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, 2022

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, 2022 was 418,427,345 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, 2022 and 2021 (Unaudited)	3
	Condensed Consolidated Statements of Comprehensive Income – Quarters and Years to Date Ended September 30, 2022 and 2021 (Unaudited)	4
	Condensed Consolidated Statements of Cash Flows – Years to Date Ended September 30, 2022 and 2021 (Unaudited)	5
	Condensed Consolidated Balance Sheets – September 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	43
Part II.	Other Information
	Item 1 – Legal Proceedings	44
	Item 1A – Risk Factors	44
	Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	46
	Item 6 – Exhibits	47
	Signatures	48

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	9/30/2022			9/30/2021			9/30/2022			9/30/2021
Company sales	$	2,561		$	2,310		$	7,135		$	6,874
Franchise fees and income		22			40			65			120
Revenues from transactions with    franchisees and unconsolidated affiliates		80			184			219			519
Other revenues		22			20			62			49
Total revenues		2,685			2,554			7,481			7,562
Costs and Expenses, Net
Company restaurants
Food and paper		787			743			2,206			2,133
Payroll and employee benefits		603			591			1,819			1,675
Occupancy and other operating expenses		691			694			2,034			1,995
Company restaurant expenses		2,081			2,028			6,059			5,803
General and administrative expenses		157			142			449			408
Franchise expenses		9			17			27			50
Expenses for transactions with    franchisees and unconsolidated affiliates		76			180			212			509
Other operating costs and expenses		18			17			53			41
Closures and impairment expenses, net		4			2			20			13
Other expenses (income), net		24			(10	)		73			(15	)
Total costs and expenses, net		2,369			2,376			6,893			6,809
Operating Profit		316			178			588			753
Interest income, net		25			16			51			47
Investment loss		(15	)		(39	)		(32	)		(43	)
Income Before Income Taxes and Equity in    Net Earnings (Losses) from Equity Method Investments		326			155			607			757
Income tax provision		(97	)		(44	)		(183	)		(210	)
Equity in net earnings (losses) from    equity method investments		(2	)		—			(4	)		—
Net income – including noncontrolling interests		227			111			420			547
Net income – noncontrolling interests		21			7			31			32
Net Income – Yum China Holdings, Inc.	$	206		$	104		$	389		$	515
Weighted-average common shares outstanding (in millions):
Basic		420			422			422			421
Diluted		424			435			426			435
Basic Earnings Per Common Share	$	0.49		$	0.25		$	0.92		$	1.23
Diluted Earnings Per Common Share	$	0.49		$	0.24		$	0.92		$	1.19

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
	9/30/2022			9/30/2021		9/30/2022			9/30/2021
Net income – including noncontrolling interests	$	227		$	111	$	420		$	547
Other comprehensive (loss) income, net of tax of nil:
Foreign currency translation adjustments		(306	)		10		(573	)		50
Comprehensive (loss) income – including noncontrolling     interests		(79	)		121		(153	)		597
Comprehensive (loss) income – noncontrolling interests		(23	)		9		(52	)		36
Comprehensive (Loss) Income – Yum China Holdings, Inc.	$	(56	)	$	112	$	(101	)	$	561

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
	9/30/2022			9/30/2021
Cash Flows – Operating Activities
Net income – including noncontrolling interests	$	420		$	547
Depreciation and amortization		467			380
Non-cash operating lease cost		333			310
Closures and impairment expenses		20			13
Gain from re-measurement of equity interest upon acquisition		—			(10	)
Investment loss		32			43
Equity income from investments in unconsolidated affiliates		—			(38	)
Distributions of income received from unconsolidated affiliates		7			21
Deferred income taxes		(7	)		17
Share-based compensation expense		31			32
Changes in accounts receivable		(6	)		2
Changes in inventories		71			13
Changes in prepaid expenses, other current assets and VAT assets (Note 9(a))		216			—
Changes in accounts payable and other current liabilities		(19	)		82
Changes in income taxes payable		70			(5	)
Changes in non-current operating lease liabilities		(299	)		(309	)
Other, net		(7	)		(24	)
Net Cash Provided by Operating Activities		1,329			1,074
Cash Flows – Investing Activities
Capital spending		(509	)		(482	)
Purchases of short-term investments		(4,290	)		(4,524	)
Purchases of long-term time deposits		—			(25	)
Maturities of short-term investments		4,226			4,544
Acquisition of business, net of cash acquired		(23	)		—
Acquisition of equity investment		—			(261	)
Other, net		3			5
Net Cash Used in Investing Activities		(593	)		(743	)
Cash Flows – Financing Activities
Repurchase of shares of common stock		(411	)		(32	)
Cash dividends paid on common stock		(152	)		(152	)
Dividends paid to noncontrolling interests		(29	)		(22	)
Contribution from noncontrolling interests		18			—
Payment of acquisition related holdback		(7	)		(8	)
Other, net		(2	)		(6	)
Net Cash Used in Financing Activities		(583	)		(220	)
Effect of Exchange Rates on Cash, Cash Equivalents and Restricted Cash		(78	)		9
Net Increase in Cash, Cash Equivalents and Restricted Cash		75			120
Cash, Cash Equivalents and Restricted Cash – Beginning of Period		1,136			1,158
Cash, Cash Equivalents and Restricted Cash – End of Period	$	1,211		$	1,278
Supplemental Cash Flow Data
Cash paid for income tax		124			210
Non-cash Investing and Financing Activities
Capital expenditures included in accounts payable and other current liabilities		133			208

See accompanying Notes to Condensed Consolidated Financial Statements.

5

Condensed Consolidated Balance Sheets

Yum China Holdings, Inc.

(in US$ millions)

	9/30/2022		12/31/2021
	(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents	$	1,211	$	1,136
Short-term investments		2,826		2,860
Accounts receivable, net		66		67
Inventories, net		321		432
Prepaid expenses and other current assets		286		221
Total Current Assets		4,710		4,716
Property, plant and equipment, net		1,965		2,251
Operating lease right-of-use assets		2,154		2,612
Goodwill		1,927		2,142
Intangible assets, net		176		272
Investments in unconsolidated affiliates		256		292
Deferred income tax assets		89		106
Other assets		419		832
Total Assets	$	11,696	$	13,223
LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND EQUITY
Current Liabilities
Accounts payable and other current liabilities	$	1,992	$	2,332
Income taxes payable		112		51
Total Current Liabilities		2,104		2,383
Non-current operating lease liabilities		1,862		2,286
Non-current finance lease liabilities		36		40
Deferred income tax liabilities		370		425
Other liabilities		156		167
Total Liabilities		4,528		5,301
Redeemable Noncontrolling Interest		13		14
Equity
Common stock, $0.01 par value; 1,000 million shares authorized; 419 million shares     and 449 million shares issued at September 30, 2022 and December 31, 2021, respectively;     419 million shares and 428 million shares outstanding at September 30, 2022 and     December 31, 2021, respectively		4		4
Treasury stock		—		(803	)
Additional paid-in capital