Arcos Dorados Holdings Inc. Annual Report 2017

Plain-text annual report

ARCOS DORADOS HOLDINGS INC. FORM 20-F (Annual and Transition Report (foreign private issuer)) Filed 04/27/18 for the Period Ending 12/31/17 Telephone CIK Symbol SIC Code 598 2626-3000 0001508478 ARCO 5812 - Retail-Eating Places Industry Restaurants & Bars Sector Consumer Cyclicals Fiscal Year 12/31 http://www.edgar-online.com © Copyright 2018, EDGAR Online, a division of Donnelley Financial Solutions. All Rights Reserved. Distribution and use of this document restricted under EDGAR Online, a division of Donnelley Financial Solutions, Terms of Use. UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 20-F (Mark One)☐REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934OR ☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2017OR☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934OR ☐SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of event requiring this shell company reportFor the transition period from ________________ to ________________ Commission file number: 001-35129 ARCOS DORADOS HOLDINGS INC. (Exact name of Registrant as specified in its charter) British Virgin Islands (Jurisdiction of incorporation or organization) Dr. Luis Bonavita 1294, Office 501Montevideo, Uruguay, 11300 WTC Free Zone(Address of principal executive offices) Juan David Bastidas Chief Legal Officer Arcos Dorados Holdings Inc.Dr. Luis Bonavita 1294, 5th floor, Office 501, WTC Free Zone Montevideo, Uruguay 11300Telephone: +598 2626-3000Fax: +598 2626-3018(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person) Securities registered or to be registered pursuant to Section 12(b) of the Act: Title of each className of each exchange on which registeredClass A shares, no par valueNew York Stock Exchange Securities registered or to be registered pursuant to Section 12(g) of the Act:None(Title of Class) Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:None (Title of Class) Indicate the number of outstanding shares of each of the issuer’s classes of capital stock or common stock as of the close of the period covered by the annualreport.Class A shares: 131,072,508Class B shares: 80,000,000 Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☒ Yes ☐ NoIf this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the SecuritiesExchange Act of 1934.☐ Yes ☒ No Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 fromtheir obligations under those Sections.Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for thepast 90 days.☒ Yes ☐ NoIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that theregistrant was required to submit and post such files).☒ Yes ☐ No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. Seedefinition of “large accelerated filer, ” accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):Large accelerated filer ☒Accelerated filer ☐Non-accelerated filer ☐Emerging growth company ☐If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to usethe extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting StandardsCodification after April 5, 2012.Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:U.S. GAAP ☒International Financial Reporting Standards as issued by the InternationalAccounting Standards Board ☐Other ☐ If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.☐ Item 17 ☐ Item 18 If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No ARCOS DORADOS HOLDINGS INC. TABLE OF CONTENTS Page PRESENTATION OF FINANCIAL AND OTHER INFORMATIONiiiFORWARD-LOOKING STATEMENTSivENFORCEMENT OF JUDGMENTSvPART I1ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS1A. Directors and Senior Management1B. Advisers1C. Auditors1ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE1A. Offer Statistics1B. Method and Expected Timetable1ITEM 3. KEY INFORMATION1A. Selected Financial Data1B. Capitalization and Indebtedness10C. Reasons for the Offer and Use of Proceeds10D. Risk Factors10ITEM 4. INFORMATION ON THE COMPANY27A. History and Development of the Company29B. Business Overview28C. Organizational Structure47D. Property, Plants and Equipment48ITEM 4A. UNRESOLVED STAFF COMMENTS48ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS48 A. Operating Results48B. Liquidity and Capital Resources73C. Research and Development, Patents and Licenses, etc.80D. Trend Information80E. Off-Balance Sheet Arrangements81F. Tabular Disclosure of Contractual Obligations81G. Safe Harbor81ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES82A. Directors and Senior Management82B. Compensation86C. Board Practices88D. Employees89E. Share Ownership91ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS92A. Major Shareholders92B. Related Party Transactions93C. Interests of Experts and Counsel94ITEM 8. FINANCIAL INFORMATION95A. Consolidated Statements and Other Financial Information95B. Significant Changes99ITEM 9. THE OFFER AND LISTING99A. Offering and Listing Details99B. Plan of Distribution100C. Markets100D. Selling Shareholders100E. Dilution100F. Expenses of the Issue100 iTable of Contents ITEM 10. ADDITIONAL INFORMATION100A. Share Capital100B. Memorandum and Articles of Association101C. Material Contracts110D. Exchange Controls117E. Taxation117F. Dividends and Paying Agents120G. Statement by Experts120H. Documents on Display120I. Subsidiary Information120ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK120ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES123A. Debt Securities123B. Warrants and Rights123C. Other Securities123D. American Depositary Shares123PART II124ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES124A. Defaults124B. Arrears and Delinquencies124ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS124A. Material Modifications to Instruments124B. Material Modifications to Rights124C. Withdrawal or Substitution of Assets124D. Change in Trustees or Paying Agents124E. Use of Proceeds124ITEM 15. CONTROLS AND PROCEDURES124A. Disclosure Controls and Procedures124B. Management’s Annual Report on Internal Control over Financial Reporting124C. Attestation Report of the Registered Public Accounting Firm125D. Changes in Internal Control over Financial Reporting126ITEM 16. [RESERVED]127ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT127ITEM 16B. CODE OF ETHICS127ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES127ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES128ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS128ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT128ITEM 16G. CORPORATE GOVERNANCE128ITEM 16H. MINE SAFETY DISCLOSURE129PART III130ITEM 17. FINANCIAL STATEMENTS130ITEM 18. FINANCIAL STATEMENTS130ITEM 19. EXHIBITS130 iiTable of Contents PRESENTATION OF FINANCIAL AND OTHER INFORMATION All references to “U.S. dollars,” “dollars,” “U.S.$” or “$” are to the U.S. dollar. All references to “Argentine pesos ” or “ARS$” are to the Argentine peso . Allreferences to “Brazilian reais ” or “R$” are to the Brazilian real . All references to “Mexican pesos ” or “Ps.” are to the Mexican peso . All references to“Venezuelan bolívares ” or “Bs.” are to the Venezuelan bolívar , the legal currency of Venezuela. See “Item 3. Key Information—A. Selected Financial Data—Exchange Rates and Exchange Controls” for information regarding exchange rates for the Argentine, Brazilian and Mexican currencies since January 1, 2013. Definitions In this annual report, unless the context otherwise requires, all references to “Arcos Dorados,” the “Company,” “we,” “our,” “ours,” “us” or similar terms referto Arcos Dorados Holdings Inc., together with its subsidiaries. All references to “systemwide” refer only to the system of McDonald’s-branded restaurantsoperated by us or our franchisees in 20 countries and territories in Latin America and the Caribbean, including Argentina, Aruba, Brazil, Chile, Colombia, CostaRica, Curaçao, Ecuador, French Guiana, Guadeloupe, Martinique, Mexico, Panama, Peru, Puerto Rico, Trinidad and Tobago, Uruguay, the U.S. Virgin Islands ofSt. Croix and St. Thomas, and Venezuela, which we refer to as the “Territories,” and do not refer to the system of McDonald’s-branded restaurants operated byMcDonald’s Corporation, its affiliates or its franchisees (other than us). We own our McDonald’s franchise rights pursuant to a Master Franchise Agreement for all of the Territories, except Brazil, which we refer to as the MFA,and a separate, but substantially identical, Master Franchise Agreement for Brazil, which we refer to as the Brazilian MFA. We refer to the MFA and the BrazilianMFA, as amended or otherwise modified to date, collectively as the MFAs. We commenced operations on August 3, 2007, as a result of our purchase ofMcDonald’s operations and real estate in the Territories (except for Trinidad and Tobago), which we refer to collectively as the “McDonald’s LatAm” business,and the acquisition of McDonald’s franchise rights pursuant to the MFAs, which together with the purchase of the McDonald’s LatAm business, we refer to as the“Acquisition.” Financial Statements We maintain our books and records in U.S. dollars and prepare our financial statements in accordance with accounting principles and standards generallyaccepted in the United States, or “U.S. GAAP.” The financial information contained in this annual report includes our consolidated financial statements at December 31, 2017 and 2016 and for the yearsended December 31, 2017, 2016 and 2015, which have been audited by Pistrelli, Henry Martin y Asociados S.R.L., member firm of Ernst & Young Global, asstated in their report included elsewhere in this annual report. We were incorporated on December 9, 2010 as a direct, wholly owned subsidiary of Arcos Dorados Limited, the prior holding company for the Arcos Doradosbusiness. On December 13, 2010, Arcos Dorados Limited effected a downstream merger into and with us, with us as the surviving entity. The merger wasaccounted for as a reorganization of entities under common control in a manner similar to a pooling of interest and the consolidated financial statements reflect thehistorical consolidated operations of Arcos Dorados Limited as if the reorganization structure had existed since Arcos Dorados Limited was incorporated in July2006. Our fiscal year ends December 31. References in this annual report to a fiscal year, such as “fiscal year 2017,” relate to our fiscal year ended on December 31of that calendar year. Operating Data Our operating segments are composed of four geographic regions of operation: (i) the South Latin American division, or “SLAD”, which is comprised ofArgentina, Chile, Ecuador, Peru and Uruguay, (ii) the Caribbean division, which is comprised of Aruba, Colombia, Curaçao, French Guiana, Guadeloupe,Martinique, Puerto Rico, Trinidad and Tobago, the U.S. Virgin Islands of St. Croix and St. Thomas, and Venezuela, (iii) Brazil and (iv) the North Latin Americandivision, or “NOLAD,” which is comprised of Costa Rica, Mexico and Panama. iiiTable of Contents As of January 1, 2016, senior management made changes in the allocation of certain expenses across operating segments. We made corresponding changes inthe allocation of these expenses in order to align our segment financial reporting with the new allocation used by senior management as of that date. In accordancewith ASC 280, Segment Reporting, we have restated our comparative segment information as of and for the years ended December 31, 2015 and 2014 based on thenew allocation of expenses prevailing since January 1, 2016. We operate McDonald’s-branded restaurants under two different operating formats: those directly operated by us, or “Company-operated” restaurants, andthose operated by franchisees, or “franchised” restaurants. All references to “restaurants” are to our freestanding, food court, in-store and mall store restaurants anddo not refer to our McCafé locations or Dessert Centers. Systemwide data represents measures for both our Company-operated restaurants and our franchisedrestaurants. We are the majority stakeholder in two joint ventures with third parties that collectively own 15 restaurants. We consider these restaurants to be Company-operated restaurants. We also have granted developmental licenses to 11 restaurants. Developmental licensees own or lease the land and buildings on which theirrestaurants are located and pay a franchise fee to us in addition to the continuing franchise fee due to McDonald’s. We consider these restaurants to be franchisedrestaurants. Market Share and Other Information Market data and certain industry forecast data used in this annual report were obtained from internal reports and studies, where appropriate, as well asestimates, market research, publicly available information (including information available from the United States Securities and Exchange Commission, or theSEC, website) and industry publications, including the United Nations Economic Commission for Latin America and the Caribbean and the CIA World Factbook.Industry publications generally state that the information they include has been obtained from sources believed to be reliable, but that the accuracy andcompleteness of such information is not guaranteed. Similarly, internal reports and studies, estimates and market research, which we believe to be reliable andaccurately extracted by us for use in this annual report, have not been independently verified. However, we believe such data is accurate and agree that we areresponsible for the accurate extraction of such information from such sources and its correct reproduction in this annual report. Basis of Consolidation The accompanying consolidated financial statements have been prepared on the accrual basis of accounting and include the accounts of the Company and itssubsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Rounding We have made rounding adjustments to some of the figures included in this annual report. Accordingly, numerical figures shown as totals in some tables maynot be an arithmetic aggregation of the figures that preceded them. FORWARD-LOOKING STATEMENTS This annual report contains statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of1995. Many of the forward-looking statements contained in this annual report can be identified by the use of forward-looking words such as “anticipate,”“believe,” “could,” “expect,” “should,” “plan,” “intend,” “estimate” and “potential,” among others. Forward-looking statements appear in a number of places in this annual report and include, but are not limited to, statements regarding our intent, belief orcurrent expectations. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to ourmanagement. Such statements are subject to risks and uncertainties, and actual results may differ materially from those expressed or implied in the forward-lookingstatements due to of various factors, including, but not limited to, those identified in “Item 3. Key Information—D. Risk Factors” in this annual report. These risksand uncertainties include factors relating to: ·general economic, political, demographic and business conditions in Latin America and the Caribbean; ivTable of Contents ·fluctuations in inflation and exchange rates in Latin America and the Caribbean; ·our ability to implement our growth strategy; ·the success of operating initiatives, including advertising and promotional efforts and new product and concept development by us and our competitors; ·our ability to compete and conduct our business in the future; ·changes in consumer tastes and preferences, including changes resulting from concerns over nutritional or safety aspects of beef, poultry, french fries orother foods or the effects of health pandemics and food-borne illnesses such as “mad cow” disease and avian influenza or “bird flu,” and changes inspending patterns and demographic trends, such as the extent to which consumers eat meals away from home; ·the availability, location and lease terms for restaurant development; ·our intention to focus on our restaurant reimaging plan; ·our franchisees, including their business and financial viability and the timely payment of our franchisees’ obligations due to us and to McDonald’s; ·our ability to comply with the requirements of the MFAs, including McDonald’s standards; ·our decision to own and operate restaurants or to operate under franchise agreements; ·the availability of qualified restaurant personnel for us and for our franchisees, and the ability to retain such personnel; ·changes in commodity costs, labor, supply, fuel, utilities, distribution and other operating costs; ·changes in labor laws; ·our ability, if necessary, to secure alternative distribution of supplies of food, equipment and other products to our restaurants at competitive rates and inadequate amounts, and the potential financial impact of any interruptions in such distribution; ·changes in government regulation; ·material changes in tax legislation; ·other factors that may affect our financial condition, liquidity and results of operations; and ·other risk factors discussed under “Item 3. Key Information—D. Risk Factors.” Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update them in light of new information orfuture developments or to release publicly any revisions to these statements in order to reflect later events or circumstances or to reflect the occurrence ofunanticipated events. ENFORCEMENT OF JUDGMENTS We are incorporated under the laws of the British Virgin Islands with limited liability. We are incorporated in the British Virgin Islands because of certainbenefits associated with being a British Virgin Islands company, such as political and economic stability, an effective judicial system, a favorable tax system, theabsence of exchange control or currency restrictions, and the availability of professional and support services. However, the British Virgin Islands has a lessdeveloped body of securities laws as compared to the United States and provides protections for investors to a significantly lesser extent. In addition, British VirginIslands companies may not have standing to sue before the federal courts of the United States. vTable of Contents A majority of our directors and officers, as well as certain of the experts named herein, reside outside of the United States. A substantial portion of our assetsand several of such directors, officers and experts are located principally in Argentina, Brazil and Uruguay. As a result, it may not be possible for investors toeffect service of process outside Argentina, Brazil and Uruguay upon such directors or officers, or to enforce against us or such parties in courts outside Argentina,Brazil and Uruguay judgments predicated solely upon the civil liability provisions of the federal securities laws of the United States or other non-Argentine,Brazilian or Uruguayan regulations, as applicable. In addition, local counsel to the Company have advised that there is doubt as to whether the courts of Argentina,Brazil or Uruguay would enforce in all respects, to the same extent and in as timely a manner as a U.S. court or non-Argentine, Brazilian or Uruguayan court, anoriginal action predicated solely upon the civil liability provisions of the U.S. federal securities laws or other non-Argentine, Brazilian or Uruguayan regulations, asapplicable; and that the enforceability in Argentine, Brazilian or Uruguayan courts of judgments of U.S. courts or non-Argentine, Brazilian or Uruguayan courtspredicated upon the civil liability provisions of the U.S. federal securities laws or other non-Argentine, Brazilian or Uruguayan regulations, as applicable, will besubject to compliance with certain requirements under Argentine, Brazilian or Uruguayan law, including the condition that any such judgment does not violateArgentine, Brazilian or Uruguayan public policy. We have been advised by Maples and Calder, our counsel as to British Virgin Islands law, that the United States and the British Virgin Islands do not have atreaty providing for reciprocal recognition and enforcement of judgments of courts of the United States in civil and commercial matters and that a final judgmentfor the payment of money rendered by any general or state court in the United States based on civil liability, whether or not predicated solely upon the U.S. federalsecurities laws, would not be automatically enforceable in the British Virgin Islands. We have been advised by Maples and Calder that a final and conclusivejudgment obtained in U.S. federal or state courts under which a sum of money is payable ( i.e. , not being a sum claimed by a revenue authority for taxes or othercharges of a similar nature by a governmental authority, or in respect of a fine or penalty or multiple or punitive damages) may be the subject of an action on a debtin the court of the British Virgin Islands under British Virgin Islands common law. viTable of Contents PART I ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS A.Directors and Senior Management Not applicable. B.Advisers Not applicable. C.Auditors Not applicable. ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE A.Offer Statistics Not applicable. B.Method and Expected Timetable Not applicable. ITEM 3. KEY INFORMATION A.Selected Financial Data The selected balance sheet data as of December 31, 2017 and 2016 and the income statement data for the years ended December 31, 2017, 2016 and 2015 ofArcos Dorados Holdings Inc. are derived from the consolidated financial statements included elsewhere in this annual report, which have been audited by Pistrelli,Henry Martin y Asociados S.R.L., member firm of Ernst & Young Global. The selected balance sheet data as of December 31, 2015, 2014 and 2013 and theincome statement data for the years ended December 31, 2014 and 2013 of Arcos Dorados Holdings Inc. are derived from consolidated financial statementsaudited by Pistrelli, Henry Martin y Asociados S.R.L., which are not included herein. Our operating segments are composed of four geographic regions of operation: (i) the South Latin American division, or “SLAD”, which is comprised ofArgentina, Chile, Ecuador, Peru and Uruguay, (ii) the Caribbean division which is comprised of Aruba, Colombia, Curaçao, French Guiana, Guadeloupe,Martinique, Puerto Rico, Trinidad and Tobago, the U.S. Virgin Islands of St. Croix and St. Thomas, and Venezuela, (iii) Brazil and (iv) the North Latin Americandivision, or “NOLAD,” which is comprised of Costa Rica, Mexico and Panama. As of January 1, 2016, senior management made changes in the allocation of certain expenses across operating segments. We made corresponding changes inthe allocation of these expenses in order to align our segment financial reporting with the new allocation used by senior management as of that date. In accordancewith ASC 280, Segment Reporting, we have restated our comparative segment information as of and for the years ended December 31, 2015 and 2014 based on thenew allocation of expenses prevailing since January 1, 2016. We were incorporated on December 9, 2010 as a direct, wholly-owned subsidiary of Arcos Dorados Limited, the prior holding company for the ArcosDorados business. On December 13, 2010, Arcos Dorados Limited effected a downstream merger into and with us, with us as the surviving entity. The merger wasaccounted for as a reorganization of entities under common control in a manner similar to a pooling of interest and the consolidated financial statements reflect thehistorical consolidated operations of Arcos Dorados Limited as if the reorganization structure had existed since Arcos Dorados Limited was incorporated in July2006. We did not commence operations until the Acquisition on August 3, 2007. We maintain our books and records in U.S. dollars and prepare our consolidated financial statements in accordance with U.S. GAAP. This financialinformation should be read in conjunction with “Presentation of 1 Table of Contents Financial and Other Information,” “Item 5. Operating and Financial Review and Prospects” and our consolidated financial statements, including the notes thereto,included elsewhere in this annual report. For the Years Ended December 31, 2017 2016 2015 (1) 2014 (1) 2013 (1) (in thousands of U.S. dollars, except for per share data) Income Statement Data: Sales by Company-operated restaurants $3,162,256 $2,803,334 $2,930,379 $3,504,302 $3,859,883 Revenues from franchised restaurants 157,269 125,296 122,361 146,763 173,427 Total revenues 3,319,525 2,928,630 3,052,740 3,651,065 4,033,310 Company-operated restaurant expenses: Food and paper (1,110,240) (1,012,976) (1,037,487) (1,243,907) (1,350,515)Payroll and employee benefits (683,954) (607,082) (660,773) (791,677) (814,112)Occupancy and other operating (842,519) (752,428) (793,622) (939,481) (1,055,188)Royalty fees (163,954) (142,777) (149,089) (173,663) (188,885)Franchised restaurants—occupancy (69,836) (55,098) (54,242) (63,939) (63,273)General and administrative expenses (244,664) (221,075) (270,680) (272,065) (317,745)Other operating income (expenses), net 68,577 41,386 6,560 (95,476) (15,070)Total operating costs and expenses (3,046,590) (2,750,050) (2,959,333) (3,580,208) (3,804,788)Operating income 272,935 178,580 93,407 70,857 228,522 Net interest expense (68,357) (66,880) (64,407) (72,750) (88,156)Loss from derivative instruments (7,065) (3,065) (2,894) (685) (4,141)Foreign currency exchange results (14,265) 32,354 (54,032) (74,117) (38,783)Other non-operating (expenses) income, net (435) (2,360) (627) 146 (848)Income (loss) before income taxes 182,813 138,629 (28,553) (76,549) 96,594 Income tax expense (53,314) (59,641) (22,816) (32,479) (42,722)Net income (loss) 129,499 78,988 (51,369) (109,028) 53,872 Less: Net income attributable to non-controlling interests (333) (178) (264) (305) (18)Net income (loss) attributable to Arcos Dorados Holdings Inc. 129,166 78,810 (51,633) (109,333) 53,854 Earnings (Loss) per share: Basic net income (loss) per common share attributable to Arcos Dorados $0.61 $0.37 $(0.25) $(0.52) $0.26 Diluted net income (loss) per common share attributable to ArcosDorados $0.61 $0.37 $(0.25) $(0.52) $0.26 As of December 31, 2017 2016 2015 2014 2013 (in thousands of U.S. dollars, except for share data)Balance Sheet Data (2) : Cash and cash equivalent $308,491 $194,803 $112,519 $139,030 $175,648 Total current assets 653,037 445,190 378,996 447,196 666,451 Property and equipment, net 890,736 847,966 833,357 1,092,994 1,244,311 Total non-current assets 1,150,706 1,059,863 1,024,206 1,347,584 1,513,808 Total assets 1,803,743 1,505,053 1,403,202 1,794,780 2,180,259 2 Table of Contents As of December 31, 2017 2016 2015 2014 2013 (in thousands of U.S. dollars, except for share data)Accounts payable 303,452 217,914 187,685 220,337 311,060 Short-term debt and current portion of long-term debt 4,359 28,099 163,740 38,684 12,276 Total current liabilities 605,583 548,308 577,314 542,066 659,156 Long-term debt, excluding current portion 629,142 551,580 491,327 761,080 771,171 Total non-current liabilities 702,018 605,169 538,998 795,127 825,804 Total liabilities 1,307,601 1,153,477 1,116,312 1,337,193 1,484,960 Total common stock 509,647 506,884 504,772 498,616 491,735 Total equity 496,142 351,576 286,890 457,587 695,299 Total liabilities and equity 1,803,743 1,505,053 1,403,202 1,794,780 2,180,259 Shares outstanding 211,072,508 210,711,224 210,538,896 210,216,043 209,867,426 For the Years Ended December 31, 2017 2016 2015 2014 2013 (in thousands of U.S. dollars, except percentages)Other Data: Total Revenues Brazil $1,496,573 $1,333,237 $1,361,989 $1,816,046 $1,842,324 Caribbean division (3) 474,822 409,671 398,144 594,220 830,447 NOLAD 386,874 363,965 367,364 385,114 407,772 SLAD 961,256 821,757 925,243 855,685 952,767 Total 3,319,525 2,928,630 3,052,740 3,651,065 4,033,310 Operating Income (4) Brazil $160,608 $122,636 $116,820 $155,799 $188,445 Caribbean division (3) 1,538 (12,392) (40,102) (91,859) 37,837 NOLAD 99,152 45,145 8,710 (9,150) (5,314)SLAD 71,718 66,359 78,022 62,768 84,324 Corporate and others and purchase price allocation (60,081) (43,168) (70,043) (46,701) (76,770)Total 272,935 178,580 93,407 70,857 228,522 Operating Margin (4)(5) Brazil 10.7% 9.2% 8.6% 8.6% 10.2%Caribbean division (3) 0.3 (3.0) (10.1) 15.5 4.6 NOLAD 25.6 12.4 2.4 2.4 (1.3)SLAD 7.5 8.1 8.4 7.3 8.9 Total 8.2 6.1 3.1 1.9 5.7 Adjusted EBITDA (4)(6) Brazil $218,172 $168,076 $174,102 $220,711 $245,957 Caribbean division (3) 40,844 18,049 2,059 (11,284) 67,180 NOLAD 33,717 36,288 31,424 25,035 27,397 SLAD 87,083 76,327 100,718 82,859 105,495 Corporate and others (74,879) (60,295) (78,132) (65,647) (101,562)Total 304,937 238,445 230,171 251,674 344,467 Adjusted EBITDA Margin (3)(7) Brazil 14.6% 12.6% 12.8% 12.2% 13.4%Caribbean division (3) 8.6 4.4 0.5 (1.9) 8.1 NOLAD 8.7 10.0 8.6 6.5 6.7 SLAD 9.1 9.3 10.9 9.7 11.1 Total 9.2 8.1 7.5 6.9 8.5 3 Table of Contents For the Years Ended December 31, 2017 2016 2015 2014 2013 (in thousands of U.S. dollars, except percentages)Other Financial Data: Working capital (8) $47,454 $(103,118) $(198,318) $(94,870) $7,295 Capital expenditures (9) 175,636 92,282 92,055 170,638 313,786 Dividends declared per common share — — — 0.24 0.24 As of December 31, 2017 2016 2015 2014 2013Number of systemwide restaurants 2,188 2,156 2,141 2,121 2,062 Brazil 929 902 883 866 812 Caribbean division 350 353 356 359 365 NOLAD 519 517 518 513 507 SLAD 390 384 384 383 378 Number of Company-operated restaurants 1,546 1,553 1,588 1,577 1,538 Brazil 579 584 615 614 583 Caribbean division 263 266 267 270 270 NOLAD 363 365 364 352 344 SLAD 341 338 342 341 341 Number of franchised restaurants 642 603 553 544 524 Brazil 350 318 268 252 229 Caribbean division 87 87 89 89 95 NOLAD 156 152 154 161 163 SLAD 49 46 42 42 37 (1)Due to certain changes in accounting for expenses in 2016, certain reclassifications have been made from “Occupancy and other operating expenses” to “Payroll and employee benefits” inthe Income Statement Data for the fiscal years ended December 31, 2015 and 2014 in order to ensure comparability with our results for the fiscal years ended December 31, 2017 and 2016.Income Statement Data for the fiscal year ended December 31, 2013 has not been restated and is therefore not comparable to 2017, 2016, 2015 and 2014. See Note 2 to our consolidatedfinancial statements for additional information.(2)Due to changes in accounting standards, certain reclassifications have been made from “Non-current assets” to “Short-term debt and current portion of long-term debt” and to “Long-termdebt, excluding current portion” in the Balance Sheet Data as of December 31, 2015. Balance Sheet Data as of December 31, 2014 and 2013 has not been restated and is therefore notcomparable to the Balance Sheet Data as of December 31, 2017, 2016 and 2015.(3)Currency devaluations in Venezuela have had a significant effect on our income statements and have impacted the comparability of our income statements in 2017 and 2016 as comparedto 2015, 2014 and 2013. See “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Foreign Currency Translation—Venezuela.”(4)Segment information for the years ended December 31, 2017, 2016, 2015 and 2014 is presented based on the allocation of expenses prevailing as of January 1, 2016. See “Presentation ofFinancial and Other Information—Operating Data.” Segment information for the year ended December 31, 2013 has not been restated and is therefore not comparable to the segmentinformation for the years ended December 31, 2017, 2016, 2015 and 2014.(5)Operating margin is operating income divided by total revenues, expressed as a percentage.(6)Adjusted EBITDA is a measure of our performance that is reviewed by our management. Adjusted EBITDA does not have a standardized meaning and, accordingly, our definition ofAdjusted EBITDA may not be comparable to Adjusted EBITDA as used by other companies. Total Adjusted EBITDA is a non-GAAP measure. For our definition of Adjusted EBITDA,see “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Key Business Measures.”(7)Adjusted EBITDA margin is Adjusted EBITDA divided by total revenues, expressed as a percentage.(8)Working capital equals current assets minus current liabilities.(9)Includes property and equipment expenditures and purchase of restaurant businesses paid at the acquisition date. 4 Table of Contents Presented below is the reconciliation between net income and Adjusted EBITDA on a consolidated basis: For the Years Ended December 31,Consolidated Adjusted EBITDA Reconciliation 2017 2016 2015 2014 2013 (in thousands of U.S. dollars)Net income (loss) attributable to Arcos Dorados Holdings Inc. $129,166 $78,810 $(51,633) $(109,333) $53,854 Plus (Less): Net interest expense 68,357 66,880 64,407 72,750 88,156 Loss from derivative instruments 7,065 3,065 2,894 685 4,141 Foreign currency exchange results 14,265 (32,354) 54,032 74,117 38,783 Other non-operating expenses (income), net 435 2,360 627 (146) 848 Income tax expense 53,314 59,641 22,816 32,479 42,722 Net income attributable to non-controlling interests 333 178 264 305 18 Operating income 272,935 178,580 93,407 70,857 228,522 Plus (Less): Items excluded from computation that affect operating income: Depreciation and amortization 99,382 92,969 110,715 116,811 114,860 Gains from sale or insurance recovery of property and equipment (95,081) (57,244) (12,308) (3,379) (10,326)Write-offs and related contingencies of property and equipment 8,528 5,776 6,038 7,111 6,489 Impairment of long-lived assets 17,564 7,697 12,343 50,886 2,958 Impairment of goodwill 200 5,045 679 2,029 — Stock-based compensation related to the special awards in connectionwith the initial public offering under the 2011 Plan — — 210 2,503 1,964 Reorganization and optimization plan — 5,341 18,346 4,707 — 2008 Long-Term Incentive Plan incremental compensation frommodification 1,409 281 741 149 — Adjusted EBITDA 304,937 238,445 230,171 251,674 344,467 Exchange Rates and Exchange Controls In 2017, 73% of our total revenues were derived from our restaurants in Argentina, Brazil, Mexico and Puerto Rico. While we maintain our books and recordsin U.S. dollars, our revenues are conducted in the local currency of the territories in which we operate, and as such may be affected by changes in the localexchange rate to the U.S. dollar. The exchange rates discussed in this section have been obtained from each country’s central bank. However, in most cases, forconsolidation purposes, we use a foreign currency to U.S. dollar exchange rate provided by Bloomberg that differs slightly from that reported by theaforementioned central banks. Argentina During 2001 and 2002, Argentina went through a period of severe political, economic and social crisis. Among other consequences, the crisis resulted inArgentina defaulting on its foreign debt obligations and the introduction of numerous changes in economic policies, including currency controls that tightenedrestrictions on capital flows, exchange controls, an official U.S. dollar exchange and transfer restrictions that substantially limited the ability of companies to retainforeign currency or make payments abroad. In addition, since 2007, Argentina has faced significant inflationary pressures and experienced several economicrecessions, from which the Argentine economy has yet not fully recovered. 5 Table of Contents Since President Mauricio Macri assumed office on December 10, 2015, the Macri administration has adopted several significant economic and policy reforms.For instance, the Macri administration eased currency controls in place since 2001 and reached agreements with a large majority of holdout creditors (in terms ofclaims) in connection with its 2001-2002 default on foreign indebtedness, which allowed Argentina to regain access to international financial markets. In addition, on January 8, 2016, President Macri declared a state of administrative emergency on the national statistics system in response to the divergencebetween official and private inflation statistics that began in 2007 and resulted in censure by the International Monetary Fund (the “IMF”) in 2013. The declarationtemporarily suspended publication of statistical data by the INDEC, the national institute for statistics. Since then, the Macri administration’s appointee to theINDEC implemented a series of methodological reforms, which have reduced the divergence between official and private inflation statistics and led the IMF to liftits censure on November 10, 2016. On January 6, 2018, the Law No. 25.561 (the “Public Emergency Law”), ceased to be in effect. The Public Emergency Law was passed by Congress in theimmediate aftermath of Argentina’s 2001 political, economic and social crisis, and established a state of emergency in social, economic, administrative, financialand foreign exchange matters. The expiration of the Public Emergency Law formally ended Argentina’s state of general emergency, which had been in effect since2001. In addition, while exchange control restrictions were eased, in the past, exchange control restrictions impacted our ability to transfer funds abroad andprevented or delayed payments that our Argentine subsidiaries were required to make outside Argentina. The Argentine peso depreciated 32.4% against the U.S. Dollar in 2013, 30.7% in 2014, 51.7% in 2015, 21.9% in 2016, 17.7% in 2017 and 8.0% in the firstquarter of 2018. The following table sets forth, for the periods indicated, the high, low, average and period-end exchange rates for the purchase of U.S. dollars expressed inArgentine pesos per U.S. dollar. The average rate is calculated by using the average of the Central Bank of Argentina’s reported exchange rates on each day duringa monthly period and on the last day of each month during an annual or interim period. As of April 25, 2018, the exchange rate for the purchase of U.S. dollars asreported by the Central Bank of Argentina was ARS$20.260 per U.S. dollar. Period- End Average for Period Low High (Argentine pesos per U.S. dollar) ARS$Year Ended December 31: 2013 6.518 5.543 4.923 6.518 2014 8.552 8.231 6.543 8.556 2015 13.005 9.442 8.554 13.763 2016 15.850 14.945 13.069 16.039 2017 18.623 16.565 15.166 19.180 Quarter Ended: March 31, 2018 20.140 19.676 18.401 20.402 Month Ended: October 31, 2017 17.652 17.460 17.333 17.696 November 30, 2017 17.305 17.476 17.305 17.657 December 31, 2017 18.623 17.725 17.226 19.180 January 31, 2018 19.638 19.037 18.401 19.663 February 28, 2018 20.116 19.833 19.368 20.227 March 31, 2018 20.140 20.238 20.140 20.402 April 30, 2018 (through April 25, 2018) 20.260 20.195 20.145 20.260 Note: For consolidation purposes, we use an Argentine peso / U.S. dollar exchange rate provided by Bloomberg that differs slightly from that reported by theCentral Bank of Argentina. 6 Table of Contents Exchange Controls In June 2005, the Argentine government issued Decree 616/2005, which established additional restrictions over all capital flows that could result in futurepayment obligations of foreign currency by residents to non-residents. Pursuant to the decree, all private sector indebtedness of physical persons or corporations inArgentina were required to be agreed upon and repaid not prior to 365 days from the date of entry of the funds into Argentina, regardless of the form of repayment.The decree outlined several types of transactions that were exempted from its requirements, including foreign trade financings and primary offerings of debtsecurities issued pursuant to a public offering and listed on an authorized market. In addition, the decree stipulated that all capital inflows within the private sector to the local exchange market due to foreign indebtedness of physical personsor corporations within Argentina (excluding foreign trade financings and primary offerings of debt securities issued pursuant to a public offering and listed on anauthorized market), as well as all capital inflows of non-residents received by the local exchange market destined for local money holdings, all kinds of financialassets or liabilities of the financial and non-financial private sector (excluding foreign direct investment and primary offerings of debt securities issued pursuant toa public offering and listed on an authorized market) and investments in securities issued by the public sector that are acquired in secondary markets, had to meetcertain requirements described in section 4 of the decree, including the following: ·the funds could only be transferred outside the local exchange market after a 365-day period from the date of entry of the funds into Argentina (the“Minimum Stay Period”) of 365 calendar days; ·any amounts resulting from the exchange of the funds had to be credited to an account within the Argentine banking system; ·a non-transferable, non-interest-bearing deposit had to be maintained for a term of 365 calendar days, in an amount equal to 30% of any inflow of funds tothe Argentine foreign exchange market (the “Deposit”); and ·the Deposit had to be in U.S. dollars, in any of the financial entities of Argentina, and could not be used as collateral or guaranty for any credittransaction. Any breach of the provisions of Argentine foreign exchange regulations is subject to criminal penalties. The requirements of Decree No. 616/2005 were subsequently eased by the Macri administration as detailed below. On December 18, 2015, through Resolution No. 3/2015, the Ministry of Treasury and Public Finance amended Executive Decree No. 616/2005, stating thatfor new inflows of funds into Argentina through the Argentine foreign exchange market, (i) the Minimum Stay Period was reduced from 365 calendar days to 120calendar days from the date of entry of the funds into Argentina and (ii) the rate of the Deposit was reduced to 0% of the funds, effectively eliminating it as arequirement. Subsequently, on January 5, 2017, the Ministry of Treasury published Resolution No. 1-E/2017, which further reduced the Minimum Stay Periodfrom 120 to 0 days, effectively eliminating it as a requirement. On August 8, 2016, the Central Bank of Argentina also introduced material changes to the foreign exchange regime by means of Communication “A” 6037that significantly lessened foreign exchange controls and eased access to the free and single foreign exchange market (the “MULC”). On May 19, 2017, the Central Bank structurally modified the foreign exchange regulations in force, creating a new foreign exchange regime throughCommunication “A” 6244, which significantly increased the ability to access the MULC. This regulation entered into force on July 1, 2017. Furthermore, onDecember 28, 2017, by virtue of Communication “A” 6401, the Central Bank replaced the reporting regimes set forth by Communication “A” 3602 andCommunication “A” 4237 with a new unified regime for information as of December 31, 2017. This unified reporting regime involves the filing of an annualstatement, the filing of which is mandatory for every person whose total cross-border cash flow or foreign asset and liabilities balance amounts to U.S.$1 million ormore during the previous calendar year. Those subject to this reporting obligation are required to declare the following liabilities: (i) shares and equity interests; (ii)non-negotiable debt instruments; (iii) negotiable debt instruments; (iv) financial derivatives and (v) real estate and structures. 7 Table of Contents On January 11, 2018, with the aim of providing more flexibility to the foreign exchange system and promoting competition by allowing the entrance of newplayers to the system, the free floating foreign exchange market (the “MELI”) was created through Decree No. 27/2018, replacing the concept of the MULC. As ofthe date hereof, individuals, legal entities, trusts and other estates (in each case, both residents and non-residents) are allowed access to the foreign exchangemarket to purchase foreign currency without the need for prior authorization from the Central Bank of Argentina. Previously, acquisitions of foreign currency for anon-specific purpose were subject to monthly caps. The Central Bank of Argentina eliminated these caps on August 9, 2016 through Communication “A” 6037. Notwithstanding the measures recently adopted by the Macri administration, the Central Bank of Argentina and the federal government in the future mayimpose additional exchange controls that may impact our ability to transfer funds abroad and may prevent or delay payments that our Argentine subsidiaries arerequired to make outside Argentina. Brazil Brazilian Resolution 3,568 establishes that, without prejudice to the duty of identifying customers, operations of foreign currency purchase or sale up to$3,000 or its equivalent in other currencies are not required to submit documentation relating to legal transactions underlying these foreign exchange operations.According to Resolution 3,568, the Central Bank of Brazil may define simplified forms to record operations of foreign currency purchases and sales of up to$3,000 or its equivalent in other currencies. The Brazilian Monetary Council may issue further regulations in relation to foreign exchange transactions, as well as on payments and transfers of Braziliancurrency between Brazilian residents and non-residents (such transfers being commonly known as the international transfer of reais ), including those madethrough so-called non-resident accounts. Brazilian law also imposes a tax on foreign exchange transactions, or “IOF/Exchange,” on the conversion of reais into foreign currency and on the conversionof foreign currency into reais . As of October 7, 2014, the general IOF/Exchange rate applicable to almost all foreign currency exchange transactions was increasedfrom zero to 0.38%, although other rates may apply in particular operations, such as the below transactions which are currently not taxed: ·inflow related to transactions carried out in the Brazilian financial and capital markets, including investments in our common shares by investors whichregister their investment under Resolution No. 4,373; ·outflow related to the return of the investment mentioned under the first bulleted item above; and ·outflow related to the payment of dividends and interest on shareholders’ equity in connection with the investment mentioned under the first bulleted itemabove. Notwithstanding these rates of the IOF/Exchange, in force as of the date hereof, the Minister of Finance is legally entitled to increase the rate of theIOF/Exchange to a maximum of 25% of the amount of the currency exchange transaction, but only on a prospective basis. Although the Central Bank of Brazil has intervened occasionally to control movements in the foreign exchange rates, the exchange market may continue to bevolatile as a result of capital movements or other factors, and, therefore, the Brazilian real may substantially decline or appreciate in value in relation to the U.S.dollar in the future. Brazilian law further provides that whenever there is a significant imbalance in Brazil’s balance of payments or reasons to foresee such a significantimbalance, the Brazilian government may, and has done so in the past, impose temporary restrictions on the remittance of funds to foreign investors of the proceedsof their investments in Brazil. The likelihood that the Brazilian government would impose such restricting measures may be affected by the extent of Brazil’sforeign currency reserves, the availability of foreign currency in the foreign exchange markets on the date a payment is due, the size of Brazil’s debt service burdenrelative to the economy as a whole and other factors. We cannot assure you that the Central Bank will not modify its policies or that the Brazilian government willnot institute restrictions or delays on cross-border remittances in respect of securities issued in the international capital markets. 8 Table of Contents The Brazilian real depreciated 15.5% against the U.S. dollar in 2013, 11.3% in 2014, 47.0% in 2015, and appreciated 19.4% in 2016, 1.7% in 2017 anddepreciated 5.6% in the first quarter of 2018. The following table sets forth, for the periods indicated, the high, low, average and period-end exchange rates for the purchase of U.S. dollars expressed inBrazilian reais per U.S. dollar as reported by the Central Bank of Brazil. As of April 25, 2018, the exchange rate for the purchase of U.S. dollars as reported by theCentral Bank of Brazil was R$3.504 per U.S. dollar. Period- End Average for Period Low High (Brazilian reais per U.S. dollar) R$ R$ R$ R$ Year Ended December 31: 2013 2.343 2.158 1.953 2.446 2014 2.656 2.356 2.197 2.740 2015 3.905 3.388 2.569 4.195 2016 3.259 3.450 3.119 4.156 2017 3.313 3.192 3.057 3.376 Quarter Ended: March 31, 2018 3.306 3.243 3.142 3.326 Month Ended: October 31, 2017 3.271 3.195 3.133 3.298 November 30, 2017 3.268 3.258 3.214 3.315 December 31, 2017 3.309 3.296 3.235 3.338 January 31, 2018 3.187 3.207 3.133 3.262 February 28, 2018 3.248 3.244 3.170 3.302 March 31, 2018 3.306 3.278 3.211 3.326 April 30, 2018 (through April 25, 2018) 3.504 3.395 3.310 3.504 Note: For consolidation purposes, we use a Brazilian reais / U.S. dollar exchange rate provided by Bloomberg that differs slightly from that reported by the CentralBank of Brazil. Mexico For the last few years, the Mexican government has maintained a policy of non-intervention in the foreign exchange markets, other than conducting periodicauctions for the purchase of U.S. dollars, and has not had in effect any exchange controls (although these controls have existed and have been in effect in the past).We cannot assure you that the Mexican government will maintain its current policies with regard to the Mexican peso or that the Mexican peso will not furtherdepreciate or appreciate significantly in the future. The Mexican peso appreciated 4.29% against the U.S. dollar in 2017 and appreciated 6.71% in the first quarter of 2018. The following table sets forth, for the periods indicated, the high, low, average and period-end free-market exchange rate for the purchase of U.S. dollars,expressed in nominal Mexican pesos per U.S. dollar, as reported by the Central Bank of Mexico in the Federal Official Gazette. All amounts are stated in Mexicanpesos per U.S. dollar. The annual and interim average rates reflect the average of month-end rates, and monthly average rates reflect the average of daily rates. Asof April 25, 2018, the free-market exchange rate for the purchase of U.S. dollars as reported by the Central Bank of Mexico in the Federal Official Gazette as therate of payment of obligations denominated in non-Mexican currency payable in Mexico was Ps.18.863 per U.S. dollar. 9 Table of Contents Period End Average for Period Low High (Mexican pesos per U.S. dollar) Ps.Year Ended December 31: 2013 13.077 12.821 11.981 13.439 2014 14.718 13.358 12.846 14.785 2015 17.207 15.967 14.556 17.378 2016 20.664 18.789 17.177 21.051 2017 17.7354 18.9104 17.4937 21.9076 Quarter Ended: March 31, 2018 18.345 18.760 18.327 19.663 Month Ended: October 31, 2017 19.219 18.771 18.211 19.219 November 30, 2017 18.519 18.942 18.519 19.227 December 31, 2018 19.735 19.127 18.640 19.787 January 31, 2018 18.698 18.131 18.467 19.490 February 28, 2018 18.646 18.633 18.400 18.882 March 31, 2018 18.345 18.660 18.327 18.891 April 30, 2018 (through April 25, 2018) 18.863 18.278 17.979 18.863 Note: For consolidation purposes, we use a Mexican peso /U.S. dollar exchange rate provided by Bloomberg that differs slightly from that reported by the CentralBank of Mexico. B. Capitalization and Indebtedness Not applicable. C. Reasons for the Offer and Use of Proceeds Not applicable. D. Risk Factors Our business, financial condition and results of operations could be materially and adversely affected if any of the risks described below occur. As a result,the market price of our class A shares could decline, and you could lose all or part of your investment. This annual report also contains forward-lookingstatements that involve risks and uncertainties. See “Forward-Looking Statements.” Our actual results could differ materially and adversely from thoseanticipated in these forward-looking statements as a result of certain factors, including the risks facing our company or investments in Latin America and theCaribbean described below and elsewhere in this annual report. Certain Factors Relating to Our Business Our rights to operate and franchise McDonald’s-branded restaurants are dependent on the MFAs, the expiration of which would adversely affect ourbusiness, results of operations, financial condition and prospects. Our rights to operate and franchise McDonald’s-branded restaurants in the Territories, and therefore our ability to conduct our business, derive exclusivelyfrom the rights granted to us by McDonald’s in two MFAs through 2027. As a result, our ability to continue operating in our current capacity is dependent on therenewal of our contractual relationship with McDonald’s. McDonald’s has the right, in its reasonable business judgment based on our satisfaction of certain criteria set forth in the MFAs, to grant us an option to extendthe term of the MFAs with respect to all Territories for an additional period of 10 years after the expiration in 2027 of the initial term of the MFAs upon such termsas McDonald’s may determine. Pursuant to the MFAs, McDonald’s will determine whether to grant us the option to renew between August 2020 and August 2024.If McDonald’s grants us the option to renew and we elect to exercise the option, then we and McDonald’s will amend the MFAs to reflect the terms of suchrenewal option, as appropriate. We cannot assure you that McDonald’s will grant us an option to extend the term of the MFAs or that 10 Table of Contents the terms of any renewal option will be acceptable to us, will be similar to those contained in the MFAs or will not be less favorable to us than those contained inthe MFAs. If McDonald’s elects not to grant us the renewal option or we elect not to exercise the renewal option, we will have a three-year period in which to solicitoffers for our business, which offers would be subject to McDonald’s approval. Upon the expiration of the MFAs, McDonald’s has the option to acquire all of ournon-public shares and all of the equity interests of our wholly owned subsidiary Arcos Dourados Comercio de Alimentos Ltda., the master franchisee ofMcDonald’s for Brazil, at their fair market value. In the event McDonald’s does not exercise its option to acquire LatAm, LLC and Arcos Dourados Comercio de Alimentos Ltda., the MFAs would expire andwe would be required to cease operating McDonald’s-branded restaurants, identifying our business with McDonald’s and using any of McDonald’s intellectualproperty. Although we would retain our real estate and infrastructure, the MFAs prohibit us from engaging in certain competitive businesses, including BurgerKing, Subway, KFC or any other quick-service restaurant, or QSR, business, or duplicating the McDonald’s system at another restaurant or business during thetwo-year period following the expiration of the MFAs. As the McDonald’s brand and our relationship with McDonald’s are among our primary competitivestrengths, the expiration of the MFAs for any of the reasons described above would materially and adversely affect our business, results of operations, financialcondition and prospects. Our business depends on our relationship with McDonald’s and changes in this relationship may adversely affect our business, results of operations andfinancial condition. Our rights to operate and franchise McDonald’s-branded restaurants in the Territories, and therefore our ability to conduct our business, derive exclusivelyfrom the rights granted to us by McDonald’s in the MFAs. As a result, our revenues are dependent on the continued existence of our contractual relationship withMcDonald’s. Pursuant to the MFAs, McDonald’s has the ability to exercise substantial influence over the conduct of our business. For example, under the MFAs, we are notpermitted to operate any other QSR chains, we must comply with McDonald’s high quality standards, we must own and operate at least 50% of all McDonald’s-branded restaurants in each of the Territories, we must maintain certain guarantees in favor of McDonald’s, including a standby letter of credit (or other similarfinancial guarantee acceptable to McDonald’s) in an amount of $80.0 million, to secure our payment obligations under the MFAs and related credit documents, wecannot incur debt above certain financial ratios, we cannot transfer the equity interests of our subsidiaries, any significant portion of their assets or any of the realestate properties we own without McDonald’s consent, and McDonald’s has the right to approve the appointment of our chief executive officer and chief operatingofficer. In addition, the MFAs require us to reinvest a significant amount of money, including through reimaging our existing restaurants, opening new restaurantsand advertising, which plans McDonald’s has the right to approve. Under the 2017-2019 restaurant opening and reinvestment plan, we are required to open 180restaurants and to reinvest $292 million in existing restaurants from 2017 through 2019. We cannot assure you that we will have available the funds necessary tofinance these commitments, and their satisfaction may require us to incur additional indebtedness, which could adversely affect our financial condition. Moreover,we may not be able to obtain additional indebtedness on favorable terms, or at all. Failure to comply with these commitments could constitute a material breach ofthe MFAs and may lead to a termination by McDonald’s of the MFAs. In addition, on January 25, 2017, McDonald’s Corporation agreed to provide growthsupport for the same period. The impact of this support resulted in an effective royalty rate of 5.2% in 2017, and we project that it could result in an effectiveroyalty rate of 5.7% in 2018 and 5.9% in 2019. Notwithstanding the foregoing, McDonald’s has no obligation to fund our operations. In addition, McDonald’s does not guarantee any of our financialobligations, including trade payables or outstanding indebtedness, and has no obligation to do so. If the terms of the MFAs excessively restrict our ability to operate our business or if we are unable to satisfy our restaurant opening and reinvestmentcommitments under the MFAs, our business, results of operations and financial condition would be materially and adversely affected. 11 Table of Contents For certain periods of 2014, 2015 and 2016, McDonald’s Corporation granted us limited waivers for our non-compliance with certain quarterly financialratios specified in the MFA; a failure to extend such waiver or comply with our original commitments could result in a material breach of the MFA. During certain periods of 2014, 2015 and 2016, we were not in compliance with certain quarterly financial ratios specified in the MFA. We obtained a limitedwaiver from McDonald’s Corporation through and including June 30, 2016. During the waiver period we were not required to maintain these quarterly financialratios. We have been in compliance with these quarterly ratios since the expiration of the waiver. However, if we are unable to comply with our originalcommitments under the MFA or to obtain a waiver for any non-compliance in the future, we could be in material breach. If we breach the MFA, McDonald’s willhave certain rights, including the ability to acquire all or portions of our business. See “Item 10. Additional Information—C. Material Contracts—The MFAs.” McDonald’s has the right to acquire all or portions of our business upon the occurrence of certain events and, in the case of a material breach of the MFAs,may acquire our non-public shares or our interests in one or more Territories at 80% of their fair market value. Pursuant to the MFAs, McDonald’s has the right to acquire our non-public shares or our interests in one or more Territories upon the occurrence of certainevents, including the death or permanent incapacity of our controlling shareholder or a material breach of the MFAs. In the event McDonald’s were to exercise itsright to acquire all of our non-public shares, McDonald’s would become our controlling shareholder. McDonald’s has the option to acquire all, but not less than all, of our non-public shares at 100% of their fair market value during the twelve-month periodfollowing the eighteen-month anniversary of the death or permanent incapacity of Mr. Woods Staton, our Executive Chairman and controlling shareholder. Inaddition, if there is a material breach that relates to one or more Territories in which there are at least 100 restaurants in operation, McDonald’s has the right eitherto acquire all of our non-public shares or our interests in our subsidiaries in such Territory or Territories. By contrast, if the initial material breach of the MFAsaffects or is attributable to any of the Territories in which there are less than 100 restaurants in operation, McDonald’s only has the right to acquire the equityinterests of any of our subsidiaries in the relevant Territory. For example, since we have more than 100 restaurants in Mexico, if a Mexican subsidiary were tomaterially breach the MFA, McDonald’s would have the right either to acquire our entire business throughout Latin America and the Caribbean or just ourMexican operations, whereas upon a similar breach by our Ecuadorean subsidiary, which has less than 100 restaurants in operation, McDonald’s would only havethe right to acquire our interests in our operations in Ecuador. McDonald’s was granted a perfected security interest in the equity interests of LatAm, LLC, Arcos Dourados Comercio de Alimentos Ltda. and certain of theirsubsidiaries to protect this right. In the event this right is exercised as a result of a material breach of the MFAs, the amount to be paid by McDonald’s would beequal to 80% of the fair market value of the acquired equity interests. If McDonald’s exercises its right to acquire our interests in one or more Territories as a resultof a material breach, our business, results of operations and financial condition would be materially and adversely affected. See “Item 10. Additional Information—C. Material Contracts—The MFAs—Termination” for more details about fair market value calculation. The failure to successfully manage our future growth may adversely affect our results of operations. Our business has grown significantly since the Acquisition, largely due to the opening of new restaurants in existing and new markets within the Territories,and also from an increase in comparable store sales. Our total number of restaurant locations has increased from 1,569 at the date of the Acquisition to 2,188 as ofDecember 31, 2017. However, during 2015 and 2016, our rate of restaurant openings slowed. This was mainly due to a shift in capital allocation strategy toincrease our focus on existing restaurants over continued expansion. Our growth is, to a certain extent, dependent on new restaurant openings and therefore may not be constant from period to period; it may accelerate ordecelerate in response to certain factors. There are many obstacles to opening new restaurants, including determining the availability of desirable locations,securing reliable suppliers, hiring and training new personnel and negotiating acceptable lease terms, and, in times of adverse economic conditions, franchiseesmay be more reluctant to provide the investment required to open new restaurants. In addition, our growth in comparable store sales is dependent on continuedeconomic growth in the countries in which we operate as well as our ability to continue to predict and satisfy changing consumer preferences. 12 Table of Contents We plan our capital expenditures on an annual basis, taking into account historical information, regional economic trends, restaurant opening and reimagingplans, site availability and the investment requirements of the MFAs in order to maximize our returns on invested capital. The success of our investment plan may,however, be harmed by factors outside our control, such as changes in macroeconomic conditions, changes in demand and construction difficulties that couldjeopardize our investment returns and our future results and financial condition. We depend on oral agreements with third-party suppliers and distributors for the provision of products that are necessary for our operations. Supply chain management is an important element of our success and a crucial factor in optimizing our profitability. We use McDonald’s centralized supplychain management model, which relies on approved third-party suppliers and distributors for goods, and we generally use several suppliers to satisfy our needs forgoods. This system encompasses selecting and developing suppliers of core products—beef, chicken, buns, produce, cheese, dairy mixes, beverages and toppings—who are able to comply with McDonald’s high quality standards, and establishing sustainable relationships with these suppliers. McDonald’s standards includecleanliness, product consistency, timeliness, following internationally recognized manufacturing practices, meeting or exceeding all local food regulations andcompliance with our Hazard Analysis Critical Control Plan, a systematic approach to food safety that emphasizes protection within the processing facility, ratherthan detection, through analysis, inspection and follow-up. Our 19 largest suppliers account for approximately 65% of our purchases. Very few of our suppliers have entered into written contracts with us as we onlyhave pricing protocols with a vast majority of them. Our supplier approval process is thorough and lengthy in order to ensure compliance with McDonald’s highquality standards. We therefore tend to develop strong relationships with approved suppliers and, given our importance to them, have found that pricing protocolswith them are generally sufficient to ensure a reliable supply of quality products. While we source our supplies from many approved suppliers in Latin Americaand the Caribbean, thereby reducing our dependence on any one supplier, the informal nature of the majority of our relationships with suppliers means that we maynot be assured of long-term or reliable supplies of products from those suppliers. In addition, certain supplies, such as beef, must often be locally sourced due to restrictions on their importation. In light of these restrictions, as well as theMFAs’ requirement to purchase certain core supplies from approved suppliers, we may not be able to quickly find alternate or additional supplies in the event asupplier is unable to meet our orders. If our suppliers fail to provide us with products in a timely manner due to unanticipated demand, production or distribution problems, financial distress orshortages, if our suppliers decide to terminate their relationship with us or if McDonald’s determines that any product or service offered by an approved supplier isnot in compliance with its standards and we are obligated to terminate our relationship with such supplier, we may have difficulty finding appropriate or compliantreplacement suppliers. As a result, we may face inventory shortages that could negatively affect our operations. Our financial condition and results of operations depend, to a certain extent, on the financial condition of our franchisees and their ability to fulfill theirobligations under their franchise agreements. As of December 31, 2017, 29.3% of our restaurants were franchised. Under our franchise agreements, we receive monthly payments which are, in most cases,the greater of a fixed rent or a certain percentage of the franchisee’s gross sales. Franchisees are independent operators with whom we have franchise agreements.We typically own or lease the real estate upon which franchisees’ restaurants are located and franchisees are required to follow our operating manual that specifiesitems such as menu choices, permitted advertising, equipment, food handling procedures, product quality and approved suppliers. Our operating results depend to acertain extent on the restaurant profitability and financial viability of our franchisees. The concurrent failure by a significant number of franchisees to meet theirfinancial obligations to us could jeopardize our ability to meet our obligations. In addition, we are liable for our franchisees’ monthly payment of a continuing franchise fee to McDonald’s, which represents a percentage of those franchisedrestaurants’ gross sales. To the extent that our franchisees fail to pay this fee in full, we are responsible for any shortfall. As such, the concurrent failure by asignificant number of franchisees to pay their continuing franchise fees could have a material adverse effect on our results of operations and financial condition. 13 Table of Contents We do not have full operational control over the businesses of our franchisees. We are dependent on franchisees to maintain McDonald’s quality, service and cleanliness standards, and their failure to do so could materially affect theMcDonald’s brand and harm our future growth. Although we exercise significant influence over franchisees through the franchise agreements, franchisees havesome flexibility in their operations, including the ability to set prices for our products in their restaurants, hire employees and select certain service providers. Inaddition, it is possible that some franchisees may not operate their restaurants in accordance with our quality, service, cleanliness, health or product standards.Although we take corrective measures if franchisees fail to maintain McDonald’s quality, service and cleanliness standards, we may not be able to identify andrectify problems with sufficient speed and, as a result, our image and operating results may be negatively affected. Ownership and leasing of a broad portfolio of real estate exposes us to potential losses and liabilities. As of December 31, 2017, we owned the land for 495 of our 2,188 restaurants and the buildings for all but 11 of our restaurants. The value of these assetscould decrease or rental costs could increase due to changes in local demographics, the investment climate and increases in taxes. The majority of our restaurant locations, or those operated by our franchisees, are subject to long-term leases. We may not be able to renew leases onacceptable terms or at all, in which case we would have to find new locations to lease or be forced to close the restaurants. If we are able to negotiate a new lease atan existing location, we may be subject to a rent increase. In addition, current restaurant locations may become unattractive due to changes in neighborhooddemographics or economic conditions, which may result in reduced sales at these locations. The success of our business is dependent on the effectiveness of our marketing strategy. Market awareness is essential to our continued growth and financial success. Pursuant to the MFAs, we create, develop and coordinate marketing plans andpromotional activities throughout the Territories, and franchisees contribute a percentage of their gross sales to our marketing plan. In addition, we are requiredunder the MFAs to spend at least 5% of our sales on advertising and promotional activities. Pursuant to the MFAs, McDonald’s has the right to review and approveour marketing plans in advance and may request that we cease using the materials or promotional activities at any time if McDonald’s determines that they aredetrimental to its brand image. We also participate in global and regional marketing activities undertaken by McDonald’s and pay McDonald’s approximately0.1% of our sales in order to fund such activities. If our advertising programs are not effective, or if our competitors begin spending significantly more on advertising than we do, we may be unable to attractnew customers or existing customers may not return to our restaurants and our operating results may be negatively affected. We use non-committed lines of credit to partially finance our working capital needs. We use non-committed lines of credit to partially finance our working capital needs. Given the nature of these lines of credit, they could be withdrawn and nolonger be available to us, or their terms, including the interest rate, could change to make the terms no longer acceptable to us. The availability of these lines ofcredit depends on the level of liquidity in financial markets, which can vary based on events outside of our control, including financial or credit crises. Anyinability to draw upon our non-committed lines of credit could have an adverse effect on our working capital, financial condition and results of operations. Covenants and events of default in the agreements governing our outstanding indebtedness could limit our ability to undertake certain types of transactionsand adversely affect our liquidity. As of December 31, 2017, we had $621.5 million in total outstanding indebtedness, consisting of $633.5 million in long-term debt and $(12.0) million relatedto the fair market value of our outstanding derivative instruments. The agreements governing our outstanding indebtedness contain covenants and events of defaultthat may limit our financial flexibility and ability to undertake certain types of transactions. For instance, we are subject to negative covenants that restrict some ofour activities, including restrictions on: ·creating liens; 14 Table of Contents ·paying dividends; ·maintaining certain leverage ratios; ·entering into sale and lease-back transactions; and ·consolidating, merging or transferring assets. During certain periods of 2014, we were not in compliance with certain quarterly financial ratios specified in our revolving credit facility with Bank ofAmerica, N.A. We were able to successfully negotiate an amendment to the credit facility to increase these financial ratios, and we are currently in compliancewith the revised ratios. See “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Net Cash (used in) Financing Activities—Revolving Credit Facilities”. If we fail to satisfy the covenants set forth in these agreements or another event of default occurs under the agreements, our outstanding indebtedness under theagreements could become immediately due and payable. If our outstanding indebtedness becomes immediately due and payable and we do not have sufficient cashon hand to pay all amounts due, we could be required to sell assets, to refinance all or a portion of our indebtedness or to obtain additional financing. Refinancingmay not be possible and additional financing may not be available on commercially acceptable terms, or at all. Our inability to attract and retain qualified personnel may affect our growth and results of operations. We have a strong management team with broad experience in human resources, product development, supply chain management, operations, finance,marketing, real estate development and training. Our growth plans place substantial demands on our management team, and future growth could increase thosedemands. In addition, pursuant to the MFAs, McDonald’s is entitled to approve the appointment of our chief executive officer and chief operating officer. Ourability to manage future growth will depend on the adequacy of our resources and our ability to continue to identify, attract and retain qualified personnel. Failureto do so could have a material adverse effect on our business, financial condition and results of operations. Also, the success of our operations depends in part on our ability to attract and retain qualified regional and restaurant managers and general staff. If we areunable to recruit and retain our employees, or fail to motivate them to provide quality food and service, our image, operations and growth could be adverselyaffected. The resignation, termination, permanent incapacity or death of our Executive Chairman could adversely affect our business, results of operations, financialcondition and prospects. Due to Mr. Woods Staton’s unique experience and leadership capabilities, it would be difficult to find a suitable successor for him if he were to cease servingas Executive Chairman for any reason. In the event of Mr. Woods Staton’s death or permanent incapacity, pursuant to the MFA, McDonald’s has the right toacquire all of our non-public shares during the twelve-month period beginning on the eighteen-month anniversary of his death or incapacity. In addition, in the event that we need to appoint a new CEO, pursuant to the MFA, we must submit to McDonald’s the name of such proposed successor forMcDonald’s approval. If we and McDonald’s have not agreed upon a successor CEO after six months, McDonald’s may designate a temporary CEO in its solediscretion pending our submission of information relating to a further candidate and McDonald’s approval of that candidate. A delay in finding a suitable successorCEO could adversely affect our business, results of operations, financial condition and prospects. Labor shortages or increased labor costs could harm our results of operations. Our operations depend in part on our ability to attract and retain qualified restaurant managers and crew. While the turnover rate varies significantly amongcategories of employees, due to the nature of our business we traditionally experience a high rate of turnover among our crew and we may not be able to replacedeparting crew with equally qualified or motivated staff. 15 Table of Contents As of December 31, 2017, we had 78,806 employees in our company-operated restaurants and staff. Controlling labor costs is critical to our results ofoperations, and we closely monitor those costs. Some of our employees are paid minimum wages; any increases in minimum wages or changes to labor regulationsin the Territories could increase our labor costs. For example, during 2017, Venezuela implemented five increases in the minimum wage: a 50% increase inJanuary, a 60% increase in May, a 50% increase in July, a 40% increase in September and a 30% increase in November, resulting in a new minimum wage ofBs.