Arcos Dorados Reports Third Quarter 2016 Financial Results

Arcos Dorados Holdings, Inc. (NYSE:ARCO) ("Arcos Dorados" or the "Company"), Latin America's largest restaurant chain and the world's largest McDonald's franchisee, today reported unaudited results for the third quarter ended September 30, 2016.

Third Quarter 2016 Key Results
  • As reported consolidated revenues increased 2.9% to $775.7 million versus the third quarter of 2015. On a constant currency basis 1, consolidated revenues grew 15.3%, or 12.4% excluding Venezuela.
  • Systemwide comparable sales rose 15.6% year-over-year, or 11.8% excluding Venezuela.
  • Adjusted EBITDA increased 24.0% to $63.2 million year-over-year. Constant currency Adjusted EBITDA grew 45.9% year-over-year, or 29.5% excluding Venezuela.
  • Consolidated Adjusted EBITDA margin expanded approximately 140 basis points, or 130 basis points excluding Venezuela.
  • As reported General and Administrative expenses (G&A) decreased by $6.5 million, or 10.5% year-over-year, and remained approximately flat on a constant currency basis.
  • As reported net loss was $1.8 million, compared to a net loss of $35.9 million in the same period last year.

"We achieved as reported revenue and mid-teen comparable sales growth, and delivered a meaningful expansion in the consolidated Adjusted EBITDA margin in the third quarter. The latter reflects important efficiencies in payroll and reduced G&A costs, providing us operating leverage in spite of challenging market conditions. Our focus going forward is on modernizing restaurants, piloting technology platforms and updating menu offerings to ensure the best customer experience. These strategic changes are positioning us at the forefront of a recovery in economic growth in the region", said Sergio Alonso, Chief Executive Officer of Arcos Dorados.

Third Quarter 2016 Results

Consolidated
Figure 1. AD Holdings Inc Consolidated: Key Financial Results

(In millions of U.S. dollars, except as noted)
      3Q15

(a)
 

Currency Translation (b)
 

Constant Currency Growth (c)
  3Q16

(a+b+c)
 

% As Reported
 

% Constant Currency
Total Restaurants (Units)     2,122       2,140   0.8 %  
 
Sales by Company-operated Restaurants 724.3 (89.9 ) 108.3 742.8 2.5 % 15.0 %
Revenues from franchised restaurants 29.4 (3.8 ) 7.3 32.9 12.0 % 24.9 %
Total Revenues 753.7 (93.7 ) 115.6 775.7 2.9 % 15.3 %
Systemwide Comparable Sales 15.6 %
Adjusted EBITDA 50.9 (11.2 ) 23.4 63.2 24.0 % 45.9 %
Adjusted EBITDA Margin 6.8 % 8.1 %
Net income (loss) attributable to AD (35.9 ) (12.3 ) 46.4 (1.8 ) 94.9 % 129.2 %
No. of shares outstanding (thousands) 210,538 210,711
EPS (US$/Share)    

-0.17

 
         

-0.01

 
       
 

(3Q16 = 3Q15 + Currency Translation + Constant Currency Growth). Refer to "Definitions" section for further detail.

Arcos Dorados' third quarter as reported revenues increased by 2.9% as constant currency revenue growth of 15.3% more than offset depreciation of local currencies. While the Argentine peso and Venezuelan bolivar both depreciated, the Brazilian real appreciated 8% year-over-year. Constant currency revenue growth was driven by a 15.6% expansion in systemwide comparable sales, due to average check growth, partially offset by a modest decline in traffic.

Third quarter consolidated as reported Adjusted EBITDA increased 24.0% as constant currency growth more than offset the currency translation impact, mainly in Argentina and Venezuela. Brazil was the key contributor to expanded Adjusted EBITDA during the quarter, followed by the Caribbean division and NOLAD, while SLAD's result declined due to margin contraction and the year-over-year depreciation of the Argentine peso. Additionally, the Corporate segment contributed positively to consolidated Adjusted EBITDA during the quarter.

The Adjusted EBITDA margin expanded by almost 140 basis points to 8.1%, supported by margin expansion in Brazil, the Caribbean division, NOLAD and the Corporate segment, partially offset by margin contraction in SLAD. The key drivers for margin expansion were efficiencies in Payroll and G&A expenses, which more than offset higher Food and Paper (F&P) costs as a percentage of revenues. Additionally, Adjusted EBITDA benefited from the refranchising of certain company-operated restaurants, as part of the Company's asset monetization strategy. Excluding the refranchising inflows, consolidated Adjusted EBITDA margin increased by about 60 basis points.

