yumc-10q_20190930.htm
0001673358 --12-31 Large Accelerated Filer Q3 false P5Y 0 yumc:OperatingLeaseRightOfUseAssetsMember us-gaap:PropertyPlantAndEquipmentMember yumc:AccountsPayableAndOtherCurrentLiabilitiesMember yumc:AccountsPayableAndOtherCurrentLiabilitiesMember yumc:NonCurrentOperatingLeaseLiabilitiesMember yumc:NonCurrentFinancingLeaseLiabilitiesMember P7Y1M6D P12Y 0001673358 2019-01-01 2019-09-30 xbrli:shares 0001673358 2019-10-30 0001673358 dei:OtherAddressMember 2019-01-01 2019-09-30 iso4217:USD 0001673358 yumc:FoodAndNonFoodRevenuesFromSalesMember 2019-07-01 2019-09-30 0001673358 yumc:FoodAndNonFoodRevenuesFromSalesMember 2018-07-01 2018-09-30 0001673358 yumc:FoodAndNonFoodRevenuesFromSalesMember 2019-01-01 2019-09-30 0001673358 yumc:FoodAndNonFoodRevenuesFromSalesMember 2018-01-01 2018-09-30 0001673358 yumc:FranchiseFeesAndIncomeMember 2019-07-01 2019-09-30 0001673358 yumc:FranchiseFeesAndIncomeMember 2018-07-01 2018-09-30 0001673358 yumc:FranchiseFeesAndIncomeMember 2019-01-01 2019-09-30 0001673358 yumc:FranchiseFeesAndIncomeMember 2018-01-01 2018-09-30 0001673358 yumc:TransactionsWithFranchiseesAndUnconsolidatedAffiliatesMember 2019-07-01 2019-09-30 0001673358 yumc:TransactionsWithFranchiseesAndUnconsolidatedAffiliatesMember 2018-07-01 2018-09-30 0001673358 yumc:TransactionsWithFranchiseesAndUnconsolidatedAffiliatesMember 2019-01-01 2019-09-30 0001673358 yumc:TransactionsWithFranchiseesAndUnconsolidatedAffiliatesMember 2018-01-01 2018-09-30 0001673358 yumc:OtherRevenueMember 2019-07-01 2019-09-30 0001673358 yumc:OtherRevenueMember 2018-07-01 2018-09-30 0001673358 yumc:OtherRevenueMember 2019-01-01 2019-09-30 0001673358 yumc:OtherRevenueMember 2018-01-01 2018-09-30 0001673358 2019-07-01 2019-09-30 0001673358 2018-07-01 2018-09-30 0001673358 2018-01-01 2018-09-30 0001673358 yumc:CompanyRestaurantExpensesMember 2019-07-01 2019-09-30 0001673358 yumc:CompanyRestaurantExpensesMember 2018-07-01 2018-09-30 0001673358 yumc:CompanyRestaurantExpensesMember 2019-01-01 2019-09-30 0001673358 yumc:CompanyRestaurantExpensesMember 2018-01-01 2018-09-30 iso4217:USD xbrli:shares 0001673358 2018-12-31 0001673358 2017-12-31 0001673358 2019-09-30 0001673358 2018-09-30 xbrli:pure 0001673358 2016-10-30 2016-10-31 0001673358 yumc:WuxiKFCMember 2018-03-31 0001673358 yumc:WuxiKFCMember 2018-01-01 2018-03-31 0001673358 us-gaap:AccountingStandardsUpdate201602Member 2019-01-01 0001673358 us-gaap:AccountingStandardsUpdate201602Member 2019-01-01 2019-01-01 0001673358 srt:ProFormaMember 2019-01-01 0001673358 us-gaap:AccountingStandardsUpdate201602Member 2018-12-31 0001673358 yumc:KFCMember 2019-01-01 2019-09-30 0001673358 yumc:PizzaHutMember 2019-01-01 2019-09-30 0001673358 srt:MinimumMember yumc:LittleSheepMember 2019-01-01 2019-09-30 0001673358 srt:MaximumMember yumc:LittleSheepMember 2019-01-01 2019-09-30 0001673358 yumc:FoodAndNonFoodRevenuesFromSalesMember yumc:KFCMember 2019-07-01 2019-09-30 0001673358 yumc:FoodAndNonFoodRevenuesFromSalesMember yumc:PizzaHutMember 2019-07-01 2019-09-30 0001673358 yumc:FoodAndNonFoodRevenuesFromSalesMember us-gaap:AllOtherSegmentsMember 2019-07-01 2019-09-30 0001673358 yumc:FoodAndNonFoodRevenuesFromSalesMember yumc:OperatingSegmentsAndCorporateNonSegmentMember 2019-07-01 2019-09-30 0001673358 yumc:FranchiseFeesAndIncomeMember yumc:KFCMember 2019-07-01 2019-09-30 0001673358 yumc:FranchiseFeesAndIncomeMember yumc:PizzaHutMember 2019-07-01 2019-09-30 0001673358 yumc:FranchiseFeesAndIncomeMember us-gaap:AllOtherSegmentsMember 2019-07-01 2019-09-30 0001673358 yumc:FranchiseFeesAndIncomeMember yumc:OperatingSegmentsAndCorporateNonSegmentMember 2019-07-01 2019-09-30 0001673358 yumc:TransactionsWithFranchiseesAndUnconsolidatedAffiliatesMember yumc:KFCMember 2019-07-01 2019-09-30 0001673358 yumc:TransactionsWithFranchiseesAndUnconsolidatedAffiliatesMember yumc:PizzaHutMember 2019-07-01 2019-09-30 0001673358 yumc:TransactionsWithFranchiseesAndUnconsolidatedAffiliatesMember us-gaap:AllOtherSegmentsMember 2019-07-01 2019-09-30 