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Commitments and contingencies
 12 Months Ended
Dec. 31, 2023
Commitments and Contingencies Disclosure [Abstract]  
Commitments and contingencies Commitments and contingencies
Commitments

The MFAs require the Company and its MF subsidiaries, among other obligations:
 
(i)to agree with McDonald’s Corporation on a restaurant opening plan and a reinvestment plan for each three-year period or such other commitment or period that McDonald’s may approve; and pay an initial franchise fee for each new restaurant opened;
(ii)to pay monthly royalties commencing at a rate of approximately 5% of gross sales of the restaurants, during the first 10 years. This percentage increased to 6% and 7% for the subsequent two five-year periods of the agreement. Nevertheless, at times, McDonald’s Corporation has supported Company’s investment plans by agreeing to provide an incentive (the “growth support”), which resulted or is expected to result in a lower royalty rate.
(iii)to commit to funding a specified Strategic Marketing Plan; that includes the expenditure of 5% of the Company’s gross sales on Advertising and Promotion activities.
(iv)to own (or lease) directly or indirectly, the fee simple interest in all real property on which any franchised restaurant is located; and
(v)to maintain a minimum fixed charge coverage ratio (as defined therein) at least equal to 1.50 as well as a maximum leverage ratio (as defined therein) of 4.25.

If the Company would not be in compliance with these commitments under the MFA, it could be in material breach. A breach of the MFA would give McDonald’s Corporation certain rights, including the ability to acquire all or portions of the business.

Due to the dynamic environment in 2021, after the disruptions caused by the COVID-19 pandemic, the Company agreed with McDonald’s Corporation on a growth and investment plan for only one year and received a growth support that resulted in a consolidated effective royalty rate of 5.2% of sales of 2021. Additionally, on January 10, 2022, the Company reached an agreement with McDonald’s Corporation on a new growth and investment plan for the next few years. McDonald’s Corporation has agreed to continue providing the Company with growth support under certain terms and conditions.

To support its future growth, the Company plans to open at least 200 new restaurants and to modernize at least 400 restaurants, with capital expenditures of approximately $650 million from 2022 to 2024. In addition, McDonald’s Corporation agreed to continue providing growth support which resulted in an effective royalty rate of about 5.6% and 6.0% of sales in 2022 and 2023, respectively, and is expected to result in an effective royalty rate of about 6.0% of sales in 2024.
For the period ended December 31, 2023, the Company was in compliance with the ratio requirements mentioned in point (v) above. The ratios for the periods mentioned, were as follows:

Fixed Charge Coverage RatioLeverage Ratio
March 31, 20231.913.35
June 30, 20232.113.30
September 30, 20232.113.24
December 31, 20232.163.22

In addition, the Company maintains standby letters of credit in favor of McDonald’s Corporation as collateral for the obligations assumed under the MFAs, for a total aggregate drawing amount of $80 million. These letters of credit can be drawn if certain events occur, including the failure to pay royalties. No amounts have been drawn at the date of issuance of these financial statements. The following table presents information related to the standby letters of credit:

BankCurrencyAmount
Itaú$15,000
Credit Suisse (i)$45,000
JPMorgan (i)$20,000


(i) Maintained through its wholly-owned subsidiary ADBV.


These letters of credit contain a limited number of customary affirmative and negative covenants, including a maximum indebtedness to EBITDA ratio, as follows:

Bank
Ratio
Required Maximum Ratio
As of December 31, 2023
Itaú
Net indebtedness to EBITDA
4.5
1.00
Credit Suisse (i)
Indebtedness to EBITDA
4.0
0.67
JPMorgan (i)
Indebtedness to EBITDA
4.5
0.67

(i) Maintained through its wholly-owned subsidiary ADBV.

As of December 31, 2023 the Company was in compliance with all the ratios.
Provision for contingencies

The Company has certain contingent liabilities with respect to existing or potential claims, lawsuits and other proceedings, including those involving labor, tax and other matters. As of December 31, 2023 and 2022, the Company maintains a provision for contingencies, net of judicial deposits, amounting to $50,619 and $44,839, respectively, presented as follows: $1,447 and $2,272 as a current liability and $49,172 and $42,567 as a non-current liability, respectively.

The breakdown of the provision for contingencies is as follows:
DescriptionBalance at beginning of periodAccruals, netSettlementsReclassifications and increase of judicial depositsTranslationBalance at end of period
Year ended December 31, 2023:      
Tax contingencies in Brazil (i)$28,505 $10,697 $(151)$— $1,532 $40,583 
Labor contingencies in Brazil (ii)14,095 14,231 (17,377)556 1,169 12,674 
Other (iii)10,145 (668)(4,494)(3)949 5,929 
Subtotal52,745 24,260 (22,022)553 3,650 59,186 
Judicial deposits (iv)(7,906)— — 80 (741)(8,567)
Provision for contingencies$44,839 $24,260 $(22,022)$633 $2,909 $50,619 
Year ended December 31, 2022:      
Tax contingencies in Brazil (i)$16,642 $11,166 $(12)$— $709 $28,505 
Labor contingencies in Brazil (ii)13,270 12,426 (13,449)1,094 754 14,095 
Other (iii)10,766 3,449 (2,763)— (1,307)10,145 
Subtotal40,678 27,041 (16,224)1,094 156 52,745 
Judicial deposits (iv)(6,592)— — (953)(361)(7,906)
Provision for contingencies$34,086 $27,041 $(16,224)$141 $(205)$44,839 
Year ended December 31, 2021:  
Tax contingencies in Brazil (i)$10,662 $7,472 $— $(517)$(975)$16,642 
Labor contingencies in Brazil (ii)14,514 11,319 (12,080)522 (1,005)13,270 
Other (iii)9,907 3,764 (1,708)(136)(1,061)10,766 
Subtotal35,083 22,555 (13,788)(131)(3,041)40,678 
Judicial deposits (iv)(8,135)— — 1,030 513 (6,592)
Provision for contingencies$26,948 $22,555 $(13,788)$899 $(2,528)$34,086 
    

(i)In 2023, 2022 and 2021, it includes mainly INSS (Instituto Nacional do Seguro Social) and CIDE (Contribuições de Intervenção no Domínio Econômico).
(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, 2023, there are certain matters related to the interpretation of tax (for income tax matters refer to note 16), customs, labor and civil laws for which there is a reasonable possibility that a loss may have been incurred in accordance with ASC 450-20-50-4 within a range of $511 million and $576 million. In accordance with ASC 405-20-50-6, unasserted claims or assessments that do not meet the conditions mentioned have not been included.
Pursuant to Section 9.3 of the Stock Purchase Agreement, McDonald’s Corporation indemnifies the Company for certain Brazilian claim. As of December 31, 2023 and 2022, the provision for contingencies includes $1,458 and $1,297, respectively related to this claim. As a result, the Company has recorded a non-current asset in respect of McDonald’s Corporation’s indemnity within “Miscellaneous” in the consolidated balance sheet.