SEC Filing | Yum China Holdings, Inc.

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10-Q

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, 2022


☐	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
Common Stock, par value $0.01 per share	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.

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, 2022 was 419,571,781 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, 2022 and 2021 (Unaudited)	3

	Condensed Consolidated Statements of Comprehensive Income – Quarters and Years to Date Ended June 30, 2022 and 2021 (Unaudited)	4

	Condensed Consolidated Statements of Cash Flows – Years to Date Ended June 30, 2022 and 2021 (Unaudited)	5

	Condensed Consolidated Balance Sheets – June 30, 2022 (Unaudited) and December 31, 2021	6

	Notes to Condensed Consolidated Financial Statements (Unaudited)	7

	Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations	26

	Item 3 – Quantitative and Qualitative Disclosures About Market Risk	42

	Item 4 – Controls and Procedures	42

Part II.	Other Information

	Item 1 – Legal Proceedings	43

	Item 1A – Risk Factors	43

	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	6/30/2022			6/30/2021			6/30/2022			6/30/2021
Company sales	$	2,026		$	2,233		$	4,574		$	4,564
Franchise fees and income		19			38			43			80
Revenues from transactions with franchisees and unconsolidated affiliates		62			164			139			335
Other revenues		21			16			40			29
Total revenues		2,128			2,451			4,796			5,008
Costs and Expenses, Net
Company restaurants
Food and paper		627			686			1,419			1,390
Payroll and employee benefits		549			540			1,216			1,084
Occupancy and other operating expenses		605			653			1,343			1,301
Company restaurant expenses		1,781			1,879			3,978			3,775
General and administrative expenses		141			136			292			266
Franchise expenses		8			16			18			33
Expenses for transactions with franchisees and unconsolidated affiliates		61			160			136			329
Other operating costs and expenses		18			13			35			24
Closures and impairment expenses, net		14			13			16			11
Other expenses (income), net		24			1			49			(5	)
Total costs and expenses, net		2,047			2,218			4,524			4,433
Operating Profit		81			233			272			575
Interest income, net		14			16			26			31
Investment gain (loss)		20			8			(17	)		(4	)
Income Before Income Taxes and Equity in Net Earnings (Losses) from Equity Method Investments		115			257			281			602
Income tax provision		(31	)		(64	)		(86	)		(166	)
Equity in net earnings (losses) from equity method investments		(1	)		—			(2	)		—
Net income – including noncontrolling interests		83			193			193			436
Net income – noncontrolling interests		—			12			10			25
Net Income – Yum China Holdings, Inc.	$	83		$	181		$	183		$	411
Weighted-average common shares outstanding (in millions):
Basic		421			421			423			420
Diluted		424			435			427			434
Basic Earnings Per Common Share	$	0.20		$	0.43		$	0.43		$	0.98
Diluted Earnings Per Common Share	$	0.20		$	0.42		$	0.43		$	0.95

See accompanying Notes to Condensed Consolidated Financial Statements.

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

Yum China Holdings, Inc.

(in US$ millions)


	Quarter Ended					Year to Date Ended
	6/30/2022			6/30/2021		6/30/2022			6/30/2021
Net income – including noncontrolling interests	$	83		$	193	$	193		$	436
Other comprehensive (loss) income, net of tax of nil:
Foreign currency translation adjustments		(280	)		58		(267	)		40
Comprehensive (loss) income – including noncontrolling interests		(197	)		251		(74	)		476
Comprehensive (loss) income – noncontrolling interests		(41	)		15		(29	)		27
Comprehensive (Loss) Income – Yum China Holdings, Inc.	$	(156	)	$	236	$	(45	)	$	449

See accompanying Notes to Condensed Consolidated Financial Statements.

Condensed Consolidated Statements of Cash Flows (Unaudited)

Yum China Holdings, Inc.

