SUMMARY

This summary highlights information contained elsewhere in this prospectus. This summary may not contain all the information that may be important to you, and we urge you to read this entire prospectus carefully, including the “Risk Factors,” “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections and our consolidated financial statements and notes to those statements, included elsewhere in this prospectus, before deciding to invest in our class A shares.

Our Business

Overview

We are the world’s largest McDonald’s franchisee in terms of systemwide sales and number of restaurants, according to McDonald’s, representing 5.1% of McDonald’s global sales in 2010, and we are the largest fast food chain in Latin America and the Caribbean in terms of systemwide sales, according to Euromonitor, with a regional market share in terms of sales of 10.4% in 2010, according to Euromonitor. We have the exclusive right to own, operate and grant franchises of McDonald’s restaurants in 20 countries and territories in Latin 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 (since June 3, 2011), Uruguay, the U.S. Virgin Islands of St. Croix and St. Thomas, and Venezuela, which we refer to as the Territories. As of June 30, 2011, we operated or franchised 1,767 McDonald’s-branded restaurants, which represented 6.6% of McDonald’s total franchised restaurants worldwide. In the six months ended June 30, 2011 and 2010, we paid $80.0 million and $64.0 million, respectively, in royalties to McDonald’s (not including royalties paid on behalf of our franchisees). In 2010 and 2009, we paid $141.0 million and $121.9 million, respectively, in royalties to McDonald’s (not including royalties paid on behalf of our franchisees).

We commenced operations on August 3, 2007, as a result of our purchase of McDonald’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, as described below, which, together with the purchase of the McDonald’s LatAm business, we refer to as the Acquisition. We operate McDonald’s-branded restaurants under two different operating formats, those directly operated by us, or Company-operated restaurants, and those operated by franchisees, or franchised restaurants. As of June 30, 2011, of our 1,767 McDonald’s-branded restaurants in the Territories, 1,302 (or 73.7%) were Company-operated restaurants and 465 (or 26.3%) were franchised restaurants. We generate revenues primarily from two sources: sales by Company-operated restaurants and revenues from franchised restaurants that primarily consist of rental income, which is generally based on the greater of a flat fee or a percentage of sales reported by franchised restaurants. We own the land for 510 of our restaurants (totaling approximately 1.2 million square meters) and the buildings for all but 12 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 253 restaurants (185 Company-operated and 68 franchised), 137 McCafé locations, where we sell a variety of customizable beverages, and 478 Dessert Centers, where we sell desserts, since the Acquisition. The McDonald’s brand’s market share of the fast food industry in Latin America and the Caribbean in terms of sales has increased from 10.1% in 2007 to 10.4% in 2010 according to Euromonitor. We have increased our total revenues by 15.8% from 2008 to 2010. More recently, our consolidated total revenues, net income and Adjusted EBITDA (as defined under “Presentation of Financial and Other Information—Other Financial Measures”) increased 25.9%, 39.1% and 21.6%, respectively, in the six months ended June 30, 2011 as compared to the six months ended June 30, 2010, to $1,715.1 million, $49.7 million and $140.2 million, respectively. In addition, our consolidated total revenues, net income and Adjusted EBITDA increased 13.2%, 32.5% and 12.3%, respectively, in 2010 as compared to 2009, to $3,018.1 million, $106.0 million and $299.1 million, respectively.

 

We divide our operations into four geographical divisions: Brazil; the Caribbean division, consisting of Aruba, Curaçao, French Guiana, Guadeloupe, Martinique, Puerto Rico, Trinidad and Tobago and the U.S. Virgin Islands of St. Croix and St. Thomas; the North Latin America division, or NOLAD, consisting of Costa Rica, Mexico and Panama; and the South Latin America division, or SLAD, consisting of Argentina, Chile, Colombia, Ecuador, Peru, Uruguay and Venezuela. As of June 30, 2011, 35.4% of our restaurants were located in Brazil, 29.7% in SLAD, 26.8% in NOLAD and 8.1% in the Caribbean division. We focus on our customers by managing operations at the local level, including marketing campaigns and special offers, menu management and monitoring customer satisfaction, while leveraging our size by conducting administrative and strategic functions at the divisional or corporate level, as appropriate.

