yumc-8k_20181030.htm

 

 

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 30, 2018

 

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))

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 30, 2018, Yum China Holdings, Inc. issued a press release announcing its unaudited results for the quarter ended September 30, 2018. 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 30, 2018.

 

 


 

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/ Shella Ng

 

 

 

 

Name:

 

Shella Ng

 

 

 

 

Title:

 

Chief Legal Officer and Corporate Secretary

Date: October 30, 2018

 

 

 

 

 

 

 

 

yumc-ex991_6.htm

Exhibit 99.1

Yum China Reports Third Quarter 2018 Results

 

Total Revenues and Total System Sales* Grew 4% year over year
Share Repurchase Authorization Increased by $850 million to an Aggregate of $1.4 billion

 

Shanghai, China (October 31, 2018) – Yum China Holdings, Inc. (the "Company" or "Yum China") (NYSE: YUMC) today reported unaudited results for the third quarter ended September 30, 2018. 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 4% year over year to $2.2 billion from $2.1 billion (6% year over year increase excluding foreign currency translation (“F/X”)).

 

Total system sales grew 4% year over year, with 6% growth at KFC partially offset by 2% decline at Pizza Hut, excluding F/X.

 

Same-store sales declined 1% year over year, with a 1% increase at KFC and a 5% decrease at Pizza Hut, excluding F/X.

 

Restaurant margin was 17.6%, as compared with 18.0% in the prior year period.

 

Operating Profit increased 2% year over year to $269 million from $264 million (4% year over year increase excluding F/X).

 

Net Income increased 15% to $203 million from $176 million in the prior year period (17% year over year increase excluding F/X).

 

Effective tax rate was 24.2%.

 

Diluted EPS increased 16% to $0.51 from $0.44 in the prior year period (18% year over year increase excluding F/X).

 

Opened 195 new restaurants during the quarter, bringing total store count to 8,313 across more than 1,200 cities.

 

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 18, 2018 to stockholders of record as of the close of business on November 27, 2018.

 

During the third quarter, we repurchased approximately 2.7 million shares of Yum China common stock for $93.7 million at an average price of $35.14 per share.

 

In October 2018, the Board of Directors increased Yum China’s existing share repurchase authorization from $550 million to an aggregate of $1.4 billion.

 

Recent Development

 

As of today, the Company has repurchased approximately 11.3 million shares for $406 million, including 3.4 million shares for $110 million in October 2018. There is approximately $1 billion remaining under the new share repurchase authorization.

 

 

 

 

 

 

 

 

* System sales growth rate excludes the impact of F/X

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

 


Key Financial Results

 

 

 

Third Quarter 2018

 

 

Year to Date Ended 9/30/2018

 

 

 

 

 

% Change

 

 

% Change

 

 

 

 

 

System

Sales

 

Same-Store

Sales

 

Net New Units

 

Operating

Profit

 

 

System

Sales

 

Same-Store

Sales

 

Net New Units

 

Operating

Profit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Yum China

 

+4

 

(1)

 

+6

 

+2

 

 

+4

 

-

 

+6

 

+17

 

 

 

KFC

 

+6

 

+1

 

+8

 

+3

 

 

+6

 

+2

 

+8

 

+11

 

 

 

Pizza Hut

 

(2)

 

(5)

 

+3

 

-

 

 

(1)

 

(5)

 

+3

 

(38)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Third Quarter

 

 

Year to Date Ended 9/30

 

 

(in US$ million, except

 

 

 

 

 

 

 

 

 

% Change

 

 

 

 

 

 

 

 

 

 

% Change

 

 

for per share data and percentages)

 

2018

 

 

2017

 

 

Reported

 

Ex F/X

 

 

2018

 

 

2017

 

 

Reported

 

Ex F/X

 

 

Operating Profit

 

$

269

 

 

$

264

 

 

2

 

4

 

 

$

857

 

 

$

731

 

 

17

 

 

12

 

 

Adjusted Operating Profit1

 

$

269

 

 

$

261

 

 

3

 

4

 

 

$

759

 

 

$

728

 

 

4

 

 

(1)

 

 

Net Income

 

$

203

 

 

$

176

 

 

15

 

17

 

 

$

634

 

 

$

505

 

 

26

 

 

19

 

 

Basic Earnings Per Common

   Share

 

$

0.53

 

 

$

0.46

 

 

15

 

15

 

 

$

1.64

 

 

$

1.30

 

 

26

 

 

20

 

 

Adjusted Basic Earnings Per

   Common Share1

 

$

0.53

 

 

$

0.45

 

 

18

 

18

 

 

$

1.45

 

 

$

1.30

 

 

12

 

 

6

 

 

Diluted Earnings Per Common

   Share

 

$

0.51

 

 

$

0.44

 

 

16

 

18

 

 

$

1.59

 

 

$

1.27

 

 

25

 

 

19

 

 

Adjusted Diluted Earnings Per

   Common Share1

 

$

0.51

 

 

$

0.43

 

 

19

 

21

 

 

$

1.41

 

 

$

1.26

 

 

12

 

 

6

 

 

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’s fiscal third quarter 2018 includes July, August and September results.

Percentages may not recompute due to rounding.

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

Prior period results have been recast for the change of fiscal quarter, same-store sales growth definition and adoption of the new revenue accounting standard.

 

CEO and CFO Comments

 

“We recorded 4% system sales growth during the third quarter, excluding foreign exchange impact, as we expanded our portfolio and delivered more value-oriented offerings to address growing competition and softer trading conditions,” said Joey Wat, CEO of Yum China. “KFC continued to perform well, posting 1% same-store sales growth during the quarter, on top of a 10% growth in the same period last year. Pizza Hut recorded a 5% decline in same-store sales during the quarter, as healthy growth in delivery was offset by lower dine-in traffic. We made further progress on the revitalization program as we launched a refreshed brand identity, improved our value proposition, expanded our digital capabilities to include tableside ordering via mobile, and generated greater delivery traffic through our own channels.”

