September 30, 2019 and 2018 (Unaudited)

Amounts in thousands of US dollars, except for share data and as otherwise indicated

6. Derivative instruments

The following table presents the fair values of derivative instruments included in the consolidated balance sheets as of September 30, 2019 and December 31, 2018:

	Derivatives
		Fair Value
Type of Derivative	Balance Sheets Location	As of September 30, 2019 (Unaudited)			As of December 31, 2018
Derivatives designated as hedging instruments
Cash flow hedge
Forward contracts	Other receivables	$	799		$	628
Forward contracts	Accrued payroll and other liabilities		—			(180	)
Cross-currency interest rate swap (i)	Derivative instruments		39,385			29,141
Call spread (i)	Derivative instruments		19,661			16,867
Coupon-only swap (i)	Derivative instruments		(3,629	)		(5,152	)
Subtotal		$	56,216		$	41,304
Derivatives not designated as hedging instruments
Forward contracts	Other receivables	$	1,581		$	99
Forward contracts	Accrued payroll and other liabilities		—			(144	)
Subtotal		$	1,581		$	(45	)
Total derivative instruments		$	57,797		$	41,259

(i) At September 30, 2019, presented in the consolidated balance sheet as follows: $66,433 as non-current asset, $8,826 as a current liability and $2,190 as a non-current liability. At December 31, 2018, presented in the consolidated balance sheet as follows: $54,735 as non-current asset, $10,687 as a current liability and $3,192 as non-current liability.

Derivatives designated as hedging instruments

Cash flow hedge

Forward contracts

The Company has entered into various forward contracts in a few territories to hedge a portion of the foreign exchange risk associated with forecasted imports of goods. The effect of the hedges results in fixing the cost of goods acquired (i.e. the net settlement or collection adjusts the cost of inventory paid to the suppliers). As of September 30, 2019, the Company has forward contracts outstanding with a notional amount of $19,733 that mature during 2019 and 2020.

The Company made net collections (payments) totaling $236 and ($808) during the nine-month periods ended September 30, 2019 and 2018, respectively, as a result of the net settlements of these derivatives.

F-14 

Arcos Dorados Holdings Inc.

Notes to the Condensed Consolidated Financial Statements

For the nine-month periods ended September 30, 2019 and 2018 (Unaudited)

Amounts in thousands of US dollars, except for share data and as otherwise indicated

6. Derivative instruments (continued)

Derivatives designated as hedging instruments (continued)

Cash flow hedge (continued)

Cross-currency interest rate swap

The Company entered into three cross-currency interest rate swap agreements to hedge all the variability in a portion (73%) of the principal and interest collections of its BRL intercompany loan receivables with ADBV. The agreements were signed during November 2013 (amended in February 2017), June and July 2017. The following table presents information related to the terms of the agreements:

Bank	Payable			Receivable			Interest payment dates	Maturity
	Currency	Amount	Interest rate	Currency	Amount	Interest rate
JP Morgan Chase Bank, N.A.	BRL	108,000	13%	$	35,400	4.38%	March 31/ September 30	September 2023
JP Morgan Chase Bank, N.A.	BRL	98,670	13%	$	30,000	6.02%	March 31/ September 30	September 2023
Citibank N.A.	BRL	94,200	13%	$	30,000	6.29%	March 31/ September 30	September 2023

During April 2017, the Company’s Brazilian subsidiary entered into similar agreements in order to hedge all the variability in a portion (50%) of the principal and interest payable of intercompany loan payables nominated in US dollar.

The following table presents information related to the terms of the agreements:

Bank	Payable			Receivable			Interest payment dates	Maturity
	Currency	Amount	Interest rate	Currency	Amount	Interest rate
BAML (i)	BRL	156,250	13.64%	$	50,000	6.91%	March 31/ September 30	April 2027
Banco Santander S.A.	BRL	155,500	13.77%	$	50,000	6.91%	June 30/ December 31	September 2023

(i) Bank of America Merrill Lynch Banco Múltiplo S.A.

The Company paid $8,692 and $10,671 of net interest during the nine-month periods ended September 30, 2019 and 2018, respectively.

Call spread

During April 2017, the Company’s Brazilian subsidiary entered into two call spread agreements in order to hedge the all variability in a portion (50%) of the principal of intercompany loan payables nominated in US dollar. Call spread agreements consist of a combination of two call options: the Company bought an option to buy US dollar at a strike price equal to the BRL exchange rate at the date of the agreements, and wrote an option to buy US dollar at a higher strike price than the previous one. Both pair of options have the same notional amount and are based on the same underlying with the same maturity date.

F-15 

Arcos Dorados Holdings Inc.

Notes to the Condensed Consolidated Financial Statements

For the nine-month periods ended September 30, 2019 and 2018 (Unaudited)

Amounts in thousands of US dollars, except for share data and as otherwise indicated

6. Derivative instruments (continued)

Derivatives designated as hedging instruments (continued)

Cash flow hedge (continued)

Call spread (continued)

The following table presents information related to the terms of the agreements:

Bank	Nominal Amount		Strike price		Maturity
	Currency	Amount	Call option written	Call option bought
Citibank S.A.	$	50,000	4.49	3.11	September 2023
JP Morgan S.A.	$	50,000	5.20	3.13	April 2027

Coupon-only swap

During April 2017, the Company’s Brazilian subsidiary entered into two coupon-only swap agreements in order to hedge the all variability (50%) in the interest payable related to the intercompany loan aforementioned.

