yumc-10q_20180630.htm

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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 2, 2018 was 383,246,732 shares.

	Quarter Ended						Year to Date Ended
Revenues	6/30/2018			6/30/2017			6/30/2018			6/30/2017
Company sales	$	1,888		$	1,664		$	3,904		$	3,402
Franchise fees and income		34			33			74			69
Revenues from transactions with franchisees and unconsolidated affiliates		141			141			302			288
Other revenues		5			3			9			8
Total revenues		2,068			1,841			4,289			3,767
Costs and Expenses, Net
Company restaurants
Food and paper		571			483			1,165			969
Payroll and employee benefits		424			366			866			734
Occupancy and other operating expenses		607			539			1,226			1,069
Company restaurant expenses		1,602			1,388			3,257			2,772
General and administrative expenses		101			118			215			216
Franchise expenses		17			17			37			35
Expenses for transactions with franchisees and unconsolidated affiliates		138			137			298			284
Other operating costs		7			3			11			6
Closures and impairment expenses, net		17			18			16			18
Other income, net		(7	)		(11	)		(133	)		(31	)
Total costs and expenses, net		1,875			1,670			3,701			3,300
Operating Profit		193			171			588			467
Interest income, net		10			4			18			8
Income Before Income Taxes		203			175			606			475
Income tax provision		(53	)		(43	)		(160	)		(133	)
Net income – including noncontrolling interests		150			132			446			342
Net income – noncontrolling interests		7			7			15			13
Net Income – Yum China Holdings, Inc.	$	143		$	125		$	431		$	329
Weighted-average common shares outstanding (in millions):
Basic		386			387			386			387
Diluted		398			399			400			397
Basic Earnings Per Common Share	$	0.37		$	0.32		$	1.12		$	0.85
Diluted Earnings Per Common Share	$	0.36		$	0.31		$	1.08		$	0.83
Cash Dividends Declared Per Common Share	$	0.10		$	—		$	0.20		$	—

	Quarter Ended					Year to Date Ended
	6/30/2018			6/30/2017		6/30/2018			6/30/2017

Net income - including noncontrolling interests	$	150		$	132	$	446		$	342
Other comprehensive income, net of tax of nil:
Foreign currency translation adjustments		(148	)		32		(58	)		47
Comprehensive income - including noncontrolling interests		2			164		388			389
Comprehensive income - noncontrolling interests		2			8		13			15
Comprehensive Income - Yum China Holdings, Inc.	$	—		$	156	$	375		$	374

	Year to Date Ended
	6/30/2018			6/30/2017
Cash Flows – Operating Activities
Net income – including noncontrolling interests	$	446		$	342
Depreciation and amortization		235			196
Closures and impairment expenses		16			18
Gain from re-measurement of equity interest upon acquisition		(98	)		—
Deferred income taxes		42			(3	)
Equity income from investments in unconsolidated affiliates		(35	)		(35	)
Distributions received from unconsolidated affiliates		41			31
Share-based compensation		13			11
Changes in accounts receivable		(2	)		12
Changes in inventories		18			(3	)
Changes in prepaid expenses and other current assets		(28	)		(1	)
Changes in accounts payable and other current liabilities		182			46
Changes in income taxes payable		20			20
Other, net		(31	)		(30	)
Net Cash Provided by Operating Activities		819			604
Cash Flows – Investing Activities
Capital spending		(230	)		(204	)
Purchases of short-term investments		(370	)		(318	)
Maturities of short-term investments		295			81
Proceeds from refranchising of restaurants		3			3
Acquisition of business, net of cash acquired		(88	)		(25	)
Other, net		(16	)		(2	)
Net Cash Used in Investing Activities		(406	)		(465	)
Cash Flows – Financing Activities
Payment of capital lease obligation		(1	)		(1	)
Repayment of short-term borrowings assumed from acquisition		(10	)		—
Repurchase of shares of common stock		(70	)		(96	)
Proceeds from exercise of stock options		—			4
Cash dividends paid		(77	)		—
Dividends paid to noncontrolling interests		(27	)		(17	)
Other, net		(1	)		—
Net Cash Used in Financing Activities		(186	)		(110	)
Effect of Exchange Rates on Cash and Cash Equivalents		(25	)		12
Net Increase in Cash and Cash Equivalents		202			41
Cash and Cash Equivalents - Beginning of Period		1,059			885
Cash and Cash Equivalents - End of Period	$	1,261		$	926

