Yum China Reports 6% Same-Store Sales Growth and 10% System Sales Growth; Operating Profit Up 11% YoY; Board Declares Initial Dividend and Expands Share Repurchase Authorization
October 5, 2017 at 4:30 PM EDT

SHANGHAI, Oct. 5, 2017 /PRNewswire/ -- Yum China Holdings, Inc. (the "Company" or "Yum China") (NYSE: YUMC) today reported unaudited results for the third quarter ended August 31, 2017.

Third Quarter Highlights

  • Same-store sales grew 6%, including growth of 7% at KFC, flat at Pizza Hut.
  • Total system sales grew 10%, including growth of 11% at KFC and 7% at Pizza Hut, excluding foreign currency translation ("F/X").
  • Opened 129 new restaurants during the quarter.
  • Total restaurant margin increased 0.8 percentage points to 20.0%, primarily driven by same-store sales leverage.
  • Operating profit increased 11%, and 13% excluding F/X, primarily driven by same-store sales growth. F/X negatively impacted reported operating profit by $5 million.
  • Basic EPS increased 4% to $0.55 and diluted EPS was flat at $0.53.
  • Effective tax rate was 31.7%, compared to 29.8% in the prior-year quarter, primarily due to higher costs of repatriating current year earnings into the U.S.
  • Net income increased 9% to $211 million.
  • Adjusted EBITDA increased 9% to $425 million.

Dividend and Share Repurchase

  • The Board of Directors has approved a regular quarterly cash dividend program, and declared an initial cash dividend of $0.10 per share on Yum China's common stock.
  • The Board of Directors has increased Yum China's existing share repurchase authorization from $300 million to an aggregate of $550 million.

 

Key Results

       
             
   

Third Quarter

   

Year to Date

 
   

% Change

   

% Change

 
   

System

Sales

 

Same-Store

Sales

 

Net New

Units

 

Operating

Profit

   

System

Sales

 

Same-Store

Sales

 

Net New

Units

 

Operating

Profit

 
                                     

Yum China

 

+10

 

+6

 

+6

 

+11

   

+7

 

+4

 

+6

 

+23

 

KFC

 

+11

 

+7

 

+5

 

+20

   

+8

 

+4

 

+5

 

+20

 

Pizza Hut

 

+7

 

-

 

+8

 

-

   

+7

 

+1

 

+8

 

+37

 

 

 

Third Quarter

   

Year to Date

 

(in US$ million, except

               

% Change

                   

% Change

 

for per share data and percentages)

2017

   

2016

   

Reported

 

Ex F/X

   

2017

   

2016

   

Reported

 

Ex F/X

 

Reported Operating Profit

$

317

   

$

286

   

+11

 

+13

   

$

714

   

$

582

   

+23

 

+27

 

Operating Profit Before Special Items1

$

314

   

$

283

   

+11

 

+12

   

$

711

   

$

580

   

+23

 

+27

 

Net income

$

211

   

$

192

   

+9

 

+11

   

$

493

   

$

414

   

+19

 

+23

 

Adjusted EBITDA1

$

425

   

$

390

   

+9

 

+11

   

$

1,004

   

$

895

   

+12

 

+16

 

Basic EPS

$

0.55

   

$

0.53

   

+4

 

+6

   

$

1.28

   

$

1.14

   

+12

 

+16

 

Diluted EPS

$

0.53

   

$

0.53

   

-

 

+2

   

$

1.24

   

$

1.14

   

+9

 

+13

 

Diluted EPS Before Special Items1

$

0.52

   

$

0.52

   

-

 

+2

   

$

1.23

   

$

1.11

   

+11

 

+15

 
 

1See Reconciliation of Reported Results to Non-GAAP Measures included in the accompanying tables of this release for further details. 
Note: All comparisons are versus the same period a year ago. Consistent with prior years, Yum China's fiscal third quarter includes June, July and August results. Percentages may not recompute due to rounding. 
System sales and same-store sales percentages exclude the impact of F/X.

 

CEO Comments

"We are pleased to report the third consecutive quarter of delivering positive same-store sales growth. With revenues exceeding $2 billion in the quarter, restaurant margin, operating profit and net income have all improved. We opened 129 new restaurants in the third quarter and we are on track to achieve our development target of 550-600 new stores in the year," said Micky Pant, CEO of Yum China. 

