Attached files

file filename
EX-32.2 - EX-32.2 - Yum China Holdings, Inc.yumc-ex322_7.htm
EX-32.1 - EX-32.1 - Yum China Holdings, Inc.yumc-ex321_6.htm
EX-31.2 - EX-31.2 - Yum China Holdings, Inc.yumc-ex312_8.htm
EX-31.1 - EX-31.1 - Yum China Holdings, Inc.yumc-ex311_9.htm

 

 

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 August 31, 2016

 

 

 

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

 

16/F Two Grand Gateway

3 Hong Qiao Road

Shanghai  200030

People’s Republic of China

(Address, including zip code, of principal executive offices)

 

 

 

Registrant’s telephone number, including area code:  (888) 298-6986

 

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 or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer:   Accelerated filer:   Non-accelerated filer:   Smaller reporting company:  

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 14, 2016 was 383,141,924.42 shares.

 

 

 


 

Yum China Holdings, Inc.

INDEX

 

 

 

Page

 

 

No.

 

 

 

Part I.

Financial Information

 

 

 

 

 

Item 1 – Financial Statements

3

 

 

 

 

Condensed Combined Statements of Income – Quarters and Years to date ended August 31, 2016 and August 31, 2015

3

 

 

 

 

Condensed Combined Statements of Comprehensive Income – Quarters and Years to date ended August 31, 2016 and August 31, 2015

4

 

 

 

 

Condensed Combined Statements of Cash Flows – Years to date ended August 31, 2016 and August 31, 2015

5

 

 

 

 

Condensed Combined Balance Sheets – August 31, 2016 and December 31, 2015

6

 

 

 

 

Notes to Condensed Combined Financial Statements

7

 

 

 

 

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

15

 

 

 

 

Item 3 – Quantitative and Qualitative Disclosures about Market Risk

25

 

 

 

 

Item 4 – Controls and Procedures

26

 

 

 

Part II.

Other Information and Signatures

 

 

 

 

 

Item 1 – Legal Proceedings

27

 

 

 

 

Item 1A – Risk Factors

27

 

 

 

 

Item 6 – Exhibits

28

 

 

 

 

Signatures

30

 

 

2


 

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

 

Condensed Combined Statements of Income

Yum China Holdings, Inc.

(in millions - Unaudited)

 

 

 

Quarter ended

 

Year to date

Revenues

 

8/31/2016

 

8/31/2015

 

8/31/2016

 

8/31/2015

Company sales

 

$

1,848

 

 

 

$

1,935

 

 

 

$

4,684

 

 

 

$

4,778

 

 

Franchise fees and income

 

 

35

 

 

 

 

34

 

 

 

 

90

 

 

 

 

83

 

 

Total revenues

 

 

1,883

 

 

 

 

1,969

 

 

 

 

4,774

 

 

 

 

4,861

 

 

Costs and Expenses, Net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company restaurants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Food and paper

 

 

514

 

 

 

 

611

 

 

 

 

1,361

 

 

 

 

1,518

 

 

Payroll and employee benefits

 

 

376

 

 

 

 

356

 

 

 

 

963

 

 

 

 

933

 

 

Occupancy and other operating expenses

 

 

602

 

 

 

 

650

 

 

 

 

1,562

 

 

 

 

1,632

 

 

Company restaurant expenses

 

 

1,492

 

 

 

 

1,617

 

 

 

 

3,886

 

 

 

 

4,083

 

 

General and administrative expenses

 

 

101

 

 

 

 

90

 

 

 

 

271

 

 

 

 

258

 

 

Franchise expenses

 

 

20

 

 

 

 

20

 

 

 

 

51

 

 

 

 

49

 

 

Closures and impairment expenses, net

 

 

5

 

 

 

 

3

 

 

 

 

36

 

 

 

 

22

 

 

Refranchising gain, net

 

 

(4

)

 

 

 

(3

)

 

 