Supplemental Cash Flow Data
Cash paid for income tax		114			121

	6/30/2018			12/31/2017
ASSETS
Current Assets
Cash and cash equivalents	$	1,261		$	1,059
Short-term investments		278			205
Accounts receivable, net		73			81
Inventories, net		276			297
Prepaid expenses and other current assets		205			160
Total Current Assets		2,093			1,802
Property, plant and equipment, net		1,657			1,691
Goodwill		276			108
Intangible assets, net		145			101
Investments in unconsolidated affiliates		53			95
Other assets		421			385
Deferred income taxes		85			105
Total Assets	$	4,730		$	4,287
LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND EQUITY
Current Liabilities
Accounts payable and other current liabilities	$	1,147		$	985
Income taxes payable		59			39
Total Current Liabilities		1,206			1,024
Capital lease obligations		27			28
Other liabilities and deferred credits		396			388
Total Liabilities		1,629			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 June 30, 2018 and December 31, 2017, respectively; 385 million shares and 385 million shares outstanding at June 30, 2018 and December 31, 2017, respectively		4			4
Treasury stock		(221	)		(148	)
Additional paid-in capital		2,388			2,375
Retained earnings		751			397
Accumulated other comprehensive income		81			137
Total Equity – Yum China Holdings, Inc.		3,003			2,765
Noncontrolling interests		93			77
Total Equity		3,096			2,842
Total Liabilities, Redeemable Noncontrolling Interest and Equity	$	4,730		$	4,287

Yum China Holdings, Inc. (“Yum China” and, together with its subsidiaries, the “Company,” “we,” “us” and “our”) was incorporated in Delaware on April 1, 2016. The Company separated from Yum! Brands, Inc. (“YUM” or the “Parent”) on October 31, 2016 (the “separation”), becoming an independent publicly traded company as a result of a pro rata distribution (the “distribution”) of all outstanding shares of Yum China common stock to shareholders of YUM. On October 31, 2016, YUM’s shareholders of record as of 5:00 p.m. Eastern Time on October 19, 2016 received one share of Yum China common stock for every one share of YUM common stock held as of the record date. Yum China’s common stock began trading “regular way” under the ticker symbol “YUMC” on the New York Stock Exchange on November 1, 2016.

The Company owns, franchises or has an ownership in entities that own and operate restaurants under the KFC, Pizza Hut, East Dawning, Little Sheep and Taco Bell concepts (collectively, the “Concepts”). In connection with the separation of the Company from YUM, Yum! Restaurants Asia Pte. Ltd., a wholly-owned indirect subsidiary of YUM, and Yum Restaurants Consulting (Shanghai) Company Limited (“YCCL”), a wholly-owned indirect subsidiary of Yum China, entered into a 50-year master license agreement with automatic renewals for additional consecutive renewal terms of 50 years each, subject only to YCCL being in “good standing” and unless YCCL gives notice of its intent not to renew, for the exclusive right to use and sub-license the use of intellectual property owned by YUM and its subsidiaries for the development and operation of the KFC, Pizza Hut and, subject to achieving certain agreed-upon milestones, Taco Bell brands and their related marks and other intellectual property rights for restaurant services in the People’s Republic of China, excluding Hong Kong, Taiwan and Macau (the “PRC” or “China”). In exchange, we pay a license fee to YUM equal to 3% of net system sales from both our Company and franchise restaurants. We own the East Dawning and Little Sheep intellectual property and pay no license fee related to these concepts.

