yumc-8k_20191029.htm
false 0001673358 0001673358 2019-10-29 2019-10-29 0001673358 dei:OtherAddressMember 2019-10-29 2019-10-29

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): October 29, 2019

 

Yum China Holdings, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

001-37762

 

81-2421743

(State or other jurisdiction of

incorporation or organization)

 

(Commission

File Number)

 

(I.R.S. Employer

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 or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

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

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

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. 

 


 


 

Item 2.02.

Results of Operations and Financial Condition.

 

On October 29, 2019, Yum China Holdings, Inc. issued a press release announcing its unaudited results for the third quarter ended September 30, 2019. A copy of the press release is being furnished as Exhibit 99.1 to this Current Report on Form 8-K.

 

 

Item 9.01.

Financial Statements and Exhibits.

 

(d)    Exhibits.

 

The following exhibits are furnished with this report:

 

Exhibit No.

 

Exhibit Description

 

 

 

99.1

 

Press Release of Yum China Holdings, Inc. issued October 29, 2019.

104

 

Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

 


 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

 

YUM CHINA HOLDINGS, INC.

 

 

 

 

 

By:

 

/s/ Joseph Chan

 

 

 

 

Name:

 

Joseph Chan

 

 

 

 

Title:

 

Chief Legal Officer

Date: October 29, 2019

 

 

 

 

 

 

 

 

yumc-ex991_6.htm

Exhibit 99.1

Yum China Reports Third Quarter 2019 Results

 

Total revenues grew 5% or 8% in constant currency;

Total system sales grew 8% and same-store sales grew 2% in constant currency

 

Shanghai, China (October 30, 2019) – Yum China Holdings, Inc. (the "Company" or "Yum China") (NYSE: YUMC) today reported unaudited results for the third quarter ended September 30, 2019. Reported GAAP results include Special Items, which are excluded from adjusted measures.  Special Items are not allocated to any segment and therefore only impact reported GAAP results of Yum China.  See “Reconciliation of Reported GAAP Results to Adjusted Measures” within this release.

 

Third Quarter Highlights

 

Total revenues increased 5% year over year to $2.3 billion from $2.2 billion (8% year over year increase excluding foreign currency translation (“F/X”)).

 

 

Total system sales grew 8% year over year, with growth of 10% at KFC and 3% at Pizza Hut, excluding F/X.

 

Same-store sales grew 2% year over year, with a 3% increase at KFC and a 1% increase at Pizza Hut, excluding F/X.

 

Restaurant margin was 17.7%, compared with 17.6% in the prior year period.

 

Operating Profit increased 11% year over year to $300 million from $269 million (14% year over year increase excluding F/X).

 

Effective tax rate was 26.9%.

 

Net Income increased 11% to $223 million from $203 million in the prior year period, primarily due to the increase in operating profit and mark to market gain from our equity investment in Meituan Dianping.

 

 

Diluted EPS increased 14% to $0.58 from $0.51 in the prior year period (8% year over year increase excluding the $0.03 per share mark to market gain from our equity investment in Meituan Dianping).

 

Opened 231 new restaurants during the quarter, bringing total store count to 8,917 across more than 1,300 cities.

 

Key Financial Results

Third Quarter 2019

 

 

 

Year to Date Ended 9/30/2019

 

 

 

% Change

 

 

 

% Change

 

 

 

System Sales

 

 

Same-Store Sales

 

 

Net New Units

 

 

Operating Profit

 

 

 

System Sales

 

 

Same-Store Sales

 

 

Net New Units

 

 

Operating Profit

 

 

Yum China

 

+8

 

 

 

+2

 

 

 

+7

 

 

 

+11

 

 

 

 

+9

 

 

 

+4

 

 

 

+7

 

 

 

(6

)

 

   KFC

 

+10

 

 

 

+3

 

 

 

+9

 

 

 

+12

 

 

 

 

+11

 

 

 

+4

 

 

 

+9

 

 

 

+4

 

 

   Pizza Hut

 

+3

 

 

 

+1

 

 

 

+2

 

 

 

(29

)

 

 

 

+3

 

 

 

+1

 

 

 

+2

 

 

 

+9

 

 

 

 

Third Quarter

 

 

 

 

Year to Date Ended 9/30

 

 

(in US$ million, except

 

 

 

 

 

 

 

 

 

 

% Change

 

 

 

 

 

 

 

 

 

 

 

 

 

% Change

 

 

for per share data and percentages)

 

2019

 

 

 

2018

 

 

Reported

 

 

Ex F/X

 

 

 

 

2019

 

 

 

2018

 

 

Reported

 

 

Ex F/X

 

 

Operating Profit

$

 

300

 

 

$

 

269

 

 

 

+11

 

 

 

+14

 

 

 

$

 

807

 

 

$

 

857

 

 

 

(6

)

 

 

(1

)

 

Adjusted Operating Profit1

$

 

300

 

 

$

 

269

 

 

 

+11

 

 

 

+14

 

 

 

$

 

807

 

 

$

 

759

 

 

 

+6

 

 

 

+12

 

 

Net Income

$

 

223

 

 

$

 

203

 

 

 

+11

 

 

 

+14

 

 

 

$

 

623

 

 

$

 

634

 

 

 

(2

)

 

 

+4

 

 

Adjusted Net Income1

$

 

223

 

 

$

 

203

 

 

 

+11

 

 

 

+14

 

 

 

$

 

631

 

 

$

 

560

 

 

 

+13

 

 

 

+19

 

 

Basic Earnings Per Common Share

$

 

0.59

 

 

$

 

0.53

 

 

 

+11

 

 

 

+15

 

 

 

$

 

1.65

 

 

$

 

1.64

 

 

 

+1

 

 

 

+6

 

 

Adjusted Basic Earnings Per

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Common Share1

$

 

0.59

 

 

$

 

0.53

 

 

 

+11

 

 

 

+15

 

 

 

$

 

1.67

 

 

$

 

1.45

 

 

 

+15

 

 

 

+21

 

 

Diluted Earnings Per Common Share

$

 

0.58

 

 

$

 

0.51

 

 

 

+14

 

 

 

+16

 

 

 

$

 

1.60

 

 

$

 

1.59

 

 

 

+1

 

 

 

+6

 

 

Adjusted Diluted Earnings Per

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Common Share1

$

 

0.58

 

 

$

 

0.51

 

 

 

+14

 

 

 

+16

 

 

 

$

 

1.62

 

 

$

 

1.41

 

 

 

+15

 

 

 

+21

 

 

1 See “Reconciliation of Reported GAAP Results to Adjusted Measures” included in the accompanying tables of this release for further details.

Note:  All comparisons are versus the same period a year ago.

NM refers to changes over 100%, from negative to positive amounts or from zero to an amount.

Yum China Holdings, Inc. •  Shanghai, China •  Website http://ir.yumchina.com

 


Percentages may not recompute due to rounding.

