10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to _________________

Commission file number 001-37762

Yum China Holdings, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	81-2421743
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification No.)
7100 Corporate Drive Plano, Texas 75024 United States of America	Yum China Building 20 Tian Yao Qiao Road Shanghai 200030 People’s Republic of China
(Address, Including Zip Code, of Principal Executive Offices) (469) 980-2898
(Registrant’s Telephone Number, Including Area Code)
Not Applicable (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	YUMC	New York Stock Exchange

The number of shares outstanding of the registrant’s common stock as of May 3, 2019 was 378,250,599 shares.

Yum China Holdings, Inc.

INDEX

		Page
		No.
Part I.	Financial Information
	Item 1 – Financial Statements	3
	Condensed Consolidated Statements of Income – Quarters Ended March 31, 2019 and 2018	3
	Condensed Consolidated Statements of Comprehensive Income – Quarters Ended March 31, 2019 and 2018	4
	Condensed Consolidated Statements of Cash Flows – Quarters Ended March 31, 2019 and 2018	5
	Condensed Consolidated Balance Sheets – March 31, 2019 and December 31, 2018	6
	Notes to Condensed Consolidated Financial Statements	7
	Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
	Item 3 – Quantitative and Qualitative Disclosures about Market Risk	39
	Item 4 – Controls and Procedures	40
Part II.	Other Information
	Item 1 – Legal Proceedings	41
	Item 1A – Risk Factors	41
	Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	41
	Item 6 – Exhibits	42
	Signatures	43

2

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Consolidated Statements of Income (Unaudited)

Yum China Holdings, Inc.

(in US$ millions, except per share data)

	Quarter Ended
Revenues	3/31/2019			3/31/2018
Company sales	$	2,089		$	2,016
Franchise fees and income		39			40
Revenues from transactions with    franchisees and unconsolidated affiliates		170			161
Other revenues		6			4
Total revenues		2,304			2,221
Costs and Expenses, Net
Company restaurants
Food and paper		638			594
Payroll and employee benefits		466			442
Occupancy and other operating expenses		599			619
Company restaurant expenses		1,703			1,655
General and administrative expenses		114			114
Franchise expenses		20			20
Expenses for transactions with    franchisees and unconsolidated affiliates		167			160
Other operating costs and expenses		5			4
Closures and impairment expenses (income), net		11			(1	)
Other income, net		(19	)		(126	)
Total costs and expenses, net		2,001			1,826
Operating Profit		303			395
Interest income, net		9			8
Investment gain		10			—
Income Before Income Taxes		322			403
Income tax provision		(93	)		(107	)
Net income – including noncontrolling interests		229			296
Net income – noncontrolling interests		7			8
Net Income – Yum China Holdings, Inc.	$	222		$	288
Weighted-average common shares outstanding (in millions):
Basic		379			386
Diluted		388			401
Basic Earnings Per Common Share	$	0.59		$	0.75
Diluted Earnings Per Common Share	$	0.57		$	0.72
Cash Dividends Declared Per Common Share	$	0.12		$	0.10

See accompanying Notes to Condensed Consolidated Financial Statements.

3

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

Yum China Holdings, Inc.

(in US$ millions)

	Quarter Ended
	3/31/2019		3/31/2018
Net income - including noncontrolling interests	$	229	$	296
Other comprehensive income, net of tax of nil:
Foreign currency translation adjustments		59		90
Comprehensive income - including noncontrolling interests		288		386
Comprehensive income - noncontrolling interests		10		11
Comprehensive Income - Yum China Holdings, Inc.	$	278	$	375

See accompanying Notes to Condensed Consolidated Financial Statements.

4

Condensed Consolidated Statements of Cash Flows (Unaudited)

Yum China Holdings, Inc.

(in US$ millions)

	Quarter Ended
	3/31/2019			3/31/2018
Cash Flows – Operating Activities
Net income – including noncontrolling interests	$	229		$	296
Depreciation and amortization		111			118
Amortization of operating lease right-of-use assets		83			—
Closures and impairment expenses (income)		11			(1	)
Gain from re-measurement of equity interest upon acquisition		—			(98	)
Investment gain		(10	)		—
Equity income from investments in unconsolidated affiliates		(23	)		(23	)
Distributions of income received from unconsolidated affiliates		28			36
Deferred income taxes		6			23
Share-based compensation expense		6			6
Changes in accounts receivable		5			11
Changes in inventories		34			48
Changes in prepaid expenses and other current assets		(3	)		(7	)
Changes in accounts payable and other current liabilities		(39	)		85
Changes in income taxes payable		24			63
Changes in non-current operating lease liabilities		(103	)		—
Other, net		(15	)		(6	)
Net Cash Provided by Operating Activities		344			551
Cash Flows – Investing Activities
Capital spending		(110	)		(111	)
Purchases of short-term investments		(235	)		(160	)
Maturities of short-term investments		76			93
Acquisition of business, net of cash acquired		—			(88	)
Other, net		2			(1	)
Net Cash Used in Investing Activities		(267	)		(267	)
Cash Flows – Financing Activities
Repayment of short-term borrowings assumed from acquisition		—			(10	)
Repurchase of shares of common stock		(68	)		—
Cash dividends paid on common stock		(46	)		(39	)
Other, net		1			(2	)
Net Cash Used in Financing Activities		(113	)		(51	)
Effect of Exchange Rates on Cash and Cash Equivalents		17			26
Net (Decrease) Increase in Cash and Cash Equivalents		(19	)		259
Cash and Cash Equivalents - Beginning of Period		1,266			1,059
Cash and Cash Equivalents - End of Period	$	1,247		$	1,318
Supplemental Cash Flow Data
Cash paid for income tax		53			20

See accompanying Notes to Condensed Consolidated Financial Statements.