The Company also owns a controlling interest in the holding company of DAOJIA.com.cn (“Daojia”), an established online food delivery service provider in China.

In connection with our separation from YUM, the direct and indirect equity interests of all of our operating subsidiaries and intermediate holding companies were transferred from YUM to Yum China, when Yum China was still one of YUM’s subsidiaries, through a series of transactions, which were completed in August 2016. The Company separated from YUM on October 31, 2016, becoming an independent publicly traded company as a result of a pro rata distribution of all outstanding shares of Yum China common stock to shareholders of YUM.

For periods prior to October 31, 2016, the combined financial statements of YUM’s China businesses and operations when Yum China was a wholly-owned subsidiary of YUM are referred to as Condensed Combined Financial Statements. For periods subsequent to October 31, 2016, the consolidated financial statements of the Company as a separate publicly traded company following its separation from YUM are referred to as Condensed Consolidated Financial Statements.

Our preparation of the accompanying Condensed Consolidated Financial Statements in conformity with Generally Accepted Accounting Principles in the United States of America (“GAAP”) requires us to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

We have prepared the Condensed Consolidated Financial Statements in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The Condensed Consolidated Financial Statements include all normal and recurring adjustments considered necessary to present fairly our financial position as of June 30, 2018, and the results of our operations and comprehensive income for the quarters and years to date ended June 30, 2018 and 2017, and cash flows for the years to date ended June 30, 2018 and 2017. Our results of operations, comprehensive income and cash flows for these interim periods are not necessarily indicative of the results to be expected for the full year. These statements should be read in conjunction with the Consolidated and Combined Financial Statements and notes thereto defined and included in the Company’s Annual Report on Form 10-K as filed with the SEC on February 27, 2018.

Through the acquisition of Daojia during the second quarter of 2017, the Company also acquired a variable interest entity (“VIE”) and subsidiaries of the VIE effectively controlled by Daojia. There exists a parent-subsidiary relationship between Daojia and its VIE as a result of certain exclusive agreements that require Daojia to consolidate its VIE and subsidiaries of the VIE because Daojia is the primary beneficiary that possesses the power to direct the activities of the VIE that most significantly impact its economic performance and has the obligation to absorb substantially all of the profits and all of the expected losses of the VIE. The acquired VIE and its subsidiaries were considered immaterial, both individually and in the aggregate. The results of Daojia’s operations have been included in the Company’s Condensed Consolidated Financial Statements since the acquisition date.

During the first quarter of 2018, the Company completed the acquisition of an additional 36% equity interest in an unconsolidated affiliate that operates KFC stores in Wuxi, China (“Wuxi KFC”), for cash consideration of approximately $98 million, increasing the Company’s equity interest to 83%, allowing the Company to consolidate the entity. The acquisition was considered immaterial. We began consolidating Wuxi KFC upon the completion of acquisition.

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASC 606”), to provide principles within a single framework for revenue recognition of transactions involving contracts with customers across all industries. The standard allows for either a full retrospective or modified retrospective transition method. In March, April and May 2016, the FASB issued the following amendments to clarify the implementation guidance: ASU No. 2016-04, Liabilities-Extinguishments of liabilities (Subtopic 450-20): Revenue of Breakage for Certain Prepaid Stored-Value Products (a consensus of the FASB Emerging Issues Task Force), ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), ASU No. 2016-10 Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing and ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. The Company adopted these standards on January 1, 2018, and applied the full retrospective approach.

The new standard did not have an impact on our recognition of revenue from Company-owned restaurants or our recognition of continuing fees from franchisees and unconsolidated affiliates; however, it changed the way we account for upfront fees. Upfront fees, such as initial and renewal fees from franchisees and unconsolidated affiliates, were previously recognized as revenue when we performed substantially all initial services required by the franchise agreement, generally upon the opening of a store or when a renewal agreement with a franchisee became effective. We now recognize the upfront fees from franchisees and unconsolidated affiliates as revenue over the term of each franchise agreement as the franchise rights are accounted for as rights to access our symbolic intellectual property in accordance with the new standard. Any unamortized portion of fees received is accounted for as a contract liability.

