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Actionable news in ARCO: ARCOS DORADOS HOLDINGS Inc,

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

Arcos Dorados Holdings Inc.

Notes to the Condensed Consolidated Financial Statements

For the nine-month periods ended September 30, 2017 and 2016 (Unaudited)

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

Arcos Dorados Holdings Inc.

Notes to the Condensed Consolidated Financial Statements

For the nine-month periods ended September 30, 2017 and 2016 (Unaudited)

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

As of
September 30, 2017 As of
(Unaudited) December 31, 2016
Bank overdrafts $ 141 $
$ 141 $

Arcos Dorados Holdings Inc.

Notes to the Condensed Consolidated Financial Statements

For the nine-month periods ended September 30, 2017 and 2016 (Unaudited)

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

As of As of
September 30, 2017 December 31, 2016
(Unaudited)
2027 Notes $ 265,000 $
2023 Notes 348,069 393,767
Secured Loan Agreement 167,262
Capital lease obligations 4,670 4,704
Other long-term borrowings 24,852 25,553
Subtotal 642,591 591,286
Discount on 2023 Notes (3,964 ) (5,029 )
Premium on 2023 Notes 1,500 1,910
Fair value adjustment related to Secured Loan Agreement (i) (2,877 )
Deferred financing costs (4,796 ) (5,611 )
Total 635,331 579,679
Current portion of long-term debt 4,435 28,099
Long-term debt, excluding current portion $ 630,896 $ 551,580

Arcos Dorados Holdings Inc.

Notes to the Condensed Consolidated Financial Statements

For the nine-month periods ended September 30, 2017 and 2016 (Unaudited)

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

Principal as of
Annual interest rate Currency September 30, 2017 (Unaudited) December 31, 2016 Maturity
2027 Notes 5.875 % USD $ 265,000 $ April 4, 2027
2023 Notes 6.625 % USD 348,069 393,767 September 27, 2023
Interest Expense (i) DFC Amortization (i) Accretion of Premium and Amortization of Discount (i)
2017 (Unaudited) 2016 (Unaudited) 2017 (Unaudited) 2016 (Unaudited) 2017 (Unaudited) 2016 (Unaudited)
2027 Notes $ 7,655 $ $ 150 $ $ $
2023 Notes 18,120 22,009 530 852 655 1,049
2016 Notes 6,668 391 (266 )
Amount
Date Redemption price BRL $
November 25, 2015 93.75% 40,000 9,995
November 30, 2015 93.75% 7,039 1,715
January 29, 2016 97.75% 1,180 288
April 21, 2016 100.00% 421,765 118,797
May 5, 2016 97.00% 4,025 1,106
July 13, 2016 100.00% 200,991 60,965
Total 675,000 192,866

Arcos Dorados Holdings Inc.

Notes to the Condensed Consolidated Financial Statements

For the nine-month periods ended September 30, 2017 and 2016 (Unaudited)

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

Lender Annual Interest Rate
Citibank N.A. 3M LIBOR + 2.439%
Itaú BBA International plc 5.26%
Banco Santander (Brasil) S.A., Cayman Islands Branch 4.7863%
Bank of America N.A. 3M LIBOR + 4.00%
JP Morgan Chase Bank, N.A. 3M LIBOR + 3.92%

Arcos Dorados Holdings Inc.

Notes to the Condensed Consolidated Financial Statements

For the nine-month periods ended September 30, 2017 and 2016 (Unaudited)

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

Arcos Dorados Holdings Inc.

Notes to the Condensed Consolidated Financial Statements

For the nine-month periods ended September 30, 2017 and 2016 (Unaudited)

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

6. Derivative instruments (continued)

Derivatives
Fair Value
As of As of
Type of Derivative Balance Sheets Location September 30, 2017 December 31, 2016
(Unaudited)
Derivatives designated as hedging instruments
Cash flow hedge
Forward contracts Accrued payroll and other liabilities (228 ) (100 )
Cross-currency interest rate swap (i) Derivative instruments (7,897 ) (3,274 )
Call spread (i) Derivative instruments 13,020
Coupon-only swap (i) Derivative instruments (14,618 )
Fair value hedge
Cross-currency interest rate swap (i) Derivative instruments (27,217 )
$ (9,723 ) $ (30,591 )
Derivatives not designated as hedging instruments
Forward contracts Accrued payroll and other liabilities $ (755 ) $
(755 )
Total derivative instruments $ (10,478 ) $ (30,591 )

Arcos Dorados Holdings Inc.