5

CondensedConsolidated Balance Sheets

Yum China Holdings, Inc.

(in US$ millions)

	3/31/2019			12/31/2018
	(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents	$	1,247		$	1,266
Short-term investments		284			122
Accounts receivable, net		77			80
Inventories, net		280			307
Prepaid expenses and other current assets		179			177
Total Current Assets		2,067			1,952
Property, plant and equipment, net		1,620			1,615
Operating lease right-of-use assets		2,016			—
Goodwill		273			266
Intangible assets, net		111			116
Deferred income taxes		104			89
Investments in unconsolidated affiliates		44			81
Other assets		527			491
Total Assets	$	6,762		$	4,610
LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND EQUITY
Current Liabilities
Accounts payable and other current liabilities	$	1,507		$	1,199
Income taxes payable		80			54
Total Current Liabilities		1,587			1,253
Non-current operating lease liabilities		1,869			—
Non-current finance lease liabilities		23			25
Other liabilities		220			355
Total Liabilities		3,699			1,633
Redeemable Noncontrolling Interest		1			1
Equity
Common stock, $0.01 par value; 1,000 million shares authorized;    394 million shares and 392 million shares issued at March 31, 2019    and December 31, 2018, respectively; 379 million shares and 379 million shares    outstanding at March 31, 2019 and December 31, 2018, respectively		4			4
Treasury stock		(525	)		(460	)
Additional paid-in capital		2,408			2,402
Retained earnings		1,060			944
Accumulated other comprehensive income (loss)		39			(17	)
Total Equity – Yum China Holdings, Inc.		2,986			2,873
Noncontrolling interests		76			103
Total Equity		3,062			2,976
Total Liabilities, Redeemable Noncontrolling Interest and Equity	$	6,762		$	4,610

See accompanying Notes to Condensed Consolidated Financial Statements.

6

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Tabular amounts in US$ millions)

Note 1 – Description of the Business

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

The Company owns, franchises or has an ownership in entities that own and operate restaurants under the KFC, Pizza Hut, East Dawning, Little Sheep, Taco Bell and COFFii & JOY concepts (collectively, the “Concepts”). In connection with the separation of the Company from YUM, Yum! Restaurants Asia Pte. Ltd., a wholly-owned indirect subsidiary of YUM, and Yum Restaurants Consulting (Shanghai) Company Limited (“YCCL”), a wholly-owned indirect subsidiary of Yum China, entered into a 50-year master license agreement with automatic renewals for additional consecutive renewal terms of 50 years each, subject only to YCCL being in “good standing” and unless YCCL gives notice of its intent not to renew, for the exclusive right to use and sub-license the use of intellectual property owned by YUM and its subsidiaries for the development and operation of the KFC, Pizza Hut and, subject to achieving certain agreed-upon milestones, Taco Bell brands and their related marks and other intellectual property rights for restaurant services in the People’s Republic of China (the “PRC” or “China”), excluding Hong Kong, Taiwan and Macau. In exchange, we pay a license fee to YUM equal to 3% of net system sales from both our Company and franchise restaurants.

We own the intellectual property of East Dawning, Little Sheep, and COFFii & JOY and pay no license fee related to these Concepts.

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

In addition, the Company started a new e-commerce business in 2017, offering a wide selection of products including electronics, home and kitchen accessories, and other general merchandise to customers directly through the Company’s e-commerce platform.

Note 2 – Basis of Presentation

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

We have prepared the Condensed Consolidated Financial Statements in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The Condensed Consolidated Financial Statements include all normal and recurring adjustments considered necessary to present fairly our financial position as of March 31, 2019, and the results of our operations, comprehensive income and cash flows for the quarters ended March 31, 2019 and 2018. Our results of operations, comprehensive income and cash flows for these interim periods are not necessarily indicative of the results to be expected for the full year. These statements should be read in conjunction with the consolidated financial statements and notes thereto defined and included in the Company’s Annual Report on Form 10-K as filed with the SEC on February 27, 2019.

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

7

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

Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) (“ASU 2016-02” or “ASC 842”), which increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The FASB subsequently issued amendments to clarify the implementation guidance. The Company adopted these standards on January 1, 2019, using a modified retrospective method for leases that exist at, or are entered into after, January 1, 2019, and has not recast the comparative periods presented in the Condensed Consolidated Financial Statements. Additionally, we elected the package of practical expedients that allowed us to not reassess: (1) whether any expired or existing contracts are or contain leases, (2) lease classification for any expired or existing leases and (3) initial direct costs for any expired or existing leases. We also elected the hindsight practical expedient to determine the reasonably certain lease term for existing leases.

Upon the adoption of ASC 842, the Company recognized right-of-use assets and lease liabilities of approximately $2.0 billion and $2.2 billion, respectively, for operating leases of the land and/or building of our restaurants and office spaces based on the present value of lease payments over the lease term. In addition, an impairment charge of $60 million (net of related impact on deferred taxes and noncontrolling interests) on right-of-use assets arising from existing operating leases as of January 1, 2019 was recorded as an adjustment to retained earnings, as the additional impairment charge would have been recorded before adoption had the operating lease right-of-use assets been recognized at the time of impairment.

The following table summarizes the effect on the Consolidated Balance Sheet as a result of adopting ASC 842.