System sales and same-store sales percentages exclude the impact of F/X.

 

CEO and CFO Comments

Joey Wat, CEO of Yum China, commented, “We are pleased with our continued strong performance in the third quarter, which was driven by our competitive positioning, leading digital capabilities and ongoing innovation across the business. We achieved our 12th consecutive quarter of system sales growth since the spin-off, highlighting the strength of our business model and demonstrating our ability to effectively adapt to changing market conditions. KFC delivered solid sales and profit growth as we strategically decreased promotion intensity to protect margins. Pizza Hut maintained positive sales momentum with a decline in margin during the quarter due to the important and necessary long-term investments in the revitalization program.”

 

“We will continue to build on KFC’s resilient business model, cement the revitalization of Pizza Hut, invest in the growth of our smaller brands and sharpen our industry-leading digital ecosystem, which enables us to meet customer demands and manage the business effectively,” continued Ms. Wat. “We are cautiously optimistic about the future because we see significant growth opportunities in China, and we will focus on leveraging our competitive advantages to succeed in this dynamic environment.”

 

Andy Yeung, CFO of Yum China, added, “I am very excited to have joined the Yum China team and am pleased to be reporting another strong set of quarterly results, which highlight Yum China’s strength in many areas. We continued rapid expansion of our store network and maintained very healthy cash payback for our new stores. We also delivered strong sales, operating profit and EPS growth despite continued pressure from higher chicken and labor costs. In addition, we returned $109 million to shareholders through dividends and share repurchases in the quarter. Looking ahead, we will continue to focus on driving sales and managing costs while making prudent investments to drive long-term growth. As always, we remain committed to driving significant overall value to our shareholders.”

 

Dividend and Share Repurchase

 

The Board of Directors declared a cash dividend of $0.12 per share on Yum China’s common stock, payable as of the close of business on December 17, 2019 to shareholders of record as of the close of business on November 26, 2019.

 

During the third quarter, we repurchased approximately 1.4 million shares of Yum China common stock for $64.0 million at an average price of $44.70 per share.

 

Digital and Delivery

 

As of September 30, 2019, the KFC loyalty program had over 200 million members and the Pizza Hut loyalty program had over 65 million members, an increase of 55 million and 15 million, respectively, year over year.

 

Digital payments accounted for 91% of Company sales in the quarter, an increase of 9 percentage points year over year.

 

Delivery contributed to 20% of Company sales in the third quarter of 2019, an increase of 3 percentage points year over year. Delivery services are now available in 1,225 cities, up from 1,063 cities at the end of the prior year period.

 

 

New-Unit Development and Asset Upgrade

 

The Company opened 231 new restaurants and remodeled 222 restaurants in the third quarter of 2019.

  

 

New Units

 

 

 

Restaurant Count

 

 

 

 

Third Quarter

 

Year to Date

 

 

 

As of 9/30

 

 

 

 

2019

 

Ended 9/30/2019

 

 

 

2019

 

 

2018

 

 

Yum China

 

231

 

646

 

 

 

 

8,917

 

 

 

8,313

 

 

   KFC

 

174

 

501

 

 

 

 

6,324

 

 

 

5,800

 

 

   Pizza Hut

 

24

 

 

84

 

 

 

 

2,255

 

 

 

2,215

 

 

   Others2

 

33

 

 

61

 

 

 

 

338

 

 

 

298

 

 

2 Others include Little Sheep, East Dawning, Taco Bell and COFFii & JOY.

2

 


 

Restaurant Margin

 

In the third quarter of 2019, Yum China restaurant margin was 17.7%, as compared with 17.6% in the prior year period, primarily attributable to sales leverage, productivity improvement and other cost savings, partially offset by wage and commodity inflation and promotional activities.

Third Quarter

 

 

 

Year to Date Ended 9/30

 

 

 

 

2019

 

 

2018

 

 

% pts change

 

 

 

2019

 

 

2018

 

 

% pts change

 

 

Yum China

 

 

17.7

%

 

 

17.6

%

 

 

+0.1

 

 

 

 

17.0

%

 

 

16.9

%

 

 

+0.1

 

 

   KFC

 

 

20.1

%

 

 

19.2

%

 

 

+0.9

 

 

 

 

18.8

%

 

 

19.0

%

 

 

(0.2

)

 

   Pizza Hut

 

 

11.4

%

 

 

13.8

%

 

 

(2.4

)

 

 

 

12.4

%

 

 

11.8

%

 

 

+0.6

 

 

 

2019 Outlook

 

The Company continues to expect fiscal year 2019 targets as follows:

 

-

Between 800 and 850 gross new units.

 

-

Capital expenditures between $475 million and $525 million.

 

-

Effective tax rate below 28%, excluding any impact from the Company’s equity investment in Meituan Dianping.

The Company provides its effective tax rate outlook excluding any impact from its investment in Meituan Dianping, which will be subject to mark to market accounting and may be significant.

 

3

 


Exhibit 99.1

Conference Call

 

Yum China’s management will hold an earnings conference call at 8:00 p.m. U.S. Eastern Time on Tuesday, October 29, 2019 (8:00 a.m. Beijing/Hong Kong Time on Wednesday, October 30, 2019). 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

Mainland China:

 

400 620 8038 or 800 819 0121

Hong Kong:

 

+852 3018 6771

U.K.:              

 

+44 20 36214779

International:

 

+65 6713 5090

Password:

 

Yum China

 

A replay of the conference call will be available two hours after the call ends until 8:00 a.m. U.S. Eastern Time on Wednesday, November 6, 2019 (9:00 p.m. Beijing/Hong Kong Time on Wednesday, November 6, 2019) and may be accessed by phone at the following numbers:

 

U.S.:

 

+1 855 452 5696

International:

 

+61 2 9003 4211

Passcode:

 

7952028

 

Additionally, a live webcast and an archived webcast of this conference call will be available at 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, including under “2019 Outlook.” 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,” “project,” “likely,” “will,” “continue,” “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 strategies, business plans, investment plans, earnings, performance and returns of Yum China, statements regarding the revitalization of Pizza Hut, anticipated effects of population and macroeconomic trends, the capital structure and effective tax rate of Yum China, the anticipated effects of our digital and delivery capabilities on growth 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 or events 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 or events 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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K) for additional detail about factors that could affect our financial and other results.

 

 

Yum China Holdings, Inc. •  Shanghai, China •  Website http://ir.yumchina.com

 


 

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, a California-based restaurant chain serving innovative Mexican-inspired food. Yum China also owns the Little Sheep, East Dawning and COFFii & JOY concepts outright. The Company had more than 8,900 restaurants in over 1,300 cities at the end of September 2019. In 2019, Yum China was named to the Bloomberg Gender-Equality Index and was certified as a Top Employer 2019 in China by the Top Employers Institute. For more information, please visit http://ir.yumchina.com.