 

“Looking ahead, we are excited by the opportunity to grow our portfolio in China’s western quick service restaurant and casual dining markets. We will continue to add a range of store formats across the spectrum of low and high tier cities to drive growth. We will also build out our digital and delivery eco-system so that we can better serve our customers and create a seamless online to offline experience,” said Ms. Wat.

 

2

 


“We are pleased to report that we effectively managed restaurant margins at both brands during the quarter, despite an increase in promotional activities,” said Jacky Lo, CFO of Yum China. “Pizza Hut maintained operating profit at the same level as the year ago period due to more targeted investments in new products and better labor efficiencies.

 

“With a solid balance sheet and strong cash generation, we returned over $132 million of capital to our shareholders through a combination of share buybacks and dividends in the third quarter. We are pleased to announce that we increased our quarterly cash dividend by 20% to $0.12 per share, and expanded our share repurchase authorization by $850 million to a total of $1.4 billion. We are committed to continuing to create long-term value for our shareholders,” added Mr. Lo. 

 

Digital and Delivery

 

As of September 30, 2018, the KFC loyalty program had over 145 million members and the Pizza Hut loyalty program had over 50 million members, an increase of 45 million and 20 million, respectively, year over year.

 

Mobile payments accounted for 64% of Company sales in the quarter, an increase of 17 percentage points year over year. Digital payments accounted for 82% of Company sales in the quarter, an increase of 18 percentage points year over year.

 

Delivery contributed to 17% of Company sales in the third quarter of 2018, an increase of 3 percentage points year over year. Delivery services are now available in 1,063 cities, up from 864 cities in the prior year period.

 

New-Unit Development and Asset Upgrade

 

The Company opened 195 new restaurants and remodeled 209 restaurants in the third quarter of 2018.

 

 

 

 

New Units

 

 

Restaurant Count

 

 

 

 

Third Quarter
2018

 

 

Year to Date Ended 9/30/2018

 

 

As of 9/30

 

 

 

 

 

 

 

 

2018

 

 

2017

 

 

Yum China

 

 

195

 

 

 

562

 

 

 

8,313

 

 

 

7,813

 

 

KFC

 

 

139

 

 

 

411

 

 

 

5,800

 

 

 

5,393

 

 

Pizza Hut

 

 

38

 

 

 

106

 

 

 

2,215

 

 

 

2,157

 

 

Others2

 

 

18

 

 

 

45

 

 

 

298

 

 

 

263

 

2 Others include Little Sheep, East Dawning, Taco Bell and COFFii & JOY, a coffee concept recently developed by Yum China.

 

Restaurant Margin

 

In the third quarter of 2018, Yum China restaurant margin was 17.6%, as compared with 18.0% in the prior year period, primarily attributable to same-store sales deleverage at Pizza Hut and investment in product upgrades and promotions at both KFC and Pizza Hut.

 

 

 

Third Quarter

 

 

 

Year to Date Ended 9/30

 

 

 

 

2018

 

 

2017

 

 

% pts

change

 

 

 

2018

 

2017

 

% pts

change

 

 

Yum China

 

 

17.6

%

 

 

18.0

%

 

 

(0.4)

 

 

 

16.9%

 

18.3%

 

(1.4)

 

 

KFC

 

 

19.2

%

 

 

19.6

%

 

(0.4)

 

 

 

19.0%

 

19.3%

 

(0.3)

 

 

Pizza Hut

 

 

13.8

%

 

 

14.4

%

 

 

(0.6)

 

 

 

11.8%

 

16.3%

 

(4.5)

 

 

 

 

3

 


 

Conference Call

 

Yum China’s management will hold an earnings conference call at 8:00pm U.S. Eastern Time on Tuesday, October 30, 2018 (8:00am Beijing/Hong Kong Time on Wednesday, October 31, 2018). A copy of the presentation will be available on the Yum China Holdings, Inc. website, http://ir.yumchina.com

 

US:

 

+1 845 675 0437

Hong Kong:

 

+852 3018 6771

Mainland China:

 

400 620 8038 or 800 819 0121

UK:

 

+44 20 36214779

International:

 

+65 6713 5090

Passcode:

 

Yum China

 

A replay of the conference call will be available two hours after the call ends until 8:00am U.S. Eastern Time on Wednesday, November 7, 2018 (9:00pm Beijing/Hong Kong Time on Wednesday, November 7, 2018) and may be accessed by phone at the following numbers:

 

US:

 

+1 855 452 5696

International:

 

+61 2 8199 0299

Passcode:

 

8893952

 

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. 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 business plans, earnings and performance of Yum China, statements regarding the revitalization of Pizza Hut, anticipated effects of population and macroeconomic trends, statements regarding the capital structure of Yum China, and beliefs regarding the long-term drivers of Yum China's business. Forward-looking statements are not guarantees of performance and are inherently subject to known and unknown risks and uncertainties that are difficult to predict and could cause our actual results 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 “Forward-Looking Statements” in our Annual Report on Form 10-K) for additional detail about factors that could affect our financial and other results.

 

4

 


 

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 and East Dawning concepts outright. The Company had more than 8,300 restaurants in over 1,200 cities at the end of September 2018. 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.