The following table presents certain operating results and data by operating segment:

 

		As of and for the Six Months Ended June 30,								As of and for the Years Ended December 31,
		2011				2010				2010				2009				2008				2007(1)
		(in thousands of U.S. dollars, except percentages)
		(unaudited)
Total Revenues
Brazil		$	892,063			$	718,520			$	1,595,571			$	1,200,742			$	1,237,208			$	461,868
Caribbean division			132,056				127,385				260,617				244,774				231,734				90,796
NOLAD			171,743				141,464				305,017				240,333				232,083				91,932
SLAD (2)			519,284				374,442				856,913				979,627				905,817				296,743
Total			1,715,146				1,361,811				3,018,118				2,665,476				2,606,842				941,339
Adjusted EBITDA(3)
Brazil		$	128,566			$	99,241			$	250,606			$	160,037			$	144,965			$	39,800
Caribbean division			6,282				9,531				23,556				21,167				22,013				13,099
NOLAD			7,868				4,202				15,400				3,918				15,961				10,655
SLAD (2)			42,933				32,742				83,998				129,889				138,683				36,530
Corporate and others			(45,455	)			(30,379	)			(74,446	)			(48,628	)			(33,648	)			(9,187	)
Total			140,194				115,337				299,114				266,383				287,974				90,897
Adjusted EBITDA Margin(4)
Brazil			14.4	%			13.8	%			15.7	%			13.3	%			11.7	%			8.6	%
Caribbean division			4.8				7.5				9.0				8.6				9.5				14.4
NOLAD			4.6				3.0				5.0				1.6				6.9				11.6
SLAD (2)			8.3				8.7				9.8				13.3				15.3				12.3
Total			8.2				8.5				9.9				10.0				11.0				9.7
Systemwide comparable sales growth(5)(6)			13.7	%			—				14.9	%			5.5	%			—				—
Brazil			9.7				—				17.5				2.7				—				—
Caribbean division			0.9				—				4.7				4.2				—				—
NOLAD			8.5				—				9.1				(1.7	)			—				—
SLAD			29.5				—				16.1				12.2				—				—

 

 

(1)	Data for the year ended December 31, 2007 includes only five months of operations, beginning August 3, 2007, the date on which we commenced operations in the Territories.

(2)

Currency controls in Venezuela and related accounting changes have a significant effect on our results of operations and impact the comparability of our results of operations in 2010 compared to 2009. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors Affecting Comparability of Results—Impact of Venezuelan Currency Controls and Related Accounting Changes on Our Results of Operations” for information regarding the translation of the results of our Venezuelan operations.

(3)

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 of Adjusted EBITDA may not be comparable to Adjusted EBITDA as used by other companies. For our definition of Adjusted EBITDA and a reconciliation thereof, see “Presentation of Financial and Other Information—Other Financial Measures” and “Selected Financial and Other Information.”

(4)	Adjusted EBITDA margin is Adjusted EBITDA divided by total revenues, expressed as a percentage.

(5)

Systemwide comparable sales growth refers to the change in our restaurant sales in one period from a comparable period for restaurants that have been open for thirteen months or longer. Systemwide comparable sales growth is provided and analyzed on a constant currency basis, which means it is calculated using the same exchange rate over the periods under comparison to remove the effects of currency fluctuations from this trend analysis. We believe this constant currency measure provides a more meaningful analysis of our business by identifying the underlying business trend, without distortion from the effect of foreign currency movements.

(6)

Systemwide comparable sales growth is presented on a systemwide basis, which means it includes sales by our Company-operated restaurants and our franchised restaurants. 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.

Our Industry

We operate in the quick-service restaurant, or 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 seek convenience, speed and value. According to Euromonitor, fast food segment sales in Latin America and the Caribbean are expected to total an estimated $43.2 billion (nominal value) in 2011. Euromonitor estimates that the fast food segment in Latin America and the Caribbean grew 69.1% in the period from 2005 to 2010, which is 18 percentage points higher than the growth of the Latin American and Caribbean food service industry as a whole, representing a compound annual growth rate of 11.1%, which in turn is significantly higher than the 2.4% compound annual growth rate of the U.S. fast food segment.