"In this quarter, our strategic initiatives on digital and delivery continued to show encouraging development, which we believe will enable our long-term growth. The connection with our over 120 million loyalty members is getting stronger. The growth in mobile payments and cashless settlement methods for sales continued to outperform previous quarters. With over 5,100 restaurants across China offering delivery service, delivery contributed over 14% of company sales in the third quarter.

Given the strength of our business and our confidence in generating strong cash flows long term, our Board of Directors has approved a regular quarterly cash dividend program and authorized additional share repurchases.  These demonstrate our strong commitment to increase shareholder returns through disciplined capital allocation while simultaneously driving strong operating performance.

With our strong operating results in this third quarter and our commitment to return capital to shareholders, we believe we are well positioned to continue to increase shareholder value over the long run."

New-Unit Development and Asset Upgrade

  • Opened 129 new restaurants during the third quarter, and 352 year to date.
  • Remodeled 200 restaurants during the third quarter, and 429 year to date, led by KFC.

 

       

New Units

   

Restaurant Count

   
       

Third

       

As of Third Quarter End

   
       

Quarter

 

Year to Date

   

2017

   

2016

   
 

Yum China

   

129

 

352

     

7,747

     

7,330

   
 

KFC

   

81

 

215

     

5,347

     

5,087

   
 

Pizza Hut

   

38

 

102

     

2,143

     

1,993

   
 

Little Sheep, East Dawning, Taco Bell

   

10

 

35

     

257

     

250

   

 

 

Total Restaurant Count

   
             
       

Restaurant Count

   
       

As of Third Quarter End

   
       

2017

   

2016

   
 

Restaurants

     

7,747

     

7,330

   
 

Company-owned

     

6,149

     

5,847

   
 

Unconsolidated Affiliates

     

872

     

812

   
 

Franchisees

     

726

     

671

   

 

Restaurant Margin

  • For the third quarter, restaurant margin for Yum China increased 0.8 percentage points to 20.0%, primarily driven by same-store sales leverage and labor efficiency, partially offset by wage inflation and promotion costs.
  • Year to date, restaurant margin for Yum China increased 2.3 percentage points to 19.3%, primarily due to the impact of retail tax structure reform, and also driven by same-store sales leverage, partially offset by wage inflation and commodity inflation.

 

   

Third Quarter

     

Year to Date

   
   

2017

   

2016

   

% ppts

change

     

2017

   

2016

   

% ppts

change

   
 

Yum China

 

20.0

%

   

19.2

%

   

0.8

       

19.3

%

   

17.0

%

   

2.3

   
 

KFC

 

21.1

%

   

19.7

%

   

1.4

       

20.1

%

   

18.2

%

   

1.9

   
 

Pizza Hut

 

17.8

%

   

18.7

%

   

(0.9)

       

17.6

%

   

14.9

%

   

2.7

   

 

Digital and Delivery

  • Driven by our digital initiatives, we continued to strengthen our loyalty membership programs. By the end of the third quarter, total members in our loyalty programs surpassed 120 million, including 97 million members for KFC and 30 million for Pizza Hut.
  • Mobile payments exceeded 45% of company sales in the third quarter of 2017. Over $1.2 billion in company sales were settled by cashless payment methods during the quarter.
  • Over 5,100 restaurants across China offered delivery services as of the end of the third quarter. Delivery contributed over 14% of company sales in the third quarter.

Share Repurchase Update

  • For the year to date ended August 31, 2017, we repurchased approximately 3.4 million shares for $128 million at an average price of $38.18 per share.
  • In October 2017, the Board of Directors increased Yum China's existing share repurchase authorization from $300 million to an aggregate of $550 million.

Dividend

  • The Board of Directors has approved a regular quarterly cash dividend program, and declared an initial cash dividend of $0.10 per share on Yum China's common stock, payable as of the close of business on December 21, 2017 to stockholders of record as of the close of business on November 30, 2017. Future dividends will be subject to review and approval by the Board of Directors.

Conference Call

Yum China Holdings, Inc. will host a conference call to review the Company's financial performance and strategies at 8:00 p.m. U.S. Eastern Time on Thursday, October 5, 2017 (8:00 a.m.Beijing/Hong Kong Time on Friday, October 6, 2017).  A copy of the presentation will be available on the Yum China Holdings, Inc. website, http://ir.yumchina.com.