 

Investor Relations Contact:

 

 

Tel: +86 21 2407 7556

IR@YumChina.com  

 

 

 

  

Media Contact:

 

 

Tel: +86 21 2407 7510

Media@YumChina.com

 

 

5

 


 

Yum China Holdings, Inc.

Condensed Consolidated Statements of Income

(in US$ million, except per share data)

(unaudited)

 

 

 

Quarter Ended

 

 

% Change

 

Year to Date Ended

 

 

% Change

 

 

 

9/30/2019

 

 

9/30/2018

 

 

B/(W)

 

9/30/2019

 

 

9/30/2018

 

 

B/(W)

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company sales

 

$

2,097

 

 

$

2,008

 

 

 

4

 

 

 

$

6,112

 

 

$

5,912

 

 

 

3

 

 

 

Franchise fees and income

 

 

38

 

 

 

36

 

 

 

7

 

 

 

 

113

 

 

 

110

 

 

 

3

 

 

 

Revenues from transactions with

   franchisees and unconsolidated affiliates

 

 

172

 

 

 

159

 

 

 

8

 

 

 

 

496

 

 

 

461

 

 

 

8

 

 

 

Other revenues

 

 

12

 

 

 

9

 

 

 

39

 

 

 

 

26

 

 

 

18

 

 

 

45

 

 

 

Total revenues

 

 

2,319

 

 

 

2,212

 

 

 

5

 

 

 

 

6,747

 

 

 

6,501

 

 

 

4

 

 

 

Costs and Expenses, Net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company restaurants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Food and paper

 

 

651

 

 

 

610

 

 

 

(7

)

 

 

 

1,896

 

 

 

1,775

 

 

 

(7

)

 

 

Payroll and employee benefits

 

 

455

 

 

 

430

 

 

 

(6

)

 

 

 

1,371

 

 

 

1,296

 

 

 

(6

)

 

 

Occupancy and other operating expenses

 

 

619

 

 

 

615

 

 

 

(1

)

 

 

 

1,804

 

 

 

1,841

 

 

 

2

 

 

 

Company restaurant expenses

 

 

1,725

 

 

 

1,655

 

 

 

(4

)

 

 

 

5,071

 

 

 

4,912

 

 

 

(3

)

 

 

General and administrative expenses

 

 

117

 

 

 

119

 

 

 

 

 

 

 

340

 

 

 

334

 

 

 

(2

)

 

 

Franchise expenses

 

 

19

 

 

 

18

 

 

 

(3

)

 

 

 

55

 

 

 

55

 

 

 

1

 

 

 

Expenses for transactions with

   franchisees and unconsolidated affiliates

 

 

167

 

 

 

156

 

 

 

(7

)

 

 

 

488

 

 

 

454

 

 

 

(7

)

 

 

Other operating costs and expenses

 

 

9

 

 

 

6

 

 

 

(56

)

 

 

 

20

 

 

 

17

 

 

 

(21

)

 

 

Closures and impairment (income) expenses, net

 

 

(1

)

 

 

(1

)

 

 

18

 

 

 

 

14

 

 

 

15

 

 

 

6

 

 

 

Other income, net

 

 

(17

)

 

 

(10

)

 

 

73

 

 

 

 

(48

)

 

 

(143

)

 

 

(67

)

 

 

Total costs and expenses, net

 

 

2,019

 

 

 

1,943

 

 

 

(4

)

 

 

 

5,940

 

 

 

5,644

 

 

 

(5

)

 

 

Operating Profit

 

 

300

 

 

 

269

 

 

 

11

 

 

 

 

807

 

 

 

857

 

 

 

(6

)

 

 

Interest income, net

 

 

10

 

 

 

10

 

 

 

6

 

 

 

 

29

 

 

 

28

 

 

 

4

 

 

 

Investment gain

 

 

12

 

 

 

 

 

NM

 

 

 

 

39

 

 

 

 

 

NM

 

 

 

Income Before Income Taxes

 

 

322

 

 

 

279

 

 

 

15

 

 

 

 

875

 

 

 

885

 

 

 

(1

)

 

 

Income tax provision

 

 

(87

)

 

 

(67

)

 

 

(28

)

 

 

 

(226

)

 

 

(227

)

 

 

1

 

 

 

Net income – including noncontrolling interests

 

 

235

 

 

 

212

 

 

 

11

 

 

 

 

649

 

 

 

658

 

 

 

(1

)

 

 

Net income – noncontrolling interests

 

 

12

 

 

 

9

 

 

 

(26

)

 

 

 

26

 

 

 

24

 

 

 

(6

)

 

 

Net Income – Yum China Holdings, Inc.

 

$

223

 

 

$

203

 

 

 

11

 

 

 

$

623

 

 

$

634

 

 

 

(2

)

 

 

Effective tax rate

 

 

26.9

%

 

 

24.2

%

 

 

(2.7

)

ppts.

 

 

25.8

%

 

 

25.7

%

 

 

(0.1

)

ppts.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic Earnings Per Common Share

 

$

0.59

 

 

$

0.53

 

 

 

 

 

 

 

$

1.65

 

 

$

1.64

 

 

 

 

 

 

 

Weighted average shares outstanding

    (in millions)

 

 

377

 

 

 

384

 

 

 

 

 

 

 

 

378

 

 

 

386

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted Earnings Per Common Share

 

$

0.58

 

 

$

0.51

 

 

 

 

 

 

 

$

1.60

 

 

$

1.59

 

 

 

 

 

 

 

Weighted average shares outstanding

    (in millions)

 

 

388

 

 

 

394

 

 

 

 

 

 

 

 

389

 

 

 

398

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash Dividends Declared Per Common Share

 

$

0.12

 

 

$

0.10

 

 

 

 

 

 

 

$

0.36

 

 

$

0.30

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company sales

 

 

100.0

%

 

 

100.0

%

 

 

 

 

 

 

 

100.0

%

 

 

100.0

%

 

 

 

 

 

 

Food and paper

 

 

31.0

 

 

 

30.4

 

 

 

(0.6

)

ppts.

 

 

31.0

 

 

 

30.0

 

 

 

(1.0

)

ppts.

 

Payroll and employee benefits

 

 

21.7

 

 

 

21.4

 

 

 

(0.3

)

ppts.

 

 

22.4

 

 

 

21.9

 

 

 

(0.5

)

ppts.

 

Occupancy and other operating expenses

 

 

29.6

 

 

 

30.6

 

 

 

1.0

 

ppts.

 

 

29.6

 

 

 

31.2

 

 

 

1.6

 

ppts.

 

Restaurant margin

 

 

17.7

%

 

 

17.6

%

 

 

0.1

 

ppts.

 

 

17.0

%

 

 

16.9

%

 

 

0.1

 

ppts.