8

	December 31, 2018			Effect of adoption				January 1, 2019
ASSETS
Current Assets
Cash and cash equivalents	$	1,266						$	1,266
Short-term investments		122							122
Accounts receivable, net		80							80
Inventories, net		307							307
Prepaid expenses and other current assets		177			(39	)	(a)		138
Total Current Assets		1,952			(39	)			1,913
Property, plant and equipment, net		1,615			(1	)			1,614
Operating lease right-of-use assets		—			1,997		(b)		1,997
Goodwill		266							266
Intangible assets, net		116			(2	)	(c)		114
Deferred income taxes		89			19		(d)		108
Investments in unconsolidated affiliates		81			(1	)			80
Other assets		491			(4	)	(c)		487
Total Assets	$	4,610		$	1,969			$	6,579
LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND EQUITY
Current Liabilities
Accounts payable and other current liabilities	$	1,199		$	320		(e)	$	1,519
Income taxes payable		54							54
Total Current Liabilities		1,253			320				1,573
Non-current operating lease liabilities		—			1,860		(f)		1,860
Non-current finance lease liabilities		25			—				25
Other liabilities		355			(148	)	(g)		207
Total Liabilities		1,633			2,032				3,665
Redeemable Noncontrolling Interest		1							1
Equity
Common stock		4							4
Treasury stock		(460	)						(460	)
Additional paid-in capital		2,402							2,402
Retained earnings		944			(60	)	(h)		884
Accumulated other comprehensive loss		(17	)						(17	)
Total Equity – Yum China Holdings, Inc.		2,873			(60	)			2,813
Noncontrolling interests		103			(3	)	(i)		100
Total Equity		2,976			(63	)			2,913
Total Liabilities, Redeemable Noncontrolling Interest and Equity	$	4,610		$	1,969			$	6,579

(a) Represents the current portion of prepaid rent reclassified to operating lease right-of-use assets.

(b) Represents the net result of capitalization of operating lease payments and reclassification of prepaid rent, initial direct cost, deferred rent accrual and lease incentives, and offset by impairment of operating lease right-of-use assets that existed prior to the date of adoption.

(c) Represents initial direct cost, favorable lease and non-current prepaid rent reclassified to operating lease right-of-use assets.

(d) Represents the deferred tax impact related to impairment of operating lease right-of-use assets.

(e) Represents recognition of the current portion of operating lease liabilities, offset by the reclassification of accrued rental payments and the current portion of deferred rent accrual to operating lease right-of-use assets.

(f) Represents recognition of the non-current operating lease liabilities.

9

(g) Represents reclassification of the non-current portion of deferred rent accrual and lease incentives to operating lease right-of-use assets.

(h) Represents an impairment charge on operating lease right-of-use assets arising from existing operating leases as of January 1, 2019, net of related impact on deferred taxes and noncontrolling interests, with a corresponding reduction to the carrying amount of operating lease right-of-use assets. The impairment charge was recorded for those restaurants under operating leases with full impairment on the long-lived assets before January 1, 2019, as the additional impairment charge would have been recorded before January 1, 2019 had the operating lease right-of-use assets been recognized at the time of impairment.

(i) Represents impairment of operating lease right-of-use assets attributable to noncontrolling interests.

In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (“ASU 2018-02”). The new guidance allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (the “Tax Act”) and will improve the usefulness of information reported to financial statement users. ASU 2018-02 is effective for the Company from January 1, 2019, with early adoption permitted. We adopted the standard on January 1, 2019, and such adoption did not have a material impact on our financial statements.

In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718) Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). The new guidance largely aligns the accounting for share-based awards issued to employees and non-employees. Existing guidance for employee awards will apply to nonemployee share-based transactions with limited exceptions. The new guidance also clarifies that any share-based payment awards issued to customers should be evaluated under ASC 606, Revenue from Contracts with Customers. ASU 2018-07 is effective for the Company from January 1, 2019, with early adoption permitted. We adopted the standard on January 1, 2019, and such adoption did not have a material impact on our financial statements.

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

Note 3 – Revenue Recognition

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

Company Sales

Revenues from Company-owned restaurants are recognized when a customer takes possession of the food and tenders payment, which is when our obligation to perform is satisfied. The Company presents sales net of sales-related taxes. We also offer our customers delivery through both our own mobile applications and third-party aggregators’ platforms. For delivery orders placed through our mobile applications, we use our dedicated riders, while for orders placed through third-party aggregators’ platforms, we use our dedicated riders, or, in limited cases, third-party aggregators’ delivery staff. With respect to delivery orders delivered by our dedicated riders, we control and determine the price for the delivery service and generally recognize revenue, including delivery fees, when a customer takes possession of the food. When orders are fulfilled by the delivery staff of third-party aggregators, who control and determine the price for the delivery service, we recognize revenue, excluding delivery fees, when control of the food is transferred to the third-party aggregators’ delivery staff. The payment terms with respect to these sales are short-term in nature.

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

Our privilege membership program offers privilege members benefits, such as free delivery and discounts on coffee or breakfast items. The associated membership fees are recognized ratably over the membership period.

10

Franchise Fees and Income

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

Revenues from Transactions with Franchisees and Unconsolidated Affiliates

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

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

For advertising services, the Company often engages third parties to provide services and acts as a principal in the transaction based on our responsibilities of defining the nature of the services and administering and directing all marketing and advertising programs in accordance with the provisions of our franchise agreements. The Company collects advertising contributions, which are generally based on certain percentage of sales from substantially all of our restaurants, including franchisees and unconsolidated affiliates. Other services provided to franchisees and unconsolidated affiliates consist primarily of customer support and technology support services. Advertising services and other services provided are highly interrelated to franchise right, and are not considered individually distinct. We recognize revenue when the related sales occur.