The following table presents information related to the terms of the agreements: 

Bank	Payable			Receivable			Interest payment dates	Maturity
	Currency	Amount	Interest rate	Currency	Amount	Interest rate
Citibank S.A.	BRL	155,500	11.08%	$	50,000	6.91%	June 30/ December 31	September  2023
JP Morgan S.A.	BRL	156,250	11.18%	$	50,000	6.91%	March 31/ September 30	April 2027

The Company paid $2,036 and $2,900 of net interest during the nine-months periods ended September 30, 2019 and 2018 respectively, related to these agreements.

Additional disclosures

The following table present the pretax amounts affecting income and other comprehensive income for the nine-month periods ended September 30, 2019 and 2018 for each type of derivative relationship: 

Derivatives in Cash Flow Hedging Relationships	(Loss) Gain Recognized in Accumulated OCI on Derivative (Effective Portion) (Unaudited)						Loss (Gain) Reclassified from Accumulated OCI into Income (Effective Portion) (i) (Unaudited)						Loss Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing and Ineffective Portion) (Unaudited) (ii)
	2019			2018			2019			2018			2019			2018
Forward contracts	$	587		$	(1,060	)	$	(236	)	$	808		$	—		$	—
Cross-currency interest rate swaps		2,565			31,175			(5,722	)		(29,416	)		—			—
Call Spread		4,113			2,439			(6,841	)		(20,126	)		—			—
Coupon-only swap		(558	)		5,904			1,415			1,794			(401	)		(808	)
Total	$	6,707		$	38,458		$	(11,384	)	$	(46,940	)	$	(401	)	$	(808	)

F-16 

Arcos Dorados Holdings Inc.

Notes to the Condensed Consolidated Financial Statements

For the nine-month periods ended September 30, 2019 and 2018 (Unaudited)

Amounts in thousands of US dollars, except for share data and as otherwise indicated

6. Derivative instruments (continued)

Derivatives designated as hedging instruments (continued)

Cash flow hedge (continued)

Additional disclosures (continued)

(i) The results recognized in income related to forward contracts were recorded as an adjustment to food and paper.

The net gain (loss) recognized in income, related to cross-currency interest rate swaps is presented as follows:

	For the nine-months period ended September 30,
Adjustment to:	2019 (Unaudited)			2018 (Unaudited)
Foreign currency exchange results	$	12,017		$	36,695
Net interest expense		(6,295	)		(7,279	)
Total	$	5,722		$	29,416

The results recognized in income related to call spread agreements and coupon-only swap agreements were recorded as an adjustment to foreign currency exchange and interest expense, respectively.

(ii) The loss recognized in income is presented within "Gain (loss) from derivative instruments".

Derivatives not designated as hedging instruments

The Company enters into certain derivatives that are not designated for hedge accounting, therefore the changes in the fair value of these derivatives are recognized immediately in earnings together with the gain or loss from the hedged balance sheet position within "Gain (loss) from derivative instruments".

The Company collected $366 during the nine-months period ended September 30, 2019 related to those forward contracts.

7. Share-based compensation

2011 Equity Incentive Plan

In March 2011, the Company adopted its Equity Incentive Plan, or 2011 Plan, to attract and retain the most highly qualified and capable professionals and to promote the success of its business. This Plan is being used to reward certain employees for the success of the Company’s business through an annual award program. The 2011 Plan permits grants of awards relating to class A shares, including awards in the form of shares (also referred to as stock), options, restricted shares, restricted share units, share appreciation rights, performance awards and other share-based awards as will be determined by the Company’s Board of Directors. The maximum number of shares that may be issued under the 2011 Plan is 2.5% of the Company’s total outstanding class A and class B shares immediately following its initial public offering.

The Company made a special grant of stock options and restricted share units in 2011 in connection with its initial public offering, which are totally vested. The Company also made recurring grants of stock options and restricted share units in each of the fiscal years from 2011 to 2019 (from 2015 to 2019 only restricted share units). From 2011 to 2018, both types of these recurring annual awards vest as follows: 40% on the second anniversary of the date of grant and 20% on each of the following three anniversaries. The 2019 award vests on May 10, 2020. However, in the event of death, disability or retirement of the employee, any unvested portion of the annual award will be fully vested. For all grants, each stock option granted represents the right to acquire a Class A share at its grant-date fair market value, while each restricted share unit represents the right to receive a Class A share when vested. The exercise right for the stock options is cumulative and, once such right becomes exercisable, it may be exercised in whole or in part during quarterly window.

F-17 

Arcos Dorados Holdings Inc.

Notes to the Condensed Consolidated Financial Statements

For the nine-month periods ended September 30, 2019 and 2018 (Unaudited)

Amounts in thousands of US dollars, except for share data and as otherwise indicated

7. Share-based compensation (continued)

2011 Equity Incentive Plan (continued)

periods until the date of termination, which occurs at the seventh anniversary of the date of grant. The Company utilizes a Black-Scholes option-pricing model to estimate the value of stock options at the date of grant. The value of restricted shares units is based on the quoted market price of the Company’s class A shares at the grant date.

On June 28, 2016, 1,117,380 stock options were converted to a liability award maintaining the original conditions of the 2011 Plan. There were not incremental compensation costs resulting from the modification. The employees affected by this modification were 104. The accrued liability is remeasured on a monthly basis until settlement.

The Company recognizes stock-based compensation expense on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in substance, multiple awards. The Company recognized stock-based compensation expense in the amount of $1,296 and $2,853 during the nine-month periods ended September 30, 2019 and 2018, respectively. Stock-based compensation expense is included within “General and administrative expenses” in the consolidated statements of income.