$177,507.44 as of December 2017. In Argentina, a law enacted in November 2010 requires companies to pay overtime to all employees (except directors andmanagers). In addition, certain proposed bills have attempted to implement additional payments for weekends and mandatory employee profit-sharing, but none ofthose have been enacted by Congress. These or similar regulations, if adopted, may have an adverse impact on our results of operations. Competition foremployees could also cause us to pay higher wages. Some of our employees are represented by unions and are working under agreements that are subject to annual salary negotiations. We cannot guarantee theresults of any such collective bargaining negotiations or whether any such negotiations will result in a work stoppage. In addition, employees may strike forreasons unrelated to our union arrangements. Any future work stoppage could, depending on the affected operations and the length of the work stoppage, have amaterial adverse effect on our financial position, results of operations or cash flows. A failure by McDonald’s to protect its intellectual property rights, including its brand image, could harm our results of operations. The profitability of our business depends in part on consumers’ perception of the strength of the McDonald’s brand. Under the terms of the MFAs, we arerequired to assist McDonald’s with protecting its intellectual property rights in the Territories. Nevertheless, any failure by McDonald’s to protect its proprietaryrights in the Territories or elsewhere could harm its brand image, which could affect our competitive position and our results of operations. Under the MFAs, we may use, and grant rights to franchisees to use, McDonald’s intellectual property in connection with the development, operation,promotion, marketing and management of our restaurants. McDonald’s has reserved the right to use, or grant licenses to use, its intellectual property in LatinAmerica and the Caribbean for all other purposes, including to sell, promote or license the sale of products using its intellectual property. If we or McDonald’s failto identify unauthorized filings of McDonald’s trademarks and imitations thereof, and we or McDonald’s do not adequately protect McDonald’s trademarks andcopyrights, the infringement of McDonald’s intellectual property rights by others may cause harm to McDonald’s brand image and decrease our sales. Non-compliance with anti-terrorism and anti-corruption regulations could harm our reputation and have an adverse effect on our business, results ofoperations and financial condition. A material breach under the MFAs would occur if we, or our subsidiaries that are a party to the MFAs, materially breached any of the representations orwarranties or obligations under the MFAs (not cured within 30 days after receipt of notice thereof from McDonald’s) relating to or otherwise in connection withany aspect of the master franchise business, the franchised restaurants or any other matter in or affecting any one or more Territories, including by failing tocomply with anti-terrorism or anti-corruption policies and procedures required by applicable law. We maintain policies and procedures that require our employees to comply with anti-corruption laws, including the Foreign Corrupt Practices Act of 1977 (the“FCPA”), and our corporate standards of ethical conduct. However, we cannot ensure that these policies and procedures will always protect us from intentional,reckless or negligent acts committed by our employees or agents. If we are not in compliance with the FCPA and other applicable anti-corruption laws, we may besubject to criminal and civil penalties and other remedial measures, which could have an adverse impact on our business, financial condition, and results ofoperations. Any investigation of any potential violations of the FCPA or other anti-corruption laws by U.S. or other governmental authorities could adverselyimpact our reputation, cause us to lose or become disqualified from bids, and lead to other adverse impacts on our business, financial condition and results ofoperations. Any tax increase or change in tax legislation may adversely affect our results of operations. Since we conduct our business in many countries in Latin America and the Caribbean, we are subject to the application of multiple tax laws and multinationaltax conventions. Our effective tax rate therefore depends on these tax laws and multinational tax conventions, as well as on the effectiveness of our tax planningabilities. Our income 16 Table of Contents tax position and effective tax rate are subject to uncertainty as our income tax position for each year depends on the profitability of Company-operated restaurantsand on the profitability of franchised restaurants operated by our franchisees in tax jurisdictions that levy a broad range of income tax rates. It is also dependent onchanges in the valuation of deferred tax assets and liabilities, the impact of various accounting rules, changes to these rules and tax laws and examinations byvarious tax authorities. If our actual tax rate differs significantly from our estimated tax rate, this could have a material impact on our financial condition. Inaddition, any increase in the rates of taxes, such as income taxes, excise taxes, value added taxes, import and export duties, and tariff barriers or enhancedeconomic protectionism could negatively affect our business. Fiscal measures that target either QSRs or any of our products could also be taken. We cannot assure you that any governmental authority in any country in which we operate will not increase taxes or impose new taxes on our operations orproducts in the future. Tax assessments in any of the jurisdictions in which we operate may negatively affect our business and results of operations. As part of the ordinary course of business, we are subject to inspections by federal, municipal and state tax authorities in Latin America. These inspectionsmay generate tax assessments which, depending on their results, may have an adverse effect on our financial results. See “Item 8. Financial Information—A.Consolidated Statements and Other Financial Information—Legal Proceedings.” Litigation and other pressure tactics could expose our business to financial and reputational risk. Given that we conduct our business in many countries, we may be subject to multi-jurisdictional private and governmental lawsuits, including but not limitedto lawsuits relating to labor and employment practices, taxes, trade and business practices, franchising, intellectual property, consumer, real property,landlord/tenant, environmental, advertising, nutrition and antitrust matters. In the past, QSR chains have been subject to class-action lawsuits claiming that theirfood products and promotional strategies have contributed to the obesity of some customers. We cannot guarantee that we will not be subject to these types oflawsuits in the future. We may also be the target of pressure tactics such as strikes, boycotts and negative publicity from government officials, suppliers,distributors, employees, unions, special interest groups and customers that may negatively affect our reputation. Information technology system failures or interruptions or breaches of our network security may interrupt our operations, subject us to increased operatingcosts and expose us to litigation. We rely heavily on our computer systems and network infrastructure across our operations including, but not limited to, point-of-sale processing at ourrestaurants. As of the date of this annual report, we have not experienced any information security problems. However, despite our implementation of securitymeasures and controls that provide reasonable assurance regarding our security posture, there remains the risk that our technology systems are vulnerable todamage, disability or failures due to physical theft, fire, power loss, telecommunications failure or other catastrophic events. If those systems were to fail orotherwise be unavailable, and we were unable to recover in a timely way, we could experience an interruption in our operations. Moreover, security breachesinvolving our systems may occur in the future. These include internal and external security breaches, denial of service attacks, viruses, worms and other disruptiveproblems caused by hackers. Our information technology systems contain personal, financial and other information that is entrusted to us by our customers, ouremployees and other third parties, as well as financial, proprietary and other confidential information related to our business. Moreover, our increasing reliance onthird party systems also present the risks faced by the third party’s business, including the operational, security and credit risks of those parties. An actual oralleged security breach could result in disruptions, shutdowns, theft or unauthorized disclosure of personal, financial, proprietary or other confidential information.The occurrence of any of these incidents could result in reputational damage, adverse publicity, loss of consumer confidence, reduced sales and profits,complications in executing our growth initiatives and criminal penalties or civil liabilities. Our insurance may not be sufficient to cover certain losses. We face the risk of loss or damage to our properties, machinery and inventories due to fire, theft and natural disasters such as earthquakes and floods. Whileour insurance policies cover some losses in respect of damage or loss of our properties, machinery and inventories, our insurance may not be sufficient to cover allsuch potential losses. In the event that such loss exceeds our insurance coverage or is not covered by our insurance policies, we 17 Table of Contents will be liable for the excess in losses. In addition, even if such losses are fully covered by our insurance policies, such fire, theft or natural disaster may causedisruptions or cessations in its operations and adversely affect our financial condition and results of operations. Certain Factors Relating to Our Industry The food services industry is intensely competitive and we may not be able to continue to compete successfully. Although competitive conditions in the QSR industry vary in each of the countries in which we conduct our operations, we compete with many well-established restaurant companies on price, brand image, quality, sales promotions, new product development and restaurant locations. Since the restaurant industryhas few barriers to entry, our competitors are diverse and range from national and international restaurant chains to individual, local restaurant operators. Ourlargest competitors include Burger King, Yum! Brands (which operates KFC restaurants, Taco Bell and Pizza Hut and Pizza Hut Express restaurants), Carl’sJunior and Subway. In Brazil, we also compete with Habib’s, a Brazilian QSR chain that focuses on Middle Eastern food, and Bob’s, a primarily Brazilian QSRchain that focuses on hamburger product offerings. We also face strong competition from new businesses targeting the same clients we serve, as well as from streetvendors of limited product offerings, including hamburgers, hot dogs, pizzas and other local food items. We expect competition to increase as our competitorscontinue to expand their operations, introduce new products and market their brands. If any of our competitors offers products that are better priced or more appealing to the tastes of consumers, increases its number of restaurants, obtains moredesirable restaurant locations, provides more attractive financial incentives to management personnel, franchisees or hourly employees or has more effectivemarketing initiatives than we do in any of the markets in which we operate, this could have a material adverse effect on our results of operations. Increases in commodity prices or other operating costs could harm our operating results. Food and paper costs represented 35.1% of our total sales by company-operated restaurants in 2017, and we import approximately 28.3% of our food andpaper raw materials. We rely on, among other commodities, beef, chicken, produce, dairy mixes, beverages and toppings. The cost of food and supplies depends onseveral factors, including global supply and demand, new product offerings, weather conditions, fluctuations in energy costs and tax incentives, all of which makesus susceptible to substantial price and currency fluctuations and other increased operating costs. Our hedging strategies on the imported portion of our food andpaper raw materials may not be successful in fully offsetting cost increases due to currency fluctuations. Furthermore, due to the competitive nature of therestaurant industry, we may be unable to pass increased operating costs on to our customers, which could have an adverse effect on our results of operations. Demand for our products may decrease due to changes in consumer preferences or other factors. Our competitive position depends on our continued ability to offer items that have a strong appeal to consumers. If consumer dining preferences change due toshifts in consumer demographics, dietary inclinations, trends in food sourcing or food preparation and our consumers begin to seek out alternative restaurantoptions, our financial results might be adversely affected. In addition, negative publicity surrounding our products could also materially affect our business andresults of operations. Our success in responding to consumer demands depends in part on our ability to anticipate consumer preferences and introduce new items to address thesepreferences in a timely fashion. Our investments to enhance the customer experience, including through technology, may not generate the expected returns. We are engaged in various efforts to improve our customers’ experience in our restaurants. In particular, in partnership with McDonald’s, we have invested inExperience of the Future (“EOTF”), which focuses on restaurant modernization and technology and digital engagement in order to transform the restaurantexperience. As we accelerate our pace of converting restaurants to EOTF, we are placing renewed emphasis on improving our service model and strengtheningrelationships with customers, in part through digital channels and loyalty initiatives, as well as mobile ordering and payment systems. We also continue to build ondelivery initiatives, which may not generate 18 Table of Contents expected returns. We may not fully realize the intended benefits of these significant investments, or these initiatives may not be well executed, and therefore ourbusiness results may suffer. Our business activity may be negatively affected by disruptions, catastrophic events or health pandemics. Unpredictable events beyond our control, including war, terrorist activities, political and social unrest and natural disasters, could disrupt our operations andthose of our franchisees, suppliers or customers, have a negative effect on consumer spending or result in political or economic instability. These events couldreduce demand for our products or make it difficult to ensure the regular supply of products through our distribution chain. In addition, incidents of health pandemics, food-borne illnesses or food tampering could reduce sales in our restaurants. Widespread illnesses such as avianinfluenza, the H1N1 influenza virus, e-coli, bovine spongiform encephalopathy (or “mad cow” disease), hepatitis A or salmonella could cause customers to avoidmeat or fish products. For example, the H1N1 influenza virus outbreak in Argentina and Mexico in 2009 significantly impacted our sales in those countries.Furthermore, our reliance on third-party food suppliers and distributors increases the risk of food-borne illness incidents being caused by third-party food suppliersand distributors who operate outside of our control and/or multiple locations being affected rather than a single restaurant. For example, we cannot predict whetherthe recent scandal relating to beef, chicken and pork production in Brazil will have any impact on our results of operations. In addition, recent events in our regionrelated to the Dengue and Zika viruses have resulted in heightened health concerns in the region, which could reduce the visits to our restaurants if these cases arenot controlled. The latest reports of the Panamerican Health Association related to Processed and Ultra Processed Foods put our products on the list of theirrecommendations to avoid the consumption of or to apply additional taxes or restrictions to media ads. Food safety events involving McDonald’s outside of Latin America or other well-known QSR chains could negatively impact our business industry. Anotherextended issue in our region is the use of social media to post complaints against the QSR segment and the use of mobile phones to capture any deviation in ourprocesses, products or facilities. Media reports of health pandemics or food-borne illnesses found in the general public or in any QSR could dramatically affectrestaurant sales in one or several countries in which we operate, or could force us to temporarily close an undetermined number of restaurants. As a restaurantcompany, we depend on consumer confidence in the quality and safety of our food. Any illness or death related to food that we serve could substantially harm ouroperations. While we maintain extremely high standards for the quality of our food products and dedicate substantial resources to ensure that these standards aremet, the spread of these illnesses is often beyond our control and we cannot assure you that new illnesses resistant to any precautions we may take will not developin the future. In addition, our industry has long been subject to the threat of food tampering by suppliers, employees or customers, such as the addition of foreign objects tothe food that we sell. Reports, whether true or not, of injuries caused by food tampering have in the past negatively affected the reputations of QSR chains andcould affect us in the future. Instances of food tampering, even those occurring solely at competitor restaurants, could, by causing negative publicity about therestaurant industry, adversely affect our sales on a local, regional, national or systemwide basis. A decrease in customer traffic as a result of public health concernsor negative publicity could materially affect our business, results of operations and financial condition. Restrictions on promotions and advertisements directed at families with children and regulations regarding the nutritional content of children’s meals mayharm McDonald’s brand image and our results of operations. A significant portion of our business depends on our ability to make our product offerings appealing to families with children. Argentina, Brazil, Chile,Colombia, Mexico, Peru and Uruguay are considering imposing, or have already imposed, restrictions on the ways in which we market our products, includingproposals restricting our ability to advertise directly to children through the use of toys and to sell toys in conjunction with food. In June 2012, Chile passed a law banning the inclusion of toys in children's meals with certain nutritional characteristics (Law Nº 20,606). This law came intoeffect on June 26, 2016. The ban in Chile also restricts advertisements to children under the age of 14. As a result of these laws, we modified our children's mealsin order to continue offering toys in them. The measures adopted allowed us to continue selling children's meals at similar levels as before the Law Nº 20,606 cameinto effect. We were subject to several audits by the Chilean authorities. 19 Table of Contents On June 26, 2018, strict standards of nutritional quality set by the Chilean authorities will come into effect and we have already modified the contents of some ofour products in order to continue offering toys in children's meals. In addition, Chilean Law Nº 20,869, which also came into effect on June 26, 2016, restricts advertisements on television and in movie theaters between 6:00a.m. and 10:00 p.m. This Law affects food products that exceed certain standards of nutritional quality set by the Chilean authorities. These restrictions onadvertisements did not affect or have any impact on our sales. Similar to Chile, in 2013, Peru approved Law No. 30021, which, together with the corresponding Regulatory Decree approved in June 2017, restricts theadvertising of processed food products and non-alcoholic beverages intended for children under 16. In addition, regulations establish that advertisements of foodproducts and non-alcoholic beverages containing trans fat and high levels of sodium, sugar and saturated fat must contain a warning stating that excessiveconsumption should be avoided. These regulations do not include food prepared on the spot at the request of a customer, and as a result, Arcos Dorados’ productsare excluded from the scope of application of such law. Since 2014, the Mexican Ministry of Health empowered the Federal Commission for Prevention of Sanitary Risks ( Comisión Federal para la Proteccióncontra Riesgos Sanitarios or COFEPRIS) to regulate advertising directed at families with children. On April 15, 2014, COFEPRIS issued certain regulations whichestablish the maximum contents of fat, sodium and sugars that every meal advertised to children on television and in cinemas may contain. In February of 2015,COFEPRIS ordered us to stop advertising Happy Meals on television until we disclosed all the nutritional information for Happy Meals to COFEPRIS. Weprovided this information to COFEPRIS, but we have not yet received any legal authorization to advertise Happy Meals either during the general times whenchildren may be watching television or during any programming geared towards children. Generally, we are prohibited from advertising Happy Meals from 2:30p.m. to 7:30 p.m., Monday through Friday, and from 7:00 a.m. to 7:00 p.m. on Saturday and Sunday. In Brazil, the Federal Prosecutor’s Office filed suit in 2009 seeking to enjoin various QSRs, including us, from including toys in our children’s meals. TheLower Federal Court in São Paulo ruled that the lawsuit was without merit. The Prosecutor’s Office filed an appeal against this decision, which will be adjudicatedby the Regional Federal Court in São Paulo. As of the date of this annual report, this appeal is still pending and the outcome remains uncertain. In addition, thenumber of proposed laws seeking to restrict the sale of toys with meals increased significantly in Brazil at the federal, state and municipal levels. In April 2013, aconsumer protection agency in Brazil fined us $1.6 million for a 2010 advertising campaign relating to our offering of meals with toys from the motion pictureAvatar . We filed a lawsuit seeking to annul the fine. The lower court ruled there was no basis for the penalty and the consumer protection agency appealed thisdecision. The Appellate Court in São Paulo upheld the decision and the consumer protection agency filed a special appeal against this decision, which was alsorejected. The consumer protection agency subsequently filed an interlocutory appeal. We presented counter-arguments. The Superior Court of Justice granted theinterlocutory appeal to review the merits of the special appeal. A decision on the merits of the special appeal is still pending. Although similar fines relating to ourcurrent and previous advertising campaigns involving the sale of toys may be possible in the future, as of the date of this annual report, we are unaware of anyother such fines. On July 28, 2014, Colombia enacted Decree 975 of 2014, which sets forth certain directives regarding advertising directed at children. These directivesinclude, (i) limiting any insinuation that the food and beverage being advertised is a substitute for any of the principal daily meals; (ii) any advertising directed atchildren or adolescents, during certain times of the day when children and adolescents are more likely to be consuming such advertising, must include disclosurethat the advertisement is not part of the actual program; and (iii) requiring parental approval for any advertisement through a child/adolescent digital platform thatrequests any download or purchase. Certain jurisdictions in the United States are also considering curtailing or have curtailed food retailers’ ability to sell meals to children including free toys ifthese meals do not meet certain nutritional criteria. Similar restrictions, if imposed in the Territories, may have a negative impact on our results of operations. Ingeneral, regulatory developments that adversely impact our ability to promote and advertise our business and communicate effectively with our target customers,including restrictions on the use of licensed characters, may have a negative impact on our results of operations. 20 Table of Contents Environmental laws and regulations may affect our business. We are subject to various environmental laws and regulations. These laws and regulations govern, among other things, discharges of pollutants into the air andwater and the presence, handling, release and disposal of, and exposure to, hazardous substances. These laws and regulations provide for significant fines andpenalties for noncompliance. Third parties may also assert personal injury, property damage or other claims against owners or operators of properties associatedwith release of, or actual or alleged exposure to, hazardous substances at, on or from our properties. Liability from environmental conditions relating to prior, existing or future restaurants or restaurant sites, including franchised restaurant sites, may have amaterial adverse effect on us. Moreover, the adoption of new or more stringent environmental laws or regulations could result in a material environmental liabilityto us. We may be adversely affected by legal actions, claims or damaging publicity with respect to our business. We could be adversely affected by legal actions and claims brought by consumers or regulatory authorities in relation to the quality of our products andeventual health problems or other consequences caused by our products or by any of their ingredients. We could also be affected by legal actions and claimsbrought against us for products made in a jurisdiction outside the jurisdictions where we are operating. An array of legal actions, claims or damaging publicity mayaffect our reputation as well as have a material adverse effect on our revenues and businesses. Similarly, adverse publicity about us or our brand regarding health concerns, legal or regulatory proceedings, perceptions of the QSR category, management orsuppliers whether or not deserved, could jeopardize our reputation. In recent years the use of social media as a complaint mechanism has increased substantially.Negative posts or comments about us on any social media forum could harm our reputation. Damage to our reputation or loss of consumer confidence in ourproducts for any of these reasons could adversely affect our business, results of operations, cash flows and financial condition, as well as require resources torebuild our reputation. Certain Factors Relating to Latin America and the Caribbean Our business is subject to the risks generally associated with international business operations. We engage in business activities throughout Latin America and the Caribbean. In 2017, 73.0% of our revenues were derived from Brazil, Argentina, Mexicoand Puerto Rico. As a result, our business is and will continue to be subject to the risks generally associated with international business operations, including: ·governmental regulations applicable to food services operations; ·changes in social, political and economic conditions; ·transportation delays; ·power, water and other utility shutdowns or shortages; ·limitations on foreign investment; ·restrictions on currency convertibility and volatility of foreign exchange markets; ·inflation; ·import-export quotas and restrictions on importation; ·changes in local labor conditions; ·changes in tax and other laws and regulations; ·expropriation and nationalization of our assets in a particular jurisdiction; and 21 Table of Contents ·restrictions on repatriation of dividends or profits. Some of the Territories have been subject to social and political instability in the past, and interruptions in operations could occur in the future. Changes in governmental policies in the Territories could adversely affect our business, results of operations, financial condition and prospects. Governments throughout Latin America and the Caribbean have exercised, and continue to exercise, significant influence over the economies of theirrespective countries. Accordingly, the governmental actions, political developments, regulatory and legal changes or administrative practices in the Territoriesconcerning the economy in general and the food services industry in particular could have a significant impact on us. We cannot assure you that changes in thegovernmental policies of the Territories will not adversely affect our business, results of operations, financial condition and prospects. Latin America has experienced, and may continue to experience, adverse economic conditions that have impacted, and may continue to impact, ourbusiness, financial condition and results of operations. The success of our business is dependent on discretionary consumer spending, which is influenced by general economic conditions, consumer confidence andthe availability of discretionary income in the countries in which we operate. Latin American countries have historically experienced uneven periods of economicgrowth, recessions, periods of high inflation and economic instability. Currently, the economic growth rates of the economies of many Latin American countrieshave slowed and some have entered recessions. Any prolonged economic downturn could result in a decline in discretionary consumer spending. This may reducethe number of consumers who are willing and able to dine in our restaurants, or consumers may make more value-driven and price-sensitive purchasing choices,eschewing our core menu items for our entry-level food options. We may also be unable to sufficiently increase prices of our menu items to offset cost pressures,which may negatively affect our financial condition. In addition, a prolonged economic downturn may lead to higher interest rates, significant changes in the rate of inflation or an inability to access capital onacceptable terms. Our suppliers and service providers could experience cash flow problems, credit defaults or other financial hardships. If our franchisees cannotadequately access the financial resources required to open new restaurants, this could have a material effect on our growth strategy. Many of our customers depend on remittances from family members living overseas. Laws, regulations or events that limit such remittances or any changesto United States immigration policy may adversely affect our financial condition and results of operations. Many of the jurisdictions in which we operate depend on remittances as a source of revenue. Many of our customers rely on remittances from family membersliving overseas as a primary or secondary source of income. Any law, regulation or event that restricts, taxes or prevents those remittances may adversely affectdemand for our products and our customers’ ability to repay their consumer loans, which in turn may adversely affect our financial condition and results ofoperations. In particular, President Trump’s administration has recently mentioned the possibility of taxing remittances to Mexico. We cannot assure you that theTrump administration will not implement similar taxing of remittances to the countries in which we operate. The implementation of any such measure may have amaterial adverse effect on our financial condition and results of operations. Inflation and government measures to curb inflation may adversely affect the economies in the countries where we operate, our business and results ofoperations. Many of the countries in which we operate, including Brazil and Argentina, have experienced, or are currently experiencing, high rates of inflation. Inaddition, Venezuela has been considered hyperinflationary under U.S. GAAP since 2010. Although inflation rates in many of the other countries in which weoperate have been relatively low in the recent past, we cannot assure you that this trend will continue. The measures taken by the governments of these countries tocontrol inflation have often included maintaining a tight monetary policy with high interest rates, thereby restricting the availability of credit and retardingeconomic growth. Inflation, measures to combat inflation and public speculation about possible additional actions have also contributed materially to economicuncertainty in many of these countries and to heightened volatility in their securities markets. Periods of higher inflation may also slow the growth rate of localeconomies that could lead to reduced demand for our core products and decreased 22 Table of Contents sales. Inflation is also likely to increase some of our costs and expenses, which we may not be able to fully pass on to our customers, which could adversely affectour operating margins and operating income. Exchange rate fluctuations against the U.S. dollar in the countries in which we operate have negatively affected, and could continue to negatively affect, ourresults of operations. We are exposed to exchange rate risk in relation to the United States dollar. While substantially all of our income is denominated in the local currencies of thecountries in which we operate, our supply chain management involves the importation of various products, and some of our imports, as well as some of our capitalexpenditures and a significant portion of our long-term debt, are denominated in U.S. dollars. As a result, the decrease in the value of the local currencies of thecountries in which we operate as compared to the U.S. dollar has increased our costs, and any further decrease in the value of such currencies will further increaseour costs. Although we maintain a hedging strategy to attempt to mitigate some of our exchange rate risk, our hedging strategy may not be successful or may notfully offset our losses relating to exchange rate fluctuations. As a result, fluctuations in the value of the U.S. dollar with respect to the various currencies of the countries in which we operate or in U.S. dollar interest ratescould adversely impact our net income, results of operations and financial condition. Price controls and other similar regulations in certain countries have affected and may continue to affect our results of operations. Certain countries in which we conduct operations have imposed price controls that restrict our ability, and the ability of our franchisees, to adjust the prices ofour products. This places downward pressure on the prices at which our products are sold and may limit the growth of our revenue. We cannot assure you that thenegative effects of the previously imposed price controls will not continue in the future, or that new controls will not be imposed. Our inability to control the pricesof our products could have an adverse effect on our results of operations. For example, in September 2014, Argentina passed: (i) Law No. 26,991, the “Regulation on Production and Consumption Relationships Act,” which reformeda 1974 Act (Law on Supply of Goods and Services); and (ii) Law No. 26,992, the “Creation of the Observatory of Prices and Availability of Inputs, Goods andServices Act.” The Regulation on Production and Consumption Relationships Act empowers the Secretary of Commerce to, among other things: (i) establish profit marginsand set price levels (setting maximum, minimum and benchmark prices); (ii) issue regulations on commerce, intermediation, distribution or production of goodsand services; (iii) impose the continuance of production, industrialization, commercialization, transport, distribution or rendering of services or impose theproduction of goods; (iv) set subsidies; (v) request any kind of documentation and correspondence related to commercial activities or the management of thebusinesses and impose the publication of prices and availability of goods and services and seize such documentation for up to 30 working days; (vi) imposeregistration and recordkeeping requirements; and (vii) impose licensing regimes for commercial activities. In addition, the Secretary of Commerce is entitled toimpose certain penalties for failure to comply with the Regulation on Production and Consumption Relationships Act, including fines, temporary closure ofbusinesses, seizure of goods and products and loss of fiscal benefits. The Creation of the Observatory of Prices and Availability of Inputs, Goods and Services Act created a technical agency under the Secretary of Commerce(the Observatory of Prices and Availability of Inputs, Goods and Services) to control and systematize prices and availability of inputs, goods and servicesproduced, traded or rendered in Argentina. Currently, this agency has not had an adverse impact on us, but we cannot assure you that it will not impact our businessand results of operations in the future. We could be subject to expropriation or nationalization of our assets and government interference with our business in certain countries in which weoperate. We face a risk of expropriation or nationalization of our assets and government interference with our business in several of the countries in which we dobusiness. These risks are particularly acute in Venezuela. The current Venezuelan government has promoted a model of increased state participation in theeconomy through welfare programs, exchange and price controls and the promotion of state-owned companies. We can provide no assurance that Company-operated or franchised restaurants will not be threatened with expropriation and that our operations will not be transformed into state-owned enterprises. Inaddition, the Venezuelan government may pass laws, rules 23 Table of Contents or regulations which may directly or indirectly interfere with our ability to operate our business in Venezuela which could result in a material breach of the MFAs,in particular if we are unable to comply with McDonald’s operations system and standards. A material breach of the MFAs would trigger McDonald’s option toacquire our non-public shares or our interests in Venezuela. See “—Certain Factors Relating to Our Business—McDonald’s has the right to acquire all or portionsof our business upon the occurrence of certain events and, in the case of a material breach of the MFAs, may acquire our non-public shares or our interests in oneor more Territories at 80% of their fair market value.” We are subject to significant foreign currency exchange controls and depreciation in certain countries in which we operate. Certain Latin American economies have experienced shortages in foreign currency reserves and their respective governments have adopted restrictions on theability to transfer funds out of the country and convert local currencies into U.S. dollars. This may increase our costs and limit our ability to convert local currencyinto U.S. dollars and transfer funds out of certain countries, including for the purchase of dollar-denominated inputs, the payment of dividends or the payment ofinterest or principal on our outstanding debt. In the event that any of our subsidiaries are unable to transfer funds to us due to currency restrictions, we areresponsible for any resulting shortfall. In 2017, our subsidiaries in Argentina represented 19% of our total revenues. The devaluation of the Argentine peso since the end of 2015 has led to higherinflation levels, has significantly reduced real wages and has had a negative impact on businesses whose success is dependent on domestic market demand andsupplies payable in foreign currency. In addition, from 2001 until President Mauricio Macri assumed office in 2015, Argentina tightened restrictions on capitalflows and imposed exchange controls and transfer restrictions substantially limiting the ability of companies to retain foreign currency or make payments outsideof Argentina. Furthermore, in the past, the Central Bank of Argentina exercised a de facto prior approval power for certain foreign exchange transactions otherwiseauthorized to be carried out under the applicable regulations, such as dividend payments or repayment of principal of inter-company loans as well as the import ofgoods. Since assuming office on December 10, 2015, the Macri administration undertook significant economic and policy reforms, including certain reforms to theexisting foreign exchange regulations that eased access to the foreign exchange market. Notwithstanding the measures adopted by the Macri administration, the Central Bank of Argentina and the federal government in the future may impose new,more severe exchange controls and restrictions on transfers abroad, or may tighten existing controls to prevent capital flight, counter a significant depreciation ofthe Argentine peso or address other unforeseen circumstances. Exchange control restrictions may impact our ability to transfer funds outside of Argentina and mayprevent or delay payments that our Argentine subsidiaries are required to make outside Argentina. As a result, if we are further prohibited from transferring fundsout of Argentina, or if we become subject to similar restrictions in other countries in which we operate, our results of operations and financial condition could bematerially adversely affected. See “Item 3. Key Information—A. Selected Financial Data—Exchange Rates and Exchange Controls.” If we fail to comply with, or if we become subject to, more onerous government regulations, our business could be adversely affected. We are subject to various federal, state and municipal laws and regulations in the countries in which we operate, including those related to the food servicesindustry, health and safety standards, importation of goods and services, marketing and promotional activities, nutritional labeling, zoning and land use,environmental standards and consumer protection. We strive to abide by and maintain compliance with these laws and regulations. The imposition of new laws orregulations, including potential trade barriers, may increase our operating costs or impose restrictions on our operations, which could have an adverse impact onour financial condition. For example, Argentine regulations require us to seek permission from the Argentine authorities prior to importing certain goods. These regulations mayprevent or delay the receipt of goods that we require for our operations, or increase the costs associated with obtaining those goods, and therefore have an adverseimpact on our business, results of operations or financial condition. Additionally, in 2017, Venezuela enacted the Productive Foreign Investments ConstitutionalAct, which replaced the Foreign Investment Act of 2014. This law establishes the requirements and limitations for the transfer of dividends and repatriation offoreign investments. It also establishes a minimum investment sum to be registered with the Ministry of Popular Power with Foreign 24 Table of Contents Investment, limits access to internal financing, modifies the criteria of foreign investments and creates a new penalty system for those who do not comply with thelaw. Regulations governing the food services industry have become more restrictive. We cannot assure you that new and stricter standards will not be adopted orbecome applicable to us, or that stricter interpretations of existing laws and regulations will not occur. Any of these events may require us to spend additional fundsto gain compliance with the new rules, if possible, and therefore increase our cost of operation. Certain Factors Relating to Our Class A Shares Mr. Woods Staton, our Executive Chairman, controls all matters submitted to a shareholder vote, which will limit your ability to influence corporateactivities and may adversely affect the market price of our class A shares. Mr. Woods Staton, our Executive Chairman, owns or controls common stock representing 41.6% and 76.8%, respectively, of our economic and votinginterests. As a result, Mr. Woods Staton is and will be able to strongly influence or effectively control the election of our directors, determine the outcome ofsubstantially all actions requiring shareholder approval and shape our corporate and management policies. The MFAs’ requirement that Mr. Woods Staton at alltimes hold at least 51% of our voting interests likely will have the effect of preventing a change in control of us and discouraging others from making tender offersfor our shares, which could prevent shareholders from receiving a premium for their shares. Moreover, this concentration of share ownership may make it difficultfor shareholders to replace management and may adversely affect the trading price for our class A shares because investors often perceive disadvantages in owningshares in companies with controlling shareholders. This concentration of control could be disadvantageous to other shareholders with interests different from thoseof Mr. Woods Staton and the trading price of our class A shares could be adversely affected. See “Item 7. Major Shareholders and Related Party Transactions―A.Major Shareholders” for a more detailed description of our share ownership. Furthermore, the MFAs contemplate instances where McDonald’s could be entitled to purchase the shares of Arcos Dorados Holdings Inc. held by Mr. WoodsStaton. However, our publicly held class A shares will not be similarly subject to acquisition by McDonald’s. Sales of substantial amounts of our class A shares in the public market, or the perception that these sales may occur, could cause the market price of ourclass A shares to decline. Sales of substantial amounts of our class A shares in the public market, or the perception that these sales may occur, could cause the market price of our ClassA shares to decline. This could also impair our ability to raise additional capital through the sale of our equity securities. Under our articles of association, we areauthorized to issue up to 420,000,000 class A shares, of which 131,072,508 class A shares were outstanding as of December 31, 2017. We cannot predict the sizeof future issuances of our shares or the effect, if any, that future sales and issuances of shares would have on the market price of our class A shares. As a foreign private issuer, we are permitted to, and we will, rely on exemptions from certain NYSE corporate governance standards applicable to U.S.issuers, including the requirement that a majority of an issuer’s directors consist of independent directors. This may afford less protection to holders of ourClass A shares. Section 303A of the New York Stock Exchange, or NYSE, Listed Company Manual requires listed companies to have, among other things, a majority of theirboard members be independent, and to have independent director oversight of executive compensation, nomination of directors and corporate governance matters.As a foreign private issuer, however, we are permitted to, and we will, follow home country practice in lieu of the above requirements. British Virgin Islands law,the law of our country of incorporation, does not require a majority of our board to consist of independent directors or the implementation of a nominating andcorporate governance committee, and our board thus may not include, or may include fewer, independent directors than would be required if we were subject tothese NYSE requirements. Since a majority of our board of directors may not consist of independent directors as long as we rely on the foreign private issuerexemption to these NYSE requirements, our board’s approach may, therefore, be different from that of a board with a majority of independent directors, and as aresult, the management oversight of our Company may be more limited than if we were subject to these NYSE requirements. 25 Table of Contents Certain Risks Relating to Investing in a British Virgin Islands Company We are a British Virgin Islands company and it may be difficult for you to obtain or enforce judgments against us or our executive officers and directors inthe United States. We are incorporated under the laws of the British Virgin Islands. Most of our assets are located outside the United States. Furthermore, most of our directorsand officers reside outside the United States, and most of their assets are located outside the United States. As a result, you may find it difficult to effect service ofprocess within the United States upon these persons or to enforce outside the United States judgments obtained against us or these persons in U.S. courts, includingjudgments in actions predicated upon the civil liability provisions of the U.S. federal securities laws. Likewise, it may also be difficult for you to enforce in U.S.courts judgments obtained against us or these persons in courts located in jurisdictions outside the United States, including actions predicated upon the civilliability provisions of the U.S. federal securities laws. It may also be difficult for an investor to bring an action against us or these persons in a British VirginIslands court predicated upon the civil liability provisions of the U.S. federal securities laws. As there is no treaty in force on the reciprocal recognition and enforcement of judgments in civil and commercial matters between the United States and theBritish Virgin Islands, courts in the British Virgin Islands will not automatically recognize and enforce a final judgment rendered by a U.S. court. Any final and conclusive monetary judgment obtained against us in U.S. courts, for a definite sum, may be treated by the courts of the British Virgin Islands asa cause of action in itself so that no retrial of the issue would be necessary, provided that in respect of the U.S. judgment: ·the U.S. court issuing the judgment had jurisdiction in the matter and we either submitted to such jurisdiction or were resident or carrying on businesswithin such jurisdiction and were duly served with process; ·the judgment given by the U.S. court was not in respect of penalties, taxes, fines or similar fiscal or revenue obligations of ours; ·in obtaining judgment there was no fraud on the part of the person in whose favor judgment was given or on the part of the court; ·recognition or enforcement of the judgment in the British Virgin Islands would not be contrary to public policy; and ·the proceedings pursuant to which judgment was obtained were not contrary to public policy. Under our articles of association, we indemnify and hold our directors harmless against all claims and suits brought against them, subject to limitedexceptions. You may have more difficulty protecting your interests than you would as a shareholder of a U.S. corporation. Our affairs are governed by the provisions of our memorandum of association and articles of association, as amended and restated from time to time, and bythe provisions of applicable British Virgin Islands law. The rights of our shareholders and the responsibilities of our directors and officers under the British VirginIslands law are different from those applicable to a corporation incorporated in the United States. There may be less publicly available information about us than isregularly published by or about U.S. issuers. Also, the British Virgin Islands regulations governing the securities of British Virgin Islands companies may not be asextensive as those in effect in the United States, and the British Virgin Islands law and regulations in respect of corporate governance matters may not be asprotective of minority shareholders as state corporation laws in the United States. Therefore, you may have more difficulty protecting your interests in connectionwith actions taken by our directors and officers or our principal shareholders than you would as a shareholder of a corporation incorporated in the United States. 26 Table of Contents You may not be able to participate in future equity offerings, and you may not receive any value for rights that we may grant. Under our memorandum and articles of association, existing shareholders are entitled to preemptive subscription rights in the event of capital increases.However, our articles of association also provide that such preemptive subscription rights do not apply to certain issuances of securities by us, including (i)pursuant to any employee compensation plans; (ii) as consideration for (a) any merger, consolidation or purchase of assets or (b) recapitalization or reorganization;(iii) in connection with a pro rata division of shares or dividend in specie or distribution; or (iv) in a bona fide public offering that has been registered with theSEC. ITEM 4. INFORMATION ON THE COMPANY A. History and Development of the Company Overview We were incorporated as Arcos Dorados Holdings Inc. on December 9, 2010 under the laws of the British Virgin Islands as a direct, wholly owned subsidiaryof Arcos Dorados Limited, the prior holding company for the Arcos Dorados business. On December 13, 2010, Arcos Dorados Limited effected a downstreammerger into and with us, with us as the surviving entity. Following the merger, we replaced Arcos Dorados Limited in the corporate structure and replicated itsgovernance structure. We are a British Virgin Islands company incorporated with limited liability and our affairs are governed by the provisions of our memorandum and articles ofassociation, as amended and restated from time to time, and by the provisions of applicable British Virgin Islands law, including the BVI Business Companies Act,2004, or the BVI Act. Our company number in the British Virgin Islands is 1619553. As provided in sub-regulation 4.1 of our memorandum of association, subjectto British Virgin Islands law, we have full capacity to carry on or undertake any business or activity, do any act or enter into any transaction and, for such purposes,full rights, powers and privileges. Our principal executive offices are located at Dr. Luis Bonavita 1294, Office 501, WTC Free Zone, Montevideo, Uruguay (CP 11300). Our telephone numberat this address is +598 2626-3000. Our registered office in the British Virgin Islands is Maples Corporate Services (BVI) Limited, Kingston Chambers, P.O. Box173, Road Town, Tortola, British Virgin Islands. Important Events The Acquisition McDonald’s Corporation has a longstanding history in Latin America and the Caribbean, dating to the opening of its first restaurant in Puerto Rico in 1967.Since then, McDonald’s expanded its presence across the region as consumer markets and opportunities arose, opening its first stores in Brazil in 1979, in Mexicoand Venezuela in 1985 and in Argentina in 1986. We commenced operations on August 3, 2007, as a result of the Acquisition of McDonald’s LatAm business. Woods Staton, our Executive Chairman andcontrolling shareholder, was the joint venture partner of McDonald’s Corporation in Argentina for over 20 years prior to the Acquisition and also served asPresident of McDonald’s South Latin America division from 2004 until the Acquisition. Our senior management team includes executives who had previouslyworked in McDonald’s LatAm business or with Mr. Woods Staton. We hold our McDonald’s franchise rights pursuant to the MFA for all of the Territories except Brazil, executed on August 3, 2007, as amended and restatedon November 10, 2008 and as further amended on August 31, 2010 and June 3, 2011, entered into by us, our wholly owned subsidiary Arcos DoradosCoöperatieve U.A., Arcos Dorados B.V. (these two entities together with us, collectively, the Owner Entities), LatAm, LLC, or the Master Franchisee, certainsubsidiaries of the Master Franchisee, Los Laureles, Ltd. and McDonald’s. On August 3, 2007, our subsidiary Arcos Dourados Comercio de Alimentos Ltda., orthe Brazilian Master Franchisee, and McDonald’s entered into the separate, but substantially identical, Brazilian MFA, which was amended and restated onNovember 10, 2008. See “Item 10. Additional Information―C. Material Contracts―The MFAs.” 27 Table of Contents The Axionlog Split-off We used to own and operate some of the distribution centers in the Territories, which operations and related properties we refer to as Axionlog (formerlyknown as Axis). As of the date of the split-off, Axionlog operated in Argentina, Chile, Mexico and Venezuela, and its main third-party customers were Sodexho,Eurest, Sadia, WalMart, Carrefour, Subway and Dairy Queen. We effected a split-off of Axionlog to our existing shareholders in March 2011. For additionalinformation about the split-off of Axionlog, see “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Axionlog Split-off.” Capital Expenditures and Divestitures Under the MFAs, we are required to agree with McDonald’s on a restaurant opening plan and a reinvestment plan for each three-year period during the term ofthe MFAs. The restaurant opening plan specifies the number and type of new restaurants to be opened in the Territories during the applicable three-year period,while the reinvestment plan specifies the amount we must spend reimaging or upgrading restaurants in the Territories during the applicable three-year period. Priorto the expiration of the then-applicable three-year period we must agree with McDonald’s on a subsequent restaurant opening plan and reinvestment plan. In theevent that we are unable to reach an agreement on subsequent plans prior to the expiration of the then-existing plan, the MFAs provide for an automatic increase of20% in the required amount of reinvestments as compared to the then-existing plan and a number of new restaurants no less than 210 multiplied by a factor thatincreases each period during the subsequent three-year restaurant opening plan. We may also propose, subject to McDonald’s prior written consent, amendments toany restaurant opening plan or reinvestment plan to adapt to changes in economic or political conditions. Under the 2017-2019 restaurant opening and reinvestment plan, we are required to open 180 restaurants and to reinvest $292 million in existing restaurantsfrom 2017 through 2019. However, for the same three-year period, we now expect to open at least 200 new restaurants and to reinvest at least $390 million inexisting restaurants. Total capital expenditures for 2017 to 2019 are now expected to be approximately $660 million. As a result of our previous reinvestment and reopening plans, property and equipment expenditures were $174.8, $92.3 million and $91.0 million in 2017,2016 and 2015, respectively. In 2017, we opened 50 restaurants, reimaged 124 existing restaurants and opened 2 McCafé locations and 223 Dessert Centers (see“—B. Business Overview—Our Operations—McCafé Locations and Dessert Centers”). In 2016, we opened 33 restaurants, reimaged 81 existing restaurants andopened one McCafé location and 140 Dessert Centers (see “—B. Business Overview—Our Operations—McCafé Locations and Dessert Centers”). In 2015, weopened 36 restaurants, reimaged 53 existing restaurants and opened two McCafé locations and 153 Dessert Centers (see “—B. Business Overview—OurOperations—McCafé Locations and Dessert Centers”). In 2017, 2016 and 2015, we closed 18, 18 and 16 restaurants, respectively. In addition, outflows related to purchases of restaurant businesses paid at acquisition date totaled $0.9 million, and $1.1 million in 2017 and 2015,respectively. Proceeds from the sale of property and equipment and sales of restaurant businesses, including related advances, totaled $72.4 million, $113.5 million and$23.6 million in 2017, 2016 and 2015, respectively. Capital expenditures for 2018 are expected to be between $200 million and $230 million (including development and non-development capital expenditures),considering between 65 and 70 gross restaurant openings. In March 2015, we announced a plan to monetize certain real estate assets in our portfolio that are either non-core or operating assets where the valuesignificantly exceeds the operating potential of the asset. We have many long-standing assets across our region that have appreciated due to the significantdevelopment around those properties. As of December 31, 2017, and since inception, the cumulative redevelopment proceeds we received from the sale of theseproperties totaled $167.2 million. The main goal of the redevelopment initiative was to reduce debt levels. We have decided not to pursue additional redevelopmentdeals at this time, as the stated debt reduction targets have been achieved. 28 Table of Contents B. Business Overview Overview We are the world’s largest McDonald’s franchisee in terms of systemwide sales and number of restaurants, according to McDonald’s, representing 4.9% ofMcDonald’s global sales in 2017. We have the exclusive right to own, operate and grant franchises of McDonald’s restaurants in 20 countries and territories inLatin America and the Caribbean, including Argentina, Aruba, Brazil, Chile, Colombia, Costa Rica, Curaçao, Ecuador, French Guiana, Guadeloupe, Martinique,Mexico, Panama, Peru, Puerto Rico, Trinidad and Tobago, Uruguay, the U.S. Virgin Islands of St. Croix and St. Thomas, and Venezuela, which we refer tocollectively as the Territories. As of December 31, 2017, we operated or franchised 2,188 McDonald’s-branded restaurants, which represented 6.4% ofMcDonald’s total franchised restaurants worldwide. In 2017 and 2016, we accrued $164.0 million and $142.8 million, respectively, in royalties to McDonald’s (notincluding royalties accrued on behalf of our franchisees). We operate in the QSR sub-segment of the fast food segment of the Latin American and Caribbean food service industry. In Latin America and the Caribbean,the fast food segment has benefited from the region’s increasing modernization, as people in more densely populated areas adopt lifestyles that increasingly seekconvenience, speed and value. We commenced operations on August 3, 2007, as a result of the Acquisition. We operate McDonald’s-branded restaurants under two different operatingformats, Company-operated restaurants and franchised restaurants. As of December 31, 2017, of our 2,188 McDonald’s-branded restaurants in the Territories,1,546 (or 70.7%) were Company-operated restaurants and 642 (or 29.3%) were franchised restaurants. We generate revenues primarily from two sources: sales byCompany-operated restaurants and revenues from franchised restaurants. Revenues from franchised restaurants primarily consist of rental income, which isgenerally based on the greater of a flat fee or a percentage of sales reported by franchised restaurants. We own the land for 495 of our restaurants (totalingapproximately 1,030 million square meters) and the buildings for all but 11 of our restaurants. Our business has grown significantly since the Acquisition: we have increased our presence in existing and new markets in the Territories by opening a nettotal of 32 restaurants (50 total restaurants opened, including 31 Company-operated and 19 franchised, while 18 closed), 2 McCafé locations and 223 DessertCenters (see “—Our Operations—McCafé Locations and Dessert Centers”). We divide our operations into four geographical divisions: Brazil; the Caribbean division, consisting of Aruba, Colombia, Curaçao, French Guiana,Guadeloupe, Martinique, Puerto Rico, Trinidad and Tobago, the U.S. Virgin Islands of St. Croix and St. Thomas, and Venezuela; NOLAD, consisting of CostaRica, Mexico and Panama; and SLAD, consisting of Argentina, Chile, Ecuador, Peru and Uruguay. As of December 31, 2017, 42.5% of our restaurants were located in Brazil, 17.8% in SLAD, 23.7% in NOLAD and 16.0% in the Caribbean division. Webelieve our diversified market presence reduces our dependence on any one market and helps stabilize the impact of individual countries’ economic cycles on ourrevenues. We focus on our customers by managing operations at the local level, including marketing campaigns and special offers, menu management andmonitoring customer satisfaction, while leveraging our size by conducting administrative and strategic functions at the divisional or corporate level, as appropriate. The following table presents a breakdown of total revenues by division: As of and for the Years Ended December 31, 2017 2016 2015 2014 2013 (in thousands of U.S. dollars)Total Revenues Brazil $1,496,573 $1,333,237 $1,361,989 $1,816,046 $1,842,324 Caribbean division (1) 474,822 409,671 398,144 594,220 830,447 NOLAD 386,874 363,965 367,364 385,114 407,772 SLAD 961,256 821,757 925,243 855,685 952,767 Total 3,319,525 2,928,630 3,052,740 3,651,065 4,033,310 (1)Currency devaluations in Venezuela have had a significant effect on our income statements and have impacted the comparability of our income statements in 2017, 2016 and 2015 ascompared to 2014 and 2013. See “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Foreign Currency Translation—Venezuela.” 29 Table of ContentsOur Operations Company-Operated and Franchised Restaurants We operate our McDonald’s-branded restaurants under two basic structures: (i) Company-operated restaurants operated by us and (ii) franchised restaurantsoperated by franchisees. Under both operating alternatives, the real estate location may either be owned or leased by us. We own, fully manage and operate Company-operated restaurants and retain any operating profits generated by such restaurants, after paying operatingexpenses and the franchise and other fees owed to McDonald’s under the MFAs. In Company-operated restaurants, we assume the capital expenditures for thebuilding and equipment of the restaurant and, if we own the real estate location, for the land as well. In contrast to Company-operated restaurants, franchised restaurants are operated and managed by the franchisee with technical and operational support fromus as master franchisee, including training programs, operations manuals, access to our supply and distribution network and marketing assistance. Under ourconventional franchise arrangements, franchisees provide a portion of the capital required by initially investing in the equipment, signs, seating and decor of theirrestaurants, and by reinvesting in the business over time. We are required by the MFAs to own the real estate or to secure long-term leases for franchised restaurantsites. We subsequently lease or sublease the property to franchisees. This arrangement allows for long-term occupancy of the property and assists in the alignmentof our franchisees’ interests with our own. In exchange for the lease and services, franchisees pay a monthly rent to us, generally based on the greater of a fixed rent or a certain percentage of grosssales. In addition to this monthly rent, we collect the monthly continuing franchise fee, which generally is 5% of the U.S. dollar equivalent of the restaurant’s grosssales, and pay these fees to McDonald’s pursuant to the MFAs. However, if a franchisee fails to pay its monthly continuing franchise fee, we remain liable forpayment in full of these fees to McDonald’s. Pursuant to the MFAs, franchisees pay an initial franchise fee in connection with the opening of a new franchisedrestaurant and a transfer fee upon transfer of a franchised restaurant, both of which are subsequently shared by McDonald’s and us. See “Item 10. AdditionalInformation—C. Material Contracts—The MFAs—Franchise Fees.” 30 Table of Contents The chart below illustrates the economics for Company-operated restaurants and franchised restaurants in the case of owned and leased real estate: Source : Arcos Dorados In addition, we are the majority stakeholder in several joint ventures that collectively own 15 restaurants in Argentina and Chile. We have also granteddevelopmental licenses to 11 restaurants. Pursuant to the developmental licenses, the developmental licensees own or lease the land on and building in which therestaurant is located and pay a franchise fee to us in addition to the continuing franchise fee due to McDonald’s. All of our joint ventures and developmentallicenses were in existence at the time of the Acquisition. Restaurant Categories We classify our restaurants into one of four categories: (i) freestanding, (ii) food court, (iii) in-store and (iv) mall stores. Freestanding restaurants are thelargest type of restaurant, have ample indoor seating and include a drive-thru area and parking lot. Food court restaurants are located in malls and consist primarilyof a front counter and kitchen and do not have their own seating area. In-store restaurants are part of a larger building, but they do not have a drive-thru area or aparking lot. Mall stores are located in malls like food court restaurants, but have their own seating areas. As of December 31, 2017, 1,033 (or 47.2%) of ourrestaurants (not including non-traditional satellite stores) were freestanding, 521 (or 23.8%) were food courts, 291 (or 13.3%) were in-stores and 341 (or 15.6%)were mall stores. These percentages vary by country, and may shift as opportunities in malls and more densely populated areas become available in some of theTerritories. Below are examples of each of our restaurant categories: 31 Table of Contents FreestandingIn-store Mall StoreFood Court Source : Arcos Dorados Returns on investment in each type of restaurant vary significantly due to the different capital expenditures required and their different sales potential; mallstores generally provide the highest return on investment while freestanding restaurants generally provide the lowest. Moreover, returns vary significantly on acountry-by-country basis. Reimaging An important component of our development plan is the reimaging of existing restaurants. As of December 31, 2017, we had completed the reimaging of 705of the 1,569 restaurants we purchased in the Acquisition, an increase of 33 restaurants as compared to December 31, 2016. Our restaurants that have undergonereimaging during the past three years have experienced an additional increase in sales per restaurant over the comparable sales growth experienced by restaurantswhich have not been reimaged in the same period. Both we and McDonald’s are committed to maintaining an image for our restaurants that creates a contemporarydining experience. Over the last few years, we have invested substantially in the reimaging of our restaurants, and we, pursuant to the MFAs, have committed to asignificant reimaging plan. See “Item 10. Additional Information—C. Material Contracts.” Objectives of the reimaging include elevating the customer’s perception of McDonald’s and creating a more sophisticated and highly aspirationalenvironment. We have developed systemwide guidelines for the interior and exterior design of reimaged restaurants. When carrying out a reimaging project, weminimize the impact on the operations and sales of the restaurants by keeping the restaurants open and operating during the renovations and working in specificareas of the location at particular times. 32 Table of Contents Below are images of the exterior of a few of our restaurants that have benefited from reimaging: Source : Arcos Dorados McCafé Locations and Dessert Centers Our brand extension efforts focus on the development of additional McCafé locations and Dessert Centers. McCafé locations are stylish, separate areas withinrestaurants where customers can purchase a variety of customizable beverages, including lattes, cappuccinos, mochas, hot and iced premium coffees and hotchocolate. McCafé locations have been very successful in creating a different customer experience, optimizing the use of our restaurants at all hours of operationand providing a higher profit margin than our regular restaurant operations. We believe the primary benefit of McCafé locations is that they attract new customersby increasing the variety of our product offerings and improving our image. McCafé locations have been a key factor in adding value to our customers’ experience and represented 9.6% of the total transactions and 6.6% of total sales ofthe restaurants in which they were located in 2017. As of December 31, 2017, there were 316 McCafé locations in the Territories, of which 16.8% were operatedby franchisees. Argentina and Brazil, with 84 and 91 locations, respectively, have the greatest number of McCafé locations. The first McCafé in Latin America wasopened in Argentina in 1999. Pursuant to the MFAs, we have the right to add McCafé locations to the premises of our restaurants. 33 Table of Contents Below are images of the interior of two of our McCafé locations: Below is an image of a Dessert Center “Ice Cube” pilot: Source : Arcos Dorados In addition to McCafé locations, Dessert Centers have been a very successful brand extension. Dessert Centers operate separately from existing restaurants,but depend on them for supplies and operational support. For example, a mall store restaurant can provide support for several Dessert Centers located in differentlocations throughout the same mall. Our Dessert Centers are conveniently located to attract customers, thereby serving as important transaction generators andproviding an effective method of extending our band presence to non-traditional areas. At Dessert Centers, customers can purchase a variety of dessert items,including the McFlurry and soft-serve ice cream. Dessert Centers require low capital expenditures and provide returns on investment and operating margins thatare significantly higher than our regular restaurant operations. As such, we believe they are an important driver in increasing our market penetration. Dessert Centers represented 32.16% of our transactions and 10.63% of our total sales in 2017. As of December 31, 2017, there were 2,877 Dessert Centers inthe Territories. Dessert Centers are highly successful in Brazil, where we have 1,583 locations. The first Dessert Center was created in Brazil in 1979. 34 Table of Contents The following maps set forth our McCafé locations and Dessert Centers in each of the Territories as of December 31, 2017: Network of McCafé LocationsNetwork of Dessert Centers 316 total McCafé locations2,877 total Dessert Centers Source : Arcos Dorados The McDonald’s Brand Interbrand, a brand consulting firm, ranked McDonald’s twelfth among the top twenty global brands in 2017. In addition, we believe that in Latin America andthe Caribbean, the McDonald’s brand benefits from an aspirational cachet as a “destination” restaurant with a reputation for safe, fresh and good-tasting food in anattractive setting. McDonald’s strong brand equity stems from the dedicated execution of its brand promise and its ability to associate with the local communitywhere it operates. McDonald’s sets the standard in the restaurant industry worldwide for brand stewardship and marketing leadership. Product Offerings A crucial part of delivering the brand to clients depends on our product offerings, or more specifically, our menu strategy and management. The key objectiveof our menu strategy is the development and offering of quality food choices that attract customers to our restaurants on a regular basis. The elements we utilize toachieve this goal include offering McDonald’s core menu, our product innovation initiatives and our focus on food safety. Our menus feature three tiers of products: (i) affordable entry-level options, such as our Combo del Día (Combo of the Day), McTrio 3x3 in Mexico andAlmuerzos Colombianos (Colombian Lunches) in Colombia, (ii) core menu options, such as the Big Mac, Happy Meal and Quarter Pounder, and (iii) premiumoptions, such as Big Tasty or Signature Line hamburgers and chicken sandwiches and low-calorie or low-sodium products that are marketed through commonplatforms rather than as individual items. These platforms can be based on the type of products, such as beef, chicken, salads or desserts, or on the type of customertargeted, such as the children’s menu. We have offered a new menu with fewer calories and less sugar and sodium in the majority of our Territories since 2011. 35 Table of Contents Since 2013, we have offered dairy products, fresh fruits or vegetables with our Happy Meals in all of the Territories except Venezuela. Our core menu is the most important element of our menu strategy and includes well-recognized food choices that have global customer acceptance and arewhat customers repeatedly order at McDonald’s-branded restaurants worldwide. During 2017, we have made extensions of our core products, such as Grand BigMac and Big Cheddar McMelt in Brazil and cheddar and bacon fries in Argentina and Brazil and Double Big Mac in Mexico. Product Development We have been very innovative in our product development in Latin America and the Caribbean. In key countries, our understanding of the local market hasenabled us to successfully introduce new items to appeal to local tastes and to provide our customers with additional food options. Our chicken-based offeringsinclude bone-in chicken in markets such as Colombia, Peru, Panama and Costa Rica. We also offer Signature Line hamburgers with innovative flavors andpremium offerings, such as Club House, Signature Guacamole and Crispy Onion Barbecue. Also, we carefully monitor the sales of our products and are able toquickly modify them if necessary. For instance, although we always offer the McFlurry dessert product, we include in this product platform a promotional toppingthat is offered for a limited period of time, followed by a new promotional topping to maintain the sales momentum (for example, Ovomaltine, Hershey’s, Milkaand Kit Kat). In 2011, we began the rollout of Made For You, or MFY, a new kitchen operating platform that we believe will allow us to improve the quality and freshnessof our products, provide faster service and diversify our offerings. MFY’s implementation is funded by cutting waste and productivity gains. As of December 31,2013, we had implemented MFY in almost all of our Company-operated restaurants in Argentina, Aruba, Brazil, Curaçao, French Guiana, Mexico, Puerto Rico,Trinidad and Tobago, and the U.S. Virgin Islands. During 2014, we implemented MFY in Costa Rica, Panama, seven restaurants in Uruguay and 23 of our newrestaurants in Colombia. During 2015, we completed MFY in Martinique, four restaurants in Guadalupe and 32 additional restaurants in Colombia. During 2017,we completed the implementation of MFY in the French West Indies. We plan to complete implementation of MFY in Chile and Uruguay during 2018. We work closely with McDonald’s to develop new product offerings and McDonald’s considers our recommendations regarding regional tastes andpreferences and works with us to accommodate such tastes and preferences. We continue to benefit from McDonald’s product development efforts following theAcquisition and have access to a library of products developed globally for the McDonald’s system. In addition, we continue to benefit from the HamburgerUniversities in the United States and Brazil and the food studio located in Brazil that aims to develop locally relevant products for the region. The HamburgerUniversities and the food studio models have been McDonald’s main global source of people and product development. The Hamburger Universities providerestaurant managers, mid-managers and owner/operators with training on best practices in different aspects of the business, like restaurant and people management,sales and accounting, while emphasizing consistent restaurant operations procedures, service, quality and cleanliness. Product and Pricing Strategy Value perceptions change significantly between markets and even between areas within a single market. In order to adjust pricing to meet customers’expectations in each market, we have developed local expertise aimed at understanding the dynamics of the local marketplace and the characteristics of itscustomers. We also examine trends in the pricing of raw materials, packaging, product-related operating costs as well as individual item sales volumes to fullyunderstand profitability by item. In addition, we use international consultants with particular experience in this area to understand marketplace dynamics andconsumer characteristics. These insights feed into the local markets’ menu, promotional and pricing strategy as well as the marketing plan that is disseminated toboth Company-operated and franchised restaurants. Restaurants may then adjust pricing and/or item offerings as they choose in an attempt to optimize sales,profitability and local preferences. This cycle is part of an overall revenue management philosophy and is part of our business management practices utilizedthroughout the region. 36 Table of Contents Advertisement & Promotion We believe that sales in the QSR sub-segment can be significantly affected by the frequency and quality of our advertising and promotional programs. Inparticular, we benefit from the strength of McDonald’s global resources, including its global alliances with some of the largest multinational conglomerates andsponsorship of sporting events such as the Olympic Games and the World Cup and participation in various movie promotions, which provides us with importantadvertising and promotion opportunities. We promote the McDonald’s brand and our products by advertising in all of the Territories. We create, develop and coordinate marketing plans andpromotional activities throughout the Territories; however, pursuant to the MFAs, McDonald’s reserves the right to review and approve any advertising materialsand related promotional activities and may request that we cease using the materials or promotional activities at any time if McDonald’s determines that they aredetrimental to its brand image. We are required under the MFAs to spend at least 5% of our gross sales, and our franchisees generally are required to pay us 5% oftheir gross sales for the portion of advertising expenditures related to their restaurants, on advertisement and promotion activities. The only exception to this policyis in Mexico, where both we and our franchisees contribute funds to a cooperative that is responsible for advertisement and promotion activities for Mexico. Our advertisement and promotion activities are guided by our overall marketing plan, which identifies the key strategic platforms that we aim to leverage todrive sales. The advertisement and promotion program is formulated based on the amount of advertisement and promotion support needed for each strategicplatform for the year. Our key strategic platforms include menu relevance, by introducing premium products and extending core product lines, convenience andstrengthening the kids and family experience. In terms of pricing, we understand that our customers seek great-tasting food at affordable prices and that theirperception of value while at the restaurant is a significant factor in determining overall satisfaction and frequency of visits. For example, in 2017, with the goal ofincreasing our local customer frequency, we launched the Drive Thru initiative in Argentina and Brazil, which included Drive Thru trucks and Fries for the Roadcampaigns. Other initiatives included the “books or toys” campaign in all our markets in Latin America, through which we sold more than 3 million books andwhich aims to encourage children’s creativity. We also continued our premium platform through which we offered new, premium dishes, such as the Original Mexand Mushroom Dijon preparations of our Signature Line burgers. Through the execution of these initiatives, we work to enhance the McDonald’s experience for customers throughout the Territories, and increase our sales andcustomer counts. We aim to position ourselves as a “forever young” brand by delivering a youthfully energetic, distinctly casual, personally engaging anddelightful dining/brand experience. Regional Operations The Company is divided into four geographical divisions: Brazil, the Caribbean division, NOLAD and SLAD. Except for Brazil, the divisions aresubsequently divided into sub-groups comprised of individual Territories. The presidents of the divisions report directly to our chief operating officer. 37 Table of Contents The following map sets forth the number of our restaurants in each of our operating divisions as of December 31, 2017: Source : Arcos Dorados We remain close to customers by managing operations at the local level, including implementing recruiting centers, conducting marketing campaigns andpromotions, monitoring consumer perception and managing menu offerings. We conduct administrative and strategic activities at either the divisional level or atour headquarters, as appropriate. In addition, we have designed standardized crew recruiting manuals and have implemented an online communication platform forcrew and managers. These centralized operations help us maintain consistent procedures, quality control and brand management across all of our markets. Set forth below is a summary of our restaurant portfolio as of December 31, 2017. Ownership Store Type (1) Real Property (2) Portfolioby Division Company-Operated JointVenture Franchised DevelopmentalLicense Total Freestanding FoodCourt In-Store MallStore DessertCenters McCaféLocations Owned LeasedBrazil 579 - 350 - 929 409 292 87 141 1,583 91 108 821 CaribbeanDivision 263 - 86 1 350 231 25 40 54 306 37 128 221 NOLAD 363 - 146 10 519 274 138 52 54 641 50 162 347 SLAD 326 15 49 - 390 119 66 112 92 347 138 97 293 Total 1,531 15 631 11 2,188 1,033 521 291 341 2,877 316 495 1,682 (1)Non-traditional satellite restaurants are not included in these figures.(2)Developmental licenses and mobile stores are not included in these figures. 38 Table of Contents Brazil Brazil is our largest division in terms of restaurants, with 929 restaurants as of December 31, 2017 and $1,496.6 million in revenues in 2017, representing42.5% and 45.1% of our total restaurants and revenues, respectively. Our operations in Brazil are based in Sao Paulo and McDonald’s has been present in Brazilsince opening its first restaurant in Rio de Janeiro in 1979. Caribbean Division The Caribbean division includes eleven territories with 350 restaurants as of December 31, 2017 and $474.8 million in revenues in 2017, representing 16.0%and 14.3% of our total restaurants and revenues, respectively. Its primary market in terms of number of restaurants is Venezuela, representing 37.1% of theCaribbean division’s restaurants. Venezuela is our fourth-largest market in terms of restaurants. McDonald’s has been present in Venezuela since opening its firstrestaurant in Caracas in 1985. In terms of revenues, however, our primary market in this region is Puerto Rico, accounting for 27.1% of the Caribbean division’srevenues. NOLAD NOLAD includes three countries with 519 restaurants as of December 31, 2017 and $386.8 million in revenues in 2017, representing 23.7% and 11.7% of ourtotal restaurants and revenues, respectively. Its primary market is Mexico, where the division’s management is based. McDonald’s has been present in Mexicosince opening its first restaurant in Mexico City in 1985. Mexico represents 74.8% of NOLAD’s restaurants and 43.4% of NOLAD’s revenues, and Mexico is oursecond-largest market in terms of restaurants. SLAD SLAD includes five countries with 390 restaurants as of December 31, 2017 and $961.3 million in revenues in 2017, representing 17.8% and 29.0% of ourtotal restaurants and revenues, respectively. Its primary market is Argentina, where the division’s management is based. McDonald’s has been present in Argentinasince opening its first restaurant in Buenos Aires in 1986. As of December 31, 2017, Argentina represented 57.7% of SLAD’s restaurants and 65.6% of SLAD’srevenues in 2017. Argentina is our third-largest market in terms of restaurants. Seasonality Our sales and revenues are generally greater in the second half of the year than in the first half. Although the impact on our results of operations is relativelysmall, this impact is due to increased consumption of our products during the winter and summer holiday seasons, affecting July and December, respectively. Supply and Distribution Supply chain management is an important element of our success and a crucial factor in optimizing our profitability. Currently, we have an integrated andcentralized supply chain management system that focuses on (i) the highest possible quality and food safety, (ii) competitive market pricing that is predictable andsustainable over time, and (iii) leveraging of local, regional and global sourcing strategies to obtain a competitive advantage. This system consists of the selectionand development of suppliers that are able to comply with McDonald’s high quality standards and the establishment of the appropriate type of relationships withthese suppliers. These standards, which are based on the highest industry standards, such as International Organization for Standardization (ISO) standards, BritishRetail Consortium (BRC) standards and others, include cleanliness, product consistency and timeliness, meeting or exceeding all local food regulations andcompliance with our Hazard Analysis Critical Control Plan, or HACCP, a systematic approach to food safety that emphasizes protection within the processingfacility, rather than detection, through analysis, inspection and follow-up. Due to our supply chain management and high quality standards, we believe our productshave a competitive advantage because they have many attributes that make them appealing to our customers. For instance, our McNuggets are made of 100% whitemeat; our frying oil is 100% free of trans fatty acids; the dairy mix for our sundaes and the McFlurry undergo aseptic processes to rid them of bacteria; ourvegetables are washed and sanitized; and our hamburger patties are made with 100% beef and do not contain additives. Pursuant to the MFAs, we purchase core products and services, such as beef, chicken, buns, produce, cheese, dairy mixes and toppings, from approvedsuppliers and distributors who satisfy the above requirements. If 39 Table of Contents McDonald’s determines that any product or service offered by an approved supplier is not in compliance with its standards, it may terminate the supplier’sapproved status. Beyond the purchase of core products and services, we have no restrictions on which suppliers or distributors we may use. We have largelycontinued the supply relationships that McDonald’s had established prior to the Acquisition, and we develop relationships with new suppliers in accordance withMcDonald’s Supplier Quality Management System, or SQMS. Since the process to become an approved supplier is lengthy, expensive and requires proof of compliance with McDonald’s high quality standards, we havefound that oral agreements with our approved suppliers generally are sufficient to ensure a reliable supply of quality food products, and we have developed long-term relationships with many of our suppliers. In addition, we enter into written agreements with most of our suppliers regarding the cost of such goods, which canbe based on pricing protocols, formula costing, benchmarking or open bidding, as appropriate. Our 19 largest suppliers account for approximately 65% of oursupplies, and no single supplier or group of related suppliers account for more than 10% of our total food and paper costs. Among our main suppliers are McCainFoods Limited, HAVI Group L.P., JBS S.A., Reyes Holdings L.L.C., BRF S.A., The Coca-Cola Company, Campo del Tesoro S.A., Polenghi IndustriasAlimenticias Ltda., Bimbo S.A., Arytza S.A., Axionlog B.V., Bemis Company Inc., Eco Axial S.A., Frima S.A., Tyson Foods, Golden State Foods, Cargill S.A. eIndustrial and American Beef S.A. Our integrated supply chain management optimizes value as we work with suppliers to develop pricing protocols, inventory, planning and product quality. Asof December 31, 2017, approximately 28.3% of the food and paper products used in our restaurants were imported, primarily from countries within Latin America,while the remaining amount were locally sourced. This percentage varies among the Territories; for example, 38% of the products consumed in Mexico areimported, while 15% and 45% of the products consumed in Brazil and Colombia, respectively, are imported. This includes the toys distributed in our restaurants,which are imported from China. Certain supplies, such as beef, must often be locally sourced due to restrictions on their importation. Combined with the MFAs’requirement to purchase certain core supplies from approved suppliers, although we maintain contingency plans to back up restaurant supplies, we may not be ableto quickly find alternate or additional supplies in the event a supplier is unable to meet our orders. See “Item 3. Key Information—D. Risk Factors—CertainFactors Relating to Our Business—We depend on oral agreements with third-party suppliers and distributors for the provision of products that are necessary forour operations.” The suppliers send almost all of their products to distribution centers that are in charge of transportation, warehousing, financial administration,demand and inventory planning and customer service. The distribution centers interact directly with our Company-operated and franchised restaurants. Until March 16, 2011, we owned and operated some of the distribution centers in the Territories, which operations and related properties we refer to asAxionlog (formerly known as Axis). See “—A. History and Development of the Company—Important Events—The Axionlog Split-off.” In 2011, we entered intoa master commercial agreement with Axionlog on arm’s-length terms pursuant to which Axionlog provides us with distribution inventory, storage (dry, frozen andchilled) and transportation services in Argentina, Chile, Colombia, Mexico, Uruguay, Peru, Venezuela and Ecuador. For additional information about ourtransactions with Axionlog, see “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Axionlog Split-off.” Supply Chain Management and Quality Assurance All products that we sell meet McDonald’s specifications, including new products and promotions. We work with our suppliers to implement key standardstesting at each stage of our supply chain, including raw materials, processing and distribution. With respect to raw materials, we verify that produce suppliersundergo verification audits. All protein suppliers also undergo Animal Welfare Policy, “mad cow” disease and HACCP audits. At the processing stage, weimplement a supplier quality management system that encourages continuous improvement in each key product category. We conduct seminars annually with allkey suppliers on topics such as standards calibration, product sensory evaluation and best practices, and all suppliers are audited annually by a third party forcompliance with McDonalds’s SQMS. As members of the Global Food Safety Initiative (GFSI), we encourage our suppliers to adopt any norm under the umbrellaof GFSI that is recognized globally. We measure compliance through visits to processing plants, supplier summits, regularly scheduled audits and sensory testingthat is achieved through a combination of product, equipment and operational procedures. At the distribution stage, we have implemented the Distribution QualityManagement Program, which includes a shelf-life management system, strict temperature controls for receiving and storage of food products, a sophisticated stockrecovery program and a 40 Table of Contents quality inspection program. In 2017, we complemented our audit process with the implementation of unannounced checks at the facilities of high-risk suppliers. Our quality testing extends to restaurant operations. The Quality Program that includes Across The Counter Quality (ATCQ), Behind The Counter Quality(BTCQ) and Field Service Support is designed for restaurant improvement and food safety verification processes that allow us to track the implementation ofchanges in restaurant operations, new products, procedures and equipment. Moreover, in 2017 we introduced a Food Safety Restaurants audit, which is an audit ofour vendors run by a third-party contractor. We participate in the restaurant operations improvement process designed by McDonald’s, under which Company-operated and franchised restaurants are visited at least three times in any 21-month cycle to identify system opportunities to continuously improve our operations.Visits are conducted by our operation consultants, who assess restaurants based on food quality, service and cleanliness. We also participate in the worldwidemystery shopper program designed by McDonald’s, where all restaurants are visited twice a month by a third-party vendor who provides us with feedback from acustomer perspective. This feedback, called customer satisfaction opportunity reports, is sent to a centralized monitoring system that evaluates key operationsindicators. Our multidisciplinary teams, which include members of our Supply Chain and Marketing and Operations teams, work to improve quality and efficiencyat the restaurant level throughout the Territories. Our Competition We compete with international, national, regional and local retailers of food products. We compete on the basis of price, convenience, service, menu varietyand product quality. Our competition in the broadest perspective includes restaurants, quick-service eating establishments, pizza parlors, coffee shops, streetvendors, ice cream vendors, convenience food stores, delicatessens and supermarkets. Our Customers We aim to provide our customers with safe, fresh and good-tasting food at a good value and a favorable dining experience in the family friendly environmentdemanded by our target demographic of young adults and families with children. Based on data from the United Nations Economic Commission for Latin Americaand the Caribbean, the Territories represented a market of approximately 645 million people in 2017—equivalent to the combined population of the United States,Germany, France, the United Kingdom and Italy—of which approximately 25.6% are under 14 years old and 43.0% are under 25 years old. As a business focusedon young adults in the 14 to 35 age range and families with children, our operations have benefited, and we expect to continue to benefit, from our Territories’population size, age profile when compared to more developed markets and improving socio-economic conditions. The McDonald’s brand in Latin America is positioned as an aspirational experience and a destination for our guests. In order to maintain that brandpositioning, we have implemented several initiatives focused on providing our guests with a differentiated customer experience. Experience of the Future (EOTF)provides an innovative experience with a noticeable change in the areas of service, hospitality, and atmosphere in the restaurant. We will evolve to an integratedvision, based on 5 fundamental pillars to transversally deliver the expected experience for our guest: atmosphere, people, family, menu and technology. Despite ongoing risks generally associated with international business operations, the confluence of favorable factors throughout many of the Territories,including growth in our target demographic markets, offer an opportunity of profitable growth and the ability to serve an ever-increasing number of customers. Regulation We are subject to various multi-jurisdictional federal, regional and local laws in the countries in which we operate affecting the operation of our business, asare our franchisees and suppliers. Each restaurant is subject to licensing and regulation by a number of governmental authorities, which include zoning, health,safety, sanitation, tax, operating, building and fire agencies in the jurisdiction in which the restaurant is located. Difficulties in obtaining, or the failure to obtain,required licenses or approvals can delay or prevent the opening of a new restaurant in a particular area. Restaurant operations are also subject to federal and locallaws governing matters such as wages, working conditions and overtime. We are also subject to tariffs and regulations on imported commodities and equipmentand laws regulating foreign investment. 