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

11

Disaggregation of Revenue

The following table presents revenue disaggregated by types of arrangements and segments:

	Quarter Ended 3/31/2019
Revenues	KFC		Pizza Hut		All Other Segments(a)		Corporate and Unallocated(a)		Combined		Elimination			Consolidated
Company sales	$	1,539	$	541	$	9	$	—	$	2,089	$	—		$	2,089
Franchise fees and income		36		1		2		—		39		—			39
Revenues from transactions     with franchisees and     unconsolidated affiliates		17		1		7		145		170		—			170
Other revenues		—		—		14		1		15		(9	)		6
Total revenues	$	1,592	$	543	$	32	$	146	$	2,313	$	(9	)	$	2,304

	Quarter Ended 3/31/2018
Revenues	KFC		Pizza Hut		All Other Segments(a)		Corporate and Unallocated(a)		Combined		Elimination			Consolidated
Company sales	$	1,444	$	564	$	8	$	—	$	2,016	$	—		$	2,016
Franchise fees and income		37		1		2		—		40		—			40
Revenues from transactions     with franchisees and     unconsolidated affiliates		17		—		7		137		161		—			161
Other revenues		—		—		4		1		5		(1	)		4
Total revenues	$	1,498	$	565	$	21	$	138	$	2,222	$	(1	)	$	2,221

12

(a) As COFFii & JOY and our e-commerce business became operating segments starting from the first quarter of 2019, revenue by segment information for prior quarters has been recast to align with the change in segment reporting. Additional details on our reportable segments are included in Note 13.

Accounts Receivable

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

Costs to Obtain Contracts

Costs to obtain contracts consist of upfront license fees that we paid to YUM prior to the separation in relation to initial fees or renewal fees we received from franchisees and unconsolidated affiliates, as well as license fees that are payable to YUM in relation to our deferred revenue of prepaid stored-value products and customer loyalty programs. They meet the requirements to be capitalized as they are incremental costs of obtaining contracts with customers and the Company expects to generate future economic benefits from such costs incurred. Such costs to obtain contracts are included in Other assets on the Condensed Consolidated Balance Sheets and are amortized on a systematic basis that is consistent with the transfer to the customer of the goods or services to which the assets relate. Subsequent to the separation, we are no longer required to pay YUM initial or renewal fees that we receive from franchisees and unconsolidated affiliates. The Company did not incur any impairment losses related to costs to obtain contracts during any of the periods presented. Costs to obtain contracts were $10 million and $8 million at March 31, 2019 and December 31, 2018, respectively.

Contract Liabilities

Contract liabilities at March 31, 2019 and December 31, 2018 were as follows:

Contract liabilities	3/31/2019		12/31/2018
- Deferred revenue related to prepaid stored-value products	$	80	$	73
- Deferred revenue related to customer loyalty programs		22		17
- Deferred revenue related to upfront fees		39		37
Total	$	141	$	127

Contract liabilities consist of deferred revenue related to prepaid stored-value products, customer loyalty programs and upfront fees. Deferred revenue related to prepaid stored-value products and customer loyalty programs is included in Accounts payable and other current liabilities on the Condensed Consolidated Balance Sheets. Deferred revenue related to upfront fees that we expect to recognize as revenue in the next 12 months is included in Accounts payable and other current liabilities, and the remaining balance is included in Other liabilities on the Condensed Consolidated Balance Sheets. Revenue recognized that was included in the contract liability balance at the beginning of each period amounted to $33 million and $19 million in the quarter ended March 31, 2019 and March 31, 2018, respectively. Changes in contract liability balances were not materially impacted by business acquisition, change in estimate of transaction price or any other factors during any of the periods presented.

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

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Note 4 – Earnings Per Common Share (“EPS”)

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

	Quarter Ended
	3/31/2019		3/31/2018
Net Income – Yum China Holdings, Inc.	$	222	$	288
Weighted-average common shares outstanding    (for basic calculation)(a)		379		386
Effect of dilutive share-based awards(a)		7		12
Effect of dilutive warrants(b)		2		3
Weighted-average common and dilutive potential    common shares outstanding (for diluted calculation)		388		401
Basic Earnings Per Common Share	$	0.59	$	0.75
Diluted Earnings Per Common Share	$	0.57	$	0.72
Share-based awards excluded from the diluted EPS computation(c)		2		1

(a) As a result of the separation, shares of Yum China common stock were distributed to YUM’s shareholders of record as of October 19, 2016 and included in the calculated weighted-average common shares outstanding. Holders of outstanding YUM equity awards generally received both adjusted YUM awards and Yum China awards, or adjusted awards on shares of common stock of either YUM or Yum China in their entirety. Any subsequent exercise of these awards, whether held by the Company’s employees or YUM’s employees, would increase the number of common shares outstanding. The outstanding equity awards are included in the computation of diluted EPS, if there is dilutive effect.

(b) Pursuant to the investment agreements dated September 1, 2016, Yum China issued to strategic investors two tranches of warrants on January 9, 2017, with each tranche providing the right to purchase 8,200,405 shares of Yum China common stock, at an exercise price of $31.40 and $39.25 per share, respectively, subject to customary anti-dilution adjustments. The warrants may be exercised at any time through October 31, 2021. The outstanding warrants are included in the computation of diluted EPS, if there is dilutive effect when the average market price of Yum China common stock for the period exceeds the exercise price of the warrants.

(c) These outstanding stock appreciation rights, restricted stock units and performance share units were not included in the computation of diluted EPS because to do so would have been antidilutive for the quarters presented.