Notes to the Condensed Consolidated Financial Statements

For the nine-month periods ended September 30, 2017 and 2016 (Unaudited)

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

Bank Payable Receivable Interest payment dates Maturity
Currency Amount Interest rate Currency Amount Interest rate
JP Morgan Chase Bank, N.A. (i) 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

Arcos Dorados Holdings Inc.

Notes to the Condensed Consolidated Financial Statements

For the nine-month periods ended September 30, 2017 and 2016 (Unaudited)

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

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) Gain (Loss) Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing and Ineffective Portion) (ii) (Unaudited)
2017 2016 2017 2016 2017 2016
Forward contracts $ (1,298 ) $ (267 ) $ 1,170 $ (903 ) $ $
Cross-currency interest rate swaps (12,928 ) (55,514 ) 7,461 41,202
Call Spread 14,410 (1,390 )
Coupon-only swap (16,754 ) 1,900 236
Total $ (16,570 ) $ (55,781 ) $ 9,141 $ 40,299 $ 236 $

Arcos Dorados Holdings Inc.

Notes to the Condensed Consolidated Financial Statements

For the nine-month periods ended September 30, 2017 and 2016 (Unaudited)

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

Loss recognized in Income on hedging derivatives Gain recognized in Income on hedging items
Derivatives in Fair Value Hedging Relationships
Cross-currency interest rate swap (i) (9,599 ) 4,118

Arcos Dorados Holdings Inc.

Notes to the Condensed Consolidated Financial Statements

For the nine-month periods ended September 30, 2017 and 2016 (Unaudited)

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

Derivatives Not Designated as Hedging Instruments Location of Loss Recognized in Income Loss Recognized in Income on Derivative instruments
2017 2016
Forward Contracts Loss from derivative instruments $ (1,911 ) $
Others Loss from derivative instruments 120 (52 )
Total $ (1,791 ) 1,504 $ (52 )

Arcos Dorados Holdings Inc.

Notes to the Condensed Consolidated Financial Statements

For the nine-month periods ended September 30, 2017 and 2016 (Unaudited)

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

Units Weighted-average strike price Weighted-average grant-date fair value

Outstanding at December 31, 2016

776,475 15.55 4.46
Expired (i) (141,986 ) 21.20 5.28
Outstanding at September 30, 2017 634,489 14.28 4.28
Exercisable at September 30, 2017 540,331 15.03 4.58
Vested (i) Non-vested (ii) Total
Number of units outstanding 540,331 94,158 634,489
Weighted-average grant-date fair market value per unit 4.58 2.53 4.28
Total grant-date fair value 2,476 238 2,714
Weighted-average accumulated percentage of service 100 81,1 98,3
Stock-based compensation recognized in Additional paid-in capital 2,476 193 2,669
Compensation expense not yet recognized (iii) 45 45
Units Weighted-average grant-date fair value
Outstanding at December 31, 2016 1,780,997 6.07
2017 annual grant 497,960 9.20
Partial vesting of 2012 grant (i) (23,003 ) 14.35
Partial vesting of 2013 grant (i) (24,073 ) 14.31
Partial vesting of 2014 grant (i) (44,312 ) 8.58
Partial vesting of 2015 grant (i) (269,896 ) 6.33
Forfeitures (161,519 ) 5,94
Outstanding at September 30, 2017 1,756,154 6.64
Exercisable at September 30, 2017

Arcos Dorados Holdings Inc.