 

(8

)

 

 

 

(7

)

 

Other income, net

 

 

(17

)

 

 

 

(13

)

 

 

 

(44

)

 

 

 

(27

)

 

Total costs and expenses, net

 

 

1,597

 

 

 

 

1,714

 

 

 

 

4,192

 

 

 

 

4,378

 

 

Operating Profit

 

 

286

 

 

 

 

255

 

 

 

 

582

 

 

 

 

483

 

 

Interest income, net

 

 

3

 

 

 

 

2

 

 

 

 

7

 

 

 

 

4

 

 

Income Before Income Taxes

 

 

289

 

 

 

 

257

 

 

 

 

589

 

 

 

 

487

 

 

Income tax provision

 

 

(87

)

 

 

 

(65

)

 

 

 

(165

)

 

 

 

(130

)

 

Net income – including noncontrolling interests

 

 

202

 

 

 

 

192

 

 

 

 

424

 

 

 

 

357

 

 

Net income – noncontrolling interests

 

 

10

 

 

 

 

5

 

 

 

 

10

 

 

 

 

5

 

 

Net Income – Yum China Holdings, Inc.

 

$

192

 

 

 

$

187

 

 

 

$

414

 

 

 

$

352

 

 

 

See accompanying Notes to Condensed Combined Financial Statements.

 

 

3


 

Condensed Combined Statements of Comprehensive Income

Yum China Holdings, Inc.

(in millions - Unaudited)

 

 

 

 

Quarter ended

 

Year to date

 

 

8/31/2016

 

8/31/2015

 

8/31/2016

 

8/31/2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income - including noncontrolling interests

 

$

202

 

 

 

$

192

 

 

 

$

424

 

 

 

$

357

 

 

Other comprehensive loss, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency losses arising during the period

 

 

(28

)

 

 

 

(61

)

 

 

 

(57

)

 

 

 

(60

)

 

Comprehensive Income - including noncontrolling interests

 

 

174

 

 

 

 

131

 

 

 

 

367

 

 

 

 

297

 

 

Comprehensive Income - noncontrolling interests

 

 

8

 

 

 

 

4

 

 

 

 

9

 

 

 

 

3

 

 

Comprehensive Income - Yum China Holdings, Inc.

 

$

166

 

 

 

$

127

 

 

 

$

358

 

 

 

$

294

 

 

 

See accompanying Notes to Condensed Combined Financial Statements.

 

 

4


 

Condensed Combined Statements of Cash Flows

Yum China Holdings, Inc.

(in millions - Unaudited)

 

 

 

 

Year to date

 

 

8/31/2016

 

8/31/2015

Cash Flows – Operating Activities

 

 

 

 

 

 

 

 

 

 

Net Income – including noncontrolling interests

 

$

424

 

 

 

$

357

 

 

Depreciation and amortization

 

 

272

 

 

 

 

285

 

 

Closures and impairment expenses

 

 

36

 

 

 

 

22

 

 

Refranchising gain

 

 

(8

)

 

 

 

(7

)

 

Deferred income taxes

 

 

(26

)

 

 

 

(11

)

 

Equity income from investments in unconsolidated affiliates

 

 

(44

)

 

 

 

(31

)

 

Distributions of income received from unconsolidated affiliates

 

 

18

 

 

 

 

9

 

 

Excess tax benefits from share-based compensation

 

 

(2

)

 

 

 

(3

)

 

Share-based compensation expense

 

 

9

 

 

 

 

8

 

 

Changes in accounts receivable

 

 

(15

)

 

 

 

(3

)

 

Changes in inventories

 

 

(35

)

 

 

 

64

 

 

Changes in prepaid expenses and other current assets

 

 

12

 

 

 

 

 

 

Changes in accounts payable and other current liabilities

 

 

149

 

 

 

 

155

 

 

Changes in income taxes payable

 

 

54

 

 

 

 

62

 

 