Euromonitor estimates that QSRs have captured 59.8% of market share within the fast food segment in Latin America and the Caribbean due to the popularity of standardized menus, the consistency of products and services, cost efficient operating systems, the development of products targeted to meet consumer demands, economies of scale, convenience, speed and value. Euromonitor estimates that the growth of QSRs in Latin America and the

 

Caribbean will outpace the growth of the fast food segment generally in the near future, as QSRs tend to be better capitalized and are therefore able to expand through additional restaurant openings and innovation, and as consumers increasingly prefer the convenience and reliability associated with a well-established brand. Euromonitor estimates that the QSR sub-segment in Latin America and the Caribbean grew 63.4% during the period from 2005 to 2010.

McDonald’s, Burger King, Subway and KFC have positioned themselves as market leaders within the QSR segment. According to Euromonitor, the McDonald’s brand is the largest in Latin America and the Caribbean with more than three times the sales of Burger King, our closest competitor, in Latin America and the Caribbean and with more sales than our next five competitors combined. In addition to these international brands, strong local brands, such as Habib’s, Bob’s, Servicompras and Giraffa’s, exist in certain key markets.

The chart below indicates the percentage market share held by certain major brands in the fast food segment in Latin America and the Caribbean for 2010:

 

Source: Euromonitor

Our Strengths

We believe the following are our competitive strengths:

 

•

Superior Brand and Image . The McDonald’s brand is one of the top ten most widely recognized consumer brands in the world, according to Millward Brown Optimor, and it is one of the most widely recognized consumer brands in Latin America and the Caribbean, according to Euromonitor. In addition, we believe that in Latin America and the 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 an attractive setting. With the exclusive right to own, operate and grant franchises of McDonald’s restaurants in 20 countries and territories in Latin America and the Caribbean, we believe we represent an important part of the McDonald’s system. As of June 30, 2011, our 1,767 restaurants represented 6.6% of McDonald’s total franchised restaurants.

 

•

Leading Position in a Region with Favorable Demographics and Economic Conditions . We are the leading fast food chain in Latin America and the Caribbean, according to Euromonitor, with a 10.4% market share,

 

which was more than three times that of our closest competitor, based on systemwide sales in 2010. As a business focused on 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, younger age profile when compared to more developed markets and improving socio- economic conditions. Based on data from the United Nations Economic Commission for Latin America and the Caribbean, the Territories represented a market of approximately 575.9 million people in 2010, of which approximately 28% are under 14 years old and 46% are under 25 years old. In addition, improvements in macroeconomic conditions in the Territories are leading to a modernization of consumption patterns and increased affordability of our products across socio-economic segments, and we believe we are well placed to capitalize on these trends. For example, according to the Brazilian Ministry of Finance, 29 million Brazilians joined the middle class between 2003 and 2009 and the percentage of the Brazilian population living in poverty decreased by 45.6% during the same period. Moreover, according to Euromonitor, the percentage of households in Brazil with annual disposable incomes of $5,000 or more was greater than that in China and India in 2010.

 

•

Pan-regional Market Leader with Geographical Diversification . As the largest QSR chain in Latin America and the Caribbean, according to Euromonitor, our operations include some of the region’s largest markets such as Brazil, Mexico, Argentina, Puerto Rico and Colombia. We believe our diversified market presence reduces our dependence on any one market and helps stabilize the impact of individual countries’ economic cycles on our revenues. Our leading market position and in-depth market knowledge across the Territories also allow us to capitalize on demand for new quick service restaurants in an efficient manner. Furthermore, our long-standing presence in the region has allowed us to build a significant property portfolio with hard-to-replicate locations in key markets across the region that enhance our customers’ experience and ultimately support our brand and market position.

 

•

Operational Excellence Translated into Solid Financial Performance . We employ many of the operating procedures used by McDonald’s prior to the Acquisition. We support our McDonald’s-based training programs with an extensive set of quality controls throughout production, processing and distribution and also in our restaurants, where we monitor restaurant managers’ performance and use ongoing external customer satisfaction opportunity reports that analyze key operating indicators. In addition, we develop long-term relationships with reliable suppliers who comply with McDonald’s rigorous quality standards. These procedures allow us to consistently provide our customers with a high-quality experience in both Company-operated and franchised restaurants across the Territories, thereby allowing us to increase the average check on a constant currency basis as well as the number of transactions per restaurant since the Acquisition.

