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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 June 30, 2023

 

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.)

 

 

 

101 East Park Boulevard, Suite 805

Plano, Texas 75074

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 August 3, 2023 was 416,854,531 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 June 30, 2023 and 2022 (Unaudited)

3

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income – Quarters and Years to Date Ended June 30, 2023 and 2022 (Unaudited)

4

 

 

 

 

Condensed Consolidated Statements of Cash Flows – Years to Date Ended June 30, 2023 and 2022 (Unaudited)

5

 

 

 

 

Condensed Consolidated Balance Sheets – June 30, 2023 (Unaudited) and December 31, 2022

6

 

 

 

 

Condensed Consolidated Statements of Equity – Quarters and Years to Date Ended June 30, 2023 and 2022 (Unaudited)

7

 

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

9

 

 

 

 

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

26

 

 

 

 

Item 3 – Quantitative and Qualitative Disclosures About Market Risk

43

 

 

 

 

Item 4 – Controls and Procedures

43

 

 

 

Part II.

Other Information

 

 

 

 

 

Item 1 – Legal Proceedings

45

 

 

 

 

Item 1A – Risk Factors

45

 

 

 

 

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

45

 

 

 

 

Item 6 – Exhibits

46

 

 

 

 

Signatures

47

 

 

 


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

 

6/30/2023

 

 

6/30/2022

 

 

6/30/2023

 

 

6/30/2022

 

Company sales

 

$

2,517

 

 

$

2,026

 

 

$

5,289

 

 

$

4,574

 

Franchise fees and income

 

 

21

 

 

 

19

 

 

 

46

 

 

 

43

 

Revenues from transactions with franchisees

 

 

89

 

 

 

62

 

 

 

182

 

 

 

139

 

Other revenues

 

 

27

 

 

 

21

 

 

 

54

 

 

 

40

 

Total revenues

 

 

2,654

 

 

 

2,128

 

 

 

5,571

 

 

 

4,796

 

Costs and Expenses, Net

 

 

 

 

 

 

 

 

 

 

 

 

Company restaurants

 

 

 

 

 

 

 

 

 

 

 

 

Food and paper

 

 

773

 

 

 

627

 

 

 

1,608

 

 

 

1,419

 

Payroll and employee benefits

 

 

665

 

 

 

549

 

 

 

1,348

 

 

 

1,216

 

Occupancy and other operating expenses

 

 

675

 

 

 

605

 

 

 

1,366

 

 

 

1,343

 

Company restaurant expenses

 

 

2,113

 

 

 

1,781

 

 

 

4,322

 

 

 

3,978

 

General and administrative expenses

 

 

153

 

 

 

141

 

 

 

316

 

 

 

292

 

Franchise expenses

 

 

9

 

 

 

8

 

 

 

19

 

 

 

18

 

Expenses for transactions with franchisees

 

 

84

 

 

 

61

 

 

 

175

 

 

 

136

 

Other operating costs and expenses

 

 

24

 

 

 

18

 

 

 

48

 

 

 

35

 

Closures and impairment expenses, net

 

 

14

 

 

 

14

 

 

 

17

 

 

 

16

 

Other expenses, net

 

 

 

 

 

24

 

 

 

1

 

 

 

49

 

Total costs and expenses, net

 

 

2,397

 

 

 

2,047

 

 

 

4,898

 

 

 

4,524

 

Operating Profit

 

 

257

 

 

 

81

 

 

 

673

 

 

 

272

 

Interest income, net

 

 

40

 

 

 

14

 

 

 

78

 

 

 

26

 

Investment (loss) gain

 

 

(11

)

 

 

20

 

 

 

(28

)

 

 

(17

)

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

 

 

286

 

 

 

115

 

 

 

723

 

 

 

281

 

Income tax provision

 

 

(71

)

 

 

(31

)

 

 

(196

)

 

 

(86

)

Equity in net earnings (losses) from equity method investments

 

 

(1

)

 

 

(1

)

 

 

 

 

 

(2

)

Net income – including noncontrolling interests

 

 

214

 

 

 

83

 

 

 

527

 

 

 

193

 

Net income – noncontrolling interests

 

 

17

 

 

 

 

 

 

41

 

 

 

10

 

Net Income – Yum China Holdings, Inc.

 

$

197

 

 

$

83

 

 

$

486

 

 

$

183

 

Weighted-average common shares outstanding (in millions):

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

418

 

 

 

421

 

 

 

418

 

 

 

423

 

Diluted

 

 

422

 

 

 

424

 

 

 

423

 

 

 

427

 

Basic Earnings Per Common Share

 

$

0.47

 

 

$

0.20

 

 

$

1.16

 

 

$

0.43

 

Diluted Earnings Per Common Share

 

$

0.47

 

 

$

0.20

 

 

$

1.15

 

 

$

0.43

 

 

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

 

 

 

 

6/30/2023

 

 

6/30/2022

 

 

6/30/2023

 

 

6/30/2022

 

 

Net income – including noncontrolling interests

 

$

214

 

 

$

83

 

 

$

527

 

 

$

193

 

 

Other comprehensive loss, net of tax of nil:

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(259

)

 

 

(280

)

 

 

(245

)

 

 

(267

)

 

Comprehensive (loss) income – including noncontrolling interests

 

 

(45

)

 

 

(197

)

 

 

282

 

 

 

(74

)

 

Comprehensive (loss) income – noncontrolling interests

 

 

(17

)

 

 

(41

)

 

 

9

 

 

 

(29

)

 

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

 

