10q10k10q10k.net

What changed in Yum China Holdings, Inc.'s 10-K — 2022 vs 2023

vs

Paragraph-level year-over-year comparison of Yum China Holdings, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+464 added−500 removedSource: 10-K (2024-02-29) vs 10-K (2023-03-01)

Top changes in Yum China Holdings, Inc.'s 2023 10-K

464 paragraphs added · 500 removed · 382 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

130 edited+32 added−35 removed132 unchanged
Biggest changeEnhanced scrutiny by the Chinese tax authorities may have a negative impact on potential acquisitions and dispositions we may pursue in the future. • There may be difficulties in effecting service of legal process, conducting investigations, collecting evidence, enforcing foreign judgments or bringing original actions in China based on United States or other foreign laws against us and our management. • The Chinese government may determine that the variable interest entity structure of Daojia does not comply with Chinese laws on foreign investment in restricted industries. • Certain defects caused by non-registration of our lease agreements related to certain properties occupied by us in China may materially and adversely affect our ability to use such properties. • Our restaurants are susceptible to risks in relation to unexpected land acquisitions, building closures or demolitions. • Any failure to comply with Chinese regulations regarding our employee equity incentive plans may subject Chinese plan participants or us to fines and other legal or administrative sanctions. • Failure to make adequate contributions to various employee benefit plans as required by Chinese regulations may subject us to penalties. • Proceedings instituted by the Securities and Exchange Commission (the “SEC”) against certain China-based accounting firms, including our independent registered public accounting firm, could result in our financial statements being determined to not be in compliance with the requirements of the Exchange Act. • Chinese regulation of loans to, and direct investment in, Chinese entities by offshore holding companies and governmental control of currency conversion may restrict or prevent us from making loans or additional capital contributions to our Chinese subsidiaries, which may materially and adversely affect our liquidity and our ability to fund and expand our business. • Regulations regarding acquisitions may impose significant regulatory approval and review requirements, which could make it more difficult for us to pursue growth through acquisitions. • The PRC government has significant oversight and discretion to exert control over offerings of our securities conducted outside of China and foreign investment in China-based issuers, and may limit or completely hinder our ability to offer securities to investors, which may cause the value of such securities to significantly decline. 9 2022 Form 10-K These risks could result in a material adverse change in our operations and the value of our shares, significantly limit or completely hinder our ability to offer or continue to offer securities to investors, or cause the value of such securities to significantly decline or become worthless.
Biggest changeEnhanced scrutiny by the Chinese tax authorities may have a negative impact on potential acquisitions and dispositions we may pursue in the future. • There may be difficulties in effecting service of legal process, conducting investigations, collecting evidence, enforcing foreign judgments or bringing original actions in China based on United States or other foreign laws against us and our management. • The Chinese government may determine that the variable interest entity structure of Daojia does not comply with Chinese laws on foreign investment in restricted industries. • Certain defects caused by non-registration of our lease agreements related to certain properties occupied by us in China may materially and adversely affect our ability to use such properties. • Our restaurants are susceptible to risks in relation to unexpected land acquisitions, building closures or demolitions. • Any failure to comply with Chinese regulations regarding our employee equity incentive plans may subject Chinese plan participants or us to fines and other legal or administrative sanctions. • Failure to make adequate contributions to various employee benefit plans as required by Chinese regulations may subject us to penalties. • Proceedings instituted by the Securities and Exchange Commission (the “SEC”) against certain China-based accounting firms, including our independent registered public accounting firm, could result in our financial statements being determined to not be in compliance with the requirements of the Exchange Act. 9 2023 Form 10-K • Chinese regulation of loans to, and direct investment in, Chinese entities by offshore holding companies and governmental administration of currency conversion may restrict or prevent us from making loans or additional capital contributions to our Chinese subsidiaries, which may materially and adversely affect our liquidity and our ability to fund and expand our business. • Regulations regarding acquisitions may impose significant regulatory approval and review requirements, which could make it more difficult for us to pursue growth through acquisitions. • The PRC government has significant oversight and discretion to exert supervision over offerings of our securities conducted outside of China and foreign investment in China-based issuers, and may limit or completely hinder our ability to offer securities to investors, which may cause the value of such securities to significantly decline.
Supply Chain Management The Company’s restaurants, including those operated by franchisees, are large purchasers of a number of food and paper products, equipment and other restaurant supplies. The principal items purchased include protein ingredients (including poultry, pork, beef and seafood), cheese, oil, flour, vegetables and paper and packaging materials.
Supply Chain Management The Company’s restaurants, including those operated by franchisees, are large purchasers of a number of food and paper products, equipment and other restaurant supplies. The principal items purchased include protein ingredients (including poultry, beef, pork and seafood), cheese, oil, flour, vegetables and paper and packaging materials.
See “Risk Factors—Risks Related to Doing Business in China—Regulations regarding acquisitions may impose significant regulatory approval and review requirements, which could make it more difficult for us to pursue growth through acquisitions” for more information; • We are subject to cybersecurity regulations, including those enforced by the Cyberspace Administration of China (“CAC”) including the PRC Cybersecurity Law, which imposes tightened requirements on data privacy and cybersecurity practices, the PRC Data Security Law, which imposes data security and privacy obligations on entities and individuals carrying out data activities (including activities outside of the PRC), requires a national security review of data activities that may affect national security, and imposes restrictions on data transmissions, the PRC Personal Information Protection Law, which sets out the regulatory framework for handling and protection of personal information and transmission of personal information, among others.
See “Risk Factors—Risks Related to Doing Business in China—Regulations regarding acquisitions may impose significant regulatory approval and review requirements, which could make it more difficult for us to pursue growth through acquisitions” for more information; • We are subject to heightened data and cybersecurity regulations, including those enforced by the Cyberspace Administration of China (“CAC”) including the PRC Cybersecurity Law, which imposes tightened requirements on data privacy and cybersecurity practices, the PRC Data Security Law, which imposes data security and privacy obligations on entities and individuals carrying out data activities (including activities outside of the PRC), requires a national security review of data activities that may affect national security, and imposes restrictions on data transmissions, the PRC Personal Information Protection Law, which sets out the regulatory framework for handling and protection of personal information and transmission of personal information, among others.
See “Risk Factors—Risks Related to Our Business and Industry—Unauthorized access to, or improper use, disclosure, theft or destruction of, our customer or employee personal, financial or other data or our proprietary or confidential information that is stored in our information systems or by third parties on our behalf could result in substantial costs, expose us to litigation and damage our reputation;” and 11 2022 Form 10-K • We may be subject to regulations relating to overseas securities offering and listing of China-based companies, including pursuant to the Opinions on Intensifying Crack Down on Illegal Securities Activities issued by the PRC government authorities, which called for enhanced oversight of overseas listed companies as well as overseas equity fundraising and listing by Chinese companies, and proposed measures such as the construction of regulatory systems to deal with the risks and incidents faced by China-based overseas-listed companies; the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies and the supporting guidelines issued by the CSRC, which regulate overseas securities offering and listing activities by China-based companies; the draft Regulations on Network Data Security Management issued by the CAC, which requires, among other things, that a prior cybersecurity review be conducted by the Cybersecurity Review Office before listing overseas for data processors which process over one million users’ personal information, and for the listing in Hong Kong of data processors which affect or may affect national security; the Revised Cybersecurity Review Measures, jointly issued by the National Development and Reform Commission, the Ministry of Industry and Information Technology of the PRC, and several other administrations, which require, among other things, that a network platform operator holding over one million users’ personal information must apply with the Cybersecurity Review Office for a cybersecurity review before any public offering or listing outside of mainland PRC and Hong Kong.
See “Risk Factors—Risks Related to Our Business and Industry—Unauthorized access to, or improper use, disclosure, theft or destruction of, our customer or employee personal, financial or other data or our proprietary or confidential information that is stored in our information systems or by third parties on our behalf could result in substantial costs, expose us to litigation and damage our reputation;” and 11 2023 Form 10-K • We may be subject to regulations relating to overseas securities offering and listing of China-based companies, including pursuant to the Opinions on Intensifying Crack Down on Illegal Securities Activities issued by the PRC government authorities, which called for enhanced oversight of overseas listed companies as well as overseas equity fundraising and listing by Chinese companies, and proposed measures such as the construction of regulatory systems to deal with the risks and incidents faced by China-based overseas-listed companies; the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies and the supporting guidelines issued by the CSRC, which regulate overseas securities offering and listing activities by China-based companies; the draft Regulations on Network Data Security Management issued by the CAC, which requires, among other things, that a prior cybersecurity review be conducted by the Cybersecurity Review Office before listing overseas for data processors which process over one million users’ personal information, and for the listing in Hong Kong of data processors which affect or may affect national security; the Revised Cybersecurity Review Measures, jointly issued by the National Development and Reform Commission, the Ministry of Industry and Information Technology of the PRC, and several other administrations, which require, among other things, that a network platform operator holding over one million users’ personal information must apply with the Cybersecurity Review Office for a cybersecurity review before any public offering or listing outside of mainland PRC and Hong Kong.
Accordingly, we face various legal and operational risks and uncertainties under the complex and evolving PRC laws and regulations, including the following: • Changes in Chinese political policies and economic and social policies or conditions may materially and adversely affect our business, results of operations and financial condition and may result in our inability to sustain our growth and expansion strategies. 8 2022 Form 10-K • Uncertainties with respect to the interpretation and enforcement of Chinese laws, rules and regulations could have a material adverse effect on us. • The audit report included in this Form 10-K is prepared by auditors who are located in China, and in the event the Public Company Accounting Oversight Board is unable to inspect our auditors, our common stock will be subject to potential delisting from the New York Stock Exchange. • Changes in political, business, economic and trade relations between the United States and China may have a material adverse impact on our business, results of operations and financial condition. • Fluctuation in the value of RMB may result in foreign currency exchange losses. • The increasing focus on environmental sustainability issues may create operational challenges for us, increase our costs and harm our reputation. • Interventions in or the imposition of restrictions and limitations by the PRC government on currency conversion and payments of foreign currency and RMB out of mainland China may limit our ability to utilize our cash balances effectively, including making funds held by our China-based subsidiaries unavailable for use outside of mainland China, which could limit or eliminate our ability to pay dividends and affect the value of your investment. • Changes in the laws and regulations of China or noncompliance with applicable laws and regulations may have a significant impact on our business, results of operations and financial condition, and may cause the value of our securities to decline. • We rely to a significant extent on dividends and other distributions on equity paid by our principal operating subsidiaries in China to fund offshore cash requirements. • Under the EIT Law, if we are classified as a China resident enterprise for Chinese enterprise income tax purposes, such classification would likely result in unfavorable tax consequences to us and our non-Chinese stockholders. • We and our stockholders face uncertainty with respect to indirect transfers of equity interests in China resident enterprises through transfer of non-Chinese-holding companies.
Accordingly, we face various legal and operational risks and uncertainties under the complex and evolving Chinese laws and regulations, including the following: • Changes in Chinese political policies and economic and social policies or conditions may materially and adversely affect our business, results of operations and financial condition and may result in our inability to sustain our growth and expansion strategies. • The interpretation and enforcement of Chinese laws, rules and regulations may change from time to time, which could have a material adverse effect on us. • The audit report included in this Form 10-K is prepared by auditors who are located in China, and in the event the Public Company Accounting Oversight Board is unable to inspect our auditors, our common stock will be subject to potential delisting from the New York Stock Exchange. • Changes in political, business, economic and trade relations between the United States and China may have a material adverse impact on our business, results of operations and financial condition. • Fluctuation in the value of RMB may result in foreign currency exchange losses. • The increasing focus on environmental sustainability issues may create operational challenges for us, increase our costs and harm our reputation. • Interventions in or the imposition of restrictions and limitations by the PRC government on currency conversion and payments of foreign currency and RMB out of mainland China may limit our ability to utilize our cash balances effectively, including making funds held by our China-based subsidiaries unavailable for use outside of mainland China, which could limit or eliminate our ability to pay dividends and affect the value of your investment. • Changes in the laws and regulations of China or noncompliance with applicable laws and regulations may have a significant impact on our business, results of operations and financial condition, and may cause the value of our securities to decline. • We rely to a significant extent on dividends and other distributions on equity paid by our principal operating subsidiaries in China to fund offshore cash requirements. • Under the EIT Law, if we are classified as a China resident enterprise for Chinese enterprise income tax purposes, such classification would likely result in unfavorable tax consequences to us and our non-Chinese stockholders. • We and our stockholders face uncertainty with respect to indirect transfers of equity interests in China resident enterprises through transfer of non-Chinese-holding companies.
We completed the evaluation of the impact on our transition tax computation based on the final regulations released in the first quarter of 2019 and recorded additional income tax expense for the transition tax accordingly. 14 2022 Form 10-K Inflation Reduction Act of 2022 (the “IRA”). In August 2022, the IRA was signed into law in the U.S.
We completed the evaluation of the impact on our transition tax computation based on the final regulations released in the first quarter of 2019 and recorded additional income tax expense for the transition tax accordingly. 14 2023 Form 10-K Inflation Reduction Act of 2022 (the “IRA”). In August 2022, the IRA was signed into law in the U.S.
Environmental Matters We strive to reduce the environmental impact of our business activities by incorporating sustainability into the daily operations of our restaurants, as well as focusing our efforts on climate action, circular economy and supply chain environmental impact. Climate Action Our commitment to enhance climate action tops the list of our environmental sustainability priorities.
Environmental Matters We strive to reduce the environmental impact of our business activities by incorporating sustainability into the daily operations of our restaurants, as well as focusing our efforts on climate action, supply chain collaboration, and circular economy. Climate Action Our commitment to enhance climate action tops the list of our environmental sustainability priorities.
Risk Factors—Risks Related to Doing Business in China—The audit report included in this Form 10-K is prepared by auditors who are located in China, and in the event the PCAOB is unable to inspect our auditors, our common stock will be subject to potential delisting from the New York Stock Exchange.” Intellectual Property Our use of certain material trademarks and service marks is governed by a master license agreement between Yum Restaurants Consulting (Shanghai) Company Limited (“YCCL”), a wholly-owned indirect subsidiary of the Company, and Yum!
Risk Factors—Risks Related to Doing Business in China—The audit report included in this Form 10-K is prepared by auditors who are located in China, and in the event the PCAOB is unable to inspect our auditors, our common stock will be subject to potential delisting from the New York Stock Exchange.” 15 2023 Form 10-K Intellectual Property Our use of certain material trademarks and service marks is governed by a master license agreement between Yum Restaurants Consulting (Shanghai) Company Limited (“YCCL”), a wholly-owned indirect subsidiary of the Company, and Yum!
Some of our restaurants which sell alcoholic beverages are required to make further registrations or obtain additional approvals, as described under the heading “Risk Factors—Risks Related to Doing Business in China—We require various approvals, licenses and permits to operate our business and the loss of or failure to obtain or renew any or all of these approvals, licenses and permits could adversely affect our business and results of operations;” • Cash transfers from the Company’s PRC subsidiaries to its subsidiaries outside of China are subject to PRC government control of currency conversion.
Some of our restaurants which sell alcoholic beverages are required to make further registrations or obtain additional approvals, as described under the heading “Risk Factors—Risks Related to Doing Business in China—We require various approvals, licenses and permits to operate our business and the loss of or failure to obtain or renew any or all of these approvals, licenses and permits could adversely affect our business and results of operations;” • Cash transfers from the Company’s PRC subsidiaries to its subsidiaries outside of China are subject to PRC government administration of currency conversion.
Risk Factors—Risks Related to Doing Business in China—The PRC government has significant oversight and discretion to exert control over offerings of our securities conducted outside of China and foreign investment in China-based issuers, and may limit or completely hinder our ability to offer securities to investors, which may cause the value of such securities to significantly decline.” The Company is also subject to tariffs and regulations on imported commodities and equipment and laws regulating foreign investment, as well as anti-bribery and corruption laws.
Risk Factors—Risks Related to Doing Business in China—The PRC government has significant oversight and discretion to exert supervision over offerings of our securities conducted outside of China and foreign investment in China-based issuers, and may limit or completely hinder our ability to offer securities to investors, which may cause the value of such securities to significantly decline.” The Company is also subject to tariffs and regulations on imported commodities and equipment and laws regulating foreign investment, as well as anti-bribery and corruption laws.
Our near-term SBTs are: • Reduce absolute Scope 1 and 2 GHG emissions 63% by 2035 from a 2020 base year. • Reduce Scope 3 GHG emissions from purchased goods 66.3% per ton of goods purchased by 2035 from a 2020 base year.
Our near-term SBTs are: • To reduce absolute Scope 1 and 2 GHG emissions 63% by 2035 from a 2020 base year. • To reduce Scope 3 GHG emissions from purchased goods 66.3% per ton of goods purchased by 2035 from a 2020 base year.
The term “resident enterprise” refers to any enterprise established in China and any enterprise established outside China with a “de facto management body” within China. 12 2022 Form 10-K Our China subsidiaries are regarded as China resident enterprises by virtue of their incorporation in China, and are generally subject to Chinese enterprise income tax on their worldwide income at the current uniform rate of 25%, unless reduced under certain specific qualifying criteria.
The term “resident enterprise” refers to any enterprise established in China and any enterprise established outside China with a “de facto management body” within China. 12 2023 Form 10-K Our China subsidiaries are regarded as China resident enterprises by virtue of their incorporation in China, and are generally subject to Chinese enterprise income tax on their worldwide income at the current uniform rate of 25%, unless reduced under certain specific qualifying criteria.
Restaurants China, where he was instrumental in building its online ordering and e-commerce capabilities. Prior to that, Mr. Kuai spent nine years in the information technology department of Yum! Restaurants China, enhancing its information technology infrastructure and productivity. 20 2022 Form 10-K Duoduo (Howard) Huang has served as our Chief Supply Chain Officer since November 2021. Mr.
Restaurants China, where he was instrumental in building its online ordering and e-commerce capabilities. Prior to that, Mr. Kuai spent nine years in the information technology department of Yum! Restaurants China, enhancing its information technology infrastructure and productivity. 20 2023 Form 10-K Duoduo (Howard) Huang has served as our Chief Supply Chain Officer since November 2021. Mr.
These documents, as well as our SEC filings, are available in print free of charge to any stockholder who requests a copy from our Investor Relations Department by contacting Yum China at 101 East Park Boulevard, Suite 805, Plano, Texas 75074 United States of America, Attention: Investor Relations. 22 2022 Form 10-K
These documents, as well as our SEC filings, are available in print free of charge to any stockholder who requests a copy from our Investor Relations Department by contacting Yum China at 101 East Park Boulevard, Suite 805, Plano, Texas 75074, United States of America, Attention: Investor Relations. 22 2023 Form 10-K
The KFC, Pizza Hut, Taco Bell, Lavazza, Little Sheep and Huang Ji Huang brands are collectively referred to as the “brands” or “concepts.” Throughout this Form 10-K, the terms “brands” and “concepts” are used interchangeably and “restaurants,” “stores” and “units” are used interchangeably. General Yum China is the largest restaurant company in China in terms of 2022 system sales.
The KFC, Pizza Hut, Lavazza, Huang Ji Huang, Little Sheep and Taco Bell brands are collectively referred to as the “brands” or “concepts.” Throughout this Form 10-K, the terms “brands” and “concepts” are used interchangeably and “restaurants,” “stores” and “units” are used interchangeably. General Yum China is the largest restaurant company in China in terms of 2023 system sales.
The IRA contains certain tax measures, including an excise tax of 1% on net share repurchases that occur after December 31, 2022. For more information on our dividends and share repurchases, see the Consolidated Statements of Cash Flows and Note 16 to the Consolidated Financial Statements under “Item 8. Financial Statements and Supplementary Data” in this Form 10-K.
The IRA contains certain tax measures, including an excise tax of 1% on net share repurchases that occur after December 31, 2022. For more information on our dividends and share repurchases, see the Consolidated Statements of Cash Flows and Note 15 to the Consolidated Financial Statements under “Item 8. Financial Statements and Supplementary Data” in this Form 10-K.
Dining Experience Menu Innovations Offering appealing, tasty and convenient food at great prices is our value proposition. We have a dedicated food innovation team primarily focusing on the development and innovation of new recipes and improvement of existing products. In 2022, we launched over 500 new and improved products across all of our restaurant brands.
Dining Experience Menu Innovations Offering appealing, tasty and convenient food at great prices is our value proposition. We have a dedicated food innovation team primarily focusing on the development and innovation of new recipes and improvement of existing products. In 2023, we launched over 500 new and improved products across all of our restaurant brands.
For more information regarding the Company’s cash flows, see our Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020 and the related notes to our Consolidated Financial Statements. Cash Management Policies The Company has comprehensive cash management policies in place, including specific policies governing approvals with respect to fund transfers throughout our organization.
For more information regarding the Company’s cash flows, see our Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022 and 2021 and the related notes to our Consolidated Financial Statements. Cash Management Policies The Company has comprehensive cash management policies in place, including specific policies governing approvals with respect to fund transfers throughout our organization.
KFC primarily competes with western QSR brands in China, such as McDonald’s, Dicos and Burger King, among which we believe KFC had an approximate two-to-one lead over its nearest competitor in terms of store count as of the end of 2022.
KFC primarily competes with western QSR brands in China, such as McDonald’s, Dicos and Burger King, among which we believe KFC had an approximate two-to-one lead over its nearest competitor in terms of store count as of the end of 2023.
We believe supply chain management is crucial to the sustainability of our business and we are dedicated to applying digitalization and automation technologies in our supply chain management system. Our in-house and integrated supply chain management system employs more than 1,400 staff in food safety, quality assurance, procurement management, logistics, engineering and supply chain system.
We believe supply chain management is crucial to the sustainability of our business and we are dedicated to applying digitalization and automation technologies in our supply chain management system. Our in-house and integrated supply chain management system employs more than 1,300 staff in food safety, quality assurance, procurement management, logistics, engineering and supply chain system.
Continuing Education Program The Company sponsors a continuing education program to help employees obtain college degrees. By the end of 2022, around 5,000 employees were granted subsidies and achieved higher education degrees through our continuing education program. In addition, the Company also provides scholarships for eligible employees to achieve postgraduate degrees.
Continuing Education Program The Company sponsors a continuing education program to help employees obtain college degrees. By the end of 2023, around 5,000 employees were granted subsidies and achieved higher education degrees through our continuing education program. In addition, the Company also provides scholarships for eligible employees to achieve postgraduate degrees.
While we continue to focus on the operation of our Company-owned restaurant units, we will also continue to seek franchise opportunities for both our core and emerging brands. As of December 31, 2022, approximately 14% of our restaurants were operated by franchisees.
While we continue to focus on the operation of our Company-owned restaurant units, we will also continue to seek franchise opportunities for both our core and emerging brands. As of December 31, 2023, approximately 14% of our restaurants were operated by franchisees.
The restaurant management team is responsible for the day-to-day operation of our restaurants and for ensuring compliance with operating standards. Each RGM is also responsible for handling guest complaints and emergency situations. Franchise Restaurant Management As of December 31, 2022, approximately 14% of our restaurants were franchise restaurants.
The restaurant management team is responsible for the day-to-day operation of our restaurants and for ensuring compliance with operating standards. Each RGM is also responsible for handling guest complaints and emergency situations. Franchise Restaurant Management As of December 31, 2023, approximately 14% of our restaurants were franchise restaurants.
These dividends to stockholders and repurchases generally had no tax consequence to the Company, but may be taxable (including by way of withholding) to its stockholders. In August 2022, the Inflation Reduction Act of 2022 (the “IRA”) was signed into law in the U.S.
These dividends to stockholders generally had no tax consequence to the Company, but may be taxable (including by way of withholding) to its stockholders. In August 2022, the Inflation Reduction Act of 2022 (the “IRA”) was signed into law in the U.S.
By the end of 2022, our female employees represented more than 50% of the total workforce. The Company continues to make progress in nurturing talented leaders across all management levels. By the end of 2022, women holding director and above positions represented 53% of our senior management workforce.
By the end of 2023, our female employees represented more than 50% of the total workforce. The Company continues to make progress in nurturing talented leaders across all management levels. By the end of 2023, women holding director and above positions represented 53% of our senior management workforce.
For example, we use AI/IoT technology to improve sales forecasting accuracy and inventory management, increase the proportion of cold chain transportation and use smaller fryers to avoid excessive cooking. We continue to promote and extend our food bank project by establishing pick-up stations at more restaurants under more brands, providing surplus food for free to residents in need.
For example, we use AI/IoT technology to improve sales forecasting accuracy and inventory management, increase the proportion of cold chain transportation and use smaller fryers to avoid cooking an excessive amount of food. We continue to promote our food bank project by establishing pick-up stations at more restaurants under more brands, providing surplus food for free to residents in need.
Pizza Hut Pizza Hut is the leading and the largest casual dining restaurant (“CDR”) brand in China in terms of 2022 system sales and number of restaurants as of December 31, 2022, offering multiple dayparts, including breakfast, lunch, afternoon tea and dinner.
Pizza Hut Pizza Hut is the leading and the largest casual dining restaurant (“CDR”) brand in China in terms of 2023 system sales and number of restaurants as of December 31, 2023, offering multiple dayparts, including breakfast, lunch, afternoon tea and dinner.
Digital payments accounted for an increasing percentage of our Company sales, from 33% in 2016 to 99% in 2022. The increasing percentage indicates broad consumer preference for this feature and reflects our ability to harness the power of technology in our business model.
Digital payments accounted for an increasing percentage of our Company sales, from 33% in 2016 to 99% in 2023. The increasing percentage indicates broad consumer preference for this feature and reflects our ability to harness the power of technology in our business model.
We may be subject to these taxes in the event of any future sale by us of a China resident enterprise. 13 2022 Form 10-K Gains on Indirect Disposal of Equity Interests in Our China Subsidiaries.
