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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 June 30, 2024

 

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 August 2, 2024 was 384,423,600 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 June 30, 2024 and 2023 (Unaudited)

3

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income – Quarters and Years to Date Ended June 30, 2024 and 2023 (Unaudited)

4

 

 

 

 

Condensed Consolidated Statements of Cash Flows – Years to Date Ended June 30, 2024 and 2023 (Unaudited)

5

 

 

 

 

Condensed Consolidated Balance Sheets – June 30, 2024 (Unaudited) and December 31, 2023

6

 

 

 

 

Condensed Consolidated Statements of Equity – Quarters and Years to Date Ended June 30, 2024 and 2023 (Unaudited)

7

 

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

9

 

 

 

 

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

25

 

 

 

 

Item 3 – Quantitative and Qualitative Disclosures About Market Risk

43

 

 

 

 

Item 4 – Controls and Procedures

43

 

 

 

Part II.

Other Information

 

 

 

 

 

Item 1 – Legal Proceedings

44

 

 

 

 

Item 1A – Risk Factors

44

 

 

 

 

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

44

 

 

 

 

Item 5 – Other Information

44

 

 

 

 

Item 6 – Exhibits

45

 

 

 

 

Signatures

46

 

 

 


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

 

6/30/2024

 

 

6/30/2023

 

 

6/30/2024

 

 

6/30/2023

 

Company sales

 

$

2,528

 

 

$

2,517

 

 

$

5,322

 

 

$

5,289

 

Franchise fees and income

 

 

22

 

 

 

21

 

 

 

47

 

 

 

46

 

Revenues from transactions with franchisees

 

 

96

 

 

 

89

 

 

 

203

 

 

 

182

 

Other revenues

 

 

33

 

 

 

27

 

 

 

65

 

 

 

54

 

Total revenues

 

 

2,679

 

 

 

2,654

 

 

 

5,637

 

 

 

5,571

 

Costs and Expenses, Net

 

 

 

 

 

 

 

 

 

 

 

 

Company restaurants

 

 

 

 

 

 

 

 

 

 

 

 

Food and paper

 

 

797

 

 

 

773

 

 

 

1,693

 

 

 

1,608

 

Payroll and employee benefits

 

 

666

 

 

 

665

 

 

 

1,374

 

 

 

1,348

 

Occupancy and other operating expenses

 

 

674

 

 

 

675

 

 

 

1,371

 

 

 

1,366

 

Company restaurant expenses

 

 

2,137

 

 

 

2,113

 

 

 

4,438

 

 

 

4,322

 

General and administrative expenses

 

 

133

 

 

 

153

 

 

 

273

 

 

 

316

 

Franchise expenses

 

 

9

 

 

 

9

 

 

 

19

 

 

 

19

 

Expenses for transactions with franchisees

 

 

92

 

 

 

84

 

 

 

196

 

 

 

175

 

Other operating costs and expenses

 

 

29

 

 

 

24

 

 

 

58

 

 

 

48

 

Closures and impairment expenses, net

 

 

13

 

 

 

14

 

 

 

14

 

 

 

17

 

Other (income) expenses, net

 

 

 

 

 

 

 

 

(1

)

 

 

1

 

Total costs and expenses, net

 

 

2,413

 

 

 

2,397

 

 

 

4,997

 

 

 

4,898

 

Operating Profit

 

 

266

 

 

 

257

 

 

 

640

 

 

 

673

 

Interest income, net

 

 

31

 

 

 

40

 

 

 

69

 

 

 

78

 

Investment gain (loss)

 

 

8

 

 

 

(11

)

 

 

16

 

 

 

(28

)

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

 

 

305

 

 

 

286

 

 

 

725

 

 

 

723

 

Income tax provision

 

 

(77

)

 

 

(71

)

 

 

(190

)

 

 

(196

)

Equity in net earnings (losses) from equity method investments

 

 

 

 

 

(1

)

 

 

 

 

 

 

Net income – including noncontrolling interests

 

 

228

 

 

 

214

 

 

 

535

 

 

 

527

 

Net income – noncontrolling interests

 

 

16

 

 

 

17

 

 

 

36

 

 

 

41

 

Net Income – Yum China Holdings, Inc.

 

$

212

 

 

$

197

 

 

$

499

 

 

$

486

 

Weighted-average common shares outstanding (in millions):

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

389

 

 

 

418

 

 

 

395

 

 

 

418

 

Diluted

 

 

391

 

 

 

422

 

 

 

397

 

 

 

423

 

Basic Earnings Per Common Share

 

$

0.55

 

 

$

0.47

 

 

$

1.27

 

 

$

1.16

 

Diluted Earnings Per Common Share

 

$

0.55

 

 

$

0.47

 

 

$

1.26

 

 

$

1.15

 

 

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

 

 

 

6/30/2024

 

 

6/30/2023

 

 

6/30/2024

 

 

6/30/2023

 

Net income – including noncontrolling interests

 

$

228

 