Stock Options

The following table summarizes the activity of stock options units as of September 30, 2019:

	Units			Weighted-average strike Price		Weighted-average grant-date fair value
Outstanding at December 31, 2018		491,073			12.26		3.81
Expired		(216,633	)		14,35		5,13
Outstanding at September 30, 2019		274,440			10,62		2,77
Exercisable at September 30, 2019		274,440			10,62		2,77

The following table provides a summary of outstanding stock options at September 30, 2019: 

	Total Vested (i)
Number of units outstanding		274,440
Weighted-average grant-date fair market value per unit		2.77
Total grant-date fair value		760
Weighted-average accumulated percentage of service		100%
Stock-based compensation recognized in Additional paid-in capital		760

(i) Related to exercisable awards.

Restricted Share Units

The following table summarizes the activity of restricted share units during the nine-month period ended September 30, 2019:

F-18 

Arcos Dorados Holdings Inc.

Notes to the Condensed Consolidated Financial Statements

For the nine-month periods ended September 30, 2019 and 2018 (Unaudited)

Amounts in thousands of US dollars, except for share data and as otherwise indicated

7. Share-based compensation (continued)

Restricted Share Units (continued)

	Units			Weighted-average grant-date fair value
Outstanding at December 31, 2018		1,605,049			7.41
2019 annual Grant		35,000			8,00
Partial vesting of 2014 grant		(38,222	)		8,58
Partial vesting of 2015 grant		(115,634	)		6,33
Partial vesting of 2016 grant		(134,501	)		4,70
Partial vesting of 2017 grant		(174,232	)		9,20
Forfeitures		(224,755	)		7,77
Outstanding at September 30, 2019		952,705			7,49
Exercisable at September 30, 2019		—			—

The Company issued 469,884 Class A shares, during the nine month period of 2019, of which 10,496 units are related to the 2018 partial vesting. Therefore, accumulated recorded compensation expense totaling $3,353 was reclassified from “Additional paid-in capital” to “Common Stock” upon issuance. As September 30, 2019 there were 6,729 Class A shares, amounting to $43, pending of issuance in connection with these partial vestings.

The following table provides a summary of outstanding restricted share units at September 30, 2019:

Number of units outstanding (i)	952,705
Weighted-average grant-date fair market value per unit	7.49
Total grant-date fair value	7,136
Weighted-average accumulated percentage of service	58.2%
Stock-based compensation recognized in Additional paid-in capital	4,153
Compensation expense not yet recognized (ii)	2,983

(i) Related to awards that will vest between fiscal years 2020 and 2023.

(ii) Expected to be recognized in a weighted-average period of 1.4 years.

Phantom RSU Award

In May 2019, the Company implemented a new long-term incentive plan (called Phantom RSU Award) to reward employees giving them the opportunity to share the success of the Company in the creation of value for its shareholders. In accordance with this plan, the Company granted units (called “Phantom RSU”) to certain employees, pursuant to which they are entitled to receive, when vested, a cash payment equal to the closing price of one Class A share on the respective day in which this benefit is due and the corresponding dividends per-share (if any) formally declared and paid during the service period.

The award has two types of grant. Phantom RSU type one has 465,202 units which vest over a requisite service period of five years as follows: 40% at the second anniversary of the date of grant and 20% at each of the following three years. The Company recognizes compensation expense related to these benefits on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in substance, multiple awards. Phantom RSU type two has 1,207,455 units which vest 100% at the fifth anniversary from the date of grant. The grant-date stock price of both types of grants was $6.78.

F-19 

Arcos Dorados Holdings Inc.

Notes to the Condensed Consolidated Financial Statements

For the nine-month periods ended September 30, 2019 and 2018 (Unaudited)

Amounts in thousands of US dollars, except for share data and as otherwise indicated

7. Share-based compensation (continued)

Phantom RSU Award (continued)

The total compensation cost as of September 30, 2019, amounts to $1,063 which has been recorded under “General and administrative expenses” within the consolidated statement of income. The accrued liability is remeasured at the end of each reporting period until settlement.

The following table summarizes the activity under the plan as of September 30, 2019:

	Units
Grant 2019		1,672,657
Forfeited		(8,930	)
Outstanding at September 30, 2019		1,663,727

The following table provides a summary of the plan at September 30, 2019:

	Total Non-vested (i)
Number of units outstanding		1,663,727
Current share price		6.72
Total fair value of the plan		11,180
Weighted-average accumulated percentage of service		9.51%
Accrued liability (ii)		1,063
Compensation expense not yet recognized (iii)		10,117

(i) Related to awards that will vest between May 2021 and May 2024.

(ii) The total accrued liability of $1,063 related to outstanding units is presented within “Accrued payroll and other liabilities” in the Company’s non current liabilities balance sheet.

(iii) Expected to be recognized in a weighted-average period of 4.7 years.

F-20 

Arcos Dorados Holdings Inc.

Notes to the Condensed Consolidated Financial Statements

For the nine-month periods ended September 30, 2019 and 2018 (Unaudited)

Amounts in thousands of US dollars, except for share data and as otherwise indicated

8. Commitments and contingencies

Commitments

The MFAs require the Company and its MF subsidiaries, among other obligations:

(i) to pay monthly royalties commencing at a rate of approximately 5% of gross sales of the restaurants, during the first 10 years, substantially consistent with market. This percentage increases to 6% and 7% for the subsequent two 5-year periods of the agreement;

(ii) to agree with McDonald’s on a restaurant opening plan and a reinvestment plan for each three-year period and pay an initial franchise fee for each new restaurant opened;

(iii) to commit to funding a specified Strategic Marketing Plan;

(iv) to own (or lease) directly or indirectly, the fee simple interest in all real property on which any franchised restaurant is located; and

(v) to maintain a minimum fixed charge coverage ratio (as defined therein) at least equal to 1.50 as well as a maximum leverage ratio (as defined therein) of 4.25.