The new standard also had an impact on certain transactions we entered into with franchisees and unconsolidated affiliates, such as sales of food and paper products and advertising services. These transactions were previously either not included or presented on a net basis in our statements of income or cash flows based on industry-specific guidance included in previous accounting guidance, which was superseded by the new standard. Under the new standard, we consider ourselves the principal in these arrangements as we have the ability to control a promised good or service before transferring that good or service to the customer. Therefore, we include such transactions in revenues and expenses on the Condensed Consolidated Statements of Income with no significant impact to Net income.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230) (“ASU 2016-15”), which provides clarification regarding how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. ASU 2016-15 is effective for annual and interim periods beginning after December 15, 2017, with early adoption permitted. We adopted ASU 2016-15 on January 1, 2018, and such adoption did not have a material impact on our financial statements.

In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory (“ASU 2016-16”), which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. We adopted ASU 2016-16 on January 1, 2018, and such adoption did not have a material impact on our financial statements.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”), which requires that entities show the changes in total cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. We adopted ASU 2016-18 on January 1, 2018, and such adoption did not have a material impact on our financial statements.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”), which revises the definition of a business and provides new guidance in evaluating when a set of transferred assets and activities is a business. We adopted ASU 2017-01 on January 1, 2018, and such adoption did not have a material impact on our financial statements.

Certain comparative items in the Condensed Consolidated Financial Statements have been reclassified to conform to the current period’s presentation to facilitate comparison.

Our fiscal year ends on December 31. Effective at the beginning of fiscal year 2018, the Company changed its fiscal calendar from two months in the first quarter, three months in the second and third quarters and four months in the fourth quarter, to four three-month quarters ending on March 31, June 30, September 30 and December 31 of each year. The change was made to align with how management now measures performance internally and to facilitate the comparability of our results with peers using calendar quarters. Quarterly results of all prior financial periods presented have been recast as if they had been reported under our new fiscal calendar.

The Company’s revenues primarily include Company sales, Franchise fees and income and Revenues from transactions with franchisees and unconsolidated affiliates.

Revenues from Company-owned restaurants are recognized when a customer takes possession of the food and tenders payment, which is when our obligation to perform is satisfied. The Company presents sales net of sales-related taxes. We recognize revenues from prepaid stored-value products, including gift cards and product vouchers, when they are redeemed by the customer. Prepaid gift cards sold at any given point generally expire over the next 36 months, and product vouchers generally expire over a period of up to 12 months. We recognize breakage revenue, which is the amount of prepaid stored-value products that is not expected to be redeemed, either (1) proportionally in earnings as redemptions occur, in situations where the Company expects to be entitled to a breakage amount, or (2) when the likelihood of redemption is remote, in situations where the Company does not expect to be entitled to breakage, provided that there is no requirement for remitting balances to government agencies under unclaimed property laws. The Company reviews its breakage estimates at least annually based upon the latest available information regarding redemption and expiration patterns.

Franchise fees and income primarily include upfront fees, such as initial fees and renewal fees, and continuing fees. We have determined that the services we provide in exchange for upfront fees and continuing fees are highly interrelated with the franchise right. We recognize upfront fees received from a franchisee as revenue over the term of the franchise agreement or the renewal agreement because the franchise rights are accounted for as rights to access our symbolic intellectual property in accordance with ASC 606. The franchise agreement term is generally 10 years for KFC and Pizza Hut, and five or 10 years for Little Sheep. We recognize continuing fees, which are based upon a percentage of franchisee sales, as those sales occur.

Revenues from transactions with franchisees and unconsolidated affiliates consist primarily of sales of food and paper products, advertising services and other services provided to franchisees and unconsolidated affiliates.