 

$

214

 

 

$

535

 

 

$

527

 

Other comprehensive loss, net of tax of nil:

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(30

)

 

 

(259

)

 

 

(111

)

 

 

(245

)

Comprehensive income (loss) – including noncontrolling interests

 

 

198

 

 

 

(45

)

 

 

424

 

 

 

282

 

Comprehensive income (loss) – noncontrolling interests

 

 

12

 

 

 

(17

)

 

 

22

 

 

 

9

 

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

 

$

186

 

 

$

(28

)

 

$

402

 

 

$

273

 

 

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

 

 

6/30/2024

 

6/30/2023

 Cash Flows – Operating Activities

 

 

 

 

 

 

 

 

 Net income – including noncontrolling interests

 

$

535

 

 

 

$

527

 

 

 Depreciation and amortization

 

 

235

 

 

 

 

228

 

 Non-cash operating lease cost

 

 

203

 

 

 

 

202

 

 

 Closures and impairment expenses

 

 

14

 

 

 

 

17

 

 

 Investment (gain) loss

 

 

(16

)

 

 

 

28

 

 

 Equity in net (earnings) losses from equity method investments

 

 

 

 

 

 

 

 

 Distributions of income received from equity method investments

 

 

7

 

 

 

 

8

 

 

 Deferred income taxes

 

 

(2

)

 

 

 

13

 

 

 Share-based compensation expense

 

 

23

 

 

 

 

29

 

 

 Changes in accounts receivable

 

 

(5

)

 

 

 

2

 

 

 Changes in inventories

 

 

52

 

 

 

 

1

 

 

 Changes in prepaid expenses, other current assets and value-added tax assets

 

 

(28

)

 

 

 

19

 

 

 Changes in accounts payable and other current liabilities

 

 

27

 

 

 

 

54

 

 

 Changes in income taxes payable

 

 

25

 

 

 

 

25

 

 

 Changes in non-current operating lease liabilities

 

 

(206

)

 

 

 

(193

)

 

 Other, net

 

 

(21

)

 

 

 

(36

)

 

 Net Cash Provided by Operating Activities

 

 

843

 

 

 

 

924

 

 

 Cash Flows – Investing Activities

 

 

 

 

 

 

 

 

 Capital spending

 

 

(358

)

 

 

 

(332

)

 

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

 

 

(1,479

)

 

 

 

(2,172

)

 

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

 

 

1,702

 

 

 

 

1,904

 

 

 Other, net

 

 

3

 

 

 

 

2

 

 

 Net Cash Used in Investing Activities

 

 

(132

)

 

 

 

(598

)

 

 Cash Flows – Financing Activities

 

 

 

 

 

 

 

 

 Proceeds from short-term borrowings

 

 

307

 

 

 

 

 

 

 Repayment of short-term borrowings

 

 

(52

)

 

 

 

 

 

 Repurchase of shares of common stock

 

 

(869

)

 

 

 

(122

)

 

 Cash dividends paid on common stock

 

 

(126

)

 

 

 

(108

)

 

 Dividends paid to noncontrolling interests

 

 

(28

)

 

 

 

(28

)

 

 Contributions from noncontrolling interests

 

 

 

 

 

 

35

 

 

 Payment of acquisition related holdback

 

 

 

 

 

 

(3

)

 

 Other, net

 

 

(17

)

 

 

 

(4

)

 

 Net Cash Used in Financing Activities

 

 

(785

)

 

 

 

(230

)

 

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

 

 

(11

)

 

 

 

(37

)

 

 Net (Decrease) Increase in Cash, Cash Equivalents and Restricted Cash

 

 

(85

)

 

 

 

59

 

 

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

 

 

1,128

 

 

 

 

1,130

 

 

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

 

$

1,043

 

 

 

$

1,189

 

 

 

Supplemental Cash Flow Data

 

 

 

 

 

 

 

Cash paid for income tax

 

 

187

 

 

 

175

 

 

Cash paid for interest

 

 

4

 

 

 

 

 

Non-cash Investing and Financing Activities

 

 

 

 

 

 

 

Capital expenditures included in accounts payable and other current liabilities

 

 

167

 

 

 

153

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

5


Condensed Consolidated Balance Sheets

Yum China Holdings, Inc.

