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		4,458		4,666
Redeemable Noncontrolling Interest		12		12
Equity
Common stock, $0.01 par value; 1,000 million shares authorized;        417 million shares and 419 million shares issued and outstanding        at June 30, 2023 and December 31, 2022, respectively		4		4
Additional paid-in capital		4,396		4,390
Retained earnings		2,465		2,191
Accumulated other comprehensive loss