(in US$ millions)


	Year to Date Ended
	6/30/2022			6/30/2021
Cash Flows – Operating Activities
Net income – including noncontrolling interests	$	193		$	436
Depreciation and amortization		317			252
Non-cash operating lease cost		230			204
Closures and impairment expenses		16			11
Investment loss		17			4
Equity income from investments in unconsolidated affiliates		—			(27	)
Distributions of income received from unconsolidated affiliates		—			21
Deferred income taxes		(7	)		29
Share-based compensation expense		21			25
Changes in accounts receivable		(17	)		(5	)
Changes in inventories		59			22
Changes in prepaid expenses, other current assets and VAT assets (Note 9(a))		24			8
Changes in accounts payable and other current liabilities		(51	)		16
Changes in income taxes payable		6			1
Changes in non-current operating lease liabilities		(198	)		(204	)
Other, net		(1	)		(20	)
Net Cash Provided by Operating Activities		609			773
Cash Flows – Investing Activities
Capital spending		(347	)		(303	)
Purchases of short-term investments		(2,145	)		(2,824	)
Purchases of long-term time deposits		—			(25	)
Maturities of short-term investments		2,461			2,801
Acquisition of business, net of cash acquired		(23	)		—
Acquisition of equity investment		—			(261	)
Other, net		2			1
Net Cash Used in Investing Activities		(52	)		(611	)
Cash Flows – Financing Activities
Repurchase of shares of common stock		(400	)		—
Cash dividends paid on common stock		(101	)		(101	)
Dividends paid to noncontrolling interests		(23	)		(14	)
Contribution from noncontrolling interests		18			—
Payment of acquisition related holdback		(6	)		—
Other, net		(1	)		(4	)
Net Cash Used in Financing Activities		(513	)		(119	)
Effect of Exchange Rates on Cash, Cash Equivalents and Restricted Cash		(33	)		8
Net Increase in Cash, Cash Equivalents and Restricted Cash		11			51
Cash, Cash Equivalents and Restricted Cash – Beginning of Period		1,136			1,158
Cash, Cash Equivalents and Restricted Cash – End of Period	$	1,147		$	1,209

Supplemental Cash Flow Data
Cash paid for income tax		93			150
Non-cash Investing and Financing Activities
Capital expenditures included in accounts payable and other current liabilities		141			185

See accompanying Notes to Condensed Consolidated Financial Statements.

Condensed Consolidated Balance Sheets

Yum China Holdings, Inc.

(in US$ millions)


	6/30/2022		12/31/2021
	(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents	$	1,147	$	1,136
Short-term investments		2,506		2,860
Accounts receivable, net		79		67
Inventories, net		353		432
Prepaid expenses and other current assets		491		221
Total Current Assets		4,576		4,716
Property, plant and equipment, net		2,065		2,251
Operating lease right-of-use assets		2,306		2,612
Goodwill		2,047		2,142
Intangible assets, net		213		272
Investments in unconsolidated affiliates		287		292
Deferred income tax assets		103		106
Other assets		457		832
Total Assets	$	12,054	$	13,223

LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND EQUITY
Current Liabilities
Accounts payable and other current liabilities	$	2,099	$	2,332
Income taxes payable		54		51
Total Current Liabilities		2,153		2,383
Non-current operating lease liabilities		2,000		2,286
Non-current finance lease liabilities		39		40
Deferred income tax liabilities		400		425
Other liabilities		160		167
Total Liabilities		4,752		5,301

Redeemable Noncontrolling Interest		13		14

Equity
Common stock, $0.01 par value; 1,000 million shares authorized; 420 million shares and 449 million shares issued at June 30, 2022 and December 31, 2021, respectively; 420 million shares and 428 million shares outstanding at June 30, 2022 and December 31, 2021, respectively		4		4
Treasury stock		—		(803	)
Additional paid-in capital		4,402		4,695
Retained earnings		2,083		2,892
Accumulated other comprehensive income		40		268
Total Yum China Holdings, Inc. Stockholders' Equity		6,529		7,056
Noncontrolling interests		760		852
Total Equity		7,289