U.S.:

 

+1-845-675-0437

Hong Kong:

 

+852-3018-6771

Mainland China:

 

400-6208-038 or 800-8190-121

International:

 

+65-6713-5090

Passcode:

 

Yum China

A live webcast of the call may also be accessed at https://edge.media-server.com/m6/p/62ngn9wc.

A replay of the conference call may be accessed by phone at the following numbers two hours after the call ends until 9:00 a.m. U.S. Eastern Time on Friday, October 13, 2017 (9:00 p.m.Beijing/Hong Kong Time on Friday, October 13, 2017):

U.S.:

 

+1-855-452-5696

International:

 

+61-2-8199-0299

Passcode:

 

82128278

The webcast and the playback can be accessed via the internet by visiting the Yum China Holdings, Inc. website, http://ir.yumchina.com

Forward-Looking Statements

This press release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend all forward-looking statements to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by the fact that they do not relate strictly to historical or current facts and by the use of forward-looking words such as "expect," "expectation," "believe," "anticipate," "may," "could," "intend," "belief," "plan," "estimate," "target," "predict," "likely," "will," "should," "forecast," "outlook" or similar terminology. These statements are based on current estimates and assumptions made by us in light of our experience and perception of historical trends, current conditions and expected future developments, as well as other factors that we believe are appropriate and reasonable under the circumstances, but there can be no assurance that such estimates and assumptions will prove to be correct. Forward-looking statements include, without limitation, statements regarding the future business plans and performance of Yum China, future dividends, anticipated effects of population and macroeconomic trends, the capital structure of Yum China and beliefs regarding the long-term drivers of Yum China's business. Forward-looking statements are not guarantees of performance and are inherently subject to known and unknown risks and uncertainties that are difficult to predict and could cause our actual results to differ materially from those indicated by those statements. We cannot assure you that any of our expectations, estimates or assumptions will be achieved. The forward-looking statements included in this press release are only made as of the date of this press release, and we disclaim any obligation to publicly update any forward-looking statement to reflect subsequent events or circumstances, except as required by law. Numerous factors could cause our actual results to differ materially from those expressed or implied by forward-looking statements, including, without limitation: whether we are able to achieve development goals at the times and in the amounts currently anticipated, if at all, the success of our marketing campaigns and product innovation, our ability to maintain food safety and quality control systems, our ability to control costs and expenses, including tax costs, as well as changes in political, economic and regulatory conditions in China. In addition, other risks and uncertainties not presently known to us or that we currently believe to be immaterial could affect the accuracy of any such forward-looking statements. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. You should consult our filings with the Securities and Exchange Commission (including the information set forth under the captions "Risk Factors" and "Forward-Looking Statements" in our Annual Report on Form 10-K) for additional detail about factors that could affect our financial and other results.

About Yum China Holdings, Inc.

Yum China Holdings, Inc. is a licensee of Yum! Brands in mainland China. It has exclusive rights in mainland China to KFC, China's leading quick-service restaurant brand, Pizza Hut, the leading casual dining restaurant brand in China, and Taco Bell, which opened its first restaurant in China at the end of 2016. Yum China also owns the Little Sheep and East Dawning concepts outright. Yum China is well positioned for growth thanks to its strong competitive position, integration of its brands into Chinese popular culture and consumers' daily lives, expanding geographic footprint in China and existing operational expertise. It has a strong capital position, no external debt and expects to continue growing its system sales and profit by adding new restaurants and through growing same-store sales. Yum China had more than 7,700 restaurants and more than 420,000 employees in over 1,100 cities at the end of August 2017. A new generation of younger consumers who are digitally sophisticated and brand driven are fueling growth in consumption in China. The ongoing growth of the middle class and urban population in China is expected to create the world's largest market for restaurant brands, with Yum China poised to be the market leader.

 

Analysts are invited to contact:

   

Christie Ju, Vice President – Finance, Investor Relations, at +86 21 2407 8090

Elaine Lai, Director – Finance, Investor Relations, at +86 21 2407 8278

     

Members of the media are invited to contact:

   

Forest Liu, Director, Public Affairs, at +86 21 2407 7505

 

Yum China Holdings, Inc.