 

Operating margin

 

 

14.3

%

 

 

13.4

%

 

 

0.9

 

ppts.

 

 

13.2

%

 

 

14.5

%

 

 

(1.3

)

ppts.

 

 

Percentages may not recompute due to rounding.

6

 


 

Yum China Holdings, Inc.

KFC Operating Results

(in US$ million)

(unaudited)

 

 

 

Quarter Ended

 

 

% Change

 

Year to Date Ended

 

 

% Change

 

 

9/30/2019

 

 

9/30/2018

 

 

B/(W)

 

9/30/2019

 

 

9/30/2018

 

 

B/(W)

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company sales

 

$

1,546

 

 

$

1,452

 

 

 

6

 

 

 

$

4,495

 

 

$

4,248

 

 

 

6

 

 

Franchise fees and income

 

 

35

 

 

 

34

 

 

 

4

 

 

 

 

104

 

 

 

104

 

 

 

1

 

 

Revenues from transactions with

   franchisees and unconsolidated affiliates

 

 

16

 

 

 

15

 

 

 

9

 

 

 

 

48

 

 

 

47

 

 

 

3

 

 

Other revenues

 

 

1

 

 

 

 

 

NM

 

 

 

 

1

 

 

 

 

 

NM

 

 

Total revenues

 

 

1,598

 

 

 

1,501

 

 

 

6

 

 

 

 

4,648

 

 

 

4,399

 

 

 

6

 

 

Costs and Expenses, Net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company restaurants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Food and paper

 

 

477

 

 

 

444

 

 

 

(7

)

 

 

 

1,403

 

 

 

1,281

 

 

 

(10

)

 

Payroll and employee benefits

 

 

311

 

 

 

297

 

 

 

(5

)

 

 

 

942

 

 

 

879

 

 

 

(7

)

 

Occupancy and other operating expenses

 

 

447

 

 

 

432

 

 

 

(3

)

 

 

 

1,305

 

 

 

1,281

 

 

 

(2

)

 

Company restaurant expenses

 

 

1,235

 

 

 

1,173

 

 

 

(5

)

 

 

 

3,650

 

 

 

3,441

 

 

 

(6

)

 

General and administrative expenses

 

 

50

 

 

 

44

 

 

 

(16

)

 

 

 

148

 

 

 

135

 

 

 

(10

)

 

Franchise expenses

 

 

18

 

 

 

17

 

 

 

(2

)

 

 

 

53

 

 

 

53

 

 

 

 

 

Expenses for transactions with

   franchisees and unconsolidated affiliates

 

 

16

 

 

 

15

 

 

 

(4

)

 

 

 

48

 

 

 

47

 

 

 

(2

)

 

Closures and impairment expenses, net

 

 

 

 

 

 

 

NM

 

 

 

 

7

 

 

 

6

 

 

 

(7

)

 

Other income, net

 

 

(16

)

 

 

(12

)

 

 

34

 

 

 

 

(46

)

 

 

(42

)

 

 

7

 

 

Total costs and expenses, net

 

 

1,303

 

 

 

1,237

 

 

 

(5

)

 

 

 

3,860

 

 

 

3,640

 

 

 

(6

)

 

Operating Profit

 

$

295

 

 

$

264

 

 

 

12

 

 

 

$

788

 

 

$

759

 

 

 

4

 

 

Company sales

 

 

100.0

%

 

 

100.0

%

 

 

 

 

 

 

 

100.0

%

 

 

100.0

%

 

 

 

 

 

Food and paper

 

 

30.9

 

 

 

30.6

 

 

 

(0.3

)

ppts.

 

 

31.2

 

 

 

30.2

 

 

 

(1.0

)

ppts.

Payroll and employee benefits

 

 

20.1

 

 

 

20.4

 

 

 

0.3

 

ppts.

 

 

21.0

 

 

 

20.7

 

 

 

(0.3

)

ppts.

Occupancy and other operating expenses

 

 

28.9

 

 

 

29.8

 

 

 

0.9

 

ppts.

 

 

29.0

 

 

 

30.1

 

 

 

1.1

 

ppts.

Restaurant margin

 

 

20.1

%

 

 

19.2

%

 

 

0.9

 

ppts.

 

 

18.8

%

 

 

19.0

%

 

 

(0.2

)

ppts.

Operating margin

 

 

19.1

%

 

 

18.1

%

 

 

1.0

 

ppts.

 

 

17.5

%

 

 

17.8

%

 

 

(0.3

)

ppts.

 

Percentages may not recompute due to rounding.

7

 


 

Yum China Holdings, Inc.

Pizza Hut Operating Results

(in US$ million)

(unaudited)

 

 

 

Quarter Ended

 

 

% Change

 

Year to Date Ended

 

 

% Change

 

 

9/30/2019

 

 

9/30/2018

 

 

B/(W)

 

9/30/2019

 

 

9/30/2018

 

 

B/(W)

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company sales

 

$

540

 

 

$

548

 

 

 

(1

)

 

 

$

1,588

 

 

$

1,640

 

 

 

(3

)

 

Franchise fees and income

 

 

1

 

 

 

1

 

 

NM

 

 

 

 

3

 

 

 

2

 

 

 

68

 

 

Revenues from transactions with

   franchisees and unconsolidated affiliates

 

 

1

 

 

 

1

 

 

NM

 

 

 

 

3

 

 

 

1

 

 

NM

 

 

Other revenues

 

 

 

 

 

 

 

NM

 

 

 

 

1

 

 

 

 

 

NM

 

 

Total revenues

 

 

542

 

 

 

550

 

 

 

(1

)

 

 

 

1,595

 

 

 

1,643

 

 

 

(3

)

 

Costs and Expenses, Net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company restaurants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Food and paper

 

 

170

 

 

 

163

 

 

 

(5

)

 

 

 

484

 

 

 

486

 

 

 

 

 

Payroll and employee benefits

 

 

140

 

 

 

130

 

 

 

(8

)

 

 

 

420

 

 

 

410

 

 

 

(2

)

 

Occupancy and other operating expenses

 

 

168

 

 

 

179

 

 

 

7

 

 

 

 

487

 

 

 

551

 

 

 

12

 

 

Company restaurant expenses

 

 

478

 

 

 

472

 

 

 

(1

)

 

 

 

1,391

 

 

 

1,447

 

 

 

4

 

 

General and administrative expenses

 

 

25

 

 

 

24

 

 

 

(6

)

 

 

 

76

 

 

 

80

 

 

 

5

 

 

Franchise expenses

 

 

1

 

 

 

1

 

 

 

(73

)

 

 

 

2

 

 

 

2

 

 

 

(34

)

 

Expenses for transactions with

   franchisees and unconsolidated affiliates

 

 

1

 

 

 

1

 

 

NM

 

 

 

 

3

 

 

