Indicate by check mark whether the registrant
files or will file annual reports under cover of Form 20-F or 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):
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):
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to be a part thereof from the date on which this report is filed, to the extent not superseded by documents or reports subsequently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.
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: August 7, 2019
Item 1
Arcos Dorados Holdings Inc.
Condensed Consolidated Financial Statements
As of June 30, 2019 and December 31, 2018 and
for the six-month periods ended June 30, 2019 and 2018 (Unaudited)
Arcos Dorados Holdings Inc.
Consolidated Statements of Income
For
the six-month periods ended June 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
|
|
$
|
1,383,781
|
|
|
$
|
1,525,515
|
|
Revenues from franchised restaurants
|
|
|
70,962
|
|
|
|
78,342
|
|
Total revenues
|
|
|
1,454,743
|
|
|
|
1,603,857
|
|
|
|
|
|
|
|
|
|
|
OPERATING COSTS AND EXPENSES
|
|
|
|
|
|
|
|
|
Company-operated restaurant expenses:
|
|
|
|
|
|
|
|
|
Food and paper
|
|
|
(495,618
|
)
|
|
|
(534,836
|
)
|
Payroll and employee benefits
|
|
|
(284,815
|
)
|
|
|
(329,264
|
)
|
Occupancy and other operating expenses
|
|
|
(397,146
|
)
|
|
|
(416,545
|
)
|
Royalty fees
|
|
|
(77,763
|
)
|
|
|
(80,774
|
)
|
Franchised restaurants – occupancy expenses
|
|
|
(35,708
|
)
|
|
|
(34,942
|
)
|
General and administrative expenses
|
|
|
(105,859
|
)
|
|
|
(116,918
|
)
|
Other operating expenses, net
|
|
|
(768
|
)
|
|
|
(59,374
|
)
|
Total operating costs and expenses
|
|
|
(1,397,677
|
)
|
|
|
(1,572,653
|
)
|
Operating income
|
|
|
57,066
|
|
|
|
31,204
|
|
Net interest expense
|
|
|
(25,676
|
)
|
|
|
(27,097
|
)
|
Loss from derivative instruments
|
|
|
(430
|
)
|
|
|
(331
|
)
|
Foreign currency exchange results
|
|
|
5,648
|
|
|
|
5,128
|
|
Other non-operating expenses, net
|
|
|
(97
|
)
|
|
|
(62
|
)
|
Income before income taxes
|
|
|
36,511
|
|
|
|
8,842
|
|
Income tax expense
|
|
|
(13,857
|
)
|
|
|
(7,173
|
)
|
Net income
|
|
|
22,654
|
|
|
|
1,669
|
|
Less: Net income attributable to non-controlling interests
|
|
|
(69
|
)
|
|
|
(85
|
)
|
Net income attributable to Arcos Dorados Holdings
Inc.
|
|
$
|
22,585
|
|
|
$
|
1,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share information:
|
|
|
|
|
|
|
|
|
Basic net income per common share attributable to Arcos Dorados Holdings Inc.
|
|
$
|
0.11
|
|
|
$
|
0.01
|
|
Diluted net income per common share attributable to Arcos Dorados Holdings Inc.
|
|
|
0.11
|
|
|
|
0.01
|
|
See Notes to the Condensed Consolidated Financial Statements.
Arcos Dorados Holdings Inc.
Consolidated
Statements of Comprehensive Income (Loss)
For
the six-month periods ended June 30, 2019 and 2018 (Unaudited)
Amounts in thousands of US dollars
|
|
2019
|
|
2018
|
Net income
|
|
$
|
22,654
|
|
|
$
|
1,669
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
|
3,869
|
|
|
|
(49,632
|
)
|
Post-employment benefits:
|
|
|
|
|
|
|
|
|
Reclassification of net loss to consolidated statement of income
|
|
|
432
|
|
|
|
247
|
|
Post-employment benefits (net of deferred income taxes of $222 and $128)
|
|
|
432
|
|
|
|
247
|
|
Cash flow hedges:
|
|
|
|
|
|
|
|
|
Net (loss) gain recognized in accumulated other comprehensive loss
|
|
|
(9,635
|
)
|
|
|
19,734
|
|
Reclassification of net loss (gain) to consolidated statement of income
|
|
|
5,927
|
|
|
|
(27,733
|
)
|
Cash flow hedges (net of deferred income taxes of $1,101 and $4,414)
|
|
|
(3,708
|
)
|
|
|
(7,999
|
)
|
Total other comprehensive income (loss)
|
|
|
593
|
|
|
|
(57,384
|
)
|
Comprehensive income (loss)
|
|
|
23,247
|
|
|
|
(55,715
|
)
|
Less: Comprehensive (income) loss attributable to non-controlling interests
|
|
|
(50
|
)
|
|
|
2
|
|
Comprehensive income (loss) attributable to Arcos
Dorados Holdings Inc.
|
|
$
|
23,197
|
|
|
$
|
(55,713
|
)
|
See Notes to the Condensed Consolidated Financial Statements.
Arcos Dorados Holdings
Inc.