0001673358 yumc:TransactionsWithFranchiseesAndUnconsolidatedAffiliatesMember us-gaap:CorporateNonSegmentMember 2019-07-01 2019-09-30 0001673358 yumc:TransactionsWithFranchiseesAndUnconsolidatedAffiliatesMember yumc:OperatingSegmentsAndCorporateNonSegmentMember 2019-07-01 2019-09-30 0001673358 yumc:OtherRevenueMember yumc:KFCMember 2019-07-01 2019-09-30 0001673358 yumc:OtherRevenueMember us-gaap:AllOtherSegmentsMember 2019-07-01 2019-09-30 0001673358 yumc:OtherRevenueMember us-gaap:CorporateNonSegmentMember 2019-07-01 2019-09-30 0001673358 yumc:OtherRevenueMember yumc:OperatingSegmentsAndCorporateNonSegmentMember 2019-07-01 2019-09-30 0001673358 yumc:OtherRevenueMember us-gaap:IntersegmentEliminationMember 2019-07-01 2019-09-30 0001673358 us-gaap:OperatingSegmentsMember yumc:KFCMember 2019-07-01 2019-09-30 0001673358 us-gaap:OperatingSegmentsMember yumc:PizzaHutMember 2019-07-01 2019-09-30 0001673358 us-gaap:OperatingSegmentsMember us-gaap:AllOtherSegmentsMember 2019-07-01 2019-09-30 0001673358 us-gaap:CorporateNonSegmentMember 2019-07-01 2019-09-30 0001673358 yumc:OperatingSegmentsAndCorporateNonSegmentMember 2019-07-01 2019-09-30 0001673358 us-gaap:IntersegmentEliminationMember 2019-07-01 2019-09-30 0001673358 yumc:FoodAndNonFoodRevenuesFromSalesMember yumc:KFCMember 2018-07-01 2018-09-30 0001673358 yumc:FoodAndNonFoodRevenuesFromSalesMember yumc:PizzaHutMember 2018-07-01 2018-09-30 0001673358 yumc:FoodAndNonFoodRevenuesFromSalesMember us-gaap:AllOtherSegmentsMember 2018-07-01 2018-09-30 0001673358 yumc:FoodAndNonFoodRevenuesFromSalesMember yumc:OperatingSegmentsAndCorporateNonSegmentMember 2018-07-01 2018-09-30 0001673358 yumc:FranchiseFeesAndIncomeMember yumc:KFCMember 2018-07-01 2018-09-30 0001673358 yumc:FranchiseFeesAndIncomeMember yumc:PizzaHutMember 2018-07-01 2018-09-30 0001673358 yumc:FranchiseFeesAndIncomeMember us-gaap:AllOtherSegmentsMember 2018-07-01 2018-09-30 0001673358 yumc:FranchiseFeesAndIncomeMember yumc:OperatingSegmentsAndCorporateNonSegmentMember 2018-07-01 2018-09-30 0001673358 yumc:TransactionsWithFranchiseesAndUnconsolidatedAffiliatesMember yumc:KFCMember 2018-07-01 2018-09-30 0001673358 yumc:TransactionsWithFranchiseesAndUnconsolidatedAffiliatesMember yumc:PizzaHutMember 2018-07-01 2018-09-30 0001673358 yumc:TransactionsWithFranchiseesAndUnconsolidatedAffiliatesMember us-gaap:AllOtherSegmentsMember 2018-07-01 2018-09-30 0001673358 yumc:TransactionsWithFranchiseesAndUnconsolidatedAffiliatesMember us-gaap:CorporateNonSegmentMember 2018-07-01 2018-09-30 0001673358 yumc:TransactionsWithFranchiseesAndUnconsolidatedAffiliatesMember yumc:OperatingSegmentsAndCorporateNonSegmentMember 2018-07-01 2018-09-30 0001673358 yumc:OtherRevenueMember us-gaap:AllOtherSegmentsMember 2018-07-01 2018-09-30 0001673358 yumc:OtherRevenueMember us-gaap:CorporateNonSegmentMember 2018-07-01 2018-09-30 0001673358 yumc:OtherRevenueMember yumc:OperatingSegmentsAndCorporateNonSegmentMember 2018-07-01 2018-09-30 0001673358 yumc:OtherRevenueMember us-gaap:IntersegmentEliminationMember 2018-07-01 2018-09-30 0001673358 us-gaap:OperatingSegmentsMember yumc:KFCMember 2018-07-01 2018-09-30 0001673358 us-gaap:OperatingSegmentsMember yumc:PizzaHutMember 2018-07-01 2018-09-30 0001673358 us-gaap:OperatingSegmentsMember us-gaap:AllOtherSegmentsMember 2018-07-01 2018-09-30 0001673358 us-gaap:CorporateNonSegmentMember 2018-07-01 2018-09-30 0001673358 yumc:OperatingSegmentsAndCorporateNonSegmentMember 2018-07-01 2018-09-30 0001673358 us-gaap:IntersegmentEliminationMember 2018-07-01 2018-09-30 0001673358 yumc:FoodAndNonFoodRevenuesFromSalesMember yumc:KFCMember 2019-01-01 2019-09-30 0001673358 yumc:FoodAndNonFoodRevenuesFromSalesMember yumc:PizzaHutMember 2019-01-01 2019-09-30 0001673358 yumc:FoodAndNonFoodRevenuesFromSalesMember us-gaap:AllOtherSegmentsMember 2019-01-01 2019-09-30 0001673358 yumc:FoodAndNonFoodRevenuesFromSalesMember yumc:OperatingSegmentsAndCorporateNonSegmentMember 2019-01-01 2019-09-30 0001673358 yumc:FranchiseFeesAndIncomeMember yumc:KFCMember 