As reported, consolidated G&A decreased by 10.5% year-over-year, or over 100 basis points as a percentage of revenues. Importantly, G&A remained broadly flat year-over-year on a constant currency basis. This reflects efficiencies related to the reorganization plan implemented in the fourth quarter of 2015, which more than offset inflation-driven growth in G&A expenses, including Argentine peso denominated corporate expenses.

Consolidated - excluding Venezuela
Figure 2. AD Holdings Inc Consolidated - Excluding Venezuela: Key Financial Results

(In millions of U.S. dollars, except as noted)
      3Q15

(a)
 

Currency Translation (b)
 

Constant Currency Growth (c)
  3Q16

(a+b+c)
 

% As Reported
 

% Constant Currency
Total Restaurants (Units)     1,988       2,007   1.0 %  
 
Sales by Company-operated Restaurants 716.6 (70.3 ) 87.8 734.1 2.4 % 12.3 %
Revenues from franchised restaurants 28.6 (1.6 ) 4.9 31.9 11.7 % 17.2 %
Total Revenues 745.1 (71.9 ) 92.7 766.0 2.8 % 12.4 %
Systemwide Comparable Sales 11.8 %
Adjusted EBITDA 51.4 (4.0 ) 15.2 62.6 21.8 % 29.5 %
Adjusted EBITDA Margin 6.9 % 8.2 %
Net income (loss) attributable to AD (32.3 ) (1.5 ) 35.3 1.5 104.8 % 109.3 %
No. of shares outstanding (thousands) 210,538 210,711
EPS (US$/Share)    

-0.15

 
          0.01          
 

Excluding the Company's Venezuelan operation, as reported revenues increased by 2.8% year-over-year as constant currency growth of 12.4% more than offset the depreciation of the Argentine peso, as well as other currencies in the Company's territory. Constant currency growth was supported by an 11.8% increase in systemwide comparable sales, driven by average check growth.

Adjusted EBITDA increased 21.8% on an as reported basis, as constant currency growth more than offset currency translation impacts. In constant currency terms, Adjusted EBITDA increased 29.5%. The Adjusted EBITDA margin expanded by about 130 basis points to 8.2%. The result reflects efficiencies in Payroll costs and G&A expenses, partially offset by higher F&P costs as a percentage of revenues. Adjusted EBITDA excluding Venezuela also benefited from the refranchising of certain company-operated restaurants, as part of the Company's asset monetization initiative.

Non-operating Results

Non-operating results for the third quarter reflected a $3.3 million foreign currency exchange loss, versus a loss of $27.9 million last year. The result was due to the significantly higher depreciation of the Brazilian real during the third quarter of 2015 versus the same period this year, combined with an increased net exposure to the Brazilian real. Net interest expense increased $3.7 million year-over-year to $18.2 million in the quarter, mainly due to higher interest expenses on the BRL-denominated debt, which more than offset lower interest expenses on the 2023 USD notes.

The Company reported an income tax expense of $18.0 million in the quarter, compared to an income tax expense of $14.1 million in the prior year period.

Third quarter net loss attributable to the Company totaled $1.8 million, compared to a net loss of $35.9 million in the same period of 2015. The improvement reflects stronger operating results coupled with lower foreign exchange losses, partially offset by higher net interest and income tax expenses. The third quarter 2016 operating result included the recognition of $5.8 million related to the Company's refranchising initiative, which was recorded within "Other operating income (expense), net" line on the Company's income statement.

The Company reported a basic net loss per share of $0.01 in the third quarter of 2016, compared to a loss per share of $0.17 in the previous corresponding period. Total weighted average shares for the third quarter of 2016 were 210,710,861, as compared to 210,537,949 in the third quarter of 2015, reflecting the issuance of shares as a result of the partial vesting of restricted share units.