We may be subject to these taxes in the event of any future sale by us of a China resident enterprise. 13 2023 Form 10-K Gains on Indirect Disposal of Equity Interests in Our China Subsidiaries.
In December 2022, a refined Foreign Sourced Income Exemption (“FSIE”) regime was published in Hong Kong and will take effect from January 1, 2023. Under the new FSIE regime, certain foreign soured income would be deemed as being sourced from Hong Kong and chargeable to Hong Kong Profits Tax, if the recipient entity fails to meet the prescribed exception requirements.
In December 2022, a refined Foreign Sourced Income Exemption (“FSIE”) regime was published in Hong Kong and took effect from January 1, 2023. Under the new FSIE regime, certain foreign soured income would be deemed as being sourced from Hong Kong and chargeable to Hong Kong Profits Tax, if the recipient entity fails to meet the prescribed exception requirements.
On August 26, 2022, the PCAOB announced that it signed a Statement of Protocol with the CSRC and the Ministry of Finance, which it described as the first step toward opening access for the PCAOB to inspect and investigate completely registered public accounting firms in mainland China and Hong Kong.
Subsequently, in August 2022, the PCAOB announced that it signed a Statement of Protocol with the CSRC and the Ministry of Finance, which it described as the first step toward opening access for the PCAOB to inspect and investigate completely registered public accounting firms in mainland China and Hong Kong.
Through job rotations and targeted trainings, they are offered an opportunity to gain a thorough understanding of the business and build a foundation for becoming industry-leading professionals.
Through job rotations and targeted training, they are offered an opportunity to gain a thorough understanding of the business and build a foundation for becoming industry-leading professionals.
Measured by number of restaurants, we believe Pizza Hut has an approximate five-to-one lead over its nearest western CDR competitor in China as of the end of 2022. 2 2022 Form 10-K Other Concepts In addition to KFC and Pizza Hut, our restaurant brand portfolio also includes Taco Bell, Lavazza, Little Sheep and Huang Ji Huang. Taco Bell.
Measured by number of restaurants, we believe Pizza Hut has an approximate four-to-one lead over its nearest western CDR competitor in China as of the end of 2023. 2 2023 Form 10-K Other Concepts In addition to KFC and Pizza Hut, our restaurant brand portfolio also includes Lavazza, Huang Ji Huang, Little Sheep and Taco Bell. Lavazza .
We believe that there are significant opportunities to expand within China, and we intend to focus our efforts on increasing our geographic footprint in both existing and new cities. As of December 31, 2022, we owned and operated approximately 86% of our restaurants.
We believe that there are significant opportunities to further expand within China, and we intend to focus our efforts on increasing our geographic footprint in both existing and new cities. As of December 31, 2023, we owned and operated approximately 86% of our restaurants.
To further enhance the guest experience, we are also evaluating the possibility of adopting other digital initiatives in our restaurants and will continue to invest in this area, as discussed more fully below.
To further enhance the guest experience, we are also evaluating the possibility of adopting other digital initiatives in our restaurants and will continue to invest in this area, as discussed more fully below. Grow coffee business.
Thus, loans by us to our wholly-owned Chinese subsidiaries to finance their activities cannot exceed statutory limits and must be registered with the local counterparts of the State Administration of Foreign Exchange (“SAFE”).
For example, loans by us to our wholly-owned Chinese subsidiaries to finance their activities cannot exceed statutory limits and must be registered with the local counterparts of the State Administration of Foreign Exchange (“SAFE”).
Diversity, Inclusion and Equal Opportunities The Company is committed to fostering a working environment that is professional, inclusive and non-discriminatory for employees to unleash their potential. In our workplaces, differences are understood, appreciated and encouraged.
Diversity, Inclusion and Equal Opportunities The Company is committed to fostering a working environment that is professional, inclusive and non-discriminatory for employees. In our workplaces, differences are understood, appreciated and encouraged.
We also strive to explore solutions to recycle and reuse waste, such as recycling used cooking oil as resources in the Company’s value chain through collaboration with various stakeholders. Sustainable Packaging We continue to reduce packaging and waste through design optimization, material replacement, and innovative application methods.
We also strive to explore solutions to recycle and reuse waste, such as recycling used cooking oil, coffee grounds and packaging waste as resources in the Company’s value chain through collaboration with various stakeholders. Sustainable Packaging We continue to reduce the use of packaging through design optimization, material replacement, and innovative application methods.
If the PCAOB again becomes unable to conduct a full inspection of our independent registered public accounting firm’s audit documentation related to their audit reports, then our common stock will again be subject to potential delisting from the New York Stock Exchange. 15 2022 Form 10-K For more information regarding the risks to the Company from the HFCAA, please see “Item 1A.
If the PCAOB again becomes unable to conduct a full inspection of our independent registered public accounting firm’s audit documentation related to their audit reports, then our common stock will again be subject to potential delisting from the New York Stock Exchange. For more information regarding the risks to the Company from the HFCAA, please see “Item 1A.
On December 15, 2022, the PCAOB vacated its 2021 determination that the positions taken by authorities in mainland China and Hong Kong prevented it from inspecting and investigating completely registered public accounting firms headquartered in those jurisdictions.
On December 15, 2022, the PCAOB vacated its 2021 determination that the positions taken by authorities in mainland China and Hong Kong prevented it from inspecting and investigating completely registered public accounting firms headquartered in those jurisdictions, including our independent registered accounting firm.
Cash may also be transferred among the Company’s China subsidiaries and their offshore holding companies by means of intercompany loans. No such intercompany loans were made in 2021 and 2022.
Cash may also be transferred among the Company’s China subsidiaries and their offshore holding companies by means of intercompany loans. No such intercompany loans were made in 2023.
We also conduct regular product quality inspections on main menu items, and perform microbiological testing of restaurants’ utensils, small wares, water, ice and food to ensure they meet the required standards. We have established a team managing delivery services for our restaurants.
We also conduct regular product quality inspections on main menu items, and perform microbiological testing of restaurants’ utensils, small wares, water, ice and food to ensure they meet the required standards. 6 2023 Form 10-K We have established a team managing delivery services for our restaurants.
We own registered trademarks and service marks relating to the Little Sheep, Huang Ji Huang, COFFii & JOY and East Dawning brands and pay no license fee related to these brands. Collectively, these licensed and owned marks have significant value and are important to our business.
We own registered trademarks and service marks relating to the Little Sheep and Huang Ji Huang brands and pay no license fee related to these brands. Collectively, these licensed and owned marks have significant value and are important to our business.
See “Risk Factors—Risks Related to Doing Business in China—Chinese regulation of loans to, and direct investment in, Chinese entities by offshore holding companies and governmental control of currency conversion may restrict or prevent us from making loans or additional capital contributions to our Chinese subsidiaries, which may materially and adversely affect our liquidity and our ability to fund and expand our business” for more information; • We are subject to regulations relating to certain investments and acquisitions relating to businesses in China, including under the PRC Anti-monopoly Law and the Provisions of the Ministry of Commerce on M&A of a Domestic Enterprise by Foreign Investors jointly adopted by six PRC regulatory agencies, including MOFCOM, the State-Owned Assets Supervision and Administration Commission, the Chinese State Taxation Administration (“STA”), the State Administration for Industry and Commerce of the People’s Republic of China, the China Securities Regulatory Commission (“CSRC”) and SAFE.
See “Risk Factors—Risks Related to Doing Business in China—Chinese regulation of loans to, and direct investment in, Chinese entities by offshore holding companies and governmental administration of currency conversion may restrict or prevent us from making loans or additional capital contributions to our Chinese subsidiaries, which may materially and adversely affect our liquidity and our ability to fund and expand our business” for more information; • We are subject to regulations relating to certain investments and acquisitions relating to businesses in China, including under the PRC Anti-monopoly Law, Provisions of the State Council on the Thresholds for Declaring Concentration of Business Operators, and the Provisions on M&A of a Domestic Enterprise by Foreign Investors jointly adopted by six PRC regulatory agencies, including MOFCOM, the State-owned Assets Supervision and Administration Commission, the Chinese State Taxation Administration (“STA”), the State Administration for Industry and Commerce of the PRC (now known as the State Administration for Market Regulation of the PRC), the China Securities Regulatory Commission (“CSRC”) and SAFE.
For the year ended December 31, 2022, the Company’s Hong Kong subsidiaries did not distribute dividends to the Company’s Delaware holding company. In 2022, Yum China paid cash dividends to stockholders totaling $202 million and repurchased $466 million of its common stock. The source of funds for these dividends and repurchases was cash on hand held outside of mainland China.
For the year ended December 31, 2023, the Company’s Hong Kong subsidiaries did not distribute dividends to the Company’s Delaware holding company. In 2023, Yum China paid cash dividends to stockholders totaling $216 million and repurchased $617 million of its common stock. The source of funds for these dividends and repurchases was cash on hand held outside of mainland China.
Pursuant to Circular Caishui [2016] No. 36 jointly issued by the Ministry of Finance and the Chinese State Taxation Administration (“STA”), beginning May 1, 2016, any entity engaged in the provision of catering services in China is generally required to pay VAT at the rate of 6% on revenues generated from the provision of such services, less any creditable VAT already paid or borne by such entity upon purchase of materials and services.
Pursuant to Circular Caishui [2016] No. 36 jointly issued by the Ministry of Finance of the PRC and the STA, beginning May 1, 2016, any entity engaged in the provision of catering services in China is generally required to pay VAT at the rate of 6% on revenues generated from the provision of such services, less any creditable VAT already paid or borne by such entity upon purchase of materials and services.
Industry conditions vary by region, with local Chinese restaurants and western chains present, but we possess the largest market share (as measured by system sales). While branded QSR units per million population in China are well below that of the United States, competition in China is increasing.
Industry conditions vary by region, with local Chinese restaurants and western chains present, but we possess the largest market share (as measured by system sales). While branded QSR units per million population in China are well below that of the United States, the market remains highly competitive.
We are dedicated to adopting innovations in our business model and restaurant operations, which enables us to comprehensively reach our guests and provide superior products and services in a technology-driven and happy way, as vividly demonstrated by our slogan “Tasty food, great fun, pleasant presentation with substance.” We believe we are a pioneer and first-mover among restaurant brands in China in utilizing and investing in emerging digital technologies to modernize our business operations and accelerate our growth, which is critical to empower and maintain our competitive advantage in China.
We are dedicated to adopting innovations in our business model and restaurant operations, which enables us to comprehensively reach our guests and provide superior products and services in a technology-driven and happy way, as vividly demonstrated by our slogan “Good food, good fun, and good value.” We believe we are a pioneer and first-mover among restaurant brands in China in utilizing and investing in emerging digital technologies to modernize our business operations and accelerate our growth, which is critical to empower and maintain our competitive advantage in China.
We have developed a 1.5°C-aligned decarbonization strategy and roadmap, focusing on energy efficiency improvement, renewable energy investment and supplier engagement. We identified and assessed climate-related risks and opportunities in our operations and value chain in line with the recommendations of the Task Force on Climate-Related Financial Disclosure (“TCFD”), and released our first TCFD report in 2022.
We have developed a 1.5°C-aligned decarbonization strategy and roadmap, focusing on energy efficiency improvement, renewable energy investment and supplier collaboration. We have identified and assessed climate-related risks and opportunities in our operations and value chain in line with the recommendations of the Task Force on Climate-Related Financial Disclosure (“TCFD”).
As of the end of 2022, this program has allowed more than 12,500 RGMs to become stockholders of Yum China. In addition, the Company granted RSUs valued at $3,000 to all eligible RGMs starting in February 2021, covering approximately 4,000 RGMs. The turnover rate of RGMs was around 9% in 2022.
As of the end of 2023, this program has allowed more than 13,900 RGMs to become stockholders of Yum China. In addition, the Company granted RSUs valued at $3,000 to all eligible RGMs starting in February 2021, covering approximately 4,800 RGMs. The turnover rate of RGMs was around 9 % in 2023.
Since opening its first China restaurant unit in Beijing in 1990, Pizza Hut has grown rapidly and, as of year-end 2022, there were over 2,900 Pizza Hut restaurants in over 650 cities across China. Pizza Hut has an extensive menu offering a broad variety of pizzas, steaks, pasta, rice dishes and other entrees, appetizers, beverages and desserts.
Since opening its first China restaurant unit in Beijing in 1990, Pizza Hut has grown rapidly and, as of year-end 2023, there were 3,312 Pizza Hut restaurants in over 700 cities across China. Pizza Hut has an extensive menu offering a broad variety of pizzas, steaks, pasta, rice dishes and other entrees, appetizers, beverages and desserts.
The Company separated from YUM 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.
The Company separated from YUM 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.
The Company piloted the first “Angel Restaurant” in 2012, using modified equipment and operational processes, and provides training to assist “angel employees” – those with special needs – to perform a full range of jobs. By the end of 2022, we had opened 30 Angel Restaurants in 27 cities, providing jobs for nearly 200 people with special needs.
The Company piloted the first “Angel Restaurant” in 2012, using modified equipment and operational processes, and provides training to assist “angel employees” – those with special needs – to perform a full range of jobs. By the end of 2023, we had opened 46 Angel Restaurants in 42 cities, providing jobs for nearly 250 people with special needs.
For the year ended December 31, 2022, the Company’s China subsidiaries distributed approximately $453 million in dividends to the Company’s Hong Kong-incorporated holding companies.
For the year ended December 31, 2023, the Company’s China subsidiaries distributed approximately $709 million in dividends to the Company’s Hong Kong-incorporated holding companies.
We believe our digitalization along with automation, the Internet of Things and AI work together to enhance food safety, replace manual work and improve overall store efficiency. Doing Business in China Risks Related to Doing Business in China Substantially all of our business operations are located in China.
We believe our digitalization along with automation, the Internet of Things and AI work together to enhance food safety and improve overall store efficiency. 8 2023 Form 10-K Doing Business in China Risks Related to Doing Business in China Substantially all of our business operations are located in China.
If we decide to finance our wholly-owned Chinese subsidiaries by means of capital contributions, in practice, we might be still required to obtain approval from China’s Ministry of Commerce (“MOFCOM”) or its local counterparts.
If we decide to finance our wholly-owned Chinese subsidiaries by means of capital contributions, in practice, we might be still required to obtain approval from China’s Ministry of Commerce (“MOFCOM”) or other regulatory authorities.
Huang served as Vice President, Pizza Hut Regional Operations, from June 2018 to November 2021. Before transferring to Pizza Hut, Mr. Huang held various leadership positions in KFC, including as General Manager of Nanjing and Wuxi markets. Mr. Huang joined Yum! Restaurants China in 1995. Johnson Huang has served as our Chief Customer Officer since May 2022. Mr.
Huang served as Vice President, Pizza Hut Regional Operations, from June 2018 to November 2021. Before transferring to Pizza Hut, Mr. Huang held various leadership positions in KFC, including as General Manager of Nanjing and Wuxi markets. Mr. Huang joined Yum! Restaurants China in 1995. Leila Zhang has served as our Chief Technology Officer since March 2018. Ms.
Given the rapidly expanding middle class and dining out population as a result of continued economic growth and urbanization, we believe there are significant opportunities to expand within China, and we intend to focus our efforts on increasing our geographic footprint in both existing and new cities.
Restaurant chains have a low penetration rate in China, especially in lower-tier cities. Given the rapidly expanding middle class and dining out population as a result of continued economic growth and urbanization, we believe there are significant opportunities to expand within China, and we intend to focus our efforts on increasing our geographic footprint in both existing and new cities.
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. Common stock of Yum China began trading “regular way” under the ticker symbol “YUMC” on the New York Stock Exchange (“NYSE”) on November 1, 2016.
On October 31, 2016, YUM’s shareholders of record as of 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. Common stock of Yum China began trading under the ticker symbol “YUMC” on the New York Stock Exchange (“NYSE”) on November 1, 2016.
In 2022, we also participated in the CDP Questionnaire for the second year. Circular Economy Food Loss and Waste We are working toward the goal of a 10% reduction of our food waste per restaurant by 2030, as compared to a 2020 baseline, by exploring innovative initiatives for food loss reduction across different stages of the value chain.
Circular Economy Food Loss and Waste We are working toward the goal of a 10% reduction of our food waste per restaurant by 2030, as compared to a 2020 baseline, by exploring innovative initiatives for food loss reduction across different stages of the value chain.
We expect to expand our business through organic growth, growth of franchise units and development of our emerging brands. 5 2022 Form 10-K Our expansion strategy has been systematically focused on high potential locations across city tiers, including entering new commercial areas within existing cities and new cities.
We expect to expand our business through organic growth, growth of franchise units and development of our emerging brands. 5 2023 Form 10-K Our expansion strategy has been systematically focused on high potential locations across city tiers, including increasing store density in existing cities and entering new cities.
With more than 35 years of operations, we have developed extensive operating experience in the China market. We have since grown to become the largest restaurant company in China in terms of 2022 system sales, with nearly 13,000 restaurants covering over 1,800 cities primarily in China as of December 31, 2022.
With more than 35 years of operations, we have developed extensive operating experience in the China market. We have since grown to become the largest restaurant company in China in terms of 2023 system sales, with 14,644 restaurants covering over 2,000 cities primarily in China as of December 31, 2023.
In addition, Yum China makes investments in its China subsidiaries through capital contributions to further support their operational and growth needs. In 2021, one of Yum China’s subsidiaries, which was incorporated in Hong Kong, made capital contributions to its subsidiaries in China totaling approximately $95 million. No such capital contributions were made in 2022.
In addition, Yum China makes investments in its China subsidiaries through capital contributions to further support their operational and growth needs. In 2023, one of Yum China’s subsidiaries, which was incorporated in Hong Kong, made capital contributions to its subsidiaries in China totaling approximately $100 million.
Culture and People Philosophy The Company is committed to the “People First” philosophy by implementing our principle of “Fair, Care, Pride.” In 2022, we released our Human Rights Policy, highlighting our commitment to create a workplace and a community that respect and protect human rights, which includes providing a discrimination-free and harassment-free workplace, ensuring fair compensation, creating a safe and healthy working environment, encouraging a diverse and inclusive culture, equipping employees with future employability, respecting employees’ freedom of association, prohibiting child labor and forced labor and engaging with the communities we serve and our stakeholders.
Under the board’s oversight, the Company regularly conducts a people planning review to attract, retain and develop a workforce that aligns with our values and strategies. 16 2023 Form 10-K Culture and People Philosophy The Company is committed to the “People First” philosophy by implementing our principle of “Fair, Care, Pride.” In 2022, we released our Human Rights Policy, highlighting our commitment to create a workplace and a community that respect and protect human rights, which includes providing a discrimination-free and harassment-free workplace, ensuring fair compensation, creating a safe and healthy working environment, encouraging a diverse and inclusive culture, equipping employees with future employability, respecting employees’ freedom of association, prohibiting child labor and forced labor and engaging with the communities we serve and our stakeholders.
Going forward, we will continue to optimize our delivery service by adopting innovative technologies, rolling out new delivery menu items and developing novel delivery service concepts, such as our dynamically adjusting delivery coverage for each store by daypart, taking into account the operating hours of nearby stores. New retail .
Going forward, we intend to continue to optimize our delivery service by adopting innovative technologies, rolling out new delivery menu items and developing novel delivery service concepts, such as our dynamically adjusting delivery coverage for each store by daypart, taking into account the operating hours of nearby stores. 4 2023 Form 10-K Enhance digital capabilities.
Before joining Lear Corporation, Ms. Lu spent 10 years in public accounting with Ernst & Young, specializing in audits and initial public offerings of companies listed in the U.S., SEC reporting and Sarbanes-Oxley compliance. Ms.
Before joining Lear Corporation, Ms. Lu spent 10 years in public accounting with Ernst & Young, specializing in audits and initial public offerings of companies listed in the U.S., SEC reporting and Sarbanes-Oxley compliance. Ms. Lu is a certified public accountant in California and a member of the American Institute of Certified Public Accountants.
The performance of RGMs is regularly monitored and coached by senior operations leaders. Each restaurant brand issues detailed manuals, which may then be customized to meet local regulations and customs. These manuals set forth standards and requirements for all aspects of restaurant operations.
RGMs are skilled and highly trained, with most having a college-level education. The performance of RGMs is regularly monitored and coached by senior operations leaders. Each restaurant brand issues detailed manuals, which may then be customized to meet local regulations and customs. These manuals set forth standards and requirements for all aspects of restaurant operations.
See “—Government Regulation—Regulations Relating to Dividend Distribution” for more information. 10 2022 Form 10-K Government Regulation The Company is subject to various laws affecting its business, including the following: • Each of our restaurants in China is required to obtain (1) the relevant food business license; (2) the environmental protection assessment and inspection registration or approval; and (3) the fire safety inspection acceptance approval or other alternatives.
Government Regulation The Company is subject to various laws affecting its business, including the following: • Each of our restaurants in China is required to obtain (1) the relevant food business license; (2) the environmental protection assessment and inspection registration or approval; and (3) the fire safety inspection acceptance approval or other alternatives.
We had $9.6 billion of revenues in 2022 and nearly 13,000 restaurants as of December 31, 2022. Our growing restaurant network consists of our flagship KFC and Pizza Hut brands, as well as emerging brands such as Taco Bell, Lavazza, Little Sheep and Huang Ji Huang.
We had $11 billion of revenues in 2023 and 14,644 restaurants as of December 31, 2023. Our growing restaurant network consists of our flagship KFC and Pizza Hut brands, as well as emerging brands such as Lavazza, Huang Ji Huang, Little Sheep and Taco Bell.
In 2019, Company sales through delivery accounted for approximately 21% of total Company sales, which further increased to approximately 30% for 2020, 32% in 2021 and 39% in 2022, partially driven by the increased delivery orders as a result of the COVID-19 pandemic.
In 2019, Company sales through delivery accounted for approximately 21% of total Company sales, which further increased to approximately 30% in 2020, 32% in 2021 and 39% in 2022, partially driven by the increased delivery orders as a result of the COVID-19 pandemic, and slightly decreased to 36% in 2023 as dine-in significantly rebounded in 2023 compared to the pandemic-impacted prior year.
As part of our strategy to drive growth from off-premise occasions, our new retail products are designed to capture at-home consumption demand by leveraging our online and offline sales channels. We launched packaged foods such as steak, fried rice and pasta, so customers can enjoy these products any time they want.
As part of our strategy to drive growth from off-premise occasions, our new retail products are designed to capture at-home consumption demand by leveraging our online and offline sales channels. We launched packaged foods, so customers can enjoy these products any time they want. In 2023, we continued to broaden our offerings by adding some of our restaurant classics.
Information about our Executive Officers The executive officers of the Company as of February 28, 2023, and their ages and current positions as of that date, are as follows: Name Age Title Joey Wat 51 Chief Executive Officer Andy Yeung 50 Chief Financial Officer Warton Wang 48 General Manager, KFC Jeff Kuai 42 General Manager, Pizza Hut Duoduo (Howard) Huang 50 Chief Supply Chain Officer Johnson Huang 60 Chief Customer Officer Leila Zhang 54 Chief Technology Officer Joseph Chan 54 Chief Legal Officer Aiken Yuen 63 Chief People Officer Xueling Lu 49 Controller and Principal Accounting Officer Joey Wat has served as our Chief Executive Officer since March 2018 and as a member of our board of directors since July 2017.
Information about our Executive Officers The executive officers of the Company as of February 29, 2024, and their ages and current positions as of that date, are as follows: Name Age Title Joey Wat 52 Chief Executive Officer Andy Yeung 51 Chief Financial Officer Warton Wang 49 General Manager, KFC Jeff Kuai 43 General Manager, Pizza Hut Duoduo (Howard) Huang 51 Chief Supply Chain Officer Leila Zhang 55 Chief Technology Officer Pingping Liu 51 Chief Legal Officer Jerry Ding 38 Chief People Officer Xueling Lu 50 Controller and Principal Accounting Officer Joey Wat has served as our Chief Executive Officer since March 2018 and as a member of our Board of Directors since July 2017.
KFC also seeks to increase revenue from different channels, including dine-in, delivery, takeaway and packaged foods such as steak, fried rice and pasta.
KFC also seeks to increase revenue from different channels, including dine-in, delivery, takeaway and packaged foods such as egg tarts, popcorn chicken and steak.
While the franchise market in China is still in an early stage compared to developed markets, we plan to continue to develop our franchisee-owned store portfolio over time by focusing on select channels and lower-tier city development, among others. Grow emerging brands .
While the franchise market in China is still in an early stage compared to developed markets, we plan to continue to develop our franchisee-owned store portfolio over time by focusing on strategic locations, lower-tier cities and remote areas, among others.
We were one of the first restaurant businesses in China to offer delivery services. As early as 2010, KFC established its own delivery platform and started to accept delivery orders placed on its mobile applications. Orders generated from our own delivery platforms for KFC and Pizza Hut contributed a significant portion of our delivery sales.
As early as 2010, KFC established its own delivery platform and started to accept delivery orders placed on its mobile applications. Orders generated from our own delivery platforms for KFC and Pizza Hut contributed a significant portion of our delivery sales.
Member sales accounted for approximately 62% of system sales in 2022. We believe that creative and engaging interactions with our guests can help us enhance the guest experience and guest loyalty, which will ultimately lead to increased sales. Delivery We believe that food delivery is a significant growth driver in China.
We believe that creative and engaging interactions with our guests can help us enhance the guest experience and guest loyalty, which will ultimately lead to increased sales. Delivery We believe that food delivery is a significant growth driver in China. We were one of the first restaurant businesses in China to offer delivery services.
The Company makes available through the Investor Relations website its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after electronically filing such material with the SEC.
Yum China uses this website as a primary channel for disclosing key information to its investors, some of which may contain material and previously non-public information. 21 2023 Form 10-K The Company makes available through the Investor Relations website its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after electronically filing such material with the SEC.
Leveraging the Yum China Occupational Health and Safety (“OH&S”) Management System, we provide necessary education, training, equipment and resources to help ensure that our employees, customers and partners fully understand and comply with relevant regulations, policies and procedures. We have also clearly defined the structure and accountability for the effective management of OH&S in Yum China.
Health and Safety Protecting the health and safety of employees is the Company's top priority. Leveraging the Yum China Occupational Health and Safety (“OH&S”) Management System, we provide necessary education, training, equipment and resources to help ensure that our employees, customers and partners fully understand and comply with relevant regulations, policies and procedures.
We have increased the offering of grains, fruits, vegetables and beans in our menus to promote balanced food choices. We have collaborated with scientific institutions to promote dietary health for 15 years.
We are committed to reducing the use of salt and sugar as part of our nutrition and health initiatives. We have increased the offering of grains, fruits, vegetables and beans in our menus to promote balanced food choices. We have collaborated with scientific institutions to promote dietary health for 16 years.
Restaurant Concepts KFC KFC is the leading and the largest quick-service restaurant (“QSR”) brand in China in terms of 2022 system sales. Founded in Corbin, Kentucky by Colonel Harland D. Sanders in 1939, KFC opened its first restaurant in Beijing, China in 1987.
Restaurant Concepts KFC KFC is the leading and the largest quick-service restaurant (“QSR”) brand in China in terms of 2023 system sales. Founded in Corbin, Kentucky by Colonel Harland D. Sanders in 1939, KFC opened its first restaurant in Beijing, China in 1987. As of December 31, 2023, there were 10,296 KFC restaurants in more than 2,000 cities across China.