41 Table of Contents Substantive laws that regulate the franchisor/franchisee relationship presently exist in several of the countries in which we operate, including Brazil. Theselaws often limit, among other things, the duration and scope of non-competition provisions, the ability of a franchisor to terminate or refuse to renew a franchiseand the ability of a franchisor to designate sources of supply and regulate franchise sales communications. Certain countries in which we conduct operations have imposed price controls that restrict our ability, and the ability of our franchisees, to adjust the prices ofour products. For example, in September 2014, Argentina passed: (i) Law No. 26,991, the “Regulation on Production and Consumption Relationships Act,” which reformeda 1974 Act (Law on Supply of Goods and Services); and (ii) Law No. 26,992, the “Creation of the Observatory of Prices and Availability of Inputs, Goods andServices Act.” The Regulation on Production and Consumption Relationships Act empowers the Secretary of Commerce to, among other things: (i) establish profit marginsand set price levels (setting maximum, minimum and benchmark prices); (ii) issue regulations on commerce, intermediation, distribution or production of goodsand services; (iii) impose the continuance of production, industrialization, commercialization, transport, distribution or rendering of services or impose theproduction of goods; (iv) set subsidies; (v) request any kind of documentation and correspondence related to commercial activities or the management of thebusinesses and impose the publication of prices and availability of goods and services and seize such documentation for up to 30 working days; (vi) imposeregistration and recordkeeping requirements; and (vii) impose licensing regimes for commercial activities. In order to enforce its provisions, the Secretary of Commerce is granted the power to impose penalties for non-compliance including, among others: (i) finesof AR$500 to AR$10,000,000 or up to three times the economic profit obtained by offenders (the amounts can double in case of second-time offenders); (ii)temporary shutting down of businesses for up to 90 days; (iii) seizure of goods and products and their sale to consumers in case of an administratively determinedshortage of said goods and products; and (iv) loss of governmental or fiscal benefits. Under the Regulation on Production and Consumption Relationships Act,companies would be forced to pay any fine issued immediately and then litigate before the courts to have the penalty revoked and the money refunded. TheSecretary of Commerce may waive the advance payment of the fine in cases in which, at its discretion, such payment may cause irreparable harm to the partychallenging the fine. The Creation of the Observatory of Prices and Availability of Inputs, Goods and Services Act created a technical agency under the Secretary of Commerce, theObservatory of Prices and Availability of Inputs, Goods and Services, to control and systematize prices and availability of inputs, goods and services produced,traded or rendered in Argentina. We are also subject to the labor laws applicable in the countries in which we operate. The adoption of new or more stringent labor laws or regulations couldresult in a material liability to us. For example, during 2017, Venezuela implemented five increases in the minimum wage, a 50% increase in January, a 60%increase in May, a 50% increase in July, a 40% increase in September and a 30% increase in November, resulting in a new minimum wage of Bs.$177,507.44 as ofDecember 2017. Similarly, in 2015, the United States Virgin Islands Legislative Assembly approved a minimum wage increase, which is projected for the nextthree years, starting from $7.25 to $10.50, to be prorated in June 2016 to $8.35, in June 2017 to $9.50 and June 2018 to $10.50. In Argentina, a law enacted inNovember 2010 requires companies to pay overtime to all employees (except directors and managers). In addition, certain proposed bills have attempted toimplement additional payments for weekends and mandatory employee profit-sharing, but none of those have been enacted by Congress. See “Item 3. KeyInformation—D. Risk Factors—Certain Factors Relating to Our Business—Labor shortages or increased labor costs could harm our results of operations.” New interpretations or unexpected applications of existing labor laws or regulations may also affect our business practices or results of operations. In August2012, the Labor Prosecutor’s Office of the State of Pernambuco ( Ministério Público do Trabalho do Estado de Pernambuco ) in Brazil filed a civil complaintagainst us in the Labor Court of Pernambuco ( Justiça do Trabalho de Pernambuco ) regarding alleged noncompliance with certain labor laws. Several of thesecases have already been resolved successfully, either by a judicial decision or a cash settlement. The remaining retained cases are pending a final decision. InMarch and November 2015, the Labor Prosecutor’s Office requested documents in order to analyze our compliance with the labor laws and the settlement enteredinto with the State of Pernambuco, which we provided. All such information and documentation was reviewed by the Labor Prosecutor, who issued a preliminaryreport on December 1, 2016. On December 13, 2016, 42 Table of Contents an administrative hearing was held at the Labor Prosecutor’s headquarters in São Paulo, in which the Labor Prosecutor emphasized the preliminary nature of thereport and granted us the opportunity to submit information, explanations and documents relating to compliance with the settlement. On March 15, 2017, wesubmitted a petition and documents as evidence that we have complied with the settlement, and on March 17, 2017, we attended a meeting with the LaborProsecutor to clarify our arguments. We delivered additional documents regarding our compliance with the settlement for the period ranging from December 2015to April 2017 on April 20, 2017. An additional audit of the company’s compliance with the settlement for such period occurred in May 2017. In such audit, theLabor Prosecutor presented a second report which indicated non-compliance with the settlement. In December 2017, Arcos submitted a petition and documentsarguing that the settlement was duly complied with. On January 24, 2018, February 28, 2018 and April 2, 2018, we attended hearings with the Labor Prosecutors todiscuss the audit report and Arcos’ petition in order to verify if the settlement was complied with. In those hearings, the Labor Prosecutor indicated the possibilityof entering into a new settlement and we set a date for a new hearing to be held on May 10, 2018. In August 2015, UGT ( União Geral dos Trabalhadores ), a labor Union, filed a complaint before the Federal Prosecutor’s Office claiming that we breachedtax, labor, franchise and antitrust laws. The Prosecutor’s Office dismissed the complaint relating to labor law, as there is already an open investigation relating tothe same complaint. The Prosecutor’s Office then ordered the investigation to be split between the tax and franchise and antitrust law accusations. On November23, 2016, the Prosecutor’s Office dismissed the complaint concerning franchise and antitrust law accusations. In June 2017, the Superior Council ratified thedecision and dismissed all claims concerning franchise and antitrust law. The investigation is now closed. See “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Legal Proceedings—Retained Lawsuits and ContingentLiabilities.” In September 2014, Argentina enacted Law No. 26,993 (the “Prior Conciliation Service in Consumer Relations”). The Prior Conciliation Service in ConsumerRelations is an administrative dispute resolution service within the Argentine Ministry of Production, by which consumers may freely submit their claims, with thepurpose of reaching a settlement before a mediator within 30 days from the filing of the relevant claim. Consumers may only carry out proceedings before thisadministrative entity when the claims do not exceed a value equivalent to 55 times the minimum wage. Pursuant to Law No. 26,993, companies that are summonedto, but do not appear before, the Prior Conciliation Service in Consumer Relations may be subject to a fine equivalent to one minimum wage. In addition, we may become subject to legislation or regulation seeking to regulate high-fat and/or high-sodium foods, particularly in Argentina, Brazil, Chile,Puerto Rico and Uruguay. Moreover, restrictions on advertising by food retailers and QSRs have been proposed or adopted in Argentina, Brazil, Chile, Colombia,Mexico, Peru and Uruguay, including proposals to restrict our ability to sell toys in conjunction with food. Certain jurisdictions in the United States are consideringcurtailing or have curtailed McDonald’s ability to sell children’s meals including free toys if these meals do not meet certain nutritional criteria. Similarrestrictions, if imposed in the Latin American countries where we do business, may have a negative impact on our results of operations. We will comply with anylaws or regulations that may be enacted, and we can provide no assurance of the effect that any possible future laws and regulations will have on our operatingresults. See “Item 3. Key Information—D. Risk Factors—Certain Factors Relating to Our Industry—Restrictions on promotions and advertisements directed atfamilies with children and regulations regarding the nutritional content of children’s meals may harm McDonald’s brand image and our results of operations.” Environmental Issues To the best of our knowledge, there are currently no international, federal, state or local environmental laws, rules or regulations that we expect will materiallyaffect our results of operations or our position with respect to our competitors. However, we can provide no assurance of the effect that any possible futureenvironmental laws will have on our operating results. Insurance We maintain insurance policies in accordance with the requirements of the MFAs and as appropriate beyond those requirements, to the extent we believeadditional coverage is necessary. Our insurance policies include 43 Table of Contents commercial general liability, workers compensation, “all risk” property and business interruption insurance, among others. See “Item 10. Additional Information—C. Material Contracts—The MFAs—Insurance.” Social Initiatives and Charitable Activities The well-being of the communities where we operate is of considerable importance to us and we are engaged in a wide range of programs focused onpositively impacting those communities. In addition to the current support we give to Ronald McDonald House Charities, we expanded our social reach in 2017 bystrengthening our initiatives in the areas of Youth Employment and Sustainable Development. The following paragraphs summarize some of our principal programs and contributions. Youth Employment Youth unemployment is one of the most critical issues facing countries in Latin America. Through our Youth Employment initiative, we promote socialmobility by providing employment opportunities to young people in Latin America that help them develop valuable customer service and leadership skills that canbe applied to a wide range of career paths in the future. We are implementing this initiative through strategic alliances and by leveraging our trajectory andexperience in this field. We are also developing projects for labor participation that include technical training and programs to support the employment of peoplewith disabilities. For instance, we partnered with the Ministries of Labor of Mexico, Argentina, Costa Rica, Puerto Rico and Ecuador to promote employmentparticipation of certain minority groups. We increased our focus on Youth Employment because it has been one of the most significant problems facing Latin American countries in recent years.Being one of the largest employers in Latin America and the Caribbean, 77% of our new hires during 2017 were young adults. Another initiative is Empleo con Apoyo , which aims to provide employment opportunities to youth with disabilities, encouraging the development of theirskills and raise awareness with respect to the needs of individuals with disabilities. During 2017, more than 1700 employees were part of this program. In addition, in April 2012, we became one of the founders and partners of the New Employment Opportunities (NEO) Program developed by the Inter-American Development Bank and the International Youth Foundation, which promotes the employability of the region’s youth. As of December 2017, NEO hasreached 240,860 youth in 7 countries within the region. We have strengthened this alliance by working with NEO in Mexico, Chile, and Panama. Additionally, we have continued to strengthen our partnerships with other organizations that focus on soft skills training, such as the Forge Foundation(including its branches in Argentina, Mexico, Uruguay, Peru and Mexico), Aldeas SOS and Movimiento Nueva Generación, among others in Latin America. One of our most important soft skills training programs is Creating Your Future, a program supported by the Ministry of Education in Argentina that providesopportunities for skills development for our employees. This program was implemented with Kuepa, an organization dedicated to providing professional and softskills training in Latin America, and the Global Fairness Initiative, an international non-profit organization focused on economic development. Since its launch onSeptember 2016, more than 110 employees have participated in the program, and of those, more than 60 have already graduated. The program lasts two to threemonths and combines online and classroom education in three main areas: guidance for work; technical skills in either hospitality, customer service or computers;personal finances, math and Spanish. In addition, in partnership with the JPMorgan Chase Foundation and IOS (Institute of Social Opportunities) in Brazil, we signed an alliance to develop acertified academic program in IT, Talentos del Futuro . More than 100 young people from our crew started this 10-month program to acquire technical knowledgein programming, networks and system languages. We have also worked on helping those who have more difficulty in finding a formal job. For example, Trabalho Novo in Brazil a public/private partnershipthat helps homeless people start a job in our restaurants. In 2017, we helped 74 people through this program . 44 Table of Contents Community In 2017, we began the Gran Dia campaign, which seeks to broaden the social impact of Arcos Dorados. Through this campaign, funds raised through the saleof Big Macs were donated to local organizations supporting youth employment and inclusion and the Ronald McDonald House Charities. We also celebrated theMcHappy Day, a day on which McDonald’s restaurants across Latin America raise money for various community causes by donating the proceeds from the salesof Big Macs on that day. This year, the Gran Dia campaign and McHappy Day contributed to a 13% increase in the number of Big Macs sold. All our restaurantsas well as their community volunteers, franchisees and suppliers participated in both campaigns. We raised over $9 million. We primarily contribute to the communities in which we operate through the Ronald McDonald House Charities, which is dedicated to creating, finding andsupporting programs that directly improve the health and well-being of children by providing “a home away from home” to children undergoing medical treatmentin hospitals and their families. As of December 31, 2017, there were 57 Ronald McDonald House Charities programs in 13 countries in Latin America and theCaribbean, including 25 Ronald McDonald Houses, 30 Ronald McDonald Family Rooms and 2 Ronald McDonald Care Mobiles, which were built to deliverpediatric care services to remote locations. Nutrition and Well-Being As part of our commitment to offering nutritious and high quality products to our customers, we are dedicated to actively promoting a balanced lifestyle. Thisincludes providing reliable, accessible information to guide educated nutritional decisions. We were the first restaurant chain in Latin America to provide fullnutritional and calorie information about our menu on our websites in every country, as well as giving consumers within the restaurants full printed nutritionalinformation on every tray liner. In 2014 we added a nutritional calculator on our websites to complement nutritional transparency with a personalized tool to enableour customers to make the right nutritional choices for their lifestyle. In addition, in 2017, we began an initiative called Scale for Good in partnership withMcDonald’s. This initiative focuses on offering balanced meals that meet certain criteria set by McDonald’s relating to, among others, the number of caloriesprovided by saturated fat and added sugar as well as sodium content. From a safety and quality perspective, we only use products that have passed strict quality and hygiene controls throughout the production chain, inside ourrestaurants and up to the moment they are served to our customers. These products are sourced from our approved supplier network for all McDonald’s restaurants. We participate in several educational, sports and well-being programs throughout Latin America and the Caribbean, promoting our brand and encouraging ouremployees and customers to participate. One such event is the McDonald’s 5K Women’s Run ( Las Mujeres Corremos ), a regional race held annually since 2010that brought together nearly 41,490 women in 2017, running in 9 cities in Latin America. Sustainable Development We strive to be an environmental steward dedicated to conserving natural resources and minimizing waste. We have developed sustainability initiatives with afocus on sustainable supplies, and energy and water efficiency. To carry out these initiatives, we have developed strategic partnerships with prestigiousorganizations such as the World Wildlife Fund (“WWF”), the Nature Conservancy, the Rainforest Alliance and the Forest Stewardship Council. For the eighthconsecutive year, together with the WWF, all restaurants in our 20 markets have participated in Earth Hour by switching off their external lights and canopies. One of our most important values is to preserve and care for an increasingly limited resource: water. We have made a tangible commitment to this valuethrough the Natal Program , which was started at Arcos Dorados Brazil and aims to minimize water waste so that more water is available to local communities,especially in regions with limited access to water or at risk of water rationing. Through this initiative, we have reduced water consumption in our restaurants by15% and as of 2017 we have implemented the initiative in 450 restaurants throughout Latin America. We are also committed to recycling. In order to align our efforts on recycling, we adopted CEMPRE ( Compromiso Empresarial para el Reciclaje ), aninitiative started by leading companies from different industries, such as Coca Cola, Nestle, Unilever, that are dedicated to working on environmental issues inLatin America, in certain of our markets (Brazil, Colombia, Argentina and Chile). 45 Table of Contents To improve the sustainability of our supplies, we defined six priority items for our business with WWF’s support: beef, chicken, fish, palm oil, coffee and thepackaging we use. Today, coffee, fish and packaging are certified as 100% sustainable in Brazil, and we continue to work with the certification plans in order toachieve sustainability certifications for our supplies in all our markets in Latin America. In 2017, in partnership with Forest Stewardship Counsel, we alsocelebrated FSC Friday in Brazil and Argentina, a global initiative that aims to reinforce the importance of responsible forest management, with the participation ofpartners, suppliers, collaborators and the community. Arcos Dorados Brazil and Arcos Dorados Puerto Rico are also improving the sustainability of their supplies by only selling McFish certified by the MarineStewardship Council (MSC). In addition, 100% of the coffee that we buy in Brazil comes from certified sources and we are working to replicate this model in therest of our markets. We strive to work with suppliers that have strong standards of animal welfare and that meet McDonald’s standards and policies. We have committed toensuring that all pork used in our restaurants will be sourced by producers that can demonstrate plans to promote group housing for their sows. We are activelyworking with our pork suppliers, producers and other stakeholders to transition over time to this standard. The responsible use of antibiotics is important for animalhealth, as well as to ensure the future effectiveness of antimicrobial medicines. In March 2015, we announced that we will only source from suppliers who canguarantee that their animals (i) are raised without growth-stimulating antibiotics; (ii) have only received antibiotics to cure or prevent disease under veterinarysupervision; (iii) are only administered antibiotics approved for veterinary use; and (iv) are raised in environments that encourage healthy animal welfare andhusbandry conditions to help reduce the need for antibiotic use. We are continuously working with our suppliers and producers to achieve this goal for theresponsible use of antibiotics. Based on the premise that our customers deserve high quality products originating from healthy animals, together with McDonald's,we have been pioneers in prioritizing animal welfare. We have a specific committee for animal welfare issues, which acts under the guidelines of the ProfessionalAnimal Auditor Certification Organization (PAACO), an animal welfare organization. Protecting the Forests is a top priority. All of our suppliers have committed to ending procurement of any supplies from the Amazon. In 2017, McDonald’spublicly announced its Commitment on Forests, which aims to eliminate deforestation from our supply chains and promote responsible forestry and productionpractices that benefit people, communities and the planet. This commitment includes the Amazon, the Cerrado and the Chaco. In October 2011, McDonald’ssigned a global moratorium against harvesting soy from the Amazon region and has maintained this commitment every year since, including actively supportingthe 2014 renewal of the Brazilian Soy Moratorium. In August 2016, we sourced the first sustainable beef in Latin America from the Novo Campo Project, aninitiative that complies with the standards of the Brazilian Roundtable for Sustainable Beef. With this initiative, we were the first restaurant in the QSR industry inBrazil to acquire the product from production cycles that meet global principles and criteria established by the Global Roundtable for Sustainable Beef. Amongother criteria, this meets our commitment to zero deforestation, not source products within Conservancy and/or Indian areas, ensure that child labor or slaveryconditions do not occur and pass through a third-party verification audit. By working very closely and sharing best practices across Latin America, we are reducing our carbon footprint and greenhouse gas (GHG) emissions in ouroperations. We are also committed to increasing our energy efficiency in restaurants by 20.0% by 2020 (using 2012 as the baseline) and we promote paper and wasterecycling campaigns at our restaurants, whenever possible. As of December 31, 2017, we had 4 LEED-certified restaurants and 1 LEED-certified corporate university. Leadership in Energy & Environmental Design, orLEED-certified buildings are more environmentally responsible and resource-efficient buildings throughout their life-cycle. In December 2008, we opened the firstLEED-certified restaurant in Latin America in Bertioga on the coast of São Paulo, Brazil. This restaurant received its LEED certification in September 2009,becoming the first McDonald’s restaurant in Latin America to receive such certification. In August 2010, we opened our second LEED-certified restaurant in Pilar,Argentina. In July 2011, we re-inaugurated the McDonald’s at Parque Hundido, in Mexico DF, as our third LEED-certified restaurant. In January 2013, we openedthe fourth LEED-certified restaurant in Guaynabo, Puerto Rico, which obtained its LEED certification in November 2013. The McDonald’s University in SãoPaulo, Brazil, was remodeled and reopened in April 2011 as a LEED-certified building. This McDonald’s University, one of seven such units in the world, is thecorporate education center for employees from all over Latin America and the Caribbean. Among the programs offered at the McDonald’s University in São Paulois an MBA in Strategies for Sustainable Development. 46 Table of Contents The know-how accumulated in the construction of these ecological buildings is being used for the development of new McDonald’s restaurants, such as ourHigh Efficiency Restaurants, developed in Brazil in compliance with McDonald’s standards as required by the MFAs, at which efficiencies have been achieved byimplementing sustainability measures for, among others, the reuse of water and the use of more efficient lightning technics and using a more efficient architecturaldesign with regard to the amount of equipment, kitchen and support areas. These architectural changes allow a reduction in carbon footprint associated to buildingprocess. Finally, we survey our key suppliers in Latin America and the Caribbean to ensure their operations meet the highest standards possible and partner with themin reducing our impact on the environment. This includes implementing and sharing best practices throughout the supply chain for sustainable sourcing,transportation, resource use, residue disposal and energy consumption, among other matters, using CDP as our strategic partner. C. Organizational Structure We conduct substantially all of our business through our indirect, wholly owned Dutch subsidiary Arcos Dorados B.V. Our controlling shareholder is LosLaureles Ltd., a British Virgin Islands company, which is beneficially owned by Mr. Woods Staton, our Executive Chairman. Under the MFAs, Los Laureles Ltd.is required to hold at all times at least 51% of our voting interests, which is accomplished through its ownership of 100% of the class B shares of Arcos DoradosHoldings Inc., each having five votes per share. Los Laureles Ltd. has established a voting trust with respect to the voting interests in us held by Los Laureles Ltd.Los Laureles Ltd. is the beneficiary of the voting trust. See “Item 7. Major Shareholders and Related Party Transactions—A. Major Shareholders—Los LaurelesLtd.” Arcos Dorados B.V. owns all the equity interests of LatAm, LLC, the master franchisee, and owns, directly or indirectly, all the equity interests of thesubsidiaries operating our restaurants in the Territories. The following chart shows our corporate structure as of April 2018. (1)Includes class A shares and class B shares beneficially owned by Mr. Woods Staton, our Executive Chairman. Los Laureles Ltd. is beneficially owned by Mr. Woods Staton. See “Item 7.Major Shareholders and Related Party Transactions—A. Major Shareholders—Los Laureles Ltd.”(2)Includes operating subsidiaries held directly and, in some cases, indirectly through certain intermediate subsidiaries. 47 Table of Contents Other than as described above, all of our significant subsidiaries are wholly owned by us, except Arcos Dorados Argentina S.A., of which Mr. Woods Statonowns 0.003%. D. Property, Plants and Equipment Property Operations Our long-standing presence in Latin America and the Caribbean has allowed us to build a significant property portfolio with hard-to-replicate locations in keymarkets across the region that enhance our customers’ experience and ultimately support our brand and market position. As of December 31, 2017, we owned theland for 495 of our 2,188 restaurants (totaling approximately 1,030 million square meters). We owned the buildings for all but 11 of our stand-alone restaurants, allof which are under developmental licenses, whereby the licensees own or lease the land on and buildings in which the restaurants are located. We lease theremaining real estate property where we operate. Accordingly, we are able to charge rent on the real estate that we own and lease to our franchisees. The rentalpayments generally are based on the greater of a flat fee or a percentage of sales reported by franchised restaurants. When we lease land, we match the term of oursublease to the term of the franchise. We may charge a higher rent to franchisees than that which we pay on our leases, therefore deriving additional rental income. The selection, construction and maintenance of restaurant locations and other related real estate assets, which is a key element of our performance, isdetermined based on an evaluation of expected returns on investment and the most efficient allocation of our capital expenditures. In addition to our restaurantproperty, we have (i) corporate offices in Montevideo, Uruguay; Buenos Aires, Argentina; and Sao Paulo, Brazil; and regional offices in Mexico City, Mexico andBogota, Colombia; (ii) manufacturing and logistics centers in Sao Paulo, Brazil; and (iii) training centers in Sao Paulo, Brazil and Buenos Aires, Argentina. ITEM 4A. UNRESOLVED STAFF COMMENTS None. ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS A. Operating Results The following discussion of our financial condition and results of operations should be read in conjunction with the audited consolidated financial statementsas of December 31, 2017 and 2016 and for the years ended December 31, 2017, 2016 and 2015, and the notes thereto, included elsewhere in this annual report, aswell as the information presented under “Presentation of Financial and Other Information” and “Item 3. Key Information—A. Selected Financial Data.” The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from thosediscussed in the forward-looking statements as a result of various factors, including those set forth in “Forward-Looking Statements” and “Item 3. KeyInformation—D. Risk Factors.” Segment Presentation We divide our operations into four geographical divisions: Brazil; the Caribbean division, consisting of Aruba, Colombia, Curaçao, French Guiana,Guadeloupe, Martinique, Puerto Rico, Trinidad and Tobago, the U.S. Virgin Islands of St. Croix and St. Thomas and Venezuela; the North Latin Americandivision, or NOLAD, consisting of Costa Rica, Mexico and Panama; and the South Latin America division, or SLAD, consisting of Argentina, Chile, Ecuador,Peru and Uruguay. As of December 31, 2017, 42.5% of our restaurants were located in Brazil, 17.8% in SLAD, 23.7% in NOLAD and 16.0% in the Caribbeandivision. We focus on our customers by managing operations at the local level, including marketing campaigns and special offers, menu management andmonitoring customer satisfaction, while leveraging our size by conducting administrative and strategic functions at the divisional or corporate level, as appropriate. We are required to report information about operating segments in our financial statements in accordance with ASC 280. Operating segments are componentsof a company about which separate financial information is available that is regularly evaluated by the chief operating decision maker(s) in deciding how toallocate resources and assess performance. We have determined that our reportable segments are those that are based on our method of internal 48 Table of Contents reporting, and we manage our business and operations through our four geographical divisions (Brazil, the Caribbean division, NOLAD and SLAD). Theaccounting policies of the segments are the same as those for the Company on a consolidated basis. Principal Income Statement Line Items Revenues We generate revenues primarily from two sources: sales by Company-operated restaurants and revenue from franchised restaurants, which primarily consistsof rental income, typically based on the greater of a flat fee or a percentage of sales reported by our franchised restaurants. This rent, along with occupancy andoperating rights, is stipulated in our franchise agreements. These agreements typically have a 20-year term but may be shorter if necessary to mirror the term of thereal estate lease. In 2017, sales by Company-operated restaurants and revenues from franchised restaurants represented 95.3% and 4.7% of our total revenues,respectively. In 2016 and 2015, sales by Company-operated restaurants and revenues from franchised restaurants represented 95.7% and 4.3% and 96.0% and 4.0%of our total revenues, respectively. Operating Costs & Expenses Our sales are heavily influenced by brand advertising, menu selection and initiatives to improve restaurant operations. Sales are also affected by the timing ofrestaurant openings and closures. We do not record sales from our franchised restaurants as revenues. Company-operated restaurants incur four types of operating costs and expenses: ·food and paper costs, which represent the costs of the products that we sell to customers in Company-operated restaurants; ·payroll and employee benefit costs, which represent the wages paid to Company-operated restaurant managers and crew, as well as the costs of benefitsand training, and which tend to increase as we increase sales; ·occupancy and other operating expenses, which represent all other direct costs of our Company-operated restaurants, including advertising andpromotional expenses, the costs of outside rent, which are generally tied to sales and therefore increase as we increase our sales, outside services, such assecurity and cash collection, building and leasehold improvement depreciation, depreciation on equipment, repairs and maintenance, insurance, restaurantoperating supplies and utilities; and ·royalty fees, representing the continuing franchise fees we pay to McDonald’s pursuant to the MFAs, which are determined as a percentage of grossproduct sales. Franchised restaurant occupancy expenses include, mainly, as applicable, the costs of depreciating and maintaining the land and buildings upon whichfranchised restaurants are situated or the cost of leasing that property. A significant portion of our leases establish that rent payments are based on the greater of aflat fee or a specified percentage of the restaurant’s sales. We promote the McDonald’s brand and our products by advertising in all of the Territories. Pursuant to the MFAs, we are required to spend at least 5% of oursales on advertisement and promotion activities annually. These activities are guided by our overall marketing plan, which identifies the key strategic platformsthat we leverage to drive sales. Our franchisees are generally required to pay us 5% of their sales to cover advertising expenditures related to their restaurants. Weaccount for these payments as a deduction to our advertising expenses. As a result, our advertising expenses only reflect the expenditures related to Company-operated restaurants. Advertising expenses are recorded within the “Occupancy and other operating expenses” line item in our consolidated income statement. Theonly exception to this policy is in Mexico, where both we and our franchisees contribute funds to a cooperative that is responsible for advertisement and promotionactivities for Mexico. General and administrative expenses include the cost of overhead, including salaries and facilities, travel expenses, depreciation of office equipment, buildingsand vehicles, amortization of intangible assets, occupancy costs, professional services and the cost of field management for Company-operated and franchisedrestaurants, among others. 49 Table of ContentsOther operating income (expenses), net, include gains and losses on asset acquisitions and dispositions, gains related to sales of restaurant businesses, write-offs and related contingencies of property and equipment, insurance recovery, impairment charges, rental income and depreciation expenses of excess properties,accrual for contingencies, write-offs and write-downs of inventory, recovery of taxes and other miscellaneous items. Other Line Items Net interest expense primarily includes interest expense on our short-term and long-term debt as well as the amortization of deferred financing costs. Lossfrom derivative instruments relates primarily to the ineffective portion of derivative instruments. Foreign currency exchange results relate to the impact of remeasuring monetary assets and liabilities denominated in currencies other than our functionalcurrencies. See “—Foreign Currency Translation.” Other non-operating income (expenses), net, primarily include certain results related to tax credits, asset taxes and income tax adjustments related to prioryears that we are required to pay in certain countries and other non-operating charges. Income tax expense includes both current and deferred income taxes. Current income taxes represent the amount accrued during the period to be paid to thetax authorities while deferred income taxes represent the earnings impact of the change in deferred tax assets and liabilities that are recognized in our balance sheetfor future income tax consequences. Net income attributable to non-controlling interests relate to the participation of non-controlling interests in the net income of certain subsidiaries thatcollectively owned 15 restaurants at December 31, 2017 (18 restaurants at December 31, 2016). Impact of Inflation and Changing Prices Some of the countries in which we operate have experienced, or are currently experiencing, high rates of inflation. In general, we believe that, over time, wehave demonstrated the ability to manage inflationary environments effectively. During 2017 and 2016, our revenues were favorably impacted by our pricingstrategy in many of these inflationary environments, as we were able to increase average check to keep pace with inflation. The Venezuelan market is also subject to price controls, which limit our ability to increase prices to offset the impact of continuing high inflation on ouroperating costs. Although we managed to navigate the negative impact of the price controls on our operations during 2015, 2016 and 2017, the existence of suchlaws and regulations continues to present a risk to our business. We continue to closely monitor developments in this dynamic environment. Key Business Measures We track our results of operations and manage our business by using three key business measures: comparable sales growth, average restaurant sales and salesgrowth. In analyzing business trends, management considers a variety of performance and financial measures which are considered to be non-GAAP including:Adjusted EBITDA, comparable sales growth, systemwide data and constant currency measures. Comparable Sales Comparable sales is a key performance indicator used within the retail industry and is indicative of the success of our initiatives as well as local economic,competitive and consumer trends. Comparable sales are driven by changes in traffic and average check, which is affected by changes in pricing and product mix.Increases or decreases in comparable sales represent the percent change in sales from the prior year for all restaurants in operation for at least thirteen months,including those temporarily closed. Some of the reasons restaurants may close 50 Table of Contents temporarily include reimaging or remodeling, rebuilding, road construction and natural disasters. With respect to restaurants where there are changes in ownership,all previous months’ sales are reclassified according to the new ownership category when reporting comparable sales. As a result, there will be discrepanciesbetween the sales figures used to calculate comparable sales and our results of operations. We report on a calendar basis, and therefore the comparability of thesame month, quarter and year with the corresponding period for the prior year is impacted by the mix of days. The number of weekdays, weekend days and timingof holidays in a period can impact comparable sales positively or negatively. We refer to these impacts as calendar shift/trading day adjustments. These impactsvary geographically due to consumer spending patterns and have the greatest effect on monthly comparable sales while annual impacts are typically minimal. We calculate and analyze comparable sales and average check in our divisions and systemwide on a constant currency basis, which means that sales in localcurrencies, including the Venezuelan bolivar , are converted to U.S. dollar using the same exchange rate in the applicable division or systemwide, as applicable,over the periods under comparison to remove the effects of currency fluctuations from the analysis. We believe these constant currency measures, which areconsidered to be non-GAAP measures, provide a more meaningful analysis of our business by identifying the underlying business trend, without distortion fromthe effect of foreign currency fluctuations. Company-operated comparable sales growth refers to comparable sales growth for Company-operated restaurants and franchised comparable sales growthrefers to comparable sales growth for franchised restaurants. We believe comparable sales growth is a key indicator of our performance, as influenced by ourstrategic initiatives and those of our competitors. Average Restaurant Sales Average restaurant sales, or ARS, is an important measure of the financial performance of our systemwide restaurants and changes in the overall direction andtrends of sales. ARS is calculated by dividing the sales for the relevant period by the arithmetic mean of the number of restaurants at the beginning and end of suchperiod. ARS is influenced mostly by comparable sales performance and restaurant openings and closures. As ARS is provided in nominal terms, it is affected bymovements in foreign currency exchange rates. Sales Growth Sales growth refers to the change in sales by all restaurants, whether operated by us or by franchisees, from one period to another. We present sales growthboth in nominal terms and on a constant currency basis, which means the latter is calculated by converting sales in local currencies, including the Venezuelanbolivar , to U.S. dollar using the same exchange rate over the periods under comparison to remove the effects of currency fluctuations from the analysis. Adjusted EBITDA We use Adjusted EBITDA to facilitate operating performance comparisons from period to period. Adjusted EBITDA is defined as our operating income plusdepreciation and amortization plus/minus the following losses/gains included within other operating income (expenses), net, and within general and administrativeexpenses in our statement of income: gains from sale or insurance recovery of property and equipment; write-offs and related contingencies of property andequipment; impairment of long-lived assets and goodwill; stock-based compensation related to the special awards in connection with the initial public offering,under the 2011 Equity Incentive Plan; reorganization and optimization plan expenses; and incremental compensation related to the modification of our 2008 long-term incentive plan. See “Item 3. Key Information—A. Selected Financial Data.” We believe Adjusted EBITDA facilitates company-to-company operating performance comparisons by backing out potential differences caused by variationssuch as capital structures (affecting net interest expense and other financial charges), taxation (affecting income tax expense) and the age and book depreciation offacilities and equipment (affecting relative depreciation expense), which may vary for different companies for reasons unrelated to operating performance. Inaddition, we exclude gains from sale or insurance recovery of property and equipment not related to our core business; write-offs and related contingencies ofproperty and equipment and impairment of long-lived assets and goodwill that do not result in cash payments; stock-based compensation related to the specialawards under the 2011 Equity Incentive Plan; reorganization and optimization plan expenses; bonuses granted in connection with our initial public offering due toits special nature; and incremental compensation expense related to the modification of our 2008 long-term incentive plan. While a GAAP measure for purposes ofour segment 51 Table of Contents reporting, Adjusted EBITDA is a non-GAAP measure for reporting our total Company performance. Our management believes, however, that disclosure ofAdjusted EBITDA provides useful information to investors, financial analysts and the public in their evaluation of our operating performance. Systemwide data Systemwide data represents measures for both Company-operated and franchised restaurants. While sales by franchisees are not recorded as revenues by us,management believes the information is important in understanding our financial performance because these sales are the basis on which we calculate and recordfranchised restaurant revenues and are indicative of the financial health of our franchisee base. Systemwide results are driven primarily by our Company-operatedrestaurants, as 70.7% of our systemwide restaurants are Company-operated as of December 31, 2017. Foreign Currency Translation The financial statements of our foreign operating subsidiaries are translated in accordance with guidance in ASC 830, Foreign Currency Matters. Except forour Venezuelan operations, the functional currencies of our foreign operating subsidiaries are the local currencies of the countries in which we conduct ouroperations. Therefore, the assets and liabilities of these subsidiaries are translated into U.S. dollars at the exchange rates as of the balance sheet date, and revenuesand expenses are translated at the average exchange rates prevailing during the period. Translation adjustments are included in the “Accumulated othercomprehensive loss” component of shareholders’ equity. We record foreign currency exchange results related to monetary assets and liabilities transactions,including intercompany transactions, denominated in currencies other than our functional currencies in our consolidated income statement. Venezuela Effective January 1, 2010, Venezuela is considered to be highly inflationary. Under U.S. GAAP, an economy is considered to be highly inflationary when itsthree-year cumulative rate of inflation meets or exceeds 100%. Under the highly inflationary basis of accounting, the financial statements of our Venezuelansubsidiaries are remeasured as if their functional currency were our reporting currency (U.S. dollars), with remeasurement gains and losses recognized in earnings,rather than in the cumulative translation adjustment component of other comprehensive loss within shareholders’ equity. In February 2003, Venezuela’s government implemented an exchange control regime to restrict the conversion of local currency into foreign currency, whichis still in force. Since its implementation, multiple exchange rate systems have been implemented. The administration of Venezuela’s exchange rate system is theresponsibility of the National Center of Foreign Trade ( Centro Nacional de Comercio Exterior ) or CENCOEX, which was established in November 2013. On February 10, 2015, Exchange Agreement N°33 established a new open-market foreign exchange system called SIMADI ( Sistema Marginal de Divisas ).SIMADI functioned on free-market principles with foreign currency offered either by PDVSA (Petróleos de Venezuela), the Central Bank of Venezuela or theprivate sector. During February and March of 2016, the Venezuelan government announced new changes to the official exchange control system, which were published inthe Official Gazette number 40,865 dated March 9, 2016 and through which the Venezuelan Central Bank and the Ministry for Banking and Finance issuedExchange Agreement N° 35, effective March 10, 2016. The Exchange Agreement set forth the rules that govern foreign exchange transactions carried out by publicand private entities and individuals in Venezuela, eliminated SIMADI, and created a dual exchange system consisting of two exchange rates for the purchase andsale of foreign currency: the protected rate, or DIPRO, for priority goods (food and medicines) and services, and the supplementary floating market rate, orDICOM, for other transactions, including the settlement of transactions for the purchase and sale of foreign currency. As a result of the foregoing, the acquisition of foreign currency at the official exchange rate by Venezuelan companies to honor foreign debt, pay dividends orotherwise move capital out of Venezuela is subject to the approval of CENCOEX and to the availability of foreign currency within the DICOM. 52 Table of Contents During 2016, the DIPRO remained unchanged at Bs.10.00 per U.S. dollar. As of January 2016, the SIMADI rate was at Bs.200 per dollar; however, such ratebegan depreciating constantly throughout the year. For example, on April 29, the SIMADI rate was at Bs.378.37 per dollar, on June 1 was at Bs.543.30 per dollarand on July 29 it was at Bs.645.09 per dollar. Following this devaluation, the SIMADI rate remained stable during the second semester of 2016. For instance, onDecember 29 such rate was at Bs.673.83 per dollar. In early 2017, the SIMADI rate began depreciating again. For example, on January 13, 2017, the SIMADI ratewas at 676.2 per U.S. dollar and on February 8, 2017 was at 690.98 per U.S. dollar. Effective May 19, 2017, a new Exchange Agreement was issued setting new rules on foreign exchange transactions and replacing DICOM. The newregulation provides for access to a supplementary floating market rate called DICOM II, which operates through an auction mechanism. To participate in DICOMII, the parties must be previously registered with the market and make a sworn statement declaring the origin or destination of the funds. The first auction resultswere published on May 31, 2017 with an exchange rate of 2,010 VEF per U.S. dollar. As of December 31, 2017, the DICOM II exchange rate settled at 3,345 VEFper U.S. dollar. During February 2018, the Venezuelan government announced the unification of DIPRO and DICOM II into a single foreign exchange mechanism calledDICOM. The unified system operates through an auction mechanism similar to DICOM II. The first auction results were published on February 5, 2018, with andexchange rate of 25,000 VEF per U.S. dollar. As a result of the new foreign exchange mechanism, we will reassess the exchange rate used for remeasurementpurposes as of March 31, 2018, based on any new available information. As of December 31, 2017, our local currency-denominated net monetary position was$(9.7) million (including $13.0 million of cash and cash equivalents). In addition, Venezuela’s non-monetary assets were $75.2 million (including approximately$33.5 million of fixed assets and advances to suppliers). Currency devaluations in Venezuela have had a significant effect on our income statements and have impacted the comparability of our income statements in2017, 2016 and 2015 as compared to 2014 and 2013. For more details about the Venezuelan exchange rate used for financial reporting, see Note 22 to ourconsolidated financial statements. Critical Accounting Policies and Estimates This management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which havebeen prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to makeestimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses as well as related disclosures. On an ongoing basis, weevaluate our estimates and judgments based on historical experience and various other factors that we believe to be reasonable under the circumstances. Actualresults may differ from these estimates under varying assumptions or conditions. We consider an accounting estimate to be critical if: ·the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters orthe susceptibility of such matters to change; and ·the impact of the estimates and assumptions on our financial condition or operating performance is material. We believe that of our significant accounting policies, the following encompass a higher degree of judgment and/or complexity. Depreciation of Property and Equipment Accounting for property and equipment involves the use of estimates for determining the useful lives of the assets over which they are to be depreciated. Webelieve that the estimates we make to determine an asset’s useful life are critical accounting estimates because they require our management to make estimatesabout technological evolution and competitive uses of assets. We depreciate property and equipment on a straight-line basis over their useful lives based onmanagement’s estimates of the period over which these assets will generate revenue (not to exceed the lease term plus renewal options for leased property). Theuseful lives are estimated based on historical experience with similar assets, taking into account anticipated technological or other changes. We periodically 53 Table of Contents review these lives relative to physical factors, economic considerations and industry trends. If there are changes in the planned use of property and equipment, or iftechnological changes occur more rapidly than anticipated, the useful lives assigned to these assets may need to be shortened, resulting in the recognition ofincreased depreciation and amortization expense or write-offs in future periods. No significant changes to useful lives have been recorded in the past. A significantchange in the facts and circumstances that we relied upon in making our estimates may have a material impact on our operating results and financial condition. Impairment of Long-Lived Assets and Goodwill We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not berecoverable. We review goodwill for impairment annually, primarily during the fourth quarter. In assessing the recoverability of our long-lived assets andgoodwill, we consider changes in economic conditions and make assumptions regarding, among other factors, estimated future cash flows by market and byrestaurant, discount rates by country and the fair value of the assets. Estimates of future cash flows are highly subjective judgments based on our experience andknowledge of our operations. These estimates can be significantly impacted by many factors, including changes in global and local business and economicconditions, operating costs, inflation, competition, and consumer and demographic trends. A key assumption impacting estimated future cash flows is the estimatedchange in comparable sales. See Note 3 to our consolidated financial statements for a detail of markets for which we performed impairment tests of our long-lived assets and goodwill, aswell as impairment charges recorded. If our estimates or underlying assumptions change in the future, we may be required to record additional impairment charges. Share-Based Compensation We have share-based compensation plans outstanding pursuant to which we granted, until 2011, liability awards to certain employees under a long-termincentive plan. The accrued liability is remeasured at the end of each reporting period until settlement. As of December 31, 2017, the accrued liability amounted to$1.4 million. The fair value of our liability awards is estimated using the Black-Scholes model. Accounting for our share-based compensation plans involves theuse of estimates for determining: (a) the number of units that will vest based on the estimated completion of the requisite service period, and (b) the assumptionsrequired by the closed-form pricing model (expected volatility, dividend yield, risk-free interest rate and expected term). These assumptions are estimated asfollows: ·Expected volatility: based on implied volatility of our class A shares. ·Dividend yield: based on estimated annual dividends over the Company’s market capitalization. ·Risk-free interest: prevailing implied interest rate of the U.S. Treasury zero-coupon strips with a remaining time to maturity similar to the expected termof the plan. ·Expected term: estimated as an average of the vesting term and the original contractual term of the plan. All of these assumptions significantly impact the estimated fair value of the awards. We use historical data and estimates to determine these assumptions, andif these assumptions and/or the stock price change significantly in the future, our operating results and financial condition could be significantly impacted. In March 2011, we adopted our Equity Incentive Plan, or 2011 Plan, to attract and retain the most highly qualified and capable professionals and to promotethe success of our business through an annual award program. The 2011 Plan permits grants of awards relating to our class A shares, including awards in the formof share (also referred to as stock) options, restricted shares, restricted share units, share appreciation rights, performance awards and other share-based awards aswill be determined by our Board of Directors. The maximum number of shares that may be issued under the 2011 Plan is 5,238,235 class A shares, equal to 2.5%of our total outstanding class A and class B shares immediately following our initial public offering on April 14, 2011. Restricted share units are measured at the grant-date market price of our class A shares. Stock options are accounted for at their grant-date fair value. Fairvalue of stock options is calculated using the Black-Scholes option 54 Table of Contents pricing model. This calculation is affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables (expectedvolatility, dividend yield, risk-free interest rate and expected term). These assumptions are estimated as was previously described for our liability awards. On June 28, 2016, 1,117,380 stock options were converted to a liability award. 104 employees were affected by this modification. There were no incrementalcompensation costs resulting from this modification. The accrued liability is remeasured on a monthly basis until settlement, using the Black-Scholes model. See Note 17 to our consolidated financial statements for additional detail on the assumptions used in our estimates and the amounts involved. Accounting for Taxes We record a valuation allowance to reduce the carrying value of deferred tax assets if it is more likely than not that some portion or all of our deferred assetswill not be realized. Our valuation allowance as of December 31, 2017, 2016 and 2015 amounted to $271.7 million, $290.6 million and $297.9 million,respectively. We have considered future taxable income and ongoing prudent and feasible tax strategies in assessing the need for the valuation allowance. Thisassessment is carried out on the basis of internal projections, which are updated to reflect our most recent operating trends, such as the expiration date for tax losscarryforwards. Because of the imprecision inherent in any forward-looking data, the further into the future our estimates project, the less objectively verifiable theybecome. Therefore, we apply judgment to define the period of time to include projected future income to support the future realization of the tax benefit of anexisting deductible temporary difference or carryforward and whether there is sufficient evidence to support the projections at a more-likely-than-not level for thisperiod of time. Determining whether a valuation allowance for deferred tax assets is necessary often requires an extensive analysis of positive (e.g., a history ofaccurately projecting income) and negative evidence (e.g., historic operating losses) regarding realization of the deferred tax assets and inherent in that, anassessment of the likelihood of sufficient future taxable income. In 2017 and 2016, we recognized gains amounting to $19.1 million and $17.0 million,respectively, and in 2015, we recognized a loss amounting to $63.9 million, related to tax loss carryforwards for which realization is not expected to occur. If theseestimates and assumptions change in the future, we may be required to adjust the valuation allowance. This could result in a charge to, or an increase in, income inthe period this determination is made. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. The Company assesses the likelihood ofany adverse judgments or outcomes on its tax positions, including income tax and other taxes, based on the technical merits of a tax position derived fromauthorities such as legislation and statutes, legislative intent, regulations, rulings and case law and their applicability to the facts and circumstances of the taxposition. Such outcomes may change in the future due to new developments in each matter. As of December 31, 2017, in accordance with ASC 740, there are certain matters related to the interpretation of income tax laws for which there is apossibility that a loss may have been incurred, in an amount of $150 million, related to assessments for the fiscal years 2009 to 2013. No formal claim has beenmade for fiscal years within the statute of limitations by taxing authorities in any of the mentioned matters. However, those years are still subject to audit andclaims may be asserted in the future. Provision for Contingencies We have certain contingent liabilities with respect to existing or potential claims, lawsuits and other proceedings, including those involving labor, tax andother matters. Accounting for contingencies involves the use of estimates for determining the probability of each contingency and the estimated amount to settlethe obligation, including related costs. We accrue liabilities when it is probable that future costs will be incurred and the costs can be reasonably estimated. Theaccruals are based on all the information available at the issuance date of the financial statements, including our estimates of the outcomes of these matters and ourlawyers’ experience in contesting, litigating and settling similar matters. If we are unable to reliably measure the obligation, no provision is recorded andinformation is then presented in the notes to our consolidated financial statements. As the scope of the liabilities becomes better defined, there may be changes inthe estimates of future costs. Because of the inherent uncertainties in this estimation, actual expenditures may be different from the originally estimated amountrecognized. See “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Legal Proceedings” for a description of significantclaims, lawsuits and other proceedings. See Note 18 to our consolidated financial statements. 55 Table of Contents Results of Operations We have based the following discussion on our consolidated financial statements. You should read it along with these financial statements, and it is qualifiedin its entirety by reference to them. In a number of places in this annual report, in order to analyze changes in our business from period to period, we present our results of operations and financialcondition on a constant currency basis, which is considered to be a non-GAAP measure. Constant currency results isolate the effects of foreign exchange rates onour results of operations and financial condition. In particular, we have isolated the effects of appreciation and depreciation of local currencies in the Territoriesagainst the U.S. dollar because we believe that doing so is useful in understanding the development of our business. For these purposes, we eliminate the effect ofmovements in the exchange rates by converting the balances in local currency for both periods being compared from their local currencies to the U.S. dollar usingthe same exchange rate. Key Business Measures The following tables present sales, sales growth, sales growth on a constant currency basis, comparable sales growth and average restaurant salesincreases/(decreases): Sales Sales growth Sales growth in constant currency Comparable salesgrowth For the Years Ended December 31, For the Years EndedDecember 31, For the Years EndedDecember 31, For the Years EndedDecember 31, 2017 2016 2015 2017 (1) 2016 (3) 2017 (1) 2016 (3) 2017 (2) 2016(4) (in thousands of U.S. dollars, except percentages) Sales byCompany-operatedrestaurants $3,162,256 $2,803,334 $2,930,379 12.8% (4.3)% 21.4% 13.5% 22.2% 13.9%Franchisedsales (5) 1,250,606 990,220 973,708 26.3% 1.7% 45.9% 21.2% 36.9% 15.8%Systemwidesales 4,412,862 3,793,554 3,904,087 16.3% (2.8)% 27.8% 15.4% 26.3% 14.4%(1)In nominal terms, sales increased during 2017 due to comparable sales growth of 26.3%, mainly as a result of hyperinflation in Venezuela, the net addition of 47 restaurants systemwidesince January 1, 2016 and the appreciation of the Brazilian real against the U.S. dollar. We had 1,546 Company-operated restaurants and 642 franchised restaurants as of December 31,2017, compared to 1,553 Company-operated restaurants and 603 franchised restaurants as of December 31, 2016. This was partially offset by the negative impact of the depreciation ofcurrencies mainly in Venezuela and Argentina against the U.S. dollar.(2)Our comparable sales growth on a systemwide basis in 2017 was driven by the increase in average check, which resulted mainly from price increases and from increased traffic at ourrestaurants.(3)In nominal terms, sales decreased during 2016 due to the negative impact of the depreciation of most currencies in the Territories against the U.S. dollar. This was partially offset bycomparable sales growth of 14.4% and the net addition of 35 restaurants systemwide since January 1, 2015. We had 1,553 Company-operated restaurants and 603 franchised restaurants asof December 31, 2016, compared to 1,588 Company-operated restaurants and 553 franchised restaurants as of December 31, 2015.(4)Our comparable sales growth on a systemwide basis in 2016 was driven by the increase in average check, which resulted mainly from price increases.(5)Franchised sales correspond to sales generated by franchised restaurants, which we do not collect. Revenues from franchised restaurants primarily consist of rental income. 56 Table of Contents By division Sales Sales growth Sales growth in constant currency Comparable salesgrowth For the Years Ended December 31, For the Years EndedDecember 31, For the Years EndedDecember 31, For the Years EndedDecember 31, 2017 2016 2015 2017 2016 2017 2016 2017 2016 (in thousands of U.S. dollars, except percentages)Sales byCompany-operatedrestaurants: Brazil $1,396,411 $1,254,684 $1,289,543 11.3% (2.7)% 2.8% 2.4% 4.8% 3.6%Caribbeandivision 457,034 396,807 386,512 15.2% 2.7% 85.3% 29.5% 84.6% 29.6%NOLAD 370,456 349,190 351,122 6.1% (0.6)% 7.9% 7.5% 6.8% 4.7%SLAD 938,355 802,653 903,202 16.9% (11.1)% 24.7% 24.8% 24.1% 24.8%Total Sales byCompany-operatedrestaurants 3,162,256 2,803,334 2,930,379 12.8% (4.3)% 21.4% 13.5% 22.2% 13.9% Franchisedsales: (3) Brazil 815,184 630,706 589,994 29.2% 6.9% 19.5% 11.8% 9.0% 3.7%Caribbeandivision 127,599 96,646 91,411 32.0% 5.7% 279.2% 94.7% 283.3% 97.9%NOLAD 142,657 132,745 145,951 7.5% (9.0)% 7.8% 0.8% 7.5% 2.7%SLAD 165,166 130,123 146,352 26.9% (11.1)% 38.9% 33.5% 31.7% 30.5%TotalFranchisedsales 1,250,606 990,220 973,708 26.3% 1.7% 45.9% 21.2% 36.9% 15.8% Systemwidesales: Brazil 2,211,595 1,885,390 1,879,537 17.3% 0.3% 8.4% 5.4% 6.3% 3.6%Caribbeandivision 584,633 493,453 477,923 18.5% 3.2% 123.2% 42.0% 123.4% 42.5%NOLAD 513,113 481,935 497,073 6.5% (3.0)% 7.8% 5.6% 7.0% 4.1%SLAD 1,103,521 932,776 1,049,554 18.3% (11.1)% 26.7% 26.0% 25.3% 25.6%TotalSystemwidesales 4,412,862 3,793,554 3,904,087 16.3% (2.8)% 27.8% 15.4% 26.3% 14.4% Sales Number of restaurants Average restaurant sales For the Years Ended December 31, For the Years Ended December 31, For the Years Ended December 31, 2017 2016 2015 2017 2016 2015 2014 2017 (1) 2016 (2) 2015 (in thousands of U.S. dollars, except for number of restaurants) Sales byCompany-operatedrestaurants $3,162,256 $2,803,334 $2,930,379 1,546 1,553 1,588 1,577 $2,041 $1,785 $1,852 Franchisedsales (3) $1,250,606 $990,220 973,708 642 603 553 544 $2,009 $1,713 $1,775 Systemwidesales $4,412,862 $3,793,554 $3,904,087 2,188 2,156 2,141 2,121 $2,032 $1,766 $1,832 (1)Our ARS increased in 2017 due to the comparable sales growth of 26.3%, mainly as a result of hyperinflation in Venezuela and the appreciation of the Brazilian real against the U.S.dollar, partially offset by the depreciation of currencies, mainly in Venezuela and Argentina, against the U.S. dollar.(2)Our ARS decreased in 2016 because of the depreciation of most currencies in the Territories against the U.S. dollar, partially offset by comparable sales growth of 14.4%.(3)Franchised sales correspond to sales generated by franchised restaurants, which we do not collect. Revenues from franchised restaurants primarily consist of rental income. 57 Table of Contents Year Ended December 31, 2017 Compared to Year Ended December 31, 2016 Set forth below are our results of operations for the years ended December 31, 2017 and 2016. For the Years Ended December 31, % 2017 2016Increase (in thousands of U.S. dollars) (Decrease)Sales by Company-operated restaurants $3,162,256 $2,803,334 12.8%Revenues from franchised restaurants $157,269 $125,296 25.5%Total revenues $3,319,525 $2,928,630 13.3%Company-operated restaurant expenses: Food and paper $(1,110,240) $(1,012,976) 9.6%Payroll and employee benefits $(683,954) $(607,082) 12.7%Occupancy and other operating expenses $(842,519) $(752,428) 12.0%Royalty fees $(163,954) $(142,777) 14.8%Franchised restaurants – occupancy expenses $(69,836) $(55,098) 26.7%General and administrative expenses $(244,664) $(221,075) 10.7%Other operating income, net $68,577 $41,386 65.7%Total operating costs and expenses $(3,046,590) $(2,750,050) 10.8%Operating income $272,935 $178,580 52.8%Net interest expense $(68,357) $(66,880) 2.2%Loss from derivative instruments $(7,065) $(3,065) 130.5%Foreign currency exchange results $(14,265) $32,354 (144.1)%Other non-operating expenses, net $(435) $(2,360) (81.6)%Income before income taxes $182,813 $138,629 31.9%Income tax expense $(53,314) $(59,641) (10.6)%Net income $129,499 $78,988 63.9%Less: Net income attributable to non-controlling interests $(333) $(178) 87.1%Net income attributable to Arcos Dorados Holdings Inc. $129,166 $78,810 63.9%Set forth below is a summary of changes to our systemwide, Company-operated and franchised restaurant portfolios in 2017 and 2016. 58 Table of Contents Systemwide Restaurants For the Years Ended December 31, 2017 2016Systemwide restaurants at beginning of period 2,156 2,141 Restaurant openings 50 33 Restaurant closings (18) (18)Systemwide restaurants at end of period 2,188 2,156 Company-Operated Restaurants For the Years Ended December 31, 2017 2016Company-operated restaurants at beginning of period 1,553 1,588 Restaurant openings 31 17 Restaurant closings (16) (11)Net conversions of franchised restaurants to Company-operated restaurants (22) (41)Company-operated restaurants at end of period 1,546 1,553 Franchised Restaurants For the Years Ended December 31, 2017 2016Franchised restaurants at beginning of period 603 553 Restaurant openings 19 16 Restaurant closings (2) (7)Net conversions of franchised restaurants to Company-operated restaurants 22 41 Franchised restaurants at end of period 642 603 Revenues For the Years Ended December 31, 2017 2016 (in thousands of U.S. dollars) % IncreaseSales by company-operated restaurants Brazil $1,396,411 $1,254,684 11.3%Caribbean division $457,033 $396,807 15.2%NOLAD $370,457 $349,190 6.1%SLAD $938,355 $802,653 16.9%Total $3,162,256 $2,803,334 12.8%Revenues from franchised restaurants Brazil $100,162 $78,553 27.5%Caribbean division $17,789 $12,864 38.3%NOLAD $16,417 $14,775 11.1%SLAD $22,901 $19,104 19.9%Total $157,269 $125,296 25.5%Total revenues Brazil $1,496,573 $1,333,237 12.3%Caribbean division $474,822 $409,671 15.9%NOLAD $386,874 $363,965 6.3%SLAD $961,256 $821,757 17.0%Total $3,319,525 $2,928,630 13.3% Sales by Company-operated Restaurants Total sales by Company-operated restaurants increased by $358.9 million, or 12.8%, from $2,803.3 million in 2016 to $3,162.3 million in 2017, mainly due to22.2% growth in comparable sales, which caused sales to increase 59 Table of Contents by $603.9 million. This increase in comparable sales was mostly due to the hyperinflation in Venezuela, partially offset by the depreciation of currencies, mainly inVenezuela and Argentina, against the U.S. dollar ($240.2 million) and the net conversion of 63 Company-operated restaurants into franchised restaurants, partiallyoffset by 21 net restaurant openings since January 1, 2016, which caused sales to decrease by $4.8 million. In Brazil, sales by Company-operated restaurants increased by $141.7 million, or 11.3%, to $1,396.4 million. This was a consequence of the appreciation ofthe real against the U.S. dollar, which caused sales to increase by $106.7 million, and comparable sales growth of 4.8%, or $57.7 million, which was driven byaverage check and traffic increases. This was partially offset by the conversion of 54 Company-operated restaurants into franchised restaurants (partially offset by18 net restaurant openings) since January 1, 2016, which caused sales to decrease by $22.7 million. In the Caribbean division, sales by Company-operated restaurants increased by $60.2 million, or 15.2%, to $457.0 million. This was a consequence of 84.6%growth in comparable sales, mainly resulting from a higher average check, related to Venezuela’s hyperinflation, which caused sales to increase by $333.3 million.Additionally, the opening of 3 restaurants, partially offset by the closing of 7 restaurants since January 1, 2016, contributed $5.0 million to sales increase. Thisincrease was partially offset by the depreciation of the Venezuelan bolivar against the U.S. dollar, which caused sales to decrease by $278.1 million, and thenegative impact of hurricanes in Puerto Rico, St. Thomas and St. Croix, during September 2017. In NOLAD, sales by Company-operated restaurants increased by $21.3 million, or 6.1%, to $370.5 million. This was a consequence of comparable salesgrowth of 6.8%, driven by traffic increase, which contributed $23.3 million to the increase in sales, and 3 net restaurant openings, partially offset by the conversionof 4 Company-operated restaurants into franchised restaurants since January 1, 2016, which contributed $4.1 million to sales increase. This was partially offset bythe depreciation of local currencies, which caused sales to decrease by $6.2 million. In SLAD, sales by Company-operated restaurants increased by $135.7 million, or 16.9%, to $938.4 million. This was a consequence of 24.1% growth incomparable sales, which caused sales to increase by $189.6 million, driven by an increase in average check, mainly related with Argentine inflation, and trafficincrease. Additionally, the opening of 9 restaurants, partially offset by the conversion of 5 Company-operated restaurants into franchised restaurants and theclosing of 5 restaurants since January 1, 2016, contributed $8.7 million to the increase in sales. This was partially offset by the depreciation of the Argentine pesoagainst the U.S. dollar, which caused sales to decrease by $62.6 million. Revenues from Franchised Restaurants Our total revenues from franchised restaurants increased by $32.0 million, or 25.5%, from $125.3 million in 2016 to $157.3 million in 2017. The maincontributor to this increase was comparable sales growth of 36.9%, mainly due to Venezuela’s hyperinflation, which resulted in an increase in revenues of $52.7million, coupled with the conversion of 63 Company-operated restaurants into franchised restaurants and the net opening of 26 franchised restaurants since January1, 2016, which caused revenues from franchised restaurants to increase by $8.3 million. . This was partially offset by the depreciation of currencies, mainly inVenezuela and Argentina, against the U.S. dollar, by $28.0 million and lower rental income as a percentage of sales, which decreased from 12.7% in 2016 to12.6% in 2017 and contributed $1.0 million to the decrease in revenues. In Brazil, revenues from franchised restaurants increased by $21.6 million, or 27.5%, to $100.2 million primarily as a result of the conversion of 54 Company-operated restaurants into franchised restaurants and the net opening of 28 franchised restaurants, since January 1, 2016, which caused revenues from franchisedrestaurants to increase by $7.7 million, and comparable sales growth of 9.0%, which contributed $7.5 million of the increase. In addition, the appreciation of thereal against the U.S. dollar made a positive impact on revenues in the region by $7.5 million. This was partially offset by a decrease in rental income as apercentage of sales, which resulted in a decrease in revenues of $1.1 million. In the Caribbean division, revenues from franchised restaurants increased by $4.9 million, or 38.3%, to $17.8 million. This increase was driven by comparablesales growth of 283.3%, mainly affected by Venezuela’s hyperinflation, resulting in $37.8 million increase in revenues, and an increase in rental income as apercentage of sales, which contributed in $0.6 million. This was partially offset by the depreciation of the Venezuelan bolivar 60 Table of Contents against the U.S. dollar and the closing of 2 restaurants since January 1, 2016, negatively affecting revenues by $33.3 million and $0.2 million, respectively.Franchised sales were also negatively affected by the impact of hurricanes in Puerto Rico, during September, 2017. In NOLAD, revenues from franchised restaurants increased by $1.6 million, or 11.1%, to 16.4 million. This increase was a result of comparable sales growthof 7.5%, which resulted in a $1.2 million increase in revenues, and an increase in rental income as a percentage of sales, which contributed $0.5 million to theincrease. These effects were partially offset by the depreciation of the Mexican peso against the U.S. dollar, which caused revenues to decrease by $0.1 million. Inaddition, the conversion of 4 franchised restaurants into Company-operated restaurants was partially offset by the net closing of 2 restaurant since January 1, 2016. In SLAD, revenues from franchised restaurants increased by $3.8 million, or 19.9%, to $22.9 million. This increase resulted mainly from comparable salesgrowth of 31.7%, which accounted for $6.3 million increase in revenues, coupled with the opening of 2 restaurants and the conversion of 5 Company-operatedrestaurants into franchised restaurants since January 1, 2016, which caused revenues to increase by $0.7 million. This was partially offset by the depreciation of theArgentine peso against the U.S. dollar and lower rental income as a percentage of sales, which represented a decrease in revenues of $2.2 million and $1.1 million,respectively. The growth in comparable sales was driven by an increase in average check, mainly related to Argentinean inflation and traffic increase. Operating Costs and Expenses Food and Paper Our total food and paper costs increased by $97.3 million, or 9.6%, to $1,110.2 million in 2017, as compared to 2016. As a percentage of our total sales byCompany-operated restaurants, food and paper costs decreased by 1.0 percentage points to 35.1%, primarily as a result of raw materials cost increases below priceincreases and operational efficiencies in Brazil and SLAD. In Brazil, food and paper costs increased by $25.9 million to $459.5 million. As a percentage of the division’s sales by Company-operated restaurants, foodand paper costs decreased by 1.7 percentage points to 32.9%, primarily as a result of raw materials cost increases below price increases, mainly with respect tobeef, coupled with operational efficiencies. In the Caribbean division, food and paper costs increased by $20.9 million, or 14.0%, to $169.7 million. As a percentage of the division’s sales by Company-operated restaurants, food and paper costs decreased by 0.4 percentage points to 37.1%, primarily due to a favorable change in the product mix in Venezuela. In NOLAD, food and paper costs decreased by $10.1 million, or 7.5%, to $144.1 million. As a percentage of the division’s sales by Company-operatedrestaurants, food and paper costs increased by 0.5 percentage points to 38.9%, resulting primarily from lower price increases as compared to cost increases relatedto the Company’s focus on promotional activities in order to regain traffic in Mexico. In SLAD, food and paper costs increased by $40.4 million, or 13.6%, to $337.0 million. As a percentage of the division’s sales by Company-operatedrestaurants, food and paper costs decreased by 1.0 percentage points to 35.9%, mainly due to raw materials cost increases below price increases and operationalefficiencies. Payroll and Employee Benefits Our total payroll and employee benefits costs increased by $76.9 million, or 12.7%, to $684.0 million in 2017, as compared to 2016. As a percentage of ourtotal sales by Company-operated restaurants, payroll and employee benefits costs decreased 0.1 percentage points to 21.6%. The decrease is mostly attributable tohigher sales increase as compared to salaries increase in Venezuela. This was partially offset by higher contingencies in Brazil and salaries increase in SLAD,related to Argentina’s inflation. In Brazil, payroll and employee benefits costs increased by $35.9 million, or 12.5%, to $322.4 million. As a percentage of the division’s sales by Company-operated restaurants, payroll and employee benefits costs increased by 0.3 percentage points to 23.1%, mainly as a result of higher contingencies in response to theincreased efficiency of Brazilian courts in managing certain labor claims, which was partially offset by operational efficiencies. 