Analysis by Division 2 :

Brazil Division
Figure 3. Brazil Division: Key Financial Results

(In millions of U.S. dollars, except as noted)
      3Q15

(a)
 

Currency Translation (b)
 

Constant Currency Growth (c)
 

3Q16 a+b+c)
 

% As Reported
 

% Constant Currency
Total Restaurants (Units)     869       890   2.4 %  
 
Total Revenues 311.8 27.1 18.2 357.0 14.5 % 5.8 %
Systemwide Comparable Sales 6.3 %
Adjusted EBITDA 26.2 2.7 10.3 39.2 49.6 % 39.5 %
Adjusted EBITDA Margin     8.4 %           11.0 %        
 

Brazil's as reported revenues increased by 14.5%, supported by constant currency growth as well as the 8% year-over-year average appreciation of the Brazilian real. Excluding the benefit of currency translation, constant currency revenues increased 5.8% year-over-year, supported by 6.3% comparable sales growth and the contribution of new restaurant openings, partially offset by the refranchising of certain company-operated restaurants during the last twelve months. The latter generated a net negative contribution to constant currency revenue growth. Systemwide comparable sales were driven by average check growth, partially offset by a modest decline in traffic against a backdrop of continued soft consumer spending. Traffic was also impacted by a tough comparison with the Minions Happy Meal campaign in the prior year quarter.

Marketing activities in the quarter included the "Novinhos Cheddar" campaign, the launch of the McFlurry Kit Kat in the dessert category and the continuation of the affordability platform. The Happy Meal performed well with "Talking Tom" and "The Secret Life of Pets" properties Also in the quarter, the Company launched the McShake Ovomaltine, which has performed strongly since its introduction.

As reported Adjusted EBITDA increased by 49.6% year-over-year and 39.5% on a constant currency basis. The Adjusted EBITDA margin expanded by about 260 basis points to 11.0%, as efficiencies in Payroll, G&A and Occupancy and Other Operating expenses more than offset higher F&P costs as a percentage of revenues. Additionally, a positive variance in Other Operating Income as a percentage of revenues, which included $5.8 million from the Company's refranchising initiative, contributed to margin expansion in the quarter. Excluding the refranchising inflows, Brazil's Adjusted EBITDA margin increased by nearly 100 basis points. Increased F&P costs as a percentage of revenues mainly reflect the higher FX rate at which the Company hedged its exposure to imported goods.

NOLAD
Figure 4. NOLAD Division: Key Financial Results

(In millions of U.S. dollars, except as noted)
     

3Q15 (a)
 

Currency Translation (b)
 

Constant Currency Growth (c)
 

3Q16 (a+b+c)
 

% As Reported
 

% Constant Currency
Total Restaurants (Units)     514       515   0.2 %  
 
Total Revenues 93.5 (6.8 ) 8.1 94.7 1.4 % 8.6 %
Systemwide Comparable Sales 5.6 %
Adjusted EBITDA 9.0 (0.4 ) 1.9 10.5 17.3 % 21.4 %
Adjusted EBITDA Margin     9.6 %           11.1 %        
 

NOLAD's as reported revenues increased by 1.4% year-over-year as constant currency growth of 8.6% more than offset currency translation impacts, mainly from the 14% year-over-year average depreciation of the Mexican peso. Systemwide comparable sales increased 5.6%, largely driven by average check growth combined with a modest increase in traffic across the division.

Marketing initiatives in the quarter included the launch of the new affordability platform, "McTrio 3x3", "Talking Tom" in the Happy Meal and the McFlurry Snickers in the dessert category, among others.

As reported Adjusted EBITDA increased by 17.3%, or 21.4% on a constant currency basis, continuing a trend of strong performance and margin expansion. The Adjusted EBITDA margin expanded by about 150 basis points to 11.1% in the third quarter, mainly driven by efficiencies in G&A, Occupancy and Other Operating expenses and Payroll as a percentage of revenues. F&P costs as a percentage of revenues remained broadly flat during the quarter.

SLAD
Figure 5. SLAD Division: Key Financial Results

(In millions of U.S. dollars, except as noted)
     

3Q15 (a)
 

Currency Translation (b)
 

Constant Currency Growth (c)
 

3Q16 (a+b+c)
 

% As Reported
 

% Constant Currency
Total Restaurants (Units)     383       383   0.0 %  
 
Total Revenues 252.3 (92.0 ) 61.8 222.1 -12.0 % 24.5 %
Systemwide Comparable Sales 25.3 %
Adjusted EBITDA 31.0 (10.8 ) 2.6 22.8 -26.4 % 8.4 %
Adjusted EBITDA Margin     12.3 %           10.3 %        
 

The SLAD division's as reported revenues decreased by 12.0% mainly due to the 62% year-over-year average depreciation of the Argentine peso. On a constant currency basis, revenues increased 24.5% year-over-year. Systemwide comparable sales increased 25.3%, primarily driven by average check growth and an increase in traffic.