Condensed Consolidated and Combined Summary of Results

(amounts in US$ million, except for number of shares and per share amounts)

(unaudited)

 
   

Quarter ended

   

% Change

 

Year to date ended

   

% Change

   

8/31/2017

   

8/31/2016

   

B/(W)

 

8/31/2017

   

8/31/2016

   

B/(W)

Revenues

                                                   

Company sales

 

$

1,998

   

$

1,848

     

8

     

$

4,818

   

$

4,684

     

3

   

Franchise fees and income

   

40

     

35

     

14

       

98

     

90

     

9

   

Total revenues

   

2,038

     

1,883

     

8

       

4,916

     

4,774

     

3

   

Costs and Expenses, Net

                                                   

Company restaurants

                                                   

Food and paper

   

575

     

514

     

(12)

       

1,373

     

1,361

     

(1)

   

Payroll and employee benefits

   

403

     

376

     

(7)

       

1,018

     

963

     

(6)

   

Occupancy and other operating expenses

   

622

     

602

     

(3)

       

1,501

     

1,562

     

4

   

Company restaurant expenses

   

1,600

     

1,492

     

(7)

       

3,892

     

3,886

     

   

General and administrative expenses

   

120

     

101

     

(18)

       

294

     

271

     

(8)

   

Franchise expenses

   

20

     

20

     

(2)

       

48

     

51

     

6

   

Closures and impairment expenses, net

   

3

     

5

     

43

       

20

     

36

     

46

   

Refranchising gain, net

   

     

(4)

     

(87)

       

(2)

     

(8)

     

(74)

   

Other income, net

   

(22)

     

(17)

     

25

       

(50)

     

(44)

     

14

   

Total costs and expenses, net

   

1,721

     

1,597

     

(8)

       

4,202

     

4,192

     

   

Operating Profit

   

317

     

286

     

11

       

714

     

582

     

23

   

Interest income, net

   

6

     

3

   

NM

       

13

     

7

     

77

   

Income Before Income Taxes

   

323

     

289

     

12

       

727

     

589

     

23

   

Income tax provision

   

(102)

     

(87)

     

(19)

       

(213)

     

(165)

     

(29)

   

Net income – including noncontrolling interests

   

221

     

202

     

9

       

514

     

424

     

21

   

Net income – noncontrolling interests

   

10

     

10

     

6

       

21

     

10

   

NM

   

Net Income – Yum China Holdings, Inc.

 

$

211

   

$

192

     

9

     

$

493

   

$

414

     

19

   

Effective tax rate

   

31.7

%

   

29.8

%

   

(1.9) ppts.

       

29.3

%

   

28.0

%

   

(1.3) ppts.

   
                                                     

Basic Earnings Per Common Share

 

$

0.55

   

$

0.53

     

4

     

$

1.28

   

$

1.14

     

12

   

Weighted average shares outstanding

   

385,836,842

     

363,758,219

   

NM

       

387,028,586

     

363,758,219

   

NM

   
                                                     

Diluted Earnings Per Common Share

 

$

0.53

   

$

0.53

     

     

$

1.24

   

$

1.14

     

9

   

Weighted average shares outstanding

   

398,497,353

     

363,758,219

   

NM

       

397,385,512

     

363,758,219

   

NM

   
                                                     

Company sales

   

100.0

%

   

100.0

%

             

100.0

%

   

100.0

%

         

Food and paper

   

28.8

     

27.8

     

(1.0) ppts.

       

28.5

     

29.1

     

0.6 ppts.

   

Payroll and employee benefits

   

20.1

     

20.4

     

0.3 ppts.

       

21.1

     

20.6

     

(0.5) ppts.

   

Occupancy and other operating expenses

   

31.1

     

32.6

     

1.5 ppts.

       

31.1

     

33.3

     

2.2 ppts.

   

Restaurant margin

   

20.0

%

   

19.2

%

   

0.8 ppts.

       

19.3

%

   

17.0

%

   

2.3 ppts.

   

Operating margin

   

15.9

%

   

15.5

%

   

0.4 ppts.

       

14.8

%

   

12.4

%

   

2.4 ppts.