Consolidated
Balance Sheet
As of June 30, 2019
and December 31, 2018
Amounts in thousands
of US dollars, except for share data and as otherwise indicated
|
|
As of
|
|
|
|
|
June 30, 2019
|
|
As of
|
|
|
(Unaudited)
|
|
December 31, 2018
|
ASSETS
|
|
|
|
|
Current assets
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
137,238
|
|
|
$
|
197,282
|
|
Accounts and notes receivable, net
|
|
|
80,214
|
|
|
|
84,287
|
|
Other receivables
|
|
|
19,467
|
|
|
|
25,350
|
|
Inventories
|
|
|
40,301
|
|
|
|
46,089
|
|
Prepaid expenses and other current assets
|
|
|
105,032
|
|
|
|
109,230
|
|
McDonald’s Corporation’s indemnification for contingencies
|
|
|
—
|
|
|
|
2,324
|
|
Total current assets
|
|
|
382,252
|
|
|
|
464,562
|
|
Non-current assets
|
|
|
|
|
|
|
|
|
Miscellaneous
|
|
|
103,611
|
|
|
|
99,049
|
|
Collateral deposits
|
|
|
2,500
|
|
|
|
2,500
|
|
Property and equipment, net
|
|
|
894,167
|
|
|
|
856,192
|
|
Net intangible assets and goodwill
|
|
|
41,595
|
|
|
|
41,021
|
|
Deferred income taxes
|
|
|
59,981
|
|
|
|
58,334
|
|
Derivative instruments
|
|
|
51,831
|
|
|
|
54,735
|
|
McDonald’s Corporation’s indemnification for contingencies
|
|
|
1,671
|
|
|
|
1,646
|
|
Leases right of use asset, net
|
|
|
874,900
|
|
|
|
—
|
|
Total non-current assets
|
|
|
2,030,256
|
|
|
|
1,113,477
|
|
Total assets
|
|
$
|
2,412,508
|
|
|
$
|
1,578,039
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
231,224
|
|
|
$
|
242,455
|
|
Royalties payable to McDonald’s Corporation
|
|
|
13,436
|
|
|
|
14,576
|
|
Income taxes payable
|
|
|
35,089
|
|
|
|
53,843
|
|
Other taxes payable
|
|
|
59,506
|
|
|
|
61,006
|
|
Accrued payroll and other liabilities
|
|
|
94,900
|
|
|
|
94,166
|
|
Provision for contingencies
|
|
|
2,413
|
|
|
|
2,436
|
|
Interest payable
|
|
|
9,929
|
|
|
|
9,951
|
|
Short-term debt
|
|
|
—
|
|
|
|
356
|
|
Current portion of long-term debt
|
|
|
3,638
|
|
|
|
3,836
|
|
Derivative instruments
|
|
|
10,966
|
|
|
|
10,687
|
|
Operating lease liabilities
|
|
|
60,691
|
|
|
|
—
|
|
Total current liabilities
|
|
|
521,792
|
|
|
|
493,312
|
|
Non-current liabilities
|
|
|
|
|
|
|
|
|
Accrued payroll and other liabilities
|
|
|
19,707
|
|
|
|
35,322
|
|
Provision for contingencies
|
|
|
29,390
|
|
|
|
26,073
|
|
Long-term debt, excluding current portion
|
|
|
625,403
|
|
|
|
626,424
|
|
Derivative instruments
|
|
|
4,396
|
|
|
|
3,192
|
|
Deferred income taxes
|
|
|
1,845
|
|
|
|
957
|
|
Operating lease liabilities
|
|
|
829,794
|
|
|
|
—
|
|
Total non-current liabilities
|
|
|
1,510,535
|
|
|
|
691,968
|
|
Total liabilities
|
|
$
|
2,032,327
|
|
|
$
|
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
|
|
|
12,300
|
|
|
|
14,850
|
|
Retained earnings
|
|
|
413,086
|
|
|
|
413,074
|
|
Accumulated other comprehensive loss
|
|
|
(501,654
|
)
|
|
|
(502,266
|
)
|
Common stock in treasury
|
|
|
(60,000
|
)
|
|
|
(46,035
|
)
|
Total Arcos Dorados Holdings Inc. shareholders’ equity
|
|
|
379,845
|
|
|
|
392,383
|
|
Non-controlling interests in subsidiaries
|
|
|
336
|
|
|
|
376
|
|
Total equity
|
|
|
380,181
|
|
|
|
392,759
|
|
Total liabilities and equity
|
|
$
|
2,412,508
|
|
|
$
|
1,578,039
|
|
See Notes to
the Condensed Consolidated Financial Statements.
Arcos Dorados Holdings
Inc.
Condensed
Consolidated Statements of Cash Flows
For
the six-month periods ended June 30, 2019 and 2018 (Unaudited)
Amounts in thousands
of US dollars
|
|
2019
|
|
2018
|
Operating activities
|
|
|
|
|
Net income attributable to Arcos Dorados Holdings Inc.
|
|
$
|
22,585
|
|
|
$
|
1,584
|
|
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
|
|
|
59,268
|
|
|
|
52,090
|
|
Gain of property and equipment sales
|
|
|
(305
|
)
|
|
|
(587
|
)
|
Impairment of long-lived assets and goodwill
|
|
|
—
|
|
|
|
1,000
|
|
Deferred income taxes
|
|
|
912
|
|
|
|
(1,848
|
)
|
Foreign currency exchange results
|
|
|
(5,297
|
)
|
|
|
22,242
|
|
Gain on Sales of restaurants businesses
|
|
|
(1,392
|
)
|
|
|
(1,018
|
)
|
Others, net
|
|
|
4,029
|
|
|
|
(25,873
|
)
|
Changes in assets and liabilities
|
|
|
(19,085
|
)
|
|
|
(15,947
|
)
|
Net cash provided by operating activities
|
|
|
60,715
|
|
|
|
31,643
|
|
Investing activities
|
|
|
|
|
|
|
|
|
Property and equipment expenditures
|
|
|
(93,591
|
)
|
|
|
(63,105
|
)
|
Purchases of restaurant businesses
|
|
|
(1,345
|
)
|
|
|
—
|
|
Proceeds from sale of property and equipment and related advances
|
|
|
734
|
|
|
|
710
|
|
Proceeds from sale of restaurant businesses and related advances
|
|
|
1,246
|
|
|
|
1,278
|
|
Proceeds from short-term investments
|
|
|
—
|
|
|
|
9,583
|
|
Other investing activity
|
|
|
238
|
|
|
|
746
|
|
Net cash used in investing activities
|
|
|
(92,718
|
)
|
|
|
(50,788
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
Dividend payments to Arcos Dorados Holdings Inc.’s shareholders
|
|
|
(10,180
|
)
|
|
|
(10,554
|
)
|
Treasury stock purchases
|
|
|
(13,965
|
)
|
|
|
(20,000
|
)
|
Other financing activities
|
|
|
(3,682
|
)
|
|
|
(3,816
|
)
|
Net cash used in financing activities
|
|
|
(27,827
|
)
|
|
|
(34,370
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(214
|
)
|
|
|
(46,044
|
)
|
Decrease in cash and cash equivalents
|
|
|
(60,044
|
)
|
|
|
(99,559
|
)
|
Cash and cash equivalents at the beginning of the year
|
|
$
|
197,282
|
|
|
$
|
308,491
|
|
Cash and cash equivalents at the end of the period
|
|
$
|
137,238
|
|
|
$
|
208,932
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
27,922
|
|
|
$
|
30,771
|
|
Income tax
|
|
|
14,159
|
|
|
|
12,503
|
|
Non-cash investing activities:
|
|
|
|
|
|
|
|
|
Dividend declared pending of payment
|
|
|
12,217
|
|
|
|
10,420
|
|
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
.