Marketing activities in the quarter included the Grand Big Mac campaign, "Talking Tom" in the Happy Meal, the launch of the McFlurry "Abuela Goye" in the dessert category and the continuation of the Company's affordability platform, among others.

Adjusted EBITDA decreased 26.4% on an as reported basis but rose 8.4% in constant currency terms. The Adjusted EBITDA margin contracted by about 200 basis points to 10.3%, driven by higher F&P and Occupancy and Other Operating expenses, partially offset by efficiencies in Payroll costs as a percentage of revenues. F&P costs rose as a percentage of revenues in the quarter, primarily due to price adjustments below cost increases designed to sustain traffic in Argentina's difficult consumer environment.

Caribbean Division
Figure 6. Caribbean Division: Key Financial Results

(In millions of U.S. dollars, except as noted)
     

3Q15 (a)
 

Currency Translation (b)
 

Constant Currency Growth (c)
 

3Q16 (a+b+c)
 

% As Reported
 

% Constant Currency
Total Restaurants (Units)     356       352   -1.1 %  
 
Total Revenues 96.2 (22.0 ) 27.6 101.8 5.8 % 28.7 %
Systemwide Comparable Sales 37.0 %
Adjusted EBITDA 2.6 (7.2 ) 10.7 6.2 132.2 % 405.3 %
Adjusted EBITDA Margin     2.8 %           6.0 %        
 

The Caribbean division's as reported revenues increased by 5.8%, as constant currency growth exceeded currency translation impacts derived from the remeasurement of the results of the Venezuelan operation at a weaker year-over-year average exchange rate. Revenues in constant currency rose 28.7% year-over-year. Systemwide comparable sales increased by 37.0%, with average check growth more than offsetting a decrease in traffic.

Marketing initiatives in the quarter included "Talking Tom" in the Happy Meal, the Grand Big Mac campaign, the McFlurry "Jet Cruji" and the continuation of "Almuerzos Colombianos" in the affordability platform, among others.

As reported Adjusted EBITDA totaled $6.2 million in the third quarter, compared with $2.6 million in the prior year quarter. The Adjusted EBITDA margin expanded to 6.0% from 2.8%, driven by efficiencies in all key cost line items.

Caribbean Division - excluding Venezuela
Figure 7. Caribbean Division - Excluding Venezuela: Key Financial Results

(In millions of U.S. dollars, except as noted)
     

3Q15 (a)
 

Currency Translation (b)
 

Constant Currency Growth (c)
 

3Q16 (a+b+c)
 

% As Reported
 

% Constant Currency
Total Restaurants (Units)     222       219   -1.4 %  
 
Total Revenues 87.6 (0.2 ) 4.7 92.1 5.1 % 5.4 %
Systemwide Comparable Sales 4.6 %
Adjusted EBITDA 3.1 (0.0 ) 2.5 5.6 79.5 % 80.0 %
Adjusted EBITDA Margin     3.6 %           6.1 %        
 

As reported revenues in the Caribbean division, excluding Venezuela, increased by 5.1% as constant currency growth of 5.4% more than offset currency translation impacts. Constant currency growth was supported by the ongoing strong performance of the Colombian operation. Comparable sales increased by 4.6%, mainly driven by traffic growth.

Adjusted EBITDA totaled $5.6 million, compared to $3.1 million in the same period of 2015. The Adjusted EBITDA margin expanded by about 250 basis points to 6.1%, mainly driven by efficiencies in F&P costs, G&A and Occupancy and Other Operating expenses, partially offset by higher Payroll costs as a percentage of revenues.

New Unit Development
New Unit Development        
                   
Figure 8. Total Restaurants (eop)*                  
  September

2016
  June

2016
  March

2016
  December

2015
  September

2015
Brazil 890 884 883 883 869
NOLAD 515 516 516 518 514
SLAD 383 382 382 384 383
Caribbean 352 353 355 356 356
TOTAL 2,140 2,135 2,136 2,141 2,122
LTM Net Openings 18   15   17   20   36
* Considers Company-operated and franchised restaurants at period-end
 

The Company opened 33 new restaurants during the twelve-month period ended September 30, 2016, resulting in a total of 2,140 restaurants. Also during the period, the Company added 133 Dessert Centers bringing the total to 2,693. McCafés totaled 315 as of September 30, 2016.