61 Table of Contents In the Caribbean division, payroll and employee benefits costs decreased by $0.3 million, or 0.3%, to $85.3 million. As a percentage of the division’s sales byCompany-operated restaurants, payroll and employee benefits costs decreased by 2.9 percentage points to 18.7%, as a result of higher sales increase as comparedto salaries increase in Venezuela and higher government incentives for employers. Moreover, in connection with the negative impact of the hurricanes in PuertoRico in September 2017, and like many other companies in the region, we recorded lower bonuses in Puerto Rico. In NOLAD, payroll and employee benefits costs increased by $4.3 million, or 7.5%, to $61.0 million. As a percentage of the division’s sales by Company-operated restaurants, payroll and employee benefits costs increase by 0.2 percentage points to 16.5% as a result of higher bonuses in Mexico. In SLAD, payroll and employee benefits costs decreased by $37.0 million, or 20.8%, to $215.2 million. As a percentage of the division’s sales by Company-operated restaurants, payroll and employee benefits increased by 0.7 percentage points to 22.9% as a result of salaries increase related to Argentina’s inflation. Occupancy and Other Operating Expenses Our total occupancy and other operating expenses increased by $90.1 million, or 12.0%, to $842.5 million in 2017, as compared to 2016. As a percentage ofour total sales by Company-operated restaurants, occupancy and other operating expenses decreased 0.2 percentage points to 26.6%, mainly due to lowerdepreciation and amortization expenses in Venezuela, coupled with lower outside services and utilities in Brazil. Additionally, insurance payments related to thehurricanes that occurred in September 2017 in Puerto Rico, St. Croix and St. Thomas also contributed. In Brazil, occupancy and other operating expenses increased by $35.5 million, or 10.7%, to $365.8 million. As a percentage of the division’s sales byCompany-operated restaurants, occupancy and other operating expenses decreased by 0.1 percentage points to 26.2%, mainly due to lower outside services andutilities. In the Caribbean division, occupancy and other operating expenses increased by $12.6 million, or 10.4%, to $132.9 million. As a percentage of the division’ssales by Company-operated restaurants, occupancy and other operating expenses decreased 1.3 percentage points to 29.1%, mainly due to lower depreciation andamortization expenses in Venezuela and lower advertising and promotion expenses at the division level. Additionally, occupancy and other operating expensesincludes insurance payments related to the hurricanes that occurred in September 2017 in Puerto Rico, St. Croix and St. Thomas. In NOLAD, occupancy and other operating expenses increased by $6.8 million, or 6.1%, to $118.0 million. As a percentage of the division’s sales byCompany-operated restaurants, occupancy and other operating expenses remained unchanged at 31.9%. In SLAD, occupancy and other operating expenses increased by $35.2 million, or 17.1%, to $241.4 million. As a percentage of the division’s sales byCompany-operated restaurants, occupancy and other operating expenses remained unchanged at 25.7%. Royalty Fees Our total royalty fees increased by $21.2 million, or 14.8%, to $164.0 million in 2017, as compared to 2016. As a percentage of sales, royalty fees increasedby 0.1 percentage points to 5.2% due to the scheduled increase in the royalty fees we owe to McDonald’s under the MFA agreement effective as of August 2017,partially offset by the growth support funding that McDonald’s began providing us in August 2017. In Brazil, royalty fees increased by $7.0 million, or 10.5%, to $74.2 million in 2017. As a percentage of sales, royalty fees decreased by 0.1 percentage pointsto 5.3% as a result of growth support funding that McDonald’s began providing us in August 2017, partially offset by the scheduled increase in royalty fees weowe to McDonald’s under the MFA agreement as of August 2017. In the Caribbean division, royalty fees increased by $2.4 million, or 12.5%, to $22.1 million in 2017, as compared to 2016. As a percentage of sales, royaltyfees decreased by 0.1 percentage points to 4.8% as a result of a waiver granted by McDonald’s Corporation in Venezuela, partially offset by the scheduled increasein royalty fees we owe to McDonald’s under the MFA agreement as of August 2017. 62 Table of Contents In NOLAD, royalty fees increased by $2.6 million, or 15.5%, to $19.5 million in 2017, as compared to 2016. As a percentage of sales, royalty fees increasedby 0.4 percentage points to 5.3%, due to the scheduled increase in royalty fees we owe to McDonald’s under the MFA agreement as of August 2017. In SLAD, royalty fees increased by $9.1 million, or 23.2%, to $48.2 million in 2017, as compared to 2016. As a percentage of sales, royalty fees increased by0.3 percentage points to 5.1%, as a result of the scheduled increase in royalty fees under the MFA agreement as of August 2017. This was partially offset bygrowth support funding that McDonald’s began providing in August 2017. Franchised Restaurants—Occupancy Expenses Occupancy expenses from franchised restaurants increased by $14.7 million, or 26.7%, to $69.8 million in 2017, as compared to 2016, mainly due to higherrent expenses for leased properties, as a consequence of the increase in comparable sales from franchised restaurants, the conversion of Company-operatedrestaurants into franchised restaurants and store openings. This was partially offset by the depreciation of a number of local currencies in the Territories against theU.S. dollar. In Brazil, occupancy expenses from franchised restaurants increased by $10.5 million, or 28.6%, to $47.3 million in 2017, as compared to 2016, primarily dueto higher rent expenses for leased properties, as a consequence of the increase in comparable sales from franchised restaurants, the conversion of Company-operated restaurants into franchised restaurants, store openings and the negative effect of the appreciation of the Brazilian real against de U.S. dollar. In the Caribbean division, occupancy expenses from franchised restaurants increased by $2.9 million, or 36.9%, to $10.8 million. This was mainly due tohigher rent expenses for leased properties, as a consequence of the increase in sales from franchised restaurants caused by Venezuela’s hyperinflation, coupled withhigher allowances for doubtful accounts in Puerto Rico. This was partially offset by the depreciation of the Venezuelan bolivar against the U.S. dollar. In NOLAD, occupancy expenses from franchised restaurants increased by $0.2 million, or 1.9%, to $7.9 million in 2017, as compared to 2016, mainly due tohigher rent expenses for leased properties, as a consequence of the increase in comparable sales from franchised restaurants and the conversion of Company-operated restaurants into franchised restaurants. This was partially offset by the depreciation of the Mexican peso against the U.S. dollar. In SLAD, occupancy expenses from franchised restaurants increased by $1.3 million, or 29.6%, to $5.8 million in 2017, as compared to 2016, mainly due tohigher rent expenses for leased properties, as a consequence of the increase in comparable sales from franchised restaurants, the conversion of Company-operatedrestaurants into franchised restaurants and store openings. This was partially offset by the depreciation of the Argentine peso against the U.S. dollar. Set forth below are the margins for our franchised restaurants in 2017, as compared to 2016. The margin for our franchised restaurants is expressed as apercentage and is equal to the difference between revenues from franchised restaurants and occupancy expenses from franchised restaurants, divided by revenuesfrom franchised restaurants. For the Years Ended December 31, 2017 2016Brazil 52.8% 53.2%Caribbean Division 39.3% 38.7%NOLAD 51.9% 47.5%SLAD 74.5% 76.4%Total 55.6% 56.0% General and Administrative Expenses General and administrative expenses increased by $23.6 million, or 10.7%, to $244.7 million in 2017. This increase was mostly due to higher payroll, mainlyrelated to inflation, amounting to $17.5 million and higher bonuses and other variable compensation provisions amounting to $10.6 million, coupled with higheroutside 63 Table of Contents services and higher travel expenses, amounting to $7.5 million and $2.5 million, respectively. A decrease of management fees charged to McDonald’s Corporationfor services rendered to other markets that do not involve Arcos Dorados, amounting to $1.2 million, also contributed. This was partially offset by depreciation ofcurrencies in the Territories against the U.S. dollar, mainly the Venezuelan bolivar, amounting to $11.3 million and lower severance payment amounting to $5.3million. In Brazil, general and administrative expenses increased by $6.7 million, or 9.9%, to $74.1 million in 2017, as compared to 2016. The increase resulted fromthe appreciation of the Brazilian real against the U.S. dollar amounting to $5.7 million, higher payroll amounting to $1.8 million and higher bonuses and othervariable compensation amounting $0.5 million. This was partially offset by a decrease in outside services amounting to $1.0 million. In the Caribbean division, general and administrative expenses increased by $0.1 million, or 0.3%, to $32.4 million in 2017, as compared to 2016 mainly as aresult of Venezuela’s hyperinflation. The increase resulted from higher payroll, amounting to $5.7 million, higher travel expenses, amounting to $1.9 million,bonuses and other variable compensation, amounting to $1.6 million, higher other expenses, amounting to $1.0 million, outside services, amounting to $0.6million, and occupancy expenses, amounting to $0.3 million. This was offset by the depreciation of the Venezuelan bolívar and other currencies in the divisionagainst the U.S. dollar, amounting to $11.0 million. In NOLAD, general and administrative expenses increased by $2.1 million, or 9.7%, to $23.8 million in 2017, as compared to 2016. This increase is a result oflower management fees charged to McDonald’s Corporation for services rendered to other markets that do not involve Arcos Dorados, amounting to $0.9 million,higher payroll amounting to $0.8 million and higher bonuses and other variable compensation amounting to $0.5 million. Higher outside services amounting to$0.4 million also contributed. This was partially offset by the depreciation of the Costa Rica colón and the Mexican peso against the U.S. dollar amounting to $0.3million. In SLAD, general and administrative expenses increased by $3.7 million, or 12.0%, to $34.7 million in 2017, as compared to 2016. This increase was mostlydue to higher payroll, mainly as a result of Argentina’s inflation, amounting to $3.9 million, and higher bonuses and other variable compensation, amounting to$1.6 million. This was partially offset by the depreciation of the Argentine peso against the U.S. dollar amounting to $1.6 million coupled with lower outsideservices and travel expenses, amounting to $0.3 million and $0.2 million, respectively. General and administrative expenses for Corporate and others increased by $11.0 million, or 16.1%, to $79.7 million in 2017, as compared to 2016. Thisincrease was mostly due to higher outside services amounting to $7.8 million. In addition, higher bonuses and other variable compensation provisions, amountingto $6.4 million, higher payroll linked to Argentina’s inflation, as a portion of our corporate expenses are located in Argentina, amounting to $5.4 million and highertravel expenses amounting to $0.9 million, also contributed. This was partially offset by lower severance payment amounting to $5.3 million and the depreciationof the Argentine peso against the U.S. dollar amounting to $4.1 million. Other Operating Income, net Other operating income, net increased by $27.2 million, to $68.6 million in 2017, as compared to 2016. This increase was primarily attributable to $37.0million related to our asset monetization plan, offset by higher impairment of long-lived assets and goodwill of $5.0 million. Operating Income For the Years Ended December 31, 2017 2016 % Increase (in thousands of U.S. dollars) (Decrease)Brazil $160,608 $122,636 31.0%Caribbean division $1,538 $(12,392) (112.4)%NOLAD $99,152 $45,145 119.6%SLAD $71,718 $66,359 8.1%Corporate and other and purchase price allocation $(60,081) $(43,168) 39.2%Total $272,935 $178,580 52.8% 64 Table of Contents Operating income increased by $94.4 million, or 52.8%, to $272.9 million in 2017, as compared to 2016. Net Interest Expense Net interest expense increased by $1.5 million, or 2.2%, to $68.4 million in 2017, as compared to 2016. The increase was primarily explained by the netimpact of restructuring our long-term debt ($11.5 million related to 2027 notes, offset by lower interest expenses, amounting to $10.5 million, related to therepayment of the 2016 Secured Loan Agreement). Loss from Derivative Instruments Loss from derivative instruments increased by $4.0 million to $7.1 million in 2017, as compared to $3.1 million in 2016 attributable to higher losses related tothe ineffective portion of derivative instruments amounting to $2.6 million and the results of derivatives that are not designated for hedge accounting amounting to$1.4 million. Foreign Currency Exchange Results Foreign currency exchange results decreased by $46.6 million, from a gain of $32.4 million in 2016 to a loss of $14.3 million in 2017, mainly due to thefluctuation of the Brazilian real and the Mexican peso . The Brazilian real had a significant appreciation during previous year in contrast to a slight depreciation in2017 (gain of $20.1 million and loss of $0.5, respectively). The Mexican peso had a significant depreciation in 2016 in contrast to an appreciation in 2017 (loss of$7.4 million and gain of $13.8 million, respectively). Other Non-operating Expenses, Net Other non-operating expenses, net decreased by $1.9 million to a $0.4 million loss in 2017, as compared to a $2.4 million loss in 2016, primarily related to adecrease in asset tax results. Income Tax Expense Income tax expense decreased by $6.3 million, from $59.6 million in 2016 to $53.3 million in 2017. The consolidated effective tax rate was 29.2% in 2017, ascompared to 43.0% in 2016, mainly explained by lower withholding tax expenses in 2017 due to lower payments of intercompany financial balances due fromoperating subsidiaries to holding companies in the group related to the repayment of the 2016 Notes, amounting to $18.2 million (representing an increase in theconsolidated effective tax rate of 3.7% in 2017 as compared to 16.1% in 2016). See Note 16 to our consolidated financial statements for additional information. Net Income Attributable to Non-controlling Interests Net income attributable to non-controlling interests for 2017 decreased by $0.2 million to $0.3 million. Net Income Attributable to Arcos Dorados Holdings Inc. As a result of the foregoing, net income attributable to Arcos Dorados Holdings Inc. increased by $50.4 million, or 63.9%, from $78.8 million in 2016 to$129.2 million in 2017. 65 Table of Contents Year Ended December 31, 2016 Compared to Year Ended December 31, 2015 Set forth below are our results of operations for the years ended December 31, 2016 and 2015. For the Years Ended December 31, 2016 2015 % Increase (in thousands of U.S. dollars) (Decrease)Sales by Company-operated restaurants $2,803,334 $2,930,379 (4.3)%Revenues from franchised restaurants 125,296 122,361 2.4 Total revenues 2,928,630 3,052,740 (4.1)Company-operated restaurant expenses: Food and paper (1,012,976) (1,037,487) (2.4)Payroll and employee benefits (607,082) (660,773) (8.1)Occupancy and other operating expenses (752,428) (793,622) (5.2)Royalty fees (142,777) (149,089) (4.2)Franchised restaurants – occupancy expenses (55,098) (54,242) 1.6 General and administrative expenses (221,075) (270,680) (18.3)Other operating income, net 41,386 6,560 530.9 Total operating costs and expenses (2,750,050) (2,959,333) (7.1)Operating income 178,580 93,407 91.2 Net interest expense (66,880) (64,407) 3.8 Loss from derivative instruments (3,065) (2,894) 5.9 Foreign currency exchange results 32,354 (54,032) (159.9)Other non-operating expenses, net (2,360) (627) 276.4 Income (loss) before income taxes 138,629 (28,553) (585.5)Income tax expense (59,641) (22,816) 161.4 Net income (loss) 78,988 (51,369) (253.8)Less: Net income attributable to non-controlling interests (178) (264) (32.6)Net income (loss) attributable to Arcos Dorados Holdings Inc. 78,810 (51,633) (252.6)(1)Due to certain changes in accounting for expenses in 2016, certain reclassifications have been made from “Occupancy and other operating expenses” to “Payroll and employee benefits” inthe Income Statement Data for the fiscal year ended December 31, 2015 in order to ensure comparability with our results for the fiscal year ended December 31, 2016. See Note 2 to ourconsolidated financial statements for additional information. Set forth below is a summary of changes to our systemwide, Company-operated and franchised restaurant portfolios in 2016 and 2015. Systemwide Restaurants For the Years Ended December 31, 2016 2015Systemwide restaurants at beginning of period 2,141 2,121 Restaurant openings 33 36 Restaurant closings (18) (16)Systemwide restaurants at end of period 2,156 2,141 Company-Operated Restaurants For the Years Ended December 31, 2016 2015Company-operated restaurants at beginning of period 1,588 1,577 Restaurant openings 17 18 Restaurant closings (11) (12)Net conversions of franchised restaurants to Company-operated restaurants (41) 5 Company-operated restaurants at end of period 1,553 1,588 66 Table of Contents Franchised Restaurants For the Years Ended December 31, 2016 2015Franchised restaurants at beginning of period 553 544 Restaurant openings 16 18 Restaurant closings (7) (4)Net conversions of franchised restaurants to Company-operated restaurants 41 (5)Franchised restaurants at end of period 603 553 Revenues For the Years Ended December 31, 2016 2015 (in thousands of U.S. dollars) % DecreaseSales by company-operated restaurants Brazil $1,254,684 $1,289,543 (2.7)%Caribbean division 396,807 386,512 2.7 NOLAD 349,190 351,122 (0.6)SLAD 802,653 903,202 (11.1)Total 2,803,334 2,930,379 (4.3)Revenues from franchised restaurants Brazil 78,553 72,446 8.4%Caribbean division 12,864 11,632 10.6 NOLAD 14,775 16,242 (9.0)SLAD 19,104 22,041 (13.3)Total 125,296 122,361 2.4 Total revenues Brazil 1,333,237 1,361,989 (2.1)%Caribbean division 409,671 398,144 2.9 NOLAD 363,965 367,364 (0.9)SLAD 821,757 925,243 (11.2)Total 2,928,630 3,052,740 (4.1) Sales by Company-operated Restaurants Total sales by Company-operated restaurants decreased by $127.0 million, or 4.3%, from $2,930.4 million in 2015 to $2,803.3 million in 2016, mainly as aresult of the depreciation of most currencies in the Territories against the U.S. dollar ($523.3 million). Additionally, the net conversion of 36 Company-operatedrestaurants into franchised restaurants, partially offset by 12 net restaurant openings since January 1, 2015, caused sales to decrease by $0.9 million. This waspartially offset by 13.9% growth in comparable sales, mainly due to a higher average check, which caused sales to increase by $397.2 million. However, thisincrease in comparable sales was negatively affected by a worsening macroeconomic environment in our main countries. In Brazil, sales by Company-operated restaurants decreased by $34.9 million, or 2.7%, to $1,254.7 million. This was a consequence of the depreciation of thereal against the U.S. dollar, which caused sales to decrease by $66.2 million, and the conversion of 42 Company-operated restaurants into franchised restaurants,partially offset by 12 net restaurant openings, since January 1, 2015, which caused sales to decrease by $13.0 million. This was partially offset by comparable salesgrowth of 3.6%, which contributed $44.4 million to sales increase. In the Caribbean division, sales by Company-operated restaurants increased by $10.3 million, or 2.7%, to $396.8 million. This was a consequence of 29.6%growth in comparable sales, mainly resulting from a higher average check related to Venezuela’s inflation, which caused sales to increase by $114.0 million.Additionally, the opening of 2 restaurants, partially offset by the closing of 6 restaurants since January 1, 2015, contributed $0.2 million to sales increase. Thisincrease was partially offset by the depreciation of most currencies in the region against the U.S. dollar, which caused sales to decrease by $103.9 million. 67 Table of Contents In NOLAD, sales by Company-operated restaurants decreased by $1.9 million, or 0.6%, to $349.2 million. This was a consequence of the depreciation of localcurrencies, which caused sales to decrease by $28.4 million. This was partially offset by comparable sales growth by 4.7%, driven by average check growth, whichcontributed $16.7 million to the increase in sales, and 5 net restaurant openings, which coupled with the conversion of 8 franchised restaurants into Company-operated restaurants since January 1, 2015 contributed $9.8 million to sales increase. In SLAD, sales by Company-operated restaurants decreased by $100.5 million, or 11.1%, to $802.7 million. This was a consequence of the depreciation of theArgentine peso against the U.S. dollar, which caused sales to decrease by $310.1 million, which coupled with the depreciation of other currencies in the divisionaccounted for $14.6 million of sales decrease. This was partially offset by a 24.8% growth in comparable sales, resulting mainly from a higher average check dueto price increases, which caused sales to increase by $222.2 million, coupled with the opening of 3 restaurants, partially offset by the conversion of two Company-operated restaurants into franchised restaurants and the closing of 4 restaurants since January 1, 2015, contributing $2.1 million to the increase in sales. Revenues from Franchised Restaurants Our total revenues from franchised restaurants increased by $2.9 million, or 2.4%, from $122.4 million in 2015 to $125.3 million in 2016. The maincontributor to this increase was comparable sales growth of 15.8%, which resulted in an increase in revenues of $21.3 million, coupled with the net conversion of36 Company-operated restaurants into franchised restaurants and the net opening of 23 franchised restaurants since January 1, 2015, which caused revenues fromfranchised restaurants to increase by $5.7 million. Additionally, higher rental income as a percentage of sales which increased from 12.6% in 2015 to 12.7% in2016, contributed $1.5 million to the increase in revenues. This was partially offset by the depreciation of most currencies in the Territories against the U.S. dollarby $25.6 million. In 2016, 82.8% and 17.2% of revenues from franchised restaurants were earned on the basis of a percentage of sales and on a flat fee basis,respectively. In 2015, 82.7% and 17.3% of revenues from franchised restaurants were earned on the basis of a percentage of sales and on a flat fee basis,respectively. In Brazil, revenues from franchised restaurants increased by $6.1 million, or 8.4%, to $78.6 million primarily as a result of the conversion of 42 Company-operated restaurants into franchised restaurants and the net opening of 24 franchised restaurants, since January 1, 2015, which caused revenues from franchisedrestaurants to increase by $5.7 million, and comparable sales growth of 3.7%, which contributed with $2.9 million of the increase. In addition, increased rentalincome, resulted in increased revenues from franchised restaurants of $1.2 million. This was partially offset by the depreciation of the real against the U.S. dollar,which a negative impacted revenues in the region by $3.6 million. In the Caribbean division, revenues from franchised restaurants increased by $1.2 million, or 10.6%, to $12.9 million. This increase was driven by comparablesales growth of 97.9%, resulting in $11.1 million increase in revenues, and an increase in rental income which contributed in $1.0 million. This was partially offsetby the depreciation of the Venezuelan bolivar against the U.S. dollar and the net closing of 2 restaurants since January 1, 2015, negatively affecting revenues by$10.8 million and $0.1 million, respectively. In NOLAD, revenues from franchised restaurants decreased by $1.5 million, or 9.0%, to $14.8 million. This decrease was a result of the depreciation of theMexican peso against the U.S. dollar, contributing $1.6 million, coupled with the conversion of 8 franchised restaurants into Company-operated restaurants and thenet closing of 1 restaurant since January 1, 2015, which caused revenues from franchised restaurants to decrease by $0.3 million. These effects were partially offsetby a 2.7% increase in comparable sales, which resulted in a $0.4 million increase in revenue. In SLAD, revenues from franchised restaurants decreased by $2.9 million, or 13.3%, to $19.1 million. This decrease resulted mainly from the depreciation ofthe local currencies in Argentina and Chile against the U.S. dollar and lower rental income, which represented a decrease in revenues of $9.6 million and $0.7million, respectively. This was partially offset by comparable sales growth of 30.5%, which accounted for a $6.9 million increase in revenues, coupled with the netopening of 2 restaurants and the conversion of 2 Company-operated restaurants into franchised restaurants since January 1, 2015, which caused revenues toincrease by $0.5 million. 68 Table of Contents Operating Costs and Expenses Food and Paper Our total food and paper costs decreased by $24.5 million, or 2.4%, to $1,013.0 million in 2016, as compared to 2015. As a percentage of our total sales byCompany-operated restaurants, food and paper costs increased by 0.7 percentage points to 36.1%, primarily due to the higher exchange rate at which the Companyhedged its exposure to imported goods in Brazil, coupled with a negative change in product mix related to the Company’s focus on promotional activities in Braziland Argentina. In Brazil, food and paper costs increased by $0.2 million, to $433.6 million. As a percentage of the division’s sales by Company-operated restaurants, food andpaper costs increased by 1.0 percentage point to 34.6%, primarily as a result of the higher exchange rate at which the Company hedged its exposure to importedgoods, coupled with an unfavorable change in product mix, derived from promotional activities carried out in an attempt to offset the unfavorable macroeconomicenvironment. In the Caribbean division, food and paper costs increased by $0.6 million, or 0.4%, to $148.8 million. As a percentage of the division’s sales by Company-operated restaurants, food and paper costs decreased by 0.8 percentage points to 37.5%, primarily due to lower cost increases as compared to price increases, and apositive change in the product mix in Colombia and Puerto Rico. In NOLAD, food and paper costs decreased by $1.4 million, or 1.0%, to $134.0 million. As a percentage of the division’s sales by Company-operatedrestaurants, food and paper costs decreased by 0.2 percentage points to 38.4%, resulting primarily from a decline in raw material costs in Costa Rica and Panama,partially offset by the negative impact of the depreciation of the Mexican peso on imported goods. In SLAD, food and paper costs decreased by $24.0 million, or 7.5%, to $296.7 million. As a percentage of the division’s sales by Company-operatedrestaurants, food and paper costs increased by 1.5 percentage points to 37.0%, mostly as a result of lower price increases as compared to cost increases, and anegative shift in the product mix, both related to the Company’s focus on promotional activities in order to sustain traffic in Argentina’s unfavorable consumerenvironment. Payroll and Employee Benefits Our total payroll and employee benefits costs decreased by $53.7 million, or 8.1%, to $607.1 million in 2016, as compared to 2015. As a percentage of ourtotal sales by Company-operated restaurants, payroll and employee benefits costs decreased 0.9 percentage points to 21.7%. The decrease is mostly attributable tooperational efficiencies in Brazil and SLAD, as well as higher sales increases as compared to salary increases in Venezuela and government incentives foremployers in Puerto Rico. In Brazil, payroll and employee benefits costs decreased by $26.5 million, or 8.5%, to $286.6 million. As a percentage of the division’s sales by Company-operated restaurants, payroll and employee benefits costs decreased by 1.4 percentage points to 22.8% mainly as a result of operational efficiencies. In the Caribbean division, payroll and employee benefits costs decreased by $1.7 million, or 1.9%, to $85.6 million. As a percentage of the division’s sales byCompany-operated restaurants, payroll and employee benefits costs decreased by 1.0 percentage points to 21.6%, as a result of government incentives foremployers in Puerto Rico, coupled with higher sales increases as compared to salary increases and lower restaurant managers staff, both in Venezuela. In NOLAD, payroll and employee benefits costs decreased by $0.2 million, or 0.3%, to $56.7 million. As a percentage of the division’s sales by Company-operated restaurants, payroll and employee benefits costs remained unchanged at 16.2%. In SLAD, payroll and employee benefits costs decreased by $25.3 million, or 12.4%, to $178.2 million. As a percentage of the division’s sales by Company-operated restaurants, payroll and employee benefits decreased by 0.3 percentage points to 22.2% as a result of a decline in Argentina’s relative weight in the SLADdivision’s payroll and employee benefits structure, coupled with operational efficiencies and higher sales increases as compared to salary increases in Chile andUruguay. 69 Table of Contents Occupancy and Other Operating Expenses Our total occupancy and other operating expenses decreased by $41.2 million, or 5.2%, to $752.4 million in 2016, as compared to 2015. As a percentage ofour total sales by Company-operated restaurants, occupancy and other operating expenses decreased 0.2 percentage points to 26.8%, mainly due to lower outsideservices in Brazil and utilities in NOLAD and Puerto Rico. In Brazil, occupancy and other operating expenses decreased by $10.4 million, or 3.1%, to $330.3 million. As a percentage of the division’s sales byCompany-operated restaurants, occupancy and other operating expenses decreased by 0.1 percentage points to 26.3%, mainly due to lower outside services relatedwith operational efficiencies. In the Caribbean division, occupancy and other operating expenses decreased by $4.4 million, or 3.5%, to $120.4 million. As a percentage of the division’ssales by Company-operated restaurants, occupancy and other operating expenses decreased 2.0 percentage points to 30.3% due to lower utility rates in Puerto Ricoand the positive impact of higher sales growth as compared to inflation in Colombia, coupled with lower outside services and IT services and depreciation andamortization expenses in Venezuela. In NOLAD, occupancy and other operating expenses decreased by $5.0 million, or 4.3%, to $111.2 million. As a percentage of the division’s sales byCompany-operated restaurants, occupancy and other operating expenses decreased 1.2 percentage points to 31.9%, mainly due to lower utility expenses and lowerdepreciation and amortization expenses. In SLAD, occupancy and other operating expenses increased by $22.1 million, or 9.7%, to $206.2 million. As a percentage of the division’s sales byCompany-operated restaurants, occupancy and other operating expenses increased by 0.4 percentage points to 25.7% mainly due to higher utility costs related to anincrease in rates and a reduction in government subsidies, coupled with higher outside services related to high inflation in Argentina. Royalty Fees Our total royalty fees decreased by $6.3 million, or 4.2%, to $142.8 million in 2016, as compared to 2015. As a percentage of sales, royalty fees remainunchanged at 5.1%. In Brazil, royalty fees decreased by $2.0 million, or 2.8%, to $67.1 million in 2016, as compared to 2015, in line with the decrease in sales by Company-operated restaurants. In the Caribbean division, royalty fees increased by $0.7 million, or 3.5%, to $19.6 million in 2016, as compared to 2015. As a percentage of sales byCompany-operated restaurants, royalty fees remain unchanged at 4.9%. In NOLAD, royalty fees decreased by $0.1 million, or 0.4%, to $16.9 million in 2016, as compared to 2015, in line with the decrease in sales by Company-operated restaurants. In SLAD, royalty fees decreased by $5.0 million, or 11.2%, to $39.1 million in 2016, as compared to 2015. As a percentage of sales by Company-operatedrestaurants, royalty fees remained unchanged at 4.9%. Franchised Restaurants—Occupancy Expenses Occupancy expenses from franchised restaurants increased by $0.9 million or 1.6%, to $55.1 million in 2016, as compared to 2015, mainly due to higher rentexpenses for leased properties, as a consequence of the increase in sales from franchised restaurants, the conversion of Company-operated restaurants intofranchised restaurants and store openings. This was partially offset by the depreciation of a number of local currencies in the Territories against the U.S. dollar. In Brazil, occupancy expenses from franchised restaurants increased by $3.3 million, or 10.0%, to $36.8 million in 2016, as compared to 2015, primarily dueto higher rent expenses for leased properties, as a consequence of the increase in sales from franchised restaurants, the conversion of Company-operated restaurantsinto franchised restaurants and store openings. This was partially offset by the depreciation of the Brazilian real against de U.S. dollar. 70 Table of Contents In the Caribbean division, occupancy expenses from franchised restaurants decreased by $0.3 million, or 4.1% to $7.9 million. This was mainly due to thedepreciation of the Venezuelan bolívar against the U.S. dollar, coupled with lower depreciation and amortization expenses in Venezuela. This was partially offsetby higher rent expenses for leased properties, as a consequence of the increase in sales from franchised restaurants. In NOLAD, occupancy expenses from franchised restaurants decreased by $1.4 million, or 15.4%, to $7.8 million in 2016, as compared to 2015, mainly due tothe depreciation of the Mexican peso against the U.S. dollar, coupled with lower rent expenses for leased properties, as a consequence of the conversion offranchised restaurants into Company-operated restaurants and net closings. In SLAD, occupancy expenses from franchised restaurants decreased by $0.7 million, or 13.3%, to $4.5 million in 2016, as compared to 2015, mainly due tothe depreciation of local currencies against the U.S. dollar in Argentina and Chile and the reversal of allowances for doubtful accounts in Argentina in 2016. Thiswas partially offset by higher rent expenses for leased properties, as a consequence of the increase in sales from franchised restaurants, the conversion ofCompany-operated restaurants into franchised restaurants and store openings. Set forth below are the margins for our franchised restaurants in 2016, as compared to 2015. The margin for our franchised restaurants is expressed as apercentage and is equal to the difference between revenues from franchised restaurants and occupancy expenses from franchised restaurants, divided by revenuesfrom franchised restaurants. For the Years Ended December 31, 2016 2015Brazil 53.2% 53.8%Caribbean Division 38.7 29.2 NOLAD 47.5 43.6 SLAD 76.4 76.5 Total 56.0 55.7 General and Administrative Expenses General and administrative expenses decreased by $49.6 million, or 18.3%, to $221.1 million in 2016, as compared to 2015. This decrease was mostly due tothe depreciation of most currencies in the Territories against the U.S. dollar, amounting to $40.9 million, and lower payroll expenses due to the reorganization andoptimization plans carried out during the last quarter of 2015 amounting to $17.7 million, coupled with lower severance payment and lower outside services,amounting to $9.0 million and $8.3 million, respectively. Decreases of $2.6 million and $1.4 million in software amortization expenses and telecommunicationsexpenses, respectively, also contributed. This was partially offset by salary increases, mainly linked to the inflation in Argentina and Venezuela, amounting to$20.5 million and higher variable compensation provisions amounting to $4.5 million, coupled with a decrease of management fees charged to McDonald’sCorporation for services rendered to other markets that do not involve Arcos Dorados and higher travel expenses, amounting to $3.7 million and $1.0 million,respectively. In Brazil, general and administrative expenses decreased by $14.6 million, or 17.8%, to $67.5 million in 2016, as compared to 2015. The decrease resultedfrom lower payroll costs due to the reorganization and optimization plans carried out during the last quarter of 2015 amounting to $8.0 million, the depreciation ofthe Brazilian real against the U.S. dollar amounting to $3.3 million and a decrease in outside services amounting to $2.8 million. Lower software amortizationexpenses amounting to $2.8 million, lower severance payments amounting to $2.4 million, and a decrease in telecommunications expense amounting to $1.0million also contributed to the decrease. This was partially offset by higher payroll costs as a result of salary increases and the hiring of employees to fill newpositions amounting to $5.8 million and higher variable compensation provisions amounting to $0.3 million. In the Caribbean division, general and administrative expenses decreased by $3.3 million, or 9.3%, to $32.3 million in 2016, as compared to 2015. Thisdecrease is a result of depreciation of the Venezuelan bolívar and other currencies in the division against the U.S. dollar amounting to $4.1 million, lowerseverance payments amounting to $1.9 million, and lower payroll costs due to the reorganization and optimization plans carried out in the last quarter of 2015amounting to $0.8 million. This was partially offset by salary increases mainly due to Venezuela’s inflation amounting to $2.7 million, a decrease in managementfees charged to McDonald’s Corporation for services rendered to other markets that do not involve Arcos Dorados amounting to $0.7 million and higher variablecompensation provisions amounting to $0.5 million. 71 Table of Contents In NOLAD, general and administrative expenses decreased by $6.7 million, or 23.5%, to $21.7 million in 2016, as compared to 2015. The decrease is a resultof the depreciation of the Mexican peso against the U.S. dollar amounting to $2.5 million, a decrease in payroll due to lower variable compensation provisionsamounting to $2.3 million and savings related to the reorganization and optimization plans carried out in the last quarter of 2015 amounting to $2.0 million. Adecrease in outside services amounting to $1.2 million, lower severance payments amounting to $1.1 million and lower travel expenses amounting to $0.3 million,coupled with lower telecommunications expenses amounting to $0.2 million also contributed to the decrease. This was partially offset by a decrease inmanagement fees charged to McDonald’s Corporation for services rendered to other markets that do not involve Arcos Dorados, amounting to $2.6 million, andsalary increases amounting to $0.5 million. In SLAD, general and administrative expenses decreased by $9.7 million, or 23.8%, to $31.0 million in 2016, as compared to 2015. This decrease is a result ofthe depreciation of the Argentine peso and other currencies in the division against the U.S. dollar amounting to $10.4 million and lower severance paymentsamounting to $3.7 million, coupled with lower payroll costs due to reorganization and optimization plans carried out during the last quarter of 2015 amounting to$2.7 million. This decrease was partially offset by salary increases and higher outside services, both linked to Argentina’s inflation, amounting to $4.5 million and$1.7 million, respectively. In addition, there was a decrease in management fees charged to McDonald’s Corporation for services rendered to other markets that donot involve Arcos Dorados amounting to $0.4 million and an increase in travel expenses amounting to $0.3 million. General and administrative expenses for Corporate and others decreased by $15.4 million, or 18.3%, to $68.6 million in 2016, as compared to 2015. Thisdecrease was mostly due to the depreciation of the Argentine peso against the U.S. dollar amounting to $20.6 million and lower outside services amounting to $6.0million, coupled with lower payroll expenses due to reorganization and optimization plans carried out during the last quarter of 2015 amounting to $4.2 million.This was partially offset by salary increases linked to Argentina’s inflation, as a portion of our corporate expenses are located in Argentina, amounting to $7.0million, coupled with higher variable compensation provisions, amounting to $6.1 million. In addition, increases in building and equipment depreciation andincreases in travel expenses amounting to $1.5 million and $1.1 million, respectively, also contributed. Other Operating Income, net Other operating income, net increased by $34.8 million, to $41.4 million in 2016, as compared to $6.6 million in 2015. This increase was primarily attributableto $56.4 million related to our asset monetization plan, offset by net tax recoveries in Brazil of $3.8 million in 2016 and $32.6 million in 2015. Operating Income For the Years Ended December 31, 2016 2015 % Increase (in thousands of U.S. dollars) (Decrease)Brazil $122,636 $116,820 5.0%Caribbean division (12,392) (40,102) (69.1)NOLAD 45,145 8,710 418.3 SLAD 66,359 78,022 (14.9)Corporate and other and purchase price allocation (43,168) (70,043) (38.4)Total 178,580 93,407 91.2 Operating income increased by $85.2 million, or 91.2%, to $178.6 million in 2016, as compared to 2015. Net Interest Expense Net interest expense increased by $2.5 million, or 3.8%, to $66.9 million in 2016, as compared to 2015. The increase was primarily explained by higherinterest rates on the 2016 Secured Loan Agreement, which offset the 72 Table of Contents lower interest expenses related to the 2016 notes ($24.7 million and $14.3 million, respectively). In addition, there was $5.1 million of interest income related toshort-term investments in Brazil. Loss from Derivative Instruments Loss from derivative instruments increased by $0.2 million to $3.1 million in 2016, as compared to $2.9 million in 2015, primarily attributable to higher lossesrelated to the ineffective portion of derivative instruments. Foreign Currency Exchange Results Foreign currency exchange results increased by $86.4 million, from a loss of $54.0 million in 2015 to a gain of $32.4 million in 2016, mainly due to theappreciation of the Brazilian real combined with a lower exposure to that currency in comparison with 2015 ($90.0 million) and a lower impact of exchange lossesin Venezuela related to the reassessment of the exchange rate used for remeasurement purposes ($7.9 million). Those results were partially offset by negativeresults related to derivative instruments, amounting to $20.6 million. Other Non-operating Expenses, Net Other non-operating expenses, net increased by $1.7 million to a $2.4 million loss in 2016, as compared to a $0.6 million loss in 2015, primarily related toasset tax results amounting to $2.3 million. Income Tax Expense Income tax expense increased by $36.8 million, from $22.8 million in 2015 to $59.6 million in 2016. The consolidated effective tax rate was 43.0% in 2016,as compared to (79.9)% in 2015. The negative consolidated effective tax rate in 2015 was due to the combination of a pre-tax loss with an income tax loss, with thelatter mainly generated by an increase in 2015 of the valuation allowance amounting to $63.9 million (pre-tax loss at the weighted-average statutory income taxrate amounted to ($9.4) million, reversed by such charge among other items). The consolidated effective tax rate in 2016 was affected by an increase in theexpiration of tax loss carryforwards amounting to $18.3 million and higher withholding tax expenses related to intercompany financial payments amounting to$20.8 million (representing an increase in the consolidated effective tax rate of 13.2% and 16.1%, respectively), partially offset by a decrease in the valuationallowance amounting to $17.0 million (representing a decrease in the consolidated effective tax rate of 12.3%). See Note 16 to our consolidated financial statements for additional information. Net Income Attributable to Non-controlling Interests Net income attributable to non-controlling interests for 2016 decreased by $0.1 million to $0.2 million. Net Income Attributable to Arcos Dorados Holdings Inc. As a result of the foregoing, net income attributable to Arcos Dorados Holdings Inc. increased by $130.4 million, or 252.6%, to a gain of $78.8 million in2016, from a loss of $51.6 million in 2015. B. Liquidity and Capital Resources Our financial condition and liquidity are and will continue to be influenced by a variety of factors, including: ·our ability to generate cash flows from our operations; ·the level of our outstanding indebtedness and the interest we pay on this indebtedness; ·our dividend policy; ·changes in exchange rates which will impact our generation of cash flows from operations when measured in U.S. dollars; and ·our capital expenditure requirements. 73 Table of Contents Under the MFAs, we are required to agree with McDonald’s on a restaurant opening plan and a reinvestment plan for each three-year period during the term ofthe MFAs. The restaurant opening plan specifies the number and type of new restaurants to be opened in the Territories during the applicable three-year period,while the reinvestment plan specifies the amount we must spend reimaging or upgrading restaurants during the applicable three-year period. Under the 2017-2019restaurant opening and reinvestment plan, we are required to open 180 restaurants and to reinvest $292 million in existing restaurants. However, for the same three-year period, we now expect to open at least 200 new restaurants. Total capital expenditures for 2017 to 2019 are now expected to be approximately $660 million.We expect to fund these commitments using cash flow from operations. However, we cannot assure you that we will generate enough cash flow from operations tofund these commitments, and their satisfaction may require us to incur future debt and/or equity financing. Our management believes in our ability to obtain the sources of liquidity and capital resources that are necessary in this challenging economic environmentand also believes that our liquidity and capital resources, including working capital, are adequate for our present requirements and business operations and will beadequate to satisfy our currently anticipated requirements during at least the next twelve months for working capital, capital expenditures and other corporateneeds. Overview Net cash provided by operations increased by $91.0 million, from $164.2 million in 2016 to $255.2 million in 2017. Cash used in our investing activities was$124.5 million in 2017, compared to an inflow of $23.0 million in 2016. Cash used in financing activities was $3.4 million in 2017, compared to $113.0 million in2016. Cash used in financing activities was primarily used for the repayment in 2017 of the 2016 Secured Loan Agreement, repayment of $48.9 million of the 2023notes in connection with the 2017 Tender Offer, the repayment of the 2016 notes during 2016 and an increase in net payments of derivative instruments of $34.6million, partially offset by cash inflows of $265.0 million from the issuance of the 2027 notes in 2017. Net cash provided by operations was $164.2 million in 2016, compared to $112.7 million in 2015. Our investing activities provided $23.0 million incomparison with an expenditure of $60.1 in 2015. Cash used in financing activities increased by $70.7 million, from $42.3 million in 2015 to $113.0 million in2016. This was mainly as a result of the purchase of the 2016 notes and payments in connection with the final maturity of the 2016 notes amounting $169.4million, the purchase of 2023 notes in 2016 for $80.8 million and higher payments on derivative instruments amounting to $26.1 million. This was partially offsetby the proceeds from the 2016 Secured Loan Agreement which was entered into on March 29, 2016 amounting to $167.3 million, lower short term borrowingsamounting to $26.6 million and the impact of no dividend payments during 2016. At December 31, 2017, our total financial debt was $621.5 million, consisting of $633.5 million in long-term debt (of which $345.7 million related to the 2023notes, including the original issue discount, $265.0 million related to 2027 notes, $22.9 million in other long-term borrowings and $4.5 million in capital leaseobligations) the amount of which was offset by $12.0 million related to the fair market value of our outstanding derivative instruments and $4.6 million related todeferred financing costs. At December 31, 2016, our total financial debt was $610.2 million, consisting of $579.7 million in long-term debt, of which $390.6 million related to the 2023notes (including the original issue discount) and $164.4 million related to the 2016 Secured Loan Agreement (including the fair value adjustment), $25.6 million inother long-term borrowings and $4.7 million in capital lease obligations. The amount of long-term debt was offset by $5.6 million related to deferred financingcosts and $30.5 million related to the fair market value of our outstanding derivative instruments. Cash and cash equivalents were $308.5 million at December 31, 2017 and $194.8 million at December 31, 2016. Comparative Cash Flows The following table sets forth our cash flows for the periods indicated: 74 Table of Contents For the Years Ended December 31, 2017 2016 2015 (in thousands of U.S. dollars)Net cash provided by operating activities $255,170 $164,189 $112,689 Net cash (used in) provided by investing activities (124,480) 23,018 (60,115)Net cash used in financing activities (3,353) (112,995) (42,263)Effect of exchange rate changes on cash and cash equivalents (13,649) 8,072 (36,822)Increase (decrease) in cash and cash equivalents 113,688 82,284 (26,511) Operating Activities For the Years Ended December 31, 2017 2016 2015 (in thousands of U.S. dollars)Net income (loss) attributable to Arcos Dorados Holdings Inc. $129,166 $78,810 $(51,633)Non-cash charges and credits 60,926 29,160 147,739 Changes in assets and liabilities 65,078 56,219 16,583 Net cash provided by operating activities 255,170 164,189 112,689 For the year ended December 31, 2017, net cash provided by operating activities was $255.2 million, compared to $164.2 million in 2016. The $91.0 millionincrease is mainly attributable to the increase in net income, non-cash charges of $82.1 million and the positive change in assets and liabilities of $8.9 million. For the year ended December 31, 2016, net cash provided by operating activities was $164.2 million, compared to $112.7 million in 2015. The $51.5 millionincrease is mainly attributable to the increase in net income adjusted for non-cash charges of $11.9 million and the positive change in assets and liabilities of $39.6million Investing Activities Investments in new restaurants and the modernization of existing restaurants are primarily concentrated in markets with opportunities for long-term growthand returns on investment above a pre-defined threshold that is significantly above our cost of capital. Average development costs vary widely by marketdepending on the types of restaurants built and the real estate and construction costs within each market and are affected by foreign currency fluctuations. Thesecosts, which include land, buildings and equipment, are managed through the use of optimally sized restaurants, construction and design efficiencies and theleveraging of best practices. The following table presents our cash (used in) provided by investing activities by type: For the Years Ended December 31, 2017 2016 2015 (in thousands of U.S. dollars)Property and equipment expenditures $(174,766) $(92,282) $(90,964)Purchases of restaurant businesses paid at acquisition date (870) — (1,091)Proceeds from sales of property and equipment and related advances 61,983 88,380 19,738 Proceeds from sale of restaurant businesses and related advances 10,407 25,090 3,861 Loans collected from related parties — 1,800 9,702 Acquisitions of short-term investments (19,588) — — Others, net (1,646) 30 (1,361)Net cash (used in) provided by investing activities (124,480) 23,018 (60,115) 75 Table of Contents The following table presents our property and equipment expenditures by type: For the Years Ended December 31, 2017 2016 2015 (in thousands of U.S. dollars)New restaurants $41,557 $27,756 $26,376 Existing restaurants 105,396 47,198 38,714 Other (1) 27,813 17,328 25,874 Total property and equipment expenditures 174,766 92,282 90,964 (1)Primarily corporate equipment and other office expenditures. In 2017, net cash used in investing activities was $124.5 million, compared to an inflow of $23.0 million in 2016. This $147.5 million increase was primarilyattributable to an increase in property and equipment expenditures of $82.5 million, the acquisition of short-term investment amounting to $19.6 million, thepurchases of restaurant businesses in 2017 for $0.9 million, a decrease in proceeds from sales of property and equipment and related prepayments of $26.4 million,a decrease in proceeds from sale of restaurant businesses and related advances of $14.7 million, a decrease in collection from loans of related parties of $1.8million and a decrease in other investing activities of $1.7 million. Property and equipment expenditures increased by $82.5 million, from $92.3 million in 2016 to $174.8 million in 2017. The increase in property andequipment expenditures is explained by a an increase in investment in new restaurants of $13.8 million, as well as in existing restaurants, $46.2 million, and anincrease in corporate equipment and other office expenditures of $22.5 million. In 2017, we opened 50 restaurants and closed 18 restaurants. Proceeds from sales of restaurant businesses and related advances decreased $14.7 million, mainly as a result of a lower rate of conversion of company-operated restaurants into franchised restaurants in 2017 compared with 2016. Proceeds from sales of property and equipment and related advances decreased $26.4 million to $62.0 million in 2017, as compared to 2016, primarily as aconsequence of advances received in 2016 for sales performed in 2017. In 2016, net cash provided by investing activities was $23.0 million, compared to an expenditure of $60.1 million in 2015. This variation of $83.1 million wasprimarily attributable to higher proceeds from sales of property and equipment and related advances ($68.6 million) and from sale of restaurant businesses andrelated advances ($21.2 million) associated with our asset monetization plan. This was partially offset by higher property and equipment expenditures ($1.3million) and lower collections of loans granted to our related parties ($7.9 million). Property and equipment expenditures increased by $1.3 million, from $91.0 million in 2015 to $92.3 million in 2016. The increase in property and equipmentexpenditures is explained by a higher investment in new restaurants ($1.4 million), as well as in existing restaurants ($8.5 million). In 2016, we opened 33restaurants and closed 18 restaurants. Proceeds from sales of property and equipment and related advances increased by $68.6 million to $88.4 million in 2016, as compared to 2015, primarily as aconsequence of sales in Mexico and Argentina, as part of the Company’s asset monetization plans. Proceeds from sales of restaurant businesses and related advances increased $21.2 million, mainly as a result of the conversion of company-operatedrestaurants into franchised restaurants mainly in Brazil, as part of the Company’s asset monetization plans. Financing Activities For the Years Ended December 31, 2017 2016 2015 (in thousands of U.S. dollars)(Repayment of) / proceeds from 2016 Secured Loan Agreement $(169,511) $167,262 $— Dividend payments to Arcos Dorados Holdings Inc.’ shareholders — — (12,509)Net (payment) collection of derivative instruments (40,822) (6,268) 19,817 Purchase of 2023 Notes (48,885) (80,800) — Purchase and repayment of 2016 Notes — (181,156) (11,710)Issuance of 2027 notes 265,000 — — 76 Table of Contents For the Years Ended December 31, 2017 2016 2015 (in thousands of U.S. dollars)Net short-term borrowings — (2,488) (29,043)Other financing activities (9,135) (9,545) (8,818)Net cash used in financing activities (3,353) (112,995) (42,263) Net cash used in financing activities was $3.4 million in 2017, compared to $113.0 million used in 2016. The $109.6 million decrease in the amount of cashused in financing activities was primarily attributable to the repayment in 2017 of the 2016 Secured Loan Agreement, repayment of $48.9 million of the 2023 notesin connection with the 2017 Tender Offer, the repayment of the 2016 notes during 2016 and an increase in net payments of derivative instruments of $34.6 million,partially offset by cash inflows of $265.0 million from the issuance of the 2027 notes in 2017. Net cash used in financing activities was $113.0 million in 2016, compared to $42.3 million provided in 2015. The $70.7 million increase in the amount ofcash used in financing activities was primarily attributable to the purchase of 2016 notes and payments in connection with the final maturity of the 2016 notesamounting to $169.4 million, the purchase of 2023 notes in 2016 for $80.8 million and an increase in payments on derivative instruments amounting to $26.1million. This was partially offset by the proceeds from the 2016 Secured Loan Agreement amounting to $167.3 million, a decrease in short term borrowingsamounting to $26.6 million and the impact of no dividend payments during 2016. The 2016 Secured Loan Agreement On March 29, 2016, our Brazilian subsidiary, Arcos Dourados Comércio de Alimentos Ltda. (“Arcos Comércio”), entered into a secured loan agreement withCitibank N.A., Bank of America N.A., Itau BBA International plc, JPMorgan Chase Bank, N.A. and Banco Santander (Brasil) S.A., Cayman Islands Branch, asinitial lenders, under which Arcos Comércio received total proceeds of $167.3 million (R$613.9 million as of the signing date). Each loan under the 2016 SecuredLoan Agreement bore interest at the following annual interest rates: Lender Annual Interest Rate Citibank N.A.3M LIBOR + 2.439%Itau BBA International plc5.26%Banco Santander (Brasil) S.A., Cayman Islands Branch4.7863%Bank of America N.A.3M LIBOR + 4.00%JPMorgan Chase Bank, N.A.3M LIBOR + 3.92% In order to fully convert each loan under the second loan agreement into Brazilian reais , Arcos Comércio entered into five cross-currency interest rate swapagreements with the local subsidiaries of the same lenders, to fully hedge the principal and interest cash flows of each of the loans under the secured loanagreement. Consequently, the loan was fully converted into Brazilian reais at a rate of 3.67 reais per U.S. dollar, amounting to R$613.9 million. All the terms ofthe cross-currency interest rate swap agreements matched the terms of the secured loan agreement. Considering the cross currency interest rate swap agreements,the final interest rate of the secured loan agreement was the Interbank Market reference interest rate (or “CDI” in Brazil), plus 4.50% per year. Interest paymentswere made quarterly, beginning June 2016. The loan was fully and unconditionally guaranteed on a senior secured basis by certain subsidiaries, and secured by (i) certain credit and debit card receivablesarising from sales in certain Brazilian restaurants operated by Arcos Comércio; and (ii) the positive mark to market of the cross currency interest rate swapagreements. The loan proceeds were primarily used to repay the Company’s 2016 notes. We incurred $3.2 million of financing costs related to the 2016 Secured LoanAgreement, which were capitalized as deferred financing costs and are being amortized over the life of the loan. For more information on the 2016 notes, see “—The 2016 Notes”. On April 11, 2017, we repaid the Secured Loan Agreement, plus accrued and unpaid interest and certain transaction costs for a total of $169.7 million. Inaddition, on April 13, 2017 and April 17, 2017, we unwound the 77 Table of Contents related derivative instruments for a total of R$122.7 million. These payments were made using the proceeds of the offering of the 2027 notes. For more informationon the 2027 notes, see “—The 2027 Notes”. Revolving Credit Facilities On August 3, 2011, our subsidiary, Arcos Dorados B.V., entered into a committed revolving credit facility with Bank of America, N.A., as lender, for $50million. On August 31, 2013, Arcos Dorados B.V. renewed the revolving credit facility for $75 million maturing on August 3, 2015. On July 30, 2015, we renewedthis facility for $50 million maturing on August 3, 2016. On August 1, 2016, we renewed this revolving credit facility for $25 million maturing on August 3, 2017.On August 1, 2017, we renewed this revolving credit facility for $25 million maturing on August 3, 2018. This revolving credit facility will permit us to borrowmoney from time to time to cover our working capital needs and for other lawful general corporate purposes. As a result of the Company’s decision to change the exchange rates used for remeasurement of its bolivar-denominated assets and liabilities and operatingresults in Venezuela, we were not in compliance with the indebtedness to EBITDA ratio under the revolving credit facility as of June 30, 2014. At such date ourconsolidated indebtedness to EBITDA ratio was 2.73. However, on July 28, 2014, we reached an agreement with Bank of America, N.A. to change theconsolidated net indebtedness to EBITDA ratio from 2.5 to 1 to 3.0 to 1. On July 30, 2015, we further amended the Revolving Credit Facility to change such ratiofrom 3.0 to 1 to 3.5 to 1. On August 31, 2015, the Company entered into a revolving credit facility with JPMorgan Chase Bank, N.A., for up to $25 million, which matured on October1, 2016. On November 10, 2016, Arcos Dorados B.V. entered into a new revolving credit facility with JPMorgan Chase Bank, N.A. for up to $25 million maturingon November 10, 2017. On November 1, 2017, we renewed this revolving credit facility for $25 million maturing on November 10, 2018. Each loan made to ArcosDorados B.V. under the revolving credit facility will bear interest at an annual rate equal to LIBOR plus 2.50%. Interest on each loan will be payable on the date ofany prepayment, at maturity and on a quarterly basis, beginning with the date that is three calendar months following the date the loan is made. The obligations of Arcos Dorados B.V. under the revolving credit facilities are jointly and severally guaranteed by certain of the Company’s subsidiaries on anunconditional basis. Furthermore, the agreements include customary covenants including, among others, restrictions on the ability of Arcos Dorados B.V., theguarantors and certain material subsidiaries to: (i) incur liens, (ii) enter into any merger, consolidation or amalgamation; (iii) sell, assign, lease or transfer all orsubstantially all of the borrower’s or guarantor’s business or property; (iv) enter into transactions with affiliates; (v) engage in substantially different lines ofbusiness; (vi) engage in transactions that violate certain anti-terrorism laws; and (vii) permit the consolidated net indebtedness to EBITDA ratio to be greater than3.0 to 1 as of the last day of the fiscal quarter ended December 31, 2016 and thereafter. The revolving credit facilities provide for customary events of default,which, if any of them occurs, would permit or require the relevant lender to terminate its obligation to provide loans under the relevant revolving credit facilityand/or to declare all sums outstanding under the loan documents immediately due and payable. As of December 31, 2017, the mentioned ratio was 0.75 and thus we are currently in compliance with the ratio under both revolving credit facilities. 2016 Notes In July 2011, we issued R$400 million aggregate principal amount of notes due 2016 bearing interest of 10.25% per year, payable in U.S. dollars, which werefer to as the 2016 notes. In addition, on April 24, 2012, we issued an additional R$275 million aggregate principal amount of the 2016 notes at a price of102.529%. The 2016 notes are denominated in reais, but payment of principal and interest will be made in U.S. dollars. The 2016 notes matured on July 13, 2016.Interest was paid semiannually in arrears on January 13 and July 13 of each year. The 2016 notes were listed on the Luxembourg Stock Exchange and traded on the Euro MTF Market. During November 2015 and January 2016, we redeemed a portion of the outstanding principal amount of its 2016 notes. Furthermore, on April 8, 2016, welaunched a cash tender offer for any and all of the outstanding 2016 notes at a redemption price equal to 97%, which expired on May 5, 2016. The holders whotendered their 2016 notes prior to April 21, 2016 received a redemption price equal to 100%. The results related to the cash tender offer and the acceleratedamortization of the related to deferred financing cost were recognized as interest expense in the income statement. On July 13, 2016, the remaining 2016 notesmatured and we paid the outstanding principal amount of R$200,991 (equivalent to $60,965) plus accrued and unpaid interest amounting to R$10,301 (equivalentto $3,124) related to the Notes. 78 Table of Contents The following table presents information related to the purchase and repayments of the principal of the 2016 Notes: AmountDate Redemptionprice R$ $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 2023 Notes In September 2013, we issued senior notes for an aggregate principal amount of $473.8 million under an indenture dated September 27, 2013, which we referto as the 2023 notes. The total aggregate principal amount of the 2023 notes consists of $375 million issued for cash and $98.8 million issued in exchange for the7.5% senior notes due 2019 issued by Arcos Dorados B.V. in October 2009 (the “2019 notes”) that were properly tendered (and not validly withdrawn) pursuant toa tender offer, exchange offer and consent solicitation we launched in September 2013 (the “2013 Tender and Exchange Offer). The 2023 notes mature onSeptember 27, 2023 and bear interest of 6.625% per year. Interest is paid semiannually on March 27 and September 27. The proceeds from the issuance of the2023 notes were used to pay the principal and premium on the 2019 notes in connection with the 2013 Tender and Exchange Offer, to repay certain of the short-term indebtedness we had with Banco Itaú BBA S.A., to unwind a cross-currency interest rate swap with Bank of America, N.A. and for general corporatepurposes. The 2023 notes are redeemable at our option at any time at the applicable redemption price set forth in the indenture. The 2023 notes are fully and unconditionally guaranteed on a senior unsecured basis by certain of our subsidiaries. The 2023 notes and guarantees (i) aresenior unsecured obligations and rank equal in right of payment with all of our and the guarantors’ existing and future senior unsecured indebtedness; (ii) will beeffectively junior to all of our and the guarantors’ existing and future secured indebtedness to the extent of the assets securing that indebtedness; and (iii) arestructurally subordinated to all obligations of our subsidiaries that are not guarantors. The indenture governing the 2023 notes limits our and our subsidiaries’ ability to, among other things, (i) create certain liens; (ii) enter into sale and lease-backtransactions; and (iii) consolidate, merge or transfer assets. These covenants are subject to important qualifications and exceptions. The indenture governing the2023 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 of the then-outstanding 2023 notes to be due and payable immediately. On June 1, 2016, we launched a cash tender offer to purchase up to $80 million of the outstanding 2023 Notes (the “2016 Tender Offer”) at a redemption priceequal to 98%, which expired on June 28, 2016. The holders who tendered their 2023 Notes prior to June 14, 2016 received a redemption price equal to 101%. As aresult of the 2016 Tender Offer, we redeemed 16.89% of the outstanding principal amount of the 2023 notes. The total payment was $80.8 million (including $0.8million of early tender payment) plus accrued and unpaid interest. The results related to the 2016 Tender Offer and the accelerated amortization of the relateddeferred financing cost were recognized as interest expense in the income statement. On March 16, 2017, we announced the commencement of a second tender offer to purchase for cash up to $80 million aggregate principal amount of theproperly tendered (and not validly withdrawn) outstanding 2023 notes (the “2017 Tender Offer”). As a result of the early settlement of the 2017 Tender Offer, werepurchased $45.3 million of the 2023 notes on April 5, 2017. The 2017 Tender Offer expired on April 12, 2017. As a result of the final settlement of the 2017Tender Offer, we repurchased an additional $0.4 million of the 2023 notes on April 19, 2017. 79 Table of Contents As of April 19, 2017, $348.1 million aggregate principal amount of the 2023 notes was outstanding after giving effect to the 2017 Tender Offer. The 2023 notes are listed on the Luxembourg Stock Exchange and trade on the Euro MTF Market. We may issue additional 2023 notes from time to time pursuant to the indenture governing the 2023 notes. 2027 Notes In April 2017, we issued senior notes for an aggregate principal amount of $265.0 million under an indenture dated April 4, 2017, which we refer to as the2027 notes. The 2027 notes mature on April 4, 2027 and bear interest of 5.875% per year. Interest is paid semiannually on April 4 and October 4, commencing onOctober 4, 2017. The proceeds from the issuance of the 2027 notes were used to repay the 2016 Secured Loan Agreement and unwind the related derivativeinstruments, to pay the principal and premium on the 2023 notes in connection with the 2017 Tender Offer and for general corporate purposes. The 2027 notes are redeemable at our option under certain circumstances as set forth in the indenture at the applicable redemption prices set forth therein. The 2027 notes are fully and unconditionally guaranteed on a senior unsecured basis by certain of our subsidiaries. The 2027 notes and guarantees (i) aresenior unsecured obligations and rank equal in right of payment with all of our and the guarantors’ existing and future senior unsecured indebtedness; (ii) will beeffectively junior to all of our and the guarantors’ existing and future secured indebtedness to the extent of the assets securing that indebtedness; and (iii) arestructurally subordinated to all obligations of our subsidiaries that are not guarantors. The indenture governing the 2027 notes limits our and our subsidiaries’ ability to, among other things, (i) incur additional indebtedness; (ii) make certainrestricted payments; (iii) create certain liens; (iv) enter into sale and lease-back transactions; and (v) consolidate, merge or transfer assets. These covenants aresubject to important qualifications and exceptions. The indenture governing the 2027 notes also provides for events of default, which, if any of them occurs, wouldpermit or require the principal, premium, if any, and interest on all of the then-outstanding 2027 notes to be due and payable immediately. C. Research and Development, Patents and Licenses, etc. We have not had significant research and development activities for the past three years because we rely primarily on McDonald’s research and development.McDonald’s operates research and development facilities in the United States, Europe and Asia, and independent suppliers also conduct research activities thatbenefit McDonald’s and us. Nevertheless, we have developed certain menu items, such as Almuerzos Colombianos in Colombia, to better tailor our productofferings to local tastes and to provide our customers with additional food options. D. Trend Information Our business and results of operations have recently experienced the following trends, which we expect will continue in the near term: ·Social upward mobility in Latin America and the Caribbean: Historically, our sales have benefited, and we expect to continue to benefit, from ourTerritories’ population size, younger age profile and improving socio-economic conditions when compared to more developed markets. This has led to amodernization of consumption patterns and increased affordability of our products across socio-economic segments, leading to greater demand for ourproducts. While consumer behavior will continue to be cyclical and dependent on macroeconomic activity, we expect to continue to benefit from thistrend in the long term. ·Decline in free time: More single-parent and dual-earner households have increased the demand for the convenience offered by eating out and takeoutfood. ·Product offerings: Our beverages, core meals, desserts, breakfast, reduced calorie and sodium products, and value menu item offerings have been popularamong customers and—combined with our revenue management—have helped us remain relevant with our customers. 80 Table of Contents ·Increased competition in some markets: The popularity of the QSR concept in Latin America has attracted new competitors. Even though we have beenable to protect our market share in many of these markets, we have seen a reduction in pricing flexibility and have increased the focus of our marketingefforts on value offerings. ·Macroeconomic deterioration and increasing uncertainty in Latin America and the Caribbean: Our business and results of operations have been impactedby increasingly negative macroeconomic and consumer trends in some of our main markets. The lower rate of economic growth and reduced rates ofconsumption are expected to continue in the short term. ·Inflationary environment: Over the last few years, we have been able through our revenue management strategy to partially mitigate cost increase tied toinflation. However, inflation has been, and will continue to be, an important factor affecting our results of operations, specifically impacting our laborcosts, food and paper costs, occupancy and other operating expenses and general administrative expenses. ·Increased volatility of foreign exchange rates and impact of currency controls: Our results of operations have been impacted by increased volatility inforeign exchange rates in many of the Territories, particularly the significant devaluation of local currencies against the U.S. dollar. We expect thatforeign exchange rates will continue to be an important factor affecting our foreign currency exchange results and the “Accumulated other comprehensiveloss” component of shareholders’ equity and, consequently, our results of operations and financial condition. E. Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements. F. Tabular Disclosure of Contractual Obligations The following table presents information relating to our contractual obligations as of December 31, 2017. Payment Due by PeriodContractual Obligations Total 2018 2019 2020 2021 2022 Thereafter (in thousands of U.S. dollars)Capital lease obligations (1) $5,909 $1,239 $1,240 $701 $620 $756 $1,353 Operating lease obligations $932,597 $148,485 $128,881 $113,767 $97,413 $79,068 $364,983 Contractual purchase obligations (2) $59,103 $41,279 $10,712 $2,516 $863 $1,935 $1,798 2023 and 2027 notes (1) (3) $899,333 $38,629 $38,629 $38,629 $38,629 $38,629 $706,188 Other long-term borrowings (1) $30,440 $5,415 $5,092 $4,782 $4,444 $4,123 $6,584 Derivative instruments $(12,041) $15,522 $13,543 $11,065 $8,876 $6,872 $(67,919)Total $1,915,341 $250,569 $198,097 $171,460 $150,845 $131,383 $1,012,987 (1)Includes interest payments.(2)Includes automatic annual renewals, which contains only enforceable and legally binding unconditional obligations corresponding to prevailing agreements without considering futureundefined renewals when the agreement is cancellable by us. This type of purchase obligation represents $12.7 million of contractual obligations for 2018 only.(3)Does not include the impact of the deferred financing costs and the net discount related to the issue of the 2023 notes. The table set forth above excludes projected payments on our restaurant opening and reinvestment plans pursuant to the MFAs in respect of which we do notyet have any contractual commitments. G. Safe Harbor See “Forward-Looking Statements.” 81 Table of Contents ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES A. Directors and Senior Management Board of Directors Our Board of Directors currently consists of nine members, three of whom are independent directors. We have one additional seat on the Board of Directorswhich is currently vacant, as further described below. In case of a tie vote by the Board of Directors, the Executive Chairman will have the deciding vote. Ourmemorandum and articles of association authorize us to have eight members, and the number of authorized members may be increased or decreased by a resolutionof shareholders or by a resolution of directors. On November 1, 2012 and August 2, 2013, respectively, our Board of Directors passed resolutions increasing thenumber of authorized members of our Board of Directors to nine and ten, respectively. Pursuant to our articles of association, our Board of Directors is divided into three classes. There is no distinction in the voting or other powers and authoritiesof directors of different classes. The members of each class serve staggered, three-year terms. Upon the expiration of the term of a class of directors, directors inthat class will be elected for three-year terms at the annual meeting of shareholders in the year in which their term expires. At our most recent annual generalmeeting of shareholders, held on April 24, 2018, our shareholders re-elected Mr. Woods Staton, Mr. Gutiérrez, Mr. Alonso and Mr. Francisco Staton to serve asClass I directors. The classes are currently composed as follows: ·Mr. Woods Staton, Mr. Gutiérrez, Mr. Alonso and Mr. Francisco Staton are Class I directors, whose term will expire at the annual meeting ofshareholders to be held in 2021; ·Mr. Hernández-Artigas and Mrs. Franqui are Class II directors, whose term will expire at the annual meeting of shareholders to be held in 2019; and ·Mr. Chu, Mr. Vélez and Mr. Fernández are Class III directors, whose term will expire at the annual meeting of shareholders to be held in 2020. Any additional directorships resulting from an increase in the number of directors and any directors elected to fill vacancies on the board will be distributedamong the three classes so that, as nearly as possible, each class will consist of one third of our directors. This classification of our Board of Directors may have theeffect of delaying or preventing changes in control of our company. Any director may be removed, with or without cause, by a resolution of shareholders or aresolution of directors. Our directors do not have a retirement age requirement under our memorandum and articles of association. The following table presents the names of the members of our Board of Directors: Name Position Age Woods StatonExecutive Chairman67Sergio AlonsoCEO54Annette FranquiDirector56Carlos Hernández-ArtigasDirector53Michael ChuDirector68José Alberto VélezDirector67José FernándezDirector55Ricardo Gutiérrez MuñozDirector74Francisco StatonDirector37 The following is a brief summary of the business experience of our directors. Unless otherwise indicated, the current business addresses for our directors is Dr.Luis Bonavita 1294, Office 501, WTC Free Zone, Montevideo, Uruguay (CP 11300) and Roque Saenz Peña 432, Olivos, Buenos Aires, Argentina (B1636 FFB). Woods Staton. Mr. Staton is our Executive Chairman. He was our Chairman and Chief Executive Officer from 2007 through October 2015. Mr. Staton holdsan MBA from the International Institute for Management 82 Table of Contents Development (IMD) in Switzerland and a Bachelor’s degree in economics from Emory University in Atlanta. As McDonald’s joint venture partner, Mr. Statonopened the first McDonald’s restaurant in Argentina in 1986 and later served as President of McDonald’s South Latin America Division. He founded ArcosDorados in 2007 when he led a consortium of investors in the purchase of McDonald’s operations in Latin America. Mr. Staton is co-founder of EndeavorArgentina, an organization for promoting entrepreneurship. He is a member of the Latin America Advisory Board of Harvard Business School and is also a BoardMember of the IMD Foundation in Lausanne, Switzerland. In addition, he serves as Chair of the Advisory Board of the Latin American Program at the WoodrowWilson International Center for Scholars, and is also on the Chairman’s International Advisory Council of the Americas Society/Council of the Americas. Sergio Alonso. Mr. Alonso is our Chief Executive Officer since 2015 and was, prior to his appointment as such, our Chief Operating Officer. Prior to that, hewas McDonald’s Divisional President in Brazil. He graduated with a degree in Accounting from Universidad de Buenos Aires in 1986. He began his career atMcDonald’s as Accounting Manager and subsequently moved to the operations area, eventually being promoted to Vice President of Operations in six years. From1999 until 2003, Mr. Alonso was involved in the development of the Aroma Café brand in Argentina. In addition, in July 2017, Mr. Alonso was appointed as amember of the board of directors of Loma Negra Compañía Industrial Argentina S.A., a leading cement producer in Argentina. Annette Franqui. Mrs. Franqui has been a member of our board of directors since 2007 and is a member of the Compensation and Nomination Committee. Shegraduated with a Bachelor of Science degree in Economics from the Wharton School of the University of Pennsylvania in 1984 and an MBA from the StanfordGraduate School of Business in 1986. She is also a Chartered Financial Analyst. Mrs. Franqui began her career in 1986 with J.P. Morgan and joined GoldmanSachs in 1989. In 1994, she returned to J.P. Morgan where she became a Managing Director and the Head of the Latin America Research Department. Mrs.Franqui joined Panamco in 2001 as Vice President of Corporate Finance and became the Chief Financial Officer in 2002. She is one of the founding partners ofForrestal Capital and is currently a board member of Latam LLC, and, on a volunteer basis, AARP. Carlos Hernández-Artigas. Mr. Hernández-Artigas has been a member of our board of directors since 2007 and is a member of the Compensation andNomination Committee. He graduated from Universidad Panamericana, Escuela de Derecho in 1987 and University of Texas at Austin, School of Law in 1988. Hereceived an MBA from IPADE in Mexico City in 1996. Mr. Hernández-Artigas worked as a lawyer for several years in Mexico and as a foreign attorney in Dallas,Texas and New York. He served as the General Counsel, Chief Legal Officer and Secretary of Panamco for ten years. He is the CEO of Inside, a technologycompany in Anaheim, California. He is also an advisor at Big Sur Partners in Miami, Florida and is currently a board member of Hospitales Mac in Mexico. Michael Chu. Mr. Chu has been an independent member of our board of directors since April 2011 and is a member of our Audit Committee. He graduatedwith honors from Dartmouth College in 1968 and received an MBA with highest distinction from the Harvard Business School in 1976. From 1989 to 1993, Mr.Chu served as an executive and limited partner in the New York office of the private equity fund Kohlberg Kravis Roberts & Co. From 1993 to 2000, Mr. Chu waswith ACCION International, a nonprofit corporation dedicated to microfinance, where he served as President and CEO and participated in the founding andgovernance of various banks in Latin America. Mr. Chu currently holds an appointment as Senior Lecturer at the Harvard Business School, where he is the FacultyChair for Latin America, and is Managing Director and cofounder of the IGNIA Fund, an investment firm dedicated to investing in commercial enterprises servingthe emerging middle class and low-income populations in Mexico. He was a founding partner of, and continues to serve as Senior Advisor to, Pegasus Group, aprivate equity firm in Buenos Aires. José Alberto Vélez . Mr. Vélez has been an independent member of our board of directors since June 2011 and is a member of our Audit Committee. Mr.Vélez received a Master of Science in Engineering degree from the University of California, Los Angeles, and a degree in Administrative Engineering fromUniversidad Nacional de Colombia. Mr. Vélez previously served as the CEO of Suramericana de Seguros, the leading insurance company in Colombia, and also asthe CEO of Inversura, a holding company that integrates the leading insurance and social security companies in Colombia. He was the Chief Executive Officer ofCementos Argos S.A. between 2003 and 2012. From 2012 until March, 2016, he was the President of Grupo Argos, a holding group with investments in cement,energy, mining, ports and real estate. He is currently a member of the Boards of Directors of Grupo Crystal and Grupo Daabon in Colombia He also is Chairman ofthe Board of Trustees of the Universidad EAFIT. In addition, he is member of the Latin American Chapter of the Wilson Center in Washington D.C. 83 Table of Contents José Fernández. Mr. Fernandez has been a member of our board of directors since October 1, 2013. Mr. Fernández was the Divisional President of operationsfor SLAD until 2013. Mr. Fernández is a Mechanical Engineer from Instituto Tecnológico Buenos Aires and began his career at McDonald’s in 1986. He held thepositions of Development Director, Development Vice President and Managing Director of McDonald’s Argentina before becoming the Divisional President ofoperations of SLAD. Ricardo Gutiérrez Muñoz . Mr. Gutiérrez Muñoz is an independent member of our board of directors since July 1, 2016 and is a member of our AuditCommittee. He graduated with a Bachelor’s Degree in Accounting from the Instituto Politécnico Nacional (Mexico City) and a Master’s Degree in Financing fromthe Universidad Lasalle (Mexico City). He also pursued postgraduate studies in Mexico and in the USA. Mr. Gutiérrez Muñoz was CEO of Mexichem from 1994to 2010. Before joining Mexichem, he was Vice-President of Empresas Lanzagorta, CEO and board member of Industrias Synkro and CFO of the Indetel/AlcatelCompany. Currently he is the CEO of the CP Latina Company, a drilling contractor. In addition, he is also board member of Grupo Kaluz, Bolsa Mexicana deValores (Mexican Stock Exchange), Cinépolis (Organización Ramírez), Empresas ICA, Grupo Aeroportuario del Centro Norte OMA, Genommalab e IndustriaMexicana del Aluminio (IMASA). Francisco Staton . Mr. Francisco Staton has been a member of our board of directors since April 2018. Mr. Francisco Staton is Arcos Dorados’ ManagingDirector for Colombia, Aruba, Curaçao and Trinidad & Tobago. He joined the Arcos Dorados executive team in 2013 as Senior Manager of Business Developmentfor our NOLAD Division. Prior to serving as Senior Manager of Business Development for our NOLAD Division, he held different operating roles within theorganization and also worked as a consultant at the Boston Consulting Group office in Buenos Aires. He completed his undergraduate studies at PrincetonUniversity in 2003, and subsequently earned an MBA from Columbia Business School in 2010. He has served on the board of Princeton in Latin America since2015. Mr. Francisco Staton is the son of our Executive Chairman, Woods Staton. Executive Officers Our executive officers are responsible for the management and representation of our company. We have a strong centralized management team led by Mr.Alonso, our CEO, with broad experience in development, revenue, supply chain management, operations, finance, marketing, legal affairs, human resources,communications and training. Most of our executive officers have worked in the food service industry for several years. Many of the members of the managementteam have a long history with McDonald’s operations in Latin America and the Caribbean and with Mr. Alonso, and have worked together as a team for manyyears. Our executive officers were appointed by our Board of Directors for an indefinite term. The following table lists our current executive officers: NamePosition Initial Year ofAppointment At Arcos DoradosSince Sergio AlonsoChief Executive Officer20151987Marcelo RabachChief Operating Officer20151990Mariano TannenbaumChief Financial Officer20172008Juan David BastidasChief Legal Counsel20102010Paulo CamargoDivisional President—Brazil20152011Alejandro YapurDivisional President—SLAD20131986Rogério BarreiraDivisional President—NOLAD20151984Luis RaganatoDivisional President—Caribbean20141991Sebastian MagnascoVice President of Development20071994Dan GertsacovChief Marketing and Digital Officer20172014Diego BenenzonVice President of Human Resources20142009José Valledor RojoVice President of Supply Chain20151990Marlene Fernandez del GranadoVice President of Government Relations20112009Daniel SchleinigerVice President of CorporateCommunications and Investor Relations20172014 The following is a brief summary of the business experience of our executive officers who are not also directors. Unless otherwise indicated, the currentbusiness addresses for our executive officers is Roque Saenz Peña 432, Olivos, Buenos Aires, Argentina (B1636 FFB) and Dr. Luis Bonavita 1294, Office 501,WTC Free Zone, Montevideo, Uruguay. 