Other, net

 

 

(22

)

 

 

 

11

 

 

Net Cash Provided by Operating Activities

 

 

822

 

 

 

 

918

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash Flows – Investing Activities

 

 

 

 

 

 

 

 

 

 

Capital spending

 

 

(268

)

 

 

 

(357

)

 

Proceeds from refranchising of restaurants

 

 

19

 

 

 

 

14

 

 

Proceeds from disposal of aircraft

 

 

19

 

 

 

 

 

 

Other, net

 

 

(2

)

 

 

 

(2

)

 

Net Cash Used in Investing Activities

 

 

(232

)

 

 

 

(345

)

 

 

 

 

 

 

 

 

 

 

 

 

Cash Flows – Financing Activities

 

 

 

 

 

 

 

 

 

 

Net transfers to Parent

 

 

(243

)

 

 

 

(194

)

 

Payment of capital lease obligation

 

 

(3

)

 

 

 

(2

)

 

Excess tax benefits from share-based compensation

 

 

2

 

 

 

 

3

 

 

Other, net

 

 

(3

)

 

 

 

 

 

Net Cash Used in Financing Activities

 

 

(247

)

 

 

 

(193

)

 

Effect of Exchange Rates on Cash and Cash Equivalents

 

 

(18

)

 

 

 

(15

)

 

Net Increase in Cash and Cash Equivalents

 

 

325

 

 

 

 

365

 

 

Cash and Cash Equivalents - Beginning of Period

 

 

425

 

 

 

 

238

 

 

Cash and Cash Equivalents - End of Period

 

$

750

 

 

 

$

603

 

 

 

See accompanying Notes to Condensed Combined Financial Statements.

 

 

5


 

Condensed Combined Balance Sheets

Yum China Holdings, Inc.

(in millions)

 

 

 

 

8/31/2016

 

12/31/2015

ASSETS

 

(Unaudited)

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

750

 

 

 

$

425

 

 

Accounts receivable, net

 

 

110

 

 

 

 

76

 

 

Inventories

 

 

218

 

 

 

 

189

 

 

Prepaid expenses and other current assets

 

 

80

 

 

 

 

109

 

 

Total Current Assets

 

 

1,158

 

 

 

 

799

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

1,707

 

 

 

 

1,841

 

 

Goodwill

 

 

82

 

 

 

 

85

 

 

Intangible assets, net

 

 

96

 

 

 

 

107

 

 

Investments in unconsolidated affiliates

 

 

64

 

 

 

 

61

 

 

Other assets

 

 

217

 

 

 

 

192

 

 

Deferred income taxes

 

 

139

 

 

 

 

116

 

 

Total Assets

 

$

3,463

 

 

 

$

3,201

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND

   EQUITY

 

 

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

 

 

Accounts payable and other current liabilities

 

$

1,019

 

 

 

$

926

 

 

Income taxes payable

 

 

73

 

 

 

 

22

 

 

Total Current Liabilities

 

 

1,092

 

 

 

 

948

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital lease obligations

 

 

29

 

 

 

 

34

 

 

Other liabilities and deferred credits

 

 

232

 

 

 

 

234

 

 

Total Liabilities

 

 

1,353

 

 

 

 

1,216

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable Noncontrolling Interest

 

 

 

 

 

 

6

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

 

 

Parent Company investment

 

 

1,971

 

 

 

 

1,791

 

 

Accumulated other comprehensive income

 

 

73

 

 

 

 

130

 

 

Total Equity – Yum China Holdings, Inc.

 

 

2,044

 

 

 

 

1,921

 

 

Noncontrolling interests

 

 

66

 

 

 

 

58

 

 

Total Equity

 

 

2,110

 

 

 

 

1,979

 

 

Total Liabilities, Redeemable Noncontrolling Interest and Equity

 

$

3,463

 

 

 

$

3,201

 

 

 

See accompanying Notes to Condensed Combined Financial Statements.