 

•

Experienced Management Team and Lead Shareholder. Our senior management team is led by Mr. Woods Staton, our Chairman, Chief Executive Officer, or CEO, and controlling shareholder. Prior to the Acquisition, Mr. Staton was the joint venture partner of McDonald’s Corporation in Argentina for over 20 years and was president of McDonald’s South Latin America division from 2004 until the Acquisition. Mr. Staton will not be selling any shares in this offering. Our senior management team is comprised of committed, experienced restaurant industry executives, almost all of whom have worked for McDonald’s and/or with Mr. Staton in non-McDonald’s businesses for over 10 years. Moreover, none of our divisional presidents, vice presidents, chief financial officer, chief operating officer or CEO have left the Company since the Acquisition. The experience of our management team has been a critical component in enhancing operational performance after the Acquisition.

Our Strategy

We believe there are significant opportunities to further enhance our profitability, grow our business and expand our leadership in the Latin American and Caribbean QSR market by executing the following strategies:

 

•

Focus Growth in Selected Countries . We believe we have significant opportunities to increase our presence and market share in those countries that we believe offer the best growth prospects and those that are most economically and financially stable, such as Brazil, Chile, Colombia, Mexico and Peru. For example, in many of the Territories, including Argentina, Brazil, Chile, Colombia, Ecuador, Mexico and Peru, we believe there are opportunities for growth as the ratio of gross domestic product purchase power parity, or GDP PPP, per McDonald’s-branded restaurant, a measure we use to determine penetration, is at least 2.5 times greater than in the United States. As the macroeconomic conditions of the countries in the Territories continue to improve, we believe we will have significant opportunities to expand our business as consumers benefit from expanding purchasing power and higher levels of disposable income, which in turn increase consumer demand for our safe, fresh and good-tasting food, comfortable settings and affordable prices as aspects of food convenience. We expect to continue to open new restaurants opportunistically as we identify attractive markets throughout the Territories. In addition, we have committed to open at least 250 new restaurants throughout the Territories from 2011 to 2013 under our agreement with McDonald’s, and in the first three years since the Acquisition (from August 3, 2007 to December 31, 2010), we exceeded our restaurant opening commitments under our agreement with McDonald’s by 45.0%. We estimate that the cost to comply with our restaurant opening commitments under our MFAs with McDonald’s, as described below, from 2011 to 2013 will be between $100 million and $250 million (not including restaurants we intend to open with the proceeds of the 2016 notes, as further described below), depending on, among other factors, the type and location of restaurants we open. Our expansion strategy seeks to continue capitalizing on the positive economic developments in these markets and the untapped demand to fuel our growth.

 

•

Continue Our Restaurant Reimaging and Brand Extension Program . We are undertaking an extensive restaurant reimaging and brand extension program throughout the Territories. Our efforts focus on remodeling existing restaurants, creating an inviting, contemporary and highly aspirational environment. We seek to obtain compelling returns on investment, and our restaurants that have undergone reimaging have experienced an additional estimated 5.8% increase in sales per restaurant in the last three years over the comparable sales growth experienced by restaurants which have not been reimaged in the same period. As of June 30, 2011, 549, or 31.1%, of our restaurants had been opened or reimaged since the Acquisition. Our brand extension efforts focus on the development of additional McCafé locations and Dessert Centers. The McCafé concept differentiates the McDonald’s brand and attracts new customers from different market segments to our existing restaurants, particularly during breakfast and after lunch. With an average return on investment from McCafé locations of 46.0% in the first half of 2011, the McCafé concept is well-suited for restaurants in large-scale shopping centers and commercial areas. McCafé locations have been a key factor in adding value to our customers’ experience and represented 8.9% of the total transactions and 5.1% of total sales of the restaurants in which they were located in the first half of 2011. Our Dessert Centers are conveniently located to attract customers, thereby serving as important transaction generators and providing an effective method of extending our brand presence to non-traditional areas. Dessert Centers represented 34.1% of our transactions and 11.3% of our total sales in the first half of 2011 and, with a return on investment of 206.8% in the first half of 2011, provide a low-risk investment alternative. From the Acquisition through June 30, 2011, we have opened 137 McCafé locations and 478 Dessert Centers. We believe our restaurant reimaging and brand extension program, which leverages McDonald’s brand relevance and competitive position to generate growth, has been a key source of our growth since the Acquisition.