Arcos
Dorados Holdings Inc.
Consolidated
Statement of Changes in Equity
For
the six-month period ended June 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
capital
|
|
Retained
earnings
|
|
Accumulated
other
comprehensive
loss
|
|
Common
stock in treasury
|
|
Total
|
|
Non-
controlling
interests
|
|
Total
|
|
|
Number
|
|
Amount
|
|
Number
|
|
Amount
|
|
|
|
|
|
|
|
Number
|
|
Amount
|
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)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
22,585
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
22,585
|
|
|
|
69
|
|
|
|
22,654
|
|
Other comprehensive income (Unaudited)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
612
|
|
|
|
—
|
|
|
|
—
|
|
|
|
612
|
|
|
|
(19
|
)
|
|
|
593
|
|
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)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
803
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
803
|
|
|
|
—
|
|
|
|
803
|
|
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
|
|
|
$
|
12,300
|
|
|
$
|
413,086
|
|
|
$
|
(501,654
|
)
|
|
|
(7,993,602
|
)
|
|
$
|
(60,000
|
)
|
|
$
|
379,845
|
|
|
$
|
336
|
|
|
$
|
380,181
|
|
See Notes to the Condensed Consolidated
Financial Statements.
Arcos Dorados Holdings
Inc.
Consolidated Statement
of Changes in Equity
For
the six-month period ended June 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
capital
|
|
Retained
earnings
|
|
Accumulated
other
comprehensive
losses
|
|
Common
stock in treasury
|
|
|
|
|
|
|
|
|
Number
|
|
Amount
|
|
Number
|
|
Amount
|
|
|
|
|
|
|
|
Number
|
|
Amount
|
|
Total
|
|
Non-
controlling
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)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,584
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,584
|
|
|
|
85
|
|
|
|
1,669
|
|
Other comprehensive loss (Unaudited)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(57,297
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(57,297
|
)
|
|
|
(87
|
)
|
|
|
(57,384
|
)
|
Dividends to Arcos Dorados Holdings Inc.’s shareholders ($0.10
per share) (Unaudited)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(20,974
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(20,974
|
)
|
|
|
—
|
|
|
|
(20,974
|
)
|
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)
|
|
|
497,686
|
|
|
|
2,961
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,961
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
——
|
|
|
|
—
|
|
|
|
—
|
|
Stock-based compensation related to the 2011 Equity Incentive Plan
(Unaudited)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,910
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,910
|
|
|
|
—
|
|
|
|
1,910
|
|
Treasury stock purchases (Unaudited)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,656,552
|
)
|
|
|
(20,000
|
)
|
|
|
(20,000
|
)
|
|
|
—
|
|
|
|
(20,000
|
)
|
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)
|
|
|
131,570,194
|
|
|
$
|
379,693
|
|
|
|
80,000,000
|
|
|
$
|
132,915
|
|
|
$
|
13,165
|
|
|
$
|
377,774
|
|
|
$
|
(486,644
|
))
|
|
|
(2,656,552
|
)
|
|
$
|
(20,000
|
)
|
|
$
|
396,903
|
|
|
$
|
399
|
|
|
$
|
397,302
|
|
See Notes to the Condensed Consolidated Financial
Statements.
Arcos Dorados Holdings Inc.
Notes to the Condensed Consolidated Financial Statements
For the six-month periods ended June 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 six-month period ended June 30, 2019 are not necessarily indicative of results that may be expected for any future periods.
Arcos Dorados Holdings Inc.
Notes to the Condensed Consolidated Financial Statements
For the six-month periods ended June 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 its 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
Arcos Dorados Holdings Inc.
Notes to the Condensed Consolidated Financial Statements
For the six-month periods ended June 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)
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.
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 June 30, 2019 and for the six-month
period ended in June 30, 2019, are as follows:
Arcos Dorados Holdings Inc.
Notes to the Condensed Consolidated Financial Statements
For the six-month periods ended June 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)
|
|
As of June 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
|
|
|
874,900
|
|
|
|
—
|
|
|
|
874,900
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease liabilities
|
|
|
60,691
|
|
|
|
—
|
|
|
|
60,691
|
|
Non-current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued payroll and other liabilities
|
|
|
19,707
|
|
|
|
36,805
|
|
|
|
(17,098
|
)
|
Operating lease liabilities
|
|
|
829,794
|
|
|
|
—
|
|
|
|
829,794
|
|
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings
|
|
|
413,086
|
|
|
|
410,844
|
|
|
|
2,242
|
|
Accumulated other comprehensive loss
|
|
|
(501,654
|
)
|
|
|
(500,924
|
)
|
|
|
(730
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six-month period ended June 30, 2019
|
Consolidated Statement of Income
|
|
As Reported
|
|
Balances Without Adoption of ASC 842
|
|
Effect of Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange results
|
|
|
5,648
|
|
|
|
3,406
|
|
|
|
2,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
Arcos Dorados Holdings Inc.