84 Table of Contents Marcelo Rabach. Mr. Rabach, 48, is our Chief Operating Officer, and prior to his appointment as such in August 2015, Divisional President for NOLAD since2013, Vice President of Operations Development since 2012 and Divisional President in Brazil since 2008. He graduated with a degree in Business Administrationfrom Universidad Argentina de la Empresa in 2002. He began his career at McDonald’s Argentina in 1990 and has over 17 years of line operations experience,starting as a crew employee and steadily advancing into larger operational roles. From 1999 until his appointment as McDonald’s Chief Operating Officer inVenezuela in 2005, Mr. Rabach was responsible for the operations, real estate, construction, human resources, local store marketing, and training and franchisingof a region within Argentina, holding the positions of Operations Manager and Operations Director. He was the Chief Operating Officer in Venezuela from 2005until 2008. Mariano Tannenbaum. Mr. Tannenbaum, 44, is our Chief Financial Officer. He joined Arcos Dorados in 2008 and has held several positions at the corporatelevel, with his last position being Senior Director of Corporate Finance. Previously, Mr. Tannenbaum had a long international career in Europe and the UnitedStates. He worked for the IFG Group in Switzerland, for Tyco International in Switzerland and Princeton, New Jersey and for Sabre Holdings in London. He beganhis career working for an economic consulting firm in Argentina as well as for the Argentine government, as part of the Ministry of Treasury and Public Finances.Mr. Tannenbaum has an economics degree from the Universidad de Buenos Aires, a Master’s in finance from the Universidad Torcuato Di Tella and an MBA witha concentration in finance from the London Business School. Juan David Bastidas. Mr. Bastidas, 50, is our Chief Legal Counsel. He attended Universidad Pontificia Bolivariana in Colombia, where he received a LawDegree in 1989. He graduated in 1990 as a Business Law Specialist from the same university. He also pursued postgraduate studies in Business Administration atNew York University , which he completed in 1994, International Business at Eafit University, which he completed in 2000 and Senior Management at Los AndesUniversity, which he completed in 2009 in Colombia. He also attended the Executive Directors Training Program from IAE Business School in Argentina (2017).Mr. Bastidas worked from 1994 to 1995 as an international operations lawyer for Banco Industrial Colombiano (Bancolombia). He served as Chief Legal Counseland Secretary of the board of directors of Interconexión Electrica S.A. E.S.P.–ISA from 1995 to 2010 before joining us in July 2010. Paulo Camargo. Mr. Camargo, 49, was appointed Divisional President for Brazil in October 2015. Prior to Mr. Camargo’s promotion, he served as VicePresident of Operations for the Brazil Division for four years. Mr. Camargo has over 20 years of experience in the consumer, retail and services industry. He hasworked for companies such as PepsiCo, FASA Corporation and Iron Mountain across a variety of geographies. Before joining Arcos Dorados in 2011, he wasPresident of the Spain Division at Iron Mountain. Mr. Camargo has a postgraduate degree in Business Administration from Mackenzie University in São Paulo,and also holds an MBA from IEDE Business School in Spain. He has undertaken executive training at Harvard Business School in the United States, HenleyBusiness School in England and the IESE Business School in Spain. Alejandro Yapur. Mr. Yapur, 49, was appointed Divisional President of SLAD in July 2013. He began his career in 1986 as a crew member at the firstMcDonald’s restaurant in Argentina and had the opportunity to serve as Manager in the Marketing, Operations and Corporate Communications areas of ArcosDorados in Argentina. In 2005 he was promoted to Managing Director of Uruguay and in 2007 became responsible for the Company’s Chilean operations. In 2011,Mr. Yapur became Regional Managing Director for the Southern Cone Region (Argentina, Chile and Uruguay) until 2013 when he was promoted to his currentposition. He holds a Master’s degree in Communications from Universidad Austral in Buenos Aires, Argentina. He has also received executive training from IAEBusiness School in Argentina, IPADE Business School in Mexico and IESE Business School in Spain. Rogério Barreira. Mr. Barreira, 49, was appointed Divisional President for NOLAD in October 2015. Prior to Mr. Barreira’s promotion, he served as VicePresident of Operations for the Brazil Division for four years. Mr. Barreira has over 32 years of experience in Arcos Dorados, acting in different key positions rolein Brazil. Mr. Barreira has a Master in Business Administration from Foundation Getulio Vargas in Brazil and, and also holds a degree in Marketing and BusinessPlanning from Anhembi-Morumbi University in Brazil. Luis Raganato. Mr. Raganato, 48, is our Divisional President for the Caribbean. Prior to his appointment as such, he was the General Director of ArcosDorados in Peru. Mr. Raganato began his career at Arcos Dorados in 1991 as a Trainee in the Nuevocentro Shopping location in the province of Córdoba,Argentina and has held various positions in Operations Management over the years. Mr. Raganato holds a Bachelor’s degree in Business 85 Table of Contents Administration from Instituto Aeronáutico de Argentina and a Master’s degree in Marketing and Business Development from Escuela Superior de Estudios deMarketing de Madrid. Sebastian Magnasco. Mr. Magnasco, 48, is our Vice President of Development and served, prior to his appointment as such, in the same capacity in SLAD.He graduated with a degree in Engineering from Instituto Tecnológico Buenos Aires, in 1990. He began his career at McDonald’s in 1994 and held the positions ofReal Estate & Equipment Director of Argentina and IT, Real Estate and Equipment Director of Argentina until his appointment as Vice President of Developmentof SLAD in 2005. Dan Gertsacov. Mr. Gertsacov, 43, is our Chief Marketing and Digital Officer. He joined the company in 2014 as Chief Digital Officer and is responsible fordesigning and implementing the digital strategy. Prior to joining Arcos Dorados, he served as head of new markets for Latin America and the Caribbean at Googleand Vice President of business development for Univision Networks, among other positions in leading companies. Mr. Gertsacov holds a Bachelor’s degree inEconomics and International Development from the University of Richmond and an MBA from Harvard Business School. Diego Benenzon . Mr. Benenzon, 51, is our Vice President for Human Resources. He joined the Company in June 2009. Mr. Benenzon graduated with adegree in psychology from Universidad John F. Kennedy and holds a postgraduate degree from the Universidad de Buenos Aires. He has an extensive experienceas an executive of high responsibility in multinational companies. Mr. Benenzon carried out postgraduate programs on strategic consultancy and organizationalbehavior and Management Development Program at IAE Business School. He has also served as a senior consultant to various large companies and NGOs and hasteaching experience. José Valledor. Mr. Valledor, 51, is our Vice President of Supply Chain. Prior to his appointment as such, he was Divisional President in Brazil. He joined us in1990 as an assistant in the accounting department, and four years later he became Manager of that department. In 2005, he became Regional Operations Director,responsible for the markets of Uruguay, Paraguay and Argentina. Two years later, he became Argentina’s General Director while continuing to supervise themarket operations in Uruguay, Chile and Paraguay. Mr. Valledor Rojo has a degree in Business Administration and a postgraduate degree from the Instituto deAltos Estudios (IAE) in Buenos Aires, Argentina. Marlene Fernandez. Ms. Fernandez, 56, is Corporate Vice President for Government Relations. Prior to joining Arcos Dorados in 2009, she served as anelected Member of the House of Representatives in Bolivia where she held various leadership positions, including Ambassador of Bolivia to the United States ofAmerica, Ambassador to the Organization of American States, Ambassador to the Government of Italy and Representative of Bolivia to different specializedagencies of the United Nations. She was also Bureau Chief and Main Political Correspondent for CNN Spanish in Washington, D.C. Ms. Fernandez holds a Masterof Science in Broadcast Journalism from Boston University, graduated Summa Cum Laude from the Universidad Argentina John. F. Kennedy and has completedcourses in Finance for Executives, Strategic Communications, Conflict Resolution and Negotiations in Conflict at Harvard University. Daniel Schleiniger , 44, is our Vice President of Corporate Communications and Investor Relations. He joined the Company in February 2014 as Director ofInvestor Relations. Prior to joining Arcos Dorados, he worked for fourteen years in South Florida, for the Cisneros Group of Companies in a number of roles,including Senior Manager of Investor Relations, Director of Corporate Financial Planning and Vice President and Treasurer. Mr. Schleiniger’s experience alsoincludes equity research at Morgan Stanley in New York, corporate banking with Unibanco in São Paulo and consulting work for Wharton EconometricForecasting Associates in Philadelphia. Mr. Schleiniger holds a Bachelor of Science degree in chemistry as well as an MBA with a concentration in finance, bothfrom the University of Delaware. B. Compensation Long-term and Equity Incentive Plans Long-term Incentive Plan We implemented a long-term incentive plan in 2008 (the “2008 long-term incentive plan”) to reward certain employees for the success of our business. Inaccordance with this plan, we historically granted phantom equity 86 Table of Contents units, called CADs, annually to certain employees, pursuant to which such employees are entitled to receive, upon vesting, a cash payment equal to theappreciation in the fair value of the award over the base value of the award. In 2011, our Board approved the use of the Company’s market capitalization followingour initial public offering as the metric used to determine the Company’s fair market value under this incentive plan in place of the existing formula used todetermine the current value of the awards. Due to an extension granted in April 2014, the exercise rights for any outstanding CADs under this plan will expire inMay 2017 or May 2018, depending on their grant date. As of December 31, 2017, 324,861 CADs were outstanding, as compared to 627,134 CADs as of December 31, 2016. During 2017, 299,626 CADs wereexercised, and the total amount paid for these exercises was $0.5 million. A total of $2,648 CADs was forfeited during 2017. At December 31, 2017, we maintain acurrent payable of $1.4 million related to these exercises that is presented within “accrued payroll and other liabilities” in our balance sheet. Equity Incentive Plan In March 2011, we adopted our Equity Incentive Plan, or 2011 Plan, to attract and retain the most highly qualified and capable professionals and to promotethe success of our business. This plan replaces our 2008 long-term incentive plan discussed above, although the CADs that have already been granted will remainoutstanding until their respective termination dates. Like our 2008 long-term incentive plan, the 2011 Plan is being used to reward certain employees for thesuccess of our business through an annual award program. The 2011 Plan permits grants of awards relating to class A shares, including awards in the form of share(also referred to as stock) options, restricted shares, restricted share units, share appreciation rights, performance awards and other share-based awards as will bedetermined by our Board. Pursuant to the 2011 Plan, on April 14, 2011, the first trading day of our class A shares on the NYSE, we made the annual grants for 2011 to certain of ourexecutive officers and other employees. The grants included 231,455 restricted share units and 833,388 stock options that will vest as follows: 40% on the secondanniversary of the date of grant and 20% on each of the following three anniversaries. In addition, on April 14, 2011, we granted special awards of restricted shareunits and stock options to certain of our executive officers and other employees in connection with our initial public offering. The special grant included 782,137restricted share units and 1,046,459 stock options that will vest one-third on each of the second, third and fourth anniversaries of the grant date. With respect to allof the grants made on April 14, 2011, each stock option represents the right to acquire one class A share at a strike price of $21.20 (the closing price on the date ofgrant), while each restricted share unit represents the right to receive one class A share, when vested. On May 10, 2012, we made the annual grants for 2012 to certain of our executive officers and other employees. The grants include 211,169 restricted shareunits and 584,587 stock options that will vest as follows: 40% on the second anniversary of the grant date and 20% on each of the following three anniversaries.Each stock option granted represents the right to acquire one class A share at a strike price of $14.35 (the closing price on the grant date), while each restrictedshare unit represents the right to receive one class A share when vested. On May 10, 2013, we made the annual grants for 2013 to certain of our executive officers and other employees. The grants include 213,600 restricted shareunits and 431,726 stock options that will vest as follows: 40% on the second anniversary of the grant date and 20% on each of the following three anniversaries.Each stock option granted represents the right to acquire one class A share at a strike price of $14.31 (the closing price on the grant date), while each restrictedshare unit represents the right to receive one class A share when vested. On May 10, 2014, we made the annual grants for 2014 to certain of our executive officers and other employees. The grants include 317,351 restricted shareunits and 247,475 stock options that will vest as follows: 40% on the second anniversary of the grant date and 20% on each of the following three anniversaries.Each stock option granted represents the right to acquire one class A share at a strike price of $8.58 (the closing price on the grant date), while each restricted shareunit represents the right to receive one class A share when vested. On May 8, 2015, we made the annual grants for 2015 to certain of our executive officers and other employees. The grants include 923,213 restricted shareunits that will vest as follows: 40% on the second anniversary of the grant date and 20% on each of the following three anniversaries. Each restricted share unitrepresents the right to receive one class A share when vested. On May 10, 2016, we made the annual grants for 2016 to certain of our executive officers and other employees. The grants include 865,291 restricted shareunits that will vest as follows: 40% on the second anniversary of the grant date and 20% on each of the following three anniversaries. Each restricted share unitrepresents the right to receive one class A share when vested. 87 Table of Contents On May 10, 2017, we made the annual grants for 2017 to certain of our executive officers and other employees. The grants included 497,960 restricted shareunits that will vest as follows: 40% on the second anniversary of the grant date and 20% on each of the following three anniversaries. Each restricted share unitrepresents the right to receive one class A share when vested. The maximum number of shares that may be issued under the 2011 Plan is 5,238,235 class A shares, equal to 2.5% of our total outstanding class A and class Bshares immediately following our initial public offering on April 14, 2011. We issued 361,284 class A shares during 2017 in connection with the partial vesting ofoutstanding restricted share units. On June 28, 2016, 1,117,380 stock options were converted into liability awards. There were no incremental compensation costs resulting from themodification and only 104 employees were affected. As of December 31, 2017, the accumulated additional paid-in capital related to these units as measured fromthe grant date amounted to $5,865 (net of $85, which was reclassified under “Accrued payroll and other liabilities-non current” in our consolidated balance sheet).The accrued liability is remeasured on a monthly basis until settlement. See Note 17 to our consolidated financial statements for additional information. We intend to make the 2018 annual grant under the 2011 Plan during the second quarter of 2018. Compensation of Directors and Officers General The approximate aggregate annual total cash compensation for our 14 officers was $9.7 million in 2017. In 2017, we approved annual compensation for ournon-executive directors of $140,000 each, payable 100% in cash. The cash payments corresponding to services performed in 2017 were paid $105,000 each in2017 and $35,000 each in 2018, except for Mr. Chu’s and Mr. Velez’s compensation, each of which was paid in full in 2017. We have not entered into any servicecontracts with our directors to provide for benefits upon termination of employment. C. Board Practices Our Committees Audit Committee Our audit committee consists of three directors, Mr. Chu, Mr. Vélez and Mr. Gutiérrez, who are independent within the meaning of the SEC and NYSEcorporate governance rules applicable to foreign private issuers. Our Board of Directors has determined that Mr. Chu, Mr. Vélez and Mr. Gutiérrez are also “auditcommittee financial experts” as defined by the SEC. The charter of the audit committee states that the purpose of the audit committee is to assist the Board of Directors in its oversight of: ·the integrity of our financial statements; ·the annual independent audit of our financial statements, the engagement of the independent auditor and the evaluation of the qualifications, independenceand performance of our independent auditor; ·the performance of our internal audit function; and ·our compliance with legal and regulatory requirements. Compensation and Nomination Committee Our compensation and nomination committee consists of Mr. Hernández-Artigas, Ms. Franqui and Mr. José Fernández. Pursuant to its charter, thecompensation and nomination committee is responsible for, among other things: 88 Table of Contents ·approving corporate goals and objectives relevant to compensation, evaluating the performance of executives in light of such goals and objectives andrecommending compensation based on such evaluation, recommending any long-term incentive component of compensation and approving thecompensation of our executive officers; ·reviewing and reporting to the board of directors on our management succession plan and on compensation for directors; ·evaluating our compensation and benefits policies; ·evaluating the structure of our board of directors; ·nominating candidates to executive positions and to the board of directors; and ·reporting to the board periodically. D. Employees Our employees are a crucial component of our customers’ restaurant service experience. As such, we consistently train our employees to deliver fast andfriendly service through a series of training programs. We support our McDonald’s-based training programs with an extensive set of quality controls throughoutproduction, processing and distribution and also in our restaurants, where we monitor restaurant managers’ performance and use ongoing external customersatisfaction opportunity reports that analyze key operating indicators. Our employees can be divided into three different categories: crew, restaurant managers and professional staff. Due to the different tasks of each of thesecategories of employees, turnover rates differ significantly. Crew turnover is considerably higher than turnover for managers and professional staff. As of December 31, 2017, we had a total of approximately 78,806 employees in company-operated restaurants and staff throughout the Territories. Of thisnumber, 82% were crew, 16% were restaurant managers and the remainder were professional staff. Approximately 30% of our employees were located in Brazil. We have various types of employment arrangements with our employees in Brazil. Some of our employees receive monthly wages whereas others are paid bythe hour, and some of our employees have fixed work schedules. Most of our employees in Brazil, in particular students and minors, work schedules of less than180 hours per month. Brazilian law requires that employers provide a minimum monthly wage, which, in the case of employees who are paid by the hour, isprorated in terms of wages per hour. In the beginning of 2012, we decided to transition to fixed work schedules and hourly wages for our employees in Brazil. Our employees will work between180 and 220 hours per month, with proportional wages based on the quantity of hours fixed in their employment agreements. In 2013, pursuant to the PernambucoLabor Court ruling, we began the transition to a fixed hourly schedule according to the timeframe agreed to in the ruling. See “Item 8. Financial Information—A.Consolidated Statements and Other Financial Information—Legal Proceedings—Brazilian Labor Litigation.” In August 2012, the Labor Prosecutor’s Office of the State of Pernambuco ( Ministério Público do Trabalho do Estado de Pernambuco ) filed a civilcomplaint against us in the Labor Court of Pernambuco ( Justiça do Trabalho de Pernambuco ) regarding alleged noncompliance with certain labor laws. See“Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Legal Proceedings—Brazilian Labor Litigation.” The following table illustrates the distribution of our employees by division and employee category as of December 31, 2017. Division Crew RestaurantManagers ProfessionalStaff TotalBrazil 24,305 5,860 526 30,691 Caribbean division 8,673 1,646 265 10,584 NOLAD 8,358 1,962 256 10,576 SLAD 23,238 3,141 281 26,660 Corporate and other — — 295 295 Total 64,574 12,609 1,623 78,806 89 Table of Contents Restaurant managers are responsible for the daily management of our restaurants. As such, we have a comprehensive training program for them that is focusedon customer management practices, food preparation and other operational procedures. Standards are taught and continuously reinforced through the use of suchtraining programs. We also use performance measurements on a continual basis, both internally and externally in connection with all our restaurants. Our internalon-site visit restaurant operations improvement process evaluates operational standards, which are compared globally to assure continuous improvement. We alsocontract third parties, which we refer to as third-party shoppers, to visit our restaurants anonymously and report on our performance. Our external third-partyshopper measurements and customer satisfaction opportunity reports help maintain our competitiveness. In addition, Hamburger University provides restaurantmanagers, mid-managers and owner/operators with training on best practices in different aspects of our business. In 2017, approximately 768 people attendeddifferent courses or events organized by Hamburger University in areas such as restaurant and customer management, sales and accounting. The role performed by our crew is of critical importance in our interactions with our customers. Employee relations are thus key to maintaining the level ofmotivation and enthusiasm on the part of our crew that help differentiate our restaurants from those of our competitors. We have been recognized by manyindependent organizations for being a “great place to work.” Although we have unions in some of our most important markets, including Brazil, Argentina and Mexico, the unions only have an active role in our Brazilrestaurants. In these markets, the restaurant industry is unionized by law. However, in Brazil every employee and company are necessarily represented by unions.Workers unions can negotiate directly with companies through Collective Bargaining Agreements, or CBAs, or with the company’s union through CollectiveConvention. Under Brazilian law, employees or groups of employees cannot opt-out of the terms under union agreements, which integrate the employment contractfor all legal purposes. In Brazil, the CBA or the Collective Convention should provide, on a yearly basis, the salary adjustment to be afforded by all employees, andmay also provide certain additional guarantees or rights, to be applicable to all employees, regardless of their unit or position in the company, during a certain term(maximum of two years). All collective agreements are mandatory in Brazil. On November 11, 2017, an overhaul in the labor laws in Brazil (the “Labor Overhaul”) entered into effect and brought significant changes to labor relationsand labor law itself. Prior to the Labor Overhaul, the Consolidated Labor Statutes governed labor relations in Brazil. The Labor Overhaul introduces and changesseveral articles of the Consolidated Labor Statutes aiming to give more flexibility and legal certainty to the legal framework around labor relations thus meetingcurrent demands of modern society. Out of several changes made in the Labor Overhaul, the most relevant for us is a change providing that collective laboragreements (CBAs or Collective Convention) will now prevail over statutory law in certain circumstances, giving priority to what has been agreed over what hasbeen legislated and providing greater autonomy to the parties. 90 Table of Contents E. Share Ownership The following table presents the beneficial ownership of our shares owned by our directors and officers as of the date of this annual report. Other than thosepersons listed below, none of our directors or officers beneficially own any of our shares. Shareholder Class AShares Percentage ofOutstandingClass A Shares Class B Shares Percentage ofOutstandingClass B Shares Total EconomicInterest Total VotingInterest (1)Los Laureles Ltd. (2)(3) — — 80,000,000 100.00% 37.90% 75.32%Woods Staton (3) 7,749,231 5.91% — — 3.67% 1.46%Sergio Alonso * * — — * * Annette Franqui * * — — * * Carlos Hernández-Artigas * * — — * * Juan David Bastidas * * — — * * José Valledor Rojo * * — — * * José Fernandez * * — — * * Marcelo Rabach * * — — * * Mariano Tannenbaum * * — — * * Sebastian Magnasco * * — — * * Diego Benenzon * * — — * * Marlene Fernandez * * — — * * Luis Raganato * * — — * * Rogério Barreira * * — — * * Alejandro Yapur * * — — * * Paulo Camargo * * — — * * Dan Gertsacov * * — — * * Daniel Schleiniger * * — — * * Francisco Staton * * — — * * *Each of these directors and officers beneficially owns less than 1% of the total number of outstanding class A shares.(1)Class A shares are entitled to one vote per share and class B shares are entitled to five votes per share.(2)Los Laureles Ltd. is beneficially owned by Mr. Woods Staton, our Executive Chairman. See “Item 7. Major Shareholders and Related Party Transactions—A. Major Shareholders—LosLaureles Ltd.”(3)In addition to the class B shares he beneficially owns through Los Laureles Ltd., Mr. Woods Staton beneficially owns 7,749,231 class A shares (includes 226,037 shares of common stockissuable upon exercise of stock options and 287,920 restricted share units) directly, and indirectly through Chablais Investments S.A. (“Chablais”). On a combined basis, Mr. Woods Statonis the beneficial owner of an aggregate of 41.57% of the total economic interests of Arcos Dorados and 76.78% of its total voting interests. The address of Mr. Woods Staton is Mantua No.6575 (esquina Potosí), Montevideo, Uruguay 11500. The address of Chablais is Level 1, Palm Grove House, Wickham’s Cay 1, Road Town, Tortola, BVI. As of the date of this annual report, our 14 officers had been granted (i) a total of 1,274,747 restricted share units, 478,578 options at an exercise price of$21.20 per share, 127,176 stock options at an exercise price of $14.35 per share and 74,028 stock options at an exercise price of $14.31 per share pursuant to the2011 Plan. For more information, see “—B. Compensation—Long-term and Equity Incentive Plans” above. Our non-executive directors had been granted a totalof 53,652 stock options at an exercise price of $14.35 per share, 10,332 stock options at an exercise price of $14.31 and 247,478 stock options at an exercise priceof $8.58 per share per share pursuant to the 2011 Plan. 91 Table of Contents ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS A. Major Shareholders As of the date of this annual report, under our memorandum and articles of association, we are authorized to issue a maximum of 420,000,000 class A shares,no par value per share, and 80,000,000 class B shares, no par value per share. Each of our class A shares entitles its holder to one vote. Each of our class B sharesentitles its holder to five votes. Los Laureles Ltd., our controlling shareholder, owns 37.9% of our issued and outstanding share capital, and 75.32% of our votingpower by virtue of its ownership of 100% of our class B shares. The following table presents the beneficial ownership of our shares as of the date of this annualreport: Shareholder Class A Shares % of OutstandingClass A Shares Class B Shares % of OutstandingClass B Shares TotalEconomicInterest Total VotingInterest (1)Los Laureles Ltd (2)(3) — — 80,000,000 100.0% 37.90% 75.32%Woods Staton (3) 7,749,231 5.91% — — 3.67% 1.46%William H. Gates III (4) 11,641,400 8.88% — — 5.51% 2.19%Invesco Ltd. (5) 12,490,616 9.53% — — 5.92% 2.35%TIAA-CREF Investment Management, LLC (6) 8,352,746 6.37% — — 3.96% 1.57%TIAA-CREF Emerging Markets Equity Fund (7) 6,622,107 5.05% — — 3.14% 1.24%Teachers Advisors, LLC (8) 9,927,753 7.57% — — 4.70% 1.87%Public 74,288,655 56.68% — — 35.20% 13.99%Total 131,072,508 100.00% (9) 80,000,000 100.00% 100.00% 100.00% (9)(1)Class A shares are entitled to one vote per share and class B shares are entitled to five votes per share.(2)The address of Los Laureles Ltd. is 325 Waterfront Drive, Omar Hodge Building, 2nd Floor, Wickham’s Cay 1, Road Town, Tortola, British Virgin Islands. Los Laureles Ltd. isbeneficially owned by Mr. Woods Staton, our Executive Chairman. Los Laureles Ltd. established a voting trust with respect to the voting interests in us held by Los Laureles Ltd. LosLaureles Ltd. is the beneficiary of the voting trust. See “—Los Laureles Ltd.”(3)In addition to the class B shares he beneficially owns through Los Laureles Ltd., Mr. Woods Staton beneficially owns 7,749,231 class A shares (includes 226,037 shares of common stockissuable upon exercise of stock options and 287,920 restricted share units) directly, and indirectly through Chablais Investments S.A. (“Chablais”). On a combined basis, Mr. Woods Statonis the beneficial owner of an aggregate of 41.57% of the total economic interests of Arcos Dorados and 76.78% of its total voting interests. The address of Mr. Woods Staton is Mantua No.6575 (esquina Potosí), Montevideo, Uruguay 11500. The address of Chablais is Level 1, Palm Grove House, Wickham’s Cay 1, Road Town, Tortola, BVI.(4)William H. Gates III (“Mr. Gates”) indirectly owns Class A shares through Cascade Investment, LLC (“Cascade”) and the Bill & Melinda Gates Foundation Trust (the “Trust”). Cascade,the Trust, Mr. Gates and Melinda French Gates (“Mrs. Gates”) filed with the SEC a Schedule 13G/A dated February 13, 2015. Based solely on the disclosure set forth in such Schedule13G/A, (i) Cascade has sole voting power with respect to 8,580,900 class A shares and sole dispositive power with respect to 8,580,900 class A shares; (ii) the Trust has shared votingpower with respect to 3,060,500 class A shares and shared dispositive power with respect to 3,060,500 class A shares; (iii) Mr. Gates has, through Cascade, sole voting power and soledispositive power with respect to 8,580,900 class A shares and has, through the Trust, shared voting power and shared dispositive power with respect to 3,060,500 class A shares; and (iv)Mrs. Gates has, through the Trust, shared voting power with respect to 3,060,500 class A shares and shared dispositive power with respect to 3,060,500 class A shares. The address ofCascade Investment, LLC is 2365 Carillon Point, Kirkland, Washington 98033. The address of the Trust and Mrs. Gates is 500 Fifth Avenue North, Seattle, Washington 98119. Theaddress of Mr. Gates is One Microsoft Way, Redmond, Washington 98052.(5)Invesco Ltd. filed with the SEC a Schedule 13G dated February 9, 2018. Based solely on the disclosure set forth in such Schedule 13G, Invesco Ltd. has sole voting power with respect to12,490,616 class A shares and sole dispositive power with respect to 12,490,616 class A shares. The address of Invesco Ltd. is 1555 Peachtree Street NE, Suite 1800, Atlanta, GA 30309.(6)TIAA-CREF Investment Management, LLC filed with the SEC a Schedule 13G/A dated February 14, 2018. Based solely on the disclosure set forth in such Schedule 13G/A, TIAA-CREFInvestment Management, LLC has sole voting power with respect to 8,352,746 class A shares and sole dispositive power with respect to 8,352,746 class A shares. The address of TIAA-CREF Investment Management, LLC is 730 Third Avenue, New York, NY 10017-3206.(7)TIAA-CREF Emerging Markets Equity Fund filed with the SEC a Schedule 13G/A dated February 14, 2018. Based solely on the disclosure set forth in such Schedule 13G/A, TIAA-CREFEmerging Markets Equity Fund has sole voting power with respect to 6,622,107 class A shares and sole dispositive power with respect to 6,622,107 class A shares. The address of TIAA-CREF Emerging Markets Equity Fund is 730 Third Avenue, New York, NY 10017-3206.(8)Teachers Advisors, LLC filed with the SEC a Schedule 13G/A dated February 14, 2018. Based solely on the disclosure set forth in such Schedule 13G/A, Teachers Advisors, LLC has solevoting power with respect to 9,927,753 class A shares and sole dispositive power with respect to 9,927,753 class A shares. The address of Teachers Advisors, LLC is 730 Third Avenue,New York, NY 10017-3206.(9)Numbers do not sum to 100% due to the effects of rounding. 92 Table of Contents Los Laureles Ltd. Los Laureles Ltd. is our controlling shareholder and is beneficially owned by Mr. Woods Staton, our Executive Chairman. Los Laureles Ltd. currently owns37.9% of the economic interests of Arcos Dorados and 75.32% of its voting interests. Los Laureles Ltd. has established a voting trust with respect to the votinginterests in us held by Los Laureles Ltd. Los Laureles Ltd. is the beneficiary of the voting trust. The voting trust exercises the vote of the class B shares through avoting committee, which consists of only Mr. Woods Staton. The decision of the voting committee must be approved by Los Laureles (PTC) Limited, a BritishVirgin Islands company that is a wholly owned subsidiary of Los Laureles Limited. Mr. Woods Staton is the sole director of Los Laureles (PTC) Limited. Withoutthe consent of McDonald’s, Mr. Woods Staton may add any one or more of his descendants, certain other relatives, any board member of Arcos Dorados and thechief executive officer, chief operating officer or chief financial officer of Arcos Dorados to the committee. Following Mr. Woods Staton’s death or during Mr. Woods Staton’s incapacity, the voting committee will consist of (1) certain officers or directors of ArcosDorados, (2) certain descendants of Mr. Woods Staton or their representatives, and (3) other persons appointed by Los Laureles (PTC) Limited, subject toMcDonald’s consent if such person is not one of Mr. Woods Staton’s descendants and is not the chief executive officer, chief operating officer or chief financialofficer of Arcos Dorados. For the first five years from the date of the execution of the voting trust, the officers and directors of Arcos Dorados on the votingcommittee will have the tie-breaking vote (if any). Thereafter, Mr. Woods Staton’s descendants will have the tie-breaking vote. Significant Changes in Ownership by Major Shareholders We have experienced significant changes in the percentage ownership held by major shareholders as a result of our initial public offering and follow-onoffering. Prior to our initial public offering in April 2011, our principal shareholders were Los Laureles Ltd. (40.0% economic, 76.9% voting), Gavea InvestmentAD, L.P. (26.1% economic, 10.0% voting) and investment funds controlled by Capital International, Inc. (20.4% economic, 7.9% voting) and DLJ South AmericanPartners L.L.C. (through its affiliates) (13.2% economic, 5.1% voting). On April 19, 2011, we completed our initial public offering and listed our class A shares on the NYSE. In the initial public offering, we sold 9,529,412 class Ashares and Gavea Investment AD, L.P. and investment funds controlled by Capital International, Inc. and DLJ South American Partners L.L.C. (through itsaffiliates) sold 74,977,376 class A shares, including 11,022,624 class A shares sold to the underwriters pursuant to the underwriters’ over-allotment option. OnOctober 25, 2011, we completed a follow-on offering in which Gavea Investment AD, L.P. and investment funds controlled by Capital International, Inc. and DLJSouth American Partners L.L.C. (through its affiliates) sold the remainder of their shareholdings. As of April 25, 2018, there were 6 class A shareholders of record. We believe the number of beneficial owners is substantially greater than the number ofrecord holders because a large portion of class A shares is held in “street name” by brokers. B. Related Party Transactions Our Board of Directors has created and adopted a related party transactions policy for the purpose of assisting the Board of Directors in reviewing, approvingand ratifying related party transactions. This Policy is intended to supplement, and not to supersede, our other policies that may be applicable to or involvetransactions with related parties, such as our Standards of Business Conduct. Axionlog Split-off In March 2011, we effected a split-off of Axionlog (formerly known as Axis) to our principal shareholders. The split-off was effected through the redemptionof 41,882,966 shares (25,129,780 class A shares and 16,753,186 class B shares). As consideration for the redemption, the Company transferred to its principalshareholders its equity interests in the operating subsidiaries of the Axionlog business totaling a net book value of $15.4 million and an equity contribution that wasmade to the Axionlog holding company amounting to $29.8 million. Following the split-off, Los Laureles Ltd. acquired the Axionlog shares held by GaveaInvestment AD, L.P. and investment funds 93 Table of Contents controlled by Capital International, Inc. and DLJ South American Partners L.L.C. (through its affiliates). The split-off of Axionlog did not have a material effect onour results of operations or financial condition. In 2011, we entered into a master commercial agreement with Axionlog on arm’s-length terms pursuant to which Axionlog provides us with distributioninventory, storage (dry, frozen and chilled) and transportation services in Argentina, Chile, Colombia, Ecuador, Mexico, Venezuela, Uruguay and Peru. Pricingunder the agreement is determined pursuant to an agreed upon formula that is considered standard in the distribution services industry. Additionally, Axionlogmust comply with McDonald’s quality program, the Distributor Quality Management System (DQMP) and other supplier requirements to maintain its status as aMcDonald’s-approved supplier pursuant to the MFA. The pricing formula considers certain variables to determine the applicable fees, including (i) cost inputs(i.e., transportation expenses and salaries); (ii) time required for completion; (iii) storage requirements; (iv) merchandise volume; and (v) inflation and exchangerate adjustments. We use similar pricing formulas with our other distribution service providers in the territories not covered by Axionlog. Under the terms of theagreement, the pricing formula is reviewed on a yearly basis. During these reviews, we share information in order to find potential cost efficiencies and savings. Inaddition, we or Axionlog may request a renegotiation of the pricing formula in the event that, due to factors outside of our or their control, the formula issubstantially altered based on changes to its variable inputs. On November 9, 2011, we entered into a revolving loan agreement as a creditor with Axionlog B.V. (formerly known as Axis Distribution B.V.), a holdingcompany of the Axionlog business, pursuant to which we agreed to lend Axionlog up to a total amount of $12.0 million at an interest rate of LIBOR plus 6%, inline with the interest rates prevailing in the market at the time of the agreement, the loan facility matured on November 7, 2016. As of December 31, 2016 and2015, Axionlog B.V. had borrowed $1.8 million and $11.5 million, respectively, from us in connection with this revolving loan facility. Notwithstanding the factthat the loan maturity date was November 7, 2016 the parties decided to terminate the agreement as of May 27, 2016. As a result, we collected the outstandingprincipal amount of $1.8 million on May 27, 2016. During 2017, we incurred $48.8 million in total distribution fees payable to Axionlog, which accounted for approximately 4.4% of our total food and papercosts. See Note 25 to our consolidated financial statements for details of the outstanding balances and transactions with related parties as of December 31, 2017 and2016 and for the fiscal years ended December 31, 2017, 2016 and 2015. Employment of Francisco Staton Mr. Francisco Staton, Woods Staton’s son, leads our operations in Colombia, serving as the managing director for Arcos Dorados Colombia. In this position,Francisco Staton reports to Luis Raganato, President of the Caribbean Division. He has a bachelor's degree from Princeton University and a Master's in BusinessAdministration from Columbia Business School. Prior to working at Arcos Dorados, he worked as a consultant for the Boston Consulting Group. At ArcosDorados, Francisco Staton has completed the Company’s operational training programs in São Paulo and Bogotá, and has also held other positions at the Company,including serving as a restaurant manager as well as serving as a Senior Development Manager for new business projects in the NOLAD Division, in Mexico. Forhis services as managing director in Colombia, Francisco Staton receives customary compensation and benefits commensurate with his level of responsibilitywithin the Company. His compensation package is aligned with the compensation packages of similar positions in other companies in Colombia, according toexternal compensation surveys. Francisco Staton was appointed as a Board Member, Class I, at our AGM held on April 24, 2018. C. Interests of Experts and Counsel Not applicable. 94 Table of Contents ITEM 8. FINANCIAL INFORMATION A. Consolidated Statements and Other Financial Information Financial statements See “Item 18. Financial Statements,” which contains our financial statements prepared in accordance with U.S. GAAP. Legal Proceedings Puerto Rican Franchisees In January 2007, several Puerto Rican franchisees filed a lawsuit against McDonald’s Corporation and certain subsidiaries, which the Company purchasedduring the acquisition of the LatAm business (the “Puerto Rican franchisees lawsuit”). The lawsuit originally sought declaratory judgment and damages in theamount of $11 million plus plaintiffs’ attorney’s fees. In January 2008, the plaintiffs filed an amended complaint that increased the amount of damages sought to$66.7 million plus plaintiffs’ attorney’s fees. The complaint, as amended, requests that the court declare that the plaintiffs’ respective franchise agreements andcontractual relationships with McDonald’s Corporation, which agreements and relationships were assigned or otherwise transferred to the Company as part of theAcquisition of the LatAm business, are governed by the Dealers’ Act of Puerto Rico, or “Law 75”, a Puerto Rican law that limits the grounds under which aprincipal may refuse to renew or terminate a distribution contract. The complaint also seeks preliminary and permanent injunctions to restrict the Company fromdeclining to renew the plaintiffs’ agreements except for just cause, and to prohibit the Company from opening restaurants or kiosks within a three-mile radius of afranchisee’s restaurant. In September 2008, the Company filed a counter-suit requesting the termination of the franchise agreements with these franchisees due toseveral material breaches. On December 23, 2010, the Commissioner assigned by the Court of First Instance to this case issued a resolution holding that Law 75applies to the parties’ commercial relationship. On July 20, 2011, the Court of First Instance adopted the Commissioner’s determination with respect to theapplication of Law 75. This determination is an interlocutory determination that defines the legislation applicable to the franchisee rights and obligations. Law 75will be the applicable law during the trial process. After the trial conclusion, the Company can still reiterate in appeal the position that Law 75 does not apply to thefranchised agreements. The franchisees will still need to demonstrate and prove that the franchisor has breached their respective contracts. Therefore, no provisionhas been recorded regarding this lawsuit because the Company believes that the probability of a loss is remote. Both parties have concluded discovery and the pretrial hearing was held on August 30, 2012. The trial commenced on September 10, 2012 and was heard bythe court-assigned commissioner. At the end of 2014, plaintiffs finished their presentation of evidence and we have not yet started our presentation of evidence. Webelieve that after analyzing all the evidence presented during such process, the Commissioner should issue a recommendation of resolution to the Court of FirstInstance. During 2014, another franchisee filed a complaint (the “related Puerto Rican franchisee lawsuit”) against us and McDonald’s USA, LLC (a wholly ownedsubsidiary of McDonald’s Corporation), asserting a very similar claim to the one filed in the Puerto Rican franchisees lawsuit. The claim seeks declaratoryjudgment and damages in the amount of $30 million plus plaintiff’s attorney’s fees. We also believe that the probability of a loss is remote, due to its closeresemblance to the Puerto Rican franchisees lawsuit. Furthermore, on March 26, 2010, we filed a collection claim against Puerto Rico Owner Operator’s Association (“PROA”), an association integrated by ourfranchisees that meets periodically to coordinate the development of promotional and marketing campaigns, for the reimbursement of the monetary contributionmade during August 2007. On June 15, 2010, PROA, also known as the cooperative, filed a third party complaint and counterclaim (the “PROA claim”) against usand other third party defendants, in the amount of $31 million. At that time, the association was formed solely by franchisees that are plaintiffs in the Puerto Ricanfranchisees lawsuit, described above. PROA’s complaint requests breach of contract for withdrawing from the association (PROA’s position is that we cannotresign to the cooperative) and collection of past contributions, among others. On June 9, 2014, after several motions for summary judgment duly filed and opposedby the parties, the Court entered a “Partial Summary Judgment and Resolution” in favor of PROA, before initiating the discovery phase, finding that we mustparticipate and contribute funds to the association. However, the Court did not specify any amount for which we should be held liable, due to its preliminary andinterlocutory nature, and the lack of discovery conducted regarding the amounts 95 Table of Contents claimed by the plaintiffs. We are opposing this claim vigorously because we believe that there is no legal basis for it considering: (i) the obligation to contribute isnot 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. Based on the above, we believe that the probability of a loss isremote and, consequently, 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 forspecific and limited claims arising from the Puerto Rican franchisees lawsuit. Pursuant to the MFA, the Company indemnifies McDonald’s for the related PuertoRican franchisee lawsuit and the PROA claim. Brazilian Labor Litigation In August 2012, the Labor Prosecutor’s Office of the State of Pernambuco ( Ministério Público do Trabalho do Estado de Pernambuco ) in Brazil filed a civilcomplaint against us in the Labor Court of Pernambuco ( Justiça do Trabalho de Pernambuco ) in order to (i) compel us to change the variable work scheduleapplicable to our 14 restaurants in Pernambuco, which is a state in northeastern Brazil, to a fixed work schedule, (ii) seek fines of R$3,000 per employee per monthfor alleged noncompliance with labor laws related to, for example, overtime payment, breaks between workdays, night shift premiums, duration of breaks andweekly rest time, (iii) seek a penalty of R$20,000 related to the non-exhibition of documentation relating to audit labor inspections and (iv) seek collectivedamages of R$30,000,000 related to the variable work schedule practices in Pernambuco in recent years. The first hearing was scheduled for March 21, 2013. On February 22, 2013, the Labor Prosecutor’s Office of Pernambuco filed an additional petition seeking the extension of the original complaint throughoutBrazil and increasing the amount of collective damages requested from R$30,000,000 to R$50,000,000. The Labor Prosecutor’s Office of the State of Pernambucoalso added a demand that all employees should be allowed to bring their own meals for consumption during breaks in our restaurants. On March 19, 2013, the Labor Court of Pernambuco ruled that we are required to implement a fixed work schedule for all of our employees in Brazil, with theexception of the regions (which represent approximately 80% of our employees in Brazil) where we have already signed a commitment or have obtained favorablelegal decisions. The Labor Court of Pernambuco also held that our employees should be allowed to bring their own meals and approved the fine of R$3,000 foralleged noncompliance with labor laws, as described above, and the penalty of R$20,000 related to the non-exhibition of documentation relating to audit laborinspections. On March 21, 2013, at a hearing before the Labor Court of Pernambuco, we agreed with the Labor Prosecutor’s Office of the State of Pernambuco to thefollowing terms: ·our commitment to implement a fixed work schedule in Brazil; ·our commitment to comply with overtime payment, breaks between workdays, night shift premiums, duration of breaks, and weekly rest timerequirements, among others requirements; ·a reduction of the fine for proved alleged noncompliance with the abovementioned items from R$3,000 to R$2,000 per employee per month; ·a reduction of the penalty for the non-exhibition of documentation relating to audit labor inspections from R$20,000 to R$2,000; ·the temporary stay for 60 days of the requirement to allow employees to bring their own meals; ·non-recognition of collective damages, provided that we will pay an amount of R$1.5 million in cash to the states of Pernambuco, Rio de Janeiro andParaná (R$0.5 million each) on June 21, 2013 and we will incur an aggregate amount of R$6.0 million over the course of four years (R$1.5 million inJanuary of each of 2014, 2015, 2016 and 2017) in advertising as part of a national communications campaign for educational or health purposes to bedetermined by the Labor Prosecutor’s Office of the State of Pernambuco by June 2013. 96 Table of Contents The claim to guarantee the payment of the minimum wage independently of working hours is currently on hold but will continue to be subject to legaldiscussion. No provision has been recorded regarding this claim because we believe that a final negative resolution has a low probability based on the fact that thislabor practice complies with prevailing laws and regulations. The Labor Prosecutor has begun audits in order to confirm compliance with the terms of thesettlement. Pursuant to the terms of the settlement, on June 21, 2013, we paid an aggregate amount of R$1.5 million in cash to the states of Pernambuco, Rio deJaneiro and Paraná (R$0.5 million each). In relation to the required payments for 2014, 2015, 2016 and 2017, we gave to a communication campaign sponsored bythe Labor Prosecutor’s Office of the State of Pernambuco, called “MPT Journalism Award”. A hearing was scheduled for September 12, 2016 to terminate thediscovery phase and issue a ruling on the pleas related to payment of the minimum wage for employees who do not work full time, as well as the possibility ofemployees bringing their own meals and not the meals provided by the Company. However, the hearing was cancelled due to an audit carried out by the LaborProsecutor’s Office to verify compliance with the settlement. There were no new developments in this case as a result of this audit. In parallel with the judicial case, on December 2016, an administrative assessment of compliance with the settlement was initiated by a team composed ofLabor Prosecutors. A preliminary report was issued on December 1, 2016 in which the Labor Prosecutors claimed there were certain irregularities in ourcompliance with the settlement and demanded penalties of approximately R$104 million. On December 13, 2016, an administrative hearing was held at the LaborProsecutor’s headquarters in São Paulo, in which the Labor Prosecutor emphasized the preliminary nature of the report and granted us the opportunity to submitinformation, explanations and documents relating to compliance with the settlement. On March 15, 2017, we submitted a petition and documents as evidence thatwe have complied with the settlement, and on March 17, 2017, we attended a meeting with the Labor Prosecutor to clarify our arguments. We delivered additionaldocuments regarding our compliance with the settlement for the period ranging from December 2015 to April 2017 on April 20, 2017. A hearing to discuss theinvestigation took place on May 5, 2017. An additional audit of the company’s compliance with the settlement for such period occurred on May, 2017. In suchaudit, the Labor Prosecutor presented a second report which indicated noncompliance with the settlement. In December 2017, Arcos submitted a petition anddocuments arguing that the settlement was duly complied with. On January 24, 2018, February 28, 2018 and April 2, 2018, we attended hearings with the LaborProsecutors to discuss the audit report and Arcos’ petition in order to verify if the settlement was complied with. In those hearings, the Labor Prosecutor indicatedthe possibility of entering into a new settlement and we set a date for a new hearing to be held on May 10, 2018. Sinthoresp – Brasília On February 23, 2015, a coalition of labor unions filed a lawsuit against us. The coalition alleges that we have defaulted on our obligations to our employeeswith a variety of inadequate working conditions such as an unhealthy working environment, consolidation of employee tasks, failure to pay the legal minimumwage or wages established through collective bargaining agreements, time-card fraud, failure to regularly collect contributions to the Mandatory Severance PayFund (FGTS), failure to grant legally-mandated meal and rest periods, failure to pay corresponding overtime, provision of sandwiches as the shift meal, failure topay contracted amounts for recession of contracts, failure to supply the documents necessary to withdraw FGTS payments, and failure to provide the social securityand termination of employment documents required under Brazilian law. The plaintiffs argue that the alleged practices are a form of “social dumping,” a cause of action under the commercial law characterized by practices seeking toobtain a significant reduction in production costs resulting in unfair competition. The plaintiffs have requested an order requiring: (i) immediate rectification of thealleged practices; (ii) an injunction against opening any new restaurants until compliance with the labor practices is demonstrated; (iii) damages for pain andsuffering equal to an amount between 1% and 30% of gross income; (iv) that the Economic Defense Administrative Council – CADE be placed on notice of theseconditions; and (v) service of process to the Labor Prosecutor to require it to follow up on the lawsuit. The lawsuit is currently before the 22nd DF Labor Court in Brasilia. On March 6, 2015, the Labor Court denied the coalition’s requests (i) to enjoin theallegedly unfair labor practices and (ii) that we not be permitted to open any new restaurants in Brazil. The first defense hearing was held on November 4, 2015and the discovery hearing was held on May 11, 2016. Production of oral evidence was denied and a hearing for closure of the discovery phase was held on August24, 2016. At this new hearing, the date for issuing a judgment in this case was scheduled for December 19, 2016. However, there were several postponements. OnMarch 27, 2017, the Labor Court entered a judgment rejecting all claims made by the coalition of labor unions and affirmed that the coalition was not able to proveits allegations. The coalition presented a motion to clarify some aspects of the decision and may also file an appeal against it. 97 Table of Contents Civil Complaint 0528900-98.2006.5.02.0080 On December 13, 2006, a civil complaint was filed by the Labor Prosecutor’s Office in São Paulo, questioning our compliance with rules related to sanitarysurveillance, workers’ health and safety, work ergonomics and working hours. After a preliminary injunction was granted for compliance with issues related torelevant rules cited in the complaint, an agreement (the “TAC”) was entered into between the company and the Labor Prosecutor’s Office that provides for a dailyfine of R$5,000 for non-compliance with the TAC provisions. The full contents of the TAC were ratified by the Labor Court on March 16, 2007. On October 18, 2010, we entered into a new agreement with the Labor Prosecutor’s Office in São Paulo, which maintained the previous commitmentsassumed by us in the TAC, but also included an obligation to annually pay R$1,300,000 (as adjusted on a yearly basis from 2011 to 2019) towards the financing ofcampaigns against child labor and to make a one-time contribution in the amount of R$1,500,000 to the São Paulo’s Medical University’s Foundation.Furthermore, according to the agreement, the company was required to file a schedule for the compliance with the obligations set forth in the TAC. The companyhas been in compliance with this agreement, which will remain in effect through 2019. In parallel with the judicial lawsuit’s developments, the Labor Prosecutor’s Office initiated an administrative audit regarding the company’s compliance withthe TAC. On November 2016, the Labor Prosecutor’s Office claimed that it had identified violations of the TAC and demanded R$13 million in connection withsuch violations. The company was notified and an administrative hearing was scheduled for March 13, 2017 before the Labor Prosecutor’s Office. On April 3,2017, we submitted a petition and documents as evidence that we have complied with the settlement, rejecting the Labor Prosecutor’s claims. As of the date hereof,we have not received an answer from the Labor Prosecutor. However, the Labor Prosecutor’s Office has scheduled a hearing for May 8, 2018 to discuss TACcompliance and Arcos’ petition. Retained Lawsuits and Contingent Liabilities We have certain contingent liabilities with respect to existing or potential claims, lawsuits and other proceedings, including those involving labor, tax andother matters. As of December 31, 2017 we maintained a provision for contingencies amounting to $46 million ($36.7 million as of December 31, 2016), which isdisclosed net of judicial deposits amounting to $18.1 million ($18.6 million as of December 31, 2016) that we were required to make in connection with theproceedings. As of December 31, 2017, the net amount of $27.9 million included $25.5 million as a non-current liability. See Note 18 to our consolidated financialstatements for more details. Pursuant to the Acquisition, McDonald’s Corporation indemnifies us for certain Brazilian claims as well as for specific and limited claims arising from thePuerto Rican franchisee lawsuit. As of December 31, 2017, the provision for contingencies included $2.5 million ($5.2 million as of December 31, 2016) related toBrazilian claims that are covered by the indemnification agreement. As a result, we have recorded a current asset and non-current asset in respect of McDonald’sCorporation’s indemnity in our consolidated balance sheet. The current asset in respect of McDonald’s Corporation’s indemnity represents the amount of cash tobe received as a result of settling certain Brazilian labor and tax contingencies. Several of these proceedings have already been resolved successfully, either by a judicial decision or a cash settlement. The cash settlements were madepursuant to a recent reopening of a 2009 amnesty granted by the Brazilian federal government, in which McDonalds opted to participate. The amnesty wasoriginally granted in 2009 as a way to reduce litigation with federal authorities and increase tax collection during the financial crisis. The amnesty allowedBrazilian taxpayers to settle federal tax debts under favorable conditions, including reduced penalties and interest and the ability to pay principal in up to 180installments. In 2014, pursuant to an additional amnesty, such outstanding Brazilian federal tax debts were paid in full using mainly applicable tax losscarryforwards. The remaining retained proceedings are pending a final decision. As of December 31, 2017, there are certain matters related to the interpretation of tax and labor law for which there is a possibility that a loss may have beenincurred in accordance with ASC 450-20-50-4 within a range of $89 million and $122 million. 98 Table of Contents Other Proceedings In addition to the matters described above, we are from time to time subject to certain claims and party to certain legal proceedings incidental to the normalcourse of our business. In view of the inherent difficulty of predicting the outcome of legal matters, we cannot state with confidence what the eventual outcome ofthese pending matters will be, what the timing of the ultimate resolution of these matters will be or what the eventual loss, fines or penalties related to each pendingmatter may be. We believe that we have made adequate reserves related to the costs anticipated to be incurred in connection with these various claims and legalproceedings and believe that liabilities related to such claims and proceedings should not have, in the aggregate, a material adverse effect on our business, financialcondition, or results of operations. However, in light of the uncertainties involved in these claims and proceedings, there is no assurance that the ultimate resolutionof these matters will not significantly exceed the reserves currently accrued by us; as a result, the outcome of a particular matter may be material to our operatingresults for a particular period, depending upon, among other factors, the size of the loss or liability imposed and the level of our income for that period. Dividends and Dividend Policy Our Board of Directors considers the legal requirements with regard to our net income and retained earnings and our cash flow generation, targeted leverageratios and debt covenant requirements in determining the amount of dividends to be paid, if any. Dividends may only be paid in accordance with the provisions ofour memorandum and articles of association and Section 57 of the BVI Business Companies Act, 2004 (as amended) and after having fulfilled our capitalexpenditures program and after satisfying our indebtedness and liquidity thresholds, in that order. Pursuant to our memorandum and articles of association, alldividends unclaimed for three years after having been declared may be forfeited by a resolution of directors for the benefit of the Company. On March 20, 2018, the Board of Directors approved the resumption of dividend payments for the first time since 2014. For 2018, the Company will pay adividend of $0.10 per share to all outstanding shareholders in two equal installments of $0.05 per share, payable on April 5, 2018 and October 5, 2018,respectively. Since the Acquisition, we declared the following dividends: ·a $10.6 million paid on April 5, 2018 and a dividend of $0.05 per share to be paid on October 5, 2018; ·four $12.5 million dividends in 2014; ·four $12.5 million dividends in 2013; ·four $12.5 million dividends in 2012; ·four $12.5 million dividends in 2011; and ·a $40 million dividend with respect to our results of operations for fiscal year 2009. Except for the October 2018 dividend, all of these dividends have been paid in full. The amounts and dates of future dividend payments, if any, will be subject to, among other things, the discretion of our Board of Directors. Accordingly, therecan be no assurance that any future distributions will be made, or, if made, as to the amount of such distributions. B. Significant Changes None. ITEM 9. THE OFFER AND LISTING A. Offering and Listing Details The following table shows the annual, quarterly and monthly ranges of the high and low per share closing sales price for our class A shares as reported by theNYSE. 99 Table of Contents Low HighYear Ended December 31: 2013 $10.45 $15.52 2014 $5.17 $12.12 2015 $2.57 $6.60 2016 $2.16 $6.60 2017 $5.45 $10.80 Year Ended December 31, 2016: First Quarter $2.16 $3.89 Second Quarter $3.29 $5.13 Third Quarter $4.56 $5.99 Fourth Quarter $5.15 $6.60 Year Ended December 31, 2017: First Quarter $5.45 $8.25 Second Quarter $7.40 $9.53 Third Quarter $7.40 $10.30 Fourth Quarter $9.25 $10.80 Year Ended December 31, 2018: First Quarter $8.75 $10.25 Month Ended: October 31, 2017 $9.55 $10.80 November 30, 2017 $9.53 $10.58 December 31, 2017 $9.25 $10.50 January 31, 2018 $9.30 $10.25 February 28, 2018 $9.35 $10.20 March 31, 2018 $8.75 $9.75 April 30, 2018 (through April 25, 2018) $9.40 $8.75 B. Plan of Distribution Not applicable. C. Markets Our class A shares have been listed on the NYSE, since April 14, 2011 under the symbol “ARCO.” For information regarding the price history of our class Ashares, see “—A. Offering and Listing Details.” D. Selling Shareholders Not applicable. E. Dilution Not applicable. F. Expenses of the Issue Not applicable. ITEM 10. ADDITIONAL INFORMATION A. Share Capital Not applicable. 100 Table of Contents B. Memorandum and Articles of Association General We are a British Virgin Islands company incorporated with limited liability and our affairs are governed by the provisions of our memorandum and articles ofassociation, as amended and restated from time to time, and by the provisions of applicable British Virgin Islands law, including the BVI Business Companies Act,2004, or the BVI Act. Our company number in the British Virgin Islands is 1619553. As provided in sub-regulation 4.1 of our memorandum of association, subject to British VirginIslands law, we have full capacity to carry on or undertake any business or activity, do any act or enter into any transaction and, for such purposes, full rights,powers and privileges. Our registered office is at Maples Corporate Services (BVI) Limited, Kingston Chambers, P.O. Box 173, Road Town, Tortola, BritishVirgin Islands. The transfer agent and registrar for our class A and class B shares is Continental Stock Transfer & Trust Company, which maintains the share registrar foreach class in New York, New York. As of the date of this annual report, under our memorandum and articles of association, we are authorized to issue up to 420,000,000 class A shares and80,000,000 class B shares. As of the date of this annual report, 131,072,508 class A shares and 80,000,000 class B shares were issued, fully paid and outstanding. The maximum number of shares that we are authorized to issue may be changed by resolution of shareholders amending our memorandum and articles ofassociation. Shares may be issued from time to time only by resolution of shareholders. Our class A shares are listed on the NYSE under the symbol “ARCO.” The following is a summary of the material provisions of our memorandum and articles of association. Class A Shares Holders of our class A shares may freely hold and vote their shares. The following summarizes the rights of holders of our class A shares: ·each holder of class A shares is entitled to one vote per share on all matters to be voted on by shareholders generally, including the election of directors; ·holders of class A shares vote together with holders of class B shares; ·there are no cumulative voting rights; ·the holders of our class A shares are entitled to dividends and other distributions, pari passu with our class B shares, as may be declared from time to timeby our board of directors out of funds legally available for that purpose, if any, and pursuant to our memorandum and articles of association, all dividendsunclaimed for three years after having been declared may be forfeited by a resolution of directors for the benefit of the Company; ·upon our liquidation, dissolution or winding up, the holders of class A shares will be entitled to share ratably, pari passu with our class B shares, in thedistribution of all of our assets remaining available for distribution after satisfaction of all our liabilities; and ·the holders of class A shares have preemptive rights in connection with the issuance of any securities by us, except for certain issuances of securities byus, including (i) pursuant to any employee compensation plans; (ii) as consideration for (a) any merger, consolidation or purchase of assets or (b)recapitalization or reorganization; (iii) in connection with a pro rata division of shares or dividend in specie or distribution; or (iv) in a bona fide publicoffering that has been registered with the SEC, but they are not entitled to the benefits of any redemption or sinking fund provisions. 101 Table of Contents Class B Shares All of our class B shares are owned by Los Laureles Ltd. Holders of our class B shares may freely hold and vote their shares. The following summarizes the rights of holders of our class B shares: ·each holder of class B shares is entitled to five votes per share on all matters to be voted on by shareholders generally, including the election of directors; ·holders of class B shares vote together with holders of class A shares; ·class B shares may not be listed on any U.S. or foreign national or regional securities exchange or market; ·there are no cumulative voting rights; ·the holders of our class B shares are entitled to dividends and other distributions, pari passu with our class A shares, as may be declared from time to timeby our board of directors out of funds legally available for that purpose, if any, and pursuant to our memorandum and articles of association, all dividendsunclaimed for three years after having been declared may be forfeited by a resolution of directors for the benefit of the Company; ·upon our liquidation, dissolution or winding up, the holders of class B shares will be entitled to share ratably, pari passu with our class A shares, in thedistribution of all of our assets remaining available for distribution after satisfaction of all our liabilities; ·the holders of class B shares have preemptive rights in connection with the issuance of any securities by us, except for certain issuances of securities byus, including (i) pursuant to any employee compensation plans; (ii) as consideration for (a) any merger, consolidation or purchase of assets or (b)recapitalization or reorganization; (iii) in connection with a pro rata division of shares or dividend in specie or distribution; or (iv) in a bona fide publicoffering that has been registered with the SEC, but they are not entitled to the benefits of any redemption or sinking fund provisions; ·each class B share is convertible into one class A share at the option of the holder at any time, subject to the prior written approval of McDonald’s; and ·each class B share will convert automatically into one class A share at such time as the holders of class B shares cease to hold, directly or indirectly, atleast 20% of the aggregate number of outstanding class A and class B shares. Limitation on Liability and Indemnification Matters Under British Virgin Islands law, each of our directors and officers, in performing his or her functions, is required to act honestly and in good faith with a viewto our best interests and exercise the care, diligence and skill that a reasonably prudent director would exercise in comparable circumstances. Our memorandumand articles of association provide that, to the fullest extent permitted by British Virgin Islands law or any other applicable laws, our directors will not bepersonally liable to us or our shareholders for any acts or omissions in the performance of their duties. This limitation of liability does not affect the availability ofequitable remedies such as injunctive relief or rescission. These provisions will not limit the liability of directors under United States federal securities laws. Our memorandum and articles of association provide that we shall indemnify any of our directors or anyone serving at our request as a director of anotherentity against all expenses, including legal fees, and against all judgments, fines and amounts paid in settlement and reasonably incurred in connection with legal,administrative or investigative proceedings or suits. We may pay any expenses, including legal fees, incurred by any such person in defending any legal,administrative or investigative proceedings in advance of the final disposition of the proceedings. If a person to be indemnified has been successful in defense ofany proceedings referred to above, the director is entitled to be indemnified against all expenses, including legal fees, and against all judgments, fines and amountspaid in settlement and reasonably incurred by the director or officer in connection with the proceedings. 102 Table of Contents We may purchase and maintain insurance in relation to any of our directors, officers, employees, agents or liquidators against any liability asserted againstthem and incurred by them in that capacity, whether or not we have or would have had the power to indemnify them against the liability as provided in ourmemorandum and articles of association. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, or the Securities Act, may be permitted to our directors, officersor controlling persons pursuant to the foregoing provisions, we have been informed that in the opinion of the SEC, such indemnification is against public policy asexpressed in the Securities Act and is therefore unenforceable as a matter of United States law. Shareholders’ Meetings and Consents The following summarizes certain relevant provisions of British Virgin Islands law and our articles of association in relation to our shareholders’ meetings: ·the directors of the Company may convene meetings of shareholders at such times and in such manner and places within or outside the British VirginIslands as the directors consider necessary or desirable; provided that at least one meeting of shareholders be held each year; ·upon the written request of shareholders entitled to exercise 30 percent or more of the voting rights in respect of the matter for which the meeting isrequested, the directors are required to convene a meeting of the shareholders. Any such request must state the proposed purpose of the meeting; ·the directors convening a meeting must give not less than ten days’ notice of a meeting of shareholders to: (i) those shareholders whose names on the datethe notice is given appear as shareholders in the register of members of our company and are entitled to vote at the meeting, and (ii) the other directors; ·a meeting of shareholders held in contravention of the requirement to give notice is valid if shareholders holding at least 90 percent of the total votingrights on all the matters to be considered at the meeting have waived notice of the meeting and, for this purpose, the presence of a shareholder at themeeting shall constitute waiver in relation to all the shares that such shareholder holds; ·a shareholder may be represented at a meeting of shareholders by a proxy who may speak and vote on behalf of the shareholder; ·a meeting of shareholders is duly constituted if, at the commencement of the meeting, there are present in person or by proxy not less than 50 percent ofthe votes of the shares or class or series of shares entitled to vote on resolutions of shareholders to be considered at the meeting; ·if within two hours from the time appointed for the meeting a quorum is not present, the meeting, if convened upon the requisition of shareholders, shallbe dissolved; in any other case it shall be adjourned to the next business day in the jurisdiction in which the meeting was to have been held at the sametime and place or to such other date, time and place as the directors may determine, and if at the adjourned meeting there are present within one hour fromthe time appointed for the meeting in person or by proxy not less than one third of the votes of the shares or each class or series of shares entitled to voteon the matters to be considered by the meeting, those present shall constitute a quorum, but otherwise the meeting shall be dissolved. Notice of theadjourned meeting need not be given if the date, time and place of such meeting are announced at the meeting at which the adjournment is taken; ·a resolution of shareholders is valid (i) if approved at a duly convened and constituted meeting of shareholders by the affirmative vote of a majority of thevotes of the shares entitled to vote thereon which were present at the meeting and were voted, or (ii) if it is a resolution consented to in writing by amajority of the votes of shares entitled to vote thereon; and ·an action that may be taken by the shareholders at a meeting may also be taken by a resolution of shareholders consented to in writing by a majority of thevotes of shares entitled to vote thereon, without the need for any notice, but if any resolution of shareholders is adopted otherwise than by unanimouswritten consent of all shareholders, a copy of such resolution shall forthwith be sent to all shareholders not consenting to such resolution. 103 Table of Contents We held our most recent annual shareholder meeting on April 24, 2018 in Montevideo, Uruguay. Compensation of Directors The compensation of our directors is determined by our Board of Directors, and there is no requirement that a specified number or percentage of“independent” directors must approve any such determination. Differences in Corporate Law We were incorporated under, and are governed by, the laws of the British Virgin Islands. The corporate statutes of the State of Delaware and the British VirginIslands in many respects are similar, and the flexibility available under British Virgin Islands law has enabled us to adopt a memorandum of association andarticles of association that will provide shareholders with rights that, except as described in this annual report, do not vary in any material respect from those theywould enjoy if we were incorporated under the Delaware General Corporation Law, or Delaware corporate law. Set forth below is a summary of some of thedifferences between provisions of the BVI Act applicable to us and the laws applicable to companies incorporated in Delaware and their shareholders. Director’s Fiduciary Duties Under Delaware corporate law, a director of a Delaware corporation has a fiduciary duty to the corporation and its shareholders. This duty has twocomponents: the duty of care and the duty of loyalty. The duty of care requires that a director act in good faith, with the care that an ordinarily prudent personwould exercise under similar circumstances. Under this duty, a director must inform himself of, and disclose to shareholders, all material information reasonablyavailable regarding a significant transaction. The duty of loyalty requires that a director act in a manner he reasonably believes to be in the best interests of thecorporation. He must not use his corporate position for personal gain or advantage. This duty prohibits self-dealing by a director and mandates that the best interestof the corporation and its shareholders take precedence over any interest possessed by a director, officer or controlling stockholder and not shared by theshareholders generally. In general, actions of a director are presumed to have been made on an informed basis, in good faith and in the honest belief that the actiontaken was in the best interests of the corporation. However, this presumption may be rebutted by evidence of a breach of one of the fiduciary duties. Should suchevidence be presented concerning a transaction by a director, a director must prove the procedural fairness of the transaction, and that the transaction was of fairvalue to the corporation. British Virgin Islands law provides that every director of a British Virgin Islands company, in exercising his powers or performing his duties, shall acthonestly and in good faith and in what the director believes to be in the best interests of the company. Additionally, the director shall exercise the care, diligence,and skill that a reasonable director would exercise in the same circumstances, taking into account the nature of the company, the nature of the decision and theposition of the director and his responsibilities. In addition, British Virgin Islands law provides that a director shall exercise his powers as a director for a properpurpose and shall not act, or agree to the company acting, in a manner that contravenes British Virgin Islands law or the memorandum association or articles ofassociation of the company. Amendment of Governing Documents Under Delaware corporate law, with very limited exceptions, a vote of the shareholders is required to amend the certificate of incorporation. In addition,Delaware corporate law provides that shareholders have the right to amend the bylaws, and the certificate of incorporation also may confer on the directors theright to amend the bylaws. Our memorandum of association may only be amended by a resolution of shareholders, provided that any amendment of the provisionrelated to the prohibition against listing our class B shares must be approved by not less than 50% of the votes of the class A shares entitled to vote that werepresent at the relevant meeting and voted. Our articles of association may also only be amended by a resolution of shareholders. 