(in US$ millions)

 

 

 

6/30/2024

 

 

12/31/2023

 

 

 

(Unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,043

 

 

$

1,128

 

Short-term investments

 

 

1,434

 

 

 

1,472

 

Accounts receivable, net

 

 

74

 

 

 

68

 

Inventories, net

 

 

362

 

 

 

424

 

Prepaid expenses and other current assets

 

 

368

 

 

 

339

 

Total Current Assets

 

 

3,281

 

 

 

3,431

 

Property, plant and equipment, net

 

 

2,314

 

 

 

2,310

 

Operating lease right-of-use assets

 

 

2,151

 

 

 

2,217

 

Goodwill

 

 

1,888

 

 

 

1,932

 

Intangible assets, net

 

 

146

 

 

 

150

 

Long-term bank deposits and notes

 

 

1,051

 

 

 

1,265

 

Equity investments

 

 

343

 

 

 

332

 

Deferred income tax assets

 

 

132

 

 

 

129

 

Other assets

 

 

262

 

 

 

265

 

Total Assets

 

 

11,568

 

 

 

12,031

 

 

 

 

 

 

 

 

LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND EQUITY

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

Accounts payable and other current liabilities

 

 

2,149

 

 

 

2,164

 

Short-term borrowings

 

 

416

 

 

 

168

 

Income taxes payable

 

 

113

 

 

 

90

 

Total Current Liabilities

 

 

2,678

 

 

 

2,422

 

Non-current operating lease liabilities

 

 

1,827

 

 

 

1,899

 

Non-current finance lease liabilities

 

 

46

 

 

 

44

 

Deferred income tax liabilities

 

 

386

 

 

 

390

 

Other liabilities

 

 

149

 

 

 

157

 

Total Liabilities

 

 

5,086

 

 

 

4,912

 

 

 

 

 

 

 

 

Redeemable Noncontrolling Interest

 

 

13

 

 

 

13

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

Common stock, $0.01 par value; 1,000 million shares authorized; 387 million shares
      and
407 million shares issued at June 30, 2024 and December 31, 2023, respectively;
      
386 million shares and 407 million shares outstanding at June 30, 2024 and
      December 31, 2023, respectively.

 

 

4

 

 

 

4

 

Treasury stock

 

 

(17

)

 

 

 

Additional paid-in capital

 

 

4,103

 

 

 

4,320

 

Retained earnings

 

 

2,048

 

 

 

2,310

 

Accumulated other comprehensive loss

 

 

(326

)

 

 

(229

)

Total Yum China Holdings, Inc. Stockholders' Equity

 

 

5,812

 

 

 

6,405

 

Noncontrolling interests

 

 

657

 

 

 

701

 

Total Equity

 

 

6,469

 

 

 

7,106

 

Total Liabilities, Redeemable Noncontrolling Interest and Equity

 

$

11,568

 

 

$

12,031

 

 

 

 

 

 

 

 

 

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

 

 

Shares

 

 

Amount

 

 

Interests

 

 

Equity

 

 

Interest

 

Balance at March 31, 2024

 

 

394

 

 

$

4

 

 

$

4,159

 

 

$

2,078

 

 

$

(300

)

 

 

(2

)

 

$

(76

)

 

$

710

 

 

$

6,575

 

 

$

13

 

Net Income

 

 

 

 

 

 

 

 

 

 

 

212

 

 

 

 

 

 

 

 

 

 

 

 

16

 

 

 

228

 

 

 

 

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

(26

)

 

 

 

 

 

 

 

 

(4

)

 

 

(30

)

 

 

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

198

 

 

 

 

Cash dividends declared
   ($
0.16 per common share)

 

 

 

 

 

 

 

 

 

 

 

(62

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(62

)

 

 

 

Distributions to/contributions from
  noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(65

)

 

 

(65

)

 

 

 

Repurchase and retirement of shares

 

 

(6

)

 

 

 

 

 

(69

)

 

 

(180

)

 

 

 

 

 

1

 

 

 

59

 

 

 

 

 

 

(190

)

 

 

 

Exercise and vesting of share-based awards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation

 

 

 

 

 

 

 

 

13

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13

 

 

 

 

Balance at June 30, 2024

 

 

387

 

 

$

4

 

 

$

4,103

 

 

$

2,048

 

 

$

(326

)

 

 

(1

)

 

$

(17

)

 

$

657

 

 

$

6,469

 

 

$

13

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2023

 

 

418

 

 

$

4

 

 

$

4,391

 

 

$

2,374

 

 

$

(91

)

 

 

 

 

$

 

 

$

726

 

 

$

7,404

 

 

$

12

 

Net Income

 

 

 

 

 

 

 

 

 

 

 

197

 

 

 

 

 

 

 

 

 

 

 

 

17

 

 

 

214

 

 

 

 

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(225

)

 

 

 

 

 

 

 

 

(34

)

 

 

(259

)

 

 

 

Comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(45

)

 

 

 

Cash dividends declared
   ($
0.13 per common share)

 

 

 

 

 

 

 

 

 

 

 

(54

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(54

)

 

 

 

Contributions from / distributions to
   noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(53

)

 

 

(53

)

 

 

 

Repurchase and retirement of shares

 

 

(1

)

 

 

 

 

 

(11

)

 

 

(52

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(63

)

 

 

 

Exercise and vesting of share-based awards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation

 

 

 

 

 

 

 

 

16

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16

 

 

 

 

Balance at June 30, 2023

 

 

417

 

 

$

4

 

 

$

4,396

 

 

$

2,465

 

 

$

(316

)

 

 

 

 

$

 

 

$

656

 

 

$

7,205