Consolidated Statements of Income

(amounts in US$ million, except for per share amounts)

(unaudited)

 

 

 

Quarter Ended

 

 

% Change

 

Year to Date Ended

 

 

% Change

 

 

9/30/2018

 

 

9/30/2017

 

 

B/(W)

 

9/30/2018

 

 

9/30/2017

 

 

B/(W)

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company sales

 

$

2,008

 

 

$

1,924

 

 

 

4

 

 

 

$

5,912

 

 

$

5,326

 

 

 

11

 

 

Franchise fees and income

 

 

36

 

 

 

38

 

 

 

(5

)

 

 

 

110

 

 

 

107

 

 

 

3

 

 

Revenues from transactions with

   franchisees and unconsolidated affiliates

 

 

159

 

 

 

160

 

 

 

(1

)

 

 

 

461

 

 

 

448

 

 

 

3

 

 

Other revenues

 

 

9

 

 

 

8

 

 

 

8

 

 

 

 

18

 

 

 

16

 

 

 

12

 

 

Total revenues

 

 

2,212

 

 

 

2,130

 

 

 

4

 

 

 

 

6,501

 

 

 

5,897

 

 

 

10

 

 

Costs and Expenses, Net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company restaurants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Food and paper

 

 

610

 

 

 

560

 

 

 

(9

)

 

 

 

1,775

 

 

 

1,529

 

 

 

(16

)

 

Payroll and employee benefits

 

 

430

 

 

 

403

 

 

 

(7

)

 

 

 

1,296

 

 

 

1,137

 

 

 

(14

)

 

Occupancy and other operating expenses

 

 

615

 

 

 

614

 

 

 

 

 

 

 

1,841

 

 

 

1,683

 

 

 

(9

)

 

Company restaurant expenses

 

 

1,655

 

 

 

1,577

 

 

 

(5

)

 

 

 

4,912

 

 

 

4,349

 

 

 

(13

)

 

General and administrative expenses

 

 

119

 

 

 

123

 

 

 

3

 

 

 

 

334

 

 

 

339

 

 

 

2

 

 

Franchise expenses

 

 

18

 

 

 

19

 

 

 

8

 

 

 

 

55

 

 

 

54

 

 

 

(1

)

 

Expenses for transactions with

   franchisees and unconsolidated affiliates

 

 

156

 

 

 

159

 

 

 

2

 

 

 

 

454

 

 

 

443

 

 

 

(2

)

 

Other operating costs and expenses

 

 

6

 

 

 

8

 

 

 

19

 

 

 

 

17

 

 

 

14

 

 

 

(21

)

 

Closures and impairment (income) expenses, net

 

 

(1

)

 

 

2

 

 

NM

 

 

 

 

15

 

 

 

20

 

 

 

25

 

 

Other income, net

 

 

(10

)

 

 

(22

)

 

 

(53

)

 

 

 

(143

)

 

 

(53

)

 

NM

 

 

Total costs and expenses, net

 

 

1,943

 

 

 

1,866

 

 

 

(4

)

 

 

 

5,644

 

 

 

5,166

 

 

 

(9

)

 

Operating Profit

 

 

269

 

 

 

264

 

 

 

2

 

 

 

 

857

 

 

 

731

 

 

 

17

 

 

Interest and other income, net

 

 

10

 

 

 

8

 

 

 

34

 

 

 

 

28

 

 

 

16

 

 

 

76

 

 

Income Before Income Taxes

 

 

279

 

 

 

272

 

 

 

3

 

 

 

 

885

 

 

 

747

 

 

 

19

 

 

Income tax provision

 

 

(67

)

 

 

(87

)

 

 

22

 

 

 

 

(227

)

 

 

(220

)

 

 

(4

)

 

Net income – including noncontrolling interests

 

 

212

 

 

 

185

 

 

 

15

 

 

 

 

658

 

 

 

527

 

 

 

25

 

 

Net income – noncontrolling interests

 

 

9

 

 

 

9

 

 

 

(5

)

 

 

 

24

 

 

 

22

 

 

 

(8

)

 

Net Income – Yum China Holdings, Inc.

 

$

203

 

 

$

176

 

 

 

15

 

 

 

$

634

 

 

$

505

 

 

 

26

 

 

Effective tax rate

 

 

24.2

%

 

 

31.9

%

 

 

7.7

 

ppts.

 

 

25.7

%

 

 

29.4

%

 

 

3.7

 

ppts.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic Earnings Per Common Share

 

$

0.53

 

 

$

0.46

 

 

 

 

 

 

 

$

1.64

 

 

 

1.30

 

 

 

 

 

 

Weighted average shares outstanding

   (in millions)

 

 

384

 

 

 

386

 

 

 

 

 

 

 

 

386

 

 

 

387

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted Earnings Per Common Share

 

$

0.51

 

 

$

0.44

 

 

 

 

 

 

 

$

1.59

 

 

1.27

 

 

 

 

 

 

Weighted average shares outstanding

   (in millions)

 

 

394

 

 

 

398

 

 

 

 

 

 

 

 

398

 

 

 

397

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash Dividends Declared Per Common Share

 

$

0.10

 

 

$

 

 

 

 

 

 

 

$

0.30

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company sales

 

 

100.0

%

 

 

100.0

%

 

 

 

 

 

 

 

100.0

%

 

 

100.0

%

 

 

 

 

 

Food and paper

 

 

30.4

 

 

 

29.1

 

 

 

(1.3

)

ppts.

 

 

30.0

 

 

 

28.7

 

 

 

(1.3

)

ppts.

Payroll and employee benefits

 

 

21.4

 

 

 

20.9

 

 

 

(0.5

)

ppts.

 

 

21.9

 

 

 

21.3

 

 

 

(0.6

)

ppts.

Occupancy and other operating expenses

 

 

30.6

 

 

 

32.0

 

 

 

1.4

 

ppts.