 

1

 

 

NM

 

 

Other operating costs and expenses

 

 

 

 

 

 

 

NM

 

 

 

 

1

 

 

 

 

 

NM

 

 

Closures and impairment (income) expenses, net

 

 

(1

)

 

 

(1

)

 

 

77

 

 

 

 

5

 

 

 

9

 

 

 

38

 

 

Other income, net

 

 

 

 

 

 

 

NM

 

 

 

 

 

 

 

(2

)

 

NM

 

 

Total costs and expenses, net

 

 

504

 

 

 

497

 

 

 

(2

)

 

 

 

1,478

 

 

 

1,537

 

 

 

4

 

 

Operating Profit

 

$

38

 

 

$

53

 

 

 

(29

)

 

 

$

117

 

 

$

106

 

 

 

9

 

 

Company sales

 

 

100.0

%

 

 

100.0

%

 

 

 

 

 

 

 

100.0

%

 

 

100.0

%

 

 

 

 

 

Food and paper

 

 

31.5

 

 

 

29.7

 

 

 

(1.8

)

ppts.

 

 

30.5

 

 

 

29.6

 

 

 

(0.9

)

ppts.

Payroll and employee benefits

 

 

26.0

 

 

 

23.8

 

 

 

(2.2

)

ppts.

 

 

26.5

 

 

 

25.0

 

 

 

(1.5

)

ppts.

Occupancy and other operating expenses

 

 

31.1

 

 

 

32.7

 

 

 

1.6

 

ppts.

 

 

30.6

 

 

 

33.6

 

 

 

3.0

 

ppts.

Restaurant margin

 

 

11.4

%

 

 

13.8

%

 

 

(2.4

)

ppts.

 

 

12.4

%

 

 

11.8

%

 

 

0.6

 

ppts.

Operating margin

 

 

7.0

%

 

 

9.8

%

 

 

(2.8

)

ppts.

 

 

7.4

%

 

 

6.5

%

 

 

0.9

 

ppts.

 

Percentages may not recompute due to rounding.

8

 


 

Yum China Holdings, Inc.

Condensed Consolidated Balance Sheets

(in US$ million)

 

 

 

9/30/2019

 

 

12/31/2018

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,355

 

 

$

1,266

 

Short-term investments

 

 

364

 

 

 

122

 

Accounts receivable, net

 

 

79

 

 

 

80

 

Inventories, net

 

 

317

 

 

 

307

 

Prepaid expenses and other current assets

 

 

141

 

 

 

177

 

Total Current Assets

 

 

2,256

 

 

 

1,952

 

Property, plant and equipment, net

 

 

1,506

 

 

 

1,615

 

Operating lease right-of-use assets

 

 

1,893

 

 

 

 

Goodwill

 

 

256

 

 

 

266

 

Intangible assets, net

 

 

97

 

 

 

116

 

Deferred income taxes

 

 

89

 

 

 

89

 

Investments in unconsolidated affiliates

 

 

74

 

 

 

81

 

Other assets

 

 

539

 

 

 

491

 

Total Assets

 

 

6,710

 

 

 

4,610

 

LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND EQUITY

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

Accounts payable and other current liabilities

 

 

1,566

 

 

 

1,199

 

Income taxes payable

 

 

82

 

 

 

54

 

Total Current Liabilities

 

 

1,648

 

 

 

1,253

 

Non-current operating lease liabilities

 

 

1,729

 

 

 

 

Capital lease obligations

 

 

23

 

 

 

25

 

Other liabilities

 

 

195

 

 

 

355

 

Total Liabilities

 

 

3,595

 

 

 

1,633

 

Redeemable Noncontrolling Interest

 

 

1

 

 

 

1

 

Equity

 

 

 

 

 

 

 

 

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

  394 million shares and 392 million shares issued at September 30, 2019 and December 31,

  2018, respectively; 376 million shares and 379 million shares outstanding at September 30,

  2019 and December 31, 2018, respectively

 

 

4

 

 

 

4

 

Treasury stock

 

 

(664

)

 

 

(460

)

Additional paid-in capital

 

 

2,423

 

 

 

2,402

 

Retained earnings

 

 

1,371

 

 

 

944

 

Accumulated other comprehensive loss

 

 

(109

)

 

 

(17

)

Total Equity – Yum China Holdings, Inc.

 

 

3,025

 

 

 

2,873

 

Noncontrolling interests

 

 

89

 

 

 

103

 

Total Equity

 

 

3,114

 

 

 

2,976

 

Total Liabilities, Redeemable Noncontrolling Interest and Equity

 

$

6,710

 

 

$

4,610

 

 

 

 

 

 

 

 

 

 

9

 


 

Yum China Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(in US$ million)

(unaudited)

 

 

 

Year to Date Ended

 

 

9/30/2019

 

9/30/2018

Cash Flows – Operating Activities

 

 

 

 

 

 

 

 

 

 

Net income – including noncontrolling interests

 

$

649

 

 

 

$

658

 

 

Depreciation and amortization

 

 

322

 

 

 

 

343

 

 

Amortization of operating lease right-of-use assets

 

 

251

 

 

 

 

 

 

Closures and impairment expenses

 

 

14

 

 

 

 

15

 

 

Gain from re-measurement of equity interest upon acquisition

 

 

 

 

 

 

(98

)

 

Investment gain

 

 

(39

)

 

 

 

 

 

Equity income from investments in unconsolidated affiliates

 

 

(56

)

 

 

 

(52

)

 

Distributions of income received from unconsolidated affiliates

 

 

50

 

 

 

 

51

 

 

Deferred income taxes

 

 

12

 

 

 

 

46

 

 

Share-based compensation expense

 

 

21

 

 

 

 

18

 

 

Changes in accounts receivable

 

 

(2

)

 

 

 

2

 

 

Changes in inventories

 

 

(22

)

 

 

 

14

 

 

Changes in prepaid expenses and other current assets

 

 

7

 

 

 

 

(13

)

 

Changes in accounts payable and other current liabilities

 

 

118

 

 

 

 

184

 

 

Changes in income taxes payable

 

 

32

 

 

 

 

41

 

 

Changes in non-current operating lease liabilities

 

 

(280

)

 

 

 

 

 

Other, net

 

 

(32

)

 

 

 

(36

)

 

Net Cash Provided by Operating Activities

 

 

1,045

 

 

 

 

1,173

 

 

Cash Flows – Investing Activities

 

 

 

 

 

 

 

 

 

 

Capital spending

 

 

(310

)

 

 

 

(359

)

 

Purchases of short-term investments

 

 

(619

)

 

 

 

(513

)

 

Maturities of short-term investments

 

 

366

 

 

 

 

513

 

 

Acquisition of business, net of cash acquired

 

 

 

 

 

 

(91

)

 

Investment in equity securities

 

 

 

 

 

 