2019-01-01 2019-09-30 0001673358 yumc:FranchiseFeesAndIncomeMember yumc:PizzaHutMember 2019-01-01 2019-09-30 0001673358 yumc:FranchiseFeesAndIncomeMember us-gaap:AllOtherSegmentsMember 2019-01-01 2019-09-30 0001673358 yumc:FranchiseFeesAndIncomeMember yumc:OperatingSegmentsAndCorporateNonSegmentMember 2019-01-01 2019-09-30 0001673358 yumc:TransactionsWithFranchiseesAndUnconsolidatedAffiliatesMember yumc:KFCMember 2019-01-01 2019-09-30 0001673358 yumc:TransactionsWithFranchiseesAndUnconsolidatedAffiliatesMember yumc:PizzaHutMember 2019-01-01 2019-09-30 0001673358 yumc:TransactionsWithFranchiseesAndUnconsolidatedAffiliatesMember us-gaap:AllOtherSegmentsMember 2019-01-01 2019-09-30 0001673358 yumc:TransactionsWithFranchiseesAndUnconsolidatedAffiliatesMember us-gaap:CorporateNonSegmentMember 2019-01-01 2019-09-30 0001673358 yumc:TransactionsWithFranchiseesAndUnconsolidatedAffiliatesMember yumc:OperatingSegmentsAndCorporateNonSegmentMember 2019-01-01 2019-09-30 0001673358 yumc:OtherRevenueMember yumc:KFCMember 2019-01-01 2019-09-30 0001673358 yumc:OtherRevenueMember yumc:PizzaHutMember 2019-01-01 2019-09-30 0001673358 yumc:OtherRevenueMember us-gaap:AllOtherSegmentsMember 2019-01-01 2019-09-30 0001673358 yumc:OtherRevenueMember us-gaap:CorporateNonSegmentMember 2019-01-01 2019-09-30 0001673358 yumc:OtherRevenueMember yumc:OperatingSegmentsAndCorporateNonSegmentMember 2019-01-01 2019-09-30 0001673358 yumc:OtherRevenueMember us-gaap:IntersegmentEliminationMember 2019-01-01 2019-09-30 0001673358 us-gaap:OperatingSegmentsMember yumc:KFCMember 2019-01-01 2019-09-30 0001673358 us-gaap:OperatingSegmentsMember yumc:PizzaHutMember 2019-01-01 2019-09-30 0001673358 us-gaap:OperatingSegmentsMember us-gaap:AllOtherSegmentsMember 2019-01-01 2019-09-30 0001673358 us-gaap:CorporateNonSegmentMember 2019-01-01 2019-09-30 0001673358 yumc:OperatingSegmentsAndCorporateNonSegmentMember 2019-01-01 2019-09-30 0001673358 us-gaap:IntersegmentEliminationMember 2019-01-01 2019-09-30 0001673358 yumc:FoodAndNonFoodRevenuesFromSalesMember yumc:KFCMember 2018-01-01 2018-09-30 0001673358 yumc:FoodAndNonFoodRevenuesFromSalesMember yumc:PizzaHutMember 2018-01-01 2018-09-30 0001673358 yumc:FoodAndNonFoodRevenuesFromSalesMember us-gaap:AllOtherSegmentsMember 2018-01-01 2018-09-30 0001673358 yumc:FoodAndNonFoodRevenuesFromSalesMember yumc:OperatingSegmentsAndCorporateNonSegmentMember 2018-01-01 2018-09-30 0001673358 yumc:FranchiseFeesAndIncomeMember yumc:KFCMember 2018-01-01 2018-09-30 0001673358 yumc:FranchiseFeesAndIncomeMember yumc:PizzaHutMember 2018-01-01 2018-09-30 0001673358 yumc:FranchiseFeesAndIncomeMember us-gaap:AllOtherSegmentsMember 2018-01-01 2018-09-30 0001673358 yumc:FranchiseFeesAndIncomeMember yumc:OperatingSegmentsAndCorporateNonSegmentMember 2018-01-01 2018-09-30 0001673358 yumc:TransactionsWithFranchiseesAndUnconsolidatedAffiliatesMember yumc:KFCMember 2018-01-01 2018-09-30 0001673358 yumc:TransactionsWithFranchiseesAndUnconsolidatedAffiliatesMember yumc:PizzaHutMember 2018-01-01 2018-09-30 0001673358 yumc:TransactionsWithFranchiseesAndUnconsolidatedAffiliatesMember us-gaap:AllOtherSegmentsMember 2018-01-01 2018-09-30 0001673358 yumc:TransactionsWithFranchiseesAndUnconsolidatedAffiliatesMember us-gaap:CorporateNonSegmentMember 2018-01-01 2018-09-30 0001673358 yumc:TransactionsWithFranchiseesAndUnconsolidatedAffiliatesMember yumc:OperatingSegmentsAndCorporateNonSegmentMember 2018-01-01 2018-09-30 0001673358 yumc:OtherRevenueMember us-gaap:AllOtherSegmentsMember 2018-01-01 2018-09-30 0001673358 yumc:OtherRevenueMember us-gaap:CorporateNonSegmentMember 2018-01-01 2018-09-30 0001673358 yumc:OtherRevenueMember yumc:OperatingSegmentsAndCorporateNonSegmentMember 2018-01-01 2018-09-30 0001673358 yumc:OtherRevenueMember us-gaap:IntersegmentEliminationMember 2018-01-01 2018-09-30 0001673358 us-gaap:OperatingSegmentsMember yumc:KFCMember 2018-01-01 2018-09-30 0001673358 us-gaap:OperatingSegmentsMember yumc:PizzaHutMember 2018-01-01 2018-09-30 0001673358 us-gaap:OperatingSegmentsMember