The Company centrally purchases substantially all food and paper products from suppliers for substantially all of our restaurants, including franchisees and unconsolidated affiliates, and then sells and delivers them to the restaurants. The performance obligation arising from such transactions is considered distinct from the franchise agreement as it is not highly dependent on the franchise agreement and the customer can benefit from the procurement service on its own. We consider ourselves the principal in this arrangement as we have the ability to control a promised good or service before transferring that good or service to the franchisees and unconsolidated affiliates. Revenue is recognized upon transfer of control over ordered items, generally upon delivery to the franchisees and unconsolidated affiliates.

For advertising services, the Company often engages third parties to provide services and acts as a principal in the transaction based on our responsibilities of defining the nature of the services and administering and directing all marketing and advertising programs in

accordance with the provisions of our franchise agreements. The Company collects advertising contributions, which are generally based on certain percentage of sales from substantially all of our restaurants, including franchisees and unconsolidated affiliates. Other services provided to franchisees and unconsolidated affiliates consist primarily of customer support and technology support services. Advertising services and other services provided are highly interrelated to franchise right, so we do not consider them to be individually distinct and therefore account for them under ASC 606 as a single performance obligation and recognize revenue when the related sales occur.

Each of the Company’s KFC and Pizza Hut reportable segments operates a loyalty program that allows registered members to earn points for each qualifying purchase. Points, which generally expire 18 months after being earned, may be redeemed for future purchases of KFC or Pizza Hut branded products or other products for free or at a discounted price. Points cannot be redeemed or exchanged for cash. The value of points earned by the loyalty program members is recorded as a reduction of revenue at the time the points are earned, based on the percentage of points that are projected to be redeemed, with a corresponding deferred revenue liability included in Accounts payable and other current liabilities on the Condensed Consolidated Balance Sheets and subsequently recognized into revenue when the points are redeemed. The Company estimates the value of the future redemption obligations based on the estimated value of the product for which points are expected to be redeemed and historical redemption patterns, including an estimate of the breakage for points that members will never redeem. The Company reviews its breakage estimates at least annually based upon the latest available information regarding redemption and expiration patterns.

Accounts receivable mainly consist of trade receivables and royalties from franchisees and unconsolidated affiliates, and are generally due within 30 days of the period in which the corresponding sales occur and are classified as Accounts receivable on the Condensed Consolidated Balance Sheets. Our provision for uncollectible receivable balances is based upon pre-defined aging criteria or upon the occurrence of other events that indicate that we may not collect the balance due. Additionally, we monitor the financial condition of our franchisees and record provisions for estimated losses on receivables when we believe it probable that our franchisees will be unable to make their required payments. While we use the best information available in making our determination, the ultimate recovery of recorded receivables is also dependent upon future economic events and other conditions that may be beyond our control. Trade receivables that are ultimately deemed to be uncollectible, and for which collection efforts have been exhausted, are written off against the allowance for doubtful accounts.

Costs to obtain contracts represent the portion of upfront license fees that we paid to YUM prior to the separation in relation to initial fees or renewal fees we received from franchisees and unconsolidated affiliates. They meet the requirements to be capitalized as the Company expects to generate future economic benefits from such costs incurred, which allow us to enter into franchise agreements and collect fees. Such costs to obtain contracts are included in Other assets on the Condensed Consolidated Balance Sheets and are amortized over the term of the franchise agreement. Subsequent to the separation, we are no longer required to pay YUM any upfront fees that we receive from franchisees and unconsolidated affiliates. The Company did not incur any impairment losses related to costs to obtain contracts during any of the periods presented. Costs to obtain contracts were $9 million and $12 million at June 30, 2018 and December 31, 2017, respectively.