 

 

6


 

Notes to Condensed Combined Financial Statements (Unaudited)

(Tabular amounts in millions)

 

 

Note 1 – Description of the Business

Yum China Holdings, Inc. (the “Company”) owns, franchises or has ownership in entities that own and operate restaurants under the KFC, Pizza Hut Casual Dining, Pizza Hut Home Service, East Dawning and Little Sheep concepts (collectively, the “Concepts”). The Company was incorporated in Delaware on April 1, 2016. The Company separated from Yum! Brands, Inc. (“YUM” or the “Parent”) on October 31, 2016, becoming an independent publicly traded company as a result of a pro rata distribution to shareholders of YUM. YUM’s Board of Directors approved the distribution of its shares of the Company on September 23, 2016 and the Company’s Registration Statement was declared effective by the U.S. Securities and Exchange Commission (“SEC”) on October 7, 2016. On October 31, 2016, YUM’s shareholders of record as of October 19, 2016 received one share of the Company’s common stock for every one share of YUM’s common stock held as of the record date. The Company began trading “regular way” under the ticker symbol “YUMC” on the New York Stock Exchange on November 1, 2016. References to the Company throughout these Condensed Combined Financial Statements are made using the first person notations of “we,” “us” or “our.”

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 the Company, 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 sublicense the use of intellectual property owned by YUM and its subsidiaries for the development and operation of the KFC, Pizza Hut Casual Dining and Pizza Hut Home Services brands and their related marks and other intellectual property rights for restaurant services in the People’s Republic of China (the “PRC” or “China”). In addition, subject to certain agreed-upon milestones, the Company has an exclusive license under the master license agreement to operate and develop Taco Bell restaurants and use the related marks in the PRC. In exchange, we pay a license fee to YUM equal to 3% of net 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 operations of each Concept represent an operating segment of the Company within these Condensed Combined Financial Statements. We have two reportable segments: KFC and Pizza Hut Casual Dining. Our remaining operating segments, including the operations of Pizza Hut Home Service, East Dawning and Little Sheep, are combined and referred to as All Other Segments, as those operating segments are insignificant both individually and in the aggregate.

 

 

Note 2 – Summary of Significant Accounting Policies

 

Basis of Presentation

These accompanying Condensed Combined Financial Statements have been prepared on a standalone basis and are derived from YUM’s Condensed Consolidated Financial Statements and underlying accounting records as if the Company had been a part of YUM for all periods presented. The unaudited Condensed Combined Financial Statements reflect the Company’s financial position, results of operations and cash flows as the business was operated as part of YUM prior to the distribution, in conformity with Generally Accepted Accounting Principles in the United States (“GAAP”).

The Condensed Combined Financial Statements include all revenues, costs, assets and liabilities directly attributable to the Company either through specific identification or allocation. The Condensed Combined Statements of Income include allocations for certain of YUM’s Corporate functions that provided a direct benefit to the Company. These costs have been allocated based on Company system sales relative to YUM’s global system sales. System sales includes the sales results of all restaurants regardless of ownership. All allocated costs have been deemed to have been paid to YUM in the period in which the costs were recorded. The Company considers the cost allocation methodology and results to be reasonable for all periods presented. However, the allocations may not be indicative of the actual expense that would have been incurred had the Company operated as an independent, publicly traded company for the periods presented. See Note 3 for further discussion.

We have prepared the unaudited Condensed Combined Financial Statements in accordance with the rules and regulations of the SEC for interim financial information.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.  These statements should be read in conjunction with the Combined Financial Statements and notes thereto included in the Company’s Information Statement filed as Exhibit 99.1 to the Company’s Registration Statement on Form 10 as filed with the SEC, which became effective on October 7, 2016 (the “Information Statement”).

7


 

Our preparation of the accompanying Condensed Combined Financial Statements in conformity with 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 Condensed Combined Financial Statements, and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from these estimates. Transactions between the Company and YUM that were not cash settled were considered to be effectively settled at the time the transactions were recorded.