 

•

Expand Product Offerings and Marketing Initiatives . We are required under our agreement with McDonald’s to spend at least 5% of our sales on advertising and promotional activities. We intend to continue our promotional campaigns, such as our successful Big Pleasures, Small Prices value menu program in Brazil, through which we offer a rotating selection of our existing products at reduced prices, to increase traffic to our restaurants. We will continue to develop innovative and locally tailored product offerings, such as breakfast, bone-in-chicken, low-calorie and low-sodium products, and value items, to increase restaurant traffic and expand our customer base. To support these product offerings, we will

 

sponsor regionally popular sporting events such as the Copa Libertadores soccer tournament and leverage global marketing initiatives led by McDonald’s, such as sponsorship of major sporting events and participation in various movie promotions. We believe these branding events provide a cost-effective manner to increase our market recognition.

 

•

Maintain Our Focus on Cost Savings Related to Operating Efficiencies . We are focused on streamlining our operations further by reducing costs at the corporate and operating level, including expanding our shared service center, which provides centralized administrative services such as payroll, accounts payable and accounts receivable. Additionally, we intend to further develop and increase our use of local suppliers where appropriate to reduce both import and transportation costs and the volatility of our supply costs. We continue to leverage our operating scale by centralizing our marketing and strategic operations, including menu management, Happy Meal promotions and designs, without losing sight of the need to cater to local preferences. We are currently rolling out a new kitchen operating platform in our major markets called Made For You, or MFY, which we believe will allow us to improve product quality and labor productivity and to reduce food waste.

Our History and Relationship with McDonald’s

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 Mexico and 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 Chairman, CEO and controlling shareholder, was the joint venture partner of McDonald’s Corporation in Argentina for over 20 years prior to the Acquisition and also served as President of McDonald’s South Latin America division from 2004 until the Acquisition. Our senior management team is comprised mostly of executives who had previously worked in McDonald’s LatAm business or with Mr. Staton.

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 Brazilian MFA, as amended or otherwise modified to date, collectively as the MFAs. The MFAs set forth terms such as the initial 20-year terms of the franchises (our franchise rights for French Guiana, Guadeloupe and Martinique have 10-year terms which we have the option to extend by 10 years), our right to operate and franchise McDonald’s-branded restaurants and the franchise fees payable by us to McDonald’s.

We offer McDonald’s core menu items, including the Big Mac, Happy Meal and Quarter Pounder. Since the Acquisition through June 30, 2011, we have opened 253 new restaurants. We have also undertaken an extensive restaurant reimaging program throughout the Territories, expanded the number of McCafé and Dessert Center locations and focused on adding locally relevant menu items, such as breakfast, bone-in-chicken, low-calorie and low-sodium products, and value items. We have also integrated many of our operations, including our supply chain and distribution functions.

Our Corporate Structure

We were incorporated on December 9, 2010 under the laws of the British Virgin Islands as a direct, wholly-owned subsidiary of Arcos Dorados Limited, the prior holding company for the Arcos Dorados business. On December 13, 2010, Arcos Dorados Limited effected a downstream merger into and with us, with us as the surviving entity. Following the merger, we replaced Arcos Dorados Limited in the corporate structure and replicated its governance structure.

We conduct substantially all our business through our indirect, wholly-owned Dutch subsidiary Arcos Dorados B.V. Our majority shareholder is Los Laureles Ltd., a British Virgin Islands company, which is beneficially owned by Mr. Staton, our Chairman and CEO. 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

 

Dorados Holdings 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. and has contributed its interests in Los Laureles Ltd. to a trust whose sole beneficiaries are Mr. Staton and his descendants. See “Principal and Selling Shareholders—Los Laureles Ltd.” 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 the subsidiaries operating our restaurants in the Territories.

On April 19, 2011, we completed our initial public offering and listed our class A shares on the New York Stock Exchange, or NYSE. In the initial public offering, we sold 9,529,412 class A shares and certain selling shareholders 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.

The following chart shows our corporate structure after giving effect to the contemplated issuance and sale of             class A shares in this offering, assuming no exercise of the underwriters’ over-allotment option.

 

(1)	Los Laureles Ltd. is beneficially owned by Mr. Staton, our Chairman and CEO. See “Principal and Selling Shareholders—Los Laureles Ltd.”

(2)	Includes operating subsidiaries held directly and, in some cases, indirectly through certain intermediate subsidiaries.

Other than as described above, all of our significant subsidiaries are wholly owned by us, except Arcos Dorados Argentina S.A., of which Mr. Staton owns 0.03%.