… 117 more changes not shown on this page.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

131 edited+15 added−36 removed393 unchanged
Biggest changeSummary of Risk Factors We are exposed to a variety of risks, which have been separated into five general groups: • Risks related to our business and industry, including (a) food safety and foodborne illness concerns, (b) significant failure to maintain effective quality assurance systems for our restaurants, (c) significant liability claims, food contamination complaints from our customers or reports of incidents of food tampering, (d) health concerns arising from outbreaks of viruses or other illnesses, including the COVID-19 pandemic, (e) the fact that the operation of our restaurants is subject to the terms of the master license agreement with YUM, (f) the fact that substantially all of our revenue is derived from our operations in China, (g) the fact that our success is tied to the success of YUM’s brand strength, marketing campaigns and product innovation, (h) shortages or interruptions in the availability and delivery of food products and other supplies, (i) fluctuation of raw materials prices, (j) our inability to attain our target development goals, the potential cannibalization of existing sales by aggressive development and the possibility that new restaurants will not be profitable, (k) risks associated with leasing real estate, (l) inability to obtain desirable restaurant locations on commercially reasonable terms, (m) labor shortages or increases in labor costs, (n) the fact that our success depends substantially on our corporate reputation and on the value and perception of our brands, (o) the occurrence of security breaches and cyber-attacks, (p) failure to protect the integrity and security of our customer or employee personal, financial or other data or our proprietary or confidential information that is stored in our information systems or by third parties on our behalf, (q) failures or interruptions of service or security breaches in our information technology systems, (r) the fact that our business depends on the performance of, and our long-term relationships with, third-party mobile payment processors, internet infrastructure operators, internet service providers and delivery aggregators, (s) failure to provide timely and reliable delivery services by our restaurants, (t) our growth strategy with respect to Lavazza may not be successful, (u) the anticipated benefits of our acquisitions may not be realized in a timely manner or at all, (v) challenges and risks related to our new retail and e-commerce businesses, (w) our inability or failure to recognize, respond to and effectively manage the impact of social media, (x) failure to comply with anti-bribery or anti-corruption laws, (y) U.S. federal income taxes, changes in tax rates, disagreements with tax authorities and imposition of new taxes, (z) changes in consumer discretionary spending and general economic conditions, (aa) the fact that the restaurant industry in which we operate is highly competitive, (bb) loss of or failure to obtain or renew any or all of the approvals, licenses and permits to operate our business, (cc) our inability to adequately protect the intellectual property we own or have the right to use, (dd) our licensor’s failure to protect its intellectual property, (ee) seasonality and certain major events in China, (ff) our failure to detect, deter and prevent all instances of fraud or other misconduct committed by our employees, customers or other third parties, (gg) the fact that our success depends on the continuing efforts of our key management and experienced and capable personnel as well as our ability to recruit new talent, (hh) our strategic investments or acquisitions may be unsuccessful; (ii) our investment in technology and innovation may not generate the expected level of returns, (jj) fair value changes for our investment in equity securities and lower yields of our short-term investments may adversely affect our financial condition and results of operations, and (kk) our operating results may be adversely affected by our investment in unconsolidated affiliates; • Risks related to doing business in China, including (a) changes in Chinese political policies and economic and social policies or conditions, (b) uncertainties with respect to the interpretation and enforcement of Chinese laws, rules and regulations, which may be subject to change from time to time with little advance notice, and the risk that the PRC government may intervene or influence our operations at any time, which could result in a material change in our operations and/or the value of our securities to decline, (c) the audit report included in this Form 10-K is prepared by auditors who are located in China, and in the event the PCAOB is unable to inspect our auditors, our common stock will be subject to potential delisting from the New York Stock Exchange, (d) changes in political, business, economic and trade relations between the United States and China, (e) fluctuation in the value of the Chinese Renminbi, (f) the fact that we face increasing focus on environmental sustainability issues, (g) limitation on our ability to utilize our cash balances effectively, including making funds held by our China-based subsidiaries unavailable for use outside of mainland China, due to interventions in or the imposition of 23 2022 Form 10-K restrictions and limitations by the PRC government on currency conversion and payments of foreign currency and RMB out of mainland China, (h) changes in the laws and regulations of China or noncompliance with applicable laws and regulations, (i) reliance on dividends and other distributions on equity paid by our principal subsidiaries in China to fund offshore cash requirements, (j) potential unfavorable tax consequences resulting from our classification as a China resident enterprise for Chinese enterprise income tax purposes, (k) uncertainty regarding indirect transfers of equity interests in China resident enterprises and enhanced scrutiny by Chinese tax authorities, (l) difficulties in effecting service of legal process, conducting investigations, collecting evidence, enforcing foreign judgments or bringing original actions in China against us, (m) the Chinese government may determine that the variable interest entity structure of Daojia does not comply with Chinese laws on foreign investment in restricted industries, (n) inability to use properties due to defects caused by non-registration of lease agreements related to certain properties, (o) risk in relation to unexpected land acquisitions, building closures or demolitions, (p) potential fines and other legal or administrative sanctions for failure to comply with Chinese regulations regarding our employee equity incentive plans and various employee benefit plans, (q) proceedings instituted by the SEC against certain China-based accounting firms, including our independent registered public accounting firm, could result in our financial statements being determined to not be in compliance with the requirements of the Exchange Act, (r) restrictions on our ability to make loans or additional capital contributions to our Chinese subsidiaries due to Chinese regulation of loans to, and direct investment in, Chinese entities by offshore holding companies and governmental control of currency conversion, (s) difficulties in pursuing growth through acquisitions due to regulations regarding acquisitions, and (t) the PRC government has significant oversight and discretion to exert control over offerings of securities conducted outside of China and over foreign investment in China-based issuers, and may limit or completely hinder our ability to offer securities to investors, or cause the value of our securities to significantly decline; these risks are each discussed in detail in the section “Risks Related to Doing Business in China.” • Risks related to the separation and related transactions, including (a) incurring significant tax liabilities if the distribution does not qualify as a transaction that is generally tax-free for U.S. federal income tax purposes and the Company could be required to indemnify YUM for material taxes and other related amounts pursuant to indemnification obligations under the tax matters agreement, (b) being obligated to indemnify YUM for material taxes and related amounts pursuant to indemnification obligations under the tax matters agreement if YUM is subject to Chinese indirect transfer tax with respect to the distribution, (c) potential indemnification liabilities owing to YUM pursuant to the separation and distribution agreement, (d) the indemnity provided by YUM to us with respect to certain liabilities in connection with the separation may be insufficient to insure us against the full amount of such liabilities, (e) the possibility that a court would require that we assume responsibility for obligations allocated to YUM under the separation and distribution agreement, and (f) potential liabilities due to fraudulent transfer considerations; • Risks related to our common stock, including (a) the fact that we cannot guarantee the timing or amount of dividends on, or repurchases of, our common stock, (b) the impact on the trading prices of our common stock due to different characteristics of the capital markets in Hong Kong and the U.S., (c) different interests between Primavera and Ant Financial and other holders of our common stock, and (d) the existence of anti-takeover provisions that may discourage or delay acquisition attempts that you might consider favorable; and • General risk factors.
Biggest changeSummary of Risk Factors We are exposed to a variety of risks, which have been separated into five general groups: • Risks related to our business and industry, including (a) food safety and foodborne illness concerns, (b) significant failure to maintain effective quality assurance systems for our restaurants, (c) significant liability claims, food contamination complaints from our customers or reports of incidents of food tampering, (d) health concerns arising from outbreaks of viruses or other illnesses, (e) the fact that the operation of our restaurants is subject to the terms of the master license agreement with YUM, (f) the fact that substantially all of our revenue is derived from our operations in China, (g) the fact that our success is tied to the success of YUM’s brand strength, marketing campaigns and product innovation, (h) shortages or interruptions in the availability and delivery of food products and other supplies, (i) fluctuation of raw materials prices, (j) our inability to attain our target development goals, the potential cannibalization of existing sales by aggressive development and the possibility that new restaurants will not be profitable, (k) risks associated with leasing real estate, (l) inability to obtain desirable restaurant locations on commercially reasonable terms, (m) labor shortages or increases in labor costs, (n) the fact that our success depends substantially on our corporate reputation and on the value and perception of our brands, (o) the occurrence of security breaches and cyber-attacks, (p) failure to protect the integrity and security of our customer or employee personal, financial or other data or our proprietary or confidential information that is stored in our information systems or by third parties on our behalf, (q) failures or interruptions of service or security breaches in our information technology systems, (r) the fact that our business depends on the performance of, and our long-term relationships with, third-party mobile payment processors, internet infrastructure operators, internet service providers, delivery aggregators and third-party e-commerce platforms, (s) failure to provide timely and reliable delivery services by our restaurants, (t) our growth strategy with respect to Lavazza may not be successful, (u) the anticipated benefits of our acquisitions may not be realized in a timely manner or at all, (v) challenges and risks related to our new retail and e-commerce businesses, (w) use of GenAI technologies, (x) our inability or failure to recognize, respond to and effectively manage the impact of social media, (y) failure to comply with anti-bribery or anti-corruption laws, (z) U.S. federal income taxes, changes in tax rates, disagreements with tax authorities and imposition of new taxes, (aa) changes in consumer discretionary spending and general economic conditions, (bb) the fact that the restaurant industry in which we operate is highly competitive, (cc) loss of or failure to obtain or renew any or all of the approvals, licenses and permits to operate our business, (dd) our inability to adequately protect the intellectual property we own or have the right to use, (ee) our licensor’s failure to protect its intellectual property, (ff) seasonality and certain major events in China, (gg) our failure to detect, deter and prevent all instances of fraud or other misconduct committed by our employees, customers or other third parties, (hh) the fact that our success depends on the continuing efforts of our key management and experienced and capable personnel as well as our ability to recruit new talent, (ii) our strategic investments or acquisitions may be unsuccessful; (jj) our investment in technology and innovation may not generate the expected level of returns, (kk) fair value changes for our investment in equity securities, lower yields of our short-term investments or lower returns of our future long-term bank deposits and notes may adversely affect our financial condition and results of operations, and (ll) our operating results may be adversely affected by our investment in equity method investees; 23 2023 Form 10-K • Risks related to doing business in China, including (a) changes in Chinese political policies and economic and social policies or conditions, (b) the interpretation and enforcement of Chinese laws, rules and regulations may change from time to time with little advance notice, and the risk that the PRC government may intervene or influence our operations, which could result in a material change in our operations and/or the value of our securities to decline, (c) the audit report included in this Form 10-K is prepared by auditors who are located in China, and in the event the PCAOB is unable to inspect our auditors, our common stock will be subject to potential delisting from the New York Stock Exchange, (d) changes in political, business, economic and trade relations between the United States and China, (e) fluctuation in the value of the Chinese Renminbi, (f) the fact that we face increasing focus on environmental sustainability issues, (g) limitation on our ability to utilize our cash balances effectively, including making funds held by our China-based subsidiaries unavailable for use outside of mainland China, due to interventions in or the imposition of restrictions and limitations by the PRC government on currency conversion and payments of foreign currency and RMB out of mainland China, (h) changes in the laws and regulations of China or noncompliance with applicable laws and regulations, (i) reliance on dividends and other distributions on equity paid by our principal subsidiaries in China to fund offshore cash requirements, (j) potential unfavorable tax consequences resulting from our classification as a China resident enterprise for Chinese enterprise income tax purposes, (k) uncertainty regarding indirect transfers of equity interests in China resident enterprises and enhanced scrutiny by Chinese tax authorities, (l) difficulties in effecting service of legal process, conducting investigations, collecting evidence, enforcing foreign judgments or bringing original actions in China against us, (m) the Chinese government may determine that the variable interest entity structure of Daojia does not comply with Chinese laws on foreign investment in restricted industries, (n) inability to use properties due to defects caused by non-registration of lease agreements related to certain properties, (o) risk in relation to unexpected land acquisitions, building closures or demolitions, (p) potential fines and other legal or administrative sanctions for failure to comply with Chinese regulations regarding our employee equity incentive plans and various employee benefit plans, (q) proceedings instituted by the SEC against certain China-based accounting firms, including our independent registered public accounting firm, could result in our financial statements being determined to not be in compliance with the requirements of the Exchange Act, (r) restrictions on our ability to make loans or additional capital contributions to our Chinese subsidiaries due to Chinese regulation of loans to, and direct investment in, Chinese entities by offshore holding companies and governmental administration of currency conversion, (s) difficulties in pursuing growth through acquisitions due to regulations regarding acquisitions, and (t) the PRC government has significant oversight and discretion to exert supervision over offerings of securities conducted outside of China and over foreign investment in China-based issuers, and may limit or completely hinder our ability to offer securities to investors, or cause the value of our securities to significantly decline; these risks are each discussed in detail in the section “Risks Related to Doing Business in China.” • Risks related to the separation and related transactions, including (a) incurring significant tax liabilities if the distribution does not qualify as a transaction that is generally tax-free for U.S. federal income tax purposes and the Company could be required to indemnify YUM for material taxes and other related amounts pursuant to indemnification obligations under the tax matters agreement, (b) being obligated to indemnify YUM for material taxes and related amounts pursuant to indemnification obligations under the tax matters agreement if YUM is subject to Chinese indirect transfer tax with respect to the distribution, (c) potential indemnification liabilities owing to YUM pursuant to the separation and distribution agreement, (d) the indemnity provided by YUM to us with respect to certain liabilities in connection with the separation may be insufficient to insure us against the full amount of such liabilities, (e) the possibility that a court would require that we assume responsibility for obligations allocated to YUM under the separation and distribution agreement, and (f) potential liabilities due to fraudulent transfer considerations; • Risks related to our common stock, including (a) the fact that we cannot guarantee the timing or amount of dividends on, or repurchases of, our common stock, (b) the impact on the trading prices of our common stock due to different characteristics of the capital markets in Hong Kong and the U.S., (c) different interests between Primavera and other holders of our common stock, and (d) the existence of anti-takeover provisions that may discourage or delay acquisition attempts that you might consider favorable; and • General risk factors. 24 2023 Form 10-K Risks Related to Our Business and Industry Food safety and foodborne illness concerns may have an adverse effect on our reputation and business.
In addition to market and industry factors, the prices and trading volumes for our shares may be highly volatile for specific business reasons, including: • actual or anticipated fluctuations in the our results of operations; • significant liability claims, health concerns, food contamination complaints from our customers, shortages or interruptions in the availability of food or other supplies, or reports of incidents of food tampering; • foreign exchange issues; • geopolitical instability, conflict, or social unrest in the markets in which we operate, in Hong Kong, the United States or worldwide; • changes in the regulatory, legal and political environment in which we operate, in Hong Kong, the United States or worldwide; • the domestic and worldwide economies as a whole; or • the delisting of our common stock from the New York Stock Exchange.
In addition to market and industry factors, the prices and trading volumes for our shares may be highly volatile for specific business reasons, including: • actual or anticipated fluctuations in our results of operations; • significant liability claims, health concerns, food contamination complaints from our customers, shortages or interruptions in the availability of food or other supplies, or reports of incidents of food tampering; • foreign exchange issues; • geopolitical instability, conflict, or social unrest in the markets in which we operate, in Hong Kong, the United States or worldwide; • changes in the regulatory, legal and political environment in which we operate, in Hong Kong, the United States or worldwide; • the domestic and worldwide economies as a whole; or • the delisting of our common stock from the New York Stock Exchange.
For more information regarding risks relating to cybersecurity and related regulation, see “—The PRC government has significant oversight and discretion to exert control over offerings of our securities conducted outside of China and foreign investment in China-based issuers, and may limit or completely hinder our ability to offer securities to investors, which may cause the value of such securities to significantly decline” and “—Risks Related to Our Business and Industry—Unauthorized access to, or improper use, disclosure, theft or destruction of, our customer or employee personal, financial or other data or our proprietary or confidential information that is stored in our information systems or by third parties on our behalf could result in substantial costs, expose us to litigation and damage our reputation.” Chinese regulators have also focused recently on enforcement of anti-monopoly and unfair competition rules, which may affect our ability to carry out our investment and acquisition strategy, and on regulation of variable interest entities.
For more information regarding risks relating to cybersecurity and related regulation, see “—The PRC government has significant oversight and discretion to exert supervision over offerings of our securities conducted outside of China and foreign investment in China-based issuers, and may limit or completely hinder our ability to offer securities to investors, which may cause the value of such securities to significantly decline” and “—Risks Related to Our Business and Industry—Unauthorized access to, or improper use, disclosure, theft or destruction of, our customer or employee personal, financial or other data or our proprietary or confidential information that is stored in our information systems or by third parties on our behalf could result in substantial costs, expose us to litigation and damage our reputation.” Chinese regulators have also focused recently on enforcement of anti-monopoly and unfair competition rules, which may affect our ability to carry out our investment and acquisition strategy, and on regulation of variable interest entities.
Additional information about the Company’s goodwill and intangible assets acquired from our acquisitions is included in Note 9 to the Consolidated Financial Statements in Part II, Item 8. We evaluate indefinite-lived intangible assets and goodwill for impairment on an annual basis or more often if an event occurs or circumstances change that indicates impairment might exist.
Additional information about the Company’s goodwill and intangible assets acquired from our acquisitions is included in Note 8 to the Consolidated Financial Statements in Part II, Item 8. We evaluate indefinite-lived intangible assets and goodwill for impairment on an annual basis or more often if an event occurs or circumstances change that indicates impairment might exist.
The Chinese economy, markets and levels of consumer spending are influenced by many factors beyond our control, including current and future economic conditions, political uncertainty, unemployment rates, inflation, fluctuations in the level of disposable income, taxation, foreign exchange control, and changes in interest and currency exchange rates.
The Chinese economy, markets and levels of consumer spending are influenced by many factors beyond our control, including current and future economic conditions, political uncertainty, unemployment rates, inflation, fluctuations in the level of disposable income, taxation, foreign exchange administration, and changes in interest and currency exchange rates.
Any limitation on the ability of our Chinese subsidiaries to pay dividends or make other distributions to us could limit our ability to make investments or acquisitions outside of China that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business. 46 2022 Form 10-K In addition, the EIT Law and its implementation rules provide that a withholding tax at a rate of 10% will be applicable to dividends payable by Chinese companies to companies that are not China resident enterprises unless otherwise reduced according to treaties or arrangements between the Chinese central government and the governments of other countries or regions where the non-China resident enterprises are incorporated.
Any limitation on the ability of our Chinese subsidiaries to pay dividends or make other distributions to us could limit our ability to make investments or acquisitions outside of China that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business. 46 2023 Form 10-K In addition, the EIT Law and its implementation rules provide that a withholding tax at a rate of 10% will be applicable to dividends payable by Chinese companies to companies that are not China resident enterprises unless otherwise reduced according to treaties or arrangements between the Chinese central government and the governments of other countries or regions where the non-China resident enterprises are incorporated.
In addition, on August 16, 2022, the Inflation Reduction Act of 2022 (the “IRA”) was signed into law in the U.S. The IRA contains certain tax measures, including a corporate alternative minimum tax on certain large corporations and an excise tax on net share repurchases.
On August 16, 2022, the Inflation Reduction Act of 2022 (the “IRA”) was signed into law in the U.S. The IRA contains certain tax measures, including a corporate alternative minimum tax on certain large corporations and an excise tax on net share repurchases.
These costs, which could be material, could adversely impact our results of operations in the period in which they are incurred and may not meaningfully limit the success of future attempts to breach our information technology systems. 31 2022 Form 10-K Unauthorized access to, or improper use, disclosure, theft or destruction of, our customer or employee personal, financial or other data or our proprietary or confidential information that is stored in our information systems or by third parties on our behalf could result in substantial costs, expose us to litigation and damage our reputation.
These costs, which could be material, could adversely impact our results of operations in the period in which they are incurred and may not meaningfully limit the success of future attempts to breach our information technology systems. 31 2023 Form 10-K Unauthorized access to, or improper use, disclosure, theft or destruction of, our customer or employee personal, financial or other data or our proprietary or confidential information that is stored in our information systems or by third parties on our behalf could result in substantial costs, expose us to litigation and damage our reputation.
Recently, the Chinese government has increased its regulatory focus on matters including anti-monopoly and unfair competition rules, cybersecurity and regulation of variable interest entities and has initiated various regulatory actions, statements and enforcement proceedings to regulate business operations in China with little advance notice. 45 2022 Form 10-K For example, Chinese regulators, including the CAC, have been increasingly focused on regulation in the areas of data security and data protection, and are enhancing the protection of privacy and data security by rulemaking and enforcement actions at central and local levels.
Recently, the Chinese government has increased its regulatory focus on matters including anti-monopoly and unfair competition rules, cybersecurity and regulation of variable interest entities and has initiated various regulatory actions, statements and enforcement proceedings to regulate business operations in China with little advance notice. 45 2023 Form 10-K For example, Chinese regulators, including the CAC, have been increasingly focused on regulation in the areas of data security and data protection, and are enhancing the protection of privacy and data security by rulemaking and enforcement actions at central and local levels.
We cannot guarantee the effectiveness of the measures undertaken by us, and such measures may still be determined as insufficient, improper, or even as user-privacy invasive, by the relevant authorities, which may result in penalties against us. 32 2022 Form 10-K Compliance with these laws, as well as additional regulations and standards regarding data privacy, data collection and information security that PRC regulatory bodies may enact in the future, may result in additional expenses to us as we may be required to upgrade our current information technology systems.
We cannot guarantee the effectiveness of the measures undertaken by us, and such measures may still be determined as insufficient, improper, or even as user-privacy invasive, by the relevant authorities, which may result in penalties against us. 32 2023 Form 10-K Compliance with these laws, as well as additional regulations and standards regarding data privacy, data collection and information security that PRC regulatory bodies may enact in the future, may result in additional expenses to us as we may be required to upgrade our current information technology systems.
We generally do not have renewal options for our leases and need to negotiate the terms of renewal with the lessor, who may insist on a significant modification to the terms and conditions of the lease agreement. 29 2022 Form 10-K The rent under the majority of our current restaurant lease agreements is generally payable in one of three ways: (i) fixed rent; (ii) the higher of a fixed base rent or a percentage of the restaurant’s annual sales revenue; or (iii) a percentage of the restaurant’s annual sales revenue.
We generally do not have renewal options for our leases and need to negotiate the terms of renewal with the lessor, who may insist on a significant modification to the terms and conditions of the lease agreement. 29 2023 Form 10-K The rent under the majority of our current restaurant lease agreements is generally payable in one of three ways: (i) fixed rent; (ii) the higher of a fixed base rent or a percentage of the restaurant’s annual sales revenue; or (iii) a percentage of the restaurant’s annual sales revenue.
However, given the uncertainty regarding the application of the EIT Law to us and our future operations, there can be no assurance that we or any of our non-Chinese subsidiaries will not be treated as a China resident enterprise now or in the future for Chinese tax law purposes. 47 2022 Form 10-K We and our stockholders face uncertainty with respect to indirect transfers of equity interests in China resident enterprises through transfer of non-Chinese-holding companies.
However, given the uncertainty regarding the application of the EIT Law to us and our future operations, there can be no assurance that we or any of our non-Chinese subsidiaries will not be treated as a China resident enterprise now or in the future for Chinese tax law purposes. 47 2023 Form 10-K We and our stockholders face uncertainty with respect to indirect transfers of equity interests in China resident enterprises through transfer of non-Chinese-holding companies.
Our operations are highly dependent upon our information technology systems and any failures or interruptions of service or security breaches in our systems may interrupt our operations and harm our business. Our operations are dependent upon the successful and uninterrupted functioning of our computer and information technology systems.
Our operations are highly dependent upon our information technology systems and failures or interruptions of service or security breaches in our systems may interrupt our operations and harm our business. Our operations are dependent upon the successful and uninterrupted functioning of our computer and information technology systems.
Our company and other non-resident enterprises in our group may be subject to filing obligations or taxation if our company and other non-resident enterprises in our group are transferors in such transactions, and may be subject to withholding obligations if our company and other non-resident enterprises in our group are transferees in such transactions. 48 2022 Form 10-K There may be difficulties in effecting service of legal process, conducting investigations, collecting evidence, enforcing foreign judgments or bringing original actions in China based on United States or other foreign laws against us and our management.
Our company and other non-resident enterprises in our group may be subject to filing obligations or taxation if our company and other non-resident enterprises in our group are transferors in such transactions, and may be subject to withholding obligations if our company and other non-resident enterprises in our group are transferees in such transactions. 48 2023 Form 10-K There may be difficulties in effecting service of legal process, conducting investigations, collecting evidence, enforcing foreign judgments or bringing original actions in China based on United States or other foreign laws against us and our management.
Publicity relating to any noncompliance or alleged noncompliance could also harm our reputation and adversely affect our business and results of operations. 36 2022 Form 10-K As a U.S. company with operations concentrated in China, we are subject to both U.S. federal income tax and Chinese enterprise income tax, which could result in relatively higher taxes compared to companies operating primarily in the U.S.
Publicity relating to any noncompliance or alleged noncompliance could also harm our reputation and adversely affect our business and results of operations. 36 2023 Form 10-K As a U.S. company with operations concentrated in China, we are subject to both U.S. federal income tax and Chinese enterprise income tax, which could result in relatively higher taxes compared to companies operating primarily in the U.S.
Error or malfeasance or other irregularities may also result in the failure of our or our third-party service providers' cybersecurity measures and may give rise to a cyber incident.
Error or malfeasance or other irregularities may also result in the failure of our or our third-party service providers' cybersecurity measures and may give rise to a cybersecurity incident.
If the foreign exchange control system prevents us from obtaining sufficient foreign currency to satisfy our currency demands or restricts us from paying the license fee to YUM, we may not be able to pay dividends to our stockholders, fulfill our license fee payment obligation, pay out service fees to vendors and repay our indebtedness when due, and, to the extent we undertake such activities, to make investments or acquisitions outside China.
If the foreign exchange administration system prevents us from obtaining sufficient foreign currency to satisfy our currency demands or restricts us from paying the license fee to YUM, we may not be able to pay dividends to our stockholders, fulfill our license fee payment obligation, pay out service fees to vendors and repay our indebtedness when due, and, to the extent we undertake such activities, to make investments or acquisitions outside China.
In addition, under Chinese law, an enterprise incorporated in China is required to set aside at least 10% of its after-tax profits each year, after making up previous years’ accumulated losses, if any, to fund certain statutory reserve funds, until the aggregate amount of such a fund reaches 50% of its registered capital.
In addition, under Chinese laws, an enterprise incorporated in China is required to set aside at least 10% of its after-tax profits each year, after making up previous years’ accumulated losses, if any, to fund certain statutory reserve funds, until the aggregate amount of such a fund reaches 50% of its registered capital.
If we are unable to manage the cost of our raw materials or to increase the prices of our products, it may have an adverse impact on our future profit margin. 28 2022 Form 10-K We may not attain our target development goals; aggressive development could cannibalize existing sales; and new restaurants may not be profitable.
If we are unable to manage the cost of our raw materials or to increase the prices of our products, it may have an adverse impact on our future profit margin. 28 2023 Form 10-K We may not attain our target development goals; aggressive development could cannibalize existing sales; and new restaurants may not be profitable.
We and our directors, executive officers and other employees who are Chinese citizens or who have resided in China for a continuous period of not less than one year and who have been granted restricted shares, restricted stock units (“RSUs”), performance share units (“PSUs”), stock appreciation rights (“SARs”), or stock options (collectively, the “share-based awards”) are subject to the Notice on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly Listed Company, issued by SAFE in February 2012, according to which, employees, directors, supervisors and other management members participating in any stock incentive plan of an overseas publicly-listed company who are Chinese citizens or who are non-Chinese citizens residing in China for a continuous period of not less than one year, subject to limited exceptions, are required to register with SAFE through a domestic qualified agent, which could be a Chinese subsidiary of such overseas listed company, and complete certain other procedures.
We and our directors, executive officers and other employees who are Chinese citizens or who have resided in China for a continuous period of not less than one year and who have been granted restricted shares, restricted stock units (“RSUs”), PSUs, stock appreciation rights (“SARs”), or stock options (collectively, the “share-based awards”) are subject to the Notice on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly Listed Company, issued by SAFE in February 2012, according to which, employees, directors, supervisors and other management members participating in any stock incentive plan of an overseas publicly-listed company who are Chinese citizens or who are non-Chinese citizens residing in China for a continuous period of not less than one year, subject to limited exceptions, are required to register with SAFE through a domestic qualified agent, which could be a Chinese subsidiary of such overseas listed company, and complete certain other procedures.
