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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, 2022

 

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.)

 

 

 

7100 Corporate Drive

Plano, Texas 75024

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, 2022 was 418,427,345 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, 2022 and 2021 (Unaudited)

3

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income – Quarters and Years to Date Ended September 30, 2022 and 2021 (Unaudited)

4

 

 

 

 

Condensed Consolidated Statements of Cash Flows – Years to Date Ended September 30, 2022 and 2021 (Unaudited)

5

 

 

 

 

Condensed Consolidated Balance Sheets – September 30, 2022 (Unaudited) and December 31, 2021

6

 

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

7

 

 

 

 

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

26

 

 

 

 

Item 3 – Quantitative and Qualitative Disclosures About Market Risk

42

 

 

 

 

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

46

 

 

 

 

Item 6 – Exhibits

47

 

 

 

 

Signatures

48

 

 

 


 

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

 

9/30/2022

 

 

9/30/2021

 

 

9/30/2022

 

 

9/30/2021

 

Company sales

 

$

2,561

 

 

$

2,310

 

 

$

7,135

 

 

$

6,874

 

Franchise fees and income

 

 

22

 

 

 

40

 

 

 

65

 

 

 

120

 

Revenues from transactions with
   franchisees and unconsolidated affiliates

 

 

80

 

 

 

184

 

 

 

219

 

 

 

519

 

Other revenues

 

 

22

 

 

 

20

 

 

 

62

 

 

 

49

 

Total revenues

 

 

2,685

 

 

 

2,554

 

 

 

7,481

 

 

 

7,562

 

Costs and Expenses, Net

 

 

 

 

 

 

 

 

 

 

 

 

Company restaurants

 

 

 

 

 

 

 

 

 

 

 

 

Food and paper

 

 

787

 

 

 

743

 

 

 

2,206

 

 

 

2,133

 

Payroll and employee benefits

 

 

603

 

 

 

591

 

 

 

1,819

 

 

 

1,675

 

Occupancy and other operating expenses

 

 

691

 

 

 

694

 

 

 

2,034

 

 

 

1,995

 

Company restaurant expenses

 

 

2,081

 

 

 

2,028

 

 

 

6,059

 

 

 

5,803

 

General and administrative expenses

 

 

157

 

 

 

142

 

 

 

449

 

 

 

408

 

Franchise expenses

 

 

9

 

 

 

17

 

 

 

27

 

 

 

50

 

Expenses for transactions with
   franchisees and unconsolidated affiliates

 

 

76

 

 

 

180

 

 

 

212

 

 

 

509

 

Other operating costs and expenses

 

 

18

 

 

 

17

 

 

 

53

 

 

 

41

 

Closures and impairment expenses, net

 

 

4

 

 

 

2

 

 

 

20

 

 

 

13

 

Other expenses (income), net

 

 

24

 

 

 

(10

)

 

 

73

 

 

 

(15

)

Total costs and expenses, net

 

 

2,369

 

 

 

2,376

 

 

 

6,893

 

 

 

6,809

 

Operating Profit

 

 

316

 

 

 

178

 

 

 

588

 

 

 

753

 

Interest income, net

 

 

25

 

 

 

16

 

 

 

51

 

 

 

47

 

Investment loss

 

 

(15

)

 

 

(39

)

 

 

(32

)

 

 

(43

)

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

 

 

326

 

 

 

155

 

 

 

607

 

 

 

757

 

Income tax provision

 

 

(97

)

 

 

(44

)

 

 

(183

)

 

 

(210

)

Equity in net earnings (losses) from
   equity method investments

 

 

(2

)

 

 

 

 

 

(4

)

 

 

 

Net income – including noncontrolling interests

 

 

227

 

 

 

111

 

 

 

420

 

 

 

547

 

Net income – noncontrolling interests

 

 

21

 

 

 

7

 

 

 

31

 

 

 

32

 

Net Income – Yum China Holdings, Inc.

 

$

206

 

 

$

104

 

 

$

389

 

 

$

515

 

Weighted-average common shares outstanding (in millions):

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

420

 

 

 

422

 

 

 

422

 

 

 

421

 

Diluted

 

 

424

 

 

 

435

 

 

 

426

 

 

 

435

 

Basic Earnings Per Common Share

 

$

0.49

 

 

$

0.25

 

 

$

0.92

 

 

$

1.23

 

Diluted Earnings Per Common Share

 

$

0.49

 

 

$

0.24

 

 

$

0.92

 

 

$

1.19

 

 

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

 

 

 

9/30/2022

 

 

9/30/2021

 

 

9/30/2022

 

 

9/30/2021

 

Net income – including noncontrolling interests

 

$

227

 

 

$

111

 

 

$

420

 

 

$

547

 

Other comprehensive (loss) income, net of tax of nil:

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(306

)

 

 

10

 

 

 

(573

)

 

 

50

 

Comprehensive (loss) income – including noncontrolling
    interests

 

 

(79

)

 

 

121

 

 

 

(153

)

 

 

597

 

Comprehensive (loss) income – noncontrolling interests

 

 

(23

)

 

 

9

 

 

 

(52

)

 

 

36

 

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

 

$

(56

)

 

$

112

 

 

$

(101

)

 

$

561

 

 

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

 

 

 

9/30/2022

 

 