Recent Developments

On June 3, 2011, we declared a dividend totaling $12.5 million, which was paid on July 6, 2011 to our registered shareholders as of June 17, 2011.

In October 2009, our subsidiary, Arcos Dorados B.V., issued senior notes for an aggregate principal amount of $450 million that mature on October 1, 2019 and bear interest of 7.5% per year, which we refer to as the 2019 notes. On June 13, 2011, Arcos Dorados B.V. exercised its option to redeem on July 18, 2011 a total of $141.4 million of the aggregate principal amount of the 2019 notes. Following the redemption, a total of $308.6 million of the

 

aggregate principal amount of the 2019 notes remains outstanding. As a result of the redemption, we incurred a one-time loss of $13.9 million in July 2011, including $2.3 million related to the accelerated amortization of deferred financing costs and $11.6 million related to the redemption of the 2019 notes at a redemption price above the book value of the 2019 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 we refer to as the 2016 notes. The 2016 notes are denominated in reais , but payment of principal and interest will be made in U.S. dollars. The 2016 notes mature on July 13, 2016. Interest will be paid semi-annually in arrears on January 13 and July 13 of each year, beginning on January 13, 2012. The proceeds from the issuance of the 2016 notes will be used to satisfy a capital expenditure program agreed upon with McDonald’s, including to open at least 100 restaurants and to reimage others, and for general corporate purposes, including the settlement of our cross-currency interest rate swaps and our mirror swaps (as described below).

On July 19, 2011 and July 20, 2011, we settled our cross-currency interest rate swaps and our mirror swaps, paying $95.5 million and collecting $3.9 million, respectively. As a result of these settlements, we recognized a loss amounting to $5.2 million in July of 2011, which includes accrued interest, the monthly effect of the change in the real forward rate curve and the cost of the unwind.

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 $50 million with a maturity date one year from the date of closing thereof. The obligations of Arcos Dorados B.V. under the revolving credit facility are jointly and severally guaranteed by certain of our subsidiaries on an unconditional basis. This revolving credit facility will permit us to borrow from time to time to cover our working capital needs and for other general corporate purposes.

Finally, on September 13, 2011, we declared a dividend totaling $12.5 million, which was paid on October 5, 2011 to our registered shareholders as of September 27, 2011.

Expectations for Third Quarter 2011 Results

On a constant currency basis, our sales growth for the third quarter of 2011 improved upon the growth we experienced in the first half of the year. As evidence of this trend, we expect our systemwide comparable sales growth in the third quarter of 2011 to be stronger than the growth we experienced in the first half of the year.

Despite this strong operating performance, and in light of certain factors which have affected our results in prior periods and which we have previously reported, we expect our net income for the third quarter of 2011 when compared to the net income for the third quarter of 2010 to be impacted by:

 

•

an increase in compensation expense related to equity grants under our long-term incentive plan (in light of the increase in the current quoted market price of our class A shares (based on a closing price of $23.19 per share as of September 30, 2011, compared to $21.09 as of June 30, 2011)),

 

•

the one-time charges associated with the partial redemption of our 2019 Notes (as further described above), and

 

•

the depreciation of certain local currencies against the U.S. dollar during September 2011, which primarily generated a non-cash charge over certain balance sheet accounts. This depreciation was offset, in part, by gains from certain foreign currency hedging transactions.

We also expect that our effective tax rate for the third quarter of 2011 will be higher than our effective tax rate for the first half of 2011 as a result of several factors, including (i) the partial recovery of our valuation allowance related to our deferred tax assets during the first half of 2011 and (ii) withholding tax and additional expenses of our holding company. For a discussion of the factors we consider in determining our valuation allowance, see “Management’s Discussion and Analysis—Critical Accounting Policies and Estimates—Accounting for Income Taxes.”

General Information

Our principal executive offices are located at Roque Saenz Peña 432, Olivos, Buenos Aires, Argentina (B1636 FFB). Our telephone number at this address is +54(11) 4711-2000. Our registered office in the British Virgin Islands is Maples Corporate Services (BVI) Limited, Kingston Chambers, P.O. Box 173, Road Town, Tortola, British Virgin Islands.

Investors should contact us for any inquiries through the address and telephone number of our principal executive office. Our principal website is www.arcosdorados.com. The information contained on our website is not a part of this prospectus.