104 Table of Contents Written Consent of Directors Under Delaware corporate law, directors may act by written consent only on the basis of a unanimous vote. Similarly, under our articles of association, aresolution of our directors in writing shall be valid only if consented to by all directors or by all members of a committee of directors, as the case may be. Written Consent of Shareholders Under Delaware corporate law, unless otherwise provided in the certificate of incorporation, any action to be taken at any annual or special meeting ofshareholders of a corporation may be taken by written consent of the holders of outstanding stock having not less than the minimum number of votes that would benecessary to take that action at a meeting at which all shareholders entitled to vote were present and voted. As permitted by British Virgin Islands law,shareholders’ consents need only a majority of shareholders signing to take effect. Our memorandum and articles of association provide that shareholders mayapprove corporate matters by way of a resolution consented to at a meeting of shareholders or in writing by a majority of shareholders entitled to vote thereon. Shareholder Proposals Under Delaware corporate law, a shareholder has the right to put any proposal before the annual meeting of shareholders, provided it complies with the noticeprovisions in the governing documents. A special meeting may be called by the board of directors or any other person authorized to do so in the governingdocuments, but shareholders may be precluded from calling special meetings. British Virgin Islands law and our memorandum and articles of association providethat our directors shall call a meeting of the shareholders if requested in writing to do so by shareholders entitled to exercise at least 30% of the voting rights inrespect of the matter for which the meeting is requested. Any such request must state the proposed purpose of the meeting. Sale of Assets Under Delaware corporate law, a vote of the shareholders is required to approve the sale of assets only when all or substantially all assets are being sold. In theBritish Virgin Islands, shareholder approval is required when more than 50% of the Company’s total assets by value are being disposed of or sold if not made inthe usual or regular course of the business carried out by the company. Under our memorandum and articles of association, the directors may by resolution ofdirectors determine that any sale, transfer, lease, exchange or other disposition is in the usual or regular course of the business carried on by us and suchdetermination is, in the absence of fraud, conclusive. Dissolution; Winding Up Under Delaware corporate law, unless the board of directors approves the proposal to dissolve, dissolution must be approved in writing by shareholdersholding 100% of the total voting power of the corporation. Only if the dissolution is initiated by the board of directors may it be approved by a simple majority ofthe corporation’s outstanding shares. Delaware corporate law allows a Delaware corporation to include in its certificate of incorporation a supermajority votingrequirement in connection with dissolutions initiated by the board. As permitted by British Virgin Islands law and our memorandum and articles of association, wemay be voluntarily liquidated under Part XII of the BVI Act by resolution of directors and resolution of shareholders if we have no liabilities or we are able to payour debts as they fall due. Redemption of Shares Under Delaware corporate law, any stock may be made subject to redemption by the corporation at its option, at the option of the holders of that stock or uponthe happening of a specified event, provided shares with full voting power remain outstanding. The stock may be made redeemable for cash, property or rights, asspecified in the certificate of incorporation or in the resolution of the board of directors providing for the issue of the stock. As permitted by British Virgin Islandslaw and our memorandum and articles of association, shares may be repurchased, redeemed or otherwise acquired by us. However, the consent of the shareholderwhose shares are to be repurchased, redeemed or otherwise acquired must be obtained, except as described under “—Compulsory Acquisition” below. Moreover,our directors must determine that immediately following the redemption or repurchase we will be able to pay our debts as they become due and that the value ofour assets will exceed our liabilities. 105 Table of Contents Compulsory Acquisition Under Delaware General Corporation Law § 253, in a process known as a “short form” merger, a corporation that owns at least 90% of the outstanding sharesof each class of stock of another corporation may either merge the other corporation into itself and assume all of its obligations or merge itself into the othercorporation by executing, acknowledging and filing with the Delaware Secretary of State a certificate of such ownership and merger setting forth a copy of theresolution of its board of directors authorizing such merger. If the parent corporation is a Delaware corporation that is not the surviving corporation, the mergeralso must be approved by a majority of the outstanding stock of the parent corporation. If the parent corporation does not own all of the stock of the subsidiarycorporation immediately prior to the merger, the minority shareholders of the subsidiary corporation party to the merger may have appraisal rights as set forth in §262 of the Delaware General Corporation Law. Under the BVI Act, subject to any limitations in a Company’s memorandum or articles, members holding 90% of the votes of the outstanding shares entitledto vote, and members holding 90% of the votes of the outstanding shares of each class of shares entitled to vote, may give a written instruction to the companydirecting the company to redeem the shares held by the remaining members. Upon receipt of such written instruction, the company shall redeem the sharesspecified in the written instruction, irrespective of whether or not the shares are by their terms redeemable. The company shall give written notice to each memberwhose shares are to be redeemed stating the redemption price and the manner in which the redemption is to be effected. A member whose shares are to be soredeemed is entitled to dissent from such redemption, and to be paid the fair value of his shares, as described under “—Shareholders’ Rights under British VirginIslands Law Generally” below. Variation of Rights of Shares Under Delaware corporate law, a corporation may vary the rights of a class of shares with the approval of a majority of the outstanding shares of that class,unless the certificate of incorporation provides otherwise. As permitted by British Virgin Islands law and our memorandum of association, we may vary the rightsattached to any class of shares only with the consent in writing of holders of not less than 50% of the issued shares of that class and of holders of not less than 50%of the issued shares of any other class which may be adversely affected by such variation. Removal of Directors Under Delaware corporate law, a director of a corporation with a classified board may be removed only for cause with the approval of a majority of theoutstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. Our memorandum and articles of association provide that directorsmay be removed at any time, with or without cause, by a resolution of shareholders or a resolution of directors. In addition, directors are subject to rotational retirement every three years. The initial terms of office of the Class I, Class II and Class III directors have beenstaggered over a period of three years to ensure that all directors of the company do not face reelection in the same year. Mergers Under Delaware corporate law, one or more constituent corporations may merge into and become part of another constituent corporation in a process knownas a merger. A Delaware corporation may merge with a foreign corporation as long as the law of the foreign jurisdiction permits such a merger. To effect a mergerunder Delaware General Corporation Law § 251, an agreement of merger must be properly adopted and the agreement of merger or a certificate of merger must befiled with the Delaware Secretary of State. In order to be properly adopted, the agreement of merger must be adopted by the board of directors of each constituentcorporation by a resolution or unanimous written consent. In addition, the agreement of merger generally must be approved at a meeting of stockholders of eachconstituent corporation by a majority of the outstanding stock of the corporation entitled to vote, unless the certificate of incorporation provides for a supermajorityvote. In general, the surviving corporation assumes all of the assets and liabilities of the disappearing corporation or corporations as a result of the merger. Under the BVI Act, two or more BVI companies may merge or consolidate in accordance with the statutory provisions. A merger means the merging of two ormore constituent companies into one of the constituent companies, and a consolidation means the uniting of two or more constituent companies into a newcompany. In order to merge or consolidate, the directors of each constituent BVI company must approve a written plan of merger 106 Table of Contents or consolidation which must be authorized by a resolution of shareholders. One or more BVI companies may also merge or consolidate with one or morecompanies incorporated under the laws of jurisdictions outside the BVI, if the merger or consolidation is permitted by the laws of the jurisdictions in which thecompanies incorporated outside the BVI are incorporated. In respect of such a merger or consolidation a BVI company is required to comply with the provisions ofthe BVI Act, and a company incorporated outside the BVI is required to comply with the laws of its jurisdiction of incorporation. Shareholders of BVI companies not otherwise entitled to vote on the merger or consolidation may still acquire the right to vote if the plan of merger orconsolidation contains any provision which, if proposed as an amendment to the memorandum of association or articles of association, would entitle them to voteas a class or series on the proposed amendment. In any event, all shareholders must be given a copy of the plan of merger or consolidation irrespective of whetherthey are entitled to vote at the meeting or consent to the written resolution to approve the plan of merger or consolidation. Inspection of Books and Records Under Delaware corporate law, any shareholder of a corporation may for any proper purpose inspect or make copies of the corporation’s stock ledger, list ofshareholders and other books and records. Under British Virgin Islands law, members of the general public, on payment of a nominal fee, can obtain copies of thepublic records of a company available at the office of the British Virgin Islands Registrar of Corporate Affairs which will include the company’s certificate ofincorporation, its memorandum and articles of association (with any amendments) and records of license fees paid to date, and will also disclose any articles ofdissolution, articles of merger and a register of registered charges if such a register has been filed in respect of the company. A member of a company is entitled, on giving written notice to the company, to inspect: (a)the memorandum and articles; (b)the register of members; (c)the register of directors; and (d)the minutes of meetings and resolutions of members and of those classes of members of which he is a member; and to make copies of or take extractsfrom the documents and records referred to in (a) to (d) above. Subject to the memorandum and articles, the directors may, if they are satisfied that itwould be contrary to the company’s interests to allow a member to inspect any document, or part of a document, specified in (b), (c) or (d) above, refuseto permit the member to inspect the document or limit the inspection of the document, including limiting the making of copies or the taking of extractsfrom the records. Where a company fails or refuses to permit a member to inspect a document or permits a member to inspect a document subject to limitations, that membermay apply to the court for an order that he should be permitted to inspect the document or to inspect the document without limitation. A company is required to keep at the office of its registered agent the memorandum and articles of the company; the register of members maintained or a copyof the register of members; the register of directors or a copy of the register of directors; and copies of all notices and other documents filed by the company in theprevious ten years. Where a company keeps a copy of the register of members or the register of directors at the office of its registered agent, it is required to notify any changes tothe originals of such registers to the registered agent, in writing, within 15 days of any change; and to provide the registered agent with a written record of thephysical address of the place or places at which the original register of members or the original register of directors is kept. Where the place at which the originalregister of members or the original register of directors is changed, the company is required to provide the registered agent with the physical address of the newlocation of the records within fourteen days of the change of location. A company is also required to keep at the office of its registered agent or at such other place or places, within or outside the British Virgin Islands, as thedirectors determine, the minutes of meetings and resolutions of members 107 Table of Contents and of classes of members; and the minutes of meetings and resolutions of directors and committees of directors. If such records are kept at a place other than atthe office of the company’s registered agent, the company is required to provide the registered agent with a written record of the physical address of the place orplaces at which the records are kept and to notify the registered agent, within 14 days, of the physical address of any new location where such records may be kept. A company is further required to: (a)keep at the office of its registered agent or at such other place or places, within or outside the British Virgin Islands, as the directors may determine, therecords and underlying documentation of the company; (b)retain the records and underlying documentation for a period of at least five years from the date: (i) of completion of the transaction to which the recordsand underlying documentation relate; or (ii) the company terminates the business relationship to which the records and underlying documentation relate;and (c)provide its registered agent without delay any records and underlying documentation in respect of the company that the registered agent requests pursuantto the entitlement of the company’s registered agent to make such a request where the registered agent is required to do so by the British Virgin IslandsFinancial Services Commission or any other competent authority in the British Virgin Islands acting pursuant to the exercise of a power under anenactment. The records and underlying documentation of the company are required to be in such form as: (a)are sufficient to show and explain the company’s transactions; and (b)will, at any time, enable the financial position of the company to be determined with reasonable accuracy. Where the records and underlying documentation of a company are kept at a place or places other than at the office of the company’s registered agent, thecompany is required to provide the registered agent with a written: (a)record of the physical address of the place at which the records and underlying documentation are kept; and (b)record of the name of the person who maintains and controls the company’s records and underlying documentation. Where the place or places at which the records and underlying documentation of the company, or the name of the person who maintains and controls thecompany’s records and underlying documentation, change, the company must within 14 days of the change, provide: (a)its registered agent with the physical address of the new location of the records and underlying documentation; or (b)the name of the new person who maintains and controls the company’s records and underlying documentation. For the foregoing purposes: (a)“business relationship” means a continuing arrangement between a company and one or more persons with whom the company engages in business,whether on a one-off, regular or habitual basis; and (b)“records and underlying documentation” includes accounts and records (such as invoices, contracts and similar documents) in relation to: (i) all sums ofmoney received and expended by the company and the matters in respect of which the receipt and expenditure takes place; (ii) all sales and purchases ofgoods by the company; and (iii) the assets and liabilities of the company. Conflict of Interest Under Delaware corporate law, a contract between a corporation and a director or officer, or between a corporation and any other organization in which adirector or officer has a financial interest, is not void as long as 108 Table of Contents the material facts as to the director’s or officer’s relationship or interest are disclosed or known and either a majority of the disinterested directors authorizes thecontract in good faith or the shareholders vote in good faith to approve the contract. Nor will any such contract be void if it is fair to the corporation when it isauthorized, approved or ratified by the board of directors, a committee or the shareholders. The BVI Act provides that a director shall, forthwith after becoming aware that he is interested in a transaction entered into or to be entered into by thecompany, disclose that interest to the board of directors of the company. The failure of a director to disclose that interest does not affect the validity of a transactionentered into by the director or the company, so long as the director’s interest was disclosed to the board prior to the Company’s entry into the transaction or was notrequired to be disclosed because the transaction is between the company and the director himself and is otherwise in the ordinary course of business and on usualterms and conditions. As permitted by British Virgin Islands law and our memorandum and articles of association, a director interested in a particular transactionmay vote on it, attend meetings at which it is considered and sign documents on our behalf which relate to the transaction, provided that the disinterested directorsconsent. Transactions with Interested Shareholders Delaware corporate law contains a business combination statute applicable to Delaware public corporations whereby, unless the corporation has specificallyelected not to be governed by that statute by amendment to its certificate of incorporation, it is prohibited from engaging in certain business combinations with an“interested shareholder” for three years following the date that the person becomes an interested shareholder. An interested shareholder generally is a person orgroup that owns or owned 15% or more of the target’s outstanding voting stock within the past three years. This has the effect of limiting the ability of a potentialacquirer to make a two-tiered bid for the target in which all shareholders would not be treated equally. The statute does not apply if, among other things, prior tothe date on which the shareholder becomes an interested shareholder, the board of directors approves either the business combination or the transaction thatresulted in the person becoming an interested shareholder. This encourages any potential acquirer of a Delaware public corporation to negotiate the terms of anyacquisition transaction with the target’s board of directors. British Virgin Islands law has no comparable provision. As a result, we cannot avail ourselves of the types of protections afforded by the Delaware businesscombination statute. However, although British Virgin Islands law does not regulate transactions between a company and its significant shareholders, it doesprovide that these transactions must be entered into bona fide in the best interests of the company and not with the effect of constituting a fraud on the minorityshareholders. Independent Directors There are no provisions under Delaware corporate law or under the BVI Act that require a majority of our directors to be independent. Cumulative Voting Under Delaware corporate law, cumulative voting for elections of directors is not permitted unless the Company’s certificate of incorporation specificallyprovides for it. Cumulative voting potentially facilitates the representation of minority shareholders on a board of directors since it permits the minority shareholderto cast all the votes to which the shareholder is entitled on a single director, which increases the shareholder’s voting power with respect to electing such director.There are no prohibitions to cumulative voting under the laws of the British Virgin Islands, but our memorandum of association and articles of association do notprovide for cumulative voting. Shareholders’ Rights under British Virgin Islands Law Generally The BVI Act provides for remedies which may be available to shareholders. Where a company incorporated under the BVI Act or any of its directors engagesin, or proposes to engage in, conduct that contravenes the BVI Act or the Company’s memorandum and articles of association, the BVI courts can issue arestraining or compliance order. Shareholders cannot also bring derivative, personal and representative actions under certain circumstances. The traditional Englishbasis for members’ remedies has also been incorporated into the BVI Act: where a shareholder of a company considers that the affairs of the company have been,are being or are likely to be conducted in a manner likely to be oppressive, unfairly discriminatory or unfairly prejudicial to him, he may apply to the court for anorder based on such conduct. 109 Table of Contents Any shareholder of a company may apply to court for the appointment of a liquidator of the company and the court may appoint a liquidator of the company ifit is of the opinion that it is just and equitable to do so. The BVI Act provides that any shareholder of a company is entitled to payment of the fair value of his shares upon dissenting from any of the following: (a) amerger, if the company is a constituent company, unless the company is the surviving company and the member continues to hold the same or similar shares; (b) aconsolidation, if the company is a constituent company; (c) any sale, transfer, lease, exchange or other disposition of more than 50% in value of the assets orbusiness of the company if not made in the usual or regular course of the business carried on by the company but not including (i) a disposition pursuant to an orderof the court having jurisdiction in the matter, (ii) a disposition for money on terms requiring all or substantially all net proceeds to be distributed to the shareholdersin accordance with their respective interest within one year after the date of disposition, or (iii) a transfer pursuant to the power of the directors to transfer assets forthe protection thereof; (d) a redemption of 10% or fewer of the issued shares of the company required by the holders of 90% or more of the shares of the companypursuant to the terms of the BVI Act; and (e) an arrangement, if permitted by the court. Generally any other claims against a company by its shareholders must be based on the general laws of contract or tort applicable in the British Virgin Islandsor their individual rights as shareholders as established by the Company’s memorandum and articles of association. C. Material Contracts The MFAs We received exclusive master franchising rights from McDonald’s for the Territories on August 3, 2007 when Mr. Woods Staton, our Executive Chairman andcontrolling shareholder and our founding private equity shareholders purchased McDonald’s LatAm business for $698.1 million (including $18.7 million ofacquisition costs) and entered into the MFAs. Prior to the Acquisition, Mr. Woods Staton had been the joint venture partner of McDonald’s Corporation inArgentina for over 20 years and had served as President of McDonald’s South Latin America division since 2004. McDonald’s has a long-standing presence in Latin America and the Caribbean dating to the opening of its first restaurant in Puerto Rico in 1967. Since then,McDonald’s expanded its footprint across the region as consumer markets and opportunities arose, opening its first restaurants in Brazil in 1979, in Mexico andVenezuela in 1985 and in Argentina in 1986. We hold our McDonald’s franchise rights pursuant to the MFA for all of the Territories except Brazil, executed on August 3, 2007, as amended and restatedon November 10, 2008 and as further amended on August 31, 2010, June 3, 2011 and March 17, 2016 entered into by us, our wholly owned subsidiary ArcosDorados Coöperatieve U.A., Arcos Dorados B.V. (or these two entities together with us collectively, the Owner Entities), LatAm, LLC, or the Master Franchisee,certain subsidiaries of the Master Franchisee, Los Laureles, Ltd. and McDonald’s. On August 3, 2007, our subsidiary Arcos Dourados Comercio de AlimentosLtda., or the Brazilian Master Franchisee, and McDonald’s entered into the separate, but substantially identical, Brazilian MFA, which was amended and restatedon November 10, 2008. The MFAs set forth McDonald’s and our rights and obligations in respect of the ownership and operation of the McDonald’s-branded restaurants located inthe Territories. The MFAs do not include the following Latin American and Caribbean countries and territories, among others: Anguilla, Antigua and Barbuda, theBahamas, Barbados, Belize, Bolivia, the British Virgin Islands, the Cayman Islands, Cuba, Dominica, Dominican Republic, El Salvador, Grenada, Guatemala,Guiana, Haiti, Honduras, Jamaica, Montserrat, Nicaragua, Paraguay, Suriname, St. Barthélemy, St. Kitts and Nevis, St. Lucia, St. Maarten, St. Vincent and theGrenadines, Turks & Caicos Islands and the U.S. Virgin Islands, with the exception of St. Croix and St. Thomas. The material provisions of the MFAs are set forth below. Term The initial term of the franchise granted pursuant to the MFAs is 20 years for all of the Territories other than French Guiana, Guadeloupe and Martinique.After the expiration of the initial term, McDonald’s may grant us an option to extend the term of the MFAs with respect to all Territories for an additional period of10 years. The initial 110 Table of Contents term of the franchise for French Guiana, Guadeloupe and Martinique was 10 years. Under the MFA, we had the right to extend the term of the MFA with respect toFrench Guiana, Guadeloupe and Martinique for an additional term of 10 years. On June 27, 2016, we exercised this right and McDonald’s granted us an extensionof the initial term for the franchises in French Guiana, Guadeloupe and Martinique for a period of 10 years, expiring August 2, 2027. Our Right to Own and Operate McDonald’s-Branded Restaurants Under the MFAs, in the Territories, we have the exclusive right to (i) own and operate, directly or indirectly, McDonald’s restaurants, (ii) license and grantfranchises with respect to McDonald’s-branded restaurants, (iii) adopt and use, and to grant the right and license to franchisees to adopt and use, the McDonald’soperations system in our restaurants, (iv) advertise to the public that we are a franchisee of McDonald’s, and (v) to use, and to sublicense to our franchisees theright to use the McDonald’s intellectual property solely in connection with the development, ownership, operation, promotion and management of our restaurants,and to engage in related advertising, promotion and marketing programs and activities. Under the MFAs, McDonald’s cannot grant the rights described in clauses (i), (ii) and (iii) of the preceding paragraph to any other person while the MFAs arein effect. Notwithstanding the foregoing, McDonald’s has reserved, with respect to the McDonald’s restaurants located in the Territories, all rights not specificallygranted to us, including the right, directly or indirectly, to (i) use and sublicense the McDonald’s intellectual property for all other purposes and means ofdistribution, (ii) sell, promote or license the sale of products or services under the intellectual property and (iii) use the intellectual property in connection with allother activities not prohibited by the MFAs. In addition, under the MFAs, McDonald’s provides us with know-how and new developments, techniques and improvements in the areas of restaurantmanagement, food preparation and service, and operations manuals that contain the standards and procedures necessary for the successful operation ofMcDonald’s-branded restaurants. Franchise Fees Under the MFAs, we are responsible for the payment to McDonald’s of initial franchise fees, continuing franchise fees and transfer fees. The initial franchise fee is payable upon the opening of a new restaurant and the extension of the term of any existing franchise agreement. For Company-operated restaurants, the initial fee is based on the term remaining under the MFAs for the country in which the restaurant is located. For franchised restaurants, wereceive an initial fee from the franchisee based on the term of the franchise agreement (generally 20 years), and pay 50% of this fee to McDonald’s. The continuing franchise fee is paid, with respect to each calendar month, to McDonald’s in an amount generally equal to 7% of the U.S. dollar equivalent ofthe gross sales, as defined therein, of each of the McDonald’s restaurants in the Territories for that calendar month, minus, as applicable, a brand buildingadjustment. During the first 10 years of the MFAs, the brand building adjustment is 2% of the gross sales, for a net continuing franchise fee payment of 5% of thegross sales. During years 11 through 15 of the MFAs, the brand building adjustment will be 1% of the gross sales, for a net continuing franchise fee payment of6%; and the brand building adjustment will be 0% thereafter, for a net continuing franchise fee payment of 7% of the gross sales. In addition, on January 25, 2017,McDonald’s Corporation agreed to provide growth support for the same period. The impact of this support resulted in an effective royalty rate of 5.2% in 2017,and we project that it could result in an effective royalty rate of 5.7% in 2018 and 5.9% in 2019. We are responsible for collecting the continuing franchise fee from our franchisees and must pay that amount to McDonald’s. In the event that a franchiseedoes not pay the full amount of the fee or any of our subsidiaries are unable to transfer funds to us due to currency restrictions or otherwise, we are responsible forany resulting shortfall. See “Item 3. Key Information—D. Risk Factors—Certain Factors Relating to Our Business—Our financial condition and results ofoperations depend, to a certain extent, on the financial condition of our franchisees and their ability to fulfill their obligations under their franchise agreements” and“Item 3. Key Information—D. Risk Factors—Certain Factors Relating to Latin America and the Caribbean—We are subject to significant foreign currencyexchange controls and depreciation in certain countries in which we operate.” 111 Table of Contents In the event of a voluntary or involuntary transfer of any of the McDonald’s restaurants located in the Territories to a person other than a subsidiary of ours oran affiliate of one of our franchisees, we must charge a transfer fee of not less than $10,000, and must pay to McDonald’s an amount equal to 50% of the feecharged. All payments to McDonald’s must be made in U.S. dollars, but are based on local currency exchange rates at the time of payment. Material Breach A material breach under the MFAs would occur if we, or our subsidiaries that are a party to the MFAs, materially breached any of the representations orwarranties or obligations under the MFAs (not cured within 30 days after receipt of notice thereof from McDonald’s) relating to or otherwise in connection withany aspect of the master franchise business, the franchised restaurants or any other matter in or affecting any one or more Territories. The following events, amongothers, constitute a material breach under the MFAs: our noncompliance with anti-terrorism or anti-corruption policies and procedures required by applicable law;our bankruptcy, insolvency, voluntary filing or filing by any other person of a petition in commercial insolvency; our conviction or that of our subsidiaries, or ofour or our subsidiaries’ agents or employees for a crime or offense that is punishable by incarceration for more than one year or a felony, or a crime or offense orthe indictment on charges thereof that, in the determination of McDonald’s, is likely to adversely affect the reputation of such person, any franchised restaurant orMcDonald’s; the entry of any judgment against us or our subsidiaries in excess of $1,000,000 that is not duly paid or otherwise discharged within 30 days (unlesssuch judgment is being contested on appeal in good faith); our failure to maintain certain quarterly financial ratios and not cure any non-compliance within 30days; our failure to achieve (a) at least 80% of the targeted openings during any one-calendar year of any restaurant opening plan; or (b) at least 90% of thetargeted openings during the three-calendar year term of any restaurant opening plan; and our failure to comply with at least 80% of the funding requirements ofany reinvestment plan with respect to any Territory for a period of one year. Business of the Company and the Other Owner Entities In addition to the payment of franchise fees described above, we and the other Owner Entities are subject to a variety of obligations and restrictions under theMFAs. Under the MFAs, we cannot, directly or indirectly, enter into any other QSR business or any business other than the operation of McDonald’s-brandedrestaurants in the Territories. Neither we nor any of the other Owner Entities can engage in a business other than holding, directly or indirectly, our equity interests.In addition, neither we nor any of the other Owner Entities can engage in any activity or participate in any business that competes with McDonald’s business. Under the MFAs, Los Laureles Ltd., a British Virgin Islands company beneficially owned by Mr. Woods Staton, our Executive Chairman and controllingshareholder, is required to own not less than 40% of our economic interests and 51% of our voting interests. The MFAs do provide an exception for any dilutionfollowing an initial public offering, so long as such dilution does not cause Los Laureles Ltd. to be diluted below 30% of our economic interests. Also, under theMFAs, we are required to own, directly or indirectly, 100% of the equity interests of our subsidiaries and cannot enter into any partnership, joint venture or similararrangement without McDonald’s consent. In addition, at least 50% of all McDonald’s-branded restaurants in the Territories must be Company-operatedrestaurants. Real Estate Under the MFAs, we must own or lease the real estate property where all of our Company-operated restaurants are located. We cannot transfer or encumberany of the real estate properties that we own without McDonald’s consent. Due to the geographic and commercial importance of certain restaurants, we may notsell certain “iconic” properties without the prior written consent of McDonald’s. For certain of these selected properties, we have already perfected a first prioritylien in favor of McDonald’s. Under the MFAs, no more than 50% of the total number of restaurants in each Territory, and no more than 10% of the total number of restaurants in all theTerritories, can be located on real estate property that is owned, held or leased by our franchisees. 112 Table of Contents In addition, the MFA lists 25 restaurants that we are prohibited from selling or otherwise transferring without McDonald’s consent. Transfer of Equity Interests or Significant Assets Under the MFAs, neither we nor any of the other Owner Entities can transfer or pledge the equity interests of any of our subsidiaries, or any significant portionof our assets, without McDonald’s consent. Operational Control Under the MFAs, McDonald’s is entitled to approve the appointment of our chief executive officer and our chief operating officer. In the event that McDonald’s modifies its standards applicable to technology and related equipment, we must purchase any new or modified technology,software, hardware or equipment necessary to comply with the modified standards. Restaurant Opening Plan and Reinvestment Plan Under the MFAs, we are required to agree with McDonald’s on a restaurant opening plan and a reinvestment plan for each three-year period during the term ofthe MFAs. The restaurant opening plan specifies the number and type of new restaurants to be opened in the Territories during the applicable three-year period,while the reinvestment plan specifies the amount we must spend reimaging or upgrading restaurants during the applicable three-year period. Prior to the expirationof the then-applicable three-year period we must agree with McDonald’s on a subsequent restaurant opening plan and reinvestment plan. We may also propose,subject to McDonald’s prior written consent, amendments to any restaurant opening plan or reinvestment plan to adapt to changes in economic or politicalconditions. As part of the 2017-2019 restaurant opening and reinvestment plan, we have committed to open 180 new restaurants and to reinvest $292 million in existingrestaurants from 2017 through 2019. See “Item 4. Information on the Company—A. History and Development of the Company—Capital Expenditures andDivestitures.” In the event we are unable to reach an agreement on subsequent plans prior to the expiration of the then-existing plan, the MFAs provide for anautomatic increase of 20% in the required amount of reinvestments as compared to the then-existing plan and a number of new restaurants no less than 210multiplied by a factor that increases each period during the subsequent three-year restaurant opening plan. Advertising and Promotion Plan Under the MFAs, we must develop and implement a marketing plan with respect to each Territory that must be approved in advance by McDonald’s. TheMFAs require us to spend at least 5% of our gross sales on advertisement and promotion activities. Our advertisement and promotion activities are guided by ouroverall marketing plan, which identifies the key strategic platforms that we aim to leverage in order to drive sales. Insurance Under the MFAs, we are required to acquire and maintain a variety of insurance policies with certain minimum coverage limits, including commercial generalliability, workers compensation, “all risk” property and business interruption insurance, among others. Call Option Right and Security Interest in Equity Interests of the Company Under the MFAs, McDonald’s has the right, or Call Option, to acquire our non-public shares or our interests in one or more Territories upon: (i) the expirationof the initial term of the MFAs on August 2, 2027 if the initial term is not extended, (ii) the occurrence of a material breach of the MFAs or (iii) during the periodof 12 months following the earlier of (x) the 18th month anniversary of the death or permanent incapacity of Mr. Woods Staton or (y) the receipt by McDonald’s ofnotice from Mr. Woods Staton’s heirs that they have elected to have the period of 12 months commence as of the date specified in the notice. McDonald’sgenerally has the right either to exercise the Call Option with respect to all of the Territories, or, in its sole discretion, with respect to the Territory or Territoriesidentified by McDonald’s as being affected by such material breach or to which such material breach may be 113 Table of Contents attributable except upon the occurrence of an initial material breach relating to any Territory or Territories in which there are less than 100 restaurants in operation.In such case, McDonald’s only has the right to acquire the equity interests of any of our subsidiaries in the relevant Territory or Territories. As of December 31,2017, we had more than 100 restaurants in operation in each of Argentina, Brazil, Mexico, Puerto Rico and Venezuela. No other Territory had more than 85restaurants in operation. If McDonald’s exercises the Call Option upon the occurrence of the events described in clause (i) or (iii) of the preceding paragraph, it must pay a purchaseprice equal to 100% of the fair market value of our non-public shares. If the Call Option is exercised upon the occurrence of a material breach, however, thepurchase price is reduced to 80% of the fair market value of all of our non-public shares or of all of the equity interests of the subsidiaries operating restaurants inthe Territory related to such material breach, as applicable. The purchase price paid by McDonald’s upon exercise of the Call Option is, in all events, reduced bythe amount of debt and contingencies and increased by the amount of cash attributable to the entity whose equity interests are being acquired pursuant to the CallOption. In the event McDonald’s were to exercise its right to acquire all of our non-public shares, McDonald’s would become our controlling shareholder. If McDonald’s exercises the Call Option with respect to any of our subsidiaries (but not all of them) and the amount of debt and contingencies (minus cash)attributable to the equity interests of those subsidiaries is greater than the fair market value of those equity interests, we must, at our election, either (i) assume thedebts and contingencies (minus cash) and deliver the equity interests to McDonald’s free of any obligations with respect thereto or (ii) pay to McDonald’s theabsolute value of that amount. The fair market value of any of the equity interests is to be determined by internationally recognized investment banks withouttaking into consideration the debt, contingencies or cash attributable to the equity interests. In order to secure McDonald’s right to exercise the Call Option, McDonald’s was granted a perfected security interest in the equity interests of the MasterFranchisee, the Brazilian Master Franchisee and our subsidiaries other than our subsidiaries organized in Costa Rica, Mexico, French Guiana, Guadeloupe andMartinique. The equity interests of our subsidiaries organized in Costa Rica and Mexico were transferred to a trust for the benefit of McDonald’s. McDonald’sdoes not have a security interest in the equity interests of our subsidiaries organized in French Guiana, Guadeloupe and Martinique. The equity interests were transferred to Citibank, N.A., acting as escrow agent. Subject to the terms of the Escrow Agreement and the Intercreditor Agreement,upon McDonald’s exercise of the Call Option and its payment of the respective purchase price, the escrow agent must transfer the equity interests, free of any liensor encumbrances, to McDonald’s. Limitations on Indebtedness Under the MFAs, we cannot incur any indebtedness secured by the collateral pledged by us and certain of our subsidiaries in connection with the letters ofcredit or amend or waive any of the terms related to the collateral, without McDonald’s consent. The pledged collateral includes the equity interests of certain ofour subsidiaries, certain of our rights under certain of the Acquisition documents, franchise document payment rights, and our intercompany debt and notes. Under the MFAs, we must maintain a fixed charge coverage ratio (as defined therein) at least equal to (a) 1.25 from August 31, 2010 through the fiscal quarterended September 30, 2011 and (b) 1.50, commencing with the fiscal quarter ended December 31, 2011 and thereafter; and a leverage ratio (as defined therein) notin excess of (a) 5.0, from August 31, 2010 through the fiscal quarter ended June 30, 2011, (b) 4.75 for the fiscal quarter ended September 30, 2011, and (c) 4.25,commencing with the fiscal quarter ended December 31, 2011 and thereafter. Mainly as a result of the adoption of new exchange rates used for remeasurement ofour bolivar-denominated assets and liabilities and operating results in Venezuela in 2013 and 2014, we were not in compliance with these ratio requirements forcertain periods during 2014, 2015 and 2016. We initially became non-compliant for the quarter ended June 30, 2014, at which time our Leverage Ratio and FixedCharge Coverage Ratio was 4.38 and 1.48, respectively. Please refer to the table below for disclosure of our Leverage Ratio and Fixed Charge Coverage Ratio asof December 31, 2016 and for the other periods of our non-compliance with the requirements under the MFA. As of December 31, 2016, our Fixed ChargeCoverage Ratio was 1.56 and our Leverage Ratio was 4.40. For that reason, McDonald’s granted us limited waivers through and including June 30, 2016, duringwhich time we were not required to comply with these financial ratios. We have been in compliance with these quarterly ratios since the 114 Table of Contents expiration of the waiver. If we are unable to comply with our original commitments under the MFA or to obtain a waiver for any non-compliance in the future, wecould be in material breach. Our breach of the MFA would give McDonald’s certain rights, including the ability to acquire all or portions of our business. See “—Material Breach.” Notwithstanding the foregoing, we do not expect any material adverse effect to our business, results of operations, financial condition or cashflows as a result of this situation. We continue to monitor our compliance with these quarterly ratios. On March 17, 2016 we amended the MFA to change certaindefinitions relevant to the calculation of the Fixed Charge Coverage Ratio and the Leverage Ratio. As of December 31, 2017, our Fixed Charge Coverage Ratiowas 1.77 and our Leverage Ratio was 3.80. Arcos Dorados Financial Ratios under the MFA Quarter ended December 31,2016 March 31, 2017 June 30, 2017 September 30,2017 December 31,2017Leverage Ratio 4.21 4.12 4.05 4.02 3.80 Fixed Charge Coverage Ratio 1.64 1.65 1.65 1.69 1.77 Letters of Credit As security for the performance of our obligations under the MFAs, we have obtained (i) on August 3, 2007, an irrevocable standby letter of credit in favor ofMcDonald’s in an amount of $65.0 million and later reduced to $45.0 million on October 30, 2015, issued by Credit Suisse acting as issuing bank through itsCayman Islands Branch, (ii) on May 9, 2011, an irrevocable standby letter of credit in favor of McDonald’s in an amount of $15.0 million, issued by Itaú UnibancoS.A. (“Itaú”), acting as issuing bank through its New York Branch, and (iii) on November 3, 2015, an irrevocable standby letter of credit in favor of McDonald’s inan amount of $20.0 million, issued by JPMorgan, acting as issuing bank through its New York Branch. The Credit Suisse, Itaú and JP Morgan letters of creditexpire on November 10, 2018, May 10, 2018, and November 6, 2018, respectively, but we will be required by the MFAs to renew these letters of credit or obtainnew standby letters of credit in the same amount. The Credit Suisse letter of credit and reimbursement agreement contains a limited number of customary affirmative and negative covenants. These includelimitations on (i) any transfer of the MFAs, (ii) amendment or waiver of the MFAs without the consent of the issuing bank, (iii) our leverage ratio, (iv) taking anyaction to elect to assume the debt of any of our subsidiaries upon McDonald’s exercise of a partial Call Option, (v) our ability to guaranty obligations of oursubsidiaries, and (vi) amendments to the credit agreement. Credit Suisse, as issuing bank, has a security interest in certain of our rights under certain Acquisition documents, franchise document payment rights and ourintercompany debt notes. In addition, our subsidiaries (other than those organized in Ecuador, French Guiana, Guadeloupe, Martinique and Peru, and certainsubsidiaries organized in Argentina, Colombia and Mexico) guaranteed to Credit Suisse the full and prompt payment of our obligations under the Credit Suisseletter of credit and reimbursement agreement. The letter of credit that we obtained from Itaú effectively replaced the cash collateral that we had previously pledged in favor of McDonald’s in an amount of$15.0 million. The Itaú continuing standby letter of credit agreement contains a limited number of customary affirmative and negative covenants. These includelimitations on (i) any transfer of the MFAs, (ii) amendment or waiver of the MFAs without the consent of the issuing bank, (iii) our leverage ratio, (iv) taking anyaction to elect to assume the debt of any of our subsidiaries upon McDonald’s exercise of a Call Option, and (v) permitting ourselves or any of our subsidiaries tobecome insolvent. We delivered a promissory note to Itaú in an amount of $15.0 million evidencing our obligations to Itaú under the continuing standby letter of creditagreement and a guarantee letter from our Brazilian subsidiary guaranteeing the full and punctual payment when due of our obligations and liabilities to Itaú inrespect of the Itaú letter of credit and the continuing standby letter of credit agreement, including without limitation our reimbursement obligations for anypayments made by Itaú under the letter of credit. The letter of credit that we obtained from JPMorgan effectively replaced the $ 20.0 million reduction in the Credit Suisse letter of credit. 115 Table of Contents The JPMorgan letter of credit is guaranteed by certain of our subsidiaries and contains a limited number of customary affirmative and negative covenants.These include limitations on (i) our leverage ratio, (ii) the dissolution, liquidation or winding-up of the applicant or a guarantor, (iii) a material breach or failure tocomply with the MFA, and (iv) permitting the applicant or any guarantor to become insolvent. Termination The MFAs automatically terminate without the need for any party to it to take any further action if any type of insolvency or similar proceeding in respect ofus or any of the other Owner Entities commences. In the event of the occurrence of certain material breaches, such as if we fail to comply with the reinvestment or restaurant opening plans, McDonald’s has theright to terminate the MFAs. Upon the termination of the MFAs, McDonald’s has the right to acquire all, but not less than all, of our equity interests at fair market value, which is to becalculated by internationally recognized investment banks selected by us and McDonald’s. The fair market value of our equity interests shall be calculated in U.S.dollars based on the amount that would be received for our equity interests in an arm’s-length transaction between a willing buyer and a willing seller, taking intoaccount the benefits provided by the MFAs. The 2016 Secured Loan Agreement For a description of the secured loan agreement entered into by Arcos Dourados Comércio de Alimentos Ltda. with Citibank N.A., Bank of America N.A.,Itau BBA International plc, JPMorgan Chase Bank, N.A. and Banco Santander (Brasil) S.A., Cayman Islands Branch, see “Item 5. Operating and Financial Reviewand Prospects—B. Liquidity and Capital Resources—Net Cash (used in) Financing Activities—The 2016 Secured Loan Agreement.” The 2016 Notes, the 2023 Notes and the 2027 Notes For a description of the 2016 notes, the 2023 notes and the 2027 notes, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and CapitalResources.” The Revolving Credit Facilities For a description of the revolving credit facilities entered into by Arcos Dorados B.V. with Bank of America, N.A. and JP Morgan Chase Bank, N.A. see“Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Net Cash (used in) Financing Activities—Revolving CreditFacilities.” The 2012 Swap Transaction On August 13, 2012, the Company entered into a total equity return swap agreement with Goldman Sachs International in order to minimize earnings volatilityrelated to this risk, which was renewed twice and matured on September 12, 2015. Under the agreement effective as from August 20, 2012, the Company received (paid) the appreciation (depreciation), plus any dividends, on a certain notionalnumber of Class A shares (2,272,551 at the inception) over a reference price of approximately $13.77 per share. The Company in turn paid interest at 3-monthLIBOR plus 450 basis points (330 basis points at the inception and 380 between August 2013 and September 2014). During 2015 and 2014 the Company paidinterest amounting to $0.52 million and $0.59 million, respectively, in connection with this agreement. As a consequence of the maturity of the swap agreement, the Company paid, during August and September 2015, $9.7 million as settlement of the remaining1,022,551 Class A shares net of accumulated dividends. Beginning on September 23, 2014, the Company was required to make a collateral deposit equal to the excess of the mark-to-market above a threshold of $3million with $0.5 million as the incremental basis. As of December 31, 2014, the collateral amounted to $4.8 million and was presented as a current asset within“Collateral deposits”. During 2015, before the maturity of the total equity return swap, there were two amendments to the conditions of the collateral deposit thatreduced the threshold from $3 million to $0 and included an additional collateral deposit of $0.5 million. As a consequence of the maturity of the swap agreement,the collateral deposit was returned to the Company. 116 Table of Contents The Company did not designate the swap as a hedge under ASC 815. Therefore, the agreement was carried at fair market value in the consolidated balancesheets with changes reported in earnings, within “General and administrative expenses.” The interest portion was recorded within “Net interest expense” in theCompany’s consolidated statement of income. D. Exchange Controls There are currently no exchange control regulations in the BVI applicable to us or our shareholders. For information about any exchange controls orrestrictions in Argentina, Brazil and Mexico, see “Item 3. Key Information—A. Selected Financial Data—Exchange Rates and Exchange Controls.” E. Taxation British Virgin Islands Tax Considerations The following summary contains a general description of certain British Virgin Islands tax consequences of the acquisition, ownership and disposition of classA shares, but it does not purport to be a comprehensive description of all the tax considerations that may be relevant to a decision to hold class A shares. Thegeneral summary is based upon the tax laws of the British Virgin Islands and regulations thereunder as of the date hereof, which are subject to change. We are not liable to pay any form of corporate taxation in the BVI and all dividends, interests, rents, royalties, compensations and other amounts paid by us topersons who are not persons resident in the BVI or providing services in the BVI are exempt from all forms of taxation in the BVI and any capital gains realizedwith respect to any shares, debt obligations, or other securities of ours by persons who are not persons resident in the BVI are exempt from all forms of taxation inthe BVI. No estate, inheritance, succession or gift tax, rate, duty, levy or other charge is payable by persons who are not persons resident in the BVI with respect to anyshares, debt obligation or other securities of ours. Subject to the payment of stamp duty on the acquisition or certain leasing of property in the BVI by us (and in respect of certain transactions in respect of theshares, debt obligations or other securities of BVI incorporated companies owning land in the BVI), all instruments relating to transfers of property to or by us andall instruments relating to transactions in respect of the shares, debt obligations or other securities of ours and all instruments relating to other transactions relatingto our business are exempt from payment of stamp duty in the BVI. There are currently no withholding taxes or exchange control regulations in the BVI applicable to us or our shareholders who are not providing services in theBVI. The BVI has signed two inter-governmental agreements to improve international tax compliance and the exchange of information—one with the United Statesand one with the United Kingdom (the “US IGA” and the “UK IGA”, respectively). The BVI has also signed, along with over 100 other countries, a multilateralcompetent authority agreement to implement the Organisation for Economic Co-Operation and Development (OECD) Standard for Automatic Exchange ofFinancial Account Information - Common Reporting Standard (the “CRS”). Amendments made to the Mutual Legal Assistance (Tax Matters) Act, 2003 (the “2003 Act”) and orders have been made pursuant to the 2003 Act give effectto the terms of the US IGA, the UK IGA and the CRS (together “AEOI”) under BVI law (the “BVI Legislation”). All BVI “Financial Institutions” are required to comply with the registration, due diligence and reporting requirements of the BVI Legislation which alsoimplements the CRS, except to the extent that they can rely on an exemption that allows them to become a “Non-Reporting Financial Institution” (as defined in therelevant BVI Legislation). We do not believe we are classified as a “Foreign Financial Institution” or “Financial Institution” within the meaning of AEOI and the BVI Legislation.However, if we were to determine that our classification has changed, 117 Table of Contents we may request additional information from any shareholder and its beneficial owners to identify whether shares in the Company are held directly or indirectly by“Reportable Persons” (as defined by AEOI). Information in respect of Reportable Persons would be disclosed to the International Tax Authority (“ITA”) of theBVI. The ITA in turn is required under AEOI and BVI Legislation to disclose information in respect of Reportable Persons to the foreign fiscal authorities relevantto such Reportable Persons. There is no income tax treaty currently in effect between the United States and the BVI. Material U.S. Federal Income Tax Considerations for U.S. Holders The following summary describes the material U.S. federal income tax consequences of the ownership and disposition of class A shares, but it does notpurport to be a comprehensive description of all of the tax considerations that may be relevant to a particular person’s decision to own such securities. Thissummary applies only to U.S. Holders (as defined below) that own class A shares as capital assets for U.S. federal income tax purposes. In addition, it does notdescribe all of the tax consequences that may be relevant in light of a U.S. Holder’s particular circumstances, including alternative minimum tax consequences, thepotential application of the provisions of the Internal Revenue Code of 1986, as amended, (the “Code”) known as the Medicare contribution tax, and taxconsequences applicable to certain U.S. Holders subject to special rules, such as: ·certain financial institutions; ·dealers or traders in securities who use a mark-to-market method of tax accounting; ·persons holding class A shares as part of a hedge, “straddle,” wash sale, conversion transaction or integrated transaction or persons entering into aconstructive sale with respect to the class A shares; ·persons whose “functional currency” for U.S. federal income tax purposes is not the U.S. dollar; ·tax exempt entities, including “individual retirement accounts” and “Roth IRAs”; ·entities classified as partnerships for U.S. federal income tax purposes; ·persons that own or are deemed to own ten percent or more of our shares, by vote or by value; ·persons who acquired our class A shares pursuant to the exercise of an employee stock option or otherwise as compensation; or ·persons holding class A shares in connection with a trade or business conducted outside the United States. If an entity that is classified as a partnership for U.S. federal income tax purposes holds class A shares, the U.S. federal income tax treatment of a partner willgenerally depend on the status of the partner and the activities of the partnership. Partnerships holding class A shares and partners in such partnerships shouldconsult their tax advisers as to the particular U.S. federal income tax consequences of holding and disposing of the class A shares. This discussion is based upon the Code, administrative pronouncements, judicial decisions and final, temporary and proposed Treasury Regulations, all as ofthe date hereof, changes to any of which may affect the tax consequences described herein—possibly with retroactive effect. A “U.S. Holder” is a holder who, for U.S. federal income tax purposes, is a beneficial owner of class A shares that is: (1)a citizen or individual resident of the United States; (2)a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state therein or the District ofColumbia; or (3)an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source. 118 Table of Contents U.S. Holders should consult their tax advisers concerning the U.S. federal, state, local and foreign tax consequences of owning and disposing of class A sharesin their particular circumstances. This discussion assumes that we are not, and will not become, a passive foreign investment company, as described below. Taxation of Distributions Distributions paid on class A shares, other than certain pro rata distributions of class A shares, will be treated as dividends to the extent paid out of our currentor accumulated earnings and profits (as determined under U.S. federal income tax principles). Because we do not maintain calculations of our earnings and profitsunder U.S. federal income tax principles, we expect that distributions generally will be reported to U.S. Holders as dividends. Subject to applicable limitations,dividends paid to certain non-corporate U.S. Holders may be eligible for taxation as “qualified dividend income” and therefore may be taxable at rates applicable tolong-term capital gains. Non-corporate U.S. Holders should consult their tax advisers regarding the availability of the reduced tax rates on dividends in theirparticular circumstances. The amount of the dividend will be treated as foreign-source dividend income to U.S. Holders and will not be eligible for the dividends-received deduction generally available to U.S. corporations under the Code. Dividends will be included in a U.S. Holder’s income on the date of the U.S. Holder’sreceipt of the dividend. Sale or Other Taxable Disposition of Class A Shares For U.S. federal income tax purposes, gain or loss realized on the sale or other taxable disposition of class A shares will be capital gain or loss, and will belong-term capital gain or loss if the U.S. Holder owned the class A shares for more than one year. The amount of the gain or loss will equal the difference betweenthe U.S. Holder’s tax basis in the class A shares disposed of and the amount realized on the disposition, in each case as determined in U.S. dollars. This gain or losswill generally be U.S.-source gain or loss for foreign tax credit purposes. Passive Foreign Investment Company Rules We believe that we were not a “passive foreign investment company” (a “PFIC”) for U.S. federal income tax purposes for our 2017 taxable year. However,because the application of the Treasury Regulations is not entirely clear and because PFIC status depends on the composition of a company’s income and assetsand the market value of its assets from time to time, there can be no assurance that we will not be a PFIC for any taxable year. If we were a PFIC for any taxable year during which a U.S. Holder owned class A shares, gain recognized by such U.S. Holder on a sale or other disposition(including certain pledges) of the class A shares would be allocated ratably over the U.S. Holder’s holding period for the class A shares. The amounts allocated tothe taxable year of the sale or other disposition and to any year before we became a PFIC would be taxed as ordinary income. The amount allocated to each othertaxable year would be subject to tax at the highest rate in effect for individuals or corporations, as appropriate, for that taxable year, and an interest charge wouldbe imposed on the resulting tax liability for each taxable year. Further, to the extent that any distribution received by a U.S. Holder on its class A shares exceeds125% of the average of the annual distributions on the class A shares received during the preceding three years or such U.S. Holder’s holding period, whichever isshorter, that distribution would be subject to taxation in the same manner as gain on the disposition of a share of a PFIC, described immediately above. If we werea PFIC, certain elections may be available that would result in alternative treatments (such as mark-to-market treatment) of the class A shares that differ from thetreatment set forth in this paragraph. In addition, if we were a PFIC or, with respect to any U.S. Holder, were treated as a PFIC for the taxable year in which we paid a dividend or for the priortaxable year, the preferential dividend rates discussed above with respect to dividends paid to certain non-corporate U.S. Holders would not apply. If we are a PFIC for any taxable year during which a U.S. Holder owned our class A shares, the U.S. Holder will generally be required to file IRS Form 8621(or any successor form) with their annual U.S. federal income tax returns, subject to certain exceptions. 119 Table of Contents Information Reporting and Backup Withholding Payments of dividends and sales proceeds that are made within the United States or through certain U.S.-related financial intermediaries generally are subjectto information reporting, and may be subject to backup withholding, unless (i) the U.S. Holder is an exempt recipient or (ii) in the case of backup withholding, theU.S. Holder provides a correct taxpayer identification number and certifies that it is not subject to backup withholding. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against the holder’s U.S. federal income tax liability andmay entitle it to a refund, provided that the required information is timely furnished to the IRS. Certain U.S. Holders who are individuals (and specified entities that are formed or availed of for purposes of holding certain foreign financial assets) may berequired to report information relating to their ownership of stock of a non-U.S. person, subject to certain exceptions (including an exception for stock held incertain accounts maintained by a U.S. financial institution). U.S. Holders should consult their tax advisers regarding the effect, if any, of these reportingrequirements on their ownership and disposition of class A shares. F. Dividends and Paying Agents Not applicable. G. Statement by Experts Not applicable. H. Documents on Display We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Accordingly, we are required tofile reports and other information with the SEC, including annual reports on Form 20-F and reports on Form 6-K. You may inspect and copy reports and otherinformation filed with the SEC at the Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the Public ReferenceRoom may be obtained by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet website that contains reports and other informationabout issuers, like us, that file electronically with the SEC. The address of that website is www.sec.gov. As a foreign private issuer, we are exempt under the Exchange Act from, among other things, the rules prescribing the furnishing and content of proxystatements, and our executive officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained inSection 16 of the Exchange Act. In addition, we will not be required under the Exchange Act to file periodic reports and financial statements with the SEC asfrequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. We will send the transfer agent a copy of all notices of shareholders’ meetings and other reports, communications and information that are made generallyavailable to shareholders. The transfer agent has agreed to mail to all shareholders a notice containing the information (or a summary of the information) containedin any notice of a meeting of our shareholders received by the transfer agent and will make available to all shareholders such notices and all such other reports andcommunications received by the transfer agent. I. Subsidiary Information Not applicable. ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Risk Management In the ordinary course of our business activities, we are exposed to various market risks that are beyond our control, including fluctuations in foreign exchangerates and the price of our primary supplies, and which may have an adverse effect on the value of our financial assets and liabilities, future cash flows and profit.As a result of these market risks, we could suffer a loss due to adverse changes in foreign exchange rates and the price of commodities 120 Table of Contents in the international markets. In addition, we are subject to equity price risk relating to our share-based compensation plans. Our policy with respect to these marketrisks is to assess the potential of experiencing losses and the consolidated impact thereof, and to mitigate these market risks. We do not enter into market risksensitive instruments for trading or speculative purposes. Foreign Currency Exchange Rate Risk Foreign Currency Exchange Rate Risk in 2017 We are exposed to foreign currency exchange rate risk primarily in connection with the fluctuation in the value of the local currencies of the countries inwhich we operate, primarily the Brazilian real , the Argentine peso and the Mexican peso , among others. We generate revenues and cash from our operations inlocal currencies while a significant portion of our long-term debt is denominated in U.S. dollars. An adverse change in foreign currency exchange rates wouldtherefore affect the generation of cash flow from operations in U.S. dollars, which could negatively impact our ability to pay amounts owed in U.S. dollars. Inorder to partially mitigate the foreign exchange rate risk related to our long-term debt, we entered into certain derivative instruments. See Note 13 to ourconsolidated financial statements for more detail. Moreover, our continuing franchise fee payments to McDonald’s pursuant to the MFAs must be translated intoand paid in U.S. dollars using the exchange rate of the last business day of the month, payable on the seventh day subsequent to each month-end. As such, in theintervening period we are subject to significant foreign exchange risk. While substantially all our income is denominated in the local currencies of the countries in which we operate, our supply chain management involves theimportation of various products, and some of our imports are denominated in U.S. dollars. Therefore, we are exposed to foreign currency exchange risk related toimports. We have entered into various forward contracts to hedge a portion of the foreign exchange risk associated with the forecasted imports of certain countries.See Note 13 to our consolidated financial statements for more details. In addition, we attempt to minimize this risk also by entering into annual and semi-annualpricing arrangements with our main suppliers. We are also exposed to foreign exchange risk related to U.S. dollar-denominated intercompany balances held by certain of our operating subsidiaries with ourholding companies, and to foreign currency-denominated intercompany balances held by our holding companies with certain operating subsidiaries. Althoughthese intercompany balances are eliminated through consolidation, an adverse change in exchange rates could have a significant impact on our results through therecognition of foreign currency exchange losses in our consolidated income statement. To help mitigate some of these foreign currency exchange rate risks, wehave entered into certain derivative instruments. See Note 13 to our consolidated financial statements for more details. A decrease of 10% in the value of the Brazilian real against the U.S. dollar would result in a net foreign exchange loss totaling $7.4 million over (i) the cross-currency interest rate swap used to partially hedge the intercompany loan receivable of Arcos Dorados B.V. denominated in Brazilian reais (R$852.5 millionincluding accrued interest), (ii) the Brazilian reais-denominated intercompany net receivable held by our subsidiaries, Arcos Dorados B.V. and Latam LLC(R$1,099.6 million including accrued interest), and (iii) the outstanding balance of the U.S. dollar-denominated intercompany net debt held by our Braziliansubsidiaries of $7.3 million as of December 31, 2017. An increase of 10% in the value of the Mexican peso against the U.S. dollar would result in a foreign exchange loss of $0.9 million, mainly related to theoutstanding U.S. dollar-denominated intercompany receivable held by our subsidiary in Mexico of $8.3 million as of December 31, 2017. An increase of 10% in the value of the Uruguayan peso against the U.S. dollar would result in a foreign exchange loss of $4.9 million over the outstandingU.S. dollar-denominated intercompany net receivable held by our subsidiaries in Uruguay of $43.8 million as of December 31, 2017. An increase of 10% in the value of the Costa Rican Colones against the U.S. dollar would result in a foreign exchange loss of $3.3 million mainly related tothe outstanding U.S. dollar-denominated intercompany net receivable held by our subsidiary in Costa Rica of $29.5 million as of December 31, 2017. 121 Table of Contents An increase of 10% in the value of the European euro against the U.S. dollar would result in a foreign exchange loss of $2.5 million mainly related to theoutstanding U.S. dollar-denominated intercompany receivable held by our subsidiary in Martinique of $22.5 million as of December 31, 2017. An increase of 10% in the value of the Argentine peso against the U.S. dollar would result in a foreign exchange loss of $2.6 million over the outstanding U.S.dollar-denominated intercompany net receivable held by our subsidiary in Argentina of $23.6 million as of December 31, 2017. Fluctuations in the value of the other local currencies against the U.S. dollar would not result in material foreign exchange gains or losses as of December 31,2017 since there are no other significant intercompany balances exposed to foreign exchange risk. We are also exposed to foreign currency exchange risk related to the currency translation of our Venezuelan operations. A depreciation of the Venezuelanbolívar against the U.S. dollar would result in a foreign currency exchange loss as a result of remeasuring monetary balances denominated in Venezuelan bolívares.See Note 22 to our consolidated financial statements for details about exchange controls affecting our operations in Venezuela. Summary of Foreign Currency Exchange Rate Risk in 2016 A decrease of 10% in the value of the Brazilian real against the U.S. dollar would result in a net foreign exchange loss totaling $10.6 million over (i) the cross-currency interest rate swap used to partially hedge the intercompany loan receivable of Arcos Dorados B.V. denominated in Brazilian reais (R$111.6 millionincluding accrued interest), (ii) the Brazilian reais -denominated intercompany net receivable held by our subsidiaries, Arcos Dorados B.V. and Latam LLC(R$482.3 million including accrued interest), and (iii) the outstanding balance of the U.S. dollar-denominated intercompany net debt held by our Braziliansubsidiaries of $3.2 million as of December 31, 2016. A decrease of 10% in the value of the Mexican peso against the U.S. dollar would result in a foreign exchange loss of $10.4 million, mainly related to theoutstanding U.S. dollar-denominated intercompany receivable held by our subsidiary in Mexico of $93.8 million as of December 31, 2016. An increase of 10% in the value of the Uruguayan peso against the U.S. dollar would result in a foreign exchange loss of $4.3 million over the outstandingU.S. dollar-denominated intercompany net receivable held by our subsidiaries in Uruguay of $39.1 million as of December 31, 2016. An increase of 10% in the value of the Costa Rican Colones against the U.S. dollar would result in a foreign exchange loss of $2.3 million mainly related tothe outstanding U.S. dollar-denominated intercompany net receivable held by our subsidiary in Costa Rica of $21.0 million as of December 31, 2016. An increase of 10% in the value of the European euro against the U.S. dollar would result in a foreign exchange loss of $2.1 million mainly related to theoutstanding U.S. dollar-denominated intercompany receivable held by our subsidiary in Martinique of $19.5 million as of December 31, 2016. An increase of 10% in the value of the Chilean peso against the U.S. dollar would result in a foreign exchange loss of $1.7 million over the outstanding U.S.dollar-denominated intercompany net receivable held by our subsidiary in Chile of $15.7 million as of December 31, 2016. Fluctuations in the value of the other local currencies against the U.S. dollar would not result in material foreign exchange gains or losses as of December 31,2016 since there are no other significant intercompany balances exposed to foreign exchange risk. We are also exposed to foreign currency exchange risk related to the currency translation of our Venezuelan operations. A depreciation of the Venezuelanbolívar against the U.S. dollar would result in a foreign currency exchange loss as a result of remeasuring monetary balances denominated in Venezuelan bolívares. See Note 22 to our consolidated financial statements for details about exchange controls affecting our operations in Venezuela. 122 Table of Contents Commodity Price Risk We purchase our primary supplies, including beef, chicken, buns, produce, cheese, dairy mixes and toppings pursuant to oral agreements with our approvedsuppliers at prices that are derived from international market prices, local conversion costs and local tariffs and taxes. We therefore carry market risk exposure tochanges in commodity prices that have a direct impact on our costs. We do not enter into futures or options contracts to protect ourselves against changes incommodity prices, although we may do so in the future. We attempt to minimize this risk by entering into annual and semi-annual pricing arrangements with ourmain suppliers. This allows us to provide cost predictability while avoiding the costs related to the use of derivative instruments, which we may not be able to passon to our customers due to the competitive nature of the QSR industry. ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES A. Debt Securities Not applicable. B. Warrants and Rights Not applicable. C. Other Securities Not applicable. D. American Depositary Shares Not applicable. 123 Table of Contents PART II ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES A. Defaults No matters to report. B. Arrears and Delinquencies No matters to report. ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS A. Material Modifications to Instruments None. B. Material Modifications to Rights None. C. Withdrawal or Substitution of Assets None. D. Change in Trustees or Paying Agents None. E. Use of Proceeds Not applicable. ITEM 15. CONTROLS AND PROCEDURES A. Disclosure Controls and Procedures As of December 31, 2017, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief FinancialOfficer, we performed an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Thereare inherent limitations to the effectiveness of any system of disclosure controls and procedures. Accordingly, even effective disclosure controls and procedurescan only provide reasonable assurance of achieving their control objectives. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as ofDecember 31, 2017 in ensuring that information we are required to disclose in the reports that we file or submit under the Exchange Act is (1) recorded, processed,summarized and reported within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including ourChief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. B. Management’s Annual Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining an adequate internal control over financial reporting as defined in Rule 13a-15(f) under theExchange Act. Our internal control over financial reporting is a process designed by, or under the supervision of, our principal executive and principal financial officers,management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements forexternal reporting purposes, in accordance with generally accepted accounting principles. These include those policies and procedures that: 124 Table of Contents ·pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of our assets; ·provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements, in accordance with generallyaccepted accounting principles, and that receipts and expenditures are being made only in accordance with authorization of our management anddirectors; and ·provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have amaterial effect on our financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, effective control over financialreporting cannot, and does not, provide absolute assurance of achieving our control objectives. Also, projections of, and any evaluation of effectiveness of theinternal controls in future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate. We have adapted our internal control over financial reporting based on the guidelines set by the Internal Control—Integrated Framework of the Committee ofSponsoring Organizations of the Treadway Commission (2013 Framework), or COSO. Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we conducted anevaluation of the effectiveness of our internal control over financial reporting as of December 31, 2017, based on the guidelines set forth by the COSO. Based on this assessment, management believes that, as of December 31, 2017, its internal control over financial reporting was effective based on thosecriteria. Pistrelli, Henry Martin y Asociados S.R.L., member firm of Ernst & Young Global, independent registered public accounting firm, has audited and reportedon the effectiveness of our internal controls over financial reporting as of December 31, 2017. C. Attestation Report of the Registered Public Accounting Firm Pistrelli, Henry Martin y Asociados S.R.L., member firm of Ernst & Young Global, independent registered public accounting firm, has audited and reportedon the effectiveness of our internal controls over financial reporting as of December 31, 2017, as stated in their report which appears below. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of ARCOS DORADOS HOLDINGS INC.: Opinion on Internal Control over Financial Reporting We have audited Arcos Dorados Holdings Inc.’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In ouropinion, Arcos Dorados Holdings Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31,2017, based on the COSO criteria . We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balancesheets of the Company as of December 31, 2017 and 2016, and the related consolidated statements of income (loss), comprehensive income (loss), changes inequity and cash flows for each of the three years in the period ended December 31, 2017, and the related notes (collectively referred to as the “financialstatements”) and our report dated March 21, 2018 expressed an unqualified opinion thereon. 125 Table of Contents Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internalcontrol over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is toexpress an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB andare required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of theSecurities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assuranceabout whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluatingthe design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in thecircumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financialreporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect thetransactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only inaccordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection ofunauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance withthe policies or procedures may deteriorate. /s/ Pistrelli, Henry Martin y Asociados S.R.L.PISTRELLI, HENRY MARTIN Y ASOCIADOSS.R.L.Member of Ernst & Young Global Buenos Aires, ArgentinaMarch 21, 2018 D. Changes in Internal Control over Financial Reporting There has been no change in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15 or 15d-15 thatoccurred during the period covered by this annual report that has materially affected, or is reasonably likely to materially affect, our internal control over financialreporting. 126 Table of Contents ITEM 16. [RESERVED] ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT Our audit committee consists of three directors, Mr. Chu, Mr. Vélez and Mr. Gutiérrez, who are independent within the meaning of the SEC and NYSEcorporate governance rules applicable to foreign private issuers. Our Board of Directors has determined that Mr. Chu, Mr. Vélez and Mr. Gutiérrez are also “auditcommittee financial experts” as defined by the SEC. ITEM 16B. CODE OF ETHICS Our Board of Directors has approved and adopted our Standards of Business Conduct, which are a code of ethics that applies to all employees of ArcosDorados, including executive officers, and to our board members. The current version of the Standards of Business Conduct is posted and maintained on the ArcosDorados website at www.arcosdorados.com. The information contained on our website is not a part of this annual report. ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES The following table describes the amounts billed to us by the principal accountant, for audit and other services performed in fiscal years 2017 and 2016. 