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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2021

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ____________ to _________________

 

Commission file number 001-37762

 

 

Yum China Holdings, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware

 

81-2421743

(State or Other Jurisdiction of

 

(I.R.S. Employer

Incorporation or Organization)

 

Identification No.)

 

 

 

7100 Corporate Drive

Plano, Texas 75024

United States of America

 

Yum China Building

20 Tian Yao Qiao Road

Shanghai  200030

People’s Republic of China

 

(Address, Including Zip Code, of Principal Executive Offices)

(469) 980-2898

(Registrant’s Telephone Number, Including Area Code)

Not Applicable

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

YUMC

  New York Stock Exchange

9987

The Stock Exchange of Hong Kong Limited

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

 

 

 

Non-accelerated filer

 

  

  

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  No 

The number of shares outstanding of the registrant’s common stock as of November 3, 2021 was 428,126,907 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, 2021 and 2020 (Unaudited)

3

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income – Quarters and Years to Date Ended September 30, 2021 and 2020 (Unaudited)

4

 

 

 

 

Condensed Consolidated Statements of Cash Flows – Years to Date Ended September 30, 2021 and 2020 (Unaudited)

5

 

 

 

 

Condensed Consolidated Balance Sheets – September 30, 2021 (Unaudited) and December 31, 2020

6

 

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

7

 

 

 

 

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

31

 

 

 

 

Item 3 – Quantitative and Qualitative Disclosures About Market Risk

52

 

 

 

 

Item 4 – Controls and Procedures

52

 

 

 

Part II.

Other Information

 

 

 

 

 

Item 1 – Legal Proceedings

53

 

 

 

 

Item 1A – Risk Factors

53

 

 

 

 

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

53

 

 

 

 

Item 6 – Exhibits

54

 

 

 

 

Signatures

55

 

 

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

 

9/30/2021

 

 

9/30/2020

 

 

9/30/2021

 

 

9/30/2020

 

 

Company sales

 

$

2,310

 

 

$

2,118

 

 

$

6,874

 

 

$

5,358

 

 

Franchise fees and income

 

 

40

 

 

 

40

 

 

 

120

 

 

 

112

 

 

Revenues from transactions with

   franchisees and unconsolidated affiliates

 

 

184

 

 

 

170

 

 

 

519

 

 

 

488

 

 

Other revenues

 

 

20

 

 

 

20

 

 

 

49

 

 

 

46

 

 

Total revenues

 

 

2,554

 

 

 

2,348

 

 

 

7,562

 

 

 

6,004

 

 

Costs and Expenses, Net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company restaurants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Food and paper

 

 

743

 

 

 

660

 

 

 

2,133

 

 

 

1,711

 

 

Payroll and employee benefits

 

 

591

 

 

 

458

 

 

 

1,675

 

 

 

1,236

 

 

Occupancy and other operating expenses

 

 

694

 

 

 

606

 

 

 

1,995

 

 

 

1,621

 

 

Company restaurant expenses

 

 

2,028

 

 

 

1,724

 

 

 

5,803

 

 

 

4,568

 

 

General and administrative expenses

 

 

142

 

 

 

127

 

 

 

408

 

 

 

339

 

 

Franchise expenses

 

 

17

 

 

 

17

 

 

 

50

 

 

 

50

 

 

Expenses for transactions with

   franchisees and unconsolidated affiliates

 

 

180

 

 

 

164

 

 

 

509

 

 

 

480

 

 

Other operating costs and expenses

 

 

17

 

 

 

15

 

 

 

41

 

 

 

38

 

 

Closures and impairment expenses, net

 

 

2

 

 

 

1

 

 

 

13

 

 

 

30

 

 

Other income, net

 

 

(10

)

 

 

(256

)

 

 

(15

)

 

 

(282

)

 

Total costs and expenses, net

 

 

2,376

 

 

 

1,792

 

 

 

6,809

 

 

 

5,223

 

 

Operating Profit

 

 

178

 

 

 

556

 

 

 

753

 

 

 

781

 

 

Interest income, net

 

 

16

 

 

 

11

 

 

 

47

 

 

 

28

 

 

Investment (loss) gain

 

 

(39

)

 

 

38

 

 

 

(43

)

 

 

75

 

 

Income Before Income Taxes

 

 

155

 

 

 

605

 

 

 

757

 

 

 

884

 

 

Income tax provision

 

 

(44

)

 

 

(155

)

 

 

(210

)

 

 

(232

)

 

Net income – including noncontrolling interests

 

 

111

 

 

 

450

 

 

 

547

 

 

 

652

 

 

Net income – noncontrolling interests

 

 

7

 

 

 

11

 

 

 

32

 

 

 

19

 

 

Net Income – Yum China Holdings, Inc.