On January 26, 2017, the Company reached an agreement with McDonald’s Corporation related to the restaurant opening and reinvestment plan, mentioned in point (ii) above, for the three-year period commenced on January 1, 2017. Under the agreement, the Company committed to open 180 new restaurants and to reinvest $292 million in existing restaurants. On January 25, 2017, McDonald’s Corporation agreed to provide growth support for the same period. The Company projects that the impact of this support could result in a consolidated effective royalty rate of 5.9% in 2019.

For the nine-month period ended September, 2019, the Company was in compliance with the ratio requirements mentioned in point (v) above. The ratios for the period mentioned, were as follows:

	September 30, 2019  (Unaudited)		June 30, 2019 (Unaudited)		March 31, 2019 (Unaudited)
Fixed Charge Coverage Ratio		1.80		1.86		1.83
Leverage Ratio		3.83		3.76		3.83

In addition, the Company maintains standby letters of credit with an aggregate drawing amount of $80 million in favor of McDonald’s Corporation as collateral for the obligations assumed under the MFAs. The letters of credit can be drawn if certain events occur, including the failure to pay royalties. No amounts have been drawn at the date of issuance of these financial statements.

Provision for contingencies

The Company has certain contingent liabilities with respect to existing or potential claims, lawsuits and other proceedings, including those involving labor, tax and other matters. At September 30, 2019 and December 31, 2018, the Company maintains a provision for contingencies, net of judicial deposits, amounting to $32,292 and $28,509, respectively, presented as follow: $2,118 and $2,436 as a current liability and $30,174 and $26,073 as a non-current liability, respectively. The breakdown of the provision for contingencies is as follows:

F-21 

Arcos Dorados Holdings Inc.

Notes to the Condensed Consolidated Financial Statements

For the nine-month periods ended September 30, 2019 and 2018 (Unaudited)

Amounts in thousands of US dollars, except for share data and as otherwise indicated

8. Commitments and contingencies (continued)

Provision for contingencies (continued)

	As of September 30, 2019 (Unaudited)			As of December 31, 2018
Tax contingencies in Brazil	$	9,620		$	9,497
Labor contingencies in Brazil		23,672			21,108
Others		11,589			11,462
Subtotal		44,881			42,067
Judicial deposits		(12,589	)		(13,558	)
Provision for contingencies	$	32,292		$	28,509

As of September 30, 2019, there are certain matters related to the interpretation of tax, labor and civil laws which there is a possibility that a loss may have been incurred in accordance with ASC 450-20-50-4 within a range of $192 million and $203 million.

As of September 30, 2019, there are certain matters related to the interpretation of income tax laws for which there is a possibility that a loss may have been incurred, as of the date of the financial statements in accordance with ASC 740 in an amount of $175 million, related to assessments for the fiscal years 2009 to 2014. No formal claim has been made for fiscal years within the statute of limitation by Tax authorities in any of the mentioned matters, however those years are still subject to audit and claims may be asserted in the future.

Additionally, there is a lawsuit filed by several Puerto Rican franchisees against McDonald’s Corporation and certain subsidiaries purchased by the Company during the acquisition of the LatAm business (“the Puerto Rican franchisees lawsuit”).

The claim seeks declaratory judgment and damages in the aggregate amount of $66.7 million plus plaintiffs’ attorney fees. At the end of 2014 the plaintiffs finalized their presentation of evidence whereas the Company has not started yet. At that time, the Company filed a Motion of Non Suit. As of today, the Company has not been notified of any resolution made by the Commissioner assigned to this case. The Company believes that the probability of a loss is remote.

During 2014, another franchisee filed a complaint (“the related Puerto Rican franchisee lawsuit”) against the Company and McDonald’s USA, LLC (a wholly owned subsidiary of McDonald’s Corporation), asserting a very similar claim to the one filed in the Puerto Rican franchisees lawsuit. The claim seeks declaratory judgment and damages in the amount of $30 million plus plaintiffs’ attorney fees. The Company also believes that the litigation probability of a loss is remote, since its close resemblance to the Puerto Rican franchisees lawsuit.

Furthermore, the Puerto Rico Owner Operator’s Association (“PROA”), an association integrated by the Company’s franchisees that meets periodically to coordinate the development of promotional and marketing campaigns (an association that at the time of the claim was formed solely by franchisees that are plaintiffs in the Puerto Rican franchisees lawsuit), filed a third party complaint and counterclaim (“the PROA claim”) against the Company and other third party defendants, in the amount of $31 million. On June 9, 2014, after several motions for summary judgment duly filed and opposed by the parties, the First Instance Court entered a “Partial Summary Judgment and Resolution” in favor of PROA, before initiating the discovery phase, finding that the Company must participate and contribute funds to the association. However, the Court did not specify any amount for which the Company should be held liable, due to its preliminary and interlocutory nature, and the lack of discovery conducted regarding the amounts claimed by the plaintiffs. By means of a Motion to Reconsider, the Company opposed such determination. In December 2018, the First Instance Court confirmed his determination and the Company filed a Certiorari in the Court of Appeals. In July 19, the Court of Appeals issued Judgment revoking the Court of First Instance’s summary judgment in favor of PROA. PROA filed in the Puerto Rico Supreme Court an appeal of such determination.

F-22 

Arcos Dorados Holdings Inc.

