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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2023

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ____________ to _________________

 

Commission file number 001-37762

 

 

Yum China Holdings, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware

 

81-2421743

(State or Other Jurisdiction of

 

(I.R.S. Employer

Incorporation or Organization)

 

Identification No.)

 

 

 

101 East Park Boulevard, Suite 805

Plano, Texas 75074

United States of America

 

Yum China Building

20 Tian Yao Qiao Road

Shanghai 200030

People’s Republic of China

 

(Address, Including Zip Code, of Principal Executive Offices)

(469) 980-2898

(Registrant’s Telephone Number, Including Area Code)

Not Applicable

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

YUMC

New York Stock Exchange

9987

The Stock Exchange of Hong Kong Limited

 

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 the preceding 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 the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

 

 

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒

The number of shares outstanding of the registrant’s common stock as of November 3, 2023 was 413,654,270 shares.

 

 

 


 

Yum China Holdings, Inc.

INDEX

 

 

Page

 

 

No.

 

 

 

Part I.

Financial Information

 

 

 

 

 

Item 1 – Financial Statements

3

 

 

 

 

Condensed Consolidated Statements of Income – Quarters and Years to Date Ended September 30, 2023 and 2022 (Unaudited)

3

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income – Quarters and Years to Date Ended September 30, 2023 and 2022 (Unaudited)

4

 

 

 

 

Condensed Consolidated Statements of Cash Flows – Years to Date Ended September 30, 2023 and 2022 (Unaudited)

5

 

 

 

 

Condensed Consolidated Balance Sheets – September 30, 2023 (Unaudited) and December 31, 2022

6

 

 

 

 

Condensed Consolidated Statements of Equity – Quarters and Years to Date Ended September 30, 2023 and 2022 (Unaudited)

7

 

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

9

 

 

 

 

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

26

 

 

 

 

Item 3 – Quantitative and Qualitative Disclosures About Market Risk

43

 

 

 

 

Item 4 – Controls and Procedures

43

 

 

 

Part II.

Other Information

 

 

 

 

 

Item 1 – Legal Proceedings

45

 

 

 

 

Item 1A – Risk Factors

45

 

 

 

 

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

45

 

 

 

 

Item 6 – Exhibits

46

 

 

 

 

Signatures

47

 

 

 


PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Condensed Consolidated Statements of Income (Unaudited)

Yum China Holdings, Inc.

(in US$ millions, except per share data)

 

 

 

Quarter Ended

 

 

Year to Date Ended

 

Revenues

 

9/30/2023

 

 

9/30/2022

 

 

9/30/2023

 

 

9/30/2022

 

Company sales

 

$

2,759

 

 

$

2,561

 

 

$

8,048

 

 

$

7,135

 

Franchise fees and income

 

 

23

 

 

 

22

 

 

 

69

 

 

 

65

 

Revenues from transactions with franchisees

 

 

100

 

 

 

80

 

 

 

282

 

 

 

219

 

Other revenues

 

 

32

 

 

 

22

 

 

 

86

 

 

 

62

 

Total revenues

 

 

2,914

 

 

 

2,685

 

 

 

8,485

 

 

 

7,481

 

Costs and Expenses, Net

 

 

 

 

 

 

 

 

 

 

 

 

Company restaurants

 

 

 

 

 

 

 

 

 

 

 

 

Food and paper

 

 

858

 

 

 

787

 

 

 

2,466

 

 

 

2,206

 

Payroll and employee benefits

 

 

699

 

 

 

603

 

 

 

2,047

 

 

 

1,819

 

Occupancy and other operating expenses

 

 

732

 

 

 

691

 

 

 

2,098

 

 

 

2,034

 

Company restaurant expenses

 

 

2,289

 

 

 

2,081

 

 

 

6,611

 

 

 

6,059

 

General and administrative expenses

 

 

169

 

 

 

157

 

 

 

485

 

 

 

449

 

Franchise expenses

 

 

9

 

 

 

9

 

 

 

28

 

 

 

27

 

Expenses for transactions with franchisees

 

 

95

 

 

 

76

 

 

 

270

 

 

 

212

 

Other operating costs and expenses

 

 

29

 

 

 

18

 

 

 

77

 

 

 

53

 

Closures and impairment expenses, net

 

 

 

 

 

4

 

 

 

17

 

 

 

20

 

Other expenses, net

 

 

 

 

 

24

 

 

 

1

 

 

 

73

 

Total costs and expenses, net

 

 

2,591

 

 

 

2,369

 

 

 

7,489

 

 

 

6,893

 

Operating Profit

 

 

323

 

 

 

316

 

 

 

996

 

 

 

588

 

Interest income, net

 

 

46

 

 

 

25

 

 

 

124

 

 

 

51

 

Investment loss

 

 

(4

)

 

 

(15

)

 

 

(32

)

 

 

(32

)

Income Before Income Taxes and Equity in
   Net Earnings (Losses) from Equity Method Investments

 

 

365

 

 

 

326

 

 

 

1,088

 

 

 

607

 

Income tax provision

 

 

(100

)

 

 

(97

)

 

 

(296

)

 

 

(183

)

Equity in net earnings (losses) from equity method investments

 

 

2

 

 

 

(2

)

 

 

2

 

 

 

(4

)

Net income – including noncontrolling interests

 

 

267

 

 

 

227

 

 

 

794

 

 

 

420

 

Net income – noncontrolling interests

 

 

23

 

 

 

21

 

 

 

64

 

 

 

31

 

Net Income – Yum China Holdings, Inc.