Balance Sheet & Cash Flow Highlights

Cash and cash equivalents were $112.2 million at September 30, 2016. The Company's total financial debt (including derivative instruments) was $611.6 million. Net debt was $499.3 million and the Net Debt/Adjusted EBITDA ratio was 2.0x at September 30, 2016.

Net cash provided by operating activities was $50.5 million in the third quarter of 2016, while cash used in financing activities amounted to $65.5 million. The latter included $61.0 million related to the final payment of the remaining outstanding amount of the BRL 2016 Notes which matured on July 13, 2016. During the quarter, capital expenditures totaled $24.2 million.
Figure 9. Consolidated Financial Ratios

(In thousands of U.S. dollars, except ratios)
  September 30   December 31
    2016   2015
Cash & cash equivalents 112,207 112,519
Total Financial Debt (i) 611,552 650,452
Net Financial Debt (ii) 499,345 537,933
Total Financial Debt / LTM Adjusted EBITDA ratio 2.5 2.8
Net Financial Debt / LTM Adjusted EBITDA ratio   2.0   2.3
(i)Total financial debt includes short-term debt, long-term debt and derivative instruments (including the asset portion of derivatives amounting to $0.99 million and $6.7 million as a reduction of financial debt as of September 30, 2016 and December 31, 2015, respectively).
(ii) Total financial debt less cash and cash equivalents.
 

First Nine Months of 2016

For the nine months ended September 30, 2016, the Company's as reported revenues declined by 7.3% to $2,121.5 million with constant currency growth of 13.8% more than offset by currency translation impacts. As reported Adjusted EBITDA was $152.2 million, a 13.7% increase compared to the first nine months of 2015. On a constant currency basis, Adjusted EBITDA increased by 49.0%. The reported Adjusted EBITDA margin expanded by about 130 basis points to 7.2%, as leverage in G&A expenses and Payroll costs more than offset higher F&P costs as a percentage of revenues. Adjusted EBITDA benefited from G&A savings as a result of the optimization plan carried out in the fourth quarter of 2015. Additionally, Adjusted EBITDA included $10.7 million from the refranchising of some company-operated restaurants primarily in Brazil. Excluding the refranchising inflows, the consolidated Adjusted EBITDA margin increased by about 80 basis points.

Year-to-date consolidated net income amounted to $57.7 million, compared with a loss of $57.2 million in the same period of 2015. Net income in the first nine months of 2016 reflected stronger operating results, which included $59.0 million from asset monetization initiatives, coupled with a positive foreign exchange result, partially offset by income tax and net interest expenses. The net loss in the first nine months of 2015 reflected weaker operating results, which included impairment charges and inventory write downs related to the Venezuelan operation, coupled with negative foreign exchange results and net interest expenses.

Excluding the Venezuelan operation, the Company's revenues declined by 7.7%, but increased by 10.9% on a constant currency basis. Adjusted EBITDA increased by 7.1%, as reported, and 27.5% on a constant currency basis. The reported Adjusted EBITDA margin expanded by about 100 basis points to 7.4%, as leverage in G&A and Payroll costs more than offset higher F&P as a percentage of revenues.

During the first nine months of 2016, capital expenditures totaled $52.1 million.

Quarter Highlights & Recent Developments

Asset Monetization Initiative

The Company had received cumulative cash proceeds of around $112.0 million through September 30, 2016 as a result of its asset monetization initiatives, since they were launched. Approximately $93.0 million related to the redevelopment of certain real estate assets and $19.0 million to the refranchising of a number of company-operated restaurants.

Brazilian Real ("BRL") Denominated 2016 Notes

On July 13, 2016, the Company paid at maturity the remaining BRL 201 million of outstanding principal of the original BRL 675 million principal of the 2016 Notes. Proceeds from the four-year BRL 613.9 million secured loan agreement obtained by the Company's Brazilian subsidiary on March 29, 2016 were the primary source of financing for this payment.

Covenants under the Master Franchise Agreement (MFA)

The MFA requires the Company, among other obligations, to maintain a minimum fixed charge coverage ratio of 1.50x, as well as a maximum leverage ratio of 4.25x. As of September 30, 2016, the fixed charge coverage ratio was 1.67x and the leverage ratio was 4.08x.