2017 2016 (in thousands of U.S. dollars)Audit fees $2,770 $1,898 Audit-related fees 30 44 Tax fees 464 431 All other fees 142 92 Audit Fees Audit fees are fees billed for professional services rendered by the principal accountant for the audit of the registrant’s annual financial statements or servicesthat are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years. It includes the audit of ourannual consolidated financial statements, the reviews of our quarterly consolidated financial statements submitted on Form 6-K and other services that generallyonly the independent accountant reasonably can provide, such as comfort letters, statutory audits, attestation services, consents and assistance with and review ofdocuments filed with the SEC. Audit-Related Fees Audit-related fees are fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our consolidatedfinancial statements for fiscal years 2017 and 2016 and not reported under the previous category. These services would include, among others: employee benefitplan audits, due diligence related to mergers and acquisitions, accounting consultations and audits in connection with acquisitions, internal control reviews, attestservices that are not required by statute or regulation and consultation concerning financial accounting and reporting standards. Tax Fees Tax fees are fees billed for professional services for tax compliance, tax advice and tax planning. All Other Fees All other fees are fees not reported under other categories. This category mainly includes advisory services on process improvement related to diagnostics andrecommendations. Pre-Approval Policies and Procedures Our audit committee charter requires the audit committee to pre-approve the audit services and non-audit services to be provided by our independent auditorbefore the auditor is engaged to render such services. The audit 127 Table of Contents committee may delegate its authority to pre-approve services to the Chair of the audit committee, provided that such designees present any such approvals to thefull audit committee at the next audit committee meeting. All of the audit fees, audit-related fees, tax fees and all other fees described in this Item 16C have been pre-approved by the audit committee in accordancewith these pre-approval policies and procedures. ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES Not applicable. ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS None. ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT None. ITEM 16G. CORPORATE GOVERNANCE Our class A shares are listed on the NYSE. We are therefore required to comply with certain of the NYSE’s corporate governance listing standards, or theNYSE Standards. As a foreign private issuer, we may follow our home country’s corporate governance practices in lieu of most of the NYSE Standards. Ourcorporate governance practices differ in certain significant respects from those that U.S. companies must adopt in order to maintain a NYSE listing and, inaccordance with Section 303A.11 of the NYSE Listed Company Manual, a brief, general summary of those differences is provided as follows. Director independence The NYSE Standards require a majority of the membership of NYSE-listed company boards to be composed of independent directors. Neither British VirginIslands law, the law of our country of incorporation, nor our memorandum and articles of association require a majority of our board to consist of independentdirectors. Our Board of Directors currently consists of eight members, three of whom are independent directors. Non-management directors’ executive sessions The NYSE Standards require non-management directors of NYSE-listed companies to meet at regularly scheduled executive sessions without management.Our memorandum and articles of association do not require our non-management directors to hold such meetings. Committee member composition The NYSE Standards require NYSE-listed companies to have a nominating/corporate governance committee and a compensation committee that arecomposed entirely of independent directors. British Virgin Islands law, the law of our country of incorporation, does not impose similar requirements. We do nothave a nominating/corporate governance committee. Independence of the compensation and nomination committee and its advisers NYSE listing standards require that the board of directors of a listed company consider two factors (in addition to the existing general independence tests) inthe evaluation of the independence of compensation committee members: (i) the source of compensation of the director, including any consulting, advisory or othercompensatory fees paid by the listed company, and (ii) whether the director has an affiliate relationship with the listed company, a subsidiary of the listed companyor an affiliate of a subsidiary of the listed company. In addition, before selecting or receiving advice from a compensation consultant or other adviser, thecompensation committee of a listed company is required to take into consideration six specific factors, as well as all other factors relevant to an adviser’sindependence. 128 Table of Contents Foreign private issuers such as us are exempt from these requirements if home country practice is followed. British Virgin Islands law does not impose similarrequirements. Miscellaneous In addition to the above differences, we are not required to: make our audit and compensation and nomination committees prepare a written charter thataddresses either purposes and responsibilities or performance evaluations in a manner that would satisfy the NYSE’s requirements; acquire shareholder approval ofequity compensation plans in certain cases; or adopt and make publicly available corporate governance guidelines. We were incorporated under, and are governed by, the laws of the British Virgin Islands. For a summary of some of the differences between provisions of theBVI Act applicable to us and the laws application to companies incorporated in Delaware and their shareholders, see “Item 10. Additional Information—B.Memorandum and Articles of Association—Differences in Corporate Law.” ITEM 16H. MINE SAFETY DISCLOSURE Not applicable. 129 Table of Contents PART III ITEM 17. FINANCIAL STATEMENTS We have responded to Item 18 in lieu of this item. ITEM 18. FINANCIAL STATEMENTS Financial Statements are filed as part of this annual report. See page F-1. ITEM 19. EXHIBITS Exhibit No.Description1.1Memorandum and Articles of Association, incorporated herein by reference to Exhibit 3.1 to the Company’s Registration Statement on FormF-1 (File No. 333-173063) filed with the SEC on March 25, 2011.2.1Indenture dated September 27, 2013 among Arcos Dorados Holdings Inc., as issuer, the Subsidiary Guarantors named therein, Citibank N.A.,as trustee, registrar, paying agent and transfer agent, and Banque Internationale à Luxembourg Société Anonyme, as Luxembourg payingagent, incorporated herein by reference to Exhibit 2.2 to the Company’s Annual Report on Form 20-F for the year ended December 31, 2013filed with the SEC on April 28, 2014.2.2Indenture dated April 4, 2017 among Arcos Dorados Holdings Inc., as issuer, the Subsidiary Guarantors named therein, and Citibank N.A.,as trustee, registrar, paying agent and transfer agent, incorporated herein by reference to Exhibit 2.2 to the Company’s Annual Report onForm 20-F for the year ended December 31, 2016 filed with the SEC on April 27, 2017.3.1Los Laureles Voting Trust, incorporated herein by reference to Exhibit 9.1 to the Company’s Registration Statement on Form F-1 (File No.333-173063) filed with the SEC on March 25, 2011.4.1Amended and Restated Master Franchise Agreement for McDonald’s Restaurants in All of the Territories, except Brazil, incorporated hereinby reference to Exhibit 10.1 to the Company’s Registration Statement on Form F-1 (File No. 333-173063) filed with the SEC on March 25,2011.4.2Amendment No. 1 to the Amended and Restated Master Franchise Agreement for McDonald’s Restaurants in All of the Territories, exceptBrazil, incorporated herein by reference to Exhibit 10.2 to the Company’s Registration Statement on Form F-1 (File No. 333-173063) filedwith the SEC on March 25, 2011.4.3Second Amended and Restated Master Franchise Agreement for McDonald’s Restaurants in Brazil, incorporated herein by reference toExhibit 10.3 to the Company’s Registration Statement on Form F-1 (File No. 333-173063) filed with the SEC on March 25, 2011.4.4Amendment No. 3 to the Amended and Restated Master Franchise Agreement for McDonald’s Restaurants in all the Territories, exceptBrazil dated March 17, 2016 incorporated herein by reference to Exhibit 4.4 to the Company’s Annual Report on Form 20-F for the yearended December 31, 2015 filed with the SEC on April 29, 2016.4.5Letter of Agreement dated as of July 31, 2014 among McDonald’s Latin America and LatAm, LLC, incorporated herein by reference toExhibit 4.4 to the Company’s Annual Report on Form 20-F for the year ended December 31, 2014 filed with the SEC on April 29, 2015.4.6Amended and Restated Escrow Agreement dated October 12, 2010 among McDonald’s Latin America, LLC, LatAm, LLC, each of theEscrowed MF Subsidiaries, Arcos Dorados Restaurantes de Chile Ltda., Arcos Dorados B.V., Deutsche Bank Trust Company Americas, ascollateral agent, and Citibank, N.A., as escrow agent, incorporated herein by reference to Exhibit 10.4 to the Company’s RegistrationStatement on Form F-1 (File No. 333-173063) filed with the SEC on March 25, 2011.4.7Letter of Credit Reimbursement Agreement dated August 3, 2007 between Arcos Dorados B.V. and Credit Suisse, acting through its CaymanIslands Branch, incorporated herein by reference to Exhibit 10.5 to the Company’s Registration Statement on Form F-1 (File No. 333-173063) filed with the SEC on March 25, 2011.4.8Amendment to Letter of Credit Reimbursement Agreement dated November 3, 2008 between Arcos Dorados B.V. and Credit Suisse, actingthrough its Cayman Islands Branch, incorporated herein by reference to Exhibit 10.6 to the Company’s Registration Statement on Form F-1(File No. 333-173063) filed with the SEC on March 25, 2011. 130 Table of Contents Exhibit No.Description4.9Second Amendment to Letter of Credit Reimbursement Agreement dated December 10, 2008 between Arcos Dorados B.V. and CreditSuisse, acting through its Cayman Islands Branch, incorporated herein by reference to Exhibit 10.7 to the Company’s Registration Statementon Form F-1 (File No. 333-173063) filed with the SEC on March 25, 2011.4.10Third Amendment to Letter of Credit Reimbursement Agreement dated July 8, 2009 between Arcos Dorados B.V. and Credit Suisse, actingthrough its Cayman Islands Branch, incorporated herein by reference to Exhibit 10.8 to the Company’s Registration Statement on Form F-1(File No. 333-173063) filed with the SEC on March 25, 2011.4.11Fourth Amendment to Letter of Credit Reimbursement Agreement dated April 23, 2010 between Arcos Dorados B.V. and Credit Suisse AG,Cayman Islands Branch, incorporated herein by reference to Exhibit 10.9 to the Company’s Registration Statement on Form F-1 (File No.333-173063) filed with the SEC on March 25, 2011.4.12ISDA Schedule to the 2002 Master Agreement dated as of December 14, 2009 between Morgan Stanley & Co. International plc and ArcosDorados B.V., incorporated herein by reference to Exhibit 10.16 to the Company’s Registration Statement on Form F-1(File No. 333-173063) filed with the SEC on March 25, 2011.4.13ISDA Schedule to the 2002 Master Agreement dated as of December 14, 2009 between JPMorgan Chase Bank, N.A. and Arcos DoradosB.V., incorporated herein by reference to Exhibit 10.19 to the Company’s Registration Statement on Form F-1 (File No. 333-173063) filedwith the SEC on March 25, 2011 .4.14Credit Support Annex to the Schedule to the Master Agreement dated as of December 14, 2009 between JPMorgan Chase Bank, N.A. andArcos Dorados B.V., incorporated herein by reference to Exhibit 10.20 to the Company’s Registration Statement on Form F-1 (File No. 333-173063) filed with the SEC on March 25, 2011.4.15Equity Incentive Plan, incorporated herein by reference to Exhibit 10.23 to the Company’s Registration Statement on Form F-1 (File No.333-173063) filed with the SEC on March 25, 2011.4.16Amendment No. 2 to the Amended and Restated Master Franchise Agreement for McDonald’s Restaurants in All of the Territories, exceptBrazil, incorporated herein by reference to Exhibit 10.17 to the Company’s Registration Statement on Form F-1 (File No. 333-177210) filedwith the SEC on October 7, 2011.4.17ISDA Master Agreement dated as of April 20, 2012 between Bank of America, N.A. and Arcos Dorados Holdings Inc., incorporated hereinby reference to Exhibit 4.19 to the Company’s Annual Report on Form 20-F for the year ended December 31, 2012 filed with the SEC onApril 26, 2013.4.18ISDA Schedule to the 2012 Master Agreement dated as of April 20, 2012 between Bank of America, N.A. and Arcos Dorados Holdings Inc.,incorporated herein by reference to Exhibit 4.20 to the Company’s Annual Report on Form 20-F for the year ended December 31, 2012 filedwith the SEC on April 26, 2013.4.19Guarantee dated as of April 20, 2012 of Arcos Dourados Comercio de Alimentos Ltda. in favor of Bank of America, N.A. in connection withthe ISDA Master Agreement and Schedule thereto, each dated as of April 20, 2012, and any confirmations thereunder, incorporated herein byreference to Exhibit 4.21 to the Company’s Annual Report on Form 20-F for the year ended December 31, 2012 filed with the SEC on April26, 2013.4.20Confirmation dated June 8, 2012 between Arcos Dorados Holdings Inc. and Bank of America, N.A., incorporated herein by reference toExhibit 4.22 to the Company’s Annual Report on Form 20-F for the year ended December 31, 2012 filed with the SEC on April 26, 2013.4.21Credit Agreement dated as of August 3, 2011 among Arcos Dorados B.V., as borrower, certain subsidiaries of the borrower, as guarantors,and Bank of America, N.A., as lender, incorporated herein by reference to Exhibit 4.23 to the Company’s Annual Report on Form 20-F forthe year ended December 31, 2012 filed with the SEC on April 26, 2013.4.22First Amendment to Credit Agreement dated as of August 3, 2012 among Arcos Dorados B.V., as borrower, certain subsidiaries of theborrower, as guarantors, and Bank of America, N.A., as lender, incorporated herein by reference to Exhibit 4.24 to the Company’s AnnualReport on Form 20-F for the year ended December 31, 2012 filed with the SEC on April 26, 2013. 131 Table of Contents Exhibit No.Description4.23Second Amendment to Credit Agreement dated as of August 2, 2013 among Arcos Dorados B.V., as borrower, certain subsidiaries of theborrower, as guarantors, and Bank of America, N.A., as lender, incorporated herein by reference to Exhibit 4.26 to the Company’s AnnualReport on Form 20-F for the year ended December 31, 2013 filed with the SEC on April 28, 2014.4.24Third Amendment to Credit Agreement dated as of July 28, 2014 among Arcos Dorados B.V., as borrower, certain subsidiaries of theborrower, as guarantors, and Bank of America, N.A., as lender, incorporated herein by reference to Exhibit 4.31 to the Company’s AnnualReport on Form 20-F for the year ended December 31, 2014 filed with the SEC on April 29, 2015.4.25Fourth Amendment to Credit Agreement dated as of July 30, 2015 among Arcos Dorados B.V., as borrower, certain subsidiaries of theborrower, as guarantors, and Bank of America, N.A., as lender, incorporated herein by reference to Exhibit 4.25 to the Company’s AnnualReport on Form 20-F for the year ended December 31, 2015 filed with the SEC on April 29, 2016.4.26Waiver and Fifth Amendment to Credit Agreement dated as of March 16, 2016 among Arcos Dorados B.V., as borrower, certain subsidiariesof the borrower, as guarantors, and Bank of America, N.A., as lender, incorporated herein by reference to Exhibit 4.26 to the Company’sAnnual Report on Form 20-F for the year ended December 31, 2015 filed with the SEC on April 29, 2016.4.27Sixth Amendment to Credit Agreement dated as of August 1, 2016 among Arcos Dorados B.V., as borrower, certain subsidiaries of theborrower, as guarantors, and Bank of America, N.A., as lender, incorporated herein by reference to Exhibit 4.27 to the Company’s AnnualReport on Form 20-F for the year ended December 31, 2016 filed with the SEC on April 27, 2017.4.28*Seventh Amendment to Credit Agreement dated as of August 1, 2017 among Arcos Dorados B.V., as borrower, as guarantors, and Bank ofAmerica, N.A., as lender.4.29Credit Agreement dated as of November 10, 2016 among Arcos Dorados B.V., as borrower, certain subsidiaries of the borrower, asguarantors and JPMorgan Chase Bank, N.A., as lender, incorporated herein by reference to Exhibit 4.28 to the Company’s Annual Report onForm 20-F for the year ended December 31, 2016 filed with the SEC on April 27, 2017.4.30*First Amendment to Credit Agreement dated as of November 1, 2017 among Arcos Dorados B.V., as borrower, certain subsidiaries of theborrower, as guarantors and JPMorgan Chase Bank, N.A., as lender.8.1*List of subsidiaries.12.1*Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.12.2*Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.13.1*Certification of the Chief Executive Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and Section 1350 of Chapter63 of Title 18 of the United States Code.13.2*Certification of the Chief Financial Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and Section 1350 of Chapter63 of Title 18 of the United States Code.15.1*Consent of Pistrelli, Henry Martin y Asociados S.R.L., member firm of Ernst & Young Global, independent registered public accountingfirm.101.INS**XBRL Instance Document101.SCH**XBRL Taxonomy Extension Schema Document101.CAL**XBRL Taxonomy Extension Calculation Linkbase Document101.DEF**XBRL Taxonomy Extension Definition Linkbase Document101.LAB**XBRL Taxonomy Extension Label Linkbase Document101.PRE**XBRL Taxonomy Extension Presentation Linkbase Document*Filed with this Annual Report on Form 20-F.**In accordance with Rule 402 of Regulation S-T, the information in these exhibits shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject tothe liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act or the Exchange Act, except as shallbe expressly set forth by specific reference in such filing. 132 Table of Contents SIGNATURES The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to signthis annual report on its behalf. Arcos Dorados Holdings Inc. By:/s/ Mariano Tannenbaum Name: Mariano Tannenbaum Title: Chief Financial Officer Date: April 27, 2018 133 Arcos Dorados Holdings Inc. Consolidated Financial Statements As of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017 F - 1 Table of Contents INDEX TO FINANCIAL STATEMENTS Audited Consolidated Financial Statements – Arcos Dorados Holdings Inc. Report of Independent Registered Public Accounting FirmF-3Consolidated Statements of Income (Loss) for the fiscal years ended December 31, 2017, 2016 and 2015F- 4Consolidated Statements of Comprehensive Income (Loss) for the fiscal years ended December 31, 2017, 2016 and 2015F- 5Consolidated Statements of Balance Sheet as of December 31, 2017 and 2016F- 6Consolidated Statements of Cash Flows for the fiscal years ended December 31, 2017, 2016 and 2015F- 7Consolidated Statements of Changes in Equity for the fiscal years ended December 31, 2017, 2016 and 2015F- 8Notes to the Consolidated Financial Statements as of December 31, 2017 and 2016 and for each of the three years in the period ended December 31,2017F- 9 F - 2 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders ofARCOS DORADOS HOLDINGS INC.: Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Arcos Dorados Holdings Inc. (the “Company”) as of December 31, 2017 and 2016,and the related consolidated statements of income (loss), comprehensive income (loss), changes in equity and cash flows for each of the three years in the periodended December 31, 2017 and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in allmaterial respects, the consolidated financial position of the Company at December 31, 2017 and 2016, and the consolidated results of its operations and its cashflows for each of the three years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company'sinternal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework issued by the Committeeof Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 21, 2018, expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financialstatements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company inaccordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures toassess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Suchprocedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating theaccounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believethat our audits provide a reasonable basis for our opinion. /s/ Pistrelli, Henry Martin y Asociados S.R.L. PISTRELLI, HENRY MARTIN Y ASOCIADOS S.R.L. Member of Ernst & Young Global We have served as the Company’s auditor since 2007 Buenos Aires, ArgentinaMarch 21, 2018 F - 3 Table of Contents Arcos Dorados Holdings Inc. Consolidated Statements of Income (Loss)For the fiscal years ended December 31, 2017, 2016 and 2015Amounts in thousands of US dollars, except for share data and as otherwise indicated REVENUES 2017 2016 2015Sales by Company-operated restaurants $3,162,256 $2,803,334 $2,930,379 Revenues from franchised restaurants 157,269 125,296 122,361 Total revenues 3,319,525 2,928,630 3,052,740 OPERATING COSTS AND EXPENSES Company-operated restaurant expenses: Food and paper (1,110,240) (1,012,976) (1,037,487)Payroll and employee benefits (683,954) (607,082) (660,773)Occupancy and other operating expenses (842,519) (752,428) (793,622)Royalty fees (163,954) (142,777) (149,089)Franchised restaurants – occupancy expenses (69,836) (55,098) (54,242)General and administrative expenses (244,664) (221,075) (270,680)Other operating income, net 68,577 41,386 6,560 Total operating costs and expenses (3,046,590) (2,750,050) (2,959,333)Operating income 272,935 178,580 93,407 Net interest expense (68,357) (66,880) (64,407)Loss from derivative instruments (7,065) (3,065) (2,894)Foreign currency exchange results (14,265) 32,354 (54,032)Other non-operating expenses, net (435) (2,360) (627)Income (loss) before income taxes 182,813 138,629 (28,553)Income tax expense (53,314) (59,641) (22,816)Net income (loss) 129,499 78,988 (51,369)Less: Net income attributable to non-controlling interests (333) (178) (264)Net income (loss) attributable to Arcos Dorados Holdings Inc. $129,166 $78,810 $(51,633) Earnings (loss) per share information: Basic net income (loss) per common share attributable to Arcos Dorados Holdings Inc. $0.61 $0.37 $(0.25)Diluted net income (loss) per common share attributable to Arcos Dorados Holdings Inc. 0.61 0.37 (0.25) See Notes to the Consolidated Financial Statements. F - 4 Table of Contents Arcos Dorados Holdings Inc. Consolidated Statements of Comprehensive Income (Loss)For the fiscal years ended December 31, 2017, 2016 and 2015Amounts in thousands of US dollars 2017 2016 2015Net income (loss) $129,499 $78,988 $(51,369) Other comprehensive income (loss), net of tax: Foreign currency translation 4,783 (9,929) (128,492)Post-employment benefits: Loss recognized in accumulated other comprehensive income (loss) (938) (310) (213) Reclassification of loss to consolidated statement of income (loss) 386 386 440 Post-employment (expenses) benefits (net of $272, $39 and $120 of deferred income taxes) (552) 76 227 Cash flow hedges: Net gains (loss) recognized in accumulated other comprehensive loss 6,462 (18,813) 20,487 Reclassification of net loss (gain) to consolidated statement of income (loss) 1,592 11,242 (14,209)Cash flow hedges (net of $3,938, $nil and $nil of income taxes) 8,054 (7,571) 6,278 Total other comprehensive income (loss) 12,285 (17,424) (121,987)Comprehensive income (loss) 141,784 61,564 (173,356)Less: Comprehensive income attributable to non-controlling interests (316) (140) (73)Comprehensive income (loss) attributable to Arcos Dorados Holdings Inc. $141,468 $61,424 $(173,429) See Notes to the Consolidated Financial Statements. F - 5 Table of Contents Arcos Dorados Holdings Inc. Consolidated Statements of Balance SheetAs of December 31, 2017 and 2016Amounts in thousands of US dollars, except for share data and as otherwise indicated ASSETS 2017 2016Current assets Cash and cash equivalents $308,491 $194,803 Short-term investment 19,588 — Accounts and notes receivable, net 111,302 83,239 Other receivables 36,310 28,841 Inventories 82,735 48,915 Prepaid expenses and other current assets 94,204 87,643 McDonald’s Corporation’s indemnification for contingencies 407 1,749 Total current assets 653,037 445,190 Non-current assets Miscellaneous 98,291 89,661 Collateral deposits 2,500 5,325 Property and equipment, net 890,736 847,966 Net intangible assets and goodwill 47,729 43,044 Deferred income taxes 74,299 70,446 Derivative instruments 35,069 — McDonald’s Corporation’s indemnification for contingencies 2,082 3,421 Total non-current assets 1,150,706 1,059,863 Total assets $1,803,743 $1,505,053 LIABILITIES AND EQUITY Current liabilities Accounts payable $303,452 $217,914 Royalties payable to McDonald’s Corporation 13,729 17,585 Income taxes payable 54,592 38,912 Other taxes payable 82,326 73,681 Accrued payroll and other liabilities 119,088 144,442 Provision for contingencies 2,529 764 Interest payable 9,986 7,035 Current portion of long-term debt 4,359 28,099 Derivative instruments 15,522 19,876 Total current liabilities 605,583 548,308 Non-current liabilities Accrued payroll and other liabilities 29,366 23,760 Provision for contingencies 25,427 17,348 Long-term debt, excluding current portion 629,142 551,580 Derivative instruments 7,506 10,615 Deferred income taxes 10,577 1,866 Total non-current liabilities 702,018 605,169 Total liabilities $1,307,601 $1,153,477 Equity Class A shares - no par value common stock; 420,000,000 shares authorized; 131,072,508 shares issued and outstandingat December 31, 2017; 130,711,224 shares issued and outstanding at December 31, 2016 376,732 373,969 Class B shares - no par value common stock; 80,000,000 shares authorized, issued and outstanding at December 31,2017 and 2016 132,915 132,915 Additional paid-in capital 14,216 13,788 Retained earnings 401,134 271,968 Accumulated other comprehensive losses (429,347) (441,649)Total Arcos Dorados Holdings Inc. shareholders’ equity 495,650 350,991 Non-controlling interests in subsidiaries 492 585 Total equity 496,142 351,576 Total liabilities and equity $1,803,743 $1,505,053 See Notes to the Consolidated Financial Statements. F - 6 Table of Contents Arcos Dorados Holdings Inc. Consolidated Statements of Cash FlowsFor the fiscal years ended December 31, 2017, 2016 and 2015Amounts in thousands of US dollars 2017 2016 2015Operating activities Net income (loss) attributable to Arcos Dorados Holdings Inc. $129,166 $78,810 $(51,633)Adjustments to reconcile net income (loss) attributable to Arcos Dorados Holdings Inc. to cashprovided by operations: Non-cash charges and credits: Depreciation and amortization 99,382 92,969 110,715 Loss from derivative instruments 7,065 3,065 2,894 Amortization and accrual of letter of credit fees and deferred financing costs 3,433 3,974 3,982 Gain of property and equipment sales (93,122) (55,163) (10,942)Deferred income taxes 1,731 5,499 (9,057)Foreign currency exchange results 20,366 (33,348) 23,239 Accrued net share-based compensation expense 4,216 3,558 4,082 Impairment of long-lived assets and goodwill 17,764 12,742 13,022 Write-offs and related contingencies of property and equipment 8,528 5,776 6,038 Gain on Sales of restaurants businesses (14,742) (16,549) (3,390)Others, net 6,305 6,637 7,156 Changes in assets and liabilities: Accounts payable 102,660 35,815 25,020 Accounts and notes receivable and other receivables (50,211) (32,604) 2,369 Inventories, prepaid and other assets (53,466) 26,763 (45,900)Income taxes payable 18,946 9,480 15,786 Other taxes payable 12.672 8,180 (2,568)Interest payable 2,942 (9,533) (3,746)Accrued payroll and other liabilities and provision for contingencies 35,075 15,412 24,195 Others (3,540) 2,706 1,427 Net cash provided by operating activities 255,170 164,189 112,689 Investing activities Property and equipment expenditures (174,766) (92,282) (90,964)Purchases of restaurant businesses paid at acquisition date (870) — (1,091)Proceeds from sale of property and equipment and related advances 61,983 88,380 19,738 Proceeds from sales of restaurant businesses and related advances 10,407 25,090 3,861 Acquisitions of short-term investments (19,588) — — Loans collected from related parties — 1,800 9,702 Other investing activity (1,646) 30 (1,361)Net cash (used in) provided by investing activities (124,480) 23,018 (60,115)Financing activities Issuance of 2027 Notes 265,000 — — (Repayment of) / proceeds from secured loan agreement (169,511) 167,262 — Purchase of 2023 Notes (48,885) (80,800) — Net (payment) collection of derivative instruments (40,822) (6,268) 19,817 Dividend payments to Arcos Dorados Holdings Inc.’ shareholders — — (12,509)Purchase and repayment of 2016 Notes — (181,156) (11,710)Net short-term borrowings — (2,488) (29,043)Other financing activities (9,135) (9,545) (8,818)Net cash used in financing activities (3,353) (112,995) (42,263)Effect of exchange rate changes on cash and cash equivalents (13,649) 8,072 (36,822)Increase (decrease) in cash and cash equivalents 113,688 82,284 (26,511)Cash and cash equivalents at the beginning of the year 194,803 112,519 139,030 Cash and cash equivalents at the end of the year $308,491 $194,803 $112,519 Supplemental cash flow information: Cash paid during the year for: Interest $53,206 $76,605 $64,229 Income tax 24,112 39,135 11,191 Non-cash investing and financing activities: Seller financing pending of payment and settlement of franchise receivables related to purchases ofrestaurant businesses 36 — 2,113 Exchange of assets 6,721 2,150 — See Notes to the Consolidated Financial Statements. F - 7 Table of Contents Arcos Dorados Holdings Inc. Consolidated Statements of Changes in EquityFor the fiscal years ended December 31, 2017, 2016 and 2015Amounts in thousands of US dollars, except for share data and as otherwise indicated Arcos Dorados Holdings Inc.’ Shareholders Class A shares of commonstock Class B shares of commonstock Additionalpaid-incapital Retainedearnings Accumulatedothercomprehensiveloss Total Non-controllinginterests Total Number Amount Number Amount Balances atDecember 31,2014 130,216,043 365,701 80,000,000 132,915 15,974 244,791 (302,467) 456,914 673 457,587 Net income for theyear — — — — — (51,633) — (51,633) 264 (51,369)Othercomprehensiveloss — — — — — — (121,796) (121,796) (191) (121,987)Dividends to ArcosDorados HoldingsInc.’s shareholders($0.24 per share) — — — — — — — — — — Issuance of sharesin connectionwith the partialvesting ofoutstandingrestricted shareunits under the2011 EquityIncentive Plan 322,853 6,156 — — (6,156) — — — — — Stock-basedcompensationrelated to the2011 EquityIncentive Plan — — — — 2,788 — — 2,788 — 2,788 Dividends to non-controllinginterests — — — — — — — — (129) (129)Balances atDecember 31,2015 130,538,896 371,857 80,000,000 132,915 12,606 193,158 (424,263) 286,273 617 286,890 Net loss for theyear — — — — — 78,810 — 78,810 178 78,988 Othercomprehensiveloss — — — — — — (17,386) (17,386) (38) (17,424)Issuance of sharesin connectionwith the partialvesting ofoutstandingrestricted shareunits under the2011 EquityIncentive Plan 172,328 2,112 — — (2,112) — — — — — Stock-basedcompensationrelated to the2011 EquityIncentive Plan — — — — 3,294 — — 3,294 — 3,294 Dividends to non-controllinginterests — — — — — — — — (172) (172)Balances atDecember 31,2016 130,711,224 373,969 80,000,000 132,915 13,788 271,968 (441,649) 350,991 585 351,576 Net income for theyear — — — — — 129,166 — 129,166 333 129,499 Othercomprehensiveincome — — — — — — 12,302 12,302 (17) 12,285 Issuance of sharesin connectionwith the partialvesting ofoutstandingrestricted shareunits under the2011 EquityIncentive Plan 361,284 2,763 — — (2,763) — — — — — Stock-basedcompensationrelated to the2011 EquityIncentive Plan — — — — 3,191 — — 3,191 — 3,191 Portion of non-controllinginterests related tobusiness sold — — — — — — — — (108) (108)Dividends to non-controllinginterests — — — — — — — — (301) (301)Balances atDecember 31,2017 131,072,508 376,732 80,000,000 132,915 14,216 401,134 (429,347) 495,650 492 496,142 See Notes to the Consolidated Financial Statements. F - 8 Table of Contents Arcos Dorados Holdings Inc.Notes to the Consolidated Financial StatementsAs of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017Amounts 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. TheCompany’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% equityinterest 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 FranchiseAgreements (“MFAs”) with McDonald’s Corporation pursuant to which the Company completed the acquisition of the McDonald’s business in Latin America andthe Caribbean (“LatAm business”). See Note 4 for details. Prior to this acquisition, the Company did not carry out operations. The Company’s rights to operate andfranchise McDonald’s-branded restaurants in the Territories, and therefore the ability to conduct the business, derive exclusively from the rights granted byMcDonald’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 hasexercised 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 serviceindustry. 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) andVenezuela. 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 consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United Statesof America (“US GAAP”) and include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have beeneliminated in consolidation. The Company has elected to report its consolidated financial statements in United States dollars (“$” or “US dollars”). Reclassifications Certain reclassifications have been made from "Occupancy and other operating expenses" to "Payroll and employee benefits" in the Company'sconsolidated statements of income (loss), totaling $44,415, to the prior year information to conform to the current year presentation, for the fiscal year endedDecember, 31, 2015. 3.Summary of significant accounting policies The following is a summary of significant accounting policies followed by the Company in the preparation of the consolidated financial statements. F - 9 Table of Contents Arcos Dorados Holdings Inc.Notes to the Consolidated Financial StatementsAs of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017Amounts in thousands of US dollars, except for share data and as otherwise indicated 3 .Summary of significant accounting policies (continued) Use of estimates The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to makeestimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financialstatements 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 CurrencyMatters. Except for the Company’s Venezuelan operations, the functional currencies of the Company’s foreign operating subsidiaries are the local currencies of thecountries in which they conduct their operations. Therefore, assets and liabilities are translated into US dollars at the balance sheet date exchange rates, andrevenues, expenses and cash flow are translated at average rates prevailing during the periods. Translation adjustments are included in the “Accumulated othercomprehensive losses” component of shareholders’ equity. The Company includes foreign currency exchange results related to monetary assets and liabilitiestransactions, including intercompany transactions, denominated in currencies other than its functional currencies in its income (loss) statement. Since January 1, 2010, Venezuela has considered to be highly inflationary, and as such, the financial statements of the Company’s Venezuelansubsidiaries are remeasured as its functional currency was the reporting currency (US dollars). As a result, remeasurement gains and losses are recognized inearnings rather than in the cumulative translation adjustment, component of “Accumulated other comprehensive losses” within shareholders’ equity. See Note 22 for additional information pertaining to the Company’s Venezuelan operations, including currency restrictions and controls existing in thecountry and a discussion of the exchange rate used for remeasurement purposes. Cash and cash equivalents The Company considers all highly liquid investments with an original maturity of three months or less, from the date of purchase, to be cash equivalents. Revenue recognition The Company’s revenues consist of sales by Company-operated restaurants and revenues from restaurants operated by franchisees. Sales by Company-operated restaurants are recognized at the point of sale. The Company presents sales net of sales tax and other sales-related taxes. Revenues from restaurantsoperated by franchisees include rental income, initial franchise fees and royalty income. Rental income is measured on a monthly basis based on the greater of afixed rent, computed on a straight-line basis, or a certain percentage of gross sales reported by franchisees. Initial franchise fees represent the difference betweenthe amount the Company collects from the franchisee and the amount the Company pays to McDonald’s Corporation upon the opening of a new restaurant.Royalty income represents the difference, if any, between the amount the Company collects from the franchisee and the amount the Company is required to pay toMcDonald’s Corporation. Royalty income is recognized in the period earned. F - 10 Table of Contents Arcos Dorados Holdings Inc.Notes to the Consolidated Financial StatementsAs of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017Amounts in thousands of US dollars, except for share data and as otherwise indicated 3 .Summary of significant accounting policies (continued) Accounts and notes receivable and allowance for doubtful accounts Accounts receivable primarily consist of royalty and rent receivables due from franchisees and debit and credit card receivables. Accounts receivable areinitially recorded at fair value and do not bear interest. Notes receivable relates to interest-bearing financing granted to certain franchisees in connection with theacquisition of equipment and third-party suppliers. The Company maintains an allowance for doubtful accounts in an amount that it considers sufficient to coverlosses resulting from the inability of its franchisees to make required payments. In judging the adequacy of the allowance for doubtful accounts, the Companyconsiders multiple factors including historical bad debt experience, the current economic environment and the aging of the receivables. Other receivables Other receivables primarily consist of value-added tax and other tax receivables (amounting to $16,215 and $15,089 as of December 31, 2017 and 2016,respectively). Other receivables are reported at the amount expected to be collected. Inventories Inventories are stated at the lower of cost or market, with cost being determined on a first-in, first-out basis. Property and equipment, net Property and equipment are stated at cost, net of accumulated depreciation. Property costs include costs of land and building for both company-operatedand franchise restaurants while equipment costs primarily relate to company-operated restaurants. Cost of property and equipment acquired from McDonald’sCorporation (as part of the acquisition of LatAm business) was determined based on its estimated fair market value at the acquisition date, then partially reduced bythe allocation of the negative goodwill that resulted from the purchase price allocation. Cost of property and equipment acquired or constructed after the acquisitionof LatAm business in connection with the Company’s restaurant reimaging and extension program is comprised of acquisition and construction costs andcapitalized internal costs. Capitalized internal costs include payroll expenses related to employees fully dedicated to restaurant construction projects and relatedtravel expenses. Capitalized payroll costs are allocated to each new restaurant location based on the actual time spent on each project. The Company commencescapitalizing costs related to construction projects when it becomes probable that the project will be developed – when the site has been identified and the relatedprofitability assessment has been approved. Maintenance and repairs are expensed as incurred. Accumulated depreciation is calculated using the straight-linemethod over the following estimated useful lives: buildings – up to 40 years; leasehold improvements – the lesser of useful lives of assets or lease terms whichgenerally include option periods; and equipment 3 to 12 years. Intangible assets, net Intangible assets include computer software costs, initial franchise fees, reacquired rights under franchise agreements, letter of credit fees and others. The Company follows the provisions of ASC 350-40-30 within ASC 350 Intangibles, Subtopic 40 Internal Use Software which requires the capitalizationof costs incurred in connection with developing or obtaining software for internal use. These costs are amortized over a period of three years on a straight linebasis. F - 11 Table of Contents Arcos Dorados Holdings Inc.Notes to the Consolidated Financial StatementsAs of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017Amounts in thousands of US dollars, except for share data and as otherwise indicated 3 .Summary of significant accounting policies (continued) Intangible assets, net (continued) The Company is required to pay to McDonald’s Corporation an initial franchisee fee upon opening of a new restaurant. The initial franchise fee related toCompany-operated restaurants is capitalized as an intangible asset and amortized on a straight-line basis over the term of the franchise. A reacquired franchise right is recognized as an intangible asset as part of the business combination in the acquisition of franchised restaurants apart fromgoodwill with an assigned amortizable life limited to the remaining contractual term (i.e., not including any renewal periods). The value assigned to the reacquiredfranchise right excludes any amounts recognized as a settlement gain or loss and is limited to the value associated with the remaining contractual term andoperating conditions for the acquired restaurants. The reacquired franchise right is measured using a valuation technique that considers restaurant's cash flows afterpayment of an at-market royalty rate to the Company. The cash flows are projected for the remaining contractual term, regardless of whether market participantswould consider potential contractual renewals in determining its fair value. Letter of credit fees are amortized on a straight-line basis over the term of the Letter of Credit. Impairment and disposal of long-lived assets In accordance with the guidance within ASC 360-10-35, the Company reviews long-lived assets for impairment whenever events or changes incircumstances indicate the carrying value of the asset may not be recoverable. For purposes of reviewing assets for potential impairment, assets are grouped at acountry level for each of the operating markets. The Company manages its restaurants as a group or portfolio with significant common costs and promotionalactivities; as such, each restaurant’s cash flows are not largely independent of the cash flows of others in a market. If an indicator of impairment exists for anygrouping of assets, an estimate of undiscounted future cash flows produced by each individual restaurant within the asset grouping is compared to its carryingvalue. If an individual restaurant is determined to be impaired, the loss is measured by the excess of the carrying amount of the restaurant over its fair valueconsidering its highest and best use, as determined by an estimate of discounted future cash flows or its market value. During March 2015, the Company performed an impairment testing of its long-lived assets in Venezuela considering the operating losses incurred in thismarket as a consequence of the Company’s currency exchange rate changes (indicator of potential impairment), as mentioned in Note 22. As a result of thisanalysis, the Company recorded impairment charges of $7,804 during the fiscal year 2015, primarily associated to an advanced payment for a real estate givenduring the fourth quarter of 2013, using a fair market value approach. The impairment charges also included certain restaurants with undiscounted future cashflows insufficient to recover their carrying value. In the fourth quarter of 2017, 2016 and 2015, the Company assessed all markets for impairment indicators. As a result of these assessments, the Company concluded the second step was required to be performed as a component of the impairment testing of itslong-lived assets in the following markets on a per store basis: F - 12 Table of Contents Arcos Dorados Holdings Inc.Notes to the Consolidated Financial StatementsAs of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017Amounts in thousands of US dollars, except for share data and as otherwise indicated 3 .Summary of significant accounting policies (continued) Impairment and disposal of long-lived assets (continued) 2017 2016 2015Puerto Rico Yes Yes YesMexico Yes Yes YesPeru Yes Yes YesAruba Yes Yes YesCuracao No No YesUSVI Yes Yes YesVenezuela Yes Yes YesColombia Yes Yes YesEcuador Yes Yes YesTrinidad and Tobago Yes Yes No As a result of the impairment testing the Company recorded the following impairment charges, for the markets indicated below, within Other operatingincome, net on the Statements of Income (loss): Fiscal year Markets Total 2017 Mexico, Puerto Rico, USVI, Peru, Ecuador, Colombia, Venezuela and Trinidad and Tobago $17,564 2016 Mexico, Puerto Rico, USVI, Peru, Ecuador, Venezuela and Trinidad and Tobago 7,697 2015 Mexico, Peru, Colombia and Venezuela 12,343 Goodwill Goodwill represents the excess of cost over the estimated fair market value of net tangible assets and identifiable intangible assets acquired. In accordancewith the guidance within ASC 350 Intangibles-Goodwill and Other, goodwill is stated at cost and reviewed for impairment on an annual basis. The annualimpairment test is performed during the fourth quarter of the fiscal year and compares the fair value of each reporting unit, generally based on discounted futurecash flows, with its carrying amount including goodwill. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss is measured as thedifference between the implied fair value of the reporting unit’s goodwill and the carrying amount of goodwill. In assessing the recoverability of the goodwill, the Company considers changes in economic conditions and makes assumptions regarding estimatedfuture cash flows and other factors. Estimates of future cash flows are highly subjective judgments based on the Company’s experience and knowledge of itsoperations. These estimates can be significantly impacted by many factors including changes in global and local business and economic conditions, operating costs,inflation, competition, and consumer and demographic trends. As a result of the analyses performed the Company recorded the following impairment charges, related to goodwill generated in the acquisition offranchised restaurants, for the markets indicated below within Other operating income, net on the statements of income (loss): F - 13 Table of Contents Arcos Dorados Holdings Inc.Notes to the Consolidated Financial StatementsAs of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017Amounts in thousands of US dollars, except for share data and as otherwise indicated 3 .Summary of significant accounting policies (continued) Goodwill (continued) Fiscal year Markets Total 2017 Mexico $200 2016 Mexico 5,045 2015 Argentina 679 Advertising costs Advertising costs are expensed as incurred. Advertising expenses related to Company-operated restaurants were $130,277, $117,250 and $122,920 in2017, 2016 and 2015, respectively. Advertising expenses related to franchised operations do not affect the Company’s expenses since these are recovered fromfranchisees. Advertising expenses related to franchised operations were $46,536, $36,374 and $35,131 in 2017, 2016 and 2015, respectively. Accounting for income taxes The Company records deferred income taxes using the liability method. Deferred tax assets and liabilities are recognized for the future tax consequencesattributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The guidance requirescompanies to set up a valuation allowance for that component of net deferred tax assets which does not meet the more likely than not criterion for realization. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporarydifferences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period thatincludes the enactment date. The Company is regularly audited by tax authorities, and tax assessments may arise several years after tax returns have been filed. Accordingly, taxliabilities are recorded when, in management’s judgment, a tax position does not meet the more likely than not threshold for recognition. For tax positions thatmeet the more likely than not threshold, a tax liability may be recorded depending on management’s assessment of how the tax position will ultimately be settled.The Company records interest and penalties on unrecognized tax benefits in the provision for income taxes. Accounts payable outsourcing The Company offers its suppliers access to an accounts payable services arrangement provided by third party financial institutions. This service allows theCompany’s suppliers to view its scheduled payments online, enabling them to better manage their cash flow and reduce payment processing costs. Independent ofthe Company, the financial institutions also allow suppliers to sell their receivables to the financial institutions in an arrangement separately negotiated by thesupplier and the financial institution. The Company has no economic interest in the sale of these receivables and no direct relationship with the financialinstitutions concerning the sale of receivables. All of the Company’s obligations, including amounts due, remain to the Company’s suppliers as stated in thesupplier agreements. As of December 31, 2017 and 2016, $2,117 and $2,241, respectively, of the Company’s total accounts payable are available for this purposeand have been sold by suppliers to participating financial institutions. F - 14 Table of Contents Arcos Dorados Holdings Inc.Notes to the Consolidated Financial StatementsAs of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017Amounts in thousands of US dollars, except for share data and as otherwise indicated 3 .Summary of significant accounting policies (continued) Share-based compensation The Company recognizes compensation expense as services required to earn the benefits are rendered. See Note 17 for details of the outstanding plansand the related accounting policies. Derivative financial instruments The Company utilizes certain hedge instruments to manage its interest rate and foreign currency rate exposures. The counterparties to these instrumentsgenerally are major financial institutions. The Company does not hold or issue derivative instruments for trading purposes. In entering into these contracts, theCompany assumes the risk that might arise from the possible inability of counterparties to meet the terms of their contracts. The Company does not expect anylosses as a result of counterparty defaults. All derivatives are recognized as either assets or liabilities in the balance sheets and are measured at fair value.Additionally, the fair value adjustments will affect either shareholders’ equity as accumulated other comprehensive income (loss) or net income (loss) dependingon whether the derivative instrument qualifies as a hedge for accounting purposes and, if so, the nature of the hedging activity. Severance payments Under certain laws and labor agreements of the countries in which the Company operates, the Company is required to make minimum severancepayments to employees who are dismissed without cause and employees leaving its employment in certain other circumstances. The Company accrues severancecosts if they relate to services already rendered, are related to rights that accumulate or vest, are probable of payment and can be reasonably estimated. Otherwise,severance payments are expensed as incurred. Provision for contingencies The Company accrues liabilities when it is probable that future costs will be incurred and such costs can be reasonably estimated. Such accruals are basedon developments to date, the Company’s estimates of the outcomes of these matters and the Company’s lawyers’ experience in contesting, litigating and settlingother matters. As the scope of the liabilities becomes better defined, there may be changes in the estimates of future costs. See Note 18 for details. Comprehensive income (loss) Comprehensive income (loss) includes net income as currently reported under generally accepted accounting principles and also includes the impact ofother events and circumstances from non-owner sources which are recorded as a separate component of shareholders’ equity. The Company reports foreigncurrency translation gains and losses, unrealized results on cash flow hedges as well as unrecognized post-retirement benefits as components of comprehensiveincome (loss). Sales of property and equipment and restaurant businesses The Company recognizes the sale of property and equipment when: (a) the profit is determinable, that is, the collectibility of the sales price is reasonablyassured or the amount that will not be collectible can be estimated, and (b) the earnings process is virtually complete, that is, the Company is not obliged toperform significant activities after the sale to earn the profit. The sale of restaurant businesses is recognized when the Company transfers substantially all of therisks and rewards of ownership. F - 15 Table of Contents Arcos Dorados Holdings Inc.Notes to the Consolidated Financial StatementsAs of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017Amounts in thousands of US dollars, except for share data and as otherwise indicated 3 .Summary of significant accounting policies (continued) Sales of property and equipment and restaurant businesses (continued) In order to determine the gain or loss on the disposal, the goodwill associated with the sold of property and equipment and restaurant business, if any, isconsidered within the carrying value. The amount of goodwill to be included in that carrying amount is based on the relative fair value of the item to be disposedand the portion of the reporting unit that will be retained. During fiscal years 2017, 2016 and 2015, the Company recorded results from sales of property and equipment and restaurant businesses, amounting to$107,867, $71,712 and $14,332, respectively, included within “Other operating income (expenses), net”. The sales performed during fiscal years 2017 and 2016,were primarily related to the redevelopment of certain real estate assets and restaurant businesses, related to the refranchising of a number of company-operatedrestaurants. In addition, as of December 31, 2016, the Company received advances related to the redevelopment of certain real estate assets and restaurant businessesplan for which the sales had not met the aforementioned conditions, amounting to $34,341, recorded within the current portion of “Accrued payroll and otherLiabilities”. Recent accounting pronouncements In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (ASC 606), “Revenue Recognition - Revenue from Contracts withCustomers,” which amends the guidance in former ASC 605, “Revenue Recognition,” and becomes effective beginning January 1, 2017. In August 12, 2015, theFASB deferred the effective date to annual reporting periods beginning after December 15, 2017. The standard’s core principle is that a Company must recognizerevenue when it transfers promised goods or services to customers, in an amount that reflects the consideration to which the Company expects to be entitled inexchange for those goods or services. After evaluating the effect of adopting the new standard, the Company concluded that the sole source of revenue affectedwould be the initial franchise fee. The Company's current accounting policy is to recognize it when a new restaurant opens or at the start of a new franchise term,however, in accordance with the new guidance, the initial franchise services are not distinct from the continuing rights or services offered during the term of thefranchise agreement, and will therefore be treated as a single performance obligation. As such, initial franchise fees received will be deferred over the term of thefranchise agreement. The Company will adopt the modified retrospective method as of the date the new guidance become effective. Consequently, a deferredincome of $5 million will be recognized from date of the adoption (January 2018). In addition, in February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which modifies lease accounting for lessees to increasetransparency and comparability by recording a right-of-use asset and lease liability on their balance sheet for operating leases. Entities will need to disclosequalitative and quantitative information about their leases, including characteristics and amounts recognized in the financial statements. This standard is effectivefor annual periods beginning after December 15, 2018, including interim periods. The Company will adopt ASU 2016-02 in its first quarter of 2019 utilizing themodified retrospective transition method and expects to apply the transition practical expedients allowed by the standard. The Company is currently evaluating theimpact this guidance will have on its consolidated financial statements. No other new accounting pronouncement issued or effective during the periods had or is expected to have a material impact on the Company’sconsolidated financial statements. F - 16 Table of Contents Arcos Dorados Holdings Inc.Notes to the Consolidated Financial StatementsAs of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017Amounts in thousands of US dollars, except for share data and as otherwise indicated 4.Acquisition of businesses LatAm Business On August 3, 2007, the Company, indirectly through its wholly-owned subsidiary ADBV, entered into a Stock Purchase Agreement with McDonald’sCorporation pursuant to which the Company completed the acquisition of the McDonald’s business in Latin America and the Caribbean for a final purchase priceof $698,080. The acquisition of the LatAm business was accounted for by the purchase method of accounting and, accordingly, the purchase price was allocated to theassets acquired and liabilities assumed based on the estimated fair values at the date of acquisition. When the fair value of the net assets acquired exceeded thepurchase price, the resulting negative goodwill was allocated to partially reduce the fair value of the non-current assets acquired on a pro-rata basis. In connection with this transaction, ADBV and certain subsidiaries (the “MF subsidiaries”) also entered into 20-year Master Franchise Agreements(“MFAs”) with McDonald’s Corporation which grants to the Company and its MF subsidiaries the following: i.The right to own and operate, directly or indirectly, franchised restaurants in each territory; ii.The right and license to grant sub franchises in each territory; iii.The right to adopt and use, and to grant the right and license to sub franchisees to adopt and use, the system in each territory; iv.The right to advertise to the public that it is a franchisee of McDonald’s; v.The right and license to grant sub franchises and sublicenses of each of the foregoing rights and licenses to each MF subsidiary. The Company is required to pay to McDonald’s Corporation continuing franchise fees (Royalty fees) on a monthly basis. The amount to be paid duringthe first 10 years of the MFAs is equal to 5% of the US dollar equivalent of the gross product sales of each of the franchised restaurants. This percentage increasesto 6% and 7% for the subsequent two 5-year periods of the agreement. Payment of monthly royalties is due on the seventh business day of the next calendar month. Pursuant to the MFAs provisions, McDonald’s Corporation has the right to (a) terminate the MFAs, or (b) exercise a call option over the Company’sshares or any MF subsidiary, if the Company or any MF subsidiary (i) fails to comply with the McDonald’s System (as defined in the MFAs), (ii) files forbankruptcy, (iii) defaults on its financial debt payments, (iv) substantially fails to achieve targeted openings and reinvestments requirements, or (v) upon theoccurrence of any other event of default as defined in the MFAs. Other acquisitions During fiscal years 2017 and 2015, the Company acquired certain franchised restaurants in certain territories. No acquisitions of franchised restaurantwere made during fiscal year 2016. Presented below is supplemental information about these acquisitions: F - 17 Table of Contents Arcos Dorados Holdings Inc.Notes to the Consolidated Financial StatementsAs of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017Amounts in thousands of US dollars, except for share data and as otherwise indicated 4 .Acquisition of businesses (continued) Other acquisitions (continued) Purchases of restaurant businesses: 2017 2016 2015Property and equipment $429 $— $936 Identifiable intangible assets 5,346 — 853 Goodwill 200 — 1,621 Assumed debt — — (206)Gain on purchase of franchised restaurants (4,808) — — Purchase price 1,167 — 3,204 Restaurants sold in exchange (261) — — Settlement of franchise receivables (36) — (2,113)Net cash paid at acquisition date $870 $— $1,091 5 .Accounts and notes receivable, net Accounts and notes receivable, net consist of the following at year end: 2017 2016Receivables from franchisees $67,115 $45,700 Debit and credit card receivables 48,610 40,652 Meal voucher receivables 11,683 11,024 Notes receivable 3,685 2,230 Allowance for doubtful accounts (19,791) (16,367) $111,302 $83,239 6.Prepaid expenses and other current assets Prepaid expenses and other current assets consist of the following at year end: 2017 2016Prepaid taxes $48,076 $52,407 Prepaid expenses 27,478 18,753 Promotion items and prepayments 17,683 12,853 Other 967 3,630 $94,204 $87,643 F - 18 Table of Contents Arcos Dorados Holdings Inc.Notes to the Consolidated Financial StatementsAs of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017Amounts in thousands of US dollars, except for share data and as otherwise indicated 7.Miscellaneous Miscellaneous consist of the following at year end: 2017 2016Judicial deposits $44,854 $35,652 Tax credits 22,402 21,060 Prepaid property and equipment 10,317 13,279 Notes receivable 4,406 4,509 Rent deposits 3,273 4,471 Other 13,039 10,690 98,291 89,661 8.Property and equipment, net Property and equipment, net consist of the following at year-end: 2017 2016Land $158,634 $145,417 Buildings and leasehold improvements 633,747 605,156 Equipment 642,449 563,973 Total cost 1,434,830 1,314,546 Total accumulated depreciation (544,094) (466,580) $890,736 $847,966 Total depreciation expense for fiscal years 2017, 2016 and 2015 amounted to $89,085, $83,993 and $96,383, respectively. 9.Net intangible assets and goodwill Net intangible assets and goodwill consist of the following at year-end: 2017 2016Net intangible assets (i) Computer software cost $72,717 $66,969 Initial franchise fees 15,572 15,039 Reacquired franchised rights 13,667 8,219 Letter of credit fees 940 940 Others 1,000 1,000 Total cost 103,896 92,167 Total accumulated amortization (63,245) (56,242)Subtotal 40,651 35,925 F - 19 Table of Contents Arcos Dorados Holdings Inc.Notes to the Consolidated Financial StatementsAs of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017Amounts in thousands of US dollars, except for share data and as otherwise indicated 9.Net intangible assets and goodwill (continued) Goodwill (ii) 2017 2016Brazil 5,013 5,100 Chile 1,209 1,110 Argentina 350 411 Ecuador 273 273 Peru 174 167 Colombia 59 58 Subtotal 7,078 7,119 $47,729 $43,044 (i)Total amortization expense for fiscal years 2017, 2016 and 2015 amounted to $10,297, $8,976 and $14,332, respectively. The estimatedaggregate amortization expense for each of the five succeeding fiscal years and thereafter is as follows: $16,162 for 2018, $11,402 for 2019;$4,737 for 2020; $1,635 for 2021; $1,239 for 2022; and thereafter $5,476. (ii)Related to the acquisition of franchised restaurants (Brazil, Peru, Chile, Argentina and Colombia) and non-controlling interests in subsidiaries(Ecuador and Chile). 10.Accrued payroll and other liabilities Accrued payroll and other liabilities consist of the following at year end: 2017 2016Current: Accrued payroll $97,995 $95,754 Advances related to pending sales of property and equipment and restaurant businesses — 34,341 Accrued expenses 13,574 9,492 Other liabilities 7,519 4,855 $119,088 $144,442 Non-current: Deferred rent 15,198 13,782 Other liabilities 14,168 9,978 $29,366 $23,760 11.Short-term debt 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 generalcorporate purposes. F - 20 Table of Contents Arcos Dorados Holdings Inc.Notes to the Consolidated Financial StatementsAs of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017Amounts in thousands of US dollars, except for share data and as otherwise indicated 11.Short-term debt (continued) Revolving Credit Facilities (continued) On August 1, 2017, ADBV renewed its committed revolving credit facility with Bank of America, N.A. (BOFA), as lender, for up to $25 millionmaturing on August 3, 2018. Each loan made to ADBV under this agreement will bear interest at an annual rate equal to LIBOR plus 2.50%. In addition, onNovember 1, 2017, ADBV renewed its revolving credit facility with JPMorgan Chase Bank, N.A, for up to $25 million maturing on November 10, 2018, with anannual 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 threecalendar 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 anunconditional basis. Furthermore, the agreements include customary covenants including, among others, restrictions on the ability of ADBV, the guarantors andcertain material subsidiaries to: (i) incur liens, (ii) enter into any merger, consolidation or amalgamation; (iii) sell, assign, lease or transfer all or substantially all ofthe borrower’s or guarantor’s business or property; (iv) enter into transactions with affiliates; (v) engage in substantially different lines of business; (vi) engage intransactions that violate certain anti-terrorism laws; and (vii) is required to comply with a consolidated net indebtedness to EBITDA ratio lower than 3.0 to 1 as ofany 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 permitor require the lender to terminate its obligation to provide loans under the revolving credit facilities and/or to declare all sums outstanding under the loandocuments immediately due and payable. As of December 31, 2017, the mentioned ratio was 0.75 and thus the Company is currently in compliance with the ratio requirement under both revolvingcredit facilities. F - 21 Table of Contents Arcos Dorados Holdings Inc.Notes to the Consolidated Financial StatementsAs of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017Amounts in thousands of US dollars, except for share data and as otherwise indicated 12.Long-term debt Long-term debt consists of the following at year-end: 2017 20162027 Notes $265,000 $— 2023 Notes 348,069 393,767 Secured Loan Agreement — 167,262 Capital lease obligations 4,539 4,704 Other long-term borrowings 22,900 25,553 Subtotal 640,508 591,286 Discount on 2023 Notes (3,804) (5,029)Premium on 2023 Notes 1,438 1,910 Fair value adjustment related to Secured Loan Agreement (i) — (2,877)Deferred financing costs (4,641) (5,611)Total 633,501 579,679 Current portion of long-term debt 4,359 28,099 Long-term debt, excluding current portion $629,142 $551,580 (i)The carrying value of hedged items in fair value hedges, are adjusted for fair value changes to the extent they are attributable to the risksdesignated as being hedged. The related hedging instrument was also recorded at fair value included within "Derivative instruments" in currentand non-current liabilities as of December 31, 2016. 2027, 2023 and 2016 Notes: The following table presents additional information related to the 2027, 2023 and 2016 Notes (the "Notes"): Principal as of December 31, Annual interest rate Currency 2017 2016 Maturity2027 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 2016 2015 2017 2016 2015 2017 2016 20152027 Notes 11,547 — — 224 — — — — — 2023 Notes 23,885 28,516 31,387 610 943 439 752 1,157 515 2016 Notes — 6,668 20,991 — 391 805 — (266) (496) (i)These charges are included within "Net interest expense" in the consolidated statements of income. F - 22 Table of Contents Arcos Dorados Holdings Inc.Notes to the Consolidated Financial StatementsAs of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017Amounts in thousands of US dollars, except for share data and as otherwise indicated 12.Long-term debt (continued) 2027, 2023 and 2016 Notes (continued): On July 13, 2011 and April 24, 2012, the Company issued Brazilian reais notes due in 2016 (the "2016 Notes") amounting to Brazilian reais (“BRL”)675,000. Periodic payments of principal were not required and interest was paid semi-annually beginning on January 13, 2012. The Company incurred $3,699 offinancing costs related to these issuances, which were capitalized as deferred financing costs ("DFC") and were amortized over the life of the notes. The following table presents information related to the purchase and repayments of the principal of the 2016 Notes: AmountDate 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 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 DFC and are beingamortized over the life of the notes. On June 1, 2016, the Company launched a cash tender offer to purchase $80,000 of its outstanding 2023 Notes, at a redemption price equal to 98%, whichexpired 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 thistransaction, the Company redeemed 16.90% of the outstanding principal. The total payment was $80,800 (including $800 of early tender payment) plus accruedand unpaid interest. The results related to the cash tender offer and the accelerated amortization of the related DFC were recognized as interest expense within theconsolidated 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 redemptionprice 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 to107%. 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 earlytender payment) plus accrued and unpaid interest. The results related to the cash tender offer and the accelerated amortization of the related DFC were recognizedas interest expense within the consolidated statement of income. F - 23 Table of Contents Arcos Dorados Holdings Inc.Notes to the Consolidated Financial StatementsAs of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017Amounts in thousands of US dollars, except for share data and as otherwise indicated 12.Long-term debt (continued) 2027, 2023 and 2016 Notes (continued): In April 2017, the Company issued senior notes for an aggregate principal amount of $265 million, which are due in 2027 (the “2027 Notes”). Periodicpayments 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 wereused to repay the Secured Loan Agreement, unwind the related derivative instruments (described in Note 13), pay the principal and premium on the 2023 Notes (inconnection with 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 indenturegoverning them. The Notes are fully and unconditionally guaranteed on a senior unsecured basis by certain of the Company’s subsidiaries. The Notes andguarantees (i) are senior unsecured obligations and rank equal in right of payment with all of the Company’s and guarantors’ existing and future senior unsecuredindebtedness; (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 theCompany’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 andlease-back transactions; and (iii) consolidate, merge or transfer assets. In addition, the indenture governing the 2027 Notes, limits the Company’s and itssubsidiaries’ ability to: incur in additional indebtedness and make certain restricted payments, including dividends. These covenants are subject to importantqualifications and exceptions. The indenture governing the Notes also provides for events of default, which, if any of them occurs, would permit or require theprincipal, premium, if any, and interest on all of 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. Secured Loan Agreement On March 29, 2016, the Company’s Brazilian subsidiary signed a $167,262 Secured Loan Agreement (the "Loan") with five off-shore lenders namely:Citibank N.A., Itaú BBA International plc, Santander (Brasil) S.A., Cayman Islands Branch, Bank of America N.A. and JP Morgan Chase Bank, N.A. Each loanunder the agreement bore interest at the following annual interest rates: Lender Annual Interest RateCitibank 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% F - 24 Table of Contents Arcos Dorados Holdings Inc.Notes to the Consolidated Financial StatementsAs of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017Amounts in thousands of US dollars, except for share data and as otherwise indicated 12.Long-term debt (continued) Secured Loan Agreement (continued) In order to fully convert each loan of the agreement into BRL, the Brazilian subsidiary entered into five cross-currency interest rate swap agreements withthe local subsidiaries of the same lenders. Consequently, the loans were fully converted into BRL amounting to BRL 613,850. Refer to Note 13 for more details. Considering the cross currency interest rate swap agreements, the final interest rate of the Loan was the Interbank Market reference interest rate (known inBrazil as “CDI”) plus 4.50% per year. Interest payments were made quarterly, beginning June 2016 and principal payments were made semi-annually, beginningSeptember 2017. The Loan proceeds were used primarily to repay the 2016 Notes mentioned above. The Loan would have matured on March 30, 2020 and periodic payments of principal were required. Prepayments were allowed without penalty. OnApril 11, 2017, the Company repaid the Loan with a total payment of $169.7 million including the outstanding principal, plus accrued and unpaid interest andcertain transaction costs. The Company incurred $3,243 of financing costs related to the issuance of the Loan, which were capitalized as DFC and were amortized over the life ofthe Loan. As a consequence of the repayment, the remaining DFC were recognized as interest expense in the consolidated statement of income. The following table presents information related to the Secured Loan Agreement: Interest Expense (i) (ii) DFC Amortization (ii) Other Costs (ii) (iii) 2017 2016 2015 2017 2016 2015 2017 2016 2015 $2,570 $6,519 $— $3,251 $814 $— $2,249 $— $— (i)These charges do not include the effect of the cross-currency interest rate swap agreements mentioned in Note 13, amounting to a loss of $6,921and $18,177, during fiscal years 2017 and 2016, respectively. Including these effects the total interest cost amounts to $9,491 and $24,696,respectively. (ii)These charges are included within "Net interest expense" in the consolidated statement of income. (iii)Transaction costs related to the repayment of the Loan. Other required disclosure At December 31, 2017, future payments related to the Company’s long-term debt are as follows: F - 25 Table of Contents Arcos Dorados Holdings Inc.Notes to the Consolidated Financial StatementsAs of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017Amounts in thousands of US dollars, except for share data and as otherwise indicated 12.Long-term debt (continued) Other required disclosure (continued) Principal Interest Total2018 4,359 40,920 45,279 2019 4,404 40,557 44,961 2020 3,895 40,217 44,112 2021 3,831 39,862 43,693 2022 4,040 39,468 43,508 Thereafter 619,979 94,148 714,127 Total payments 640,508 295,172 935,680 Interest — (295,172) (295,172)Discount on 2023 Notes (3,804) — (3,804)Premium on 2023 Notes 1,438 — 1,438 Deferred financing cost (4,641) — (4,641)Long-term debt $633,501 $— $633,501 13.Derivative instruments The following table presents the fair values of derivative instruments included in the consolidated balance sheets as of December 31, 2017 and 2016: Derivatives Fair ValueType of Derivative Balance Sheets Location 2017 2016Derivatives designated as hedging instruments Cash flow hedge Forward contracts Other receivables $309 $— Forward contracts Accrued payroll and other liabilities $(517) $(100)Cross-currency interest rate swap (i) Derivative instruments 7,835 (3,274)Call spread (i) Derivative instruments (10,908) — Coupon-only swap (i) Derivative instruments 15,114 — Fair value hedge Cross-currency interest rate swap (i) Derivative instruments — (27,217)Total derivative instruments $11,833 $(30,591) (i)At December 31, 2017, presented in the consolidated balance sheet as follows: $35,069 as non-current asset, $15,522 as a current liability and$7,506 as non-current liability. At December 31, 2016, presented in the consolidated balance sheet as follows: $19,876 as a current liability and$10,615 as a non-current liability. F - 26 Table of Contents Arcos Dorados Holdings Inc.Notes to the Consolidated Financial StatementsAs of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017Amounts in thousands of US dollars, except for share data and as otherwise indicated 13.Derivative instruments (continued) Derivatives designated as hedging instruments Cash flow hedge Forward contracts The Company has entered into various forward contracts in a few territories in order to hedge a portion of the foreign exchange risk associated withforecasted imports of goods. The effect of the hedges result in fixing the cost of goods acquired (i.e. the net settlement or collection adjusts the cost of inventorypaid to the suppliers). As of December 31, 2017, the Company has forward contracts outstanding with a notional amount of $24,397 that mature during 2018. The Company made net (payments) collections totaling $(1,236), $(1,307) and $2,306 during fiscal years 2017, 2016 and 2015, respectively, as a result ofthe 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 (73.00%) of the principal andinterest collections of its BRL intercompany loan receivables with ADBV. The agreements were signed during November 2013 (amended in February 2017), Juneand July 2017. The following table presents information related to the terms of the agreements: Payable Receivable Bank Currency Amount Interest rate Currency Amount Interest rate Interest paymentdates MaturityJP 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 (i)During the fiscal year ended December 31, 2017, the agreement was amended twice: on February 9, 2017 and February 22, 2017. All the termsof the swap agreement match the terms of the BRL intercompany loan receivable. As a result of the amendments the Company paid $2,689.According to ASC 815-30-40, the amount deferred in accumulated other comprehensive income until the date of the last amendment, amountingto $677 as of December 31, 2017, will be amortized to earnings as the originally hedged cash flows affects the statement of income. During April 2017, the Company’s Brazilian subsidiary entered into similar agreements in order to hedge all the variability in a portion (50%) of theprincipal and interest payable of intercompany loan payables nominated in US dollar. The following table presents information related to the terms of the agreements: F - 27 Table of Contents Arcos Dorados Holdings Inc.Notes to the Consolidated Financial StatementsAs of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017Amounts in thousands of US dollars, except for share data and as otherwise indicated 13.Derivative instruments (continued) Derivatives designated as hedging instruments (continued) Cash flow hedge (continued) Cross-currency interest rate swap (continued) Payable Receivable Bank Currency Amount Interest rate Currency Amount Interest rate Interest paymentdates MaturityBAML (i) BRL 156,250 13.64% $ 50,000 6.91% March 31/September 30 April 2027Banco Santander S.A. BRL 155,500 13.77% $ 50,000 6.91% June 30/December September 2023 (i)Bank of America Merrill Lynch Banco Múltiplo S.A. The Company paid $6,163 and $2,795 of net interest during the fiscal years December 31, 2017 and 2016, respectively. Call spread During April 2017, the Company’s Brazilian subsidiary entered into two call spread agreements in order to hedge the variability in a portion (50%) of theprincipal of intercompany loan payables nominated in US dollar. Call spread agreements consist of a combination of two call options: the Company bought anoption 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 pricethan 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: Bank Nominal Amount Strike price Maturity Currency Amount Call option written Call option bought Citibank S.A. $ 50,000 4.49 3.11 September 2023JP 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 variability (50%) in theinterest payable related to the intercompany loan aforementioned. The following table presents information related to the terms of the agreements: F - 28 Table of Contents Arcos Dorados Holdings Inc.Notes to the Consolidated Financial StatementsAs of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017Amounts in thousands of US dollars, except for share data and as otherwise indicated 13.Derivative instruments (continued) Derivatives designated as hedging instruments (continued) Cash flow hedge (continued) Coupon-only swap (continued) Payable Receivable Bank Currency Amount Interest rate Currency Amount Interest rate Interest paymentdates MaturityCitibank S.A. BRL 155,500 11.08% $ 50,000 6.91% June 30/ December31 September 2023 JP Morgan S.A. BRL 156,250 11.18% $ 50,000 6.91% March 31/September 30 April 2027 The Company paid $1,390 of net interest during the twelve months ended December 31, 2017, related to these agreements. Additional disclosures The following table present the pretax amounts affecting income and other comprehensive income for the twelve months ended December 31, 2017 and2016 for each type of derivative relationship: Derivatives inCash FlowHedgingRelationships (Loss) Gain Recognized in Accumulated OCI onDerivative (Effective Portion) Loss (Gain) Reclassified from Accumulated OCIinto Income (Effective Portion) (i) Gain (Loss) Recognized in Income onDerivative (Amount Excluded fromEffectiveness Testing and Ineffective Portion)(ii) 2017 2016 2015 2017 2016 2015 2017 2016 2015 Forwardcontracts $(1,344) $(1,861) $1,903 $1,236 $1,307 $(2,306) $— $— $— Cross-currencyinterest rateswaps 5,828 (16,952) 18,584 1,965 9,935 (11,903) — — (2,650)Call Spread 21,047 — — 2,791 — — — — — Coupon-onlyswap (13,598) — — (5,933) — — (101) — — Total 11,933 (18,813) 20,487 59 11,242 (14,209) (101) — (2,650) (i)The (loss) gain recognized in income related to forward contracts was recorded as an adjustment to food and paper. The net (loss) gainrecognized in income, related to Cross-currency interest rate swaps is presented in the consolidated statement of income as follows: a gain (loss) of $7,532 and $(6,997) and $13,595, for the fiscal years 2017, 2016 and 2015,respectively, as an adjustment to foreign currency exchange results and a loss of $9,497 and $2,938 and $1,692, for the fiscal years 2017, 2016and 2015, respectively as an adjustment to net interest expense. The gain (loss) recognized in income related to call spread agreements andcoupon-only swap agreements were recorded as an adjustment to foreign currency exchange and interest expense, respectively. (ii)The gain recognized in income is presented within "Loss from derivative instruments". F - 29 Table of Contents Arcos Dorados Holdings Inc.Notes to the Consolidated Financial StatementsAs of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017Amounts in thousands of US dollars, except for share data and as otherwise indicated 13.Derivative instruments (continued) Derivatives designated as hedging instruments (continued) Fair value hedge Cross-currency interest rate swap On March 29, 2016, the Company entered into five cross-currency interest rate swap agreements (the "2016 cross-currency interest rate swap") in order tofully hedge the principal and interest cash flows of the Secured Loan Agreement described in Note 12, into BRL. The agreements were signed with the Braziliansubsidiaries of the banks participating in the secured loan. All the terms of the 2016 cross-currency interest rate swap agreements matched the terms of the SecuredLoan Agreement. Pursuant to these agreements, the Company received interest in US dollar at an interest rate equal to the one it had to pay to the off-shore lendersover a notional amount of $167.3 million and paid interest in BRL at CDI plus 4.50% per year, over a notional amount of BRL 613,9 million quarterly, beginningJune 2016. During April 2017, the Company unwound these agreements as a consequence of the repayment of the Secured Loan Agreement mentioned in Note 12.The total payment amounted to $39.1 million (BRL122.7 million), including $0.9 million of accrued and unpaid interest. During fiscal years 2017 and 2016, the accrued interest amounted to $6,921 and $18,177, respectively. These charges do not include the effect of theSecured Loan Agreement mentioned in Note 12, amounting to a loss of $2,570 and $6,519, respectively. Including these effects the total interest cost amounts to$9,491 and $24,696, respectively. These amounts were recorded within “Net interest expense” in the Company’s consolidated statement of income. According to ASC 815-25-35, the change in the fair value of the hedging instrument and the change in the fair value of the hedged item shall berecognized in earnings. If those results are not perfectly offset, the difference shall be considered as hedge ineffectiveness. The following table presents the pretax amounts affecting income for the fiscal years ended December 31, 2017 and 2016, respectively: Cross-currency swaps (i)Derivatives in Fair Value Hedging Relationships 2017 2016 Loss recognized in Income on hedging derivatives (9,599) (5,814)Gain recognized in Income on hedging items 4,118 2,877 (i)The loss of $5,481 and $2,937, in 2017 and 2016, respectively, related to the ineffective portion of derivatives, was recorded within “Loss fromderivative instruments” in the Company’s consolidated statements of income (loss). F - 30 Table of Contents Arcos Dorados Holdings Inc.Notes to the Consolidated Financial StatementsAs of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017Amounts in thousands of US dollars, except for share data and as otherwise indicated 13.Derivative instruments (continued) Derivatives not designated as hedging instruments During fiscal year 2017, the Company enters into certain derivatives that are not designated for hedge accounting, therefore the changes in the fair valueof these derivatives are recognized immediately in earnings, within "Loss from derivatives instruments" in the Company´s consolidated statement of income. The Company paid $1,156 during the twelve months ended December 31, 2017 related to those forward contracts. Total equity return swap On August 13, 2012, the Company entered into a total equity return swap agreement with Goldman Sachs International (GSI) in order to minimizeearning volatility related to a long-term incentive plan to reward employees implemented by ADBV in 2008, fully vested in March 2015. The agreement wasrenewed twice and as from the amendment signed on September 23, 2014, the Company was required to make a collateral deposit, which returned to the Companywith the maturity of the agreement on September 12, 2015. During the third quarter of 2015, the Company paid $9,681 as settlement of the agreement. The Company did not designate this swap as a hedge under ASC 815. Therefore, the agreement was carried at fair market value in the consolidatedbalance sheets with changes reported in earnings, within "General and administrative expenses". The interest portion was recorded within “Net interest expense” inthe Company’s consolidated statement of income. The following table presents amounts affecting income related to derivatives not designated as hedging instruments: Loss Recognized in Income on Derivative instrumentsDerivatives Not Designated asHedging Instruments Location of Loss Recognized in Income 2017 2016 2015Total equity return swap General and administrative expenses (i) $— $— $(1,743) Net interest expense — — (453)Others Loss from derivative instruments — (127) (244)Total $— $(127) $(2,440) (i)For the fiscal year 2015, includes a loss amounting to $1,252 excluded from Adjusted EBITDA as from the total vesting of the plan. SeeAdjusted EBITDA reconciliation in Note 21. 