 

 

31.2

 

 

 

31.7

 

 

 

0.5

 

ppts.

Restaurant margin

 

 

17.6

%

 

 

18.0

%

 

 

(0.4

)

ppts.

 

 

16.9

%

 

 

18.3

%

 

 

(1.4

)

ppts.

Operating margin

 

 

13.4

%

 

 

13.7

%

 

 

(0.3

)

ppts.

 

 

14.5

%

 

 

13.7

%

 

 

0.8

 

ppts.

 

Percentages may not recompute due to rounding.

6

 


 

Yum China Holdings, Inc.

KFC Operating Results

(amounts in US$ million)

(unaudited)

 

 

 

Quarter Ended

 

 

% Change

 

Year to Date Ended

 

 

% Change

 

 

9/30/2018

 

 

9/30/2017

 

 

B/(W)

 

9/30/2018

 

 

9/30/2017

 

 

B/(W)

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company sales

 

$

1,452

 

 

$

1,347

 

 

 

8

 

 

 

$

4,248

 

 

$

3,705

 

 

 

15

 

 

Franchise fees and income

 

 

34

 

 

 

36

 

 

 

(7

)

 

 

 

104

 

 

 

102

 

 

 

1

 

 

Revenues from transactions with

   franchisees and unconsolidated affiliates

 

 

16

 

 

 

19

 

 

 

(17

)

 

 

 

48

 

 

 

51

 

 

 

(7

)

 

Total revenues

 

 

1,502

 

 

 

1,402

 

 

 

7

 

 

 

 

4,400

 

 

 

3,858

 

 

 

14

 

 

Costs and Expenses, Net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company restaurants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Food and paper

 

 

444

 

 

 

400

 

 

 

(11

)

 

 

 

1,281

 

 

 

1,101

 

 

 

(16

)

 

Payroll and employee benefits

 

 

297

 

 

 

266

 

 

 

(12

)

 

 

 

879

 

 

 

748

 

 

 

(18

)

 

Occupancy and other operating expenses

 

 

432

 

 

 

416

 

 

 

(4

)

 

 

 

1,281

 

 

 

1,139

 

 

 

(12

)

 

Company restaurant expenses

 

 

1,173

 

 

 

1,082

 

 

 

(8

)

 

 

 

3,441

 

 

 

2,988

 

 

 

(15

)

 

General and administrative expenses

 

 

44

 

 

 

44

 

 

 

(2

)

 

 

 

135

 

 

 

121

 

 

 

(11

)

 

Franchise expenses

 

 

17

 

 

 

19

 

 

 

8

 

 

 

 

53

 

 

 

53

 

 

 

 

 

Expenses for transactions with

   franchisees and unconsolidated affiliates

 

 

16

 

 

 

19

 

 

 

15

 

 

 

 

48

 

 

 

51

 

 

 

6

 

 

Closures and impairment expenses, net

 

 

 

 

 

 

 

 

31

 

 

 

 

6

 

 

 

10

 

 

 

43

 

 

Other income, net

 

 

(12

)

 

 

(18

)

 

 

(30

)

 

 

 

(42

)

 

 

(48

)

 

 

(12

)

 

Total costs and expenses, net

 

 

1,238

 

 

 

1,146

 

 

 

(8

)

 

 

 

3,641

 

 

 

3,175

 

 

 

(15

)

 

Operating Profit

 

$

264

 

 

$

256

 

 

 

3

 

 

 

$

759

 

 

$

683

 

 

 

11

 

 

Company sales

 

 

100.0

%

 

 

100.0

%

 

 

 

 

 

 

 

100.0

%

 

 

100.0

%

 

 

 

 

 

Food and paper

 

 

30.6

 

 

 

29.7

 

 

 

(0.9

)

ppts.

 

 

30.2

 

 

 

29.7

 

 

 

(0.5

)

ppts.

Payroll and employee benefits

 

 

20.4

 

 

 

19.7

 

 

 

(0.7

)

ppts.

 

 

20.7

 

 

 

20.2

 

 

 

(0.5

)

ppts.

Occupancy and other operating expenses

 

 

29.8

 

 

 

31.0

 

 

 

1.2

 

ppts.

 

 

30.1

 

 

 

30.8

 

 

 

0.7

 

ppts.

Restaurant margin

 

 

19.2

%

 

 

19.6

%

 

 

(0.4

)

ppts.

 

 

19.0

%

 

 

19.3

%

 

 

(0.3

)

ppts.

Operating margin

 

 

18.1

%

 

 

19.0

%

 

 

(0.9

)

ppts.

 

 

17.8

%

 

 

18.4

%

 

 

(0.6

)

ppts.

 

Percentages may not recompute due to rounding.

7

 


 

Yum China Holdings, Inc.

Pizza Hut Operating Results

(amounts in US$ million)

(unaudited)

 

 

 

Quarter Ended

 

 

% Change

 

Year to Date Ended

 

 

% Change

 

 

9/30/2018

 

 

9/30/2017

 

 

B/(W)

 

9/30/2018

 

 

9/30/2017

 

 

B/(W)

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company sales

 

$

548

 

 

$

568

 

 

 

(4

)

 

 

$

1,640

 

 

$

1,592

 

 

 

3

 

 

Franchise fees and income

 

 

1

 

 

 

1

 

 

 

4

 

 

 

 

2

 

 

 

2

 

 

 

17

 

 

Revenues from transactions with

   franchisees and unconsolidated affiliates

 

 

1

 

 

 

 

 

 

(7

)

 

 

 

1

 

 

 

1

 

 

 

(3

)

 

Total revenues

 

 

550

 

 

 

569

 

 

 

(3

)

 

 

 

1,643

 

 

 

1,595

 

 