Notes to the Condensed Consolidated Financial Statements
For the six-month periods ended June 30, 2019 and 2018 (Unaudited)
Amounts in thousands of US dollars, except for share data and as otherwise indicated
4. Short-term debt
Short-term debt consists
of the following:
|
|
As of
|
|
|
|
|
June 30, 2019
|
|
As of
|
|
|
(Unaudited)
|
|
December 31, 2018
|
Bank overdrafts
|
|
$
|
—
|
|
|
$
|
356
|
|
|
|
$
|
—
|
|
|
$
|
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 3, 2018,
ADBV renewed its committed revolving credit facility with Bank of America, N.A. (BOFA), as lender, for up to $25 million maturing
on August 3, 2019. 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 June 30,
2019, the mentioned ratio was 0.96 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.
Arcos Dorados Holdings Inc.
Notes to the Condensed Consolidated Financial Statements
For the six-month periods ended June 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
|
|
|
|
|
June 30, 2019
|
|
As of
|
|
|
(Unaudited)
|
|
December 31, 2018
|
2027 Notes
|
|
$
|
265,000
|
|
|
$
|
265,000
|
|
2023 Notes
|
|
|
348,069
|
|
|
|
348,069
|
|
Finance lease obligations
|
|
|
6,113
|
|
|
|
6,503
|
|
Other long-term borrowings
|
|
|
15,336
|
|
|
|
16,676
|
|
Subtotal
|
|
|
634,518
|
|
|
|
636,248
|
|
Discount, net on 2023 Notes
|
|
|
(2,831
|
)
|
|
|
(3,156
|
)
|
Premium on 2023 Notes
|
|
|
1,062
|
|
|
|
1,187
|
|
Deferred financing costs
|
|
|
(3,708
|
)
|
|
|
(4,019
|
)
|
Total
|
|
|
629,041
|
|
|
|
630,260
|
|
Current portion of long-term debt
|
|
|
3,638
|
|
|
|
3,836
|
|
Long-term debt, excluding current portion
|
|
$
|
625,403
|
|
|
$
|
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
|
|
June 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
|
|
$
|
7,784
|
|
|
$
|
7,784
|
|
|
$
|
149
|
|
|
$
|
149
|
|
|
$
|
—
|
|
|
$
|
—
|
|
2023 Notes
|
|
|
11,530
|
|
|
|
11,530
|
|
|
|
162
|
|
|
|
162
|
|
|
|
197
|
|
|
|
197
|
|
|
(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.
Arcos Dorados Holdings Inc.
Notes to the Condensed Consolidated Financial Statements
For the six-month periods ended June 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):
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.
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.
Arcos Dorados Holdings Inc.
Notes to the Condensed Consolidated Financial Statements
For the six-month periods ended June 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 June 30, 2019 and December 31,
2018:
|
|
Derivatives
|
|
|
|
|
Fair Value
|
|
|
|
|
As of
|
|
|
Type of Derivative
|
|
Balance Sheets Location
|
|
June 30, 2019
(Unaudited)
|
|
As of
December 31, 2018
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
|
Cash flow hedge
|
|
|
|
|
|
|
|
|
|
|
Forward contracts
|
|
Other receivables
|
|
$
|
224
|
|
|
$
|
628
|
|
Forward contracts
|
|
Accrued payroll and other liabilities
|
|
|
(182
|
)
|
|
|
(180
|
)
|
Cross-currency interest rate swap (i)
|
|
Derivative instruments
|
|
|
24,681
|
|
|
|
29,141
|
|
Call spread (i)
|
|
Derivative instruments
|
|
|
18,226
|
|
|
|
16,867
|
|
Coupon-only swap (i)
|
|
Derivative instruments
|
|
|
(6,438
|
)
|
|
|
(5,152
|
)
|
Subtotal
|
|
|
|
$
|
36,511
|
|
|
$
|
41,304
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
Forward contracts
|
|
Other receivables
|
|
$
|
—
|
|
|
$
|
99
|
|
Forward contracts
|
|
Accrued payroll and other liabilities
|
|
|
(380
|
)
|
|
|
(144
|
)
|
Subtotal
|
|
|
|
$
|
(380
|
)
|
|
$
|
(45
|
)
|
Total derivative instruments
|
|
|
|
$
|
36,131
|
|
|
$
|
41,259
|
|
|
(i)
|
At June 30, 2019, presented in the consolidated balance sheet as follows: $51,831 as non-current
asset, $10,966 as a current liability and $4,396 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
Arcos Dorados Holdings Inc.
Notes to the Condensed Consolidated Financial Statements
For the six-month periods ended June 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)
Forward contracts
(continued)
net settlement or collection adjusts the
cost of inventory paid to the suppliers). As of June 30, 2019, the Company has forward contracts outstanding with a notional amount
of $24,455 that mature during 2019 and 2020.
The Company made net
collections (payments) totaling $106 and ($879) during the six-month periods ended June 30, 2019 and 2018, respectively, as a result
of the net settlements of these derivatives.
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:
|
|
Payable
|
|
Receivable
|
|
Interest payment dates
|
|
Maturity
|
Bank
|
|
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:
|
|
Payable
|
|
Receivable
|
|
|
|
|
Bank
|
|
Currency
|
|
Amount
|
|
Interest rate
|
|
Currency
|
|
Amount
|
|
Interest rate
|
|
Interest payment dates
|
|
Maturity
|
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.
|
Arcos Dorados Holdings Inc.
Notes to the Condensed Consolidated Financial Statements
For the six-month periods ended June 30, 2019 and 2018 (Unaudited)
Amounts in thousands of US dollars, except for share data and as otherwise indicated
6. Derivative
instruments (continued)
The Company paid $5,674
and $7,536 of net interest during the six-month periods ended June 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.