 

$

244

 

 

$

206

 

 

$

730

 

 

$

389

 

Weighted-average common shares outstanding (in millions):

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

416

 

 

 

420

 

 

 

417

 

 

 

422

 

Diluted

 

 

420

 

 

 

424

 

 

 

421

 

 

 

426

 

Basic Earnings Per Common Share

 

$

0.59

 

 

$

0.49

 

 

$

1.75

 

 

$

0.92

 

Diluted Earnings Per Common Share

 

$

0.58

 

 

$

0.49

 

 

$

1.73

 

 

$

0.92

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

3


Condensed Consolidated Statements of Comprehensive Income (Unaudited)

Yum China Holdings, Inc.

(in US$ millions)

 

 

 

Quarter Ended

 

 

Year to Date Ended

 

 

 

 

9/30/2023

 

 

9/30/2022

 

 

9/30/2023

 

 

9/30/2022

 

 

Net income – including noncontrolling interests

 

$

267

 

 

$

227

 

 

$

794

 

 

$

420

 

 

Other comprehensive loss, net of tax of nil:

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(29

)

 

 

(306

)

 

 

(274

)

 

 

(573

)

 

Comprehensive income (loss) – including noncontrolling interests

 

 

238

 

 

 

(79

)

 

 

520

 

 

 

(153

)

 

Comprehensive income (loss) – noncontrolling interests

 

 

20

 

 

 

(23

)

 

 

29

 

 

 

(52

)

 

Comprehensive Income (Loss) – Yum China Holdings, Inc.

 

$

218

 

 

$

(56

)

 

$

491

 

 

$

(101

)

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

4


Condensed Consolidated Statements of Cash Flows (Unaudited)

Yum China Holdings, Inc.

(in US$ millions)

 

 

 

Year to Date Ended

 

 

9/30/2023

 

9/30/2022

 Cash Flows – Operating Activities

 

 

 

 

 

 

 

 

 Net income – including noncontrolling interests

 

$

794

 

 

 

$

420

 

 

 Depreciation and amortization

 

 

339

 

 

 

 

467

 

 Non-cash operating lease cost

 

 

301

 

 

 

 

333

 

 

 Closures and impairment expenses

 

 

17

 

 

 

 

20

 

 

 Investment loss

 

 

32

 

 

 

 

32

 

 

 Equity in net (earnings) losses from equity method investments

 

 

(2

)

 

 

 

4

 

 

 Distributions of income received from equity method investments

 

 

8

 

 

 

 

7

 

 

 Deferred income taxes

 

 

(6

)

 

 

 

(7

)

 

 Share-based compensation expense

 

 

46

 

 

 

 

31

 

 

 Changes in accounts receivable

 

 

(2

)

 

 

 

(6

)

 

 Changes in inventories

 

 

(25

)

 

 

 

71

 

 

 Changes in prepaid expenses, other current assets and VAT assets

 

 

(10

)

 

 

 

216

 

 

 Changes in accounts payable and other current liabilities

 

 

112

 

 

 

 

(19

)

 

 Changes in income taxes payable

 

 

71

 

 

 

 

70

 

 

 Changes in non-current operating lease liabilities

 

 

(295

)

 

 

 

(299

)

 

 Other, net

 

 

(46

)

 

 

 

(11

)

 

 Net Cash Provided by Operating Activities

 

 

1,334

 

 

 

 

1,329

 

 

 Cash Flows – Investing Activities

 

 

 

 

 

 

 

 

 Capital spending

 

 

(499

)

 

 

 

(509

)

 

 Purchases of short-term investments, long-term bank deposits and notes

 

 

(3,287

)

 

 

 

(4,290

)

 

 Maturities of short-term investments, long-term bank deposits and notes

 

 

2,730

 

 

 

 

4,226

 

 

 Acquisition of business, net of cash acquired

 

 

 

 

 

 

(23

)

 

 Other, net

 

 

4

 

 

 

 

3

 

 

 Net Cash Used in Investing Activities

 

 

(1,052

)

 

 

 

(593

)

 

 Cash Flows – Financing Activities

 

 

 

 

 

 

 

 

 Proceeds from short-term borrowings

 

 

212

 

 

 

 

 

 

 Repurchase of shares of common stock

 