Furthermore, because repatriation of funds and payment of license fees require the prior approval of SAFE and PBOC, such repatriation and payment could be delayed, restricted or limited.
Furthermore, because repatriation of funds and payment of license fees may require the prior approval of SAFE and PBOC, such repatriation and payment could be delayed, restricted or limited.
Our information technology systems, such as those we use for administrative functions, including human resources, payroll, accounting and internal and external communications, can contain personal, financial or other information of our over 400,000 employees. We also maintain important proprietary and other confidential information related to our operations and identifiable information about our franchisees.
Our information technology systems, such as those we use for administrative functions, including human resources, payroll, accounting and internal and external communications, can contain personal, financial or other information of our over 430,000 employees. We also maintain important proprietary and other confidential information related to our operations and identifiable information about our franchisees.
Any of the foregoing could result in a material adverse effect on Daojia’s business operations. 49 2022 Form 10-K Certain defects caused by non-registration of our lease agreements related to certain properties occupied by us in China may materially and adversely affect our ability to use such properties.
Any of the foregoing could result in a material adverse effect on Daojia’s business operations. 49 2023 Form 10-K Certain defects caused by non-registration of our lease agreements related to certain properties occupied by us in China may materially and adversely affect our ability to use such properties.
The exact scope of “critical information infrastructure operators” under the current regulatory regime remains unclear, and the PRC government authorities may have wide discretion in the interpretation and enforcement of the applicable laws. Therefore, it is uncertain whether, in the future, we would be deemed to be a critical information infrastructure operator under PRC law.
The exact scope of “critical information infrastructure operators” under the current regulatory regime remains unclear, and the PRC government authorities may have wide discretion in the interpretation and enforcement of the applicable laws. Therefore, it is uncertain whether, in the future, we would be deemed to be a critical information infrastructure operator under Chinese laws.
These contractual arrangements allow Daojia to: • receive substantially all of the economic benefits and absorb all of the expected losses from its consolidated affiliated entities; • exercise effective control over its consolidated affiliated entities; and • hold an exclusive option to purchase all or part of the equity interests in its consolidated affiliated entities when and to the extent permitted by Chinese law.
These contractual arrangements allow Daojia to: • receive substantially all of the economic benefits and absorb all of the expected losses from its consolidated affiliated entities; • exercise effective control over its consolidated affiliated entities; and • hold an exclusive option to purchase all or part of the equity interests in its consolidated affiliated entities when and to the extent permitted by Chinese laws.
The terms of one or more classes or series of preferred stock could dilute the voting power or reduce the value of Company common stock. Similarly, the repurchase or redemption rights or liquidation preferences we could assign to holders of preferred stock could affect the residual value of the common stock. 59 2022 Form 10-K Item 1B. Unresolved Staff Comments.
The terms of one or more classes or series of preferred stock could dilute the voting power or reduce the value of Company common stock. Similarly, the repurchase or redemption rights or liquidation preferences we could assign to holders of preferred stock could affect the residual value of the common stock. 59 2023 Form 10-K Item 1B. Unresolved Staff Comments.
We may not be able to increase our product prices enough to pass these increased labor costs on to our customers, in which case our business and results of operations would be materially and adversely affected. 30 2022 Form 10-K In addition, our delivery business requires a large number of riders, which are either contracted with us or the aggregators’ platforms to deliver orders exclusively for KFC or Pizza Hut stores.
We may not be able to increase our product prices enough to pass these increased labor costs on to our customers, in which case our business and results of operations would be materially and adversely affected. 30 2023 Form 10-K In addition, our delivery business requires a large number of riders, which are either contracted with us or the aggregators’ platforms to deliver orders for KFC or Pizza Hut stores.
If our products are not delivered on time and in proper condition, customers may refuse to accept our products and have less confidence in our services, in which case our business and reputation may be adversely affected. 34 2022 Form 10-K Our growth strategy with respect to Lavazza may not be successful.
If our products are not delivered on time and in proper condition, customers may refuse to accept our products and have less confidence in our services, in which case our business and reputation may be adversely affected. 34 2023 Form 10-K Our growth strategy with respect to Lavazza may not be successful.
Substantially all revenues of our Chinese subsidiaries are denominated in RMB. Shortages in the availability of foreign currency and control on payments out of mainland China may restrict the ability of our Chinese subsidiaries to remit sufficient foreign currency and/or RMB to pay dividends or to make other payments to us, or otherwise to satisfy their obligations.
Substantially all revenues of our Chinese subsidiaries are denominated in RMB. Shortages in the availability of foreign currency and administration on payments out of mainland China may restrict the ability of our Chinese subsidiaries to remit sufficient foreign currency and/or RMB to pay dividends or to make other payments to us, or otherwise to satisfy their obligations.
The PRC government has significant oversight and discretion to exert control over offerings of our securities conducted outside of China and foreign investment in China-based issuers, and may limit or completely hinder our ability to offer securities to investors, which may cause the value of such securities to significantly decline.
The PRC government has significant oversight and discretion to exert supervision over offerings of our securities conducted outside of China and foreign investment in China-based issuers, and may limit or completely hinder our ability to offer securities to investors, which may cause the value of such securities to significantly decline.
In addition, auditors based outside of China are subject to similar restrictions under Chinese law and CSRC directives in respect of audit work that is carried out in China which supports the audit opinions issued on financial statements of entities with substantial China operations.
In addition, auditors based outside of China are subject to similar restrictions under Chinese laws and CSRC directives in respect of audit work that is carried out in China which supports the audit opinions issued on financial statements of entities with substantial China operations.
Digital payments, including mobile payments, accounted for approximately 99% of Yum China Company sales in 2022. The ability to accept mobile payments is critical to our business. We accept payments through third-party mobile payment processors, such as WeChat Pay, Alipay and Union Pay.
Digital payments, including mobile payments, accounted for approximately 99% of Yum China Company sales in 2023. The ability to accept mobile payments is critical to our business. We accept payments through third-party mobile payment processors, such as WeChat Pay, Alipay and Union Pay.
Such payments could have a material adverse effect on our financial condition. 54 2022 Form 10-K Potential indemnification liabilities owing to YUM pursuant to the separation and distribution agreement could materially and adversely affect our business, results of operations and financial condition.
Such payments could have a material adverse effect on our financial condition. 54 2023 Form 10-K Potential indemnification liabilities owing to YUM pursuant to the separation and distribution agreement could materially and adversely affect our business, results of operations and financial condition.
These risks are described further under the section “Risks Related to Doing Business in China.” 27 2022 Form 10-K Our success is tied to the success of YUM’s brand strength, marketing campaigns and product innovation.
These risks are described further under the section “Risks Related to Doing Business in China.” 27 2023 Form 10-K Our success is tied to the success of YUM’s brand strength, marketing campaigns and product innovation.
Our results of operations and financial condition could be materially and adversely affected by government control over capital investments or changes in tax regulations that are applicable to us. In addition, the Chinese government has implemented certain measures, including interest rate increases, to control the pace of economic growth. These measures may cause decreased economic activity in China.
Our results of operations and financial condition could be materially and adversely affected by government administration on capital investments or changes in tax regulations that are applicable to us. In addition, the Chinese government has implemented certain measures, including interest rate increases, to control the pace of economic growth. These measures may cause decreased economic activity in China.
For more information, see “—Risks Related to Doing Business in China—Regulations regarding acquisitions may impose significant regulatory approval and review requirements, which could make it more difficult for us to pursue growth through acquisitions” and “—The Chinese government may determine that the variable interest entity structure of Daojia does not comply with Chinese laws on foreign investment in restricted industries.” Additionally, on January 9, 2021, China’s Ministry of Commerce (“MOFCOM”) issued the Rules on Blocking Improper Extraterritorial Application of Foreign Legislation and Other Measures (the “Blocking Rules”), which established a blocking regime in China to counter the impact of foreign sanctions on Chinese persons.
For more information, see “—Risks Related to Doing Business in China—Regulations regarding acquisitions may impose significant regulatory approval and review requirements, which could make it more difficult for us to pursue growth through acquisitions” and “—The Chinese government may determine that the variable interest entity structure of Daojia does not comply with Chinese laws on foreign investment in restricted industries.” Additionally, on January 9, 2021, MOFCOM issued the Rules on Blocking Improper Extraterritorial Application of Foreign Legislation and Other Measures (the “Blocking Rules”), which established a blocking regime in China to counter the impact of foreign sanctions on Chinese persons.
Our business and operations are subject to the laws and regulations of China, which continue to evolve and are subject to change from time to time. The Chinese government may intervene or influence our operations at any time, which could result in a material change in our operations.
Our business and operations are subject to the laws and regulations of China, which continue to evolve and are subject to change from time to time. The Chinese government may intervene or influence our operations, which could result in a material change in our operations.
The auditors located in China claim they are not in a position lawfully to produce such documents directly to the SEC because of restrictions under Chinese law and specific directives issued by the CSRC.
The auditors located in China claim they are not in a position lawfully to produce such documents directly to the SEC because of restrictions under Chinese laws and specific directives issued by the CSRC.
Few hedging options are available in China to reduce our exposure to exchange rate fluctuations. In addition, our currency exchange loss may be magnified by Chinese exchange control regulations that restrict our ability to convert RMB into foreign currency. As a result, fluctuations in exchange rates and restrictions on exchange may have a material adverse effect on your investment.
Few hedging options are available in China to reduce our exposure to exchange rate fluctuations. In addition, our currency exchange loss may be magnified by Chinese exchange administration regulations that restrict our ability to convert RMB into foreign currency. As a result, fluctuations in exchange rates and regulations on exchange may have a material adverse effect on your investment.
The Chinese economy differs from the economies of most developed countries in many respects, including the level of government involvement, level of development, growth rate, foreign exchange control and fiscal measures and allocation of resources.
The Chinese economy differs from the economies of most developed countries in many respects, including the level of government involvement, level of development, growth rate, foreign exchange administration and fiscal measures and allocation of resources.
All of these factors could materially and adversely affect the market price of our common stock and our ability to access the capital markets. 51 2022 Form 10-K Chinese regulation of loans to, and direct investment in, Chinese entities by offshore holding companies and governmental control of currency conversion may restrict or prevent us from making loans or additional capital contributions to our Chinese subsidiaries, which may materially and adversely affect our liquidity and our ability to fund and expand our business.
All of these factors could materially and adversely affect the market price of our common stock and our ability to access the capital markets. 51 2023 Form 10-K Chinese regulation of loans to, and direct investment in, Chinese entities by offshore holding companies and governmental administration of currency conversion may restrict or prevent us from making loans or additional capital contributions to our Chinese subsidiaries, which may materially and adversely affect our liquidity and our ability to fund and expand our business.
The Investors may, from time to time in the future, acquire interests in businesses that directly or indirectly compete with certain portions of the Company’s business or are suppliers or customers of the Company.
Primavera may, from time to time in the future, acquire interests in businesses that directly or indirectly compete with certain portions of the Company’s business or are suppliers or customers of the Company.
If, under these laws, a court were to determine that, at the time of the separation and distribution, any entity involved in these reorganization transactions or the separation and distribution: • was insolvent; • was rendered insolvent by reason of the separation and distribution or a related transaction; 55 2022 Form 10-K • had remaining assets constituting unreasonably small capital; or • intended to incur, or believed it would incur, debts beyond its ability to pay these debts as they matured, then the court could void the separation and distribution, in whole or in part, as a fraudulent conveyance or transfer.
If, under these laws, a court were to determine that, at the time of the separation and distribution, any entity involved in these reorganization transactions or the separation and distribution: • was insolvent; • was rendered insolvent by reason of the separation and distribution or a related transaction; • had remaining assets constituting unreasonably small capital; or • intended to incur, or believed it would incur, debts beyond its ability to pay these debts as they matured, then the court could void the separation and distribution, in whole or in part, as a fraudulent conveyance or transfer.
On February 24, 2023, the CSRC and other PRC governmental authorities jointly issued the Provisions on Strengthening Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies (the “Confidentiality Provisions”), which will come into effect on March 31, 2023.
On February 24, 2023, the CSRC and other PRC governmental authorities jointly issued the Provisions on Strengthening Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies (the “Confidentiality Provisions”), which came into effect on March 31, 2023.
For example, the Investors may have an interest in pursuing acquisitions, divestitures, financings or other transactions that could enhance their respective equity portfolios, even though such transactions might involve risks to holders of Company common stock.
For example, Primavera may have an interest in pursuing acquisitions, divestitures, financings or other transactions that could enhance their respective equity portfolios, even though such transactions might involve risks to holders of Company common stock.
If the VIE structure is found to be in violation of any existing or future Chinese laws, rules or regulations, the relevant PRC regulatory bodies would have broad discretion to take action in dealing with these violations, including revoking the business and operating licenses of Daojia’s consolidated affiliated entities, requiring Daojia to restructure its operations or taking other regulatory or enforcement actions against Daojia.
If the VIE structure is found to be in violation of any existing or future Chinese laws, rules or regulations, the relevant PRC regulatory bodies would have discretion within their scope of authority to take action in dealing with these violations, including revoking the business and operating licenses of Daojia’s consolidated affiliated entities, requiring Daojia to restructure its operations or taking other regulatory or enforcement actions against Daojia.
If we are unsuccessful in upgrading and improving our systems, our ability to increase comparable store sales, improve operations, implement cost controls and grow our business may be constrained. 33 2022 Form 10-K Our business depends on the performance of, and our long-term relationships with, third-party mobile payment processors, internet infrastructure operators, internet service providers and delivery aggregators.
If we are unsuccessful in upgrading and improving our systems, our ability to increase comparable store sales, improve operations, implement cost controls and grow our business may be constrained. 33 2023 Form 10-K Our business depends on the performance of, and our long-term relationships with, third-party mobile payment processors, internet infrastructure operators, internet service providers, delivery aggregators and third-party e-commerce platforms.
Any failure to provide timely and reliable delivery services by us may materially and adversely affect our business and reputation.” If we do not successfully address new challenges specific to the new retail and e-commerce businesses and compete effectively, our business, results of operations and financial condition may be materially and adversely affected.
Major failures to provide timely and reliable delivery services by us may materially and adversely affect our business and reputation.” If we do not successfully address new challenges specific to the new retail and e-commerce businesses and compete effectively, our business, results of operations and financial condition may be materially and adversely affected.
However, for any Chinese company, dividends can be declared and paid only out of the retained earnings of that company under Chinese law.
However, for any Chinese company, dividends can be declared and paid only out of the retained earnings of that company under Chinese laws.
We also face regulatory uncertainties that could restrict our ability to adopt additional equity incentive plans for our directors and employees under Chinese law. 50 2022 Form 10-K In addition, the STA has issued circulars concerning employees’ share-based awards.
We also face regulatory uncertainties that could restrict our ability to adopt additional equity incentive plans for our directors and employees under Chinese laws. 50 2023 Form 10-K In addition, the STA has issued circulars concerning employees’ share-based awards.
Changes in legislation, regulation or interpretation of existing laws and regulations in the U.S., China, and other jurisdictions where we are subject to taxation could increase our taxes and have an adverse effect on our results of operations and financial condition. Our results of operations may be adversely impacted by changes in consumer discretionary spending and general economic conditions.
Changes in legislation, regulation or interpretation of existing laws and regulations in the U.S., China, and other jurisdictions where we are subject to taxation could increase our taxes and have an adverse effect on our results of operations and financial condition. 37 2023 Form 10-K Our results of operations may be adversely impacted by changes in consumer discretionary spending and general economic conditions.
On February 17, 2023 the CSRC issued the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies (the “Trial Administrative Measures”) and five supporting guidelines which will become effective on March 31, 2023.
On February 17, 2023 the CSRC issued the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies (the “Trial Administrative Measures”) and five supporting guidelines which became effective on March 31, 2023.
The trading price of shares of our common stock can be volatile and could fluctuate widely in response to a variety of factors, many of which are beyond our control.
The Company’s stock price may fluctuate significantly. The trading price of shares of our common stock can be volatile and could fluctuate widely in response to a variety of factors, many of which are beyond our control.
Applicable PRC laws, rules and regulations also require certain merger and acquisition transactions to be subject to security review. 52 2022 Form 10-K Due to the level of our revenues, our proposed acquisition of control of, or decisive influence over, any company with revenues within China of more than RMB400 million in the year prior to any proposed acquisition would be subject to the State Administration for Market Regulation (“SAMR”) merger control review.
Applicable Chinese laws, rules and regulations also require certain merger and acquisition transactions to be subject to security review. 52 2023 Form 10-K Due to the level of our revenues, our proposed acquisition of control of, or decisive influence over, any company with revenues within China of more than RMB800 million in the year prior to any proposed acquisition would be subject to the State Administration for Market Regulation (“SAMR”) merger control review.
In addition, changes in political, business, economic and trade relations between the United States and China may trigger negative customer sentiment towards western brands in China, potentially resulting in a negative impact on our business, results of operations and financial condition. Fluctuation in the value of RMB may result in foreign currency exchange losses.
In addition, changes in political, business, economic and trade relations between the United States and China may trigger negative customer sentiment towards western brands in China, potentially resulting in a negative impact on our business, results of operations and financial condition. 43 2023 Form 10-K Fluctuation in the value of RMB may result in foreign currency exchange losses.
Avian flu outbreaks could also adversely affect the price and availability of poultry, which could negatively impact our profit margins and revenues. The operation of our restaurants is subject to the terms of the master license agreement which, if terminated or limited, would materially adversely affect our business, results of operations and financial condition.
Avian flu outbreaks could also adversely affect the price and availability of poultry, which could negatively impact our profit margins and revenues. 26 2023 Form 10-K The operation of our restaurants is subject to the terms of the master license agreement which, if terminated or limited, would materially adversely affect our business, results of operations and financial condition.
Even if there is no cash flow from unconsolidated affiliates until dividends are received, the performance of unconsolidated affiliates may affect our results of operations through our equity method accounting.
Even if there is no cash flow from equity method investees until dividends are received, the performance of equity method investees may affect our results of operations through our equity method accounting.
Any significant failure of or deviation from these quality assurance systems could have a material adverse effect on our business, reputation, results of operations and financial condition. Any significant liability claims, food contamination complaints from our customers or reports of incidents of food tampering could adversely affect our business, reputation, results of operations and financial condition.
Any significant failure of or deviation from these quality assurance systems could have a material adverse effect on our business, reputation, results of operations and financial condition. 25 2023 Form 10-K Any significant liability claims, food contamination complaints from our customers or reports of incidents of food tampering could adversely affect our business, reputation, results of operations and financial condition.
In September 2018, we invested in the equity securities of Meituan Dianping, the fair value of which is determined based on the closing market price for the shares at the end of each reporting period, with subsequent fair value changes recorded in our consolidated statements of income.
We may invest in equity securities from time to time. In September 2018, we invested in the equity securities of Meituan Dianping, the fair value of which is determined based on the closing market price for the shares at the end of each reporting period, with subsequent fair value changes recorded in our consolidated statements of income.
The PRC government has recently indicated an intent to exert more oversight and control over securities offerings and other capital markets activities that are conducted outside of China and over foreign investment in China-based companies. For example, on July 6, 2021, the relevant PRC government authorities made public the Opinions on Intensifying Crack Down on Illegal Securities Activities.
The PRC government has recently sought to exert more oversight and supervision over securities offerings and other capital markets activities that are conducted outside of China and over foreign investment in China-based companies. For example, on July 6, 2021, the relevant PRC government authorities made public the Opinions on Intensifying Crack Down on Illegal Securities Activities.
We generally enter into lease agreements with initial terms of 10 to 20 years. Approximately 6% of our existing lease agreements expire before the end of 2023. Most of our lease agreements contain an early termination clause that permits us to terminate the lease agreement early if the restaurant’s unit contribution is negative for a specified period of time.
We generally enter into lease agreements with initial terms of 10 to 20 years. Approximately 6% of our existing lease agreements expire before the end of 2024. Most of our lease agreements contain an early termination clause that permits us to terminate the lease agreement early if the restaurant’s restaurant profit is negative for a specified period of time.
Any seasonal fluctuations reported in the future may differ from the expectations of our investors. We may be unable to detect, deter and prevent all instances of fraud or other misconduct committed by our employees, customers or other third parties.
Any seasonal fluctuations reported in the future may differ from the expectations of our investors. 39 2023 Form 10-K We may be unable to detect, deter and prevent all instances of fraud or other misconduct committed by our employees, customers or other third parties.
In addition, under the Confidentiality Provisions, such issuers will also be required to obtain approval from the CSRC and other PRC authorities before accepting any investigation or inspection by overseas regulators. As the Confidentiality Provisions were recently promulgated and have not taken effect, there are uncertainties with respect to their interpretation and implementation.
In addition, under the Confidentiality Provisions, such issuers are also required to obtain approval from the CSRC and other PRC authorities before accepting any investigation or inspection by overseas regulators. As the Confidentiality Provisions were recently promulgated, there are uncertainties with respect to their interpretation and implementation.
Under existing Chinese foreign exchange regulations, payments of current account items, including profit distributions, license fee payments and expenditures from trade-related transactions, can be made in foreign currencies or RMB without prior approval from China’s State Administration of Foreign Exchange (“SAFE”) and the PBOC by complying with certain procedural requirements.
Under existing Chinese foreign exchange regulations, payments of current account items, including profit distributions, license fee payments and expenditures from trade-related transactions, generally can be made in foreign currencies or RMB without prior approval from SAFE and the PBOC by complying with certain procedural requirements.
These and other macroeconomic factors could have an adverse effect on our sales, profitability or development plans, which could harm our results of operations and financial condition. 37 2022 Form 10-K The restaurant industry in which we operate is highly competitive.
These and other macroeconomic factors could have an adverse effect on our sales, profitability or development plans, which could harm our results of operations and financial condition. The restaurant industry in which we operate is highly competitive.
In addition, when we acquire additional equity interest in the unconsolidated affiliates to obtain control, it may result in gain or loss from re-measurement of our previously held equity interest and thus have a significant impact on our operating results.
In addition, when we acquire additional equity interest in equity method investees to obtain control, it may result in gain or loss from re-measurement of our previously held equity interest and thus have a significant impact on our operating results.
Our board of directors has also authorized a $2.4 billion share repurchase program (including its most recent increase in authorization on March 17, 2022), which was temporarily suspended during part of 2020 and 2021 due to the impacts of the COVID-19 pandemic.
Our Board of Directors has also authorized a $3.4 billion share repurchase program (including its most recent increase in authorization on November 2, 2023), which was temporarily suspended during part of 2020 and 2021 due to the impacts of the COVID-19 pandemic.
In addition, we evaluate our investments in unconsolidated affiliates for impairment whenever events or circumstances indicate that a decrease in the fair value of an investment has occurred which is other than temporary.
In addition, we evaluate our investments in equity method investees for impairment whenever events or circumstances indicate that a decrease in the fair value of an investment has occurred which is other than temporary.
In line with the national standards and local requirements to reduce plastic waste in China, we have launched a series of plastic 44 2022 Form 10-K reduction and environmentally friendly packaging initiatives across our brands.
In line with the national standards and local requirements to reduce plastic waste in China, we have launched a series of plastic reduction and environmentally friendly packaging initiatives across our brands.
As of December 31, 2022, we leased over 10,000 properties in China, and to our knowledge, the lessors of most properties leased by us, most of which are used as premises for our restaurants, had not registered the lease agreements with government authorities in China.
As of December 31, 2023, we leased over 12,500 properties in China, and to our knowledge, the lessors of most properties leased by us, most of which are used as premises for our restaurants, had not registered the lease agreements with government authorities in China.
Technology systems, including our mobile or online platforms, mobile payment and ordering systems, loyalty programs and various other online processes and functions, are critical to our business and operations. For example, as of year-end 2022, KFC had over 380 million loyalty program members and Pizza Hut had over 130 million.
Information technology systems, including our mobile or online platforms, mobile payment and ordering systems, loyalty programs and various other online processes and functions, are critical to our business and operations. For example, as of year-end 2023, KFC had over 440 million loyalty program members and Pizza Hut had over 155 million.
Customers may order delivery service through KFC and Pizza Hut’s websites and Apps. KFC and Pizza Hut have also partnered with third-party delivery aggregators, allowing our products to be listed on and ordered through their mobile or online platforms. Interruptions or failures in our delivery services could prevent the timely or successful delivery of our products.
KFC and Pizza Hut have also partnered with third-party delivery aggregators, allowing our products to be listed on and ordered through their mobile or online platforms. Interruptions or failures in our delivery services could prevent the timely or successful delivery of our products.
The details of the computation of these taxes will be subject to regulations to be issued by the U.S. Department of the Treasury. Any increases in tax rates or changes in tax laws or the interpretations thereof could have a material adverse impact on our results of operations and financial condition.
The details of the computation of these taxes will be subject to regulations to be issued by the tax authorities in respective country. Any increases in tax rates or changes in tax laws or the interpretations thereof could have a material adverse impact on our results of operations and financial condition.
We are targeting to open 1,000 Lavazza stores in the next few years, which may require significant capital and management attention. The success of Lavazza depends in large part on our ability to secure optimal locations, introduce new and unique store formats, and operate these stores profitably.
As of December 31, 2023, there were 122 Lavazza stores in China. We are targeting to open 1,000 Lavazza stores in the next few years, which may require significant capital and management attention. The success of Lavazza depends in large part on our ability to secure optimal locations, introduce new and unique store formats, and operate these stores profitably.
Digital orders, including delivery, mobile orders and kiosk orders, accounted for approximately 89% of KFC and Pizza Hut’s Company sales in 2022, and digital payments, including mobile payments, accounted for approximately 99% of Yum China Company sales in 2022. As a result, the implementation of this executive order could adversely affect our business in a material way.
Digital ordering, including delivery, mobile orders and kiosk orders, accounted for approximately 89% of total Company sales in 2023, and digital payments, including mobile payments, accounted for approximately 99% of Yum China Company sales in 2023. As a result, the implementation of this executive order could adversely affect our business in a material way.
Because of the different characteristics of the U.S. and Hong Kong capital markets, the historical market prices of our shares may not be indicative of the trading performance of the shares in the future. The interests of the Investors may differ from the interests of other holders of Company common stock.
Because of the different characteristics of the U.S. and Hong Kong capital markets, the historical market prices of our shares may not be indicative of the trading performance of the shares in the future. 56 2023 Form 10-K The interests of Primavera may differ from the interests of other holders of Company common stock.
If we decide to finance our wholly-owned Chinese subsidiaries by means of capital contributions, in practice, we might be still required to obtain approval from the MOFCOM or its local counterparts.
If we decide to finance our wholly-owned Chinese subsidiaries by means of capital contributions, in practice, we might be still required to obtain approval from the MOFCOM or other regulatory authorities.
Control over Daojia’s consolidated affiliated entities may also be jeopardized if the shareholders holding equity interest in the consolidated affiliated entities breach the terms of the contractual agreements. In addition, there are substantial uncertainties regarding the interpretation and application of current Chinese laws, rules and regulations related to VIE structure.
Control over Daojia’s consolidated affiliated entities may also be jeopardized if the shareholders holding equity interest in the consolidated affiliated entities breach the terms of the contractual agreements. In addition, the interpretation and application of current Chinese laws, rules and regulations related to VIE structure may change from time to time.
Customers’ tendency to become more cost-conscious as a result of an economic slowdown or decreases in disposable income may reduce our customer traffic or average revenue per customer, which may adversely affect our revenues. 41 2022 Form 10-K Uncertainties with respect to the interpretation and enforcement of Chinese laws, rules and regulations could have a material adverse effect on us.
Customers’ tendency to become more cost-conscious as a result of an economic slowdown or decreases in disposable income may reduce our customer traffic or average revenue per customer, which may adversely affect our revenues. The interpretation and enforcement of Chinese laws, rules and regulations may change from time to time, which could have a material adverse effect on us.
Our share of the earnings or losses and share of changes in other comprehensive income or losses of these unconsolidated affiliates are included in net income in our consolidated statements of income and other comprehensive income or losses, respectively .
Our share of the earnings or losses and share of changes in other comprehensive income or losses of these equity method investees are included in net income in our consolidated statements of income and other comprehensive income or losses, respectively .