us-gaap:AllOtherSegmentsMember 2018-01-01 2018-09-30 0001673358 us-gaap:CorporateNonSegmentMember 2018-01-01 2018-09-30 0001673358 yumc:OperatingSegmentsAndCorporateNonSegmentMember 2018-01-01 2018-09-30 0001673358 us-gaap:IntersegmentEliminationMember 2018-01-01 2018-09-30 0001673358 2018-01-01 2018-12-31 0001673358 yumc:TrancheOneWarrantsMember 2017-01-09 0001673358 yumc:TrancheTwoWarrantsMember 2017-01-09 yumc:Tranche 0001673358 2017-01-08 2017-01-09 0001673358 us-gaap:CommonStockMember 2019-06-30 0001673358 us-gaap:AdditionalPaidInCapitalMember 2019-06-30 0001673358 us-gaap:RetainedEarningsMember 2019-06-30 0001673358 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-06-30 0001673358 us-gaap:TreasuryStockMember 2019-06-30 0001673358 us-gaap:NoncontrollingInterestMember 2019-06-30 0001673358 2019-06-30 0001673358 yumc:RedeemableNoncontrollingInterestMember 2019-06-30 0001673358 us-gaap:RetainedEarningsMember 2019-07-01 2019-09-30 0001673358 us-gaap:NoncontrollingInterestMember 2019-07-01 2019-09-30 0001673358 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-07-01 2019-09-30 0001673358 us-gaap:TreasuryStockMember 2019-07-01 2019-09-30 0001673358 us-gaap:AdditionalPaidInCapitalMember 2019-07-01 2019-09-30 0001673358 us-gaap:CommonStockMember 2019-09-30 0001673358 us-gaap:AdditionalPaidInCapitalMember 2019-09-30 0001673358 us-gaap:RetainedEarningsMember 2019-09-30 0001673358 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-09-30 0001673358 us-gaap:TreasuryStockMember 2019-09-30 0001673358 us-gaap:NoncontrollingInterestMember 2019-09-30 0001673358 yumc:RedeemableNoncontrollingInterestMember 2019-09-30 0001673358 us-gaap:CommonStockMember 2018-06-30 0001673358 us-gaap:AdditionalPaidInCapitalMember 2018-06-30 0001673358 us-gaap:RetainedEarningsMember 2018-06-30 0001673358 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-06-30 0001673358 us-gaap:TreasuryStockMember 2018-06-30 0001673358 us-gaap:NoncontrollingInterestMember 2018-06-30 0001673358 2018-06-30 0001673358 yumc:RedeemableNoncontrollingInterestMember 2018-06-30 0001673358 us-gaap:RetainedEarningsMember 2018-07-01 2018-09-30 0001673358 us-gaap:NoncontrollingInterestMember 2018-07-01 2018-09-30 0001673358 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-07-01 2018-09-30 0001673358 us-gaap:TreasuryStockMember 2018-07-01 2018-09-30 0001673358 us-gaap:AdditionalPaidInCapitalMember 2018-07-01 2018-09-30 0001673358 us-gaap:CommonStockMember 2018-09-30 0001673358 us-gaap:AdditionalPaidInCapitalMember 2018-09-30 0001673358 us-gaap:RetainedEarningsMember 2018-09-30 0001673358 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-09-30 0001673358 us-gaap:TreasuryStockMember 2018-09-30 0001673358 us-gaap:NoncontrollingInterestMember 2018-09-30 0001673358 yumc:RedeemableNoncontrollingInterestMember 2018-09-30 0001673358 us-gaap:CommonStockMember 2018-12-31 0001673358 us-gaap:AdditionalPaidInCapitalMember 2018-12-31 0001673358 us-gaap:RetainedEarningsMember 2018-12-31 0001673358 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-12-31 0001673358 us-gaap:TreasuryStockMember 2018-12-31 0001673358 us-gaap:NoncontrollingInterestMember 2018-12-31 0001673358 yumc:RedeemableNoncontrollingInterestMember 2018-12-31 0001673358 us-gaap:RetainedEarningsMember 2019-01-01 2019-09-30 0001673358 us-gaap:NoncontrollingInterestMember 2019-01-01 2019-09-30 0001673358 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-01-01 2019-09-30 0001673358 us-gaap:TreasuryStockMember 2019-01-01 2019-09-30 0001673358 us-gaap:CommonStockMember 2019-01-01 2019-09-30 0001673358 us-gaap:AdditionalPaidInCapitalMember 2019-01-01 2019-09-30 0001673358 us-gaap:CommonStockMember 2017-12-31 0001673358 us-gaap:AdditionalPaidInCapitalMember 2017-12-31 0001673358 us-gaap:RetainedEarningsMember 2017-12-31 0001673358 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2017-12-31 0001673358 us-gaap:TreasuryStockMember 2017-12-31 0001673358 us-gaap:NoncontrollingInterestMember 2017-12-31 0001673358 