   
 

Percentages may not recompute due to rounding.

 

Yum China Holdings, Inc.

KFC Operating Results

(amounts in US$ million)

(unaudited)

 
   

Quarter ended

   

% Change

 

Year to date ended

   

% Change

   

8/31/2017

   

8/31/2016

   

B/(W)

 

8/31/2017

   

8/31/2016

   

B/(W)

Revenues

                                                   

Company sales

 

$

1,385

   

$

1,263

     

10

     

$

3,342

   

$

3,238

     

3

   

Franchise fees and income

   

38

     

34

     

13

       

93

     

87

     

7

   

Total revenues

   

1,423

     

1,297

     

10

       

3,435

     

3,325

     

3

   

Costs and Expenses, Net

                                                   

Company restaurants

                                                   

Food and paper

   

408

     

365

     

(11)

       

989

     

970

     

(2)

   

Payroll and employee benefits

   

263

     

243

     

(8)

       

666

     

625

     

(7)

   

Occupancy and other operating expenses

   

422

     

405

     

(4)

       

1,016

     

1,054

     

4

   

Company restaurant expenses

   

1,093

     

1,013

     

(8)

       

2,671

     

2,649

     

(1)

   

General and administrative expenses

   

42

     

39

     

(7)

       

106

     

101

     

(6)

   

Franchise expenses

   

19

     

19

     

(1)

       

46

     

50

     

7

   

Closures and impairment expenses, net

   

1

     

4

     

40

       

10

     

25

     

58

   

Other income, net

   

(18)

     

(16)

     

14

       

(45)

     

(38)

     

18

   

Total costs and expenses, net

   

1,137

     

1,059

     

(7)

       

2,788

     

2,787

     

   

Operating Profit

 

$

286

   

$

238

     

20

     

$

647

   

$

538

     

20

   

Company sales

   

100.0

%

   

100.0

%

             

100.0

%

   

100.0

%

         

Food and paper

   

29.5

     

29.0

     

(0.5) ppts.

       

29.6

     

30.0

     

0.4 ppts.

   

Payroll and employee benefits

   

19.0

     

19.2

     

0.2 ppts.

       

19.9

     

19.3

     

(0.6) ppts.

   

Occupancy and other operating expenses

   

30.4

     

32.1

     

1.7 ppts.

       

30.4

     

32.5

     

2.1 ppts.

   

Restaurant margin

   

21.1

%

   

19.7

%

   

1.4 ppts.

       

20.1

%

   

18.2

%

   

1.9 ppts.

   

Operating margin

   

20.7

%

   

18.8

%

   

1.8 ppts.

       

19.3

%

   

16.6

%

   

2.7 ppts.

   
                                                     

Percentages may not recompute due to rounding.

                             

 

Yum China Holdings, Inc.

Pizza Hut Operating Results

(amounts in US$ million)

(unaudited)

 
   

Quarter ended

   

% Change

 

Year to date ended

   

% Change

   

8/31/2017

   

8/31/2016

   

B/(W)

 

8/31/2017

   

8/31/2016

   

B/(W)

Revenues

                                                   

Company sales

 

$

603

   

$

573

     

5

     

$

1,449

   

$

1,405

     

3

   

Franchise fees and income

   

1

     

1

     

37

       

2

     

2

     

31

   

Total revenues

   

604

     

574

     

5

       

1,451

     

1,407

     

3

   

Costs and Expenses, Net

                                                   

Company restaurants

                                                   

Food and paper

   

164

     

144

     

(15)

       

376

     

376

     

   

Payroll and employee benefits

   

134

     

129

     

(3)

       

341

     

326

     

(4)

   

Occupancy and other operating expenses

   

197

     

192

     

(2)

       

476

     

493

     

3

   

Company restaurant expenses

   

495

     

465

     

(6)

       

1,193

     

1,195

     

   

General and administrative expenses

   

27

     

25

     

(4)

       

70

     

68

     

(1)

   

Franchise expenses

   

1

     

1

     

(6)

       

2

     

1

     

(10)

   

Closures and impairment expenses, net

   

1

     

1

     

54

       

9

     

11

     

23

   

Total costs and expenses, net

   

524

     

492

     

(6)

       

1,274

     

1,275

     

   

Operating Profit

 

$

80

   

$

82

     

     

$

177

   

$

132

     

37

   

Company sales

   

100.0

%

   

100.0

%

             

100.0

%

   

100.0

%

         

Food and paper

   

27.3

     

25.1

     

(2.2) ppts.