… 102 more changes not shown on this page.

Item 2. Properties

Properties — owned and leased real estate

4 edited+0 added−0 removed0 unchanged
Biggest changeItem 2. Properties. As of year-end 2022, the Company had 11,161 Company-owned units in China. Of these Company-owned units, 11,105 units were leased properties and 56 units were owned properties.
Biggest changeItem 2. Properties. As of year-end 2023, the Company had 12,648 Company-owned units in China. Of these Company-owned units, 12,589 units were leased properties and 59 units were owned properties.
We also lease our corporate headquarters in Shanghai and Dallas, Texas in the U.S., and regional offices and an innovation center in China, and own building, land use rights, or both for 15 non-store properties, which primarily include logistics centers, seasoning facilities and office buildings for Little Sheep and Huang Ji Huang.
We also lease our corporate headquarters in Shanghai and Dallas, Texas in the U.S., and regional offices and an innovation center in China, and own building, land use rights, or both for 14 non-store properties, which primarily include logistics centers, seasoning facilities and office buildings for Little Sheep and Huang Ji Huang.
We sublease over 150 properties to franchisees and other third parties. Additional information about the Company’s leased properties is included in Note 12 to the Consolidated Financial Statements in Part II, Item 8. We believe that our properties are generally in good operating condition and are suitable for the purposes for which they are being used.
We sublease over 150 properties to franchisees and other third parties. Additional information about the Company’s leased properties is included in Note 11 to the Consolidated Financial Statements in Part II, Item 8. We believe that our properties are generally in good operating condition and are suitable for the purposes for which they are being used.
The leased Company-owned units are further detailed as follows: • KFC leased properties for 8,174 units. • Pizza Hut leased properties for 2,745 units. • Other restaurant concepts leased properties for 186 units. Company-owned restaurants in China are generally leased for initial terms of 10 to 20 years and generally do not have renewal options.
The leased Company-owned units are further detailed as follows: • KFC leased properties for 9,194 units. • Pizza Hut leased properties for 3,140 units. • Other restaurant concepts leased properties for 255 units. Company-owned restaurants in China are generally leased for initial terms of 10 to 20 years and generally do not have renewal options.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+0 added−0 removed2 unchanged
Biggest changeMatters faced by the Company from time to time include, but are not limited to, claims from landlords, employees, guests and others related to operational, contractual or employment issues. We are not involved in any material legal proceedings as of December 31, 2022. Item 4. Mine Safe ty Disclosures. Not applicable. 60 2022 Form 10-K PART II
Biggest changeMatters faced by the Company from time to time include, but are not limited to, claims from landlords, employees, guests and others related to operational, contractual or employment issues. We are not involved in any material legal proceedings as of December 31, 2023. Item 4. Mine Safe ty Disclosures. Not applicable. 61 2023 Form 10-K PART II

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

1 edited+0 added−0 removed0 unchanged
Biggest changeItem 4. Mine Safety Disclosures 60 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 61 Item 6. [RESERVED] 62 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 63 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 84 Item 8.
Biggest changeItem 4. Mine Safety Disclosures 61 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 62 Item 6. [RESERVED] 63 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 64 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 84 Item 8.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

9 edited+0 added−0 removed9 unchanged
Biggest changeWe also selected MSCI China Consumer Discretionary Index, an industry index which includes listed companies in the restaurant industry and other related sectors. 12/31/2017 12/31/2018 12/31/2019 12/31/2020 2021/12/31 2022/12/31 YUMC $ 100 $ 85 $ 123 $ 147 $ 129 $ 143 S&P China BMI $ 100 $ 81 $ 99 $ 129 $ 104 $ 81 MSCI Asia APEX 50 $ 100 $ 84 $ 106 $ 142 $ 126 $ 96 MSCI China $ 100 $ 81 $ 100 $ 129 $ 102 $ 80 MSCI China Consumer Discretionary $ 100 $ 61 $ 93 $ 139 $ 90 $ 69
Biggest changeWe also selected MSCI China Consumer Discretionary Index, an industry index which includes listed companies in the restaurant industry and other related sectors. 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 YUMC $ 100 $ 145 $ 173 $ 152 $ 169 $ 132 S&P China BMI $ 100 $ 122 $ 159 $ 128 $ 100 $ 90 MSCI Asia APEX 50 $ 100 $ 126 $ 169 $ 150 $ 114 $ 122 MSCI China $ 100 $ 123 $ 159 $ 125 $ 98 $ 87 MSCI China Consumer Discretionary $ 100 $ 152 $ 227 $ 147 $ 113 $ 96
Under Chinese law, an enterprise incorporated in China is required to set aside at least 10% of its after-tax profits each year, after making up previous years’ accumulated losses, if any, to fund certain statutory reserve funds, until the aggregate amount of such a fund reaches 50% of its registered capital.
Under Chinese laws, an enterprise incorporated in China is required to set aside at least 10% of its after-tax profits each year, after making up previous years’ accumulated losses, if any, to fund certain statutory reserve funds, until the aggregate amount of such a fund reaches 50% of its registered capital.
The graph assumes that the value of the investment in our common stock and each index was $100 on December 31, 2017 and that all dividends were reinvested. We selected the S&P China BMI and MSCI Asia APEX 50 for comparison, as YUMC is an index member of both of these indices.
The graph assumes that the value of the investment in our common stock and each index was $100 on December 31, 2018 and that all dividends were reinvested. We selected the S&P China BMI and MSCI Asia APEX 50 for comparison, as YUMC is an index member of both of these indices.
We have paid a quarterly cash dividend on Yum China common stock since the fourth quarter of 2017, except for the second and third quarter of 2020 due to the unprecedented effects of the COVID-19 pandemic. In 2022, the Company declared and paid a quarterly cash dividend of $0.12 per share.
We have paid a quarterly cash dividend on Yum China common stock since the fourth quarter of 2017, except for the second and third quarter of 2020 due to the unprecedented effects of the COVID-19 pandemic. In 2023, the Company declared and paid a quarterly cash dividend of $0.13 per share.
On the same day, the Company’s shares of common stock traded on the HKEX were included in the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect. The Company’s common stock listed on the NYSE and HKEX continue to be fully fungible. As of February 22, 2023, there were 36,708 holders of record of Yum China’s common stock.
On the same day, the Company’s shares of common stock traded on the HKEX were included in the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect. The Company’s common stock listed on the NYSE and HKEX continue to be fully fungible. As of February 22, 2024, there were 34,506 holders of record of Yum China’s common stock.
Our board of directors declared an increase in the cash dividend to $0.13 per share on Yum China’s common stock in February 2023.
Our Board of Directors declared an increase in the cash dividend to $0.16 per share on Yum China’s common stock in February 2024.
At the discretion of the board of directors, as an enterprise incorporated in China, each of our Chinese subsidiaries may allocate a portion of its after-tax profits based on Chinese accounting standards to staff welfare and bonus funds. These reserve funds and staff welfare and bonus funds are not distributable as cash dividends.
At the discretion of the board of directors, as an enterprise incorporated in China, each of our Chinese subsidiaries may allocate a portion of its after-tax profits based on Chinese accounting standards to staff welfare and bonus funds.
The following table provides information, as of December 31, 2022, with respect to shares of common stock repurchased by Yum China under the authorization during the quarter then ended: Period Total Number of Shares Purchased (thousands) Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (thousands) Approximate Dollar Value of Shares that May Yet Be Purchased under the Plans or Programs (millions) 10/1/22-10/31/22 964 $ 43.59 964 $ 1,162 11/1/22-11/30/22 223 $ 46.48 223 $ 1,151 12/1/22-12/31/22 — — — $ 1,151 Cumulative total 1,187 $ 44.13 1,187 $ 1,151 61 2022 Form 10-K Stock Performance Graph This graph compares the cumulative total return of our common stock from December 31, 2017 through December 31, 2022 with the comparable cumulative total return of the S&P China BMI, MSCI Asia APEX 50, MSCI China Index and MSCI China Consumer Discretionary Index.
The following table provides information, as of December 31, 2023, with respect to shares of common stock repurchased by Yum China under the authorization during the quarter then ended: Period Total Number of Shares Purchased (thousands) Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (thousands) Approximate Dollar Value of Shares that May Yet Be Purchased under the Plans or Programs (millions) 10/1/23-10/31/23 601 $ 53.24 601 $ 838 11/1/23-11/30/23 5,519 $ 44.84 5,519 $ 1,590 12/1/23-12/31/23 1,369 $ 41.23 1,369 $ 1,534 Cumulative total 7,489 $ 44.86 7,489 $ 1,534 Stock Performance Graph This graph compares the cumulative total return of our common stock from December 31, 2018 through December 31, 2023 with the comparable cumulative total return of the S&P China BMI, MSCI Asia APEX 50, MSCI China Index and MSCI China Consumer Discretionary Index.
Our board of directors has authorized an aggregate of $2.4 billion for our share repurchase program, including its most recent increase in authorization on March 17, 2022.
These reserve funds and staff welfare and bonus funds are not distributable as cash dividends. 62 2023 Form 10-K Our Board of Directors has authorized an aggregate of $3.4 billion for our share repurchase program, including its most recent increase in authorization on November 2, 2023.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