yumc:RedeemableNoncontrollingInterestMember 2017-12-31 0001673358 us-gaap:RetainedEarningsMember 2018-01-01 2018-09-30 0001673358 us-gaap:NoncontrollingInterestMember 2018-01-01 2018-09-30 0001673358 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-01-01 2018-09-30 0001673358 us-gaap:TreasuryStockMember 2018-01-01 2018-09-30 0001673358 us-gaap:CommonStockMember 2018-01-01 2018-09-30 0001673358 us-gaap:AdditionalPaidInCapitalMember 2018-01-01 2018-09-30 0001673358 2017-02-07 0001673358 2017-10-04 0001673358 2018-10-30 0001673358 yumc:MeituanDianpingMember 2018-09-30 0001673358 yumc:MeituanDianpingMember 2019-09-30 0001673358 yumc:MeituanDianpingMember 2019-07-01 2019-09-30 0001673358 yumc:MeituanDianpingMember 2019-01-01 2019-09-30 0001673358 2019-01-01 2019-03-31 0001673358 us-gaap:BuildingAndBuildingImprovementsMember 2019-09-30 0001673358 us-gaap:BuildingAndBuildingImprovementsMember 2018-12-31 0001673358 yumc:FinanceLeasesPrimarilyBuildingsMember 2019-09-30 0001673358 yumc:FinanceLeasesPrimarilyBuildingsMember 2018-12-31 0001673358 yumc:MachineryEquipmentAndConstructionInProgressMember 2019-09-30 0001673358 yumc:MachineryEquipmentAndConstructionInProgressMember 2018-12-31 0001673358 yumc:KFCMember 2018-12-31 0001673358 yumc:PizzaHutMember 2018-12-31 0001673358 us-gaap:AllOtherSegmentsMember 2018-12-31 0001673358 yumc:KFCMember 2019-09-30 0001673358 yumc:PizzaHutMember 2019-09-30 0001673358 us-gaap:AllOtherSegmentsMember 2019-09-30 0001673358 yumc:ReacquiredFranchiseRightsMember 2019-09-30 0001673358 yumc:DaojiaPlatformMember 2019-09-30 0001673358 yumc:CustomerRelatedAssetsMember 2019-09-30 0001673358 yumc:OtherDefiniteLivedIntangibleAssetsMember 2019-09-30 0001673358 yumc:ReacquiredFranchiseRightsMember 2018-12-31 0001673358 yumc:DaojiaPlatformMember 2018-12-31 0001673358 yumc:CustomerRelatedAssetsMember 2018-12-31 0001673358 yumc:OtherDefiniteLivedIntangibleAssetsMember 2018-12-31 0001673358 yumc:LittleSheepMember us-gaap:TrademarksMember 2019-09-30 0001673358 yumc:LittleSheepMember us-gaap:TrademarksMember 2018-12-31 yumc:Restaurant 0001673358 srt:MinimumMember 2019-01-01 2019-09-30 0001673358 srt:MaximumMember 2019-01-01 2019-09-30 0001673358 yumc:AccountsPayableAndOtherCurrentLiabilitiesMember 2018-12-31 0001673358 us-gaap:FairValueMeasurementsRecurringMember us-gaap:BankTimeDepositsMember 2019-09-30 0001673358 us-gaap:FairValueMeasurementsRecurringMember us-gaap:BankTimeDepositsMember us-gaap:FairValueInputsLevel2Member 2019-09-30 0001673358 us-gaap:FairValueMeasurementsRecurringMember us-gaap:MoneyMarketFundsMember 2019-09-30 0001673358 us-gaap:FairValueMeasurementsRecurringMember us-gaap:MoneyMarketFundsMember us-gaap:FairValueInputsLevel1Member 2019-09-30 0001673358 us-gaap:FairValueMeasurementsRecurringMember 2019-09-30 0001673358 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel1Member 2019-09-30 0001673358 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel2Member 2019-09-30 0001673358 us-gaap:FairValueMeasurementsRecurringMember yumc:InvestmentInEquitySecuritiesMember 2019-09-30 0001673358 us-gaap:FairValueMeasurementsRecurringMember yumc:InvestmentInEquitySecuritiesMember us-gaap:FairValueInputsLevel1Member 2019-09-30 0001673358 us-gaap:FairValueMeasurementsRecurringMember us-gaap:BankTimeDepositsMember 2018-12-31 0001673358 us-gaap:FairValueMeasurementsRecurringMember us-gaap:BankTimeDepositsMember us-gaap:FairValueInputsLevel2Member 2018-12-31 0001673358 us-gaap:FairValueMeasurementsRecurringMember us-gaap:MoneyMarketFundsMember 2018-12-31 0001673358 us-gaap:FairValueMeasurementsRecurringMember us-gaap:MoneyMarketFundsMember us-gaap:FairValueInputsLevel1Member 2018-12-31 0001673358 us-gaap:FairValueMeasurementsRecurringMember yumc:FixedRateDebtSecuritiesMember 2018-12-31 0001673358 us-gaap:FairValueMeasurementsRecurringMember yumc:FixedRateDebtSecuritiesMember us-gaap:FairValueInputsLevel1Member 2018-12-31 0001673358 us-gaap:FairValueMeasurementsRecurringMember 2018-12-31 0001673358 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel1Member 