       

26.0

     

26.8

     

0.8 ppts.

   

Payroll and employee benefits

   

22.2

     

22.6

     

0.4 ppts.

       

23.5

     

23.2

     

(0.3) ppts.

   

Occupancy and other operating expenses

   

32.7

     

33.6

     

0.9 ppts.

       

32.9

     

35.1

     

2.2 ppts.

   

Restaurant margin

   

17.8

%

   

18.7

%

   

(0.9) ppts.

       

17.6

%

   

14.9

%

   

2.7 ppts.

   

Operating margin

   

13.3

%

   

13.9

%

   

(0.7) ppts.

       

12.3

%

   

9.3

%

   

3.0 ppts.

   
                               

Percentages may not recompute due to rounding.

                             

 

Yum China Holdings, Inc.

Condensed Consolidated Balance Sheets

(amounts in US$ million, except for number of shares)

 
   

8/31/2017

   

12/31/2016

 

ASSETS

 

(Unaudited)

         

Current Assets

               

Cash and cash equivalents

 

$

1,477

   

$

885

 

Short-term investments

   

91

     

79

 

Accounts receivable, net

   

81

     

74

 

Inventories, net

   

246

     

268

 

Prepaid expenses and other current assets

   

159

     

120

 

Total Current Assets

   

2,054

     

1,426

 

Property, plant and equipment, net

   

1,652

     

1,647

 

Goodwill

   

107

     

79

 

Intangible assets, net

   

104

     

88

 

Investments in unconsolidated affiliates

   

74

     

71

 

Other assets

   

301

     

254

 

Deferred income taxes

   

168

     

162

 

Total Assets

   

4,460

     

3,727

 

LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND EQUITY

               

Current Liabilities

               

Accounts payable and other current liabilities

   

1,120

     

971

 

Income taxes payable

   

92

     

33

 

Total Current Liabilities

   

1,212

     

1,004

 

Capital lease obligations

   

28

     

28

 

Other liabilities and deferred credits

   

274

     

252

 

Total Liabilities

   

1,514

     

1,284

 

Redeemable Noncontrolling Interest

   

5

     

 

Equity

               

Common stock,  $0.01 par value; 1,000,000,000 shares authorized;

  388,196,025.42 shares and 383,344,835.42 shares issued at August 31, 2017

  and December 31, 2016, respectively; 384,055,643 shares and 383,344,835.42 shares

  outstanding at August 31, 2017 and December 31, 2016, respectively

   

4

     

4

 

Treasury stock

   

(148)

     

(20)

 

Additional paid-in capital

   

2,373

     

2,352

 

Retained earnings

   

533

     

40

 

Accumulated other comprehensive income

   

109

     

1

 

Total Equity – Yum China Holdings, Inc.

   

2,871

     

2,377

 

Noncontrolling interests

   

70

     

66

 

Total Equity

   

2,941

     

2,443

 

Total Liabilities, Redeemable Noncontrolling Interest and Equity

 

$

4,460

   

$

3,727

 

 

Yum China Holdings, Inc.

Condensed Consolidated and Combined Statements of Cash Flows

(amounts in US$ million)

(unaudited)

 
   

Year to date ended

 
   

8/31/2017

   

8/31/2016

 

Cash Flows - Operating Activities

               

Net income - including noncontrolling interests

 

$

514

   

$

424

 

Depreciation and amortization

   

265

     

272

 

Closures and impairment expenses

   

20

     

36

 

Refranchising gain

   

(2)

     

(8)

 

Deferred income taxes

   

(3)

     

(26)

 

Equity income from investments in unconsolidated affiliates

   

(51)

     

(44)

 

Distributions of income received from unconsolidated affiliates

   

36

     

18

 

Share-based compensation expense

   

16

     

9

 

Changes in accounts receivable

   

(2)

     

(37)

 

Changes in inventories

   

35

     

(35)

 

Changes in prepaid expenses and other current assets

   

(7)

     

34

 

Changes in accounts payable and other current liabilities

   