Notes to the Condensed Consolidated Financial Statements

For the nine-month periods ended September 30, 2017 and 2016 (Unaudited)

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

Number of units outstanding (i) 1,756,154
Weighted-average grant-date fair market value per unit 6.64
Total grant-date fair value 11,665
Weighted-average accumulated percentage of service 41.6
Stock-based compensation recognized in Additional paid-in capital 4,853
Compensation expense not yet recognized (ii) 6,812

Arcos Dorados Holdings Inc.

Notes to the Condensed Consolidated Financial Statements

For the nine-month periods ended September 30, 2017 and 2016 (Unaudited)

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

As of As of
September 30, 2017 December 31, 2016
(Unaudited)
Tax contingencies in Brazil $ 18,577 $ 13,312
Labor contingencies in Brazil 17,477 11,150
Others 12,139 12,222
Subtotal 48,193 36,684
Judicial deposits (22,405 ) (18,572 )
Provision for contingencies $ 25,788 $ 18,112

Arcos Dorados Holdings Inc.

Notes to the Condensed Consolidated Financial Statements

For the nine-month periods ended September 30, 2017 and 2016 (Unaudited)

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

Arcos Dorados Holdings Inc.

Notes to the Condensed Consolidated Financial Statements

For the nine-month periods ended September 30, 2017 and 2016 (Unaudited)

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

For the nine-month periods ended
September 30,
2017 2016
(Unaudited) (Unaudited)
Revenues:
Brazil $ 1,093,338 $ 955,062
Caribbean division 331,941 298,045
NOLAD 282,770 268,203
SLAD 714,595 600,161
Total revenues $ 2,422,644 $ 2,121,471
Adjusted EBITDA:
Brazil $ 139,912 $ 104,967
Caribbean division 13,372 10,067
NOLAD 23,456 25,983
SLAD 64,790 54,880
Total reportable segments 241,530 195,897
Corporate and others (i) (48,013 ) (43,728 )
Total adjusted EBITDA $ 193,517 $ 152,169

Arcos Dorados Holdings Inc.

Notes to the Condensed Consolidated Financial Statements

For the nine-month periods ended September 30, 2017 and 2016 (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,
2017 2016
(Unaudited) (Unaudited)
Adjusted EBITDA reconciliation:
Total adjusted EBITDA $ 193,517 $ 152,169
Plus (Less) items excluded from computation that affect operating income:
Depreciation and amortization (73,190 ) (74,326 )
Gains from sale or insurance recovery of property and equipment 57,310 50,528
Write-offs of property and equipment (3,427 ) (3,606 )
Impairment of goodwill (200 )
ADBV Long-Term Incentive Plan incremental compensation from modification (1,329 ) (282 )
Operating income 172,681 124,483
Less:
Net interest expense (54,503 ) (53,233 )
Loss from derivative instruments (7,036 ) (52 )
Foreign currency exchange results (18,476 ) 28,900
Other non-operating expenses, net (607 ) (1,562 )
Income tax expense (31,888 ) (40,732 )
Net income attributable to non-controlling interests (277 ) (145 )
Net income attributable to Arcos Dorados Holdings Inc. $ 59,894 $ 57,659
Depreciation and amortization:
Brazil $ 38,428 $ 32,161
Caribbean division 18,572 25,940
NOLAD 15,577 16,798
SLAD 11,345 10,890
Total reportable segments 83,922 85,789
Corporate and others (i) 4,350 3,545
Purchase price allocation (ii) (15,082 ) (15,008 )
Total depreciation and amortization $ 73,190 $ 74,326

Arcos Dorados Holdings Inc.