 

3

 

 

Costs and Expenses, Net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company restaurants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Food and paper

 

 

163

 

 

 

157

 

 

 

(4

)

 

 

 

486

 

 

 

418

 

 

 

(16

)

 

Payroll and employee benefits

 

 

130

 

 

 

135

 

 

 

3

 

 

 

 

410

 

 

 

381

 

 

 

(8

)

 

Occupancy and other operating expenses

 

 

179

 

 

 

195

 

 

 

8

 

 

 

 

550

 

 

 

534

 

 

 

(3

)

 

Company restaurant expenses

 

 

472

 

 

 

487

 

 

 

3

 

 

 

 

1,446

 

 

 

1,333

 

 

 

(9

)

 

General and administrative expenses

 

 

24

 

 

 

27

 

 

 

15

 

 

 

 

80

 

 

 

78

 

 

 

(1

)

 

Franchise expenses

 

 

1

 

 

 

 

 

 

13

 

 

 

 

2

 

 

 

1

 

 

 

(23

)

 

Expenses for transactions with

   franchisees and unconsolidated affiliates

 

 

1

 

 

 

 

 

 

5

 

 

 

 

1

 

 

 

1

 

 

 

2

 

 

Closures and impairment (income) expenses, net

 

 

(1

)

 

 

1

 

 

NM

 

 

 

 

9

 

 

 

9

 

 

 

 

 

Other income, net

 

 

 

 

 

 

 

NM

 

 

 

 

(2

)

 

 

 

 

NM

 

 

Total costs and expenses, net

 

 

497

 

 

 

515

 

 

 

4

 

 

 

 

1,536

 

 

 

1,422

 

 

 

(8

)

 

Operating Profit

 

$

53

 

 

$

54

 

 

 

 

 

 

$

107

 

 

$

173

 

 

 

(38

)

 

Company sales

 

 

100.0

%

 

 

100.0

%

 

 

 

 

 

 

 

100.0

%

 

 

100.0

%

 

 

 

 

 

Food and paper

 

 

29.7

 

 

 

27.6

 

 

 

(2.1

)

ppts.

 

 

29.6

 

 

 

26.2

 

 

 

(3.4

)

ppts.

Payroll and employee benefits

 

 

23.8

 

 

 

23.7

 

 

 

(0.1

)

ppts.

 

 

25.0

 

 

 

23.9

 

 

 

(1.1

)

ppts.

Occupancy and other operating expenses

 

 

32.7

 

 

 

34.3

 

 

 

1.6

 

ppts.

 

 

33.6

 

 

 

33.6

 

 

 

 

ppts.

Restaurant margin

 

 

13.8

%

 

 

14.4

%

 

 

(0.6

)

ppts.

 

 

11.8

%

 

 

16.3

%

 

 

(4.5

)

ppts.

Operating margin

 

 

9.8

%

 

 

9.4

%

 

 

0.4

 

ppts.

 

 

6.6

%

 

 

10.9

%

 

 

(4.3

)

ppts.

 

Percentages may not recompute due to rounding.

8

 


 

Yum China Holdings, Inc.

Consolidated Balance Sheets

(amounts in US$ million)

(unaudited)

 

 

 

9/30/2018

 

 

12/31/2017

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,334

 

 

$

1,059

 

Short-term investments

 

 

198

 

 

 

205

 

Accounts receivable, net

 

 

65

 

 

 

79

 

Inventories, net

 

 

270

 

 

 

297

 

Prepaid expenses and other current assets

 

 

179

 

 

 

162

 

Total Current Assets

 

 

2,046

 

 

 

1,802

 

Property, plant and equipment, net

 

 

1,605

 

 

 

1,691

 

Goodwill

 

 

266

 

 

 

108

 

Intangible assets, net

 

 

133

 

 

 

101

 

Investments in unconsolidated affiliates

 

 

68

 

 

 

95

 

Other assets

 

 

498

 

 

 

385

 

Deferred income taxes

 

 

75

 

 

 

105

 

Total Assets

 

 

4,691

 

 

 

4,287

 

LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND EQUITY

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

Accounts payable and other current liabilities

 

 

1,116

 

 

 

985

 

Income taxes payable

 

 

76

 

 

 

39

 

Total Current Liabilities

 

 

1,192

 

 

 

1,024

 

Capital lease obligations

 

 

26

 

 

 

28

 

Other liabilities

 

 

385

 

 

 

388

 

Total Liabilities

 

 

1,603

 

 

 

1,440

 

Redeemable Noncontrolling Interest

 

 

5

 

 

 

5

 

Equity

 

 

 

 

 

 

 

 

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

   391 million shares and 389 million shares issued at September 30, 2018

   and December 31, 2017, respectively; 382 million shares and 385 million shares

   outstanding at September 30, 2018 and December 31, 2017, respectively

 

 

4

 

 

 

4

 

Treasury stock

 

 

(315

)

 

 

(148

)

Additional paid-in capital

 

 

2,393

 

 

 

2,375

 

Retained earnings

 

 

916

 

 

 

397

 

Accumulated other comprehensive (loss) income

 

 

(14

)

 

 

137

 

Total Equity – Yum China Holdings, Inc.

 

 

2,984

 

 

 

2,765

 

Noncontrolling interests

 

 

99

 

 

 

77

 

Total Equity

 

 

3,083

 

 

 

2,842

 

Total Liabilities, Redeemable Noncontrolling Interest and Equity

 

$

4,691

 

 

$

4,287

 

 

 

 

 

 

 

 

 

 

9

 


 

Yum China Holdings, Inc.