132

     

149

 

Changes in income taxes payable

   

57

     

54

 

Other, net

   

(23)

     

(22)

 

Net Cash Provided by Operating Activities

   

987

     

824

 

Cash Flows - Investing Activities

               

Capital spending

   

(262)

     

(268)

 

Purchase of short-term investments

   

(318)

     

(53)

 

Maturities of short-term investments

   

312

     

53

 

Proceeds from refranchising of restaurants

   

3

     

19

 

Proceeds from disposal of aircraft

   

     

19

 

Acquisition of business, net of cash acquired

   

(25)

     

 

Other, net

   

(4)

     

(2)

 

Net Cash Used in Investing Activities

   

(294)

     

(232)

 

Cash Flows - Financing Activities

               

Net transfers to Parent

   

     

(243)

 

Payment of capital lease obligations

   

(2)

     

(3)

 

Repurchase of shares of common stock

   

(128)

     

 

Employee stock option proceeds

   

5

     

 

Other, net

   

(17)

     

(3)

 

Net Cash Used in Financing Activities

   

(142)

     

(249)

 

Effect of Exchange Rates on Cash and Cash Equivalents

   

41

     

(18)

 

Net Increase in Cash and Cash Equivalents

   

592

     

325

 

Cash and Cash Equivalents – Beginning of Period

   

885

     

425

 

Cash and Cash Equivalents – End of Period

 

$

1,477

   

$

750

 

 

Reconciliation of Reported Results to Non-GAAP Measures 
(amounts in US$ million) 
(unaudited)

In this press release:

  • The Company provides certain percentage changes excluding the impact of F/X. These amounts are derived by translating current year results at prior year average exchange rates. We believe the elimination of the F/X impact provides better year-to-year comparability without the distortion of foreign currency fluctuations.
  • System sales growth reflects the results of all restaurants regardless of ownership, including Company-owned, franchise and unconsolidated affiliate restaurants that operate our concepts, except for non-Company-owned restaurants for which we do not receive a sales-based royalty. Sales of franchise and unconsolidated affiliate restaurants typically generate ongoing franchise fees for the Company at a rate of approximately 6% of system sales. Franchise and unconsolidated affiliate restaurant sales are not included in Company sales on the Condensed Consolidated and Combined Summary of Results; however, the franchise fees are included in the Company's revenues. We believe system sales growth is useful to investors as a significant indicator of the overall strength of our business as it incorporates all of our revenue drivers, Company and franchise same-store sales as well as net unit growth.
  • Same-store sales growth is the estimated percentage change in sales of all restaurants that have been open and in the Company system one year or more.
  • Company Restaurant profit ("Restaurant profit") is defined as Company sales less expenses incurred directly by our Company-owned restaurants in generating Company sales. Company restaurant margin percentage is defined as Restaurant profit divided by Company sales.

In addition to the results provided in accordance with US Generally Accepted Accounting Principles ("GAAP") in this press release, the Company provides non-GAAP measures which present Operating Profit before Special Items, Diluted Earnings Per Common Share before Special Items, Effective tax rate before Special Items and Adjusted EBITDA, which we define as net income including noncontrolling interests adjusted for income tax, interest income, depreciation, amortization and other items, including store impairment charges. Special Items consist of reversal of loss associated with sale of the aircraft, income from the reversal of contingent consideration previously recorded for a business combination and impact of the redemption of the Little Sheep noncontrolling interest which are described in (a), (b), (c) and (d) in the accompanying notes. The Company excludes impact from Special Items for the purpose of evaluating performance internally. Special Items are not included in any of our segment results. These non-GAAP measures are not intended to replace the presentation of our financial results in accordance with GAAP. Rather, the Company believes that the presentation of these non-GAAP measures provides additional information to investors to facilitate the comparison of past and present results, excluding those items that we do not believe are indicative of our ongoing operations due to their nature. These non-GAAP measures should not be considered in isolation or as a substitute for GAAP financial results, but should be read in conjunction with the unaudited Condensed Consolidated and Combined Summary of Results and other information presented herein. A reconciliation of these non-GAAP measures to the most directly comparable GAAP measures follows.