103 edited+35 added−47 removed61 unchanged
Biggest changeNon-GAAP Reconciliations Reconciliation of GAAP Operating Profit to Restaurant Profit Year Ended 12/31/2022 KFC Pizza Hut All Other Segments Corporate and Unallocated Elimination Total GAAP Operating Profit (Loss) $ 787 $ 70 $ (50 ) $ (178 ) $ — $ 629 Less: Franchise fees and income 56 7 18 — — 81 Revenues from transactions with franchisees and unconsolidated affiliates 33 4 39 211 — 287 Other revenues 10 10 563 42 (534 ) 91 Add: General and administrative expenses 254 110 46 184 — 594 Franchise expenses 29 4 1 — — 34 Expenses for transactions with franchisees and unconsolidated affiliates 30 3 35 211 — 279 Other operating costs and expenses 7 8 557 39 (533 ) 78 Closures and impairment expenses, net 16 4 12 — — 32 Other expenses (income), net 97 — — (3 ) — 94 Restaurant profit (loss) $ 1,121 $ 178 $ (19 ) $ — $ 1 $ 1,281 Company sales 7,120 1,939 51 — — 9,110 Restaurant margin % 15.7 % 9.2 % (37.6 )% N/A N/A 14.1 % 67 2022 Form 10-K Year Ended 12/31/2021 KFC Pizza Hut All Other Segments Corporate and Unallocated Elimination Total GAAP Operating Profit (Loss) $ 827 $ 111 $ (29 ) $ 477 $ — $ 1,386 Less: Franchise fees and income 120 8 25 — — 153 Revenues from transactions with franchisees and unconsolidated affiliates 59 6 98 500 — 663 Other revenues 8 3 297 20 (252 ) 76 Add: General and administrative expenses 240 111 42 171 — 564 Franchise expenses 59 4 1 — — 64 Expenses for transactions with franchisees and unconsolidated affiliates 58 6 88 497 — 649 Other operating costs and expenses 4 2 294 17 (252 ) 65 Closures and impairment expenses, net 20 7 7 — — 34 Other (income) expenses, net (8 ) — 7 (642 ) — (643 ) Restaurant profit (loss) $ 1,013 $ 224 $ (10 ) $ — $ — $ 1,227 Company sales 6,816 2,092 53 — — 8,961 Restaurant margin % 14.9 % 10.7 % (20.8 )% N/A N/A 13.7 % Reconciliation of Reported GAAP Results to Non-GAAP Adjusted Measures 2022 2021 Reconciliation of Operating Profit to Adjusted Operating Profit Operating Profit $ 629 $ 1,386 Special Items, Operating Profit (4 ) 620 Adjusted Operating Profit $ 633 $ 766 Reconciliation of Net Income to Adjusted Net Income Net Income – Yum China Holdings, Inc. $ 442 $ 990 Special Items, Net Income - Yum China Holdings, Inc.
Biggest changeReconciliation of GAAP Operating Profit to Restaurant Profit 2023 KFC Pizza Hut All Other Segments Corporate and Unallocated Elimination Total GAAP Operating Profit (Loss) $ 1,202 $ 142 $ (31 ) $ (207 ) $ — $ 1,106 Less: Franchise fees and income 62 7 20 — — 89 Revenues from transactions with franchisees 45 4 74 249 — 372 Other revenues 17 21 624 44 (580 ) 126 Add: General and administrative expenses 263 118 43 214 — 638 Franchise expenses 31 4 1 — — 36 Expenses for transactions with franchisees 39 4 67 246 — 356 Other operating costs and expenses 15 19 614 42 (578 ) 112 Closures and impairment expenses, net 12 8 9 — — 29 Other expenses (income), net 2 — — (2 ) — — Restaurant profit (loss) $ 1,440 $ 263 $ (15 ) $ — $ 2 $ 1,690 Company sales 8,116 2,214 61 — — 10,391 Restaurant margin % 17.7 % 11.8 % (25.1 )% N/A N/A 16.3 % 69 2023 Form 10-K 2022 KFC Pizza Hut All Other Segments Corporate and Unallocated Elimination Total GAAP Operating Profit (Loss) $ 787 $ 70 $ (50 ) $ (178 ) $ — $ 629 Less: Franchise fees and income 56 7 18 — — 81 Revenues from transactions with franchisees 33 4 39 211 — 287 Other revenues 10 10 563 42 (534 ) 91 Add: General and administrative expenses 254 110 46 184 — 594 Franchise expenses 29 4 1 — — 34 Expenses for transactions with franchisees 30 3 35 211 — 279 Other operating costs and expenses 7 8 557 39 (533 ) 78 Closures and impairment expenses, net 16 4 12 — — 32 Other expenses (income), net 97 — — (3 ) — 94 Restaurant profit (loss) $ 1,121 $ 178 $ (19 ) $ — $ 1 $ 1,281 Company sales 7,120 1,939 51 — — 9,110 Restaurant margin % 15.7 % 9.2 % (37.6 )% N/A N/A 14.1 % Reconciliation of GAAP Operating Profit to Core Operating Profit 2023 KFC Pizza Hut All Other Segments Corporate and Unallocated Elimination Total GAAP Operating Profit (Loss) $ 1,202 $ 142 $ (31 ) $ (207 ) $ — $ 1,106 Special Items, Operating Profit — — — 15 — 15 Adjusted Operating Profit $ 1,202 $ 142 $ (31 ) $ (192 ) $ — $ 1,121 Items Affecting Comparability Temporary relief from landlords (a) (9 ) (2 ) — — — (11 ) Temporary relief from government agencies (b) (5 ) (2 ) — — — (7 ) VAT deductions (c) (36 ) (6 ) (2 ) — — (44 ) Amortization of reacquired franchise rights (d) 2 — — — — 2 F/X impact 57 11 (2 ) (6 ) — 60 Core Operating Profit (Loss) $ 1,211 $ 143 $ (35 ) $ (198 ) $ — $ 1,121 2022 KFC Pizza Hut All Other Segments Corporate and Unallocated Elimination Total GAAP Operating Profit (Loss) $ 787 $ 70 $ (50 ) $ (178 ) $ — $ 629 Special Items, Operating Profit — — — 4 — 4 Adjusted Operating Profit $ 787 $ 70 $ (50 ) $ (174 ) $ — $ 633 Items Affecting Comparability Temporary relief from landlords (a) (32 ) (6 ) (1 ) — — (39 ) Temporary relief from government agencies (b) (34 ) (14 ) — — — (48 ) VAT deductions (c) (12 ) (2 ) (2 ) — — (16 ) Amortization of reacquired franchise rights (d) 97 — — — — 97 F/X impact — — — — — — Core Operating Profit (Loss) $ 806 $ 48 $ (53 ) $ (174 ) $ — $ 627 Details of Items Affecting Comparability are presented below: (a) In relation to the effects of the COVID-19 pandemic, the Company was granted lease concessions from landlords.
Our growing restaurant network consists of our flagship KFC and Pizza Hut brands, as well as emerging brands such as Taco Bell, Lavazza, Little Sheep and Huang Ji Huang.
Our growing restaurant network consists of our flagship KFC and Pizza Hut brands, as well as emerging brands such as Lavazza, Huang Ji Huang, Little Sheep and Taco Bell.
Company Restaurant profit (“Restaurant profit”) is defined as Company sales less expenses incurred directly by our Company-owned restaurants in generating Company sales, including cost of food and paper, restaurant-level payroll and employee benefits, rent, depreciation and amortization of restaurant-level assets, advertising expenses, and other operating expenses. Company restaurant margin percentage is defined as Restaurant profit divided by Company sales.
Restaurant profit (“Restaurant profit”) is defined as Company sales less expenses incurred directly by our Company-owned restaurants in generating Company sales, including cost of food and paper, restaurant-level payroll and employee benefits, rent, depreciation and amortization of restaurant-level assets, advertising expenses, and other operating expenses. Company restaurant margin percentage is defined as Restaurant profit divided by Company sales.
We believe our principal uses of cash in the future will be primarily to fund our operations and capital expenditures for accelerating store network expansion and store remodeling, step up investments in digitalization, automation and logistics infrastructure, provide returns to our stockholders, as well as explore opportunities for acquisitions or investments that build and support our ecosystem.
We believe our principal uses of cash in the future will be primarily to fund our operations and capital expenditures for accelerating store network expansion and store remodeling, to step up investments in digitalization, automation and logistics infrastructure, to provide returns to our stockholders, as well as to explore opportunities for acquisitions or investments that build and support our ecosystem.
We believe that our future cash from operations, together with our funds on hand and access to capital markets, will provide adequate resources to fund these uses of cash and that our existing cash, net cash from operations and credit facilities will be sufficient to fund our operations and anticipated capital expenditures for the next 12 months.
We believe that our future cash from operations, together with our funds on hand and access to the capital markets, will provide adequate resources to fund these uses of cash, and that our existing cash, net cash from operations and credit facilities will be sufficient to fund our operations and anticipated capital expenditures for the next 12 months.
An intangible asset that is deemed not recoverable on a undiscounted basis is written down to its estimated fair value, which is our estimate of the price a willing buyer would pay for the intangible asset based on discounted expected future after-tax cash flows.
An intangible asset that is deemed not recoverable on an undiscounted basis is written down to its estimated fair value, which is our estimate of the price a willing buyer would pay for the intangible asset based on discounted expected future after-tax cash flows.
Since 2016, we have been under a national audit on transfer pricing by the STA in China regarding our related party transactions for the period from 2006 to 2015. The information and views currently exchanged with the tax authorities focus on our franchise arrangement with YUM.
Since 2016, we have been under a national audit on transfer pricing by the STA in China regarding our related party transactions for the period from 2006 to 2015. The information and views currently exchanged with the tax authorities focus on our franchise arrangement with YUM.
We continue to provide information requested by the tax authorities to the extent it is available to the Company. It is reasonably possible that there could be significant developments, including expert review and assessment by the STA, within the next 12 months.
We continue to provide information requested by the tax authorities to the extent it is available to the Company. It is reasonably possible that there could be significant developments, including expert review and assessment by the STA, within the next 12 months.
The ultimate assessment and decision of the STA will depend upon further review of the information provided, as well as ongoing technical and other discussions with the STA and in-charge local tax authorities, and therefore it is not possible to reasonably estimate the potential impact at this time. We will continue to defend our transfer pricing position.
The ultimate assessment and decision of the STA will depend upon further review of the information provided, as well as ongoing technical and other discussions with the STA and in-charge local tax authorities, and therefore it is not possible to reasonably estimate the potential impact at this time. We will continue to defend our transfer pricing position.
However, if the STA prevails in the assessment of additional tax due based on its ruling, the assessed tax, interest and penalties, if any, could have a material adverse impact on our financial position, results of operations and cash flows.
However, if the STA prevails in the assessment of additional tax due based on its ruling, the assessed tax, interest and penalties, if any, could have a material adverse impact on our financial position, results of operations and cash flows.
However, the amount of our expected benefit from this VAT regime depends on a number of factors, some of which are outside of our control. The interpretation and application of the new VAT regime are not settled at some local governmental levels. In addition, China is in the process of enacting the prevailing VAT regulations into VAT law.
However, the amount of our expected benefit from this VAT regime depends on a number of factors, some of which are outside of our control. The interpretation and application of the new VAT regime are not settled at some local governmental levels. In addition, China is in the process of enacting the prevailing VAT regulations into a national VAT law.
We believe that there are significant opportunities to expand within China, and we intend to focus our efforts on increasing our geographic footprint in both existing and new cities. KFC is the leading and the largest quick-service restaurant (“QSR”) brand in China in terms of system sales.
We believe that there are significant opportunities to further expand within China, and we intend to focus our efforts on increasing our geographic footprint in both existing and new cities. KFC is the leading and the largest quick-service restaurant (“QSR”) brand in China in terms of system sales.
PRC Value-Added Tax Effective May 1, 2016, a 6% output VAT replaced the 5% business tax (“BT”) previously applied to certain restaurant sales. Input VAT would be creditable to the aforementioned 6% output VAT. Our new retail business is generally subject to VAT rates at 9% or 13%.
PRC Value-Added Tax (“VAT”) Effective May 1, 2016, a 6% output VAT replaced the 5% business tax (“BT”) previously applied to certain restaurant sales. Input VAT would be creditable to the aforementioned 6% output VAT. Our new retail business is generally subject to VAT rates at 9% or 13%.
However, the timetable for enacting the VAT law is not clear. As a result, for the foreseeable future, the benefit of this significant and complex VAT reform has the potential to fluctuate from quarter to quarter. Foreign Currency Exchange Rate The reporting currency of the Company is the US$.
However, the timetable for enacting the national VAT law is not clear. As a result, for the foreseeable future, the benefit of this significant and complex VAT reform has the potential to fluctuate from quarter to quarter. Foreign Currency Exchange Rate The reporting currency of the Company is the US$.
Under Chinese law, an enterprise incorporated in China is required to set aside at least 10% of its after-tax profits each year, after making up previous years’ accumulated losses, if any, to fund certain statutory reserve funds, until the aggregate amount of such a fund reaches 50% of its registered capital.
Under Chinese laws, an enterprise incorporated in China is required to set aside at least 10% of its after-tax profits each year, after making up previous years’ accumulated losses, if any, to fund certain statutory reserve funds, until the aggregate amount of such a fund reaches 50% of its registered capital.
No impairment charges on trademarks related to Little Sheep and Huang Ji Huang were recorded in 2022 and 2021. Our finite-lived intangible assets that are not allocated to an individual restaurant are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of the intangible asset may not be recoverable.
No impairment charges on trademarks related to Little Sheep and Huang Ji Huang were recorded in 2023 and 2022. Our finite-lived intangible assets that are not allocated to an individual restaurant are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of the intangible asset may not be recoverable.
Based on our qualitative assessment, the Company concluded that no changes in events or circumstances have occurred that indicated impairment may exist and it was more likely than not that the fair value of the reporting units exceeds their carrying amount and therefore no quantitative assessment was required. No impairment charge on goodwill was recorded in 2022 and 2021.
Based on our qualitative assessment, the Company concluded that no changes in events or circumstances have occurred that indicated impairment may exist and it was more likely than not that the fair value of the reporting units exceeds their carrying amount and therefore no quantitative assessment was required. No impairment charge on goodwill was recorded in 2023 and 2022.
Each credit facility contains a cross-default provision whereby our failure to make any payment on a principal amount from any credit facility will constitute a default on other credit facilities. Some of the credit facilities contain covenants limiting, among other things, certain additional indebtedness and liens, and certain other transactions specified in the respective agreement.
Each credit facility contains a cross-default provision whereby our failure to make any payment on a principal amount from any credit facility will constitute a default on other credit facilities. Some of the credit facilities contain covenants limiting, among other things, certain additional indebtedness and liens, and certain other transactions specified in the respective agreements.
We estimate that our total temporary difference for which we have not provided foreign withholding taxes is approximately $3 billion at December 31, 2022. The foreign withholding tax rate on this amount is 5% or 10% depending on the manner of repatriation and the applicable tax treaties or tax arrangements.
We estimate that our total temporary difference for which we have not provided foreign withholding taxes is approximately $3 billion at December 31, 2023. The foreign withholding tax rate on this amount is 5% or 10% depending on the manner of repatriation and the applicable tax treaties or tax arrangements.
Throughout this Form 10-K when we refer to the “financial statements,” we are referring to the “Consolidated Financial Statements,” unless the context indicates otherwise. This MD&A includes a discussion of our results of operations for the year ended December 31, 2022 compared to the year ended December 31, 2021.
Throughout this Form 10-K when we refer to the “financial statements,” we are referring to the “Consolidated Financial Statements,” unless the context indicates otherwise. This MD&A includes a discussion of our results of operations for the year ended December 31, 2023 compared to the year ended December 31, 2022.
For a discussion of our operating results for the year ended December 31, 2021 compared to the year ended December 31, 2020, please refer to Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2021.
For a discussion of our operating results for the year ended December 31, 2022 compared to the year ended December 31, 2021, please refer to Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2022.
(c) This amount represents transition tax payable on the deemed repatriation of accumulated undistributed foreign earnings after utilizing existing qualified foreign tax credits, which is to be paid over a maximum of eight years beginning in 2018.
(d) This amount represents transition tax payable on the deemed repatriation of accumulated undistributed foreign earnings after utilizing existing qualified foreign tax credits, which is to be paid over a maximum of eight years beginning in 2018.
We have not included in the table above approximately $25 million of liabilities for unrecognized tax benefits related to the uncertainty with regard to the deductibility of certain business expenses incurred as well as related accrued interest and penalties.
We have not included in the table above approximately $24 million of liabilities for unrecognized tax benefits related to the uncertainty with regard to the deductibility of certain business expenses incurred as well as related accrued interest and penalties.
As of December 31, 2022 and 2021, the Company has not made an allowance for the recoverability of VAT assets, as the balance is expected to be utilized to offset against VAT payables or be refunded in the future.
As of December 31, 2023 and 2022, the Company has not made an allowance for the recoverability of VAT assets, as the balance is expected to be utilized to offset against VAT payables or be refunded in the future.
Most of the revenues, costs, assets and liabilities of the Company are denominated in RMB. Any significant change in the exchange rate between US$ and RMB may materially affect the Company’s business, results of operations, cash flows and financial condition, depending on the weakening or strengthening of RMB against the US$. See “Item 7A.
Most of the revenues, costs, assets and liabilities of the Company are denominated in Chinese Renminbi (“RMB”). Any significant change in the exchange rate between US$ and RMB may materially affect the Company’s business, results of operations, cash flows and financial condition, depending on the weakening or strengthening of RMB against the US$. See “Item 7A.
Key assumptions in the determination of fair value include reasonable sales growth assumption in generating after-tax cashflows that would be used by a franchisee in the determination of a purchase price for the restaurant, and market rental assumption for estimating the price market participants would pay to sub-lease the operating lease right-of-use assets.
Key assumptions in the determination of fair value include reasonable sales growth assumption in generating after-tax cash flows that would be used by a franchisee in the determination of a purchase price for the restaurant, and market rental assumption for estimating the price market participants would pay to sub-lease the operating lease right-of-use assets.
At December 31, 2022 and 2021, we had $21 million and $20 million, respectively, of unrecognized tax benefits related to the uncertainty with regard to the deductibility of certain business expenses incurred.
At December 31, 2023 and 2022, we had $20 million and $21 million, respectively, of unrecognized tax benefits related to the uncertainty with regard to the deductibility of certain business expenses incurred.
Our remaining non-reportable operating segments, including the operations of Taco Bell, Lavazza, Little Sheep, Huang Ji Huang, COFFii & JOY, East Dawning, our delivery operating segment and our e-commerce business, are combined and referred to as All Other Segments, as these operating segments are insignificant both individually and in the aggregate.
Our non-reportable operating segments, including the operations of Lavazza, Huang Ji Huang, Little Sheep and Taco Bell (and for 2022, also including COFFii & JOY and East Dawning), our delivery operating segment and our e-commerce business, are combined and referred to as All Other Segments, as these operating segments are insignificant both individually and in the aggregate.
Sales of franchise and unconsolidated affiliate restaurants typically generate ongoing franchise fees for the Company at an average rate of approximately 6% of system sales. Franchise and unconsolidated affiliate restaurant sales are not included in Company sales in the Consolidated Statements of Income; however, the franchise fees are included in the Company’s revenues.
Sales of franchise restaurants typically generate ongoing franchise fees for the Company at an average rate of approximately 6% of system sales. Franchise restaurant sales are not included in Company sales in the Consolidated Statements of Income; however, the franchise fees are included in the Company’s revenues.
The discount rate incorporates rates of returns for historical refranchising market transactions and is commensurate with the risks and uncertainty inherent in the forecasted cash flows. 80 2022 Form 10-K We evaluate indefinite-lived intangible assets for impairment on an annual basis or more often if an event occurs or circumstances change that indicates impairment might exist.
The discount rate incorporates rates of returns for historical refranchising market transactions and is commensurate with the risks and uncertainty inherent in the forecasted cash flows. We evaluate indefinite-lived intangible assets for impairment on an annual basis or more often if an event occurs or circumstances change that indicates impairment might exist.
Measured by number of restaurants, we believe Pizza Hut had an approximate five-to-one lead over its nearest western CDR competitor in China as of the end of 2022. We have two reportable segments: KFC and Pizza Hut.
Measured by number of restaurants, we believe Pizza Hut had an approximate four-to-one lead over its nearest western CDR competitor in China as of the end of 2023. We have two reportable segments: KFC and Pizza Hut.
However, the impact on our operating results is not expected to be significant. 75 2022 Form 10-K Entities that are VAT general taxpayers are permitted to offset qualified input VAT paid to suppliers against their output VAT upon receipt of appropriate supplier VAT invoices on an entity-by-entity basis.
However, the impact on our operating results is not expected to be significant. Entities that are general VAT taxpayers are permitted to offset qualified input VAT paid to suppliers against their output VAT upon receipt of appropriate supplier VAT invoices on an entity-by-entity basis.
A description of what we consider to be our most significant critical accounting policies and estimates follows. 79 2022 Form 10-K Loyalty Programs 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.
A description of what we consider to be our most significant critical accounting policies and estimates follows. Loyalty Programs 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.
We believe the elimination of the F/X impact provides better year-to-year comparability without the distortion of foreign currency fluctuations. • System sales growth reflects the results of all restaurants regardless of ownership, including Company-owned, franchise and unconsolidated affiliate restaurants that operate our concepts, except for sales from non-Company-owned restaurants, for which we do not receive a sales-based royalty.
We believe the elimination of the F/X impact provides better year-to-year comparability without the distortion of foreign currency fluctuations. • System sales growth reflects the results of all restaurants regardless of ownership, including Company-owned and franchise restaurants, except for sales from non-Company-owned restaurants for which we do not receive a sales-based royalty.
Our indefinite-lived intangible assets had a book value of $130 million and $141 million as of December 31, 2022 and 2021, respectively, representing two material indefinite-lived intangible assets, which are our Little Sheep and Huang Ji Huang trademarks.
Our indefinite-lived intangible assets had a book value of $127 million and $130 million as of December 31, 2023 and 2022, respectively, representing two material indefinite-lived intangible assets, which are our Little Sheep and Huang Ji Huang trademarks.
PSUs have market conditions that are based on the closing price of Yum China’s stock or relative total shareholder return against the MSCI China Index measured over the performance period. The fair values of PSUs have been determined based on the outcome of a Monte-Carlo Simulation model (the “MCS model”).
PSUs have market conditions that are based on the closing price of Yum China’s stock or relative total shareholder return against selected indices or the constituents of the indices measured over the performance period. The fair values of PSUs have been determined based on the outcome of a Monte-Carlo Simulation model (the “MCS model”).
As of December 31, 2022, KFC operated over 9,000 restaurants in more than 1,800 cities across China. KFC primarily competes with western QSR brands in China, such as McDonald’s, Dicos and Burger King, among which we believe KFC had an approximate two-to-one lead over its nearest competitor in terms of store count as of the end of 2022.
As of December 31, 2023, KFC operated 10,296 restaurants in more than 2,000 cities across China. KFC primarily competes with western QSR brands in China, such as McDonald’s, Dicos and Burger King, among which we believe KFC had an approximate two-to-one lead over its nearest competitor in terms of store count as of the end of 2023.
These estimates are highly subjective, and our ability to achieve the forecasted cash is affected by factors such as changes in our operating performance and business strategies and changes in economic conditions. 81 2022 Form 10-K Our goodwill of $1,988 million as of December 31, 2022 was related to the KFC, Pizza Hut, Huang Ji Huang and Lavazza reporting units.
These estimates are highly subjective, and our ability to achieve the forecasted cash is affected by factors such as changes in our operating performance and business strategies and changes in economic conditions. Our goodwill of $1,932 million as of December 31, 2023 was related to the KFC, Pizza Hut, Huang Ji Huang and Lavazza reporting units.
The Company paid a cash dividend of $0.12 per share for each quarter of 2021 and 2022. Total cash dividends of $202 million and $203 million were paid to stockholders in 2022 and 2021, respectively.
The Company paid a cash dividend of $0.13 and $0.12 per share for each quarter of 2023 and 2022, respectively. Total cash dividends of $216 million and $202 million were paid to stockholders in 2023 and 2022, respectively.
At the discretion of the board of directors, as an enterprise incorporated in China, each of our Chinese subsidiaries may allocate a portion of its after-tax profits based on Chinese accounting standards to staff welfare and bonus funds.
At the discretion of the board of directors, as an enterprise incorporated in China, each of our Chinese subsidiaries may allocate a portion of its after-tax profits based on Chinese accounting standards to staff welfare and bonus funds. These reserve funds and staff welfare and bonus funds are not distributable as cash dividends.
Additional details on our reportable operating segments are included in Note 18 to the Consolidated Financial Statements. 63 2022 Form 10-K We intend for this MD&A to provide the reader with information that will assist in understanding our results of operations, including metrics that management uses to assess the Company’s performance.
Additional details on our reportable operating segments are included in Note 17. 64 2023 Form 10-K We intend for this MD&A to provide the reader with information that will assist in understanding our results of operations, including metrics that management uses to assess the Company’s performance.
On June 7, 2022, the Chinese Ministry of Finance and the STA jointly issued Circular [2022] No. 21, to extend full VAT credit refunds to more sectors and increase the frequency for accepting taxpayers’ applications with an aim to support business recovery.
On June 7, 2022, the Chinese Ministry of Finance ("MOF") and the STA jointly issued Circular [2022] No. 21, to extend full VAT credit refunds to more sectors and increase the frequency for accepting taxpayers’ applications.
We currently expect our fiscal year 2023 capital expenditures will be in the range of approximately $700 million to $900 million. If our cash flows from operations are less than we require, we may need to access the capital markets to obtain financing.
We currently expect our fiscal year 2024 capital expenditures to be in the range of approximately $700 million to $850 million. 77 2023 Form 10-K If our cash flows from operations are less than we require, we may need to access the capital markets to obtain financing.
Rather, the Company believes that the presentation of these adjusted measures provides additional information to investors to facilitate the comparison of past and present results, excluding those items that the Company does not believe are indicative of our ongoing operations due to their nature.
Rather, the Company believes that the presentation of these non-GAAP measures provides additional information to investors to facilitate the comparison of past and present results, excluding those items that the Company does not believe are indicative of our core operations.
As of December 31, 2022, VAT assets of $88 million, VAT assets of $5 million and a net VAT payable of $7 million were recorded in Prepaid expenses and other current assets, Other assets and Accounts payable and other current liabilities, respectively, on the Consolidated Balance Sheets.
As of December 31, 2023, VAT assets of $91 million, VAT assets of $6 million and net VAT payable of $5 million were recorded in Prepaid expenses and other current assets, Other assets and Accounts payable and other current liabilities, respectively, on the Consolidated Balance Sheets.