Consolidated Statements of Cash Flows

(amounts in US$ million)

(unaudited)

 

 

 

Year to Date Ended

 

 

9/30/2018

 

9/30/2017

Cash Flows – Operating Activities

 

 

 

 

 

 

 

 

 

 

Net income – including noncontrolling interests

 

$

658

 

 

 

$

527

 

 

Depreciation and amortization

 

 

343

 

 

 

 

301

 

 

Closures and impairment expenses

 

 

15

 

 

 

 

20

 

 

Gain from re-measurement of equity interest upon acquisition

 

 

(98

)

 

 

 

 

 

Deferred income taxes

 

 

46

 

 

 

 

(3

)

 

Equity income from investments in unconsolidated affiliates

 

 

(52

)

 

 

 

(54

)

 

Distributions received from unconsolidated affiliates

 

 

51

 

 

 

 

39

 

 

Share-based compensation

 

 

18

 

 

 

 

18

 

 

Changes in accounts receivable

 

 

2

 

 

 

 

12

 

 

Changes in inventories

 

 

14

 

 

 

 

18

 

 

Changes in prepaid expenses and other current assets

 

 

(13

)

 

 

 

(5

)

 

Changes in accounts payable and other current liabilities

 

 

184

 

 

 

 

89

 

 

Changes in income taxes payable

 

 

41

 

 

 

 

51

 

 

Other, net

 

 

(36

)

 

 

 

(28

)

 

Net Cash Provided by Operating Activities

 

 

1,173

 

 

 

 

985

 

 

Cash Flows – Investing Activities

 

 

 

 

 

 

 

 

 

 

Capital spending

 

 

(359

)

 

 

 

(295

)

 

Purchases of short-term investments

 

 

(513

)

 

 

 

(394

)

 

Maturities of short-term investments

 

 

513

 

 

 

 

387

 

 

Investment in equity securities

 

 

(74

)

 

 

 

 

 

Acquisition of business, net of cash acquired

 

 

(91

)

 

 

 

(25

)

 

Other, net

 

 

(3

)

 

 

 

 

 

Net Cash Used in Investing Activities

 

 

(527

)

 

 

 

(327

)

 

Cash Flows – Financing Activities

 

 

 

 

 

 

 

 

 

 

Payment of capital lease obligation

 

 

(2

)

 

 

 

(2

)

 

Repayment of short-term borrowings assumed from acquisition

 

 

(10

)

 

 

 

 

 

Repurchase of shares of common stock

 

 

(161

)

 

 

 

(128

)

 

Proceeds from exercise of stock options

 

 

 

 

 

 

5

 

 

Cash dividends paid on common stock

 

 

(115

)

 

 

 

 

 

Dividends paid to noncontrolling interests

 

 

(29

)

 

 

 

(22

)

 

Other, net

 

 

(1

)

 

 

 

 

 

Net Cash Used in Financing Activities

 

 

(318

)

 

 

 

(147

)

 

Effect of Exchange Rates on Cash and Cash Equivalents

 

 

(53

)

 

 

 

27

 

 

Net Increase in Cash and Cash Equivalents

 

 

275

 

 

 

 

538

 

 

Cash and Cash Equivalents - Beginning of Period

 

 

1,059

 

 

 

 

885

 

 

Cash and Cash Equivalents - End of Period

 

$

1,334

 

 

 

$

1,423

 

 

 


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 on the 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. Prior period results have been adjusted accordingly.

 

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

(amounts in US$ million, except for per share amounts)

(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 Diluted Earnings Per Common Share, Adjusted Effective Tax Rate and Adjusted EBITDA, which we define as net income including noncontrolling interests adjusted for income tax, interest and other income, net, depreciation, amortization and other items, including store impairment charges. 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 Special Item for the quarter and year to date ended September 30, 2017 represents income from the reversal of contingent consideration. 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 and other income, net, depreciation, amortization and other items, including store impairment charges. 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 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

 

 

 

9/30/2018

 

 

9/30/2017

 

 

9/30/2018

 

 

9/30/2017

 

Detail of Special Items

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

 

 

$

 

 

$

98

 

 

$

 

Income from the reversal of contingent consideration(c)

 

 

 

 

 

3

 

 

 

 

 

 

3

 

Special Items Income - Operating Profit

 

 

 

 

 

3

 

 

 

98

 

 

 

3

 

Tax Expenses on Special Items(d)

 

 

 

 

 

 

 

 

(24

)

 

 

 

Special Items Income, net of tax – including noncontrolling interests

 

 

 

 

 

3

 

 

 

74

 

 

 

3

 

Special Items Income, net of tax – noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

Special Items Income, net of tax –Yum China Holdings, Inc.

 

$

 

 

$

3

 

 

$

74

 

 

$

3

 

Weighted Average Diluted Shares Outstanding

 

 

394

 

 

 

398

 

 

 

398

 

 

 

397

 

Special Items Diluted Earnings Per Common Share

 

$

 

 

$

0.01

 

 

$

0.18

 

 

$

0.01

 

Reconciliation of Operating Profit to Adjusted Operating Profit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Profit

 

$

269

 

 

$

264

 

 

$

857

 

 

$

731

 

Special Items Income - Operating Profit

 

 

 

 

 

3

 

 

 

98

 

 

 

3

 

Adjusted Operating Profit

 

$

269

 

 

$

261

 

 

$

759

 

 

$

728

 

Reconciliation of EPS to Adjusted EPS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted Earnings Per Common Share

 

$

0.51

 

 

$

0.44

 

 

$

1.59

 

 

$

1.27

 

Special Items Diluted Earnings Per Common Share

 

 

 

 

 

0.01

 

 

 

0.18

 

 

 

0.01

 

Adjusted Diluted Earnings Per Common Share

 

$

0.51

 

 

$

0.43

 

 