Notes to the Condensed Consolidated Financial Statements

For the nine-month periods ended September 30, 2019 and 2018 (Unaudited)

Amounts in thousands of US dollars, except for share data and as otherwise indicated

8. Commitments and contingencies (continued)

Provision for contingencies (continued)

The Company believes that the probability of a loss is remote, considering: (i) the obligation to contribute is not directed towards a cooperative, (ii) the franchise agreement does not contain a provision that makes it mandatory to participate in the cooperative, and (iii) PROA’s by-laws state that participation in the cooperative is voluntary, among other arguments. Therefore no provision has been recorded.

Pursuant to Section 9.3 of the Stock Purchase Agreement, McDonald’s Corporation indemnifies the Company for certain Brazilian claims as well as for specific and limited claims arising from the Puerto Rican franchisees lawsuit. Pursuant to the MFA, the Company indemnifies McDonald’s for the related Puerto Rican franchisee lawsuit and the PROA claim.

At September 30, 2019, the provision for contingencies includes $1,555 ($3,970 at December 31, 2018), related to Brazilian claims that are covered by the indemnification agreement. As a result, the Company has recorded a current asset and non-current asset in respect of McDonald’s Corporation’s indemnity in the consolidated balance sheet. The current asset in respect of McDonald’s Corporation’s indemnity represents the amount of cash to be received as a result of settling certain Brazilian labor and tax contingencies.

9. Segment and geographic information

The Company is required to report information about operating segments in annual financial statements and interim financial reports issued to shareholders in accordance with ASC 280. Operating segments are components of a company about which separate financial information is available that is regularly evaluated by the chief operating decision maker(s) in deciding how to allocate resources and assess performance. ASC 280 also requires disclosures about the Company’s products and services, geographical areas and major customers.

As discussed in Note 1, the Company through its wholly-owned and majority-owned subsidiaries operates and franchises McDonald’s restaurants in the food service industry. The Company has determined that its reportable segments are those that are based on the Company’s method of internal reporting. The Company manages its business as distinct geographic segments and its operations are divided into four geographical divisions, which are as follows: Brazil; the Caribbean division, consisting of Aruba, Curacao, Colombia, French Guyana, Guadeloupe, Martinique, Puerto Rico, Trinidad and Tobago, the U.S. Virgin Islands of St. Croix and St. Thomas and Venezuela; the North Latin America division (“NOLAD”), consisting of Costa Rica, Mexico and Panama; and the South Latin America division (“SLAD”), consisting of Argentina, Chile, Ecuador, Peru and Uruguay. The accounting policies of the segments are the same as those used in the preparation of the consolidated financial statements.

F-23 

Arcos Dorados Holdings Inc.

Notes to the Condensed Consolidated Financial Statements

For the nine-month periods ended September 30, 2019 and 2018 (Unaudited)

Amounts in thousands of US dollars, except for share data and as otherwise indicated

9. Segment and geographic information (continued)

The following table presents information about profit or loss and assets for each reportable segment: 

	For the nine-month periods ended
	September 30,
	2019			2018
	(Unaudited)			(Unaudited)
Revenues:
Brazil	$	1,016,263		$	991,785
Caribbean division		297,923			375,190
NOLAD		316,828			302,282
SLAD		573,698			658,972
Total revenues	$	2,204,712		$	2,328,229
Adjusted EBITDA:
Brazil	$	148,582		$	150,736
Caribbean division		11,911			(15,508	)
NOLAD		26,482			23,319
SLAD		49,152			57,112
Total reportable segments		236,127			215,659
Corporate and others (i)		(44,727	)		(43,762	)
Total adjusted EBITDA	$	191,400		$	171,897

F-24 

Arcos Dorados Holdings Inc.

Notes to the Condensed Consolidated Financial Statements

For the nine-month periods ended September 30, 2019 and 2018 (Unaudited)

Amounts in thousands of US dollars, except for share data and as otherwise indicated

9. Segment and geographic information (continued)

	For the nine-month periods ended
	September 30,
	2019			2018
	(Unaudited)			(Unaudited)
Adjusted EBITDA reconciliation:
Total adjusted EBITDA	$	191,400		$	171,897
Plus (Less) items excluded from computation that affect operating income:
Depreciation and amortization		(89,670	)		(77,285	)
Gains from sale or insurance recovery of property and equipment		1,582			2,775
Write-offs of property and equipment		(4,001	)		(1,270	)
Impairment of long-lived assets and goodwill		—			(12,089	)
ADBV Long-Term Incentive Plan incremental compensation from modification		—			575
Operating income		99,311			84,603
Less:
Net interest expense		(38,200	)		(39,326	)
Gain (loss) from derivative instruments		1,789			(191	)
Foreign currency exchange results		10,115			15,651
Other non-operating expenses, net		(2,313	)		(9	)
Income tax expense		(23,650	)		(32,978	)
Net income attributable to non-controlling interests		(115	)		(140	)
Net income attributable to Arcos Dorados Holdings Inc.	$	46,937		$	27,610

	For the nine-month periods ended September 30,
	2019			2018
	(Unaudited)			(Unaudited)
Depreciation and amortization:
Brazil	$	46,247		$	38,495
Caribbean division		13,900			17,379
NOLAD		16,173			15,521
SLAD		14,433			14,578
Total reportable segments		90,753			85,973
Corporate and others (i)		3,738			4,442
Purchase price allocation (ii)		(4,821	)		(13,130	)
Total depreciation and amortization	$	89,670		$	77,285

F-25 

Arcos Dorados Holdings Inc.

