Yum China Holdings,Inc. (NYSE:YUMC) Files An 8-K Results of Operations and Financial Condition

Effective at the beginning of fiscal 2018, Yum China Holdings, Inc. (referred to herein as “Yum China” and, together with its subsidiaries the “Company,” “we,” “us,” and “our”) 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.

In addition, effective at the same time, the Company revised its definition of same-store sales growth to represent the estimated percentage change in sales of food of all restaurants in the Company system that have been open prior to the first day of our prior fiscal year. We refer to these as our “base” stores. Previously, same-store sales growth represented the estimated percentage change in sales of all restaurants in the Company system that have been open for one year or more, and the base stores changed on a rolling basis from month to month. This revision was made to align with how management measures performance internally and focuses on trends of a more stable base of stores.

Exhibit 99.1 to this Form 8-K provides the Company’s recast summary of consolidated and combined statements of income and segment operating results for 2017 and 2016, as well as certain quarterly results within those periods, recast as if they had been reported under our new fiscal calendar. This Form 8-K also provides recast system and new same-store sales growth metrics as if they had been reported under the new calendar and new same-store-sales growth definition. The summary should be read in conjunction with the Company’s previously filed reports.

Additionally, these recast results reflect the impact of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606), and related accounting interpretations, which we adopted in the first quarter of 2018 on a full retrospective basis.

The new standard does not have an impact on our recognition of revenue from Company-owned restaurants or our recognition of continuing fees from franchisees and unconsolidated affiliates while 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 becomes effective. We 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 presented in our Consolidated Balance Sheets as a contract liability.

The new standard also had an impact on certain transactions we entered into with franchisees and unconsolidated affiliates, such as contributions to and subsequent expenditures from advertising programs, inventory procurement and other services provided for franchisees and unconsolidated affiliates. 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 within our Consolidated and Combined Statements of Income with no significant impact to Net income.

(d) Exhibits

The following exhibit is furnished with this report:

Yum China Holdings, Inc. ExhibitEX-99.1 2 yumc-ex991_6.htm EX-99.1 yumc-ex991_6.htm Exhibit 99.1   Yum China Holdings,…To view the full exhibit click here
About Yum China Holdings,Inc. (NYSE:YUMC)
Yum China Holdings, Inc. is a restaurant company with approximately 7,200 restaurants. The Company’s restaurant base consists of restaurant brands, including KFC, Pizza Hut Casual Dining, Pizza Hut Home Service, East Dawning and Little Sheep. The Company’s segments are KFC, Pizza Hut Casual Dining and All Other Segments, which include Pizza Hut Home Service, East Dawning and Little Sheep. KFC is the Quick-Service Restaurant (QSR) brand in China. In addition to original recipe chicken, KFC in China has a menu featuring pork, beef, seafood, rice dishes, fresh vegetables, soups, breakfast, desserts, and many other products, including coffee. Pizza Hut Casual Dining is the Casual Dining Restaurant (CDR) brand. Little Sheep is a casual-dining brand. Little Sheep specializes in Hot Pot cooking. East Dawning is a Chinese food quick-service restaurant brand, primarily located in coastal cities. As of December 31, 2015, KFC operates over 5,000 restaurants in over 1,100 cities across China.