$

1.41

 

 

$

1.26

 

Reconciliation of Effective Tax Rate to Adjusted Effective Tax Rate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effective Tax Rate

 

 

24.2

%

 

 

31.9

%

 

 

25.7

%

 

 

29.4

%

Impact on Effective Tax Rate as a result of Special Items

 

 

%

 

 

(0.5

)%

 

 

(0.1

)%

 

 

(0.1

)%

Adjusted Effective Tax Rate

 

 

24.2

%

 

 

32.4

%

 

 

25.8

%

 

 

29.5

%

 

 

12

 


 

Reconciliation of Net Income to Adjusted EBITDA

(amounts in US$ million)

(unaudited)

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

 

 

 

Quarter Ended

 

 

Year to Date Ended

 

 

 

9/30/2018

 

 

9/30/2017

 

 

9/30/2018

 

 

9/30/2017

 

Reconciliation of Net Income to Adjusted EBITDA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income – Yum China Holdings, Inc.

 

$

203

 

 

$

176

 

 

$

634

 

 

$

505

 

Net income – noncontrolling interests

 

 

9

 

 

 

9

 

 

 

24

 

 

 

22

 

Income tax provision

 

 

67

 

 

 

87

 

 

 

227

 

 

 

220

 

Interest and other income, net

 

 

(10

)

 

 

(8

)

 

 

(28

)

 

 

(16

)

Operating Profit

 

 

269

 

 

 

264

 

 

 

857

 

 

 

731

 

Depreciation and amortization

 

 

108

 

 

 

105

 

 

 

343

 

 

 

301

 

Store impairment charges

 

 

2

 

 

 

5

 

 

 

23

 

 

 

28

 

Special Items Income - Operating Profit

 

 

 

 

 

(3

)

 

 

(98

)

 

 

(3

)

Adjusted EBITDA

 

$

379

 

 

$

371

 

 

$

1,125

 

 

$

1,057

 

13

 


 

Unit Count by Brand

 

KFC

 

 

 

12/31/2017

 

 

New Builds

 

 

Acquired

 

 

Closures

 

 

Refranchised

 

 

Others

 

 

9/30/2018

 

Company-owned

 

 

4,112

 

 

 

313

 

 

 

2

 

 

 

(75

)

 

 

(9

)

 

 

157

 

 

 

4,500

 

Unconsolidated affiliates

 

 

891

 

 

 

82

 

 

 

 

 

 

(14

)

 

 

 

 

 

(157

)

 

 

802

 

Franchisees

 

 

485

 

 

 

16

 

 

 

(2

)

 

 

(10

)

 

 

9

 

 

 

 

 

 

498

 

Total

 

 

5,488

 

 

 

411

 

 

 

 

 

 

(99

)

 

 

 

 

 

 

 

 

5,800

 

 

Pizza Hut

 

 

 

 

 

12/31/2017

 

 

New Builds

 

 

Closures

 

 

Refranchised

 

 

9/30/2018

 

Company-owned

 

 

 

 

2,166

 

 

 

100

 

 

 

(85

)

 

 

(1

)

 

 

2,180

 

Franchisees

 

 

 

 

29

 

 

 

6

 

 

 

(1

)

 

 

1

 

 

 

35

 

Total

 

 

 

 

2,195

 

 

 

106

 

 

 

(86

)

 

 

 

 

 

2,215

 

 

Others

 

 

 

 

 

12/31/2017

 

 

New Builds

 

 

Closures

 

 

Refranchised

 

 

9/30/2018

 

Company-owned

 

 

 

 

29

 

 

 

7

 

 

 

(3

)

 

 

(2

)

 

 

31

 

Franchisees

 

 

 

 

271

 

 

 

38

 

 

 

(44

)

 

 

2

 

 

 

267

 

Total

 

 

 

 

300

 

 

 

45

 

 

 

(47

)

 

 

 

 

 

298

 

14

 


 

Yum China Holdings, Inc.

Segment Results

(amounts in US$ million)

(unaudited)

 

Quarter Ended 9/30/2018

 

KFC

 

 

Pizza Hut

 

 

All Other Segments

 

 

Corporate

and

Unallocated(1)

 

 

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

 

 

16

 

 

 

1

 

 

 

6

 

 

 

136

 

 

 

 

 

 

159

 

Other revenues

 

 

 

 

 

 

 

 

10

 

 

 

2

 

 

 

(3

)

 

 

9

 

Total revenues

 

$

1,502

 

 

$

550

 

 

$

25

 

 

$

138

 

 

$

(3

)

 

$

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

 

 

16

 

 

 

1

 

 

 

4

 

 

 

135

 

 

 

 

 

 

156

 

Other operating costs and expenses

 

 

 

 

 

 

 

 

9

 

 

 

1

 

 

 

(4

)

 

 

6

 

Closures and impairment income, net

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

(1

)

Other (income) expense, net

 

 

(12

)

 

 

 

 

 

 

 

 

2

 

 

 

 

 

 

(10

)

 

 

 

1,238

 

 

 

497

 

 

 

31

 

 

 

180

 

 

 

(3

)

 

 

1,943

 

Operating Profit (Loss)

 

$

264

 

 

$

53

 

 

$

(6

)

 

$

(42

)

 

$

 

 

$

269

 

 

Quarter Ended 9/30/2017

 

KFC

 

 

Pizza Hut

 

 

All Other Segments

 

 

Corporate

and

Unallocated(1)

 

 

Total

 

Company sales

 

$

1,347

 

 

$

568

 

 

$

9

 

 

$

 

 

$

1,924

 

Franchise fees and income

 

 

36

 

 

 

1

 

 

 

1

 

 

 

 

 

 

38

 