14.Operating lease agreements At December 31, 2017, the Company was the lessee at 2,743 locations through ground leases (the Company leases the land and the Company orfranchisee owns the building) and through improved leases (the Company leases land and buildings). Lease terms for most restaurants vary between 10 and 20years and, in many cases, provide for rent escalations and renewal options, with certain leases providing purchase options. Escalations terms 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 paysmonthly rent based on the greater of a fixed rent or a certain percentage of the Company’s gross sales. For most locations, the Company is obligated for the relatedoccupancy costs including property taxes, insurance and maintenance. F - 31 Table of Contents Arcos Dorados Holdings Inc.Notes to the Consolidated Financial StatementsAs of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017Amounts in thousands of US dollars, except for share data and as otherwise indicated 14.Operating lease agreements (continued) However, for franchised sites, the Company requires the franchisees to pay these costs. In addition, the Company is the lessee under non-cancelable leasescovering 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. Theagreement includes a purchase option at the end of the lease term at fair market value and also an early purchase option at a fixed amount of $26,685 at maturity ofthe 24 th quarterly payment. The Company was required to make a cash deposit of $5,325 as collateral for the obligations assumed under this agreement. OnDecember 22, 2017, the Company entered into an amendment to the agreement, extending the term of the aircraft operating lease for an additional 10 years, withquarterly payments (retroactively effective as of December 5, 2017) of $442. Under the new agreement, the Company was required to make a cash collateraldeposit of $2,500. At December 31, 2017, future minimum payments required under existing operating leases with initial terms of one year or more are: Restaurant Other Total2018 $141,641 $6,844 $148,485 2019 124,242 4,639 128,881 2020 109,389 4,378 113,767 2021 94,080 3,333 97,413 2022 76,339 2,729 79,068 Thereafter 350,413 14,570 364,983 Total minimum payment $896,104 $36,493 $932,597 The following table provides detail of rent expense for fiscal years 2017, 2016 and 2015: 2017 2016 2015Company-operated restaurants (i) $148,505 $131,142 $135,232 Franchised restaurants (ii) 54,711 43,311 36,381 Total rent expense $203,216 $174,453 $171,613 (i)Included within “Occupancy and other operating expenses” in the consolidated statements of income (loss). (ii)Included within “Franchised restaurants – occupancy expenses” in the consolidated statements of income (loss). The following table provides a breakdown detail of rent expense between minimum and contingent rentals for fiscal years 2017, 2016 and 2015: 2017 2016 2015Minimum rentals $138,496 $122,726 $122,110 Contingent rentals based on sales 64,720 51,727 49,503 Total rent expense $203,216 $174,453 $171,613 F - 32 Table of Contents Arcos Dorados Holdings Inc.Notes to the Consolidated Financial StatementsAs of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017Amounts in thousands of US dollars, except for share data and as otherwise indicated 15.Franchise arrangements Individual franchise arrangements generally include a lease and a license and provide for payment of initial fees as well as continuing rent and servicefees (royalties) to the Company based upon a percentage of sales with minimum rent payments. The Company’s franchisees are granted the right to operate arestaurant using the McDonald’s system and, in most cases, the use of a restaurant facility, generally for a period of 20 years. Franchisees pay related occupancycosts including property taxes, insurance and maintenance. Pursuant to the MFAs, the Company pays initial fees and continuing service fees for franchisedrestaurants to McDonald’s Corporation. Therefore, the margin for franchised restaurants is primarily comprised of rental income net of occupancy expenses(depreciation for owned property and equipment and/or rental expense for leased properties). At December 31, 2017 and 2016, net property and equipment under franchise arrangements totaled $138,587 and $140,000, respectively (including landfor $41,057 and $39,273, respectively). Revenues from franchised restaurants for fiscal years 2017, 2016 and 2015 consisted of: 2017 2016 2015Rent $155,405 $123,311 $121,122 Initial fees (i) 1,205 1,386 611 Royalty fees (ii) 659 599 628 Total $157,269 $125,296 $122,361 (i)Presented net of initial fees paid to McDonald’s Corporation for $1,417, $1,588 and $747 in 2017, 2016 and 2015, respectively. (ii)Presented net of royalties fees paid to McDonald’s Corporation for $64,806, $50,839 and $49,742 in 2017, 2016 and 2015, respectively. At December 31, 2017, future minimum rent payments due to the Company under existing franchised agreements are: Owned sites Leased sites Total2018 $5,651 $59,667 $65,318 2019 5,185 56,869 62,054 2020 4,782 53,615 58,397 2021 4,462 48,347 52,809 2022 3,795 41,043 44,838 Thereafter 18,561 160,860 179,421 Total $42,436 $420,401 $462,837 16.Income taxes The Company’s operations are conducted by its foreign subsidiaries in Latin America and the Caribbean. The foreign subsidiaries are incorporated underthe laws of their respective countries and as such the Company is taxed in such foreign countries. F - 33 Table of Contents Arcos Dorados Holdings Inc.Notes to the Consolidated Financial StatementsAs of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017Amounts in thousands of US dollars, except for share data and as otherwise indicated 16.Income taxes (continued) Statutory tax rates in the countries in which the Company operates for fiscal years 2017, 2016 and 2015 were as follows: 2017 2016 2015Puerto Rico 20% 20% 20%Argentina, Martinique, French Guyana, Guadeloupe, St Croix, St. Thomas, Aruba andCuracao 35% 35% 35%Brazil and Venezuela 34% 34% 34%Colombia 40% 40% 39%Peru 30% 28% 28%Costa Rica and Mexico 30% 30% 30%Panamá, Uruguay, Trinidad and Tobago, Ecuador and Netherlands 25% 25% 25%Chile 26% 24% 23% Income tax expense for fiscal years 2017, 2016 and 2015 consisted of the following: 2017 2016 2015Current income tax expense $51,215 $54,142 $31,873 Deferred income tax expense (benefit) 2,099 5,499 (9,057)Income tax expense $53,314 $59,641 $22,816 Income tax expense for fiscal years 2017, 2016 and 2015 differed from the amounts computed by applying the Company’s weighted-average statutoryincome tax rate to pre-tax income (loss) as a result of the following: 2017 2016 2015Pre-tax income (loss) $182,813 $138,629 $(28,553)Weighted-average statutory income tax rate (i) 35.5% 35.4% 32.8%Income tax expense at weighted-average statutory tax rate on pre-tax income (loss) 64,901 49,030 (9,353)Permanent differences: Change in valuation allowance (ii) (19,133) (17,037) 63,880 Expiration and changes in tax loss carryforwards (iii) 14,007 18,291 — Non-deductible expenses 9,888 15,047 10,243 Tax benefits, including Brazil and other (10,744) (14,437) (17,377)Income taxes withholdings on intercompany transactions (iv) 6,804 22,379 1,557 Differences including exchange rate, inflation adjustment and filing differences (11,769) (13,001) (29,222)Alternative Taxes (363) (114) 2,386 Others (277) (517) 702 Income tax expense $53,314 $59,641 $22,816 (i)Weighted-average statutory income tax rate is calculated based on the aggregated amount of the income before taxes by country multiplied bythe prevailing statutory income tax rate, divided by the consolidated income before taxes. F - 34 Table of Contents Arcos Dorados Holdings Inc.Notes to the Consolidated Financial StatementsAs of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017Amounts in thousands of US dollars, except for share data and as otherwise indicated 16.Income taxes (continued) (ii)Comprises net changes in valuation allowances for the year, mainly related to Non-Operating Losses (NOLs). (iii)Expiration of loss tax carryforwards are mainly generated by Holding legal entities and the Caribbean division. (iv)Comprises income tax withheld on the payment of interest on intercompany loans. In 2016 this item also includes the withholding income tax of$18.2 million due the repayment of the Company’s 2016 Notes. The tax effects of temporary differences and carryforwards that comprise significant portions of deferred tax assets and liabilities at December 31, 2017and 2016 are presented below: 2017 2016Tax loss carryforwards (i) $238,082 $268,389 Purchase price allocation adjustment 24,437 30,855 Property and equipment, tax inflation 37,577 37,471 Other accrued payroll and other liabilities 30,730 15,437 Share-based compensation 3,850 4,151 Provision for contingencies 2,478 3,449 Other deferred tax assets (ii) 21,528 27,292 Other deferred tax liabilities (iii) (10,670) (13,649)Property and equipment - difference in depreciation rates (12,639) (14,195)Valuation allowance (iv) (271,651) (290,620)Net deferred tax asset $63,722 $68,580 (i)As of December 31, 2017, the Company and its subsidiaries has accumulated operating tax loss carryforwards amounting to $849,911. TheCompany has operating tax loss carryforwards amounting to $274,106, expiring between 2018 and 2022. In addition, the Company has operatingtax loss carryforwards amounting to $348,370 expiring after 2022 and operating tax loss carryforwards amounting to $227,435 that do no expire.Changes in tax loss carryforwards for the year relate to the use of NOLs, mainly in Mexico and Brazil, and the expiration of tax losscarryforwards in other markets. (ii)Other deferred tax assets reflect the net tax effects of temporary differences between the carrying amounts of assets for financial reportingpurposes (accounting base) and the amounts used for income tax purposes (tax base). For the fiscal year ended December 31, 2017, this itemincludes: bad debt reserve in Puerto Rico for $3,782, provision for regular expenses for $9,824, mainly corresponding to Brazil, Mexico andColombia; and foreign currency exchange differences in Venezuela for $698. For the fiscal year ended December 31, 2016 this item includesregular expenses provisions for $14,063, for Brazil and Colombia; $5,055 related to foreign currency exchange differences in Venezuela and$3,832 in Puerto Rico, mainly related to bad debt reserve. (iii)Primarily related to intangible assets and foreign currency exchange differences. (iv)In assessing the realization of deferred income tax assets, the Company considers whether it is more likely than not that some portion or all ofthe deferred income tax assets will not be realized. The total amount of $63,722 for the year ended December 31, 2017, is presented in the consolidated balance sheet as non-current asset and non-currentliability amounting to $74,299 and $10,577, respectively. F - 35 Table of Contents Arcos Dorados Holdings Inc.Notes to the Consolidated Financial StatementsAs of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017Amounts in thousands of US dollars, except for share data and as otherwise indicated 16.Income taxes (continued) The total amount of $68,580 for the year ended December 31, 2016, is presented in the consolidated balance sheet as non-current asset and non-currentliability amounting to $70,446 and $1,866, respectively. Deferred income taxes have not been recorded for temporary differences related to investments in certain foreign subsidiaries. These temporarydifferences, comprise undistributed earnings considered permanently invested in subsidiaries amounted to $116,042 at December 31, 2017. Determination of thedeferred income tax liability on these unremitted earnings is not practicable because such liability, if any, is dependent on circumstances existing if and whenremittance occurs. As of December 31, 2017, and 2016, the Company’s gross unrecognized tax benefits totaled Nil and $19 (including interests and penalties), respectively,that would favorably affect the effective tax rate if resolved in the Company’s favor. The following table presents a reconciliation of the beginning and ending amounts of unrecognized tax benefits: 2017 2016Balances at beginning balance $19 $63 Decrease for positions taken in prior years (19) (44)Balances at ending balance $— $19 The Company is regularly under audit in multiple tax jurisdictions. It is reasonably possible that, as a result of audit progression within the next 12months, there may be new information that causes the Company to reassess the total amount of unrecognized tax benefits recorded. While the Company cannotestimate the impact that new information may have on the unrecognized tax benefit balance, the Company believes that the liabilities that are recorded areappropriate and adequate as determined under ASC 740. The Company is generally no longer subject to income tax examinations by tax authorities for years priorto 2011. As of December 31, 2017, there are certain matters related to the interpretation of income tax laws for which there is a possibility that a loss may havebeen incurred, as of the date of the financial statements in accordance with ASC 740 in an amount of $150 million, related to assessments for the fiscal years 2009to 2013. 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 arestill subject to audit and claims may be asserted in the future. 17.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 andto 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 awardprogram. 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, restrictedshares, restricted share units, share appreciation rights, performance awards and other share-based awards as will be determined by the Company’s Board ofDirectors. 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 sharesimmediately following its initial public offering. F - 36 Table of Contents Arcos Dorados Holdings Inc.Notes to the Consolidated Financial StatementsAs of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017Amounts in thousands of US dollars, except for share data and as otherwise indicated 17.Share-based compensation (continued) 2011 Equity Incentive Plan (continued) The Company made a special grant of stock options and restricted share units in 2011 in connection with its initial public offering, which are totallyvested. The Company also made recurring grants of stock options and restricted share units in each of the fiscal years from 2011 to 2017 (from 2015 to 2017 onlyrestricted 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 thefollowing three anniversaries. For all grants, each stock option granted represents the right to acquire a Class A share at its grant-date fair market value, while eachrestricted 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 becomesexercisable, 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 thedate of grant. The Company utilizes a Black-Scholes option-pricing model to estimate the value of stock options at the grant date. The value of restricted sharesunits 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 option units were converted to a liability award maintaining the original conditions of the 2011 Plan. There were notincremental compensation costs resulting from the modification. The employees affected by this modification were 104. The accrued liability is remeasured on amonthly basis until settlement. As of December 31, 2017 and 2016, the outstanding units related to this liability award were 605,821 and 933,399, respectively.The accumulated Additional paid-in capital related to these units as from the grant date amounts to $5,865 and $5,820 during fiscal years 2017 and 2016,respectively (net of $85 and $9 reclassified to "Accrued payroll and other liabilities" in the Company’s consolidated balance sheet in 2017 and 2016, respectively). The Company recognizes stock-based compensation expense on a straight-line basis over the requisite service period for each separately vesting portionof the award as if the award was, in substance, multiple awards. The Company recognized stock-based compensation expense in the amount of $3,267, $3,303 and$2,788 during fiscal years 2017, 2016 and 2015, respectively. The stock-based compensation expense of fiscal year 2015 includes $210 relates to the specialawards granted in connection with the initial public offering. Stock-based compensation expense is included within “General and administrative expenses” in theconsolidated statements of income (loss). The Company recognized $151, $688 and $(1,581) of related income tax benefit (expense) during fiscal years 2017, 2016 and 2015, respectively. Stock Options The following table summarizes the activity of stock options during fiscal years 2017, 2016 and 2015: F - 37 Table of Contents Arcos Dorados Holdings Inc.Notes to the Consolidated Financial StatementsAs of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017Amounts in thousands of US dollars, except for share data and as otherwise indicated 17.Share-based compensation (continued) 2011 Equity Incentive Plan (continued) Stock Options (continued) Units Weighted-average strikeprice Weighted-average grant-date fair valueOutstanding at December 31, 2014 2,550,835 17.62 4.94 Forfeitures (141,130) 16.54 5.02 Expired (i) (383,811) 20.01 5.41 Outstanding at December 31, 2015 2,025,894 21.03 5.87 Forfeitures (80,734) 10.30 2.68 Expired (i) (51,305) 14.05 4.02 Modification (ii) (1,117,380) 19.07 5.30 Outstanding at December 31, 2016 776,475 15.55 4.46 Expired (i) (141,986) 21.20 5.28 Outstanding at December 31, 2017 634,489 14.28 4.28 Exercisable at December 31, 2017 540,331 15.03 4.58 (i)As of December 31, 2017, 2016 and 2015, Additional paid-in capital included $750, $206 and $2,077 respectively, related to expired stockoptions. (ii)Corresponds to stock options converted to a liability award. The following table provides a summary of outstanding stock options at December 31, 2017: Vested (i) Non-vested (ii) TotalNumber 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 86.6 98.8 Stock-based compensation recognized in Additional paid-in capital 2,476 206 2,682 Compensation expense not yet recognized (iii) — 32 32 (i)Related to exercisable awards. (ii)Related to awards that will vest between fiscal years 2017 and 2019. (iii)Expected to be recognized in a weighted-average period of 0.3 years. F - 38 Table of Contents Arcos Dorados Holdings Inc.Notes to the Consolidated Financial StatementsAs of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017Amounts in thousands of US dollars, except for share data and as otherwise indicated 17.Share-based compensation (continued) 2011 Equity Incentive Plan (continued) Restricted Share Units The following table summarizes the activity of restricted share units during fiscal years 2017, 2016 and 2015: Units Weighted-average grant-date fair valueOutstanding at December 31, 2014 862,855 14.38 2015 annual grant 923,213 6.33 Partial vesting of 2011 grant (222,781) 21.20 Partial vesting of 2012 grant (31,772) 14.35 Partial vesting of 2013 grant (68,300) 14.31 Forfeitures (233,005) 9.88 Outstanding at December 31, 2015 1,230,210 7.96 2016 annual grant 865,291 4.70 Partial vesting of 2011 grant (27,075) 21.20 Partial vesting of 2012 grant (24,653) 14.35 Partial vesting of 2013 grant (26,054) 14.31 Partial vesting of 2014 grant (94,546) 8.58 Forfeitures (142,176) 6.64 Outstanding at December 31, 2016 1,780,997 6.07 2017 annual grant 497,960 9.20 Partial vesting of 2012 grant (23,003) 14.35 Partial vesting of 2013 grant (24,073) 14.31 Partial vesting of 2014 grant (44,312) 8.58 Partial vesting of 2015 grant (269,896) 6.33 Forfeitures (180,828) 5.99 Outstanding at December 31, 2017 1,736,845 6.65 Exercisable at December 31, 2017 — — As of December 31, 2017, all Class A Shares were issued. Hence, the accumulated compensation expense related to partial vesting was reclassified from"Additional paid-in capital" to "Common stock". F - 39 Table of Contents Arcos Dorados Holdings Inc.Notes to the Consolidated Financial StatementsAs of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017Amounts in thousands of US dollars, except for share data and as otherwise indicated 17.Share-based compensation (continued) 2011 Equity Incentive Plan (continued) Restricted Share Units (continued) The following table provides a summary of outstanding restricted share units at December 31, 2017: Number of units outstanding (i) 1,736,845 Weighted-average grant-date fair market value per unit 6.65 Total grant-date fair value 11,542 Weighted-average accumulated percentage of service 49.80 Stock-based compensation recognized in Additional paid-in capital 5,744 Compensation expense not yet recognized (ii) 5,798 (i)Related to awards that will vest between fiscal years 2018 and 2022. (ii)Expected to be recognized in a weighted-average period of 2.0 years. 18.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, substantiallyconsistent 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 foreach 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 definedtherein) 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 newrestaurants and to reinvest $292 million in existing restaurants. On January 25, 2017, McDonald’s Corporation agreed to provide growth support for the sameperiod. The Company projects that the impact of this support could result in a consolidated effective royalty rate of 5.7% in 2018 and 5.9% in 2019. McDonald’s Corporation granted the Company limited waivers through and including June 30, 2016, during which time the Company was not required tocomply with the financial ratios set forth in the MFA, mentioned in point (v) above. If the Company would not be in compliance with the financial requirementsand would be unable to obtain an extension of the waiver or to comply with the original commitments under the MFA, it could be in material breach. A breach ofthe MFA would give McDonald’s Corporation certain rights, including the ability to acquire all or portions of the business. The following table summarize Company’s ratios requirements for the three-month periods ended from March 31, 2015 to December 31, 2017: F - 40 Table of Contents Arcos Dorados Holdings Inc.Notes to the Consolidated Financial StatementsAs of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017Amounts in thousands of US dollars, except for share data and as otherwise indicated 18.Commitments and contingencies (continued) Fixed ChargeCoverage Ratio Leverage RatioMarch 31, 2015 1.40 4.62June 30, 2015 1.45 4.61September 30, 2015 1.48 4.56December 31, 2015 1.56 4.40March 31, 2016 1.67 4.80June 30, 2016 1.64 4.40September 30, 2016 1.67 4.08December 31, 2016 1.64 4.21March 31, 2017 1.65 4.12June 30, 2017 1.65 4.05September 30, 2017 1.69 4.02December 31, 2017 1.77 3.80 In addition, the Company maintains standby letters of credit with an aggregate drawing amount of $80 million in favor of McDonald’s Corporation ascollateral 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 amountshave 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 involvinglabor, tax and other matters. At December 31, 2017 and 2016, the Company maintains a provision for contingencies, net of judicial deposits, amounting to $27,956and $18,112, respectively, presented as follows: $2,529 and $764 as a current liability and $25,427 and $17,348 as a non-current liability, respectively. Thebreakdown of the provision for contingencies is as follows: F - 41 Table of Contents Arcos Dorados Holdings Inc.Notes to the Consolidated Financial StatementsAs of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017Amounts in thousands of US dollars, except for share data and as otherwise indicated 18.Commitments and contingencies (continued) Provision for contingencies (continued) Description Balance atbeginning ofperiod Accruals, net Settlements Reclassificationsand increase ofjudicial deposits Translation Balance at end ofperiodYear ended December 31, 2017: Tax contingencies in Brazil (i) $13,312 $(2,599) $(337) $(667) $(385) $9,324 Labor contingencies in Brazil (ii) 11,150 31,448 (21,130) — (407) 21,061 Other (iii) 12,222 7,150 (3,960) 17 217 15,646 Subtotal 36,684 35,999 (25,427) (650) (575) 46,031 Judicial deposits (iv) (18,572) 161 — (60) 396 $(18,075)Provision for contingencies $18,112 $36,160 $(25,427) $(710) $(179) $27,956 Year ended December 31, 2016: Tax contingencies in Brazil (i) $5,118 $7,196 $— $— $998 $13,312 Labor contingencies in Brazil (ii) 7,013 19,903 (17,523) — 1,757 11,150 Other (iii) 13,947 1,478 (3,031) (37) (135) 12,222 Subtotal 26,078 28,577 (20,554) (37) 2,620 36,684 Judicial deposits (iv) (5,500) — — (11,458) (1,614) (18,572)Provision for contingencies $20,578 $28,577 $(20,554) $(11,495) $1,006 $18,112 Year ended December 31, 2015: Tax contingencies in Brazil (i) $1,999 $4,616 $(9) $(532) $(956) $5,118 Labor contingencies in Brazil (ii) 10,360 19,692 (19,877) (26) (3,136) 7,013 Other (iii) 7,780 13,421 (4,213) (22) (3,019) 13,947 Subtotal 20,139 37,729 (24,099) (580) (7,111) 26,078 Judicial deposits (iv) (7,935) — 684 (863) 2,614 (5,500)Provision for contingencies $12,204 $37,729 $(23,415) $(1,443) $(4,497) $20,578 (i)In 2017, it includes mainly CIDE. In 2016 and 2015 it includes indirect tax matters, mainly PIS/COFINS. (ii)It primarily relates to dismissals in the normal course of business. (iii)It relates to tax and labor contingencies in other countries and civil contingencies in all the countries. (iv)It primarily relates to judicial deposits the Company was required to make in connection with the proceedings in Brazil. As of December 31, 2017, there are certain matters related to the interpretation of tax and labor laws for which there is a possible that a loss may havebeen incurred in accordance with ASC 450-20-50-4 to be within a range of $89 million and $122 million. F - 42 Table of Contents Arcos Dorados Holdings Inc.Notes to the Consolidated Financial StatementsAs of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017Amounts in thousands of US dollars, except for share data and as otherwise indicated 18.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 theCompany 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 theplaintiffs finalized their presentation of evidence whereas the Company has not started yet. At that time, the Company filed a Motion of Non Suit that has not beresolved 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 (awholly owned subsidiary of McDonald’s Corporation), asserting a very similar claim to the one filed in the Puerto Rican franchisees lawsuit. The claim seeksdeclaratory judgment and damages in the amount of $30 million plus plaintiffs’ attorney fees. The Company also believes that the litigation probability of a loss isremote, 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 tocoordinate the development of promotional and marketing campaigns (an association that at the time of the claim was formed solely by franchisees that areplaintiffs in the Puerto Rican franchisees lawsuit), filed a third party complaint and counterclaim (“the PROA claim”) against the Company and other third partydefendants, in the amount of $31 million. On June 9, 2014, after several motions for summary judgment duly filed and opposed by the parties, the Court entered a“Partial Summary Judgment and Resolution” in favor of PROA, before initiating the discovery phase, finding that the Company must participate and contributefunds to the association. However, the Court did not specify any amount for which the Company should be held liable, due to its preliminary and interlocutorynature, and the lack of discovery conducted regarding the amounts claimed by the plaintiffs. The Company is opposing this claim vigorously because it believesthat there is no legal basis for it, considering: (i) the obligation to contribute is not directed towards a cooperative, (ii) the franchise agreement does not contain aprovision that makes it mandatory to participate in the cooperative, and (iii) PROA’s by-laws state that participation in the cooperative is voluntary, among otherarguments. According to the points previously mentioned, the Company believes that the probability of a loss is remote, 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 forspecific and limited claims arising from the Puerto Rican franchisees lawsuit. Pursuant to the MFA, the Company indemnifies McDonald’s for the related PuertoRican franchisee lawsuit and the PROA claim. At December 31, 2017, the provision for contingencies includes $2,489 ($5,170 at December 31, 2016), related to Brazilian claims that are covered by theindemnification agreement. As a result, the Company has recorded a current asset and non-current asset in respect of McDonald’s Corporation’s indemnity in theconsolidated 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 settlingcertain Brazilian labor and tax contingencies. F - 43 Table of Contents Arcos Dorados Holdings Inc.Notes to the Consolidated Financial StatementsAs of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017Amounts in thousands of US dollars, except for share data and as otherwise indicated 19.Disclosures about fair value of financial instruments As defined in ASC 820 Fair Value Measurement and Disclosures, fair value is the price that would be received to sell an asset or paid to transfer aliability in an orderly transaction between market participants at the measurement date (exit price). The transaction is based on a hypothetical transaction in theprincipal or most advantageous market considered from the perspective of the market participant that holds the asset or owes the liability. The valuation techniquesthat can be used under this guidance are the market approach, income approach or cost approach. The market approach uses prices and other information formarket transactions involving identical or comparable assets or liabilities, such as matrix pricing. The income approach uses valuation techniques to convert futureamounts to a single discounted present amount based on current market conditions about those future amounts, such as present value techniques, option pricingmodels (e.g. Black-Scholes model) and binomial models (e.g. Monte-Carlo model). The cost approach is based on current replacement cost to replace an asset. The Company utilizes market data or assumptions that market participants who are independent, knowledgeable and willing and able to transact woulduse in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readilyobservable, market corroborated or generally unobservable. The Company attempts to utilize valuation techniques that maximize the use of observable inputs andminimize the use of unobservable inputs. The Company is able to classify fair value balances based on the observance of those inputs. The guidance establishes aformal fair value hierarchy based on the inputs used to measure fair value. The hierarchy gives the highest priority to level 1 measurements and the lowest priorityto level 3 measurements, and accordingly, level 1 measurement should be used whenever possible. The three levels of the fair value hierarchy as defined by the guidance are as follows: Level 1 : Valuations utilizing quoted, unadjusted prices for identical assets or liabilities in active markets that the Company has the ability to access. Thisis the most reliable evidence of fair value and does not require a significant degree of judgment. Examples include exchange-traded derivatives and listed equitiesthat are actively traded. Level 2 : Valuations utilizing quoted prices in markets that are not considered to be active or financial instruments for which all significant inputs areobservable, either directly or indirectly for substantially the full term of the asset or liability. Financial instruments that are valued using models or other valuation methodologies are included. Models used should primarily be industry-standardmodels that consider various assumptions and economic measures, such as interest rates, yield curves, time value, volatilities, contract terms, current market prices,credit risk or other market-corroborated inputs. Examples include most over-the-counter derivatives (non-exchange traded), physical commodities, most structurednotes and municipal and corporate bonds. Level 3 : Valuations utilizing significant unobservable inputs provides the least objective evidence of fair value and requires a significant degree ofjudgment. Inputs may be used with internally developed methodologies and should reflect an entity’s assumptions using the best information available about theassumptions that market participants would use in pricing an asset or liability. Examples include certain corporate loans, real-estate and private equity investmentsand long-dated or complex over-the-counter derivatives. Depending on the particular asset or liability, input availability can vary depending on factors such as product type, longevity of a product in the marketand other particular transaction conditions. In some cases, certain inputs used to measure fair value may be categorized into different levels of the fair valuehierarchy. For disclosure purposes under this guidance, the F - 44 Table of Contents Arcos Dorados Holdings Inc.Notes to the Consolidated Financial StatementsAs of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017Amounts in thousands of US dollars, except for share data and as otherwise indicated 19.Disclosures about fair value of financial instruments (continued) lowest level that contains significant inputs used in valuation should be chosen. Pursuant to ASC 820-10-50, the Company has classified its assets and liabilitiesinto these levels depending upon the data relied on to determine the fair values. The fair values of the Company’s derivatives are valued based upon quotesobtained from counterparties to the agreements and are designated as Level 2. The following fair value hierarchy table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis as ofDecember 31, 2017 and 2016: Quoted Prices inActive MarketsFor IdenticalAssets(Level 1) Significant OtherObservableInputs(Level 2) SignificantUnobservableInputs(Level 3) Balance as ofDecember 31,2017Assets Cash equivalents $93,541 $— $— $93,541 Short-term Investments — 19,588 — $19,588 Derivatives — 35,378 — 35,378 Total Assets $93,541 $54,966 $— $148,507 Liabilities Derivatives $— $23,545 $— $23,545 Share-based compensation — 1,483 — 1,483 Total Liabilities $— $25,028 $— $25,028 Quoted Prices inActive MarketsFor IdenticalAssets(Level 1) Significant OtherObservableInputs(Level 2) SignificantUnobservableInputs(Level 3) Balance as ofDecember 31,2016Assets Cash equivalents - Investment funds $132,040 $— $— $132,040 Total Assets $132,040 $— $— $132,040 Liabilities Derivatives $— $30,591 $— $30,591 Share-based compensation — 512 — 512 Secured loan agreement — 164,385 — 164,385 Total Liabilities $— $195,488 $— $195,488 The derivative contracts were valued using various pricing models or discounted cash flow analyses that incorporate observable market parameters, suchas interest rate yield curves, option volatilities and currency rates that were observable for substantially the full term of the derivative contracts. F - 45 Table of Contents Arcos Dorados Holdings Inc.Notes to the Consolidated Financial StatementsAs of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017Amounts in thousands of US dollars, except for share data and as otherwise indicated 19.Disclosures about fair value of financial instruments (continued) Certain financial assets and liabilities not measured at fair value At December 31, 2017, the fair value of the Company’s short-term and long-term debt was estimated at $692,299, compared to a carrying amount of$643,487. This fair value was estimated using various pricing models or discounted cash flow analysis that incorporated quoted market prices, and is similar toLevel 2 within the valuation hierarchy. The carrying amount for notes receivable approximates fair value. Non-financial assets and liabilities measured at fair value on a nonrecurring basis Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the assets and liabilities are not measured at fair value on anongoing basis but are subject to fair value adjustments in certain circumstances (e.g., when there is evidence of impairment). At December 31, 2017, no materialfair value adjustments or fair value measurements were required for non-financial assets or liabilities, except for those required in connection with the impairmentof long-lived assets and goodwill. Refer to Note 3 for more details, including inputs and valuation techniques used to measure fair value of these non-financialassets. 20.Certain risks and concentrations The Company’s financial instruments that are exposed to concentration of credit risk primarily consist of cash and cash equivalents, short-term investmentand accounts and notes receivable. Cash and cash equivalents and short-term investment are deposited with various creditworthy financial institutions, andtherefore the Company believes it is not exposed to any significant credit risk related to cash and cash equivalents and short-term investment. Concentrations ofcredit risk with respect to accounts and notes receivable are generally limited due to the large number of franchisees comprising the Company’s franchise base. All the Company’s operations are concentrated in Latin America and the Caribbean. As a result, the Company’s financial condition and results ofoperations depend, to a significant extent, on macroeconomic and political conditions prevailing in the region. See Note 22 for additional information pertaining tothe Company’s Venezuelan operations. 21.Segment and geographic information The Company is required to report information about operating segments in annual financial statements and interim financial reports issued toshareholders in accordance with ASC 280. Operating segments are components of a company about which separate financial information is available that isregularly evaluated by the chief operating decision maker(s) in deciding how to allocate resources and assess performance. ASC 280 also requires disclosuresabout 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 thefood service industry. The Company has determined that its reportable segments are those that are based on the Company’s method of internal reporting. TheCompany manages its business as distinct geographic segments and its operations are divided into four geographical divisions, which are as follows: Brazil; theCaribbean division, consisting of Aruba, Curacao, Colombia, French Guyana, Guadeloupe, Martinique, Puerto Rico, Trinidad and Tobago, the U.S. Virgin Islandsof St. Croix and St. Thomas and Venezuela; the North Latin America division (“NOLAD”), consisting of Costa Rica, Mexico and Panama; and the South LatinAmerica division (“SLAD”), consisting of Argentina, Chile, Ecuador, Peru and Uruguay. The accounting policies of the segments are the same as those describedin Note 3. F - 46 Table of Contents Arcos Dorados Holdings Inc.Notes to the Consolidated Financial StatementsAs of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017Amounts in thousands of US dollars, except for share data and as otherwise indicated 21.Segment and geographic information (continued) As from January 1, 2016, the Company made changes in the allocation of certain expenses previously included in the corporate segment to the operatingdivisions in order to align the financial statement presentation with the revised allocation used by the Company's management as from that date. In accordance withASC 280, Segment Reporting, the Company has restated its comparative segment information based on the new allocation of expenses. The following table presents information about profit or loss and assets for each reportable segment: For the fiscal years ended December 31, 2017 2016 2015Revenues: Brazil $1,496,573 $1,333,237 $1,361,989 Caribbean division 474,822 409,671 398,144 NOLAD 386,874 363,965 367,364 SLAD 961,256 821,757 925,243 Total revenues $3,319,525 $2,928,630 $3,052,740 Adjusted EBITDA: Brazil $218,172 $168,076 $174,102 Caribbean division 40,844 18,049 2,059 NOLAD 33,717 36,288 31,424 SLAD 87,083 76,327 100,718 Total reportable segments 379,816 298,740 308,303 Corporate and others (i) (74,879) (60,295) (78,132)Total adjusted EBITDA $304,937 $238,445 $230,171 F - 47 Table of Contents Arcos Dorados Holdings Inc.Notes to the Consolidated Financial StatementsAs of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017Amounts in thousands of US dollars, except for share data and as otherwise indicated 21.Segment and geographic information (continued) For the fiscal years ended December 31, 2017 2016 2015Adjusted EBITDA reconciliation: Total Adjusted EBITDA $304,937 $238,445 $230,171 (Less) Plus items excluded from computation that affect operating income: Depreciation and amortization (99,382) (92,969) (110,715)Gains from sale or insurance recovery of property and equipment 95,081 57,244 12,308 Write-offs and related contingencies of property and equipment (8,528) (5,776) (6,038)Impairment of long-lived assets (17,564) (7,697) (12,343)Impairment of goodwill (200) (5,045) (679)Stock-based compensation related to the special awards in connection with the initial publicoffering under the 2011 Plan — — (210)Reorganization and optimization plan expenses — (5,341) (18,346)ADBV Long-Term Incentive Plan incremental compensation from modification (1,409) (281) (741)Operating income 272,935 178,580 93,407 (Less) Plus: Net interest expense (68,357) (66,880) (64,407)Loss from derivative instruments (7,065) (3,065) (2,894)Foreign currency exchange results (14,265) 32,354 (54,032)Other non-operating expenses, net (435) (2,360) (627)Income tax expense (53,314) (59,641) (22,816)Net income attributable to non-controlling interests (333) (178) (264)Net income (loss) attributable to Arcos Dorados Holdings Inc. $129,166 $78,810 $(51,633) F - 48 Table of Contents Arcos Dorados Holdings Inc.Notes to the Consolidated Financial StatementsAs of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017Amounts in thousands of US dollars, except for share data and as otherwise indicated 21.Segment and geographic information (continued) For the fiscal years ended December 31, 2017 2016 2015Depreciation and amortization: Brazil $52,442 $43,733 $48,849 Caribbean division 25,210 27,376 30,998 NOLAD 20,635 21,975 25,733 SLAD 15,292 14,477 19,340 Total reportable segments 113,579 107,561 124,920 Corporate and others (i) 5,978 5,478 8,068 Purchase price allocation (ii) (20,175) (20,070) (22,273)Total depreciation and amortization $99,382 $92,969 $110,715 Property and equipment expenditures: Brazil $91,769 $42,657 $40,482 Caribbean division 16,759 14,387 11,756 NOLAD 17,565 10,117 14,623 SLAD 48,621 24,967 23,623 Others 52 154 480 Total property and equipment expenditures $174,766 $92,282 $90,964 As of December 31, 2017 2016Total assets: Brazil $786,897 $726,250 Caribbean division 416,541 355,568 NOLAD 271,558 247,546 SLAD 297,581 246,344 Total reportable segments 1,772,577 1,575,708 Corporate and others (i) 172,400 82,822 Purchase price allocation (ii) (141,234) (153,477)Total assets $1,803,743 $1,505,053 (i)Primarily relates to corporate general and administrative expenses, corporate supply chain operations in Uruguay, and related assets. Corporategeneral and administrative expenses consist of corporate office support costs in areas such as facilities, finance, human resources, informationtechnology, legal, marketing, restaurant operations, supply chain and training. As of December 31, 2017 and 2016, corporate assets primarilyinclude 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 depreciationand amortization. F - 49 Table of Contents Arcos Dorados Holdings Inc.Notes to the Consolidated Financial StatementsAs of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017Amounts in thousands of US dollars, except for share data and as otherwise indicated 21.Segment and geographic information (continued) The Company’s revenues are derived from two sources: sales by Company-operated restaurants and revenues from restaurants operated by franchisees.See Note 3 for more details. All of the Company’s revenues are derived from foreign operations. Long-lived assets consisting of property and equipment totaled $890,736 and $847,966 at December 31, 2017 and 2016, respectively. All of theCompany’s long-lived assets are related to foreign operations. 22.Venezuelan operations The Company conducts business in Venezuela where currency restrictions exist, limiting the Company’s ability to immediately access cash throughrepatriations at the government’s official exchange rate. The Company’s access to Venezuelan Bolívares (VEF) held by its Venezuelan subsidiaries remainsavailable for use within this jurisdiction and is not restricted. The official exchange rate is established by the Central Bank of Venezuela and the VenezuelanMinistry of Finance and the acquisition of foreign currency at the official exchange rate by Venezuelan companies to pay foreign debt or dividends is subject to aregistration and approval process by the relevant Venezuelan authorities. Since these restrictions are in place, the Company has not been able to access the officialexchange rate to pay dividends and has been limited in its ability to pay royalties at the official exchange rate. Revenues and operating income (loss) of the Venezuelan operations were $101,477 and $6,804, respectively, for fiscal year 2017; $51,615 and $(8,608),respectively, for fiscal year 2016; and $40,898 and $(28,329), respectively, for fiscal year 2015. Since February 2013, the Venezuelan government has announced several changes in the currency exchange regulations. As a consequence, the Companyreassessed the exchange rate used for remeasurement purposes as follows: Effects of exchange rate changePeriod Exchange rate Systemapplied Exchange rate atSystem datechange(VEF per US)dollar) Write down ofinventories (i) Impairment oflong-lived assets(i) Foreign currencyexchange lossFrom February 8, 2013 to February 28, 2014 Official exchange rate 6.30 — — 15,379 From March 1, 2014 to May 31, 2014 SICAD 11.80 7,611 — 19,697 From June 1, 2014 to February 28, 2015 SICAD II 49.98 9,937 45,186 38,963 From March 1, 2015 to March 9, 2016 SIMADI 177.00 3,250 7,804 8,046 From March 10, 2016 to May 18, 2017 DICOM 215.34 401 — 117 From May 19, 2017 up to date DICOM II 2,010.00 1,375 — 2,554 (i)Presented within Other operating income (expenses), net (ii)Presented within Foreign currency exchange results F - 50 Table of Contents Arcos Dorados Holdings Inc.Notes to the Consolidated Financial StatementsAs of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017Amounts in thousands of US dollars, except for share data and as otherwise indicated 22.Venezuelan operations (continued) Effective May 19, 2017, a new Exchange Agreement was issued setting new rules on foreign exchange transactions and replacing the existing mechanismcalled DICOM. Under the new regulation, the access to the supplementary floating market rate, called DICOM II, operates through an auction mechanism. Toparticipate in DICOM II, the parties must be previously registered and make a sworn statement of the origin or destination of the funds. The first auction waspublished on May 31, 2017 with an exchange rate of 2,010 VEF per US dollar. As of December 31, 2017, the DICOM II exchange rate settled at 3,345 VEF perdollar. In addition, the Company performed the impairment testing of its long-lived assets in accordance with the guidance within ASC 360-10-35, as mentionedin Note 3. As a result of the analysis, the Company recorded $8,563 during the fiscal year 2017, primarily associated to an advanced payment for a real estate givenduring the fourth quarter of 2013. In addition to exchange controls, the Venezuelan market is subject to price controls. The Venezuelan government issued a regulation establishing amaximum profit margin for companies and maximum prices for certain goods and services. Although these regulations caused a delay in the pricing plan, theCompany was able to increase prices during the fiscal year ended December 31, 2017. The Company’s Venezuelan operations, and the Company’s ability to repatriate its earnings, continue to be negatively affected by these difficultconditions and would be further negatively affected by additional devaluations or the imposition of additional or more stringent controls on foreign currencyexchange, pricing, payments, profits or imports or other governmental actions or continued or increased labor unrest. The Company continues to closely monitordevelopments in this dynamic environment, to assess evolving business risks and actively manage its operations in Venezuela. 23.Shareholders’ equity Authorized capital The Company is authorized to issue to 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 December 31, 2014, the Company had 210,216,043 shares issued and outstanding with no par value, consisting of 130,216,043 class A shares and80,000,000 class B shares. During fiscal years 2017, 2016 and 2015, the Company issued 361,284, 172,328 and 322,853 Class A shares, respectively, in connection with the partialvesting of restricted share units under the 2011 Equity Incentive Plan. Therefore, at December 31, 2017 , 2016 and 2015 the Company had 211,072,508;210,711,224 and 210,538,896 shares issued and outstanding with no par value, consisting of 131,072,508; 130,711,224 and 130,538,896 Class A shares,respectively, and 80,000,000 for Class B shares for each year. F - 51 Table of Contents Arcos Dorados Holdings Inc.Notes to the Consolidated Financial StatementsAs of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017Amounts in thousands of US dollars, except for share data and as otherwise indicated 23.Shareholders’ equity (continued) 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 tovoting, 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 rightsupon 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 isable to pay its debts as they become due. During fiscal years 2017, 2016 and 2015, the Company did not declare a dividend distribution to its shareholders, with respect to its results of operationsfor fiscal years 2016, 2015 and 2014, respectively. During fiscal year 2014, the Company declared dividend distributions totaling $50,036. The last installment ofthat distribution was paid during the fiscal year 2015, amounting to $12,509. Accumulated other comprehensive loss The following table sets forth information with respect to the components of “Accumulated other comprehensive loss” as of December 31, 2017 and theirrelated activity during the three-years in the period then ended: Foreign currencytranslation Cash flow hedges Post-employmentbenefits (i) TotalAccumulatedothercomprehensivelossBalances at December 31, 2014 $(302,889) $1,598 $(1,176) $(302,467)Other comprehensive (loss) income before reclassifications (128,301) 20,487 (213) (108,027)Net (gain) loss reclassified from accumulated other comprehensive loss toconsolidated statement of income — (14,209) 440 (13,769)Net current-period other comprehensive (loss) income (128,301) 6,278 227 (121,796)Balances at December 31, 2015 (431,190) 7,876 (949) (424,263)Other comprehensive loss before reclassifications (9,891) (18,813) (310) (29,014)Net loss reclassified from accumulated other comprehensive loss toconsolidated statement of income — 11,242 386 11,628 Net current-period other comprehensive (loss) income (9,891) (7,571) 76 (17,386)Balances at December 31, 2016 (441,081) 305 (873) (441,649)Other comprehensive income (loss) before reclassifications 4,800 6,462 (938) 10,324 Net loss reclassified from accumulated other comprehensive loss toconsolidated statement income — 1,592 386 1,978 Net current-period other comprehensive income (loss) 4,800 8,054 (552) 12,302 Balances at December 31, 2017 $(436,281) $8,359 $(1,425) $(429,347) F - 52 Table of Contents Arcos Dorados Holdings Inc.Notes to the Consolidated Financial StatementsAs of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017Amounts in thousands of US dollars, except for share data and as otherwise indicated 23.Shareholders’ equity (continued) Accumulated other comprehensive loss (continued) (i)Mainly related to a post-employment benefit in Venezuela established by the Organic Law of Labor and Workers (known as “LOTTT”, itsSpanish acronym) in 2012. This benefit provides a payment of 30 days of salary per year of employment tenure based on the last wage earned toall workers who leave the job for any reason. The term of service to calculate the post-employment payment of active workers run retroactivelysince June 19, 1997. The Company obtains an actuarial valuation to measure the post-employment benefit obligation, using the projected unitcredit actuarial method and measures this benefit in accordance with ASC 715-30, similar to pension benefit. 24.Earnings (loss) 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 onthe weighted average number of shares outstanding during the period after consideration of the dilutive effect, if any, for common stock equivalents, includingstock options and restricted share units. Basic earnings per common share are computed by dividing net income available to common shareholders by the weightedaverage number of shares of common stock outstanding during the period. Diluted earnings per common share are computed by dividing net income by theweighted 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 (loss) income per common share attributable to Arcos Dorados Holdings Inc. forall years presented: For the fiscal years ended December 31, 2017 2016 2015Net income (loss) attributable to Arcos Dorados Holdings Inc. available to common shareholders $129,166 $78,810 $(51,633)Weighted-average number of common shares outstanding - Basic 210,935,685 210,646,955 210,436,232 Incremental shares from assumed exercise of stock options (i) — — — Incremental shares from vesting of restricted share units 1,060,726 377,653 160,122 Weighted-average number of common shares outstanding - Diluted 211,996,411 211,024,608 210,596,354 Basic net income (loss) per common share attributable to Arcos Dorados Holdings Inc. $0.61 $0.37 $(0.25)Diluted net income (loss) per common share attributable to Arcos Dorados Holdings Inc. $0.61 $0.37 $(0.25) (i)Options to purchase shares of common stock were outstanding during fiscal years 2017, 2016 and 2015. See Note 17 for details. These optionswere not included in the computation of diluted earnings per share because their inclusion would have been anti-dilutive. F - 53 Table of Contents Arcos Dorados Holdings Inc.Notes to the Consolidated Financial StatementsAs of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017Amounts in thousands of US dollars, except for share data and as otherwise indicated 25.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 thedistribution centers in Argentina, Chile, Colombia, Ecuador, Mexico, Peru, Uruguay and Venezuela (the “Axionlog Business”). Pursuant to this agreementAxionlog provides the Company distribution inventory, storage and transportation services in the countries in which it operates. On November 9, 2011 theCompany entered into a revolving loan agreement as a creditor with Axionlog Distribution B.V., a holding company of the Axionlog Business, for a total amountof $12 million at an interest rate of LIBOR plus 6%, in line with interest rates prevailing in the market at the time of the agreement. Notwithstanding the fact thatthe loan maturity date was November 7, 2016 the parties decided to terminate the agreement early as of May 27, 2016. As a result, the Company collected theoutstanding principal amount of $1,800. The following table summarizes the outstanding balances between the Company and the Axionlog Business as of December 31, 2017 and 2016: As of December 31, 2017 2016Accounts and notes receivable $1,097 $— Other receivables 979 1,050 Miscellaneous 3,126 3,612 Accounts payable (11,727) (10,355) The following table summarizes the transactions between the Company and the Axionlog Business for the fiscal years ended December 31, 2017, 2016and 2015: Fiscal years ended December 31, 2017 2016 2015Food and paper (i) $(173,387) $(163,536) $(164,882)Occupancy and other operating expenses (4,281) (3,882) (2,499)Net interest income — 47 461 (i)Includes $48,773 of distribution fees and $124,614 of suppliers purchases managed through the Axionlog Business for the fiscal year endedDecember 31, 2017; $40,714 and $122,822, respectively, for the fiscal year ended December 31, 2016; and $44,170 and $120,712, respectively,for the fiscal year ended December 31, 2015. As of December 31, 2017 and 2016, the Company had other receivables totaling $2,112 and $1,315, respectively and accounts payable with Lacoop, A.C.and Lacoop II, S.C. totaling $1,113 and $1,299, respectively. 26.Valuation and qualifying accounts The following table presents the information required by Rule 12-09 of Regulation S-X in regards to valuation and qualifying accounts for each of theperiods presented: F - 54 Table of Contents Arcos Dorados Holdings Inc.Notes to the Consolidated Financial StatementsAs of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017Amounts in thousands of US dollars, except for share data and as otherwise indicated 26.Valuation and qualifying accounts (continued) Description Balance atbeginning ofperiod Additions (i) Deductions (ii) Translation Balance at end ofperiodYear ended December 31, 2017: Deducted from assets accounts: Allowance for doubtful accounts (iii) $16,367 $6,386 $(1,244) $(42) $21,467 Valuation allowance on deferred tax assets 290,620 8,382 (27,515) 164 271,651 Reported as liabilities: Provision for contingencies 18,112 36,160 (26,137) (179) 27,956 Total $325,099 $50,928 $(54,896) $(58) $321,073 Year ended December 31, 2016: Deducted from assets accounts: Allowance for doubtful accounts $12,768 $5,367 $(1,647) $(121) $16,367 Valuation allowance on deferred tax assets 297,891 36,778 (24,967) (19,082) 290,620 Reported as liabilities: Provision for contingencies 20,578 28,577 (32,049) 1,006 18,112 Total $331,237 $70,722 $(58,663) $(18,197) $325,099 Year ended December 31, 2015: Deducted from assets accounts: Allowance for doubtful accounts $9,373 $6,656 $(2,615) $(646) $12,768 Valuation allowance on deferred tax assets 301,012 49,879 (401) (52,599) 297,891 Reported as liabilities: Provision for contingencies 12,204 37,729 (24,858) (4,497) 20,578 Total $322,589 $94,264 $(27,874) $(57,742) $331,237 (i)Additions in valuation allowance on deferred tax assets are charged to income tax expense. Additions in provision for contingencies are explained as follows: Fiscal years 2017, 2016 and 2015 – Relate to the accrual of $36,160, $28,577 and $37,729, respectively. See Note 18 for details. (ii)Deductions in valuation allowance on deferred tax assets are charged to income tax expense. Deductions in provision for contingencies are explained as follows: Corresponds to the settlements and reclassifications amounting to $25,427 and $710, respectively, during fiscal year 2017; $20,554 and $11,495,respectively, during fiscal year 2016; and $23,415 and $1,443, respectively, during fiscal year 2015; as discussed in Note 18. (iii)At December 31, 2017, presented in the consolidated balance sheet as follow: $19,791 within Accounts and notes receivable, net and $1,676within Other receivables. F - 55 Table of Contents Arcos Dorados Holdings Inc.Notes to the Consolidated Financial StatementsAs of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017Amounts in thousands of US dollars, except for share data and as otherwise indicated 27.Subsequent events During February 2018, the Venezuelan government announced the unification of the formerly exchange rate systems, DIPRO and DICOM II, into a soleforeign exchange mechanism called DICOM. The unified system operates through an auction mechanism similar to the formerly DICOM II. The first auction waspublished on February 5, 2018, with and exchange rate of 25,000 VEF per US dollar. As a result of the announcement, the Company will reassess the exchangerate used for remeasurement purposes as of March 31, 2018, based on any new available information. As of December 31, 2017, the Company’s local currencydenominated net monetary position was $(9.7) (including $13.0 of cash and cash equivalents). In addition, Venezuela’s non-monetary assets were $75.2 (includingapproximately $33.5 of fixed assets and advances to suppliers). On March 20, 2018, the Company approved a dividend distribution to all Class A and Class B shareholders of $0.10 per share, to be paid in two equalinstallments of $0.05 per share on April 5, 2018 and October 5, 2018. F - 56 Exhibit 4.28 SEVENTH AMENDMENT TO CREDIT AGREEMENT THIS SEVENTH AMENDMENT TO CREDIT AGREEMENT is made and dated as of August 1, 2017 (the “ Amendment ”) among ARCOSDORADOS B.V., a private company with limited liability ( besloten venootschap met beperkte aansprakelijkh eid ) organized under the laws of The Netherlandswith seat in Amsterdam (the “ Borrower ”), certain subsidiaries of the Borrower as guarantors (the “ Guarantors ”), and BANK OF AMERICA, N.A., as lender (the“ Lender ”) and amends that certain Credit Agreement dated as of August 3, 2011 (as the same has been amended prior to the date hereof and may be furtheramended or modified from time to time, the “ Credit Agreement ”). RECITALS WHEREAS, the Lender has agreed, subject to the terms and conditions hereinafter set forth, to amend the Credit Agreement in certain respects as setforth below. NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereby agree asfollows: 1. Terms . All terms used herein shall have the same meanings as in the Credit Agreement unless otherwise defined herein. 2. Amendment . Upon the occurrence of the Amendment Effective Date (defined below) 2.1. Section 1.1 of the Credit Agreement is hereby amended by amending the definition therein of “Maturity Date” in its entirety as follow: “Maturity Date” means August 3, 2018. 3. Representations and Warranties . As of the date hereof, the Borrower, and as of the Amendment Effective Date, the Borrower and eachGuarantor, hereby represents and warrants to the Lender that after giving effect to this Amendment: 3.1. Authorization: Enforceable Obligations: No Contravention . The execution, delivery and performance of this Amendment by the Loan Partieshave been duly authorized by all necessary action, and this Amendment is a legal, valid and binding obligation of the Loan Parties party hereto, enforceable inaccordance with its terms, except as enforceability may be limited by applicable Debtor Relief Laws. The execution, delivery and performance of this Amendment(i) are not in contravention of la w or of the terms of any Loan Party’ s organizational documents, and (ii) will not result in the breach of or constitute a defaultunder, or result in the creation of a Lien or require a payment to be mad e under any indenture, agreement or undertaking to which the Borrower or any Guarantoris a party or by which it or its property may be bound or affected, except in the case referred to in this clause (ii), to the extent that such breach, default, Lien orpayment would not reasonably be expected to have a Material Adverse Effect. Page 1 of 6 3.2. Governmental Authorization: Other Consents . No approval, consent, exemption, authorization, or other action by, or notice to, or filing with,any Governmental Authority, including the Central Bank of Brazil, or any other Person is necessary or required in connection with the execution, delivery orperformance by, or enforcement against. the Borrower or any Guarantor of this Amendment, which has not been duly obtained, except for the filing of the Minutesof the Quotaholders’ Meeting ( Ata de Reunião de Quotistas ) authorizing the Amendment with the Commercial Registry of the State of S ã o Paulo ( JuntaComercial do Estado de São Paulo ). 3.3. Incorporation of Certain Representations . After giving effect to the terms of this Amendment, the representations and warranties of the Borrowerand the Guarantors set forth in Article III of the Credit Agreement (except as to such representations and warranties made as of an earlier specified date which aretrue and correct as of the date made) are true and correct as of the date hereof, (A) if any such representation and warranty is qualified as to materiality or byreference to the existence of a Material Adverse Effect, in all respects (as so qualified), or (8) if any such representation and warranty is not so qualified, in allmaterial respects; provided , that for purposes of this Section 3.3, the representations and warranties of the Borrower contemplated in Section 3.1 of the CreditAgreement shall be deemed to refer to the last day of the period covered by the most recent financial statements furnished to the Lender under the CreditAgreement; provided further that the representation and warranty set forth in Section 3.16 of the Cred it Agreement is made hereby with respect to the period offour (4) fiscal quarters ended on March 31, 2017. 3.4. Default . Both before and after giving effect to this Amendment, no Default or Event of Default under the Credit Agreement has occurred and iscontinuing. 4. Conditions, Effectiveness . This Amendment shall become effective as of the date (the “ Amendment Effective Date ”) on which each of thefollowing conditions shall have been satisfied: (a) The Lender shall have received this Amendment duly executed and delivered on behalf of the Borrower and each Guarantor. (b) the Borrower and each Guarantor shall have delivered evidence that the process agent shall have accepted appointment to receive serviceof process on the Borrower and such Guarantor, in form and substance reasonably satisfactory to the Lender up to a date six months after the Maturity Date (asamended hereby). (c) The Borrower shall have paid on or before the Amendment Effective Date all fees and other amounts due and payable by the Borrower tothe Lender (including fees and expenses of counsel to lender) in accordance with the C red it Agreement (as amended hereby) to the extent invoiced to theBorrower prior to the Amendment Effective Date. Page 2 of 6 (d) All consents, licenses and approvals required in connection with the execution, delivery and performance by the Loan Parties of thisAmendment shall have been received by the Loan Parties. 5. Miscellaneous . 5.1. Effective ness of the Credit Agreement and other Loan Documents . Except as hereby expressly amended, the Credit Agreement, the Note, theFee Letter and each Subsidiary Joinder Agreement (if any), shall each remain in full force and effect, are hereby ratified and confirmed in all respects on and as ofthe date hereof, and each Loan Party hereby reaffirms its obligations thereunder. 5.2. Post Amendment Effective Date Covenants . (a) Within twenty-one calendar days after the Amendment Effective Date, Arcos Dourados Comercio de Alimentos Ltda. shall file theMinutes of the Quotaholders’ Meeting ( Ata de Reunião de Quotistas ) authorizing the Amendment with the Commercial Registry of the State of S ã o Paulo (Junta Comercial do Estado de São Paulo ). (b) The Loan Parties shall furnish the Lender with true and correct copies of such resolutions and powers of attorney authorizing theAmendment as the Lender may reasonably request within twenty-one calendar days of the Amendment Effective Date. (c) Failure by any Loan Party to perform the covenants set forth in this Section 5.2 shall result in automatic termination of this Amendmentand shall render this Amendment null and void and without any effect. 5.3. Loan Document . This Amendment is a Loan Document. 5.4. Counterparts . This Amendment may be executed in any number of counterparts, and all of such counterparts taken together shall be deemed toconstitute one and the same instrument. 5.5. Governing Law . This Amendment shall be governed by and construed in accordance with the laws of the State of New York. 5.6. Jurisdiction . Section 9.10 of the Credit Agreement shall apply mutatis mutandis to this Amendment. [ Remainder of Page Intentionally Left Blank. ] Page 3 of 6 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the date first written above. ARCOS DORADOS B.V., as Borrower By:/s/ Máximo Ayerza Name: Máximo Ayerza Title: Attorney-in-Fact ARCOS DOURADOS COMERCIO DE ALIMENTOS, LTDA.,as a Guarantor By:/s/ Máximo Ayerza Name: Máximo Ayerza Title: Attorney-in-Fact ADCR INMOBILIARIA S.A., as a Guarantor By:/s/ Máximo Ayerza Name: Máximo Ayerza Title: Attorney-in-Fact ARCOS DORADOS COSTA RICA ADCR, S.A., as a Guarantor By:/s/ Máximo Ayerza Name: Máximo Ayerza Title: Attorney-in-Fact Page 4 of 6 ARCOS DORADOS PANAMÁ, S.A., as a Guarantor By:/s/ Máximo Ayerza Name: Máximo Ayerza Title: Attorney-in-Fact SISTEMAS MCOPCO PANAMÁ, S.A., as a Guarantor By:/s/ Máximo Ayerza Name: Máximo Ayerza Title: Attorney-in-Fact ARCOS DORADOS HOLDINGS, INC., as a Guarantor By:/s/ Máximo Ayerza Name: Máximo Ayerza Title: Attorney-in-Fact Page 5 of 6 LENDER: BANK OF AMERICA, N.A., as Lender By:/s/ Augusto Urmeneta Name: Augusto Urmeneta Title: Managing Director Page 6 of 6 Exhibit 4.30 FIRST AMENDMENT TO CREDIT AGREEMENT THIS FIRST AMENDMENT TO CREDIT AGREEMENT is made and dated as of November 1, 2017 (the “ Amendment ”) among ARCOS DORADOSB.V., a private company with limited liability ( besloten venootschap met beperkte aansprakelijkheid ) organized under the laws of The Netherlands with statutoryseat in Amsterdam (the “ Borrower ”), certain subsidiaries of the Borrower as guarantors (the “ Guarantors ”), and JPMORGAN CHASE BANK, N.A., as lender(the “ Lender ”) and amends that certain Credit Agreement dated as of November 10, 2016, among the Borrower, the Guarantors and the Lender (as may be furtheramended or modified from time to time, the “ Credit Agreement ”). RECITALS WHEREAS, the Lender has agreed, subject to the terms and conditions hereinafter set forth, to amend the Credit Agreement in certain respects as setforth below. NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agreeas follows: 1. Terms . All terms used herein shall have the same meanings as in the Credit Agreement unless otherwise defined herein. 2. Amendment . Upon the occurrence of the Amendment Effective Date (defined below) 2.1 Section 1.1 of the Credit Agreement is hereby amended by amending the definition therein of “ Maturity Date ” in its entirety as follow: “ Maturity Date ” means November 10, 2018. 2.2 Section 2.8(a) of the Credit Agreement is hereby amended and restated in its entirety to read as follows: (a) The obligation of the Borrower to repay the aggregate principal balance of all Loans hereunder outstanding at any one time shall, if requested bythe Lender, be evidenced by one or more notes governed by the laws of the State of New York executed by the Borrower, as issuer, payable to the Lender,substantially in the form of Exhibit B, as such Note(s) may be modified or amended from time to time. Promptly upon such request, the Borrower shallexecute and deliver such Note(s) to the Lender. 2.3 References to the “Credit Agreement” in the Fee Letter shall be deemed to mean the Credit Agreement as amended, supplemented or otherwisemodified from time to time. 3. Representations and Warranties . As of the date hereof and as of the Amendment Effective Date, the Borrower and each Guarantor, herebyrepresents and warrants to the Lender that after giving effect to this Amendment: 3.1 Authorization; Enforceable Obligations; No Contravention . The execution, delivery and performance of this Amendment by the Loan Partieshave been duly authorized by all necessary action, and this Amendment is a legal, valid and binding obligation of the Loan Parties party hereto, enforceable inaccordance with its terms, except as enforceability may be limited by applicable Debtor Relief Laws. The execution, delivery and performance of this Amendment(i) are not in contravention of law or of the Page 1 of 6 terms of any Loan Party’s organizational documents, and (ii) will not result in the breach of or constitute a default under, or result in the creation of a Lien orrequire a payment to be made under any indenture, agreement or undertaking to which the Borrower or any Guarantor is a party or by which it or its property maybe bound or affected, except in the case referred to in this clause (ii), to the extent that such breach, default, Lien or payment would not reasonably be expected tohave a Material Adverse Effect. 3.2 Governmental Authorization; Other Consents . No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, anyGovernmental Authority, including the Central Bank of Brazil, or any other Person is necessary or required in connection with the execution, delivery orperformance by, or enforcement against, the Borrower or any Guarantor of this Amendment or any other Loan Document, which has not been duly obtained,except for the filing of the Minutes of the Quotaholders’ Meeting ( Ata de Reunião de Quotista s) authorizing the Amendment with the Commercial Registry of theState of Sao Paulo ( Junta Comercial do Estado de São Paulo ). 3.3 Incorporation of Certain Representations . After giving effect to the terms of this Amendment, the representations and warranties of the Borrowerand the Guarantors set forth in Article III of the Credit Agreement (except as to such representations and warranties made as of an earlier specified date which aretrue and correct as of the date made) are true and correct as of the date hereof, (A) if any such representation and warranty is qualified as to materiality or byreference to the existence of a Material Adverse Effect, in all respects (as so qualified), or (B) if any such representation and warranty is not so qualified, in allmaterial respects; provided , that for purposes of this Section ‎3.3, the representations and warranties of the Borrower contemplated in Section 3.1 of the CreditAgreement shall be deemed to refer to the last day of the period covered by the most recent financial statements furnished to the Lender under the CreditAgreement; provided further that the representation and warranty set forth in Section 3.16 of the Credit Agreement is made hereby with respect to the period offour (4) fiscal quarters ended on June 30, 2017. 3.4 Default . Both before and after giving effect to this Amendment, no Default or Event of Default under the Credit Agreement has occurred and iscontinuing. 4. Conditions, Effectiveness . This Amendment shall become effective as of the date (the “ Amendment Effective Date ”) on which each of thefollowing conditions shall have been satisfied: (a) The Lender shall have received this Amendment duly executed and delivered on behalf of the Borrower and each Guarantor. (b) the Borrower and each Guarantor shall have delivered evidence that the process agent shall have accepted appointment to receive service ofprocess on the Borrower and such Guarantor, in form and substance reasonably satisfactory to the Lender up to a date six months after the Maturity Date (asamended hereby). (c) The Borrower shall have paid on or before the Amendment Effective Date all fees and other amounts due and payable by the Borrower tothe Lender (including fees and expenses of counsel to lender) in accordance with the Credit Agreement (as amended hereby) to the extent invoiced to the Borrowerprior to the Amendment Effective Date. (d) All consents, licenses and approvals required in connection with the execution, delivery and performance by the Loan Parties of thisAmendment shall have been received by the Loan Parties. Page 2 of 6 5. Miscellaneous . 5.1 Effectiveness of the Credit Agreement and other Loan Documents . Except as hereby expressly amended, the Credit Agreement, the Note(s) (ifany), the Fee Letter and each Subsidiary Joinder Agreement (if any), shall each remain in full force and effect, are hereby ratified and confirmed in all respects onand as of the date hereof, and each Loan Party hereby reaffirms its obligations thereunder. 5.2 Post Amendment Effective Date Covenants . (a) Within twenty-one calendar days after the Amendment Effective Date, Arcos Dourados Comércio de Alimentos Ltda. shall file the Minutesof the Quotaholders’ Meeting ( Ata de Reunião de Quotistas ) authorizing the Amendment with the Commercial Registry of the State of Sao Paulo ( JuntaComercial do Estado de São Paulo ). (b) The Loan Parties shall furnish the Lender with true and correct copies of such resolutions and powers of attorney authorizing theAmendment as the Lender may reasonably request within twenty-one calendar days of the Amendment Effective Date. (c) Failure by any Loan Party to perform the covenants set forth in this Section ‎5.2 shall result in automatic termination of this Amendment andshall render this Amendment null and void and without any effect. 5.3 Loan Document . This Amendment is a Loan Document. 5.4 Counterparts . This Amendment may be executed in any number of counterparts, and all of such counterparts taken together shall be deemed toconstitute one and the same instrument. 5.5 Governing Law . This Amendment shall be governed by and construed in accordance with the laws of the State of New York. 5.6 Jurisdiction . Section 9.10 of the Credit Agreement shall apply mutatis mutandis to this Amendment. [ Remainder of Page Intentionally Left Blank. ] Page 3 of 6 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the date first written above. ARCOS DORADOS B.V., as Borrower By:/s/ Máximo Ayerza Name: Máximo Ayerza Title: Attorney-in-Fact ARCOS DORADOS COMERCIO DE ALIMENTOS, LTDA.,as a Guarantor By:/s/ Máximo Ayerza Name: Máximo Ayerza Title: Attorney-in-Fact ADCR INMOBILIARIA S.A., as a Guarantor By:/s/ Máximo Ayerza Name: Máximo Ayerza Title: Attorney-in-Fact ARCOS DORADOS COSTA RICA ADCR, S.A., as a Guarantor By:/s/ Máximo Ayerza Name: Máximo Ayerza Title: Attorney-in-Fact Page 4 of 6 ARCOS DORADOS PANAMÁ, S.A., as a Guarantor By:/s/ Máximo Ayerza Name: Máximo Ayerza Title: Attorney-in-Fact SYSTEMAS MCOPCO PANAMÁ, S.A., as a Guarantor By:/s/ Máximo Ayerza Name: Máximo Ayerza Title: Attorney-in-Fact ARCOS DORADOS HOLDINGS INC., as a Guarantor By:/s/ Máximo Ayerza Name: Máximo Ayerza Title: Attorney-in-Fact Page 5 of 6 LENDER : JPMORGAN CHASE BANK, N.A., as Lender By: /s/ illegible Name: Title: Page 6 of 6 Exhibit 8.1 Subsidiaries of Registrant NamePlace of IncorporationAdcon S.A.ArgentinaAdministrative Development CompanyDelawareAduy S.A.UruguayAlimentos Arcos Dorados de Venezuela C.A.VenezuelaAlimentos Latinoamericanos Venezuela ALV, C.A.VenezuelaArcgold del Ecuador, S.A.EcuadorArcos del Sur, S.R.L.UruguayArcos Dorados Argentina S.A.ArgentinaArcos Dorados Aruba N.V.ArubaArcos Dorados B.V.NetherlandsArcos Dorados Caribbean Development Corp.DelawareArcos Dorados Colombia S.A.SColombiaArcos Dorados Coöperatieve U.A.NetherlandsArcos Dorados Costa Rica ADCR, S.A.Costa RicaADCR Inmobiliaria, S.A.Costa RicaArcos Dorados Curacao, N.V.CuracaoArcos Dorados French GuianaFrench GuianaArcos Dorados GuadeloupeGuadeloupeArcos Dorados MartiniqueMartiniqueArcos Dorados Panama, S.A.PanamaArcos Dorados Puerto Rico, LLCPuerto RicoArcos Dorados Restaurantes de Chile, Ltda.ChileArcos de Valparaiso SpAChileArcos Dorados Trinidad LimitedTrinidad and TobagoArcos Dorados USVI, Inc.(St. Croix)USVIArcos Dourados Comercio de Alimentos Ltda.BrazilArcos Dourados Restaurantes Ltda.BrazilArcos SerCal Inmobiliaria, S. de R.L. de C.V.MexicoRestaurantes ADMX, S. de R.L. de C.V.MexicoArcos Dorados BraPa S.A.PanamaCompañía de Inversiones Inmobiliarias S.A.ArgentinaComplejo Agropecuario Carnico (Carnicos), C.A.VenezuelaArcos Dorados de Uruguay S.A.UruguayGerencia Operativa ARC, C.A.VenezuelaCompañía Operativa de Alimentos COR, C.A.VenezuelaGolden Arch Development LLCDelawareLatAm, LLCDelawareLogistics and Manufacturing LOMA Co.DelawareManagement Operations CompanyDelawareOperaciones Arcos Dorados de Perú, S.A.PeruRestaurant Realty of Mexico, Inc.DelawareSistemas Central America, S.A.PanamaSistemas McOpCo Panama, S.A.PanamaArcos Dorados Latam LLCDelawareArcos SEM Panama SAPanamaArcos Dorados Paisas S.A.S.ColombiaArcos Mendocinos S.A.Argentina EXHIBIT 12.1 CERTIFICATION I, Sergio Alonso, certify that: 1.I have reviewed this annual report on Form 20-F of Arcos Dorados Holdings Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the company as of, and for, the periods presented in this report; 4.The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the companyand have: a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared; b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles; c)Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d)Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annualreport that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and 5.The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to thecompany’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the company’s ability to record, process, summarize and report financial information; and b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control overfinancial reporting. Date: April 27, 2018 /s/ Sergio Alonso Name: Sergio Alonso Title: Chief Executive Officer EXHIBIT 12.2 CERTIFICATION I, Mariano Tannenbaum, certify that: 1.I have reviewed this annual report on Form 20-F of Arcos Dorados Holdings Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the company as of, and for, the periods presented in this report; 4.The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the companyand have: a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure thatmaterial information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularlyduring the period in which this report is being prepared; b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles; c)Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d)Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual reportthat has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and 5.The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to thecompany’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the company’s ability to record, process, summarize and report financial information; and b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control overfinancial reporting. Date: April 27, 2018 /s/ Mariano Tannenbaum Name: Mariano Tannenbaum Title: Chief Financial Officer EXHIBIT 13.1 CERTIFICATION The certification set forth below is being submitted in connection with the annual report of Arcos Dorados Holdings Inc. on Form 20-F for the year endedDecember 31, 2017 (the “Report”) for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the “ExchangeAct”) and Section 1350 of Chapter 63 of Title 18 of the United States Code. Sergio Alonso, the Chief Executive Officer of Arcos Dorados Holdings Inc., certifiesthat, to the best of his knowledge: 1.the Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and 2.the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Arcos DoradosHoldings Inc. Date: April 27, 2018 /s/ Sergio Alonso Name: Sergio Alonso Title: Chief Executive Officer EXHIBIT 13.2 CERTIFICATION The certification set forth below is being submitted in connection with the annual report of Arcos Dorados Holdings Inc. on Form 20-F for the year endedDecember 31, 2017 (the “Report”) for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the “ExchangeAct”) and Section 1350 of Chapter 63 of Title 18 of the United States Code. Mariano Tannenbaum, the Chief Financial Officer of Arcos Dorados Holdings Inc.,certifies that, to the best of his knowledge: 1.the Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and 2.the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Arcos DoradosHoldings Inc. Date: April 27, 2018 /s/ Mariano Tannenbaum Name: Mariano Tannenbaum Title: Chief Financial Officer Exhibit 15.1 Consent of Independent Registered Public Accounting Firm We consent to the incorporation by reference in the following Registration Statement: (1)Registration Statement (Form S-8 No. 333-173496) pertaining to the Equity Incentive Plan of Arcos Dorados Holdings Inc; of our report dated March 21, 2018, with respect to the consolidated financial statements, and our report dated March 21, 2018, with respect to the effectiveness ofinternal control over financial reporting, of Arcos Dorados Holdings Inc., included in this Annual Report (Form 20-F) for the year ended December 31, 2017. Buenos Aires, Argentina April 27, 2018 /s/ Pistrelli, Henry Martin y Asociados S.R.L. PISTRELLI, HENRY MARTIN Y ASOCIADOS S.R.L. Member of Ernst & Young Global

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