2018-12-31 0001673358 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel2Member 2018-12-31 0001673358 us-gaap:FairValueMeasurementsRecurringMember yumc:InvestmentInEquitySecuritiesMember 2018-12-31 0001673358 us-gaap:FairValueMeasurementsRecurringMember yumc:InvestmentInEquitySecuritiesMember us-gaap:FairValueInputsLevel1Member 2018-12-31 0001673358 us-gaap:FairValueMeasurementsNonrecurringMember us-gaap:FairValueInputsLevel3Member us-gaap:AccountingStandardsUpdate201602Member yumc:CumulativeAdjustmentToImpairmentOnROUDueToAdoptionOfNewAccountingPronouncementMember 2019-01-01 2019-09-30 0001673358 us-gaap:FairValueMeasurementsNonrecurringMember us-gaap:FairValueInputsLevel3Member us-gaap:AccountingStandardsUpdate201602Member yumc:ClosureAndImpairmentExpensesMember 2019-01-01 2019-09-30 0001673358 us-gaap:FairValueMeasurementsNonrecurringMember us-gaap:FairValueInputsLevel3Member yumc:ClosureAndImpairmentExpensesMember yumc:RestaurantsMember 2019-01-01 2019-09-30 0001673358 us-gaap:FairValueMeasurementsNonrecurringMember us-gaap:FairValueInputsLevel3Member yumc:ClosureAndImpairmentExpensesMember yumc:RestaurantsMember 2018-01-01 2018-09-30 0001673358 us-gaap:FairValueMeasurementsNonrecurringMember us-gaap:FairValueInputsLevel3Member 2019-01-01 2019-09-30 0001673358 us-gaap:FairValueMeasurementsNonrecurringMember us-gaap:FairValueInputsLevel3Member 2018-01-01 2018-09-30 0001673358 us-gaap:AccountingStandardsUpdate201602Member yumc:CumulativeAdjustmentToDeferredIncomeTaxExpensesDueToAdoptionOfNewAccountingPronouncementMember 2019-01-01 2019-09-30 0001673358 us-gaap:AccountingStandardsUpdate201602Member yumc:CumulativeAdjustmentToNetIncomeLossAttributableToNoncontrollingInterestDueToAdoptionOfNewAccountingPronouncementMember 2019-01-01 2019-09-30 0001673358 us-gaap:AccountingStandardsUpdate201602Member 2019-01-01 2019-09-30 yumc:Segment 0001673358 yumc:KFCMember 2019-07-01 2019-09-30 0001673358 yumc:PizzaHutMember 2019-07-01 2019-09-30 0001673358 us-gaap:AllOtherSegmentsMember 2019-07-01 2019-09-30 0001673358 us-gaap:OperatingSegmentsMember 2019-07-01 2019-09-30 0001673358 us-gaap:IntersegmentEliminationMember yumc:KFCMember 2019-07-01 2019-09-30 0001673358 us-gaap:IntersegmentEliminationMember us-gaap:AllOtherSegmentsMember 2019-07-01 2019-09-30 0001673358 yumc:KFCMember 2018-07-01 2018-09-30 0001673358 yumc:PizzaHutMember 2018-07-01 2018-09-30 0001673358 us-gaap:AllOtherSegmentsMember 2018-07-01 2018-09-30 0001673358 us-gaap:OperatingSegmentsMember 2018-07-01 2018-09-30 0001673358 us-gaap:IntersegmentEliminationMember us-gaap:AllOtherSegmentsMember 2018-07-01 2018-09-30 0001673358 us-gaap:AllOtherSegmentsMember 2019-01-01 2019-09-30 0001673358 us-gaap:OperatingSegmentsMember 2019-01-01 2019-09-30 0001673358 us-gaap:IntersegmentEliminationMember yumc:KFCMember 2019-01-01 2019-09-30 0001673358 us-gaap:IntersegmentEliminationMember us-gaap:AllOtherSegmentsMember 2019-01-01 2019-09-30 0001673358 yumc:KFCMember 2018-01-01 2018-09-30 0001673358 yumc:PizzaHutMember 2018-01-01 2018-09-30 0001673358 us-gaap:AllOtherSegmentsMember 2018-01-01 2018-09-30 0001673358 us-gaap:OperatingSegmentsMember 2018-01-01 2018-09-30 0001673358 us-gaap:IntersegmentEliminationMember us-gaap:AllOtherSegmentsMember 2018-01-01 2018-09-30 0001673358 yumc:KFCMember us-gaap:OperatingSegmentsMember 2019-09-30 0001673358 yumc:KFCMember us-gaap:OperatingSegmentsMember 2018-12-31 0001673358 yumc:PizzaHutMember us-gaap:OperatingSegmentsMember 2019-09-30 0001673358 yumc:PizzaHutMember us-gaap:OperatingSegmentsMember 2018-12-31 0001673358 us-gaap:AllOtherSegmentsMember us-gaap:OperatingSegmentsMember 2019-09-30 0001673358 us-gaap:AllOtherSegmentsMember us-gaap:OperatingSegmentsMember 2018-12-31 0001673358 us-gaap:CorporateNonSegmentMember 2019-09-30 0001673358 us-gaap:CorporateNonSegmentMember 2018-12-31 0001673358 2015-02-01 2015-02-28 0001673358 us-gaap:SubsequentEventMember 2019-10-29 2019-10-29 0001673358 us-gaap:SubsequentEventMember 2019-10-29