The following table
presents information related to the terms of the agreements:
|
|
Nominal Amount
|
|
Strike price
|
|
|
Bank
|
|
Currency
|
|
Amount
|
|
Call option written
|
|
Call option bought
|
|
Maturity
|
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:
|
|
Payable
|
|
Receivable
|
|
|
|
|
Bank
|
|
Currency
|
|
Amount
|
|
Interest rate
|
|
Currency
|
|
Amount
|
|
Interest rate
|
|
Interest payment dates
|
|
Maturity
|
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 $1,618
and $2,433 of net interest during the six-months periods ended June 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 six-month periods ended June 30, 2019 and 2018
for each type of derivative relationship:
Arcos Dorados Holdings Inc.
Notes to the Condensed Consolidated Financial Statements
For the six-month periods ended June 30, 2019 and 2018 (Unaudited)
Amounts in thousands of US dollars, except for share data and as otherwise indicated
6. Derivative
instruments (continued)
Additional disclosures
(continued)
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
|
|
$
|
(300
|
)
|
|
$
|
(832
|
)
|
|
$
|
(106
|
)
|
|
$
|
879
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Cross-currency interest rate swaps
|
|
|
(10,405
|
)
|
|
|
20,501
|
|
|
|
5,821
|
|
|
|
(23,610
|
)
|
|
|
—
|
|
|
|
—
|
|
Call Spread
|
|
|
1,209
|
|
|
|
1,171
|
|
|
|
711
|
|
|
|
(15,769
|
)
|
|
|
—
|
|
|
|
—
|
|
Coupon-only swap
|
|
|
(2,803
|
)
|
|
|
3,856
|
|
|
|
1,064
|
|
|
|
1,390
|
|
|
|
(104
|
)
|
|
|
(624
|
)
|
Total
|
|
$
|
(12,299
|
)
|
|
$
|
24,696
|
|
|
$
|
7,490
|
|
|
$
|
(37,110
|
)
|
|
$
|
(104
|
)
|
|
$
|
(624
|
)
|
|
(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 six-month period ended June 30,
|
Adjustment to:
|
|
2019 (Unaudited)
|
|
2018 (Unaudited)
|
Foreign currency exchange results
|
|
$
|
(1,270
|
)
|
|
$
|
29,036
|
|
Net interest expense
|
|
|
(4,551
|
)
|
|
|
(5,426
|
)
|
Total
|
|
$
|
(5,821
|
)
|
|
$
|
23,610
|
|
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 "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 "Loss
from derivative instruments".
The Company paid $7 during the six-month
period ended June 30, 2019 related to those forward contracts.
Arcos Dorados Holdings Inc.
Notes to the Condensed Consolidated Financial Statements
For the six-month periods ended June 30, 2019 and 2018 (Unaudited)
Amounts in thousands of US dollars, except for share data and as otherwise indicated
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 2018 (from 2015 to 2018 only restricted share units). 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. 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 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 $803 and $1,825 during the six-month periods ended June 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 June 30, 2019:
Arcos Dorados Holdings Inc.
Notes to the Condensed Consolidated Financial Statements
For the six-month periods ended June 30, 2019 and 2018 (Unaudited)
Amounts in thousands of US dollars, except for share data and as otherwise indicated
7. Share-based
compensation (continued)
Stock Options (continued)
|
|
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 June 30, 2019
|
|
|
274,440
|
|
|
|
10,62
|
|
|
|
2,77
|
|
Exercisable at June 30, 2019
|
|
|
274,440
|
|
|
|
10,62
|
|
|
|
2,77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table
provides a summary of outstanding stock options at June 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 six-month period ended June 30, 2019:
|
|
Units
|
|
Weighted-average grant-date fair value
|
Outstanding at December 31, 2018
|
|
|
1,605,049
|
|
|
|
7.41
|
|
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
|
|
|
(219,558
|
)
|
|
|
7,78
|
|
Outstanding at June 30, 2019
|
|
|
922,902
|
|
|
|
7,47
|
|
Exercisable at June 30, 2019
|
|
|
—
|
|
|
|
—
|
|
The Company issued
469,884 Class A shares, during the six 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 June 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 June 30, 2019:
Arcos Dorados Holdings Inc.
Notes to the Condensed Consolidated Financial Statements
For the six-month periods ended June 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
)
Number of units outstanding (i)
|
|
|
922,902
|
|
Weighted-average grant-date fair market value per unit
|
|
|
7.47
|
|
Total grant-date fair value
|
|
|
6,897
|
|
Weighted-average accumulated percentage of service
|
|
|
53.1
|
%
|
Stock-based compensation recognized in Additional paid-in capital
|
|
|
3,661
|
|
Compensation expense not yet recognized (ii)
|
|
|
3,236
|
|
|
(i)
|
Related to awards that will vest between fiscal years
2020 and 2023.
|
|
(ii)
|
Expected to be recognized in a weighted-average period
of 1.6 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
aniversary from the date of grant. The grant-date stock price of both types of grants was $6.78.
The total compensation
cost as of June 30, 2019, amounts to $414 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 June 30, 2019:
|
|
Units
|
Grant 2019
|
|
|
1,672,657
|
|
Forfeited
|
|
|
(671
|
)
|
Outstanding at June 30, 2019
|
|
|
1,671,986
|
|
Arcos Dorados Holdings Inc.
Notes to the Condensed Consolidated Financial Statements
For the six-month periods ended June 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 following table
provides a summary of the plan at June 30, 2019
:
|
|
Total non- vested (i)
|
Number of units outstanding
|
|
|
1,671,986
|
|
Current share price
|
|
|
7,28
|
|
Total fair value of the plan
|
|
|
12,172
|
|
Weighted-average accumulated percentage of service
|
|
|
3.40
|
%
|
Accrued liability (ii)
|
|
|
414
|
|
Compensation expense not yet recognized (iii)
|
|
|
11,758
|
|
|
|
|
|
|
|
(i)
|
Related to awards that will vest between May 2021 and
May 2024.
|
|
(ii)
|
The total accrued liability of $414 related to outstanding
units is presented within “Accrued payroll and other liabilities” in the Company’s current liabilities balance
sheet.
|
|
(iii)
|
Expected to be recognized in a weighted-average period
of 4.9 years.
|
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.