Note 5 – Equity

Changes in Equity and Redeemable Noncontrolling Interest

	Yum China Holdings, Inc.
										Accumulated
	Common				Additional					Other															Redeemable
	Stock				Paid-in		Retained			Comprehensive			Treasury Stock						Noncontrolling			Total			Noncontrolling
	Shares		Amount		Capital		Earnings			(Loss) Income			Shares			Amount			Interests			Equity			Interest
Balance at December 31, 2018		392	$	4	$	2,402	$	944		$	(17	)		(13	)	$	(460	)	$	103		$	2,976		$	1
Net Income								222												7			229
Foreign currency translation adjustments											56									3			59
Comprehensive income																							288
Cash dividends declared    ($0.12 per common share)								(46	)														(46	)
Dividends declared																				(34	)		(34	)
Repurchase of shares of common stock														(2	)		(65	)					(65	)
Exercise and vesting of share-based awards		2		—		—																	—
Share-based compensation						6																	6
Cumulative effect  of accounting change								(60	)											(3	)		(63	)
Balance at March 31, 2019		394	$	4	$	2,408	$	1,060		$	39			(15	)	$	(525	)	$	76		$	3,062		$	1

Share Repurchase Program

On February 7, 2017, we announced that our Board of Directors authorized a $300 million share repurchase program. On October 4, 2017, the Board of Directors increased Yum China’s existing share repurchase authorization from $300 million to an aggregate of $550 million. On October 30, 2018, the Board of Directors further increased the share repurchase authorization to an aggregate of $1.4

14

billion. The Company repurchased 1.7 million shares of Yum China common stock at a total cost of $65 million during the quarter ended March 31, 2019. This includes approximately 46 thousand shares repurchased for $2 million with trade dates prior to March 31, 2019 but cash settlement dates subsequent to March 31, 2019. There were no shares repurchased during the quarter ended March 31, 2018. As of March 31, 2019, $895 million remained available for future share repurchases under the authorization.

Note 6 – Items Affecting Comparability of Net Income and Cash Flows

Gain from Re-Measurement of Equity Interest Upon Acquisition

In the first quarter of 2018, the Company completed the acquisition of Wuxi KFC. In connection with the acquisition, the Company also recognized a gain of $98 million from the re-measurement of our previously held 47% equity interest at fair value using discounted cash flow valuation approach and incorporating assumptions and estimates that were not observable in the market. Key assumptions used in estimating future cash flows included projected revenue growth and operating expenses, which were based on internal projections, historical performance of stores and the business environment, as well as the selection of an appropriate discount rate based on weighted-average cost of capital and company-specific risk premium. The gain was not allocated to any segment for performance reporting purposes.

Meituan Dianping (“Meituan”) Investment

In the third quarter of 2018, the Company subscribed for 8.4 million, or less than 1%, of the ordinary shares of Meituan, an e-commerce platform for services in China, for a total consideration of approximately $74 million, when it launched its initial public offering on the Hong Kong Stock Exchange in September 2018. The Company accounted for the equity securities at fair value with subsequent fair value changes recorded in our Condensed Consolidated Statements of Income. The fair value of the investment in Meituan is determined based on the closing market price for the shares at the end of each reporting period. As of March 31, 2019, the fair value of the investment was $57 million. The unrealized gain of $10 million was included in Investment gain in our Condensed Consolidated Statements of Income during the quarter ended March 31, 2019.

Incremental Restaurant-Level Impairment Upon Adoption of ASC 842

We performed an additional impairment evaluation of long-lived assets of restaurants as a result of adopting ASC 842 and recorded an incremental restaurant-level impairment charge of $12 million in the first quarter of 2019. See Note 11 for additional information.

Transition Tax

We completed the evaluation of the impact on our transition tax computation based on the final regulations that were released by the U.S. Treasury Department and the Internal Revenue Service (“IRS”) and became effective in the first quarter of 2019, and recorded an additional amount of $8 million for the transition tax accordingly. See Note 12 for additional information.

Note 7 – Other Income, net

	Quarter Ended
	3/31/2019			3/31/2018
Equity income from investments in unconsolidated affiliates	$	23		$	23
Gain from re-measurement of equity interest upon acquisition(a)		—			98
Foreign exchange impact and other		(4	)		5
Other income, net	$	19		$	126

(a) As a result of the acquisition of Wuxi KFC in the first quarter of 2018, as disclosed in Note 2, the Company recognized a gain of $98 million from the re-measurement of our previously held 47% equity interest at fair value, which was not allocated to any segment for performance reporting purposes.

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Note 8 – Supplemental Balance Sheet Information

Accounts Receivable, net	3/31/2019			12/31/2018
Accounts receivable, gross	$	79		$	81
Allowance for doubtful accounts		(2	)		(1	)
Accounts receivable, net	$	77		$	80

Prepaid Expenses and Other Current Assets	3/31/2019		12/31/2018
Receivables from payment processors and aggregators	$	46	$	49
Dividends receivable from unconsolidated affiliates		53		20
Prepaid rent		—		42
Other prepaid expenses and current assets		80		66
Prepaid expenses and other current assets	$	179	$	177

Property, Plant and Equipment	3/31/2019			12/31/2018
Buildings and improvements	$	2,209		$	2,121
Finance leases, primarily buildings		26			26
Machinery, equipment and construction in progress		1,218			1,201
Property, plant and equipment, gross		3,453			3,348
Accumulated depreciation		(1,833	)		(1,733	)
Property, plant and equipment, net	$	1,620		$	1,615

Other Assets	3/31/2019		12/31/2018
VAT assets	$	249	$	226
Land use right		141		138
Long-term deposits		67		64
Investment in equity securities		57		47
Costs to obtain contracts		10		8
Others		3		8
Other Assets	$	527	$	491