Revenues from transactions with

   franchisees and unconsolidated affiliates

 

 

19

 

 

 

 

 

 

5

 

 

 

136

 

 

 

160

 

Other revenues

 

 

 

 

 

 

 

 

8

 

 

 

 

 

 

8

 

Total revenues

 

$

1,402

 

 

$

569

 

 

$

23

 

 

$

136

 

 

$

2,130

 

Company restaurant expenses

 

 

1,082

 

 

 

487

 

 

 

8

 

 

 

 

 

 

1,577

 

General and administrative expenses

 

 

44

 

 

 

27

 

 

 

9

 

 

 

43

 

 

 

123

 

Franchise expenses

 

 

19

 

 

 

 

 

 

 

 

 

 

 

 

19

 

Expenses for transactions with

   franchisees and unconsolidated affiliates

 

 

19

 

 

 

 

 

 

4

 

 

 

136

 

 

 

159

 

Other operating costs and expenses

 

 

 

 

 

 

 

 

8

 

 

 

 

 

 

8

 

Closures and impairment expenses, net

 

 

 

 

 

1

 

 

 

1

 

 

 

 

 

 

2

 

Other income, net

 

 

(18

)

 

 

 

 

 

 

 

 

(4

)

 

 

(22

)

Total costs and expenses, net

 

 

1,146

 

 

 

515

 

 

 

30

 

 

 

175

 

 

 

1,866

 

Operating Profit (Loss)

 

$

256

 

 

$

54

 

 

$

(7

)

 

$

(39

)

 

$

264

 

 

15

 


 

Year to Date Ended 9/30/2018

 

KFC

 

 

Pizza Hut

 

 

All Other Segments

 

 

Corporate

and

Unallocated(1)

 

 

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

 

 

48

 

 

 

1

 

 

 

17

 

 

 

395

 

 

 

 

 

 

461

 

Other revenues

 

 

 

 

 

 

 

 

18

 

 

 

4

 

 

 

(4

)

 

 

18

 

Total revenues

 

$

4,400

 

 

$

1,643

 

 

$

63

 

 

$

399

 

 

$

(4

)

 

$

6,501

 

Company restaurant expenses

 

 

3,441

 

 

 

1,446

 

 

 

25

 

 

 

 

 

 

 

 

 

4,912

 

General and administrative expenses

 

 

135

 

 

 

80

 

 

 

25

 

 

 

94

 

 

 

 

 

 

334

 

Franchise expenses

 

 

53

 

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

55

 

Expenses for transactions with

   franchisees and unconsolidated affiliates

 

 

48

 

 

 

1

 

 

 

13

 

 

 

392

 

 

 

 

 

 

454

 

Other operating costs and expenses

 

 

 

 

 

 

 

 

18

 

 

 

3

 

 

 

(4

)

 

 

17

 

Closures and impairment expenses, net

 

 

6

 

 

 

9

 

 

 

 

 

 

 

 

 

 

 

 

15

 

Other income, net

 

 

(42

)

 

 

(2

)

 

 

(1

)

 

 

(98

)

 

 

 

 

 

(143

)

 

 

 

3,641

 

 

 

1,536

 

 

 

80

 

 

 

391

 

 

 

(4

)

 

 

5,644

 

Operating Profit (Loss)

 

$

759

 

 

$

107

 

 

$

(17

)

 

$

8

 

 

$

 

 

$

857

 

 

Year to Date Ended 9/30/2017

 

KFC

 

 

Pizza Hut

 

 

All Other Segments

 

 

Corporate

and

Unallocated(1)

 

 

Total

 

Company sales

 

$

3,705

 

 

$

1,592

 

 

$

29

 

 

$

 

 

$

5,326

 

Franchise fees and income

 

 

102

 

 

 

2

 

 

 

3

 

 

 

 

 

 

107

 

Revenues from transactions with

   franchisees and unconsolidated affiliates

 

 

51

 

 

 

1

 

 

 

14

 

 

 

382

 

 

 

448

 

Other revenues

 

 

 

 

 

 

 

 

16

 

 

 

 

 

 

16

 

Total revenues

 

$

3,858

 

 

$

1,595

 

 

$

62

 

 

$

382

 

 

$

5,897

 

Company restaurant expenses

 

 

2,988

 

 

 

1,333

 

 

 

28

 

 

 

 

 

 

4,349

 

General and administrative expenses

 

 

121

 

 

 

78

 

 

 

16

 

 

 

124

 

 

 

339

 

Franchise expenses

 

 

53

 

 

 

1

 

 

 

 

 

 

 

 

 

54

 

Expenses for transactions with

  franchisees and unconsolidated affiliates

 

 

51

 

 

 

1

 

 

 

12

 

 

 

379

 

 

 

443

 

Other operating costs and expenses

 

 

 

 

 

 

 

 

14

 

 

 

 

 

 

14

 

Closures and impairment expenses, net

 

 

10

 

 

 

9

 

 

 

1

 

 

 

 

 

 

20

 

Other income, net

 

 

(48

)

 

 

 

 

 

 

 

 

(5

)

 

 

(53

)

 

 

 

3,175

 

 

 

1,422

 

 

 

71

 

 

 

498

 

 

 

5,166

 

Operating Profit (Loss)

 

$

683

 

 

$

173

 

 

$

(9

)

 

$

(116

)

 

$

731

 

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

 

(1)

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”.

 

16

 


 

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

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

(amounts in US$ million)

(unaudited)

 

(a)

Amounts presented as of and for the quarter and year to date ended September 30, 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)

During the third quarter of 2017, we recognized income from the reversal of contingent consideration previously recorded for a business combination as the likelihood of making payment became remote.

 

(d)

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

 

17