(74

)

 

Other, net

 

 

10

 

 

 

 

(3

)

 

Net Cash Used in Investing Activities

 

 

(553

)

 

 

 

(527

)

 

Cash Flows – Financing Activities

 

 

 

 

 

 

 

 

 

 

Repayment of short-term borrowings assumed from acquisition

 

 

 

 

 

 

(10

)

 

Repurchase of shares of common stock

 

 

(207

)

 

 

 

(161

)

 

Cash dividends paid on common stock

 

 

(136

)

 

 

 

(115

)

 

Dividends paid to noncontrolling interests

 

 

(25

)

 

 

 

(29

)

 

Other, net

 

 

 

 

 

 

(3

)

 

Net Cash Used in Financing Activities

 

 

(368

)

 

 

 

(318

)

 

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

 

 

(26

)

 

 

 

(53

)

 

Net Increase in Cash, Cash Equivalents and Restricted Cash

 

 

98

 

 

 

 

275

 

 

Cash, Cash Equivalents and Restricted Cash - Beginning of Period

 

 

1,266

 

 

 

 

1,059

 

 

Cash, Cash Equivalents and Restricted Cash - End of Period

 

$

1,364

 

 

 

$

1,334

 

 

 


10

 


 

In this press release:

 

The Company provides certain percentage changes excluding the impact of foreign currency translation (“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 restaurant 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 in the Condensed Consolidated Statements of Income; 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.

 

Effective January 1, 2018, the Company revised its definition of same-store sales growth to represent the estimated percentage change in sales of food of all restaurants in the Company system that have been open prior to the first day of our prior fiscal year. We refer to these as our “base” stores. Previously, same-store sales growth represented the estimated percentage change in sales of all restaurants in the Company system that have been open for one year or more, and the base stores changed on a rolling basis from month to month. This revision was made to align with how management measures performance internally and focuses on trends of a more stable base of stores.

 

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.

 

11

 


 

Reconciliation of Reported GAAP Results to Adjusted Measures

(in millions, except per share data)

(unaudited)

 

In addition to the results provided in accordance with US Generally Accepted Accounting Principles (“GAAP”) in this press release, the Company provides measures adjusted for Special Items, which include Adjusted Operating Profit, Adjusted Net Income, Adjusted EPS, Adjusted Effective Tax Rate and Adjusted EBITDA, which we define as net income including noncontrolling interests adjusted for income tax, interest income, net, investment gain or loss, depreciation, amortization and other items, including store impairment charges and Special Items. The Special Item for the year to date ended September 30, 2019 represents the impact from the US Tax Cuts and Jobs Act (the “Tax Act”), as described in the accompanying notes. The Special Item for the year to date ended September 30, 2018 represents a gain recognized from the re-measurement of our previously held equity interest in Wuxi KFC at fair value upon acquisition, as described 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. In addition, the Company provides Adjusted EBITDA because we believe that investors and analysts may find it useful in measuring operating performance without regard to items such as income tax, interest income, net, investment gain or loss, depreciation, amortization and other items, including store impairment charges and Special Items. These adjusted 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 adjusted measures provide additional information to investors to facilitate the comparison of past and present results, excluding those items that the Company does not believe are indicative of our ongoing operations due to their nature.  These adjusted 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 Statements of Income and other information presented herein. A reconciliation of the most directly comparable GAAP measures to adjusted measures follows.

 

 

 

Quarter Ended

 

 

Year to Date Ended

 

 

 

9/30/2019

 

 

9/30/2018

 

 

9/30/2019

 

 

9/30/2018

 

Detail of Special Items

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain from re-measurement of equity interest upon acquisition(b)

 

$

 

 

$

 

 

$

 

 

$

98

 

Special Items, Operating Profit

 

 

 

 

 

 

 

 

 

 

 

98

 

Tax effect on Special Items(c)

 

 

 

 

 

 

 

 

 

 

 

(24

)

Impact from the Tax Act(d)

 

 

 

 

 

 

 

 

(8

)

 

 

 

Special Items, net income – including noncontrolling interests

 

 

 

 

 

 

 

 

(8

)

 

 

74

 

Special Items, net income – noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

Special Items, Net Income –Yum China Holdings, Inc.

 

$

 

 

$

 

 

$

(8

)

 

$

74

 

Weighted Average Diluted Shares Outstanding

 

 

388

 

 

 

394

 

 

 

389

 

 

 

398

 

Special Items, Diluted Earnings Per Common Share

 

$

 

 

$

 

 

$

(0.02

)

 

$

0.18

 

Reconciliation of Operating Profit to Adjusted Operating Profit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Profit

 

$

300

 

 

$

269

 

 

$

807

 

 

$

857

 

Special Items, Operating Profit

 

 

 

 

 

 

 

 

 

 

 

98

 

Adjusted Operating Profit

 

$

300

 

 

$

269

 

 

$

807

 

 

$

759

 

Reconciliation of Net Income to Adjusted Net Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income – Yum China Holdings, Inc.

 

$

223

 

 

$

203

 

 

$

623

 

 

$

634

 

Special Items, Net Income –Yum China Holdings, Inc.

 

 

 

 

 

 

 

 

(8

)

 

 

74

 

Adjusted Net Income – Yum China Holdings, Inc.

 

$

223

 

 

$

203

 

 

$

631

 

 

$

560

 

Reconciliation of EPS to Adjusted EPS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic Earnings Per Common Share

 

$

0.59

 

 

$

0.53

 

 

$

1.65

 

 

$

1.64

 

Special Items, Basic Earnings Per Common Share

 

 

 

 

 

 

 

 

(0.02

)

 

 

0.19

 

Adjusted Basic Earnings Per Common Share

 

$

0.59

 

 

$

0.53

 

 

$

1.67

 

 

$

1.45

 

Diluted Earnings Per Common Share

 

$

0.58

 

 

$

0.51

 

 

$

1.60

 

 

$

1.59

 

Special Items, Diluted Earnings Per Common Share

 

 

 

 

 

 

 

 

(0.02

)

 

 

0.18

 

Adjusted Diluted Earnings Per Common Share

 

$

0.58

 

 

$

0.51

 

 

$

1.62

 

 

$

1.41

 

Reconciliation of Effective Tax Rate to Adjusted Effective Tax Rate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effective tax rate

 

 

26.9

%

 

 

24.2

%

 

 

25.8

%

 

 

25.7

%

Impact on effective tax rate as a result of Special Items

 

 

%

 

 

%

 

 

0.9

%

 

 

(0.1

)%

Adjusted effective tax rate

 

 

26.9

%

 

 

24.2

%

 

 

24.9

%

 

 

25.8

%

 

12

 


 

Notes to the Condensed Consolidated Statements of Income, Condensed Consolidated Balance Sheets,

Condensed Consolidated Statements of Cash Flows and Reconciliation of Reported GAAP Results to Adjusted Measures

(in US$ million)

(unaudited)

 

(a)

Amounts presented as of and for the quarters and years to date ended September 30, 2019 and 2018 are unaudited.