Accounts Payable and Other Current Liabilities	3/31/2019		12/31/2018
Accounts payable	$	556	$	619
Operating leases liabilities		364		—
Accrued compensation and benefits		163		200
Contract liabilities		109		96
Accrued capital expenditures		106		137
Accrued marketing expenses		76		32
Other current liabilities		133		115
Accounts payable and other current liabilities	$	1,507	$	1,199

Other Liabilities	3/31/2019		12/31/2018
Accrued income tax payable	$	80	$	71
Deferred income tax liabilities		64		65
Contract liabilities		32		31
Deferred rent accrual		—		144
Other non-current liabilities		44		44
Other liabilities	$	220	$	355

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Note 9 – Goodwill and Intangible Assets

The changes in the carrying amount of goodwill are as follows:

	Total Company			KFC		Pizza Hut		All Other Segments
Balance as of December 31, 2018
Goodwill, gross	$	648		$	238	$	19	$	391
Accumulated impairment losses(a)		(382	)		—		—		(382	)
Goodwill, net		266			238		19		9
Effect of currency translation adjustment		7			6		1		—
Balance as of March 31, 2019
Goodwill, gross		655			244		20		391
Accumulated impairment losses(a)		(382	)		—		—		(382	)
Goodwill, net	$	273		$	244	$	20	$	9

(a) Accumulated impairment losses represent Little Sheep goodwill impairment.

Intangible assets, net as of March 31, 2019 and December 31, 2018 are as follows:

	3/31/2019										12/31/2018
	Gross Carrying Amount(a)		Accumulated Amortization			Accumulated impairment losses			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Accumulated impairment losses			Net Carrying Amount
Definite-lived intangible assets
Reacquired franchise rights	$	154	$	(108	)	$	—		$	46	$	150	$	(100	)	$	—		$	50
Daojia platform		16		(3	)		(10	)		3		16		(3	)		(10	)		3
Customer-related assets		12		(8	)		(2	)		2		12		(8	)		(2	)		2
Others(b)		9		(3	)		—			6		17		(9	)		—			8
	$	191	$	(122	)	$	(12	)	$	57	$	195	$	(120	)	$	(12	)	$	63
Indefinite-lived intangible assets
Little Sheep trademark	$	54	$	—		$	—		$	54	$	53	$	—		$	—		$	53
Total intangible assets	$	245	$	(122	)	$	(12	)	$	111	$	248	$	(120	)	$	(12	)	$	116

(a) Changes in gross carrying amount include effect of currency translation adjustment.

(b) Decrease in Others during the quarter ended March 31, 2019 is primarily due to the reclassification of favorable lease assets, with gross carrying amount of $7 million and accumulated amortization of $5 million, to right-of-use assets upon adoption of ASC 842.

Amortization expense of definite-lived intangible assets was $6 million and $6 million for the quarters ended March 31, 2019 and 2018, respectively. As of March 31, 2019, expected amortization expense for the unamortized definite-lived intangible assets is approximately $11 million for the remainder of 2019, $13 million in 2020, $13 million in 2021, $13 million in 2022 and $3 million in 2023.

Note 10 – Leases

As of March 31, 2019, we operated more than 8,600 restaurants, leasing the underlying land and/or building. We generally enter into lease agreements with initial terms of 10 to 20 years. Most of our lease agreements contain termination options that permit us to terminate the lease agreement early if the restaurant’s unit contribution is negative for a specified period of time. We generally do not have renewal options for our leases. Such options are accounted for only when it is reasonably certain that we will exercise the options. The rent under the majority of our current restaurant lease agreements is generally payable in one of three ways: (i) fixed rent;

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(ii) the higher of a fixed base rent or a percentage of the restaurant’s sales revenue; or (iii) a percentage of the restaurant’s sales revenue. Most leases require us to pay common area maintenance fees for the leased property. In addition to restaurants leases, we also lease office spaces, logistics centers and equipment. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Prior to the adoption of ASC 842, operating leases were not recognized on the balance sheet of the Company, but rent expenses were recognized on a straight-line basis over the lease term. Upon adoption, right-of-use assets and lease liabilities are recognized upon lease commencement for operating leases based on the present value of lease payments over the lease term. This is consistent with the historical recognition of finance leases, which is unchanged upon adoption of ASC 842. Variable lease payments that do not depend on a rate or index are expensed as incurred. The Company has elected not to recognize right-of-use assets or lease liabilities for leases with an initial term of 12 months or less; we recognize lease expense for these leases on a straight-line basis over the lease term. In addition, the Company has elected not to separate non-lease components (e.g., common area maintenance fees) from the lease components.

In limited cases, we sublease certain restaurants to franchisees in connection with refranchising transactions or lease our properties to other third parties. The lease payments under these leases are generally based on the higher of a fixed base rent or a percentage of restaurant’s annual sales revenue. Income from sublease agreements with franchisees or lease agreements with other third parties are included in Franchise fees and income and Other revenue, respectively, within our Condensed Consolidated Statements of Income. The impact of ASC 842 on our accounting as a lessor was not significant.

Supplemental Balance Sheet
	3/31/2019		Account Classification
Assets
Operating lease right-of-use assets	$	2,016	Operating lease right-of-use assets
Finance lease right-of-use assets		14	Property, plant and equipment, net
Total leased assets	$	2,030
Liabilities
Current
Operating lease liabilities	$	364	Accounts payable and other current liabilities
Finance lease liabilities		2	Accounts payable and other current liabilities
Non-current
Operating lease liabilities		1,869	Non-current operating lease liabilities
Finance lease liabilities		23	Non-current finance lease liabilities
Total lease liabilities	$	2,258

Summary of Lease Cost	Quarter Ended			Account Classification
	3/31/2019
Operating lease cost	$	117		Occupancy and other operating expenses, G&A   or Franchise expenses
Variable lease cost		91		Occupancy and other operating expenses   or Franchise expenses
Short-term lease cost		3		Occupancy and other operating expenses or G&A
Sublease income		(7	)	Franchise fees and income or Other revenues
Total lease cost	$	204

Finance lease cost for the quarter ended March 31, 2019 is not material.