Notes to the Condensed Consolidated Financial Statements

For the nine-month periods ended September 30, 2019 and 2018 (Unaudited)

Amounts in thousands of US dollars, except for share data and as otherwise indicated

9. Segment and geographic information (continued)

	For the nine-month periods ended
	September 30,
	2019		2018
	(Unaudited)		(Unaudited)
Property and equipment expenditures:
Brazil	$	90,188	$	56,988
Caribbean division		10,911		12,163
NOLAD		16,029		12,467
SLAD		49,946		37,380
Total reportable segments		167,074		118,998
Corporate and others (i)		37		—
Total property and equipment expenditures	$	167,111	$	118,998

	As of
	September 30,
	2019			December 31,
	(Unaudited)			2018
Total assets:
Brazil	$	1,179,946		$	751,550
Caribbean division		381,667			303,467
NOLAD		400,518			247,697
SLAD		360,592			291,300
Total reportable segments		2,322,723			1,594,014
Corporate and others (i)		103,158			105,835
Purchase price allocation (ii)		(113,461	)		(121,810	)
Total assets	$	2,312,420		$	1,578,039

(i) Primarily relates to corporate general and administrative expenses, corporate supply chain operations in Uruguay, and related assets. Corporate general and administrative expenses consist of corporate office support costs in areas such as facilities, finance, human resources, information technology, legal, marketing, restaurant operations, supply chain and training. As of September 30, 2019 and December 31, 2018, corporate assets primarily includes corporate cash and cash equivalents.

(ii) Relates to the purchase price allocation adjustment made at corporate level, which reduces the total assets and the corresponding depreciation and amortization.

The Company’s revenues are derived from two sources: sales by Company-operated restaurants and revenues from restaurants operated by franchisees. All of the Company’s revenues are derived from foreign operations.

Long-lived assets consisting of property and equipment totaled $884,458 and leases right of use net totaled $804,471 at September 30, 2019. At December 31, 2018, long-lived assets consisting of property and equipment totaled $856,192. All of the Company’s long-lived assets are related to foreign operations.

F-26 

Arcos Dorados Holdings Inc.

Notes to the Condensed Consolidated Financial Statements

For the nine-month periods ended September 30, 2019 and 2018 (Unaudited)

Amounts in thousands of US dollars, except for share data and as otherwise indicated

10. Shareholders’ equity

Authorized capital

The Company is authorized to issue a maximum of 500,000,000 shares, consisting of 420,000,000 class A shares and 80,000,000 class B shares of no par value each.

Issued and outstanding capital

At September 30, 2019 and December 31, 2018, the Company had issued 212,062,957 and 211,593,073 shares with no par value, respectively, consisting of 132,062,957 and 131,593,073 Class A shares, respectively, and 80,000,000 Class B shares for each period.

In addition, on May 22, 2018, the Board of Directors approved the adoption of a share repurchase program, pursuant to which the Company may repurchase from time to time up to $60,000 of issued and outstanding Class A shares of no par value of the Company (“The Repurchase Program”). The Repurchase Program began on May 22, 2018 and would expire at the close of business on May 22, 2019. However, it could terminate prior to such date. As of February 15, 2019, the Company purchased 7,993,602 shares amounting to $60,000. As a result the Repurchase Program concluded.

Therefore, at September 30, 2019 the Company had 204,069,355 shares outstanding, consisting of 124,069,355 Class A shares and 80,000,000 Class B shares.

Rights, privileges and obligations

Holders of Class A shares are entitled to one vote per share and holders of Class B shares are entitled to five votes per share. Except with respect to voting, the rights, privileges and obligations of the Class A shares and Class B shares are pari passu in all respects, including with respect to dividends and rights upon liquidation of the Company.

Distribution of dividends

The Company can only make distributions to the extent that immediately following the distribution, its assets exceed its liabilities, and the Company is able to pay its debts as they become due.

On March 26, 2019, the Company approved a dividend distribution to all Class A and Class B shareholders of $0.11 per share to be paid in three installments, as follows: $0.05 per share on April 12, 2019, $0.03 per share on August 14, 2019 and $0.03 per share on December 12, 2019.

Accumulated Other Comprehensive Loss

The following table sets forth information with respect to the components of “Accumulated other comprehensive loss” as of September 30, 2019 and their related activity during the nine-month period then ended:

F-27 

Arcos Dorados Holdings Inc.

Notes to the Condensed Consolidated Financial Statements

For the nine-month periods ended September 30, 2019 and 2018 (Unaudited)

Amounts in thousands of US dollars, except for share data and as otherwise indicated

10. Shareholders’ equity (continued)

Accumulated Other Comprehensive Loss (continued)

	Foreign currency translation			Cash flow hedges			Post-employment benefits (i)			Total Accumulated other comprehensive loss
Balances at December 31, 2018	$	(499,277	)	$	(1,640	)	$	(1,349	)	$	(502,266	)
Other comprehensive income (loss) before reclassifications (Unaudited)		(28,381	)		5,207			—			(23,174	)
Net loss reclassified from accumulated other comprehensive loss (income) to consolidated statement of income (Unaudited)		—			(8,234	)		648			(7,586	)
Net current-period other comprehensive income (loss) (Unaudited)		(28,381	)		(3,027	)		648			(30,760	)
Balances at September 30, 2019 (Unaudited)	$	(527,658	)	$	(4,667	)	$	(701	)	$	(533,026	)

The following table sets forth information with respect to the components of “Accumulated other comprehensive loss” as of September 30, 2018 and their related activity during the nine-month period then ended:

	Foreign currency translation			Cash flow hedges			Post-employment benefits(i)			Total Accumulated other comprehensive loss
Balances at December 31, 2017	$	(436,281	)	$	8,359		$	(1,425	)	$	(429,347	)
Other comprehensive (loss) income before reclassifications (Unaudited)		(61,682	)		30,157			—			(31,525	)
Net loss reclassified from accumulated other comprehensive loss (income) to consolidated statement of income (Unaudited)		—			(35,053	)		371			(34,682	)
Net current-period other comprehensive (loss) income (Unaudited)		(61,682	)		(4,896	)		371			(66,207	)
Balances at September 30, 2018 (Unaudited)	$	(497,963	)	$	3,463		$	(1,054	)	$	(495,554	)

(i) Related to a post-employment benefit in Venezuela established by the Organic Law of Labor and Workers (known as “LOTTT”, its Spanish acronym) in 2012. This benefit provides a payment of 30 days of salary per year of employment tenure based on the last wage earned to all workers who leave the job for any reason. The term of service to calculate the post-employment payment of active workers run retroactively since June 19, 1997. Annually, the Company obtains an actuarial valuation to measure the post-employment benefit obligation, using the projected unit credit actuarial method and measures this benefit in accordance with ASC 715-30, similar to pension benefit.

F-28 

Arcos Dorados Holdings Inc.

Notes to the Condensed Consolidated Financial Statements

For the nine-month periods ended September 30, 2019 and 2018 (Unaudited)

Amounts in thousands of US dollars, except for share data and as otherwise indicated

11. Earnings per share

The Company is required to present basic earnings per share and diluted earnings per share in accordance with ASC 260. Earnings per share are based on the weighted average number of shares outstanding during the period after consideration of the dilutive effect, if any, for common stock equivalents, including stock options and restricted share units. Basic earnings per common share are computed by dividing net income available to common shareholders by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per common share are computed by dividing net income by the weighted average number of shares of common stock outstanding and dilutive securities outstanding during the period under the treasury method.

The following table sets forth the computation of basic and diluted net income per common share attributable to Arcos Dorados Holdings Inc. for all periods presented:

	For the nine-month periods ended
	September 30,
	2019		2018
	(Unaudited)		(Unaudited)
Net income attributable to Arcos Dorados Holdings Inc. available to common shareholders	$	46,937	$	27,610
Weighted-average number of common shares outstanding - Basic		203,981,893		210,084,482
Incremental shares from assumed exercise of stock options (i)		—		—
Incremental shares from vesting of restricted share units		714,777		926,635
Weighted-average number of common shares outstanding - Diluted		204,696,670		211,011,117
Basic net income per common share attributable to Arcos Dorados Holdings Inc.	$	0.23	$	0.13
Diluted net income per common share attributable to Arcos Dorados Holdings Inc.	$	0.23	$	0.13

(i) Options to purchase shares of common stock were outstanding during the nine-month periods ended September 30, 2019 and 2018. See Note 7 for details. These options were not included in the computation of diluted earnings per share because their inclusion would have been anti-dilutive.

F-29 

Arcos Dorados Holdings Inc.

Notes to the Condensed Consolidated Financial Statements

For the nine-month periods ended September 30, 2019 and 2018 (Unaudited)

Amounts in thousands of US dollars, except for share data and as otherwise indicated

12. Related party transactions

The Company has entered into a master commercial agreement on arm’s length terms with Axionlog, a company under common control that operates the distribution centers in Argentina, Chile, Colombia, Ecuador, Mexico, Peru, Uruguay and Venezuela (the “Axionlog Business”). Pursuant to this agreement Axionlog provides the Company distribution inventory, storage and transportation services in the countries in which it operates.

The following table summarizes the outstanding balances between the Company and the Axionlog Business as of September 30, 2019 and December 31, 2018:

	As of
	September 30,
	2019			December 31,
	(Unaudited)			2018
Accounts and notes receivable, net	$	451		$	860
Other receivables		1,060			1,676
Miscellaneous		3,400			2,963
Accounts payable		(9,520	)		(14,984	)

The following table summarizes the transactions between the Company and the Axionlog Business for the nine-month periods ended September 30, 2019 and 2018:

	For the nine-month periods ended
	September 30,
	2019			2018
	(Unaudited)			(Unaudited)
Food and paper (i)	$	(146,218	)	$	(133,115	)
Occupancy and other operating expenses		(6,148	)		(4,071	)

(i) Includes $30,932 of distribution fees and $115,286 of suppliers purchases managed through the Axionlog Business for the nine-month period ended September 30, 2019; and, $32,179 and $100,936, respectively, for the nine-month period ended September 30, 2018.

As of September 30, 2019 and December 2018, the Company had other receivables totaling $221 and $2,692, respectively and accounts payable with Lacoop, A.C. and Lacoop II, S.C. totaling $605 and $1,634, respectively.

F-30 

Arcos Dorados Holdings Inc.

Notes to the Condensed Consolidated Financial Statements

For the nine-month periods ended September 30, 2019 and 2018 (Unaudited)

Amounts in thousands of US dollars, except for share data and as otherwise indicated

13. Venezuelan operations

The Company conducts business in Venezuela where currency restrictions exist, limiting the Company’s ability to immediately access cash through repatriations at the government’s official exchange rate. The Company’s access to Venezuelan Bolívares (VES), held by its Venezuelan subsidiaries remains available for use within this jurisdiction and is not restricted. The official exchange rate is established by the Central Bank of Venezuela and the Venezuelan Ministry of Finance.

Since February 2013, the Venezuelan government has announced several changes in the currency exchange regulations. The last modification was in February 2018, when the Venezuelan government announced the unification of the formerly exchange rate systems, DIPRO and DICOM II, into a sole foreign exchange mechanism (NEW DICOM). The unified system operates through an auction mechanism similar to the formerly DICOM II.