 

(b)

As a result of the acquisition of Wuxi KFC in the first quarter of 2018, the Company recognized a gain of $98 million from the re-measurement of our previously held 47% equity interest at fair value, which was not allocated to any segment for performance reporting purposes.

 

(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)

We completed the evaluation of the impact on our transition tax computation based on the final regulations released by the US Treasury Department and the IRS in the first quarter of 2019 and recorded an additional amount of $8 million for the transition tax accordingly.

 

 

13

 


 

Reconciliation of Net Income to Adjusted EBITDA

(in US$ million)

(unaudited)

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

 

 

 

Quarter Ended

 

 

Year to Date Ended

 

 

 

9/30/2019

 

 

9/30/2018

 

 

9/30/2019

 

 

9/30/2018

 

Reconciliation of Net Income to Adjusted EBITDA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income – Yum China Holdings, Inc.

 

$

223

 

 

$

203

 

 

$

623

 

 

$

634

 

Net income – noncontrolling interests

 

 

12

 

 

 

9

 

 

 

26

 

 

 

24

 

Income tax provision

 

 

87

 

 

 

67

 

 

 

226

 

 

 

227

 

Interest income, net

 

 

(10

)

 

 

(10

)

 

 

(29

)

 

 

(28

)

Investment gain

 

 

(12

)

 

 

 

 

 

(39

)

 

 

 

Operating Profit

 

 

300

 

 

 

269

 

 

 

807

 

 

 

857

 

Special Items, Operating Profit

 

 

 

 

 

 

 

 

 

 

 

(98

)

Adjusted Operating Profit

 

 

300

 

 

 

269

 

 

 

807

 

 

 

759

 

Depreciation and amortization

 

 

105

 

 

 

108

 

 

 

322

 

 

 

343

 

Store impairment charges

 

 

2

 

 

 

2

 

 

 

27

 

 

 

23

 

Adjusted EBITDA

 

$

407

 

 

$

379

 

 

$

1,156

 

 

$

1,125

 

14

 


 

Unit Count by Brand

 

KFC

 

 

 

12/31/2018

 

 

New Builds

 

 

Closures

 

 

Refranchised

 

 

9/30/2019

 

Company-owned

 

 

4,597

 

 

 

398

 

 

 

(62

)

 

 

(8

)

 

 

4,925

 

Unconsolidated affiliates

 

 

811

 

 

 

69

 

 

 

(17

)

 

 

 

 

 

 

863

 

Franchisees

 

 

502

 

 

 

34

 

 

 

(8

)

 

 

8

 

 

 

536

 

Total

 

 

5,910

 

 

 

501

 

 

 

(87

)

 

 

 

 

 

6,324

 

 

Pizza Hut

 

 

 

12/31/2018

 

 

New Builds

 

 

Closures

 

 

Refranchised

 

 

9/30/2019

 

Company-owned

 

 

2,188

 

 

 

75

 

 

 

(68

)

 

 

(30

)

 

 

2,165

 

Franchisees

 

 

52

 

 

 

9

 

 

 

(1

)

 

 

30

 

 

 

90

 

Total

 

 

2,240

 

 

 

84

 

 

 

(69

)

 

 

 

 

 

2,255

 

 

Others

 

 

 

12/31/2018

 

 

New Builds

 

 

Closures

 

 

Refranchised

 

 

9/30/2019

 

Company-owned

 

 

47

 

 

 

38

 

 

 

(2

)

 

 

(2

)

 

 

81

 

Franchisees

 

 

287

 

 

 

23

 

 

 

(55

)

 

 

2

 

 

 

257

 

Total

 

 

334

 

 

 

61

 

 

 

(57

)

 

 

 

 

 

338

 

15

 


 

Yum China Holdings, Inc.

Segment Results

(in US$ million)

(unaudited)

 

Quarter Ended 9/30/2019

 

KFC

 

 

Pizza Hut

 

 

All Other Segments(1)

 

 

Corporate

and

Unallocated(2)

 

 

Elimination

 

 

Total

 

Company sales

 

$

1,546

 

 

$

540

 

 

$

11

 

 

$

 

 

$

 

 

$

2,097

 

Franchise fees and income

 

 

35

 

 

 

1

 

 

 

2

 

 

 

 

 

 

 

 

 

38

 

Revenues from transactions with

   franchisees and unconsolidated affiliates

 

 

16

 

 

 

1

 

 

 

8

 

 

 

147

 

 

 

 

 

 

172

 

Other revenues

 

 

1

 

 

 

 

 

 

19

 

 

 

1

 

 

 

(9

)

 

 

12

 

Total revenues

 

$

1,598

 

 

$

542

 

 

$

40

 

 

$

148

 

 

$

(9

)

 

$

2,319

 

Company restaurant expenses

 

 

1,235

 

 

 

478

 

 

 

12

 

 

 

 

 

 

 

 

 

1,725

 

General and administrative expenses

 

 

50

 

 

 

25

 

 

 

8

 

 

 

34

 

 

 

 

 

 

117

 

Franchise expenses

 

 

18

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

19

 

Expenses for transactions with

  franchisees and unconsolidated affiliates

 

 

16

 

 

 

1

 

 

 

5

 

 

 

145

 

 

 

 

 

 

167

 

Other operating costs and expenses

 

 

 

 

 

 

 

 

17

 

 

 

1

 

 

 

(9

)

 

 

9

 

Closures and impairment income, net

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

(1

)

Other income, net

 

 

(16

)

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

(17

)

Total costs and expenses, net

 

 

1,303

 

 

 

504

 

 

 

42

 

 

 

179

 

 

 

(9

)

 

 

2,019

 

Operating Profit (Loss)

 

$

295

 

 

$

38

 

 

$

(2

)

 

$

(31

)

 

$

 

 

$

300

 

 

Quarter Ended 9/30/2018

 

KFC

 

 

Pizza Hut

 

 

All Other Segments(1)

 

 

Corporate

and

Unallocated(2)

 

 

Elimination

 

 

Total

 

Company sales

 

$

1,452

 

 

$

548

 

 

$

8

 

 

$

 

 

$

 

 

$

2,008

 

Franchise fees and income

 

 

34

 

 

 

1

 

 

 

1

 

 

 

 

 

 

 

 

 

36

 

Revenues from transactions with

   franchisees and unconsolidated affiliates

 

 

15

 

 

 

1

 

 

 

7

 

 

 

136

 

 

 

 

 

 

159

 

Other revenues

 

 

 

 

 

 

 

 

14

 

 

 

1

 

 

 

(6

)

 

 

9

 

Total revenues

 

$

1,501

 

 

$

550

 