$

(28

)

 

$

(156

)

 

$

273

 

 

$

(45

)

 

 

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

 

 

6/30/2023

 

6/30/2022

 Cash Flows – Operating Activities

 

 

 

 

 

 

 

 

 Net income – including noncontrolling interests

 

$

527

 

 

 

$

193

 

 

 Depreciation and amortization

 

 

228

 

 

 

 

317

 

 Non-cash operating lease cost

 

 

202

 

 

 

 

230

 

 

 Closures and impairment expenses

 

 

17

 

 

 

 

16

 

 

 Investment loss

 

 

28

 

 

 

 

17

 

 

 Equity in net (earnings) losses from equity method investments

 

 

 

 

 

 

2

 

 

 Distributions of income received from equity method investments

 

 

8

 

 

 

 

 

 

 Deferred income taxes

 

 

13

 

 

 

 

(7

)

 

 Share-based compensation expense

 

 

29

 

 

 

 

21

 

 

 Changes in accounts receivable

 

 

2

 

 

 

 

(17

)

 

 Changes in inventories

 

 

1

 

 

 

 

59

 

 

 Changes in prepaid expenses, other current assets and VAT assets

 

 

19

 

 

 

 

24

 

 

 Changes in accounts payable and other current liabilities

 

 

54

 

 

 

 

(51

)

 

 Changes in income taxes payable

 

 

25

 

 

 

 

6

 

 

 Changes in non-current operating lease liabilities

 

 

(193

)

 

 

 

(198

)

 

 Other, net

 

 

(36

)

 

 

 

(3

)

 

 Net Cash Provided by Operating Activities

 

 

924

 

 

 

 

609

 

 

 Cash Flows – Investing Activities

 

 

 

 

 

 

 

 

 Capital spending

 

 

(332

)

 

 

 

(347

)

 

 Purchases of short-term investments, long-term bank deposits and notes

 

 

(2,172

)

 

 

 

(2,145

)

 

 Maturities of short-term investments, long-term bank deposits and notes

 

 

1,904

 

 

 

 

2,461

 

 

 Acquisition of business, net of cash acquired

 

 

 

 

 

 

(23

)

 

 Other, net

 

 

2

 

 

 

 

2

 

 

 Net Cash Used in Investing Activities

 

 

(598

)

 

 

 

(52

)

 

 Cash Flows – Financing Activities

 

 

 

 

 

 

 

 

 Repurchase of shares of common stock

 

 

(122

)

 

 

 

(400

)

 

 Cash dividends paid on common stock

 

 

(108

)

 

 

 

(101

)

 

 Dividends paid to noncontrolling interests

 

 

(28

)

 

 

 

(23

)

 

 Contributions from noncontrolling interests

 

 

35

 

 

 

 

18

 

 

 Payment of acquisition related holdback

 

 

(3

)

 

 

 

(6

)

 

 Other, net

 

 

(4

)

 

 

 

(1

)

 

 Net Cash Used in Financing Activities

 

 

(230

)

 

 

 

(513

)

 

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

 

 

(37

)

 

 

 

(33

)

 

 Net Increase in Cash, Cash Equivalents and Restricted Cash

 

 

59

 

 

 

 

11

 

 

 Cash, Cash Equivalents, and Restricted Cash - Beginning of Period

 

 

1,130

 

 

 

 

1,136

 

 

 Cash, Cash Equivalents, and Restricted Cash - End of Period

 

$

1,189

 

 

 

$

1,147

 

 

 

Supplemental Cash Flow Data

 

 

 

 

 

 

Cash paid for income tax

 

 

175

 

 

 

93

 

Non-cash Investing and Financing Activities

 

 

 

 

 

 

Capital expenditures included in accounts payable and other current liabilities

 

 

153

 

 

 

141

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

5


Condensed Consolidated Balance Sheets

Yum China Holdings, Inc.

(in US$ millions)

 

 

 

6/30/2023

 

 

12/31/2022

 

 

 

(Unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,189

 

 

$

1,130

 

Short-term investments

 

 

1,762

 

 

 

2,022

 

Accounts receivable, net

 

 

59

 

 

 

64

 

Inventories, net

 

 

396

 

 

 

417

 

Prepaid expenses and other current assets

 

 

281

 

 

 

307

 

Total Current Assets

 

 

3,687

 

 

 

3,940

 

Property, plant and equipment, net

 

 

2,049

 

 

 

2,118

 

Operating lease right-of-use assets

 

 

2,066

 

 

 

2,219

 

Goodwill

 

 

1,891

 

 

 

1,988

 

Intangible assets, net

 

 

148

 

 

 

159

 

Long-term bank deposits and notes

 

 

1,179

 

 

 

680

 

Equity investments

 

 

323

 

 

 

361

 

Deferred income tax assets

 

 

72

 

 

 

113

 

Other assets

 

 

260

 

 

 

248

 

Total Assets

 

 

11,675

 

 

 

11,826

 

 

 

 

 

 

 

 

LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND EQUITY

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

Accounts payable and other current liabilities

 

 

2,064

 

 

 

2,098

 

Income taxes payable

 

 

88

 

 

 

68

 

Total Current Liabilities

 

 

2,152

 

 

 

2,166

 

Non-current operating lease liabilities

 

 

1,773

 

 

 

1,906

 

Non-current finance lease liabilities

 

 

41

 

 

 

42

 

Deferred income tax liabilities

 

 

350

 

 

 

390

 

Other liabilities

 

 

142

 

 

 

162

 

Total Liabilities