 

Reconciliation of Reported Results to Non-GAAP Measures (continued)

(amounts in US$ million)

(unaudited)

 
   

Quarter ended

 

Year to date ended

Detail of Special Items

 

8/31/2017

 

8/31/2016

 

8/31/2017

 

8/31/2016

Reversal of loss associated with sale of aircraft(a)

 

$

     

$

3

     

$

     

$

2

   

Income from the reversal of contingent consideration(b)

   

3

       

       

3

       

   

Special Items Income - Operating Profit

   

3

       

3

       

3

       

2

   

Tax Expense on Special Items(c)

   

       

(1)

       

       

(1)

   

Special Items Income, net of tax

    - including noncontrolling interests

   

3

       

2

       

3

       

1

   

Special Items Income, net of tax of nil

    - noncontrolling interests(d)

   

       

       

       

(8)

   

Special Items Income, net of tax of nil

    - Yum China Holdings, Inc.

 

$

3

     

$

2

     

$

3

     

$

9

   

Weighted average diluted shares outstanding

   

398,497,353

       

363,758,219

       

397,385,512

       

363,758,219

   

Special Items Diluted Earnings Per Common Share

 

$

0.01

     

$

0.01

     

$

0.01

     

$

0.03

   

Reconciliation of Reported Operating Profit to

   Operating Profit Before Special Items

                                       

Reported Operating Profit

 

$

317

     

$

286

     

$

714

     

$

582

   

Special Items Income - Operating Profit

   

3

       

3

       

3

       

2

   

Operating Profit before Special Items

 

$

314

     

$

283

     

$

711

     

$

580

   

Reconciliation of Reported EPS to EPS Before

   Special Items

                                       

Reported Diluted Earnings Per Common Share

 

$

0.53

     

$

0.53

     

$

1.24

     

$

1.14

   

Special Items Diluted Earnings Per Common Share

   

0.01

       

0.01

       

0.01

       

0.03

   

Diluted Earnings Per Common Share before Special Items

 

$

0.52

     

$

0.52

     

$

1.23

     

$

1.11

   

Reconciliation of Reported Effective Tax Rate to

   Effective Tax Rate Before Special Items

                                       

Reported effective tax rate

   

31.7

%

     

29.8

%

     

29.3

%

     

28.0

%

 

Impact on tax rate as a result of Special Items(c)

   

(0.3)

%

     

(0.1)

%

     

(0.1)

%

     

(—)

%

 

Effective tax rate before Special Items

   

32.0

%

     

29.9

%

     

29.4

%

     

28.0

%

 
 

(a) During the quarter ended August 31, 2016, we completed the sale of a corporate aircraft and recorded the reversal of a portion of the loss previously recognized within Special Items in 2015 to reflect the final proceeds of the sale.

 

(b) During the quarter ended August 31, 2017, we recognized income from the reversal of contingent consideration previously recorded for a business combination as the likelihood of making payment becomes remote.

 

(c) The tax expense was determined based upon the nature, as well as the jurisdiction, of each Special Item at the applicable tax rate.

 

(d) During the quarter ended May 31, 2016, the Little Sheep founding shareholders sold their remaining 7% Little Sheep ownership interest to the Company pursuant to their redemption rights. The difference between the purchase price of less than $1 million, which was determined using a non-fair value based formula pursuant to the agreement governing the redemption rights, and the carrying value of their redeemable noncontrolling interests was recorded as an $8 million loss attributable to noncontrolling interests.

 

Reconciliation of Net Income to Adjusted EBITDA

(amounts in US$ million)

(unaudited)

 

Net income, along with the reconciliation to Adjusted EBITDA, is presented below.

 
   

Quarter ended

   

Year to date ended

 
   

8/31/2017

   

8/31/2016

   

8/31/2017

   

8/31/2016

 

Reconciliation of Net Income to Adjusted EBITDA

                               

Net income – noncontrolling interests

 

$

10

   

$

10

   

$

21

   

$

10

 

Net Income – Yum China Holdings, Inc.

   

211

     

192

     

493

     

414

 

Income tax provision

   

102

     

87

     

213

     

165

 

Interest income, net

   

(6)

     

(3)

     

(13)

     

(7)

 

Operating Profit

   

317

     

286

     

714

     

582

 

Depreciation and amortization

   

105

     

101

     

265

     

272

 

Store impairment charges

   

6