 

$

104

 

 

$

439

 

 

$

515

 

 

$

633

 

 

Weighted-average common shares outstanding

(in millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

422

 

 

 

387

 

 

 

421

 

 

 

380

 

 

Diluted

 

 

435

 

 

 

400

 

 

 

435

 

 

 

391

 

 

Basic Earnings Per Common Share

 

$

0.25

 

 

$

1.13

 

 

$

1.23

 

 

$

1.67

 

 

Diluted Earnings Per Common Share

 

$

0.24

 

 

$

1.10

 

 

$

1.19

 

 

$

1.62

 

 

 

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

 

 

9/30/2021

 

 

9/30/2020

 

 

9/30/2021

 

 

9/30/2020

Net income - including noncontrolling interests

 

$

111

 

 

$

450

 

 

$

547

 

 

$

652

 

 

Other comprehensive income, net of tax of nil:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

10

 

 

 

123

 

 

 

50

 

 

 

88

 

 

Comprehensive income - including noncontrolling interests

 

 

121

 

 

 

573

 

 

 

597

 

 

 

740

 

 

Comprehensive income - noncontrolling interests

 

 

9

 

 

 

17

 

 

 

36

 

 

 

23

 

 

Comprehensive Income - Yum China Holdings, Inc.

 

$

112

 

 

$

556

 

 

$

561

 

 

$

717

 

 

 

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

 

 

 

 

9/30/2021

 

 

9/30/2020

 

 

Cash Flows – Operating Activities

 

 

 

 

 

 

 

 

 

Net income – including noncontrolling interests

 

$

547

 

 

$

652

 

 

Depreciation and amortization

 

 

380

 

 

 

327

 

 

Non-cash operating lease cost

 

 

310

 

 

 

270

 

 

Closures and impairment expenses

 

 

13

 

 

 

30

 

 

Gain from re-measurement of previously held equity interest

 

 

(10

)

 

 

(239

)

 

Investment loss (gain)

 

 

43

 

 

 

(75

)

 

Equity income from investments in unconsolidated affiliates

 

 

(38

)

 

 

(51

)

 

Distributions of income received from unconsolidated affiliates

 

 

21

 

 

 

25

 

 

Deferred income taxes

 

 

17

 

 

 

73

 

 

Share-based compensation expense

 

 

32

 

 

 

27

 

 

Changes in accounts receivable

 

 

2

 

 

 

(19

)

 

Changes in inventories

 

 

13

 

 

 

52

 

 

Changes in prepaid expenses and other current assets

 

 

 

 

 

31

 

 

Changes in accounts payable and other current liabilities

 

 

82

 

 

 

56

 

 

Changes in income taxes payable

 

 

(5

)

 

 

62

 

 

Changes in non-current operating lease liabilities

 

 

(309

)

 

 

(292

)

 

Other, net

 

 

(24

)

 

 

(30

)

 

Net Cash Provided by Operating Activities

 

 

1,074

 

 

 

899

 

 

Cash Flows – Investing Activities

 

 

 

 

 

 

 

 

 

Capital spending

 

 

(482

)

 

 

(284

)

 

Purchases of short-term investments

 

 

(4,524

)

 

 

(2,859

)

 

Purchases of long-term time deposits

 

 

(25

)

 

 

(57

)

 

Maturities of short-term investments

 

 

4,544

 

 

 

1,066

 

 

Contribution to unconsolidated affiliates

 

 

 

 

 

(17

)

 

Acquisition of business, net of cash acquired

 

 

 

 

 

(288

)

 

Investment in equity securities

 

 

(261

)

 

 

 

 

Disposal of equity securities

 

 

 

 

 

54

 

 

Other, net

 

 

5

 

 

 

52

 

 

Net Cash Used in Investing Activities

 

 

(743

)

 

 

(2,333

)

 