Throughout this MD&A, we discuss the following performance metrics: • The Company provides certain percentage changes excluding the impact of foreign currency translation (“F/X”). These amounts are derived by translating current year results at prior year average exchange rates.
Throughout this MD&A, we discuss the following performance metrics: • Certain performance metrics and non-GAAP measures are presented excluding the impact of foreign currency translation (“F/X”). These amounts are derived by translating current year results at prior year average exchange rates.
Dividends and Share Repurchases On March 17, 2022, our board of directors increased the share repurchase authorization by $1 billion to an aggregate of $2.4 billion.
Share Repurchases and Dividends On November 2, 2023, our Board of Directors increased the share repurchase authorization by $1 billion to an aggregate of $3.4 billion.
Pizza Hut is the leading and the largest casual dining restaurant (“CDR”) brand in China in terms of system sales and number of restaurants. As of December 31, 2022, Pizza Hut operated over 2,900 restaurants in over 650 cities.
Pizza Hut is the leading and the largest casual dining restaurant (“CDR”) brand in China in terms of system sales and number of restaurants. As of December 31, 2023, Pizza Hut operated 3,312 restaurants in over 700 cities.
On February 7, 2023, the board of directors declared an increase in cash dividend to $0.13 per share, payable on March 28, 2023, to stockholders of record as of the close of business on March 7, 2023. Our ability to declare and pay any dividends on our stock may be restricted by earnings available for distribution under applicable Chinese laws.
On February 6, 2024, the Board of Directors declared a cash dividend to $0.16 per share, payable on March 26, 2024, to stockholders of record as of the close of business on March 5, 2024. Our ability to declare and pay any dividends on our stock may be restricted by our earnings available for distribution under applicable Chinese laws.
Quantitative and Qualitative Disclosures About Market Risk” for a further discussion. Consolidated Cash Flows Net cash provided by operating activities was $1,413 million in 2022 as compared to $1,131 million in 2021. The increase was primarily driven by refunds of VAT assets. See Note 8.
Quantitative and Qualitative Disclosures About Market Risk” for further discussion. Consolidated Cash Flows Net cash provided by operating activities was $1,473 million in 2023 as compared to $1,413 million in 2022. The increase was primarily driven by the increase in net income, partially offset by the lapping of refunds of VAT assets in 2022.
We have since grown to become the largest restaurant company in China in terms of 2022 system sales, with nearly 13,000 restaurants covering over 1,800 cities primarily in China as of December 31, 2022.
We have since grown to become the largest restaurant company in China in terms of 2023 system sales, with 14,644 restaurants covering over 2,000 cities primarily in China as of December 31, 2023.
KFC’s loyalty program members exceeded 380 million at year-end 2022 and contributed approximately 62% of system sales at KFC in 2022.
KFC’s loyalty program members exceeded 440 million at year-end 2023 and contributed approximately 64% of system sales at KFC in 2023.
We evaluate unrecognized tax benefits, including interest thereon, on a quarterly basis to ensure that they have been appropriately adjusted for events, including audit settlements, which may impact our ultimate payment for such exposures.
We evaluate unrecognized tax benefits, including interest thereon, on a quarterly basis to ensure that they have been appropriately adjusted for events, including change or developments with respect to tax audits, audit settlements and expiration of the statute of limitation, which may impact our ultimate payment for such exposures.
We elected to perform a qualitative impairment assessment for each of our individual reporting units of KFC, Pizza Hut and Lavazza in 2022.
In the year ended December 31, 2023, we elected to perform a qualitative impairment assessment for each of our individual reporting units of KFC, Pizza Hut, Huang Ji Huang and Lavazza.
Overview Yum China Holdings, Inc. is the largest restaurant company in China in terms of system sales, with $9.6 billion of revenues in 2022 and nearly 13,000 restaurants as of year-end 2022.
Overview Yum China Holdings, Inc. is the largest restaurant company in China in terms of 2023 system sales, with $11 billion of revenues in 2023 and 14,644 restaurants as of year-end 2023.
(4 ) 465 Adjusted Net Income – Yum China Holdings, Inc. $ 446 $ 525 Reconciliation of EPS to Adjusted EPS Basic Earnings Per Common Share $ 1.05 $ 2.34 Special Items, Basic Earnings Per Common Share (0.01 ) 1.10 Adjusted Basic Earnings Per Common Share $ 1.06 $ 1.24 Diluted Earnings Per Common Share $ 1.04 $ 2.28 Special Items, Diluted Earnings Per Common Share (0.01 ) 1.07 Adjusted Diluted Earnings Per Common Share $ 1.05 $ 1.21 Reconciliation of Effective Tax Rate to Adjusted Effective Tax Rate Effective tax rate (See Note 17) 30.1 % 26.5 % Impact on effective tax rate as a result of Special Items 0.2 % (1.3 )% Adjusted effective tax rate 29.9 % 27.8 % 68 2022 Form 10-K Net income, along with the reconciliation to Adjusted EBITDA, is presented below: 2022 2021 Reconciliation of Net Income to Adjusted EBITDA Net Income – Yum China Holdings, Inc. $ 442 $ 990 Net income – noncontrolling interests 36 33 Equity in net (earnings) losses from equity method investments 2 — Income tax provision 207 369 Interest income, net (84 ) (60 ) Investment loss 26 54 Operating Profit 629 1,386 Special Items, Operating Profit 4 (620 ) Adjusted Operating Profit 633 766 Depreciation and amortization 602 516 Store impairment charges 51 48 Adjusted EBITDA $ 1,286 $ 1,330 Details of Special Items are presented below: Details of Special Items 2022 2021 Share-based compensation expense for Partner PSU Awards (a) $ (4 ) $ (8 ) Gain from re-measurement of equity interest upon acquisition (b) — 628 Special Items, Operating Profit (4 ) 620 Tax effect on Special Items (c) — (155 ) Special Items, net income – including noncontrolling interests (4 ) 465 Special Items, net income – noncontrolling interests — — Special Items, Net Income – Yum China Holdings, Inc. $ (4 ) $ 465 Weighted-Average Diluted Shares Outstanding (in millions) 425 434 Special Items, Diluted Earnings Per Common Share $ (0.01 ) $ 1.07 (a) In February 2020, the Company granted Partner PSU Awards to select employees who were deemed critical to the Company’s execution of its strategic operating plan.
(15 ) (4 ) Adjusted Net Income – Yum China Holdings, Inc. $ 842 $ 446 Reconciliation of EPS to Adjusted EPS Basic Earnings Per Common Share $ 1.99 $ 1.05 Special Items, Basic Earnings Per Common Share (0.03 ) (0.01 ) Adjusted Basic Earnings Per Common Share $ 2.02 $ 1.06 Diluted Earnings Per Common Share $ 1.97 $ 1.04 Special Items, Diluted Earnings Per Common Share (0.03 ) (0.01 ) Adjusted Diluted Earnings Per Common Share $ 2.00 $ 1.05 Reconciliation of Effective Tax Rate to Adjusted Effective Tax Rate Effective tax rate (See Note 16) 26.9 % 30.1 % Impact on effective tax rate as a result of Special Items 0.4 % 0.2 % Adjusted effective tax rate 26.5 % 29.9 % Net income, along with the reconciliation to Adjusted EBITDA, is presented below: 2023 2022 Reconciliation of Net Income to Adjusted EBITDA Net Income – Yum China Holdings, Inc. $ 827 $ 442 Net income – noncontrolling interests 74 36 Equity in net (earnings) losses from equity method investments (4 ) 2 Income tax provision 329 207 Interest income, net (169 ) (84 ) Investment loss 49 26 Operating Profit 1,106 629 Special Items, Operating Profit 15 4 Adjusted Operating Profit 1,121 633 Depreciation and amortization 453 602 Store impairment charges 37 51 Adjusted EBITDA $ 1,611 $ 1,286 68 2023 Form 10-K Details of Special Items are presented below: Details of Special Items 2023 2022 Share-based compensation expense for Partner PSU Awards (a) $ (15 ) $ (4 ) Special Items, Operating Profit (15 ) (4 ) Tax effect on Special Items (b) — — Special Items, net income – including noncontrolling interests (15 ) (4 ) Special Items, net income – noncontrolling interests — — Special Items, Net Income – Yum China Holdings, Inc. $ (15 ) $ (4 ) Weighted-average Diluted Shares Outstanding (in millions) 420 425 Special Items, Diluted Earnings Per Common Share $ (0.03 ) $ (0.01 ) (a) In February 2020, the Company granted Partner PSU Awards to select employees who were deemed critical to the Company’s execution of its strategic operating plan.
If these restaurant-level assets were not impaired, depreciation of the assets would have been recorded and included in EBITDA. Therefore, store impairment charges were a non-cash item similar to depreciation and amortization of our long-lived assets of restaurants.
If these restaurant-level assets were not impaired, depreciation of the assets would have been recorded and included in EBITDA. Therefore, store impairment charges were a non-cash item similar to depreciation and amortization of our long-lived assets of restaurants. The Company believes that investors and analysts may find it useful in measuring operating performance without regard to such non-cash items.
Treasury zero-coupon yield in effect with maturity terms equal to the expected term or performance measurement period of the awards. The dividend yield was estimated based on the Company’s dividend policy.
The risk-free interest rate was based on the U.S. Treasury zero-coupon yield in effect with maturity terms equal to the expected term or performance measurement period of the awards. The dividend yield was estimated based on the Company’s dividend policy. We use historical turnover data to estimate the expected forfeiture rate.
Amounts have not been allocated to any segment for purposes of making operating decisions or assessing financial performance as the transactions are corporate revenues and expenses in nature.
Amounts have not been allocated to any segment for purposes of making operating decisions or assessing financial performance as the transactions are corporate revenues and expenses in nature. Revenues from Transactions with Franchisees In 2023, the increase in Revenues from transactions with franchisees, excluding the impact of F/X, was mainly due to the increase in system sales for franchisees.
Under the BS and MCS models, we made a number of assumptions regarding the fair value of the share-based awards, including: • the expected future volatility of the price of shares of Yum China common stock; • the risk-free interest rate; • the expected dividend yield; and • the expected term.
Under the BS and MCS models, we made a number of assumptions regarding the fair value of the share-based awards, including: • the expected future volatility of the price of shares of Yum China common stock; • the risk-free interest rate; • the expected dividend yield; and • the expected term. 82 2023 Form 10-K We estimated the expected future volatility of the price of shares of Yum China common stock based on the historical price volatility of the publicly traded shares of common stock of comparable companies in the same business as Yum China as well as the historical volatility of the Company’s common stock.
Impairment or Disposal of Long-Lived Assets We review long-lived assets of restaurants (primarily operating lease right-of-use assets and property, plant and equipment (“PP&E”)) semi-annually for impairment, or whenever events or changes in circumstances indicate that the carrying amount of a restaurant may not be recoverable.
The Company reviews its breakage estimates at least annually based upon the latest available information regarding redemption and expiration patterns. 80 2023 Form 10-K Impairment or Disposal of Long-Lived Assets We review long-lived assets of restaurants (primarily operating lease right-of-use assets and property, plant and equipment (“PP&E”)) semi-annually for impairment, or whenever events or changes in circumstances indicate that the carrying amount of a restaurant may not be recoverable.
We use historical turnover data to estimate the expected forfeiture rate. 82 2022 Form 10-K Income Taxes Uncertain Tax Positions We are subject to reviews, examinations and audits by Chinese tax authorities, the IRS and other tax authorities with respect to income and non-income based taxes.
Income Taxes Uncertain Tax Positions We are subject to reviews, examinations and audits by Chinese tax authorities, the IRS and other tax authorities with respect to income and non-income based taxes.
See Note 17 of the Consolidated Financial Statements for a further discussion of our income taxes. 83 2022 Form 10-K
See Note 16 for a further discussion of our income taxes. 83 2023 Form 10-K
See Note 3 for additional information. 74 2022 Form 10-K Income Tax Provision Our income tax provision primarily includes tax on our earnings at the Chinese statutory tax rate of 25%, withholding tax on planned or actual repatriation of earnings outside of China, Hong Kong profits tax, and U.S. corporate income tax, if any.
Income Tax Provision Our income tax provision primarily includes tax on our earnings generally at the Chinese statutory tax rate of 25% with certain Chinese subsidiaries qualified at preferential tax rates, withholding tax on planned or actual repatriation of earnings outside of China, Hong Kong profits tax, and U.S. corporate income tax, if any.
All Other Segments All Other Segments reflects the results of Taco Bell, Lavazza, Little Sheep, Huang Ji Huang, COFFii & JOY, East Dawning, our delivery operating segment and our e-commerce business. % B/(W) 2022 2021 Reported Ex F/X Company sales $ 51 $ 53 (3 ) 1 Franchise fees and income 18 25 (29 ) (27 ) Revenues from transactions with franchisees and unconsolidated affiliates 39 98 (60 ) (58 ) Other revenues 563 297 90 99 Total revenues $ 671 $ 473 42 49 Company restaurant expenses $ 70 $ 63 (10 ) (15 ) G&A expenses $ 46 $ 42 (7 ) (11 ) Franchise expenses $ 1 $ 1 (158 ) (170 ) Expenses for transactions with franchisees and unconsolidated affiliates $ 35 $ 88 60 59 Other operating costs and expenses $ 557 $ 294 (90 ) (99 ) Closure and impairment expenses, net $ 12 $ 7 (100 ) (112 ) Other loss, net $ — $ 7 NM NM Operating Loss $ (50 ) $ (29 ) (75 ) (82 ) Restaurant loss $ (19 ) $ (10 ) (75 ) (83 ) Restaurant margin % (37.6 )% (20.8 )% (16.8 ) ppts.
All Other Segments All Other Segments reflects the results of Lavazza, Huang Ji Huang, Little Sheep and Taco Bell (and for 2022, also including COFFii & JOY and East Dawning), our delivery operating segment and our e-commerce business. % B/(W) 2023 2022 Reported Ex F/X Company sales $ 61 $ 51 20 26 Franchise fees and income 20 18 14 21 Revenues from transactions with franchisees 74 39 89 99 Other revenues 624 563 11 16 Total revenues $ 779 $ 671 16 22 Company restaurant expenses $ 76 $ 70 (9 ) (15 ) G&A expenses $ 43 $ 46 8 3 Franchise expenses $ 1 $ 1 9 4 Expenses for transactions with franchisees $ 67 $ 35 (93 ) (102 ) Other operating costs and expenses $ 614 $ 557 (10 ) (16 ) Closure and impairment expenses, net $ 9 $ 12 25 21 Operating Loss $ (31 ) $ (50 ) 39 36 Restaurant loss $ (15 ) $ (19 ) 20 15 Restaurant margin % (25.1 )% (37.6 )% 12.5 ppts. 12.5 ppts.
Such commitments are generally near term in nature, will be funded from operating cash flows, and are not significant to the Company’s overall financial position.
We have excluded agreements that are cancelable without penalty or have a remaining term not in excess of one year. Such commitments are generally near term in nature, will be funded from operating cash flows, and are not significant to the Company’s overall financial position.
G&A Expenses In 2022, the increase in G&A expenses, excluding the impact of F/X, was primarily driven by merit increases. Operating Profit In 2022, the decrease in Operating profit, excluding the impact of F/X, was primarily driven by the decrease in Restaurant profit and higher G&A expenses.
G&A Expenses In 2023, the increase in G&A expenses, excluding the impact of F/X, was primarily driven by higher compensation costs and higher travel expenses from the resumption of business travel. Operating Profit In 2023, the increase in Operating profit, excluding the impact of F/X, was primarily driven by the increase in Restaurant profit, partially offset by higher G&A expenses.
Net cash used in financing activities was $844 million in 2022 as compared to $313 million in 2021. The increase was primarily due to the resumption of share repurchases starting in the third quarter of 2021 and the cash consideration paid for the acquisition of an additional 20% equity interest in Suzhou KFC.
Net cash used in financing activities was $716 million in 2023 as compared to $844 million in 2022. The decrease was primarily driven by net proceeds from short-term bank borrowings and lapping of cash consideration paid in 2022 for the acquisition of an additional 20% equity interest in Suzhou KFC, partially offset by the increase in share repurchases.
Operating Loss In 2022, the increase in Operating loss, excluding the impact of F/X, was primarily driven by the loss incurred by the Lavazza joint venture, as well as an increase of Operating loss from certain emerging brands due to the impact of the COVID-19 pandemic. 73 2022 Form 10-K Corporate & Unallocated % B/(W) 2022 2021 Reported Ex F/X Revenues from transactions with franchisees and unconsolidated affiliates (a) $ 211 $ 500 (58 ) (56 ) Other revenues $ 42 $ 20 102 111 Expenses for transactions with franchisees and unconsolidated affiliates (a) $ 211 $ 497 58 56 Other operating costs and expenses $ 39 $ 17 (119 ) (130 ) Corporate G&A expenses $ 184 $ 171 (8 ) (11 ) Other unallocated income $ 3 $ 642 (100 ) (100 ) Interest income, net $ 84 $ 60 40 43 Investment loss $ (26 ) $ (54 ) 51 51 Income tax provision (See Note 17) $ (207 ) $ (369 ) 44 42 Equity in net earnings (losses) from equity method investments $ (2 ) $ — NM NM Effective tax rate (See Note 17) 30.1 % 26.5 % (3.6 ) ppts (3.6 ) ppts (a) Primarily includes revenues and associated expenses of transactions with franchisees and unconsolidated affiliates derived from the Company’s central procurement model whereby food and paper products are centrally purchased and then mainly sold to KFC and Pizza Hut franchisees and unconsolidated affiliates that operate our concepts.
Operating Loss In 2023, the decrease in Operating loss, excluding the impact of F/X, was primarily driven by the decrease in Operating loss from certain emerging brands. 74 2023 Form 10-K Corporate & Unallocated % B/(W) 2023 2022 Reported Ex F/X Revenues from transactions with franchisees (a) $ 249 $ 211 18 24 Other revenues $ 44 $ 42 7 12 Expenses for transactions with franchisees (a) $ 246 $ 211 (17 ) (23 ) Other operating costs and expenses $ 42 $ 39 (10 ) (16 ) Corporate G&A expenses $ 214 $ 184 (17 ) (20 ) Other unallocated income, net $ 2 $ 3 (6 ) (1 ) Interest income, net $ 169 $ 84 101 103 Investment loss $ (49 ) $ (26 ) (91 ) (91 ) Income tax provision (See Note 16) $ (329 ) $ (207 ) (59 ) (66 ) Equity in net earnings (losses) from equity method investments $ 4 $ (2 ) NM NM Effective tax rate (See Note 16) 26.9 % 30.1 % 3.2 ppts 3.2 ppts (a) Primarily includes revenues and associated expenses of transactions with franchisees derived from the Company’s central procurement model whereby food and paper products are centrally purchased and then mainly sold to KFC and Pizza Hut franchisees.
Our global offering in September 2020 provided us with $2.2 billion in net proceeds. 76 2022 Form 10-K Our ability to fund our future operations and capital needs will primarily depend on our ongoing ability to generate cash from operations.
Liquidity and Capital Resources Historically we have funded our operations through cash generated from the operation of our Company-owned stores and our franchise operations. Our global offering in September 2020 provided us with $2.2 billion in net proceeds. Our ability to fund our future operations and capital needs will primarily depend on our ongoing ability to generate cash from operations.
Adjusted Operating Profit $ 633 $ 766 Adjusted Net Income $ 446 $ 525 Adjusted Diluted Earnings Per Common Share $ 1.05 $ 1.21 Adjusted Effective Tax Rate 29.9 % 27.8 % Adjusted EBITDA $ 1,286 $ 1,330 NM refers to not meaningful. (a) Represents year-over-year change in percentage.
Adjusted Operating Profit $ 1,121 $ 633 Core Operating Profit $ 1,121 $ 627 Adjusted Net Income – Yum China Holdings, Inc. $ 842 $ 446 Adjusted Diluted Earnings Per Common Share $ 2.00 $ 1.05 Adjusted Effective Tax Rate 26.5 % 29.9 % Adjusted EBITDA $ 1,611 $ 1,286 NM refers to not meaningful. 66 2023 Form 10-K (a) Represents year-over-year change in percentage.
We will adopt this standard in the first quarter of 2023, and do not expect the adoption of this standard will have a material impact on our financial statements. Critical Accounting Policies and Estimates Our reported results are impacted by the application of certain accounting policies that require us to make subjective or complex judgments.
ASU 2023-09 is effective for the Company from January 1, 2025, with early adoption permitted. We are currently evaluating the impact the adoption of this standard may have on our financial statements. Critical Accounting Policies and Estimates Our reported results are impacted by the application of certain accounting policies that require us to make subjective or complex judgments.
(b) Sales from non-Company-owned restaurants, for which we do not receive a sales-based royalty, are excluded from System Sales and Same-Store Sales. 65 2022 Form 10-K The Consolidated Results of Operations for the years ended December 31, 2022 and 2021 and other data are presented below: % B/(W) (a) 2022 2021 Reported Ex F/X Company sales $ 9,110 $ 8,961 2 6 Franchise fees and income 81 153 (47 ) (45 ) Revenues from transactions with franchisees and unconsolidated affiliates 287 663 (57 ) (55 ) Other revenues 91 76 20 26 Total revenues $ 9,569 $ 9,853 (3 ) 1 Company restaurant expenses $ 7,829 $ 7,734 (1 ) (5 ) Operating Profit $ 629 $ 1,386 (55 ) (53 ) Interest income, net 84 60 40 43 Investment loss (26 ) (54 ) 51 51 Income tax provision (207 ) (369 ) 44 42 Equity in net earnings (losses) from equity method investments (2 ) — NM NM Net income – including noncontrolling interests 478 1,023 (53 ) (51 ) Net income – noncontrolling interests 36 33 (9 ) (15 ) Net Income – Yum China Holdings, Inc. $ 442 $ 990 (55 ) (54 ) Diluted Earnings Per Common Share $ 1.04 $ 2.28 (54 ) (53 ) Effective tax rate 30.1 % 26.5 % Supplementary information – Non-GAAP Measures (b) Restaurant profit $ 1,281 $ 1,227 4 8 Restaurant margin % 14.1 % 13.7 % 0.4 ppts. 0.4 ppts.
The Consolidated Results of Operations for the years ended December 31, 2023 and 2022 and other data are presented below: % B/(W) (a) 2023 2022 Reported Ex F/X Company sales $ 10,391 $ 9,110 14 20 Franchise fees and income 89 81 11 17 Revenues from transactions with franchisees 372 287 30 36 Other revenues 126 91 39 45 Total revenues $ 10,978 $ 9,569 15 21 Company restaurant expenses $ 8,701 $ 7,829 (11 ) (17 ) Operating Profit $ 1,106 $ 629 76 86 Interest income, net 169 84 101 103 Investment loss (49 ) (26 ) (91 ) (91 ) Income tax provision (329 ) (207 ) (59 ) (66 ) Equity in net earnings (losses) from equity method investments 4 (2 ) NM NM Net Income – including noncontrolling interests 901 478 88 99 Net income – noncontrolling interests 74 36 (106 ) (116 ) Net Income – Yum China Holdings, Inc. $ 827 $ 442 87 97 Diluted Earnings Per Common Share $ 1.97 $ 1.04 89 100 Effective tax rate 26.9 % 30.1 % Supplementary information – Non-GAAP Measures (b) Restaurant profit $ 1,690 $ 1,281 32 38 Restaurant margin % 16.3 % 14.1 % 2.2 ppts. 2.2 ppts.
Delivery sales accounted for approximately 38% of Company sales at KFC in 2022 with store and city coverage of 89% and 98%, respectively, at the end of 2022. % B/(W) 2022 2021 Reported Ex F/X Company sales $ 7,120 $ 6,816 4 9 Franchise fees and income 56 120 (53 ) (51 ) Revenues from transactions with franchisees and unconsolidated affiliates 33 59 (45 ) (43 ) Other revenues 10 8 26 33 Total revenues $ 7,219 $ 7,003 3 7 Company restaurant expenses $ 5,999 $ 5,803 (3 ) (8 ) G&A expenses $ 254 $ 240 (6 ) (10 ) Franchise expenses $ 29 $ 59 50 48 Expenses for transactions with franchisees and unconsolidated affiliates $ 30 $ 58 49 46 Other operating costs and expenses $ 7 $ 4 (60 ) (68 ) Closure and impairment expenses, net $ 16 $ 20 19 13 Other expenses (income), net $ 97 $ (8 ) NM NM Operating Profit $ 787 $ 827 (5 ) (1 ) Restaurant profit $ 1,121 $ 1,013 11 15 Restaurant margin % 15.7 % 14.9 % 0.8 ppts. 0.8 ppts. 2022 % Change System Sales Decline (8 )% System Sales Decline, excluding F/X (4 )% Same-Store Sales Decline (7 )% Unit Count 2022 2021 % Increase Company-owned 8,214 7,437 10 Franchisees 880 731 20 9,094 8,168 11 70 2022 Form 10-K 2021 New Builds Acquired Closures Refranchised 2022 Company-owned 7,437 1,060 5 (283 ) (5 ) 8,214 Franchisees 731 169 (5 ) (20 ) 5 880 Total 8,168 1,229 — (303 ) — 9,094 Company Sales and Restaurant Profit The changes in Company sales and Restaurant profit were as follows: Income (Expense) 2021 Store Portfolio Actions Other F/X 2022 Company sales $ 6,816 $ 1,052 $ (456 ) $ (292 ) $ 7,120 Cost of sales (2,158 ) (317 ) 176 91 (2,208 ) Cost of labor (1,642 ) (284 ) 53 76 (1,797 ) Occupancy and other operating expenses (2,003 ) (276 ) 204 81 (1,994 ) Restaurant profit $ 1,013 $ 175 $ (23 ) $ (44 ) $ 1,121 In 2022, the increase in Company sales, excluding the impact of F/X, was primarily driven by net unit growth and the acquisition of Hangzhou KFC, partially offset by same-store sales decline and temporary store closures due to the impact of the COVID-19 pandemic.
Delivery sales accounted for approximately 36% of Company sales at KFC in 2023 with store and city coverage of 89% and 98%, respectively, at the end of 2023. % B/(W) 2023 2022 Reported Ex F/X Company sales $ 8,116 $ 7,120 14 20 Franchise fees and income 62 56 10 16 Revenues from transactions with franchisees 45 33 37 44 Other revenues 17 10 60 67 Total revenues $ 8,240 $ 7,219 14 20 Company restaurant expenses $ 6,676 $ 5,999 (11 ) (17 ) G&A expenses $ 263 $ 254 (4 ) (9 ) Franchise expenses $ 31 $ 29 (2 ) (7 ) Expenses for transactions with franchisees $ 39 $ 30 (33 ) (40 ) Other operating costs and expenses $ 15 $ 7 (91 ) (98 ) Closures and impairment expenses, net $ 12 $ 16 28 25 Other expenses, net $ 2 $ 97 98 98 Operating Profit $ 1,202 $ 787 53 60 Restaurant profit $ 1,440 $ 1,121 29 35 Restaurant margin % 17.7 % 15.7 % 2.0 ppts. 2.0 ppts. 2023 % Change System Sales Growth 14 % System Sales Growth, excluding F/X 20 % Same-Store Sales Growth 7 % 71 2023 Form 10-K Unit Count 2023 2022 % Increase Company-owned 9,237 8,214 12 Franchisees 1,059 880 20 10,296 9,094 13 2022 New Builds Acquired Closures Refranchised 2023 Company-owned 8,214 1,246 2 (222 ) (3 ) 9,237 Franchisees 880 193 (2 ) (15 ) 3 1,059 Total 9,094 1,439 — (237 ) — 10,296 Company Sales and Restaurant Profit The changes in Company sales and Restaurant profit were as follows: Income (Expense) 2022 Store Portfolio Actions Other F/X 2023 Company sales $ 7,120 $ 902 $ 529 $ (435 ) $ 8,116 Cost of sales (2,208 ) (302 ) (138 ) 136 (2,512 ) Cost of labor (1,797 ) (219 ) (153 ) 112 (2,057 ) Occupancy and other operating expenses (1,994 ) (168 ) (61 ) 116 (2,107 ) Restaurant profit $ 1,121 $ 213 $ 177 $ (71 ) $ 1,440 In 2023, the increase in Company sales, excluding the impact of F/X, was primarily driven by net unit growth, same-store sales growth and reduced temporary store closures.
Effective January 1, 2018, temporary store closures are normalized in the same-store sales calculation by excluding the period during which stores are temporarily closed.
Effective January 1, 2018, temporary store closures are normalized in the same-store sales calculation by excluding the period during which stores are temporarily closed. (b) See “Non-GAAP Measures” below for definitions and reconciliations of the most directly comparable GAAP financial measures to the non-GAAP measures.
This revision was made to align with how management measures performance internally and focuses on trends of a more stable base of stores. Prior years have been adjusted accordingly. • Company sales represent revenues from Company-owned restaurants.
This revision was made to align with how management measures performance internally and focuses on trends of a more stable base of stores. • Company sales represent revenues from Company-owned restaurants. Within the analysis of Company sales, Total revenue and Restaurant profit, store portfolio actions represent the net impact from new-unit openings, acquisitions, refranchising and store closures.
Segment Results KFC KFC delivered a resilient performance in 2022 by accelerating store expansion with attractive returns and maintaining solid profitability. KFC continued to focus on innovative products, creating abundant value for our customers, as well as on upgrading ingredients to meet Chinese consumers’ needs. KFC also continued its digital and delivery initiatives to enhance the customer experience.
KFC continued to focus on innovative products, creating abundant value for our customers, updating ingredients and tastes to meet Chinese consumers’ needs, as well as on introducing entry price point products. KFC also continued its digital and delivery initiatives to enhance the customer experience.
For purposes of our impairment analysis, we update the cash flows that were initially used to value the finite-lived intangible asset to reflect our current estimates and assumptions over the asset’s future remaining life.
For purposes of our impairment analysis, we update the cash flows that were initially used to value the finite-lived intangible asset to reflect our current estimates and assumptions over the asset’s future remaining life. 81 2023 Form 10-K Impairment of Goodwill We evaluate goodwill for impairment on an annual basis as of the beginning of our fourth quarter or more often if an event occurs or circumstances change that indicates impairment might exist.
Material Cash Requirements Our material short-term and long-term cash requirements as of December 31, 2022 included: Total Less than 1 Year 1-3 Years 3-5 Years More than 5 Years Finance Leases (a) $ 62 $ 7 $ 12 $ 11 $ 32 Operating Leases (a) 2,814 552 837 617 808 Purchase Obligations (b) 478 148 108 181 41 Transition Tax (c) 34 7 27 — — Total $ 3,388 $ 714 $ 984 $ 809 $ 881 (a) These obligations, which are shown on a nominal basis, relate primarily to approximately 11,000 Company-owned restaurants.
Material Cash Requirements Our material short-term and long-term cash requirements as of December 31, 2023 included: Total Less than 1 Year 1-3 Years 3-5 Years More than 5 Years Finance Leases (a) $ 63 $ 7 $ 12 $ 12 $ 32 Operating Leases (a) 2,757 525 844 625 763 Short-term borrowings (b) 169 169 — — — Purchase Obligations (c) 417 151 198 32 36 Transition Tax (d) 27 12 15 — — Total $ 3,433 $ 864 $ 1,069 $ 669 $ 831 (a) These obligations, which are shown on a nominal basis, relate primarily to over 12,500 Company-owned restaurants.
Other Revenues/Operating Costs and Expenses In 2022, the increase in Other revenues/operating costs and expenses was mainly driven by logistics and warehousing services provided to third parties. Corporate G&A Expenses In 2022, the increase in Corporate G&A expenses, excluding the impact of F/X, was primarily driven by higher compensation costs.
G&A Expenses In 2023, the increase in G&A expenses, excluding the impact of F/X, was primarily driven by higher compensation costs and higher travel expenses from the resumption of business travel.