Definitions:

Systemwide comparable sales growth: refers to the change, measured in constant currency, in our Company-operated and franchised restaurant sales in one period from a comparable period for restaurants that have been open for thirteen months or longer. While sales by our franchisees are not recorded as revenues by us, we believe the information is important in understanding our financial performance because these sales are the basis on which we calculate and record franchised revenues, and are indicative of the financial health of our franchisee base.

Constant currency basis: refers to amounts calculated using the same exchange rate over the periods under comparison to remove the effects of currency fluctuations from this trend analysis.

To better discern underlying business trends, this release uses non-GAAP financial measures that segregate year-over-year growth into two categories: (i) currency translation, (ii) constant currency growth. (i) Currency translation reflects the impact on growth of the appreciation or depreciation of the local currencies in which we conduct our business against the US dollar (the currency in which our financial statements are prepared). (ii) Constant currency growth reflects the underlying growth of the business excluding the effect from currency translation.

About Arcos Dorados

Arcos Dorados is the world's largest McDonald's franchisee in terms of systemwide sales and number of restaurants, operating the largest quick service restaurant chain in Latin America and the Caribbean. It has the exclusive right to own, operate and grant franchises of McDonald's restaurants in 20 Latin American and Caribbean countries and territories, including Argentina, Aruba, Brazil, Chile, Colombia, Costa Rica, Curaçao, Ecuador, French Guyana, Guadeloupe, Martinique, Mexico, Panama, Peru, Puerto Rico, St. Croix, St. Thomas, Trinidad & Tobago, Uruguay and Venezuela. The Company operates or franchises over 2,100 McDonald's-branded restaurants with over 90,000 employees and is recognized as one of the best companies to work for in Latin America. Arcos Dorados is traded on the New York Stock Exchange (NYSE: ARCO). To learn more about the Company, please visit the Investors section of our website: www.arcosdorados.com/ir

Cautionary Statement on Forward-Looking Statements

This press release contains forward-looking statements. The forward-looking statements contained herein include statements about the Company's business prospects, its ability to attract customers, its affordable platform, its expectation for revenue generation and its outlook and guidance for 2016. These statements are subject to the general risks inherent in Arcos Dorados' business. These expectations may or may not be realized. Some of these expectations may be based upon assumptions or judgments that prove to be incorrect. In addition, Arcos Dorados' business and operations involve numerous risks and uncertainties, many of which are beyond the control of Arcos Dorados, which could result in Arcos Dorados' expectations not being realized or otherwise materially affect the financial condition, results of operations and cash flows of Arcos Dorados. Additional information relating to the uncertainties affecting Arcos Dorados' business is contained in its filings with the Securities and Exchange Commission. The forward-looking statements are made only as of the date hereof, and Arcos Dorados does not undertake any obligation to (and expressly disclaims any obligation to) update any forward-looking statements to reflect events or circumstances after the date such statements were made, or to reflect the occurrence of unanticipated events.

Use of Non-GAAP Financial Measures

In addition to financial measures prepared in accordance with the general accepted accounting principles (GAAP), within this press release and the accompanying tables, we use a financial measure titled 'Adjusted EBITDA'. We use Adjusted EBITDA to facilitate operating performance comparisons from period to period. Adjusted EBITDA is defined as our operating income plus depreciation and amortization plus/minus the following losses/gains included within other operating expenses, net and within general and administrative expenses in our statement of income: gains from sale or insurance recovery of property and equipment, write-offs of property and equipment, impairment of long-lived assets, stock-based compensation in connection with the Company's initial public listing, and the ADBV Long-Term Incentive Plan incremental compensation from modification.

We believe Adjusted EBITDA facilitates company-to-company operating performance comparisons by backing out potential differences caused by variations such as capital structures (affecting net interest expense and other financial charges), taxation (affecting income tax expense) and the age and book depreciation of facilities and equipment (affecting relative depreciation expense), which may vary for different companies for reasons unrelated to operating performance. For more information, please see Adjusted EBITDA reconciliation in Note 9 of our quarterly financial statements (6-K Form) filed today with the S.E.C.