Arcos Dorados Holdings Inc.
Notes to the Condensed Consolidated Financial Statements
For the six-month periods ended June 30, 2019 and 2018 (Unaudited)
Amounts in thousands of US dollars, except for share data and as otherwise indicated
8.
Commitments
and contingencies (continued)
Commitments (continued):
For the six-month period
ended June, 2019, the Company was in compliance with the ratio requirements mentioned in point (v) above. The ratios for the period
mentioned, were as follows:
|
|
June 30, 2019
(Unaudited)
|
|
March 31, 2019
(Unaudited)
|
Fixed Charge Coverage Ratio
|
|
|
1.86
|
|
|
|
1.83
|
|
Leverage Ratio
|
|
|
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 June 30, 2019 and December 31, 2018, the Company maintains a provision for contingencies,
net of judicial deposits, amounting to $31,803 and $28,509, respectively, presented as follow: $2,413 and $2,436 as a current liability
and $29,390 and $26,073 as a non-current liability, respectively. The breakdown of the provision for contingencies is as follows:
|
|
As of
|
|
|
|
|
June 30, 2019
|
|
As of
|
|
|
(Unaudited)
|
|
December 31, 2018
|
Tax contingencies in Brazil
|
|
$
|
9,459
|
|
|
$
|
9,497
|
|
Labor contingencies in Brazil
|
|
|
25,464
|
|
|
|
21,108
|
|
Others
|
|
|
10,788
|
|
|
|
11,462
|
|
Subtotal
|
|
|
45,711
|
|
|
|
42,067
|
|
Judicial deposits
|
|
|
(13,908
|
)
|
|
|
(13,558
|
)
|
Provision for contingencies
|
|
$
|
31,803
|
|
|
$
|
28,509
|
|
As of June 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 $199 million and $208 million.
As of June 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 $188 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.
Arcos Dorados Holdings Inc.
Notes to the Condensed Consolidated Financial Statements
For the six-month periods ended June 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)
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 2019, the Court
of Appeals issued Judgment revoking the Court of First Instance’s summary judgment in favor of PROA. 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 June 30, 2019,
the provision for contingencies includes $1,671 ($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
Arcos Dorados Holdings Inc.
Notes to the Condensed Consolidated Financial Statements
For the six-month periods ended June 30, 2019 and 2018 (Unaudited)
Amounts in thousands of US dollars, except for share data and as otherwise indicated
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.
The following table
presents information about profit or loss and assets for each reportable segment:
|
|
For the six-month periods ended
|
|
|
June 30,
|
|
|
2019
|
|
2018
|
|
|
(Unaudited)
|
|
(Unaudited)
|
Revenues:
|
|
|
|
|
Brazil
|
|
$
|
670,062
|
|
|
$
|
681,656
|
|
Caribbean division
|
|
|
199,460
|
|
|
|
268,442
|
|
NOLAD
|
|
|
206,801
|
|
|
|
196,160
|
|
SLAD
|
|
|
378,420
|
|
|
|
457,599
|
|
Total revenues
|
|
$
|
1,454,743
|
|
|
$
|
1,603,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA:
|
|
|
|
|
|
|
|
|
Brazil
|
|
$
|
91,102
|
|
|
$
|
83,229
|
|
Caribbean division
|
|
|
8,139
|
|
|
|
(22,109
|
)
|
NOLAD
|
|
|
15,751
|
|
|
|
14,546
|
|
SLAD
|
|
|
30,264
|
|
|
|
39,784
|
|
Total reportable segments
|
|
|
145,256
|
|
|
|
115,450
|
|
Corporate and others (i)
|
|
|
(28,823
|
)
|
|
|
(31,440
|
)
|
Total adjusted EBITDA
|
|
$
|
116,433
|
|
|
$
|
84,010
|
|
Arcos Dorados Holdings Inc.
Notes to the Condensed Consolidated Financial Statements
For the six-month periods ended June 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 six-month periods ended
|
|
|
June 30,
|
|
|
2019
|
|
2018
|
|
|
(Unaudited)
|
|
(Unaudited)
|
Adjusted EBITDA reconciliation:
|
|
|
|
|
|
|
|
|
Total adjusted EBITDA
|
|
$
|
116,433
|
|
|
$
|
84,010
|
|
|
|
|
|
|
|
|
|
|
Plus (Less) items excluded from computation that affect operating income:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(59,268
|
)
|
|
|
(52,090
|
)
|
Gains from sale or insurance recovery of property and equipment
|
|
|
595
|
|
|
|
660
|
|
Write-offs of property and equipment
|
|
|
(694
|
)
|
|
|
(951
|
)
|
Impairment of long-lived assets and goodwill
|
|
|
—
|
|
|
|
(1,000
|
)
|
ADBV Long-Term Incentive Plan incremental compensation from modification
|
|
|
—
|
|
|
|
575
|
|
Operating income
|
|
|
57,066
|
|
|
|
31,204
|
|
|
|
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
Net interest expense
|
|
|
(25,676
|
)
|
|
|
(27,097
|
)
|
Loss from derivative instruments
|
|
|
(430
|
)
|
|
|
(331
|
)
|
Foreign currency exchange results
|
|
|
5,648
|
|
|
|
5,128
|
|
Other non-operating expenses, net
|
|
|
(97
|
)
|
|
|
(62
|
)
|
Income tax expense
|
|
|
(13,857
|
)
|
|
|
(7,173
|
)
|
Net income attributable to non-controlling interests
|
|
|
(69
|
)
|
|
|
(85
|
)
|
Net income attributable to Arcos Dorados Holdings
Inc.
