Arcos Dorados Holdings Inc. — FY2021 Form 20-F
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone Q4 filing. Financial statements are audited and prepared under U.S. GAAP in U.S. dollars; the auditor issued an unqualified opinion. Management and the auditor reported effective internal control over financial reporting.
Business context
Arcos Dorados is the largest independent McDonald’s franchisee, operating or franchising 2,261 restaurants in 20 Latin American and Caribbean markets at year-end. It generated most revenue from company-operated restaurants. From October 1, 2021, operations were reported in three divisions—Brazil, NOLAD and SLAD—and prior segment comparatives were restated to match the new structure.
Financial performance and liquidity
| Metric | FY2021 | FY2020 | FY2019 |
|---|---|---|---|
| Total revenue | $2.660 billion | $1.984 billion | $2.959 billion |
| Operating income (loss) | $139.5 million | $(66.8) million | $159.9 million |
| Operating margin | 5.2% | (3.4)% | 5.4% |
| Adjusted EBITDA | $271.8 million | $68.1 million | $291.8 million |
| Adjusted EBITDA margin | 10.2% | 3.4% | 9.9% |
| Net income (loss) attributable to Arcos Dorados | $45.5 million | $(149.5) million | $79.9 million |
| Operating cash flow | $258.0 million | $16.0 million | $223.5 million |
| Capital expenditures | $115.0 million | $86.3 million | $265.2 million |
- Revenue rose 34.1% from 2020, reflecting recovering traffic and average checks as mobility increased and operating restrictions eased. Systemwide comparable sales grew 45.9%; constant-currency systemwide sales growth was 46.9%. Despite the rebound, FY2021 revenue remained below FY2019.
- Cash and cash equivalents were $278.8 million, up from $166.0 million. Current assets were $540.1 million and current liabilities $617.9 million, leaving negative working capital of $77.7 million. No amounts were drawn on the $25 million revolving credit facility at year-end; the company reported compliance with its financial covenants.
- Reported long-term debt was $744.0 million, including current maturities; short-term debt and current maturities were $4.7 million. Management separately cited total financial debt of $657.9 million including interest payable, after the effect of derivative fair value. Debt consisted primarily of 6.625% 2023 notes and 5.875% 2027 notes. Operating lease liabilities were $786.2 million; undiscounted operating lease commitments totaled $1.356 billion.
- Food and paper costs were 35.3% of company-operated sales, down 0.4 percentage points; payroll and benefits were 19.0%, down 2.8 points; occupancy and other operating expenses were 30.4%, down 2.6 points. Royalty fees were 5.2% of sales, benefiting from McDonald’s growth support.
Changes, outlook and significant items
- The 2021 recovery reversed the prior-year loss, but currency translation and devaluation remained material: management attributed a $246.1 million reduction in company-operated sales to currency depreciation, principally in Argentina, Venezuela and Brazil. Foreign-exchange loss narrowed to $9.2 million from $31.7 million in 2020.
- Operating income benefited from $18.5 million of Brazilian tax-credit recovery and an $8.5 million gain on contributing restaurant businesses to a Mexican equity-method venture. Adjusted EBITDA excludes $12.1 million of reorganization and optimization expenses. These items affect comparisons and should be considered alongside reported results.
- In January 2022, the company and McDonald’s agreed on a 2022–2024 plan to open at least 200 restaurants and modernize at least 400, with approximately $650 million of planned capital expenditures. McDonald’s growth support is expected to produce effective royalty rates of about 5.6% in 2022 and 6.0% in 2023 and 2024, subject to plan compliance. These are plans, not assurances of results.
- The company said it expected operating cash flows, working capital and access to financing to support anticipated needs, while warning that renewed COVID-19 restrictions, currency controls, inflation, supply-chain disruption and reduced credit availability could pressure liquidity. Argentina’s exchange controls may restrict or delay transfers abroad.
- The McDonald’s master franchise agreements run through August 2, 2027. Renewal is not assured; the agreements impose investment, restaurant-opening, operating and financial requirements and give McDonald’s call-option rights in specified circumstances. The company reported year-end compliance with its MFA ratios after receiving temporary waivers during the pandemic.
- Contingency provision, net of judicial deposits, was $34.1 million. The filing disclosed a possible loss range of $240–$271 million for certain tax, labor and civil matters; outcomes and timing are uncertain. Certain tax-law interpretation matters totaling about $177 million could also be challenged, though no formal claim had been made for the identified years.
- Subsequent to year-end, the company declared a $0.15-per-share dividend payable in four 2022 installments. It also issued $350 million of 6.125% sustainability-linked notes due 2029; the rate can step up if specified emissions targets are not met. The 2022 financing and dividend are post-period events, not FY2021 operating results.
Most important facts for investors to verify
- Whether the sales, margin and cash-flow recovery is sustained, given FY2021 revenue remained below 2019 and results are exposed to inflation and local-currency depreciation.
- The composition and calculation of reported debt, derivative offsets, upcoming 2023-note maturities and the effect of 2022 refinancing transactions.
- Whether the $650 million investment plan is funded and executed as intended, and whether McDonald’s growth support and lower effective royalty rates remain available under the plan’s conditions.
- The status and potential exposure of the disclosed $240–$271 million possible-loss range and the approximately $177 million of potentially challengeable tax matters; these disclosures are not equivalent to recorded liabilities.
- The practical effects of Argentine currency controls and other country-level restrictions on cash movement, debt service and dividend capacity.
- Progress toward the sustainability-linked note targets and the risk of higher interest expense if targets are missed.