Third Quarter 2016 Consolidated Results

(In thousands of U.S. dollars, except per share data)
Figure 10. Third Quarter & First Nine Months 2016 Consolidated Results

(In thousands of U.S. dollars, except per share data)
  For Three-Months ended   For Nine-Months ended
September 30, September 30,
      2016       2015       2016       2015  
REVENUES    
Sales by Company-operated restaurants 742,767 724,326 2,032,856 2,196,499
Revenues from franchised restaurants     32,889       29,369       88,615       91,255  
Total Revenues     775,656       753,695       2,121,471       2,287,754  
OPERATING COSTS AND EXPENSES
Company-operated restaurant expenses:
Food and paper (269,737 ) (256,781 ) (740,453 ) (776,799 )
Payroll and employee benefits (160,671 ) (162,712 ) (444,682 ) (498,809 )
Occupancy and other operating expenses (198,449 ) (195,309 ) (557,546 ) (599,835 )
Royalty fees (37,689 ) (36,601 ) (103,388 ) (111,901 )
Franchised restaurants - occupancy expenses (14,233 ) (12,961 ) (40,023 ) (42,051 )
General and administrative expenses (55,818 ) (62,342 ) (157,817 ) (195,488 )
Other operating income (expenses), net     (502 )     (6,151 )     46,921       (22,742 )
Total operating costs and expenses     (737,099 )     (732,857 )     (1,996,988 )     (2,247,625 )
Operating income     38,557       20,838       124,483       40,129  
Net interest expense (18,196 ) (14,482 ) (53,233 ) (47,679 )
Gain (Loss) from derivative instruments (22 ) (97 ) (52 ) (222 )
Foreign currency exchange results (3,306 ) (27,939 ) 28,900 (47,951 )
Other non-operating expense, net     (796 )     (18 )     (1,562 )     (182 )
Income (loss) before income taxes     16,237       (21,698 )     98,536       (55,905 )
Income tax (expense) benefit     (18,003 )     (14,134 )     (40,732 )     (1,077 )
Net income (loss)     (1,766 )     (35,832 )     57,804       (56,982 )
Less: Net income attributable to non-controlling interests     (68 )     (92 )     (145 )     (202 )
Net income (loss) attributable to Arcos Dorados Holdings Inc.     (1,834 )     (35,924 )     57,659       (57,184 )
Earnings (loss) per share information ($ per share):
Basic net income per common share $ (0.01 ) $ (0.17 ) $ 0.27 $ (0.27 )
Weighted-average number of common shares outstanding-Basic     210,710,861       210,537,949       210,625,380       210,401,634  
Adjusted EBITDA Reconciliation                
Operating income 38,557 20,838 124,483 40,129
Depreciation and amortization 24,736 27,399 74,326 83,259
Operating charges excluded from EBITDA computation     (135 )     2,709       (46,640 )     10,465  
Adjusted EBITDA     63,158       50,946       152,169       133,853  
Adjusted EBITDA Margin as % of total revenues     8.1 %     6.8 %     7.2 %     5.9 %
 

Third Quarter 2016 Results by Division

(In thousands of U.S. dollars)
Figure 11. Third Quarter & First Nine Months 2016 Consolidated Results by Division

(In thousands of U.S. dollars)
   
3Q   YTD
Three-Months ended   % Incr.   Constant Nine-Months ended   % Incr.   Constant
September 30,   /     Currency September 30, /   Currency
  2016   2015     (Decr)   Incr/(Decr)% 2016   2015     (Decr)   Incr/(Decr)%
Revenues
Brazil 357,034 311,815 14.5 % 5.8 % 955,062 1,028,589 -7.1 % 4.9 %
Caribbean 101,759 96,152 5.8 % 28.7 % 298,045 292,860 1.8 % 27.6 %
NOLAD 94,743 93,451 1.4 % 8.6 % 268,203 271,217 -1.1 % 6.9 %
SLAD 222,120 252,277 -12.0 % 24.5 % 600,161 695,088 -13.7 % 24.0 %
TOTAL 775,656 753,695 2.9 % 15.3 % 2,121,471 2,287,754 -7.3 % 13.8 %
 