Occasionally, the Company could access to the new mechanism. Those transactions occurred at an exchange rate greater than the one published by the governmental authorities. Considering that under ASC 830, foreign currency transactions are required to be remeasured at the applicable rate at which a particular transaction could be settled and that the Company could access to the NEW DICOM at an exchange rate greater than the one published, this rate was considered for remeasurements purposes.

Revenues and operating (loss) of the Venezuelan operations were $8,145 and $(4,368), respectively, for the nine-month period ended September 30, 2019; and $70,633 and $(48,886), respectively, for the nine-month period ended September 30, 2018.

As of September 30, 2019, the Company’s local currency denominated net monetary position, which would be subject to remeasurement in the event of further changes in the exchange rate, was net asset $0.4 million (including $0.4 million of cash and cash equivalents). In addition, Venezuela’s non-monetary assets were $16.3 million (mainly fixed assets).

In addition to exchange controls, the Venezuelan market is subject to price controls. The Venezuelan government issued a regulation establishing a maximum profit margin for companies and maximum prices for certain goods and services. The Company was able to increase prices during the nine-month period ended September 30, 2019.

The Company’s Venezuelan operations, and the Company’s ability to repatriate its earnings, continue to be negatively affected by these difficult conditions and would be further negatively affected by additional devaluations or the imposition of additional or more stringent controls on foreign currency exchange, pricing, payments, profits or imports or other governmental actions or continued or increased labor unrest. The Company continues to closely monitor developments in this dynamic environment, to assess evolving business risks and actively manage its operations in Venezuela.

F-31 

Arcos Dorados Holdings Inc.

Notes to the Condensed Consolidated Financial Statements

For the nine-month periods ended September 30, 2019 and 2018 (Unaudited)

Amounts in thousands of US dollars, except for share data and as otherwise indicated

14. Leases

The Company leases locations through ground leases (the Company leases the land and owns the building) and through improved leases (the Company leases land and buildings). The operating leases are mainly related to restaurant and dessert center locations. The average of lease’s terms is about 20 years and, in many cases, include renewal options provided by the agreement or government’s regulations, as there are reasonably certain to be exercised. Therefore, its associated payments are included in the measurement of the right-of-use asset and lease liability. Although, certain leases contain purchase options, is not reasonably certain that the Company will exercise them. In addition, many agreements include escalations amounts that vary by reporting unit, for example, including fixed-rent escalations, escalations based on an inflation index, and fair value adjustments. According to rental terms, the Company pays monthly rent based on the greater of a fixed rent or a certain percentage of the Company’s gross sales. The lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The Company has elected not to separate non-lease components from lease components in its lessee portfolio. For most locations, the Company is obligated for the related occupancy costs including property taxes, insurance and maintenance. However, for franchised sites, the Company requires the franchisees to pay these costs. Furthermore, the Company is the lessee under non-cancelable leases covering certain offices and warehouses.

In March 2010, the Company entered into an aircraft operating lease agreement for a term of 8 years, which provides for quarterly payments of $690. On December 22, 2017, the Company signed an amendment, extending the term of the aircraft operating lease for an additional 10 years, with quarterly payments (retroactively effective as of December 5, 2017) of $442.

The Company maintains a few finance leases agreements, previously classified as capital leases. The obligation amounts to $5,454.

As a lessor, the Company subleases locations to franchisees. Individual franchisee arrangements include a continuing rent based upon a percentage of sales with minimum rent payments.

The following table is a summary of the Company’s components of net lease cost for the nine-month period ended September 30, 2019:

		For the nine-month period ended September 30,
Lease Expense, net	Statements of Income Location	2019 (Unaudited)
Operating lease expense - Minimum rentals:		$	(110,337	)
Company-operated restaurants	Occupancy and other operating expenses		(78,546	)
Franchised restaurants	Franchised restaurants - occupancy expenses		(25,967	)
General and administrative	General and administrative expenses		(5,824	)
Variable lease expense - Contingent rentals based on sales:			(31,127	)
Company-operated restaurants	Occupancy and other operating expenses		(21,923	)
Franchised restaurants	Franchised restaurants - occupancy expenses		(9,204	)
Sublease income	Revenues from franchised restaurants		106,815
Total lease expense, net		$	(34,649	)

F-32 

Arcos Dorados Holdings Inc.

Notes to the Condensed Consolidated Financial Statements

For the nine-month periods ended September 30, 2019 and 2018 (Unaudited)

Amounts in thousands of US dollars, except for share data and as otherwise indicated

14. Leases (continued)

	For the nine-month period ended September 30,
Other information	2019 (Unaudited)
Cash paid for amounts included in the measurement of leases liabilities
Operating cash flows from operating leases	$	(140,171	)
Weighted-average remaining lease term (years)
Operating leases		9
Weighted-average discount rate
Operating leases		6%

At September 30, 2019, future minimum payments required under existing operating leases with initial terms of one year or more are:

	Restaurant		Other		Total (i)
2019		35,351		1,581		36,932
2020		130,928		5,507		136,435
2021		125,198		3,985		129,183
2022		118,060		2,796		120,856
2023		112,491		2,525		115,016
Thereafter		920,994		10,820		931,814
Total minimum payment	$	1,443,022	$	27,214	$	1,470,236
Lease discount					$	(648,475	)
Operating lease liability					$	821,761

(i) As part of the transition, the Company used the index in effect at transition for adoption of Topic 842 in its disclosure of future minimum lease payments and its calculation of the lease liability. For leases entered into after January 1, 2019, the index at lease inception date will be used to calculate the lease liability until lease modification.

F-33