 

 

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, 2019

 

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

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 October 30, 2019 was 375,908,592 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, 2019 and 2018

3

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income – Quarters and Years to Date Ended September 30, 2019 and 2018

4

 

 

 

 

Condensed Consolidated Statements of Cash Flows – Years to Date Ended September 30, 2019 and 2018

5

 

 

 

 

Condensed Consolidated Balance Sheets – September 30, 2019 and December 31, 2018

6

 

 

 

 

Notes to Condensed Consolidated Financial Statements

7

 

 

 

 

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

30

 

 

 

 

Item 3 – Quantitative and Qualitative Disclosures About Market Risk

49

 

 

 

 

Item 4 – Controls and Procedures

49

 

 

 

Part II.

Other Information

 

 

 

 

 

Item 1 – Legal Proceedings

50

 

 

 

 

Item 1A – Risk Factors

50

 

 

 

 

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

50

 

 

 

 

Item 6 – Exhibits

51

 

 

 

 

Signatures

52

 

 

2


 

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

 

9/30/2019

 

 

9/30/2018

 

 

9/30/2019

 

 

9/30/2018

 

 

Company sales

 

$

2,097

 

 

$

2,008

 

 

$

6,112

 

 

$

5,912

 

 

Franchise fees and income

 

 

38

 

 

 

36

 

 

 

113

 

 

 

110

 

 

Revenues from transactions with franchisees and

   unconsolidated affiliates

 

 

172

 

 

 

159

 

 

 

496

 

 

 

461

 

 

Other revenues

 

 

12

 

 

 

9

 

 

 

26

 

 

 

18

 

 

Total revenues

 

 

2,319

 

 

 

2,212

 

 

 

6,747

 

 

 

6,501

 

 

Costs and Expenses, Net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company restaurants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Food and paper

 

 

651

 

 

 

610

 

 

 

1,896

 

 

 

1,775

 

 

Payroll and employee benefits

 

 

455

 

 

 

430

 

 

 

1,371

 

 

 

1,296

 

 

Occupancy and other operating expenses

 

 

619

 

 

 

615

 

 

 

1,804

 

 

 

1,841

 

 

Company restaurant expenses

 

 

1,725

 

 

 

1,655

 

 

 

5,071

 

 

 

4,912

 

 

General and administrative expenses

 

 

117

 

 

 

119

 

 

 

340

 

 

 

334

 

 

Franchise expenses

 

 

19

 

 

 

18

 

 

 

55

 

 

 

55

 

 

Expenses for transactions with franchisees and

   unconsolidated affiliates

 

 

167

 

 

 

156

 

 

 

488

 

 

 

454

 

 

Other operating costs and expenses

 

 

9

 

 

 

6

 

 

 

20

 

 

 

17

 

 

Closures and impairment (income) expenses, net

 

 

(1

)

 

 

(1

)

 

 

14

 

 

 

15

 

 

Other income, net

 

 

(17

)

 

 

(10

)

 

 

(48

)

 

 

(143

)

 

Total costs and expenses, net

 

 

2,019

 

 

 

1,943

 

 

 

5,940

 

 

 

5,644

 

 

Operating Profit

 

 

300

 

 

 

269

 

 

 

807

 

 

 

857

 

 

Interest income, net

 

 

10

 

 

 

10

 

 

 

29

 

 

 

28

 

 

Investment gain

 

 

12

 

 

 

 

 

 

39

 

 

 

 

 

Income Before Income Taxes

 

 

322

 

 

 

279

 

 

 

875

 

 

 

885

 

 

Income tax provision

 

 

(87

)

 

 

(67

)

 

 

(226

)

 

 

(227

)

 

Net income – including noncontrolling interests

 

 

235

 

 

 

212

 

 

 

649

 

 

 

658

 

 

Net income – noncontrolling interests

 

 

12

 

 

 

9

 

 

 

26

 

 

 

24

 

 

Net Income – Yum China Holdings, Inc.

 

$

223

 

 

$

203

 

 

$

623

 

 

$

634

 

 

Weighted-average common shares outstanding

   (in millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

377

 

 

 

384

 

 

 

378

 

 

 

386

 

 

Diluted

 

 

388

 

 

 

394

 

 

 

389

 

 

 

398

 

 

Basic Earnings Per Common Share

 

$

0.59

 

 

$

0.53

 

 

$

1.65

 

 

$

1.64

 

 

Diluted Earnings Per Common Share

 

$

0.58

 

 

$

0.51

 

 

$

1.60

 

 

$

1.59

 

 

 

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

 

 

9/30/2019

 

 

9/30/2018

 

 

9/30/2019

 

 

9/30/2018

Net income - including noncontrolling interests

 

$

235

 

 

$

212

 

 

$

649

 

 

$

658

 

 

Other comprehensive income, net of tax of nil:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(96

)

 

 

(98

)

 

 

(95

)

 

 

(156

)

 

Comprehensive income - including noncontrolling

   interests

 

 

139

 

 

 

114

 

 

 

554

 

 

 

502

 

 

Comprehensive income - noncontrolling interests

 

 

8

 

 

 

6

 

 

 

23

 

 

 

19

 

 

Comprehensive Income - Yum China Holdings, Inc.

 

$

131

 

 

$

108

 

 

$

531

 

 

$

483

 

 

 

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

 

 

 

9/30/2019

 

 

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,  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

 

 

 

 

 

 

 

 

 

 

Supplemental Cash Flow Data

 

 

 

 

 

 

 

 

Cash paid for income tax

 

 

185

 

 

 

157

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

5


 

Condensed Consolidated Balance Sheets

Yum China Holdings, Inc.

(in US$ millions)

 

 

 

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

 

 

 

 

Non-current finance lease liabilities

 

 

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

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

6


 

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Tabular amounts in US$ millions)

 

 

Note 1 – Description of the Business

 

Yum China Holdings, Inc. (“Yum China” and, together with its subsidiaries, the “Company,” “we,” “us” and “our”) was incorporated in Delaware on April 1, 2016. The Company separated from Yum! Brands, Inc. (“YUM” or the “Parent”) on October 31, 2016 (the “separation”), becoming an independent publicly traded company as a result of a pro rata distribution (the “distribution”) of all outstanding shares of Yum China common stock to shareholders of YUM. On October 31, 2016, YUM’s shareholders of record as of 5:00 p.m. Eastern Time on October 19, 2016 received one share of Yum China common stock for every one share of YUM common stock held as of the record date. Yum China’s common stock began trading “regular way” under the ticker symbol “YUMC” on the New York Stock Exchange on November 1, 2016.

 

The Company owns, franchises or has an ownership in entities that own and operate restaurants under the KFC, Pizza Hut, East Dawning, Little Sheep, Taco Bell and COFFii & JOY concepts (collectively, the “Concepts”). In connection with the separation of the Company from YUM, Yum! Restaurants Asia Pte. Ltd., a wholly-owned indirect subsidiary of YUM, and Yum Restaurants Consulting (Shanghai) Company Limited (“YCCL”), a wholly-owned indirect subsidiary of Yum China, entered into a 50-year master license agreement with automatic renewals for additional consecutive renewal terms of 50 years each, subject only to YCCL being in “good standing” and unless YCCL gives notice of its intent not to renew, for the exclusive right to use and sub-license the use of intellectual property owned by YUM and its subsidiaries for the development and operation of the KFC, Pizza Hut and, subject to achieving certain agreed-upon milestones, Taco Bell brands and their related marks and other intellectual property rights for restaurant services in the People’s Republic of China (the “PRC” or “China”), excluding Hong Kong, Taiwan and Macau. In exchange, we pay a license fee to YUM equal to 3% of net system sales from both our Company and franchise restaurants.