 
Operating Income (loss)
Brazil 27,602 12,739 116.7 % 102.3 % 71,962 58,522 23.0 % 42.1 %
Caribbean (2,594 ) (5,376 ) -51.7 % -253.1 % (16,959 ) (29,980 ) 43.4 % 137.9 %
NOLAD 5,441 2,122 156.4 % 153.5 % 55,800 1,535 3535.2 % 4008.9 %
SLAD 19,543 26,632 -26.6 % 11.5 % 44,496 61,445 -27.6 % 11.4 %
Corporate and Other (11,435 ) (15,279 ) -25.2 % 8.1 % (30,816 ) (51,393 ) 40.0 % 11.4 %
TOTAL 38,557 20,838 85.0 % 152.2 % 124,483 40,129 210.2 % 349.9 %
 
 
Adjusted EBITDA
Brazil 39,172 26,177 49.6 % 39.5 % 104,967 100,602 4.3 % 19.9 %
Caribbean 6,150 2,649 132.2 % 405.3 % 10,067 (484 ) 2180.0 % 5808.7 %
NOLAD 10,518 8,963 17.3 % 21.4 % 25,983 21,442 21.2 % 22.7 %
SLAD 22,796 30,983 -26.4 % 8.4 % 54,880 75,012 -26.8 % 8.7 %
Corporate and Other (15,478 ) (17,826 ) -13.2 % 12.3 % (43,728 ) (62,719 ) 30.3 % 9.6 %
TOTAL 63,158   50,946   24.0 % 45.9 % 152,169   133,853   13.7 % 49.0 %
 
Figure 12. Average Exchange Rate per Quarter*
      Brazil   Mexico   Argentina       Venezuela
3Q16     3.25   18.76   14.95       646.01
3Q15     3.54   16.44   9.25       199.11
* Local $ per 1 US$

Summarized Consolidated Balance Sheets

(In thousands of U.S. dollars)
 
Figure 13. Summarized Consolidated Balance Sheets

(In thousands of U.S. dollars)
    September 30   December 31
        2016   2015
ASSETS
Current assets
Cash and cash equivalents 112,207 112,519
Accounts and notes receivable, net 66,643 63,348
Other current assets (1)     205,300     203,129  
Total current assets     384,150     378,996  
Non-current assets
Property and equipment, net 848,637 833,357
Net intangible assets and goodwill 47,064 49,486
Deferred income taxes 75,164 63,321
Other non-current assets (2)     86,267     78,042  
Total non-current assets     1,057,132     1,024,206  
Total assets       1,441,282     1,403,202  
LIABILITIES AND EQUITY
Current liabilities
Accounts payable 185,457 187,685
Taxes payable (3) 103,487 97,587
Accrued payroll and other liabilities 131,486 93,112
Other current liabilities (4) 12,805 30,824
Provision for contingencies 469 512
Financial debt (5) 21,188 165,866
Deferred income taxes     1,890     1,728  
Total current liabilities     456,782     577,314  
Non-current liabilities
Accrued payroll and other liabilities 23,439 19,381
Provision for contingencies 24,553 20,066
Financial debt (6) 591,358 491,327
Deferred income taxes     7,249     8,224  
Total non-current liabilities     646,599     538,998  
Total liabilities       1,103,381     1,116,312  
Equity
Class A shares of common stock 373,967 371,857
Class B shares of common stock 132,915 132,915
Additional paid-in capital 13,000 12,606
Retained earnings 250,817 193,158
Accumulated other comprehensive losses     (433,364 )   (424,263 )
Total Arcos Dorados Holdings Inc shareholders' equity     337,335     286,273  
Non-controlling interest in subsidiaries     566     617  
Total equity       337,901     286,890  
Total liabilities and equity     1,441,282     1,403,202  
(1) Includes "Other receivables", "Inventories", "Prepaid expenses and other current assets", and "Deferred income taxes".
(2) Includes "Miscellaneous", "Collateral deposits", "Derivative instruments" and "McDonald´s Corporation indemnification for contingencies".
(3) Includes "Income taxes payable" and "Other taxes payable".
(4) Includes "Royalties payable to McDonald´s Corporation" and "Interest payable".
(5) Includes "Short-term debt", "Current portion of long-term debt" and "Derivative instruments".
(6) Includes "Long-term debt, excluding current portion" and "Derivative instruments".
 

1 For a definition of constant currency results please refer to page 14 of this document.

2 As from January 1, 2016, the Company made changes in the allocation of certain expenses previously included in the corporate segment to the operating divisions in order to align the financial statement presentation with the revised allocation used by the Company's management as from that date. In accordance with ASC 280, Segment Reporting, the Company has restated its comparative segment information based on the new allocation of expenses.

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