Contract liabilities consist of deferred revenue related to prepaid stored-value products, customer loyalty programs and upfront fees. Deferred revenue related to prepaid stored-value products and customer loyalty programs is included in Accounts payable and other current liabilities on the Condensed Consolidated Balance Sheets. Deferred revenue related to upfront fees that we expect to recognize as revenue in the next 12 months is included in Accounts payable and other current liabilities, and the remaining balance is included in

Other liabilities and deferred credits on the Condensed Consolidated Balance Sheets. Revenue recognized in the quarter and year to date ended June 30, 2018 that was included in the contract liability balance at the beginning of each period amounted to $18 million and $30 million, respectively. Changes in contract liability balances were not materially impacted by business acquisition, change in estimate of transaction price or any other factors during any of the periods presented.

The Company has elected, as a practical expedient, not to disclose the value of remaining performance obligations associated with sales-based royalty promised to franchisees in exchange for franchise right and other related services. The remaining duration of the performance obligation is the remaining contractual term of each franchise agreement. We recognize continuing franchisee fees and revenues from advertising services and other services provided to franchisees and unconsolidated affiliates based on certain percentage of sales, as those sales occur.

The following table summarizes the components of basic and diluted EPS (in millions, except for per share data):

	Quarter Ended				Year to Date Ended
	6/30/2018		6/30/2017		6/30/2018		6/30/2017
Net Income – Yum China Holdings, Inc.	$	143	$	125	$	431	$	329
Weighted-average common shares outstanding (for basic calculation) ^(a)		386		387		386		387
Effect of dilutive share-based employee compensation ^(a)		10		11		11		9
Effect of dilutive warrants ^(b)		2		1		3		1
Weighted-average common and dilutive potential common shares outstanding (for diluted calculation)		398		399		400		397
Basic Earnings Per Common Share	$	0.37	$	0.32	$	1.12	$	0.85
Diluted Earnings Per Common Share	$	0.36	$	0.31	$	1.08	$	0.83
Employee stock options, stock appreciation rights and warrants excluded from the diluted EPS computation ^(c)		1		10		1		14

	Yum China Holdings, Inc.
										Accumulated
	Common				Additional					Other															Redeemable
	Stock				Paid-in		Retained			Comprehensive			Treasury Stock						Noncontrolling			Total			Noncontrolling
	Shares		Amount		Capital		Earnings			Income			Shares			Amount			Interests			Equity			Interest
Balance at December 31, 2017		389	$	4	$	2,375	$	397		$	137			(4	)	$	(148	)	$	77		$	2,842		$	5
Net Income								431												15			446
Foreign currency translation adjustments											(56	)								(2	)		(58	)
Comprehensive income																							388
Acquisition of business																				36			36
Cash dividends declared ($0.20 per common share)								(77	)														(77	)
Dividends declared																				(33	)		(33	)
Repurchase of shares of common stock														(2	)		(73	)					(73	)
Exercise and vesting of share-based awards		2		—		—																	—
Share-based compensation						13

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)

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐ (Do not check if a small reporting company)	Smaller reporting company	☐
		Emerging growth company	☐

		Page
		No.

Part I.	Financial Information

	Item 1 – Financial Statements	3

	Condensed Consolidated Statements of Income – Quarters and Years to Date Ended June 30, 2018 and 2017	3

	Condensed Consolidated Statements of Comprehensive Income – Quarters and Years to Date Ended June 30, 2018 and 2017	4

	Condensed Consolidated Statements of Cash Flows – Years to Date Ended June 30, 2018 and 2017	5

	Condensed Consolidated Balance Sheets – June 30, 2018 and December 31, 2017	6

	Notes to Condensed Consolidated Financial Statements	7

	Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

	Item 3 – Quantitative and Qualitative Disclosures about Market Risk	34

	Item 4 – Controls and Procedures	34

Part II.	Other Information

	Item 1 – Legal Proceedings	35

	Item 1A – Risk Factors	35

	Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	35

	Item 6 – Exhibits	36

	Signatures	37

Contract liabilities	6/30/2018		12/31/2017
- Deferred revenue related to prepaid stored-value products	$	51	$	50
- Deferred revenue related to customer loyalty programs		22		16
- Deferred revenue related to upfront fees		37		39
Total	$	110	$	105