… 105 more changes not shown on this page.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

3 edited+0 added−0 removed3 unchanged
Biggest changeWhile substantially all of our supply purchases are denominated in RMB, from time to time, we enter into agreements at predetermined exchange rates with third parties to purchase certain amount of goods and services sourced overseas and make payments in local currencies when practical, to minimize the related foreign currency exposure with immaterial impact on our financial statements.
Biggest changeWhile substantially all of our supply purchases are denominated in RMB, from time to time, we enter into agreements with third parties to purchase certain amount of goods and services sourced overseas and make payments in the corresponding local currencies at predetermined exchange rates when practical, to minimize the related foreign currency exposure with immaterial impact on our financial statements.
The equity investment is recorded at fair value, which is measured on a recurring basis and is subject to market price volatility. See Note 3 of the Consolidated Financial Statements for a further discussion on our investment in Meituan. 84 2022 Form 10-K
Equity investment in Meituan is recorded at fair value, which is measured on a recurring basis and is subject to market price volatility. See Note 3 for further discussion on our investment in Meituan. 84 2023 Form 10-K
As substantially all of the Company’s long-lived assets are located in China, the Company is exposed to movements in the RMB foreign currency exchange rate. For the year ended December 31, 2022, the Company’s operating profit would have decreased approximately $62 million if RMB weakened 10% relative to the U.S. dollar.
As substantially all of the Company’s operations are located in China, the Company is exposed to movements in the RMB foreign currency exchange rate. For the year ended December 31, 2023, the Company’s Operating profit would have decreased by approximately $106 million if the RMB weakened 10% relative to the U.S. dollar.

Other YUMC 10-K year-over-year comparisons