|
|
$
|
22,585
|
|
|
$
|
1,584
|
|
Depreciation and amortization:
|
|
|
|
|
Brazil
|
|
$
|
30,200
|
|
|
$
|
26,264
|
|
Caribbean division
|
|
|
9,360
|
|
|
|
11,757
|
|
NOLAD
|
|
|
10,607
|
|
|
|
10,520
|
|
SLAD
|
|
|
9,821
|
|
|
|
9,561
|
|
Total reportable segments
|
|
|
59,988
|
|
|
|
58,102
|
|
Corporate and others (i)
|
|
|
2,562
|
|
|
|
3,119
|
|
Purchase price allocation (ii)
|
|
|
(3,282
|
)
|
|
|
(9,131
|
)
|
Total depreciation and amortization
|
|
$
|
59,268
|
|
|
$
|
52,090
|
|
Arcos Dorados Holdings Inc.
Notes to the Condensed Consolidated Financial Statements
For the six-month periods ended June 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 six-month periods ended
|
|
|
June 30,
|
|
|
2019
|
|
2018
|
|
|
(Unaudited)
|
|
(Unaudited)
|
Property and equipment expenditures:
|
|
|
|
|
|
|
|
|
Brazil
|
|
$
|
46,240
|
|
|
$
|
30,961
|
|
Caribbean division
|
|
|
6,454
|
|
|
|
7,730
|
|
NOLAD
|
|
|
8,697
|
|
|
|
5,510
|
|
SLAD
|
|
|
32,163
|
|
|
|
18,904
|
|
Total reportable segments
|
|
|
93,554
|
|
|
|
63,105
|
|
Corporate and others (i)
|
|
|
37
|
|
|
|
—
|
|
Total property and equipment expenditures
|
|
$
|
93,591
|
|
|
$
|
63,105
|
|
|
|
As of
|
|
|
June 30,
|
|
|
|
|
2019
|
|
December 31,
|
|
|
(Unaudited)
|
|
2018
|
Total assets:
|
|
|
|
|
|
|
|
|
Brazil
|
|
$
|
1,256,640
|
|
|
$
|
751,550
|
|
Caribbean division
|
|
|
402,562
|
|
|
|
303,467
|
|
NOLAD
|
|
|
402,073
|
|
|
|
247,697
|
|
SLAD
|
|
|
379,713
|
|
|
|
291,300
|
|
Total reportable segments
|
|
|
2,440,988
|
|
|
|
1,594,014
|
|
Corporate and others (i)
|
|
|
90,628
|
|
|
|
105,835
|
|
Purchase price allocation (ii)
|
|
|
(119,108
|
)
|
|
|
(121,810
|
)
|
Total assets
|
|
$
|
2,412,508
|
|
|
$
|
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 June 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 $894,167 and leases right of use totaled $874,900 at June 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.
Arcos Dorados Holdings Inc.
Notes to the Condensed Consolidated Financial Statements
For the six-month periods ended June 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 June 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 June
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 June 30,
2019 and their related activity during the six-month period then ended:
Arcos Dorados Holdings Inc.
Notes to the Condensed Consolidated Financial Statements
For the six-month periods ended June 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)
|
|
|
3,888
|
|
|
|
(9,635
|
)
|
|
|
—
|
|
|
|
(5,747
|
)
|
Net loss reclassified from accumulated other comprehensive loss (income) to consolidated statement of income (Unaudited)
|
|
|
—
|
|
|
|
5,927
|
|
|
|
432
|
|
|
|
6,359
|
|
Net current-period other comprehensive income (loss) (Unaudited)
|
|
|
3,888
|
|
|
|
(3,708
|
)
|
|
|
432
|
|
|
|
612
|
|
Balances at June 30, 2019 (Unaudited)
|
|
$
|
(495,389
|
)
|
|
$
|
(5,348
|
)
|
|
$
|
(917
|
)
|
|
$
|
(501,654
|
)
|
The following table
sets forth information with respect to the components of “Accumulated other comprehensive loss” as of June 30,
2018 and their related activity during the six-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)
|
|
|
(49,545
|
)
|
|
|
19,734
|
|
|
|
—
|
|
|
|
(29,811
|
)
|
Net (income) loss reclassified from accumulated other comprehensive income to consolidated statement of income (Unaudited)
|
|
|
—
|
|
|
|
(27,733
|
)
|
|
|
247
|
|
|
|
(27,486
|
)
|
Net current-period other comprehensive (loss) income (Unaudited)
|
|
|
(49,545
|
)
|
|
|
(7,999
|
)
|
|
|
247
|
|
|
|
(57,297
|
)
|
Balances at June 30, 2018 (Unaudited)
|
|
$
|
(485,826
|
)
|
|
$
|
360
|
|
|
$
|
(1,178
|
)
|
|
$
|
(486,644
|
)
|
|
(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.
|
Arcos Dorados Holdings Inc.
Notes to the Condensed Consolidated Financial Statements
For the six-month periods ended June 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 six-month periods ended
|
|
|
June 30,
|
|
|
2019
|
|
2018
|
|
|
(Unaudited)
|
|
(Unaudited)
|
Net income attributable to Arcos Dorados Holdings Inc. available to common shareholders
|
|
$
|
22,585
|
|
|
$
|
1,584
|
|
Weighted-average number of common shares outstanding - Basic
|
|
|
203,937,437
|
|
|
|
210,824,698
|
|
Incremental shares from assumed exercise of stock options (i)
|
|
|
—
|
|
|
|
3,762
|
|
Incremental shares from vesting of restricted share units
|
|
|
815,677
|
|
|
|
1,080,632
|
|
Weighted-average number of common shares outstanding - Diluted
|
|
|
204,753,114
|
|
|
|
211,909,092
|
|
|
|
|
|
|
|
|
|
|
Basic net income per common share attributable to
Arcos Dorados Holdings Inc.
|
|
$
|
0.11
|
|
|
$
|
0.01
|
|
Diluted net income per common share attributable
to Arcos Dorados Holdings Inc.
|
|
$
|
0.11
|
|
|
$
|
0.01
|
|
|
(i)
|
Options to purchase shares of common stock were outstanding during the six-month periods ended
June 30, 2019 and 2018. See Note 7 for details. These options for the six-month period ended June 30, 2019 were not included in
the computation of diluted earnings per share because their inclusion would have been anti-dilutive.
|
Arcos Dorados Holdings Inc.