 

We own the intellectual property of East Dawning, Little Sheep and COFFii & JOY and pay no license fee related to these Concepts.

 

The Company also owns a controlling interest in the holding company of DAOJIA.com.cn (“Daojia”), an established online food delivery service provider in China.

 

In addition, the Company started a new e-commerce business in 2017, offering a wide selection of products including electronics, home and kitchen accessories, and other general merchandise to customers directly through the Company’s e-commerce platform.

 

Note 2 – Basis of Presentation

 

Our preparation of the accompanying Condensed Consolidated Financial Statements in conformity with Generally Accepted Accounting Principles in the United States of America (“GAAP”) requires us to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

7


 

 

We have prepared the Condensed Consolidated Financial Statements in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The Condensed Consolidated Financial Statements include all normal and recurring adjustments considered necessary to present fairly our financial position as of September 30, 2019, results of our operations and comprehensive income for the quarters and years to date ended September 30, 2019 and 2018, and cash flows for the years to date ended September 30, 2019 and 2018. Our results of operations, comprehensive income and cash flows for these interim periods are not necessarily indicative of the results to be expected for the full year. These statements should be read in conjunction with the consolidated financial statements and notes thereto defined and included in the Company’s Annual Report on Form 10-K as filed with the SEC on February 27, 2019.

 

Through the acquisition of Daojia in 2017, the Company also acquired a variable interest entity (“VIE”) and subsidiaries of the VIE effectively controlled by Daojia. There exists a parent-subsidiary relationship between Daojia and its VIE as a result of certain exclusive agreements that require Daojia to consolidate its VIE and subsidiaries of the VIE because Daojia is the primary beneficiary that possesses the power to direct the activities of the VIE that most significantly impact its economic performance and has the obligation to absorb substantially all of the profits and all of the expected losses of the VIE. The acquired VIE and its subsidiaries were considered immaterial, both individually and in the aggregate. The results of Daojia’s operations have been included in the Company’s Condensed Consolidated Financial Statements since the acquisition date.

 

During the first quarter of 2018, the Company completed the acquisition of an additional 36% equity interest in an unconsolidated affiliate that operates KFC stores in Wuxi, China (“Wuxi KFC”), for cash consideration of approximately $98 million, increasing the Company’s equity interest to 83%, allowing the Company to consolidate the entity. The acquisition was considered immaterial. We began consolidating Wuxi KFC upon the completion of acquisition.

 

Recently Adopted Accounting Pronouncements

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) (“ASU 2016-02” or “ASC 842”), which increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The FASB subsequently issued amendments to clarify the implementation guidance. The Company adopted these standards on January 1, 2019, using a modified retrospective method for leases that exist at, or are entered into after, January 1, 2019, and has not recast the comparative periods presented in the Condensed Consolidated Financial Statements. Additionally, we elected the package of practical expedients that allowed us to not reassess: (1) whether any expired or existing contracts are or contain leases, (2) lease classification for any expired or existing leases and (3) initial direct costs for any expired or existing leases. We also elected the hindsight practical expedient to determine the reasonably certain lease term for existing leases.

 

Upon the adoption of ASC 842, the Company recognized right-of-use (“ROU”) assets and lease liabilities of approximately $2.0 billion and $2.2 billion, respectively, for operating leases of the land and/or building of our restaurants and office spaces based on the present value of lease payments over the lease term. In addition, an impairment charge of $60 million (net of related impact on deferred taxes and noncontrolling interests) on ROU assets arising from existing operating leases as of January 1, 2019 was recorded as an adjustment to retained earnings, as the additional impairment charge would have been recorded before adoption had the operating lease ROU assets been recognized at the time of impairment.

 

8


 

The following table summarizes the effect on the Consolidated Balance Sheet as a result of adopting ASC 842.

 

 

 

December 31, 2018

 

 

Effect of adoption

 

 

January 1, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,266

 

 

 

 

 

 

$

1,266

 

 

Short-term investments

 

 

122

 

 

 

 

 

 

 

122

 

 

Accounts receivable, net

 

 

80

 

 

 

 

 

 

 

80

 

 

Inventories, net

 

 

307

 

 

 

 

 

 

 

307

 

 

Prepaid expenses and other current assets

 

 

177

 

 

 

(39

)

(a)

 

138

 

 

Total Current Assets

 

 

1,952

 

 

 

(39

)

 

 

1,913

 

 

Property, plant and equipment, net

 

 

1,615

 

 

 

(1

)

 

 

1,614

 

 

Operating lease right-of-use assets

 

 

 

 

 

1,997

 

(b)

 

1,997

 

 

Goodwill

 

 

266

 

 

 

 

 

 

 

266

 

 

Intangible assets, net

 

 

116

 

 

 

(2

)

(c)

 

114

 

 

Deferred income taxes

 

 

89

 

 

 

19

 

(d)

 

108

 

 

Investments in unconsolidated affiliates

 

 

81

 

 

 

(1

)

 

 

80

 

 

Other assets

 

 

491

 

 

 

(4

)

(c)

 

487

 

 

Total Assets

 

$

4,610

 

 

$

1,969

 

 

$

6,579

 

 

LIABILITIES, REDEEMABLE NONCONTROLLING

   INTEREST AND EQUITY