 

(280

)

 

 

 

(411

)

 

 Cash dividends paid on common stock

 

 

(162

)

 

 

 

(152

)

 

 Dividends paid to noncontrolling interests

 

 

(37

)

 

 

 

(29

)

 

 Contributions from noncontrolling interests

 

 

35

 

 

 

 

18

 

 

 Payment of acquisition related holdback

 

 

(3

)

 

 

 

(7

)

 

 Other, net

 

 

(5

)

 

 

 

(2

)

 

 Net Cash Used in Financing Activities

 

 

(240

)

 

 

 

(583

)

 

 Effect of Exchange Rates on Cash, Cash Equivalents and Restricted Cash

 

 

(41

)

 

 

 

(78

)

 

 Net Increase in Cash, Cash Equivalents and Restricted Cash

 

 

1

 

 

 

 

75

 

 

 Cash, Cash Equivalents, and Restricted Cash - Beginning of Period

 

 

1,130

 

 

 

 

1,136

 

 

 Cash, Cash Equivalents, and Restricted Cash - End of Period

 

$

1,131

 

 

 

$

1,211

 

 

 

Supplemental Cash Flow Data

 

 

 

 

 

 

Cash paid for income tax

 

 

245

 

 

 

124

 

Cash paid for interest

 

 

3

 

 

 

 

Non-cash Investing and Financing Activities

 

 

 

 

 

 

Capital expenditures included in accounts payable and other current liabilities

 

 

180

 

 

 

133

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

5


Condensed Consolidated Balance Sheets

Yum China Holdings, Inc.

(in US$ millions)

 

 

 

9/30/2023

 

 

12/31/2022

 

 

 

(Unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,131

 

 

$

1,130

 

Short-term investments

 

 

2,001

 

 

 

2,022

 

Accounts receivable, net

 

 

62

 

 

 

64

 

Inventories, net

 

 

419

 

 

 

417

 

Prepaid expenses and other current assets

 

 

310

 

 

 

307

 

Total Current Assets

 

 

3,923

 

 

 

3,940

 

Property, plant and equipment, net

 

 

2,117

 

 

 

2,118

 

Operating lease right-of-use assets

 

 

2,083

 

 

 

2,219

 

Goodwill

 

 

1,879

 

 

 

1,988

 

Intangible assets, net

 

 

147

 

 

 

159

 

Long-term bank deposits and notes

 

 

1,237

 

 

 

680

 

Equity investments

 

 

319

 

 

 

361

 

Deferred income tax assets

 

 

106

 

 

 

113

 

Other assets

 

 

259

 

 

 

248

 

Total Assets

 

 

12,070

 

 

 

11,826

 

 

 

 

 

 

 

 

LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND EQUITY

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

Accounts payable and other current liabilities

 

 

2,129

 

 

 

2,096

 

Short-term borrowings

 

 

210

 

 

 

2

 

Income taxes payable

 

 

133

 

 

 

68

 

Total Current Liabilities

 

 

2,472

 

 

 

2,166

 

Non-current operating lease liabilities

 

 

1,787

 

 

 

1,906

 

Non-current finance lease liabilities

 

 

41

 

 

 

42

 

Deferred income tax liabilities

 

 

364

 

 

 

390

 

Other liabilities

 

 

147

 

 

 

162

 

Total Liabilities

 

 

4,811

 

 

 

4,666

 

 

 

 

 

 

 

 

Redeemable Noncontrolling Interest

 

 

13

 

 

 

12

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

Common stock, $0.01 par value; 1,000 million shares authorized;
       
415 million shares and 419 million shares issued and outstanding
       at September 30, 2023 and December 31, 2022, respectively.

 

 

4

 

 

 

4

 

Additional paid-in capital

 

 

4,382

 

 

 

4,390

 

Retained earnings

 

 

2,526

 

 

 

2,191

 

Accumulated other comprehensive loss

 

 

(341

)

 

 

(103

)

Total Yum China Holdings, Inc. Stockholders' Equity

 

 

6,571

 

 

 

6,482

 

Noncontrolling interests

 

 

675

 

 

 

666

 

Total Equity

 

 

7,246

 

 

 

7,148

 

Total Liabilities, Redeemable Noncontrolling Interest and Equity

 

$

12,070

 

 

$

11,826

 

 

 

 

 

 

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

 

6


Condensed Consolidated Statements of Equity (Unaudited)

Yum China Holdings, Inc.

(in US$ millions)

 

 

 

Yum China Holdings, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common

 

 

Additional

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable

 

 

 

Stock

 

 

Paid-in

 

 

Retained

 

 

Comprehensive

 

 

Treasury Stock

 

 

Noncontrolling

 

 

Total

 

 

Noncontrolling

 

 

 

Shares*

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

(Loss) Income

 

 

Shares

 

 

Amount

 

 

Interests

 

 

Equity

 

 

Interest