Notes to the Condensed Consolidated Financial Statements
For the six-month periods ended June 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 June 30, 2019 and December 31,
2018:
|
|
As of
|
|
|
June 30,
|
|
|
|
|
2019
|
|
December 31,
|
|
|
(Unaudited)
|
|
2018
|
Accounts and notes receivable, net
|
|
$
|
907
|
|
|
$
|
860
|
|
Other receivables
|
|
|
1,078
|
|
|
|
1,676
|
|
Miscellaneous
|
|
|
3,014
|
|
|
|
2,963
|
|
Accounts payable
|
|
|
(8,908
|
)
|
|
|
(14,984
|
)
|
The following table
summarizes the transactions between the Company and the Axionlog Business for the six-month periods ended June 30, 2019 and 2018:
|
|
For the six-month periods ended
|
|
|
June 30,
|
|
|
2019
|
|
2018
|
|
|
(Unaudited)
|
|
(Unaudited)
|
Food and paper (i)
|
|
$
|
(95,698
|
)
|
|
$
|
(89,213
|
)
|
Occupancy and other operating expenses
|
|
|
(4,657
|
)
|
|
|
(2,890
|
)
|
|
(i)
|
Includes $20,025 of distribution fees and $75,673 of suppliers purchases managed through the Axionlog
Business for the six-month period ended June 30, 2019; and, $22,740 and $66,473, respectively, for the six-month period ended June
30, 2018.
|
As of June 30,
2019 and December 2018, the Company had other receivables totaling $1,239 and $2,692, respectively and accounts payable with Lacoop,
A.C. and Lacoop II, S.C. totaling $nil and $1,634, respectively.
Arcos Dorados Holdings Inc.
Notes to the Condensed Consolidated Financial Statements
For the six-month periods ended June 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 $5,775 and $2,785, respectively, for the six-month period ended June 30, 2019; and $66,568
and $36,611, respectively, for the six-month period ended June 30, 2018.
As of June 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 $0.3 million (including $0.6 million of cash and cash equivalents). In addition, Venezuela’s
non-monetary assets were $17.2 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
six-month period ended June 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.
Arcos Dorados Holdings Inc.
Notes to the Condensed Consolidated Financial Statements
For the six-month periods ended June 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, with examples 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 $6,376.
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 six-month period ended June 30, 2019:
|
|
|
|
For the six-month period ended June 30,
|
Lease Expense, net
|
|
Statements of Income Location
|
|
2019 (Unaudited)
|
Operating lease expense - Minimum rentals:
|
|
|
|
$
|
(74,387
|
)
|
Company-operated restaurants
|
|
Occupancy and other operating expenses
|
|
|
(53,146
|
)
|
Franchised restaurants
|
|
Franchised restaurants - occupancy expenses
|
|
|
(17,236
|
)
|
General and administrative
|
|
General and administrative expenses
|
|
|
(4,005
|
)
|
Variable lease expense - Contingent rentals based on sales:
|
|
|
|
|
(19,913
|
)
|
Company-operated restaurants
|
|
Occupancy and other operating expenses
|
|
|
(13,930
|
)
|
Franchised restaurants
|
|
Franchised restaurants - occupancy expenses
|
|
|
(5,983
|
)
|
Sublease income
|
|
Revenues from franchised restaurants
|
|
|
70,332
|
|
Total lease expense, net
|
|
|
|
$
|
(23,968
|
)
|
Arcos Dorados Holdings Inc.
Notes to the Condensed Consolidated Financial Statements
For the six-month periods ended June 30, 2019 and 2018 (Unaudited)
Amounts in thousands of US dollars, except for share data and as otherwise indicated
14. Leases (continued)
|
|
For the six-month period ended June 30,
|
Other information
|
|
2019 (Unaudited)
|
Cash paid for amounts included in the measurement of leases liabilities
|
|
|
Operating cash flows from operating leases
|
|
$
|
(93,443
|
)
|
Weighted-average remaining lease term (years)
|
|
|
|
|
Operating leases
|
|
|
9
|
|
Weighted-average discount rate
|
|
|
|
|
Operating leases
|
|
|
6
|
%
|
At June 30, 2019,
future minimum payments required under existing operating leases with initial terms of one year or more are:
|
|
Restaurant
|
|
Other
|
|
Total (i)
|
2019
|
|
|
74,918
|
|
|
|
3,687
|
|
|
|
78,605
|
|
2020
|
|
|
139,756
|
|
|
|
5,541
|
|
|
|
145,297
|
|
2021
|
|
|
132,550
|
|
|
|
3,860
|
|
|
|
136,410
|
|
2022
|
|
|
125,116
|
|
|
|
2,777
|
|
|
|
127,893
|
|
2023
|
|
|
119,321
|
|
|
|
2,547
|
|
|
|
121,868
|
|
Thereafter
|
|
|
996,123
|
|
|
|
11,021
|
|
|
|
1,007,144
|
|
Total minimum payment
|
|
$
|
1,587,784
|
|
|
$
|
29,433
|
|
|
$
|
1,617,217
|
|
Lease discount
|
|
|
|
|
|
|
|
|
|
|
(726,732
|
)
|
Operating lease liability
|
|
|
|
|
|
|
|
|
|
|
890,485
|
|
(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.
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