Supplemental Cash Flow Information		Quarter Ended
	3/31/2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	127
Right-of-use assets obtained in exchange for new lease liabilities:
Operating leases	$	57

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Cash paid related to finance leases and right-of-use assets obtained in exchange for new finance lease liabilities for the quarter ended   March 31, 2019 is not material.

	Quarter Ended
Lease Term and Discount Rate	3/31/2019
Weighted-average remaining lease term (years)
Operating leases		7.3
Finance leases		12.0
Weighted-average discount rate
Operating leases		6.1	%
Finance leases		5.7	%

Summary of Future Lease Payments and Lease Liabilities

Maturities of lease liabilities as of March 31, 2019 were as follows:

	Amount of Operating Leases		Amount of Finance Leases		Total
Remainder of 2019	$	372	$	2	$	374
2020		460		3		463
2021		413		3		416
2022		353		3		356
2023		287		3		290
Thereafter		903		21		924
Total undiscounted lease payment		2,788		35		2,823
Less: imputed interest (a)		555		10		565
Present value of lease liabilities	$	2,233	$	25	$	2,258

(a) As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the lease commencement date in determining the imputed interest and present value of lease payments. We used the incremental borrowing rate on January 1, 2019, for operating leases that commenced prior to that date.

As of March 31, 2019, we have additional lease agreements that have been signed but not yet commenced of $87 million. These leases will commence between the second quarter of 2019 and 2020 with lease term of 1 year to 20 years.

Future minimum lease payments under non-cancellable leases as of December 31, 2018 were as follows:

	Commitments
	Amount of Operating Leases		Amount of Finance Leases		Total
2019	$	466	$	3	$	469
2020		440		3		443
2021		394		3		397
2022		336		3		339
2023		275		3		278
Thereafter		864		22		886
	$	2,775	$	37	$	2,812

At December 31, 2018, the present value of minimum payments under finance leases was $27 million, after deducting imputed interest of $10 million. The current portion of finance lease obligations was $2 million as of December 31, 2018, and was classified in Accounts payable and other current liabilities.

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Note 11 – Fair Value Measurements

The Company’s financial assets and liabilities primarily consist of cash and cash equivalents, short-term investments, accounts receivable and accounts payable, and the carrying values of these assets and liabilities approximate their fair value in general.

The Company accounts for its investment in the equity securities of Meituan at fair value, 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 Condensed Consolidated Statements of Income.

The following table is a summary of our financial assets measured on a recurring basis or disclosed at fair value and the level within the fair value hierarchy in which the measurement falls. The Company classifies its cash equivalents, short-term investments and investment in equity securities within Level 1 or Level 2 in the fair value hierarchy because it uses quoted market prices or alternative pricing sources and models utilizing market observable inputs to determine their fair value, respectively. No transfers among the levels within the fair value hierarchy occurred during the quarter ended March 31, 2019.

			Fair Value Measurement or Disclosure at March 31, 2019
	Balance at March 31, 2019		Level 1		Level 2		Level 3
Cash equivalents:
Time deposits	$	720	$	—	$	720	$	—
Money market funds		129		129
Fixed rate debt securities(a)		89		89
Total cash equivalents		938		218		720		—
Short-term investments:
Time deposits		284				284
Total short-term investments		284		—		284		—
Other assets:
Investment in equity securities		57		57
Total	$	1,279	$	275	$	1,004	$	—

			Fair Value Measurement or Disclosure at December 31, 2018
	Balance at December 31, 2018		Level 1		Level 2		Level 3
Cash equivalents:
Time deposits	$	570	$	—	$	570	$	—
Money market funds		226		226
Fixed rate debt securities(a)		153		153
Total cash equivalents		949		379		570		—
Short-term investments:
Time deposits		122				122
Total short-term investments		122		—		122		—
Other assets:
Investment in equity securities		47		47
Total	$	1,118	$	426	$	692	$	—

(a) Classified as held-to-maturity investments and measured at amortized cost.

Non-Recurring Fair Value Measurements

In addition, certain of the Company’s assets, such as operating lease right-of-use (“ROU”) assets, property, plant and equipment, goodwill and intangible assets, are measured at fair value on a non-recurring basis, if determined to be impaired.

The following table presents amounts recognized from all non-recurring fair value measurements during the quarter ended March 31, 2019. All fair value measurements were based on unobservable inputs (Level 3). These amounts exclude fair value measurements made for restaurants that were subsequently closed or refranchised prior to those respective quarter-end dates.

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		Amount	Account Classification
ROU impairment prior to the adoption of ASC 842(a)	$	82	Retained Earnings
Incremental restaurant-level impairment   upon adoption of ASC 842(b)		12	Closure and impairment expenses, net
Total		94

(a) ROU impairment prior to the adoption of ASC 842 represents an impairment charge on operating lease right-of-use assets arising from existing operating leases as of January 1, 2019. After netting with related impact on deferred taxes of $19 million and the impact on noncontrolling interests of $3 million, we recorded a cumulative adjustment of $60 million to retained earnings in accordance with the transition guidance for the new lease standard. For those restaurants under operating leases with full impairment on their long-lived assets (primarily property, plant and equipment) before January 1, 2019, an additional impairment charge would have been recorded before January 1, 2019 had the operating lease right-of-use assets been recognized at the time of impairment. The fair value measurements used in these impairment evaluations were based on discounted cash flow estimates using unobservable inputs (Level 3) at the time of impairment.