 

$

30

 

 

$

137

 

 

$

(6

)

 

$

2,212

 

Company restaurant expenses

 

 

1,173

 

 

 

472

 

 

 

9

 

 

 

 

 

 

1

 

 

 

1,655

 

General and administrative expenses

 

 

44

 

 

 

24

 

 

 

9

 

 

 

42

 

 

 

 

 

 

119

 

Franchise expenses

 

 

17

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

18

 

Expenses for transactions with

  franchisees and unconsolidated affiliates

 

 

15

 

 

 

1

 

 

 

5

 

 

 

135

 

 

 

 

 

 

156

 

Other operating costs and expenses

 

 

 

 

 

 

 

 

13

 

 

 

 

 

 

(7

)

 

 

6

 

Closures and impairment income, net

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

(1

)

Other income, net

 

 

(12

)

 

 

 

 

 

 

 

 

2

 

 

 

 

 

 

(10

)

Total costs and expenses, net

 

 

1,237

 

 

 

497

 

 

 

36

 

 

 

179

 

 

 

(6

)

 

 

1,943

 

Operating Profit (Loss)

 

$

264

 

 

$

53

 

 

$

(6

)

 

$

(42

)

 

$

 

 

$

269

 

 

16

 


 

Year to Date Ended 9/30/2019

 

KFC

 

 

Pizza Hut

 

 

All Other Segments(1)

 

 

Corporate

and

Unallocated(2)

 

 

Elimination

 

 

Total

 

Company sales

 

$

4,495

 

 

$

1,588

 

 

$

29

 

 

$

 

 

$

 

 

$

6,112

 

Franchise fees and income

 

 

104

 

 

 

3

 

 

 

6

 

 

 

 

 

 

 

 

 

113

 

Revenues from transactions with

   franchisees and unconsolidated affiliates

 

 

48

 

 

 

3

 

 

 

20

 

 

 

425

 

 

 

 

 

 

496

 

Other revenues

 

 

1

 

 

 

1

 

 

 

49

 

 

 

3

 

 

 

(28

)

 

 

26

 

Total revenues

 

$

4,648

 

 

$

1,595

 

 

$

104

 

 

$

428

 

 

$

(28

)

 

$

6,747

 

Company restaurant expenses

 

 

3,650

 

 

 

1,391

 

 

 

31

 

 

 

 

 

 

(1

)

 

 

5,071

 

General and administrative expenses

 

 

148

 

 

 

76

 

 

 

24

 

 

 

92

 

 

 

 

 

 

340

 

Franchise expenses

 

 

53

 

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

55

 

Expenses for transactions with

  franchisees and unconsolidated affiliates

 

 

48

 

 

 

3

 

 

 

16

 

 

 

421

 

 

 

 

 

 

488

 

Other operating costs and expenses

 

 

 

 

 

1

 

 

 

43

 

 

 

3

 

 

 

(27

)

 

 

20

 

Closures and impairment expenses, net

 

 

7

 

 

 

5

 

 

 

2

 

 

 

 

 

 

 

 

 

14

 

Other income, net

 

 

(46

)

 

 

 

 

 

 

 

 

(2

)

 

 

 

 

 

(48

)

Total costs and expenses, net

 

 

3,860

 

 

 

1,478

 

 

 

116

 

 

 

514

 

 

 

(28

)

 

 

5,940

 

Operating Profit (Loss)

 

$

788

 

 

$

117

 

 

$

(12

)

 

$

(86

)

 

$

 

 

$

807

 

 

Year to Date Ended 9/30/2018

 

KFC

 

 

Pizza Hut

 

 

All Other Segments(1)

 

 

Corporate

and

Unallocated(2)

 

 

Elimination

 

 

Total

 

Company sales

 

$

4,248

 

 

$

1,640

 

 

$

24

 

 

$

 

 

$

 

 

$

5,912

 

Franchise fees and income

 

 

104

 

 

 

2

 

 

 

4

 

 

 

 

 

 

 

 

 

110

 

Revenues from transactions with

   franchisees and unconsolidated affiliates

 

 

47

 

 

 

1

 

 

 

18

 

 

 

395

 

 

 

 

 

 

461

 

Other revenues

 

 

 

 

 

 

 

 

25

 

 

 

2

 

 

 

(9

)

 

 

18

 

Total revenues

 

$

4,399

 

 

$

1,643

 

 

$

71

 

 

$

397

 

 

$

(9

)

 

$

6,501

 

Company restaurant expenses

 

 

3,441

 

 

 

1,447

 

 

 

25

 

 

 

 

 

 

(1

)

 

 

4,912

 

General and administrative expenses

 

 

135

 

 

 

80

 

 

 

25

 

 

 

94

 

 

 

 

 

 

334

 

Franchise expenses

 

 

53

 

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

55

 

Expenses for transactions with

  franchisees and unconsolidated affiliates

 

 

47

 

 

 

1

 

 

 

14

 

 

 

392

 

 

 

 

 

 

454

 

Other operating costs and expenses

 

 

 

 

 

 

 

 

24

 

 

 

1

 

 

 

(8

)

 

 

17

 

Closures and impairment expenses, net

 

 

6

 

 

 

9

 

 

 

 

 

 

 

 

 

 

 

 

15

 

Other income, net

 

 

(42

)

 

 

(2

)

 

 

(1

)

 

 

(98

)

 

 

 

 

 

(143

)

Total costs and expenses, net

 

 

3,640

 

 

 

1,537

 

 

 

87

 

 

 

389

 

 

 

(9

)

 

 

5,644

 

Operating Profit (Loss)

 

$

759

 

 

$

106

 

 

$

(16

)

 

$

8

 

 

$

 

 

$

857

 

The above tables reconcile segment information, which is based on management responsibility, with our Condensed Consolidated Statements of Income.  

 

(1)

Starting from the first quarter of 2019, our newly developed COFFii & JOY concept and e-commerce business became operating segments, as their financial results started being regularly reviewed by the Company’s chief operating decision maker. Accordingly, our six non-reportable operating segments, reflecting the operations of East Dawning, Little Sheep, Taco Bell, Daojia, COFFii & JOY and our e-commerce business, are combined and referred to as All Other Segments, as those operating segments are insignificant both individually and in the aggregate. Segment financial information for prior quarters has been recast to align with this change in segment reporting. There was no impact on the condensed consolidated financial statements of the Company as a result of this change.

 

(2)

Corporate and unallocated expenses comprise items that are not allocated to segments for performance reporting purposes. Amount includes revenues and expenses associated with transactions with franchisees and unconsolidated affiliates such as inventory procurement and other services provided to franchisees and unconsolidated affiliates. The Corporate and Unallocated column in the above tables includes, among other amounts, all amounts that we have deemed Special Items. See “Reconciliation of Reported GAAP Results to Adjusted Measures”.

 

17