9/30/2021

 

Cash Flows – Operating Activities

 

 

 

 

 

 

Net income – including noncontrolling interests

 

$

420

 

 

$

547

 

Depreciation and amortization

 

 

467

 

 

 

380

 

Non-cash operating lease cost

 

 

333

 

 

 

310

 

Closures and impairment expenses

 

 

20

 

 

 

13

 

Gain from re-measurement of equity interest upon acquisition

 

 

 

 

 

(10

)

Investment loss

 

 

32

 

 

 

43

 

Equity income from investments in unconsolidated affiliates

 

 

 

 

 

(38

)

Distributions of income received from unconsolidated affiliates

 

 

7

 

 

 

21

 

Deferred income taxes

 

 

(7

)

 

 

17

 

Share-based compensation expense

 

 

31

 

 

 

32

 

Changes in accounts receivable

 

 

(6

)

 

 

2

 

Changes in inventories

 

 

71

 

 

 

13

 

Changes in prepaid expenses, other current assets and VAT assets (Note 9(a))

 

 

216

 

 

 

 

Changes in accounts payable and other current liabilities

 

 

(19

)

 

 

82

 

Changes in income taxes payable

 

 

70

 

 

 

(5

)

Changes in non-current operating lease liabilities

 

 

(299

)

 

 

(309

)

Other, net

 

 

(7

)

 

 

(24

)

Net Cash Provided by Operating Activities

 

 

1,329

 

 

 

1,074

 

Cash Flows – Investing Activities

 

 

 

 

 

 

Capital spending

 

 

(509

)

 

 

(482

)

Purchases of short-term investments

 

 

(4,290

)

 

 

(4,524

)

Purchases of long-term time deposits

 

 

 

 

 

(25

)

Maturities of short-term investments

 

 

4,226

 

 

 

4,544

 

Acquisition of business, net of cash acquired

 

 

(23

)

 

 

 

Acquisition of equity investment

 

 

 

 

 

(261

)

Other, net

 

 

3

 

 

 

5

 

Net Cash Used in Investing Activities

 

 

(593

)

 

 

(743

)

Cash Flows – Financing Activities

 

 

 

 

 

 

Repurchase of shares of common stock

 

 

(411

)

 

 

(32

)

Cash dividends paid on common stock

 

 

(152

)

 

 

(152

)

Dividends paid to noncontrolling interests

 

 

(29

)

 

 

(22

)

Contribution from noncontrolling interests

 

 

18

 

 

 

 

Payment of acquisition related holdback

 

 

(7

)

 

 

(8

)

Other, net

 

 

(2

)

 

 

(6

)

Net Cash Used in Financing Activities

 

 

(583

)

 

 

(220

)

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

 

 

(78

)

 

 

9

 

Net Increase in Cash, Cash Equivalents and Restricted Cash

 

 

75

 

 

 

120

 

Cash, Cash Equivalents and Restricted Cash – Beginning of Period

 

 

1,136

 

 

 

1,158

 

Cash, Cash Equivalents and Restricted Cash – End of Period

 

$

1,211

 

 

$

1,278

 

 

 

 

 

 

 

 

Supplemental Cash Flow Data

 

 

 

 

 

 

Cash paid for income tax

 

 

124

 

 

 

210

 

Non-cash Investing and Financing Activities

 

 

 

 

 

 

Capital expenditures included in accounts payable and other current liabilities

 

 

133

 

 

 

208

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

5


 

Condensed Consolidated Balance Sheets

Yum China Holdings, Inc.

(in US$ millions)

 

 

 

9/30/2022

 

 

12/31/2021

 

 

 

(Unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,211

 

 

$

1,136

 

Short-term investments

 

 

2,826

 

 

 

2,860

 

Accounts receivable, net

 

 

66

 

 

 

67

 

Inventories, net

 

 

321

 

 

 

432

 

Prepaid expenses and other current assets

 

 

286

 

 

 

221

 

Total Current Assets

 

 

4,710

 

 

 

4,716

 

Property, plant and equipment, net

 

 

1,965

 

 

 

2,251

 

Operating lease right-of-use assets

 

 

2,154

 

 

 

2,612

 

Goodwill

 

 

1,927

 

 

 

2,142

 

Intangible assets, net

 

 

176

 

 

 

272

 

Investments in unconsolidated affiliates

 

 

256

 

 

 

292

 

Deferred income tax assets

 

 

89

 

 

 

106

 

Other assets

 

 

419

 

 

 

832

 

Total Assets

 

$

11,696

 

 

$

13,223

 

 

 

 

 

 

 

 

LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND EQUITY

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

Accounts payable and other current liabilities

 

$

1,992

 

 

$

2,332

 

Income taxes payable

 

 

112

 

 

 

51

 

Total Current Liabilities

 

 

2,104

 

 

 

2,383

 

Non-current operating lease liabilities

 

 

1,862

 

 

 

2,286

 

Non-current finance lease liabilities

 

 

36

 

 

 

40

 

Deferred income tax liabilities

 

 

370

 

 

 

425

 

Other liabilities

 

 

156

 

 

 

167

 

Total Liabilities

 

 

4,528

 

 

 

5,301

 

 

 

 

 

 

 

 

Redeemable Noncontrolling Interest

 

 

13

 

 

 

14

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 Common s