Notes to the Condensed Consolidated Financial Statements

For the nine-month periods ended September 30, 2017 and 2016 (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,
2017 2016
(Unaudited) (Unaudited)
Property and equipment expenditures:
Brazil $ 59,829 $ 24,404
Caribbean division 12,033 7,569
NOLAD 8,156 5,104
SLAD 28,494 14,848
Total reportable segments 108,512 51,925
Corporate and others (i) 46 145
Total property and equipment expenditures $ 108,558 $ 52,070
As of
September 30,
2017 December 31,
(Unaudited) 2016
Total assets:
Brazil $ 755,538 $ 726,250
Caribbean division 350,632 355,568
NOLAD 258,193 247,546
SLAD 248,669 246,344
Total reportable segments 1,613,032 1,575,708
Corporate and others (i) 182,467 82,822
Purchase price allocation (ii) (150,207 ) (153,477 )
Total assets $ 1,645,292 $ 1,505,053

Arcos Dorados Holdings Inc.

Notes to the Condensed Consolidated Financial Statements

For the nine-month periods ended September 30, 2017 and 2016 (Unaudited)

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

Foreign currency translation

Cash flow hedges

Post employment benefits

(i)

Total Accumulated other comprehensive loss
Balances at December 31, 2016 $ (441,081 ) $ 305 $ (873 ) $ (441,649 )
Other comprehensive gain (loss) before reclassifications (Unaudited) 26,961 (14,469 ) 12,492
Net loss reclassified from accumulated other comprehensive income to consolidated statement of income (Unaudited) 8,405 290 8,695
Net current-period other comprehensive gain (loss) (Unaudited) 26,961 (6,064 ) 290 21,187
Balances at September 30, 2017 (Unaudited) $ (414,120 ) $ (5,759 ) $ (583 ) $ (420,462 )

Arcos Dorados Holdings Inc.

Notes to the Condensed Consolidated Financial Statements

For the nine-month periods ended September 30, 2017 and 2016 (Unaudited)

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

Foreign currency translation

Cash flow hedges

Post employment benefits

(i)

Total Accumulated other comprehensive loss
Balances at December 31, 2015 $ (431,190 ) $ 7,876 $ (949 ) $ (424,263 )
Other comprehensive gain (loss) before reclassifications (Unaudited) 6,045 (55,781 ) (49,736 )
Net loss reclassified from accumulated other comprehensive loss to consolidated statement of income (Unaudited) 40,299 336 40,635
Net current-period other comprehensive gain (loss) (Unaudited) 6,045 (15,482 ) 336 (9,101 )
Balances at September 30, 2016 (Unaudited) $ (425,145 ) $ (7,606 ) $ (613 ) $ (433,364 )

Arcos Dorados Holdings Inc.

Notes to the Condensed Consolidated Financial Statements

For the nine-month periods ended September 30, 2017 and 2016 (Unaudited)

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

11. Earnings per share (continued)

For the nine-month periods ended
September 30,
2017 2016
(Unaudited) (Unaudited)
Net income attributable to Arcos Dorados Holdings Inc. available to common shareholders $ 59,894 $ 57,659
Weighted-average number of common shares outstanding - Basic 210,889,576 210,625,380
Incremental shares from assumed exercise of stock options (i)
Incremental shares from vesting of restricted stock units 940,547 85,221
Weighted-average number of common shares outstanding - Diluted 211,830,123 210,710,601
Basic net income per common share attributable to Arcos Dorados Holdings Inc. $ 0.28 $ 0.27
Diluted net income per common share attributable to Arcos Dorados Holdings Inc. $ 0.28 $ 0.27
As of
September 30,
2017 December 31,
(Unaudited) 2016
Other receivables $ 1,020 $ 1,050
Prepaid expenses and other current assets 1,112
Miscellaneous 3,947 3,612
Accounts payable (6,784 ) (10,355 )

Arcos Dorados Holdings Inc.

Notes to the Condensed Consolidated Financial Statements

For the nine-month periods ended September 30, 2017 and 2016 (Unaudited)

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

For the nine-month periods ended
September 30,
2017 2016
(Unaudited) (Unaudited)
Food and paper (i) $ (130,816 ) $ (120,203 )
Occupancy and other operating expenses (3,472 ) (2,761 )
Net interest income 31

Arcos Dorados Holdings Inc.

Notes to the Condensed Consolidated Financial Statements

For the nine-month periods ended September 30, 2017 and 2016 (Unaudited)

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


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