(b) Incremental restaurant-level impairment upon adoption of ASC 842 represents additional impairment charges as a result of adopting the new lease standard in the first quarter of 2019. We performed an additional impairment evaluation of long-lived assets of restaurants, which includes operating lease right-of-use assets, and property, plant and equipment. The fair value measurements used in these impairment evaluations were based on discounted cash flow estimates using unobservable inputs (Level 3).

During the quarter ended March 31, 2018, we recorded restaurant-level impairment (Level 3) of nil.

Note 12 – Income Taxes

	Quarter Ended
	3/31/2019			3/31/2018
Income tax provision	$	93		$	107
Effective tax rate		28.9	%		26.6	%

The higher effective tax rate for the quarter ended March 31, 2019 was primarily due to an adjustment of transition tax based on the final regulations that were released by the U.S. Treasury Department and the IRS and became effective in the first quarter of 2019.

In December 2017, the U.S. enacted the Tax Act, which included a broad range of tax reforms, including, but not limited to, the establishment of a flat corporate income tax rate of 21%, the elimination or reduction of certain business deductions and the imposition of tax on deemed repatriation of accumulated undistributed foreign earnings. The Tax Act impacted Yum China in two material aspects: (1) in general, all of the foreign-source dividends received by Yum China from its foreign subsidiaries will be exempted from taxation starting from the tax year beginning after December 31, 2017 and (2) Yum China recorded additional income tax expense in the fourth quarter of 2017, including an estimated one-time transition tax on its deemed repatriation of accumulated undistributed foreign earnings and additional tax related to revaluation of certain deferred tax assets.

We completed our analysis of the Tax Act in the fourth quarter of 2018 according to guidance released by the U.S. Treasury Department and the IRS as of December 2018 and made a reversal to provisional amount in the amount of $36 million for the transition tax recorded in 2017 accordingly. The U.S. Treasury Department and the IRS released the final transition tax regulations on January 15, 2019, which were published in the Federal Register and became effective on February 5, 2019. 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 an additional amount of $8 million for the transition tax accordingly.

The Tax Act requires a U.S. shareholder to be subject to tax on Global Intangible Low Taxed Income (“GILTI”) earned by certain foreign subsidiaries. We have elected the option to account for current year GILTI tax as a period cost as incurred, and therefore included it in estimating the annual effective tax rate.

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Note 13 –Segment Reporting

We have two reportable segments: KFC and Pizza Hut. Starting from the first quarter of 2019, our newly developed COFFii & JOY concept and e-commerce business became operating segments, as their financial results started being regularly reviewed by the Company’s chief operating decision maker. Accordingly, our six non-reportable operating segments, including the operations of East Dawning, Little Sheep, Taco Bell, Daojia, COFFii & JOY and our e-commerce business, are combined and referred to as All Other Segments, as those operating segments are insignificant both individually and in the aggregate. Segment financial information for prior quarters has been recast to align with this change in segment reporting. There was no impact on the consolidated financial statements of the Company as a result of this change.

	Quarter Ended 3/31/2019
Revenues	KFC		Pizza Hut		All Other Segments		Corporate and Unallocated(a)		Combined		Elimination			Consolidated
Revenue from external     customers	$	1,592	$	543	$	23	$	146		2,304	$	—		$	2,304
Inter-segment revenue		—		—		9		—		9		(9	)		—
Total	$	1,592	$	543	$	32	$	146	$	2,313	$	(9	)	$	2,304

	Quarter Ended 3/31/2018
Revenues	KFC		Pizza Hut		All Other Segments		Corporate and Unallocated(a)		Combined		Elimination			Consolidated
Revenue from external     customers	$	1,498	$	565	$	20	$	138		2,221	$	—		$	2,221
Inter-segment revenue		—		—		1		—		1		(1	)		—
Total	$	1,498	$	565	$	21	$	138	$	2,222	$	(1	)	$	2,221

	Quarter Ended
Operating Profit	3/31/2019			3/31/2018
KFC(b)	$	288		$	296
Pizza Hut		50			34
All Other Segments		(5	)		(4	)
Unallocated revenues from transactions with    franchisees and unconsolidated affiliates(c)		145			137
Unallocated Other revenues		1			1
Unallocated expenses from transactions with    franchisees and unconsolidated affiliates(c)		(143	)		(137	)
Unallocated Other operating costs and expenses		(1	)		(1	)
Unallocated and corporate G&A expenses		(33	)		(33	)
Unallocated Other income(d)		1			102
Operating Profit	$	303		$	395
Interest income, net(a)		9			8
Investment gain(a)		10			—
Income Before Income Taxes	$	322		$	403

	Quarter Ended
Impairment Charges	3/31/2019		3/31/2018
KFC(e)	$	8	$	1
Pizza Hut(e)		5		1
All Other Segments		1	$	—
	$	14	$	2

22

	Total Assets
	3/31/2019		12/31/2018
KFC(f)	$	3,082	$	1,745
Pizza Hut		1,073		558
All Other Segments		161		132
Corporate and Unallocated(g)		2,446		2,175
	$	6,762	$	4,610

(a) Amounts have not been allocated to any segment for performance reporting purposes.

(b) Includes equity income from investments in unconsolidated affiliates of $23 million and $23 million for the quarters ended March 31, 2019 and 2018, respectively.

(c) Primarily includes revenues and associated expenses of transactions with franchisee and unconsolidated affiliates derived from the Company’s central procurement model whereby the Company centrally purchases substantially all food and paper