Cash Flows – Financing Activities

 

 

 

 

 

 

 

 

 

Common stock issuance proceeds, net of issuance costs

 

 

 

 

 

2,203

 

 

Repurchase of shares of common stock

 

 

(32

)

 

 

(8

)

 

Cash dividends paid on common stock

 

 

(152

)

 

 

(45

)

 

Dividends paid to noncontrolling interests

 

 

(22

)

 

 

(7

)

 

Payment of acquisition related holdback

 

 

(8

)

 

 

 

 

Other, net

 

 

(6

)

 

 

1

 

 

Net Cash (Used in) Provided by Financing Activities

 

 

(220

)

 

 

2,144

 

 

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

 

 

9

 

 

 

17

 

 

Net Increase in Cash, Cash Equivalents and Restricted Cash

 

 

120

 

 

 

727

 

 

Cash, Cash Equivalents and Restricted Cash - Beginning of Period

 

 

1,158

 

 

 

1,055

 

 

Cash, Cash Equivalents and Restricted Cash - End of Period

 

$

1,278

 

 

$

1,782

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental Cash Flow Data

 

 

 

 

 

 

 

 

 

Cash paid for income tax

 

 

210

 

 

 

105

 

 

Non-cash Investing and Financing Activities

 

 

 

 

 

 

 

 

 

Capital expenditures included in accounts payable and other current liabilities

 

 

208

 

 

 

148

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

5


 

 

Condensed Consolidated Balance Sheets

Yum China Holdings, Inc.

(in US$ millions)

 

 

 

9/30/2021

 

 

12/31/2020

 

 

 

 

(Unaudited)

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,278

 

 

$

1,158

 

 

Short-term investments

 

 

3,099

 

 

 

3,105

 

 

Accounts receivable, net

 

 

97

 

 

 

99

 

 

Inventories, net

 

 

390

 

 

 

398

 

 

Prepaid expenses and other current assets

 

 

218

 

 

 

176

 

 

Total Current Assets

 

 

5,082

 

 

 

4,936

 

 

Property, plant and equipment, net

 

 

1,910

 

 

 

1,765

 

 

Operating lease right-of-use assets

 

 

2,287

 

 

 

2,164

 

 

Goodwill

 

 

858

 

 

 

832

 

 

Intangible assets, net

 

 

218

 

 

 

246

 

 

Deferred income tax assets

 

 

68

 

 

 

98

 

 

Investments in unconsolidated affiliates

 

 

309

 

 

 

85

 

 

Other assets

 

 

774

 

 

 

749

 

 

Total Assets

 

$

11,506

 

 

$

10,875

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND EQUITY

 

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

 

Accounts payable and other current liabilities

 

$

2,126

 

 

$

1,995

 

 

Income taxes payable

 

 

68

 

 

 

72

 

 

Total Current Liabilities

 

 

2,194

 

 

 

2,067

 

 

Non-current operating lease liabilities

 

 

2,014

 

 

 

1,915

 

 

Non-current finance lease liabilities

 

 

34

 

 

 

28

 

 

Deferred income tax liabilities

 

 

217

 

 

 

227

 

 

Other liabilities

 

 

170

 

 

 

167

 

 

Total Liabilities

 

 

4,629

 

 

 

4,404

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable Noncontrolling Interest

 

 

12

 

 

 

12

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

 

Common stock, $0.01 par value; 1,000 million shares authorized; 444 million shares and 440 million shares issued at September 30, 2021 and December 31, 2020, respectively; 424 million shares and 420 million shares outstanding at September 30, 2021 and December 31, 2020, respectively

 

 

4

 

 

 

4

 

 

Treasury stock

 

 

(762

)

 

 

(728

)

 

Additional paid-in capital

 

 

4,685

 

 

 

4,658

 

 

Retained earnings

 

 

2,468

 

 

 

2,105

 

 

Accumulated other comprehensive income

 

 

213

 

 

 

167

 

 

Total Yum China Holdings, Inc. Stockholders' Equity

 

 

6,608

 

 

 

6,206

 

 

Noncontrolling interests

 

 

257

 

 

 

253

 

 

Total Equity

 

 

6,865

 

 

 

6,459

 

 

Total Liabilities, Redeemable Noncontrolling Interest and Equity

 

$

11,506

 

 

$

10,875