The accompanying Condensed Combined Financial Statements include all normal and recurring adjustments considered necessary to present fairly, when read in conjunction with the Combined Financial Statements and notes thereto included in the Information Statement, our financial position as of August 31, 2016, and the results of our operations and comprehensive income for the quarters and years to date ended August 31, 2016 and August 31, 2015, and cash flows for the years to date ended August 31, 2016 and August 31, 2015.  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.

Our fiscal year ends on December 31. The Company operates on a fiscal monthly calendar, with two months in the first quarter, three months in the second and third quarters and four months in the fourth quarter.

 

PRC Value-Added Tax

 

On January 1, 2012, the Chinese State Council officially launched a pilot value-added tax (“VAT”) reform program, applicable to businesses in selected industries, whereby entities in these industries would pay VAT instead of business tax (“BT”).  Since January 1, 2012, the Chinese government has gradually expanded the scope of the VAT reform to cover most service sectors.  Effective as of May 1, 2016, the Chinese government completed the last step in its extensive BT to VAT reform by extending the pilot program nationwide to all remaining sectors still subject to BT.  The Company has been subject to VAT within the normal course of its restaurant business nationwide since May 1, 2016.

 

Entities that are VAT general taxpayers are permitted to offset qualified input VAT paid to suppliers against their revenue output VAT liabilities upon receipt of appropriate supplier VAT invoices on an entity by entity basis. When the output VAT exceeds the input VAT, the difference is remitted to tax authorities, usually on a monthly basis; whereas when the input VAT exceeds the output VAT, the difference is treated as an input VAT credit asset which can be carried forward indefinitely to offset future net VAT payables. VAT related to purchases and sales which have not been settled at the balance sheet date is disclosed separately as an asset and liability, respectively, in the Condensed Combined Balance Sheets. At each balance sheet date, the Company reviews the outstanding balance of any input VAT credit asset for recoverability.

 

As of August 31, 2016, an input VAT credit asset of $36 million and payable of $3 million were recorded in Other assets and Accounts payable and other current liabilities, respectively, in the Condensed Combined Balance Sheets. The Company has not made an allowance for the recoverability of the input VAT credit asset, as the balance is expected to be utilized to offset against net VAT payables more than one year from August 31, 2016. Any input VAT credit asset would be classified as Prepaid expenses and other current assets if the Company expected to use the credit within one year.

 

 

Note 3 – Transactions with YUM

Allocation of Corporate Expenses

YUM has historically performed centralized corporate functions on our behalf. Accordingly, certain YUM costs have been allocated to the Company and reflected as expenses in these Condensed Combined Financial Statements. Management considers the allocation methodologies used to be reasonable and appropriate reflections of the historical YUM expenses attributable to the Company.  The expenses reflected in the Condensed Combined Financial Statements may not be indicative of the actual expenses that would have been incurred during the periods presented if we had operated as a separate, standalone entity.

Corporate expense allocations primarily relate to centralized corporate functions, including finance, accounting, treasury, tax, legal, internal audit and risk management functions. In addition, corporate expense allocations include, among other costs, IT maintenance, professional fees for legal services and expenses related to litigation, investigations, or similar matters. Corporate allocations of $3 million and $4 million were allocated to the Company during each of the quarters ended August 31, 2016 and August 31, 2015, respectively, while $9 million and $10 million were allocated to the Company during each of the years to date ended August 31, 2016 and August 31, 2015, respectively, and have been included in General and administrative (“G&A”) expenses in the Condensed Combined Statements of Income. All of the corporate allocations of costs are deemed to have been incurred and settled through Parent Company investment in the Condensed Combined Balance Sheet in the period which the costs were recorded.

8


 

License Fee

The Condensed Combined Statements of Income include a fee that was historically paid to YUM comprised of initial fees and continuing fees equal to 3% of our Company and franchise sales.  License fees due to YUM for our Company-owned stores are included within restaurant margin in Occupancy and other operating expenses in the Condensed Combined Statements of Income.  License fees due to YUM on franchise sales are included in Franchise expenses.  Total license fees paid during the quarters and years to date ended August 31, 2016 and August 31, 2015, respectively, are reflected in the table below:

 

 

 

Quarter ended

 

Year to date

 

 

2016

 

2015

 

2016

 

2015

Initial fees - Company

 

$

3

 

 

 

$

3

 

 

 

$

7

 

 

 

$

9

 

 

Initial fees - Franchise

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

1

 

 

Continuing Fees - Company

 

 

53

 

 

 

 

59

 

 

 

 

135

 

 

 

 

142

 

 

Continuing Fees - Franchise

 

 

13

 

 

 

 

13

 

 

 

 

35

 

 

 

 

33

 

 

Total

 

$

69

 

 

 

$

75

 

 

 

$

178

 

 

 

$

185

 

 

 

Cash Management and Treasury

The Company funds its operations through cash generated from the operation of its Company-owned stores, franchise operations and dividend payments from its unconsolidated affiliates. Excess cash has historically been repatriated to YUM through intercompany loans or dividends. Transfers of cash both to and from YUM are included within Parent Company investment in the Condensed Combined Balance Sheets.  YUM has issued debt for general corporate purposes but in no case has any such debt been guaranteed or assumed by the Company or otherwise secured by the assets of the Company.  As YUM’s debt and related interest is not directly attributable to the Company, no such amounts have been allocated to these Condensed Combined Financial Statements.

 

 

Note 4 – Items Affecting Comparability of Net Income and Cash Flows

Refranchising Gain, net

The Refranchising gain, net by reportable segment and All Other Segments is presented below.  We do not allocate such gains and losses to our segments for performance reporting purposes.

 

 

 

Quarter ended

 

Year to date

 

 

2016

 

2015

 

2016

 

2015

KFC

 

$

4

 

 

 

$

3

 

 

 

$

8

 

 

 

$

5

 

 

Pizza Hut Casual Dining

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

All Other Segments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

Total Company

 

$

4

 

 

 

$

3

 

 

 

$

8

 

 

 

$

7

 

 

 

Store Closure and Impairment Activity

Store closure income (costs) and Store impairment charges by reportable segment and All Other Segments are presented below:

 

 

 

Quarter ended

 

Year to date

 

 

2016

 

2016

 

 

Total

Company

 

KFC

 

Pizza Hut

Casual Dining

 

All Other

Segments

 

Total

Company

 

KFC

 

Pizza Hut

Casual Dining

 

All Other

Segments

Store closure income (a)

 

$

1

 

 

 

$

1

 

 

 

$

 

 

 

$

 

 

 

$

7

 

 

 

$

5

 

 

 

$

1

 

 

 

$

1

 

 

Store impairment charges

 

 

(6

)

 

 

 

(5

)

 

 

 

 

 

 

 

(1

)

 

 

 

(43

)

 

 

 

(30

)

 

 

 

(11

)

 

 

 

(2

)

 

Closure and impairment expenses

 

$

(5

)

 

 

$

(4

)

 

 

$

 

 

 

$

(1

)

 

 

$

(36

)

 

 

$

(25

)

 

 

$

(10

)

 

 

$

(1

)

 

9


 

 

 

 

Quarter ended

 

Year to date

 

 

2015

 

2015

 

 

Total

Company

 

KFC

 

Pizza Hut

Casual Dining

 

All Other

Segments

 

Total

Company

 

KFC

 

Pizza Hut

Casual Dining

 

All Other

Segments

Store closure income (costs) (a)

 

$

2

 

 

 

$

2

 

 

 

$

1

 

 

 

$

(1

)

 

 

$

5

 

 

 

$

6

 

 

 

$

2

 

 

 

$

(3

)

 

Store impairment charges

 

 

(5

)

 

 

 

(4

)

 

 

 

(1

)

 

 

 

 

 

 

 

(27

)

 

 

 

(23

)

 

 

 

(3

)

 

 

 

(1

)

 

Closure and impairment expenses

 

$

(3

)

 

 

$

(2

)

 

 

$

 

 

 

$

(1

)

 

 

$

(22

)

 

 

$

(17

)

 

 

$

(1

)

 

 

$

(4

)

 

 

(a)

Store closure income (costs) include proceeds from forced store closures, lease reserves established when we cease using a property under an operating lease and subsequent adjustments to those reserves and other facility-related expenses from previously closed stores. Remaining lease obligations for closed stores were not material at August 31, 2016 or December 31, 2015.

 

 

Note 5 – Other Income, net

 

 

 

Quarter ended

 

Year to date

 

 

2016

 

2015

 

2016

 

2015

Equity income from investments in unconsolidated affiliates

 

$

18

 

 

 

$

15

 

 

 

$

44

 

 

 

$

31

 

 

Foreign exchange net loss and other

 

 

(1

)

 

 

 

(2

)

 

 

 

 

 

 

 

(4

)

 

Other income, net

 

$

17

 

 

 

$

13

 

 

 

$

44

 

 

 

$

27

 

 

 

 

Note 6 – Supplemental Balance Sheet Information

 

The Company’s receivables are primarily generated from ongoing business relationships with our franchisees as a result of franchise and lease agreements. Trade receivables consisting of royalties from franchisees are generally due within 30 days of the period in which the corresponding sales occur and are classified as Accounts receivable on our Condensed Combined Balance Sheets.

 

Accounts Receivable, net

 

8/31/2016

 

12/31/2015

 

Accounts receivable, gross

 

$

112

 

 

 

$

78

 

Allowance for doubtful accounts

 

 

(2

)

 

 

 

(2

)

Accounts receivable, net

 

$

110

 

 

 

$

76

 

 

Prepaid Expenses and Other Current Assets

 

8/31/2016

 

12/31/2015

Assets held for sale(a)

 

$

 

 

 

$

18

 

 

Prepaid rent

 

 

38

 

 

 

 

53

 

 

Other prepaid expenses and current assets

 

 

42

 

 

 

 

38

 

 

Prepaid expenses and other current assets

 

$

80

 

 

 

$

109

 

 

 

(a)

Reflects the carrying value of a corporate aircraft.

 

Property, Plant and Equipment

 

8/31/2016

 

12/31/2015

Buildings and improvements

 

$

2,161

 

 

 

$

2,231

 

 

Capital leases, primarily buildings

 

 

31

 

 

 

 

35

 

 

Machinery and equipment

 

 

1,110

 

 

 

 

1,171

 

 

Property, plant and equipment, gross

 

 

3,302

 

 

 

 

3,437

 

 

Accumulated depreciation and amortization

 

 

(1,595

)

 

 

 

(1,596

)

 

Property, plant and equipment, net

 

$

1,707

 

 

 

$

1,841

 

 

10


 

 

Accounts Payable and Other Current Liabilities

 

8/31/2016

 

12/31/2015

Accounts payable

 

$

521

 

 

 

$

438

 

 

Accrued capital expenditures

 

 

123

 

 

 

 

153

 

 

Accrued compensation and benefits

 

 

193

 

 

 

 

180

 

 

Other current liabilities

 

 

182

 

 

 

 

155

 

 

Accounts payable and other current liabilities

 

$

1,019

 

 

 

$

926

 

 

 

Other Liabilities and Deferred Credits

 

8/31/2016

 

12/31/2015

Deferred escalating minimum rent

 

$

160

 

 

 

$

162

 

 

Other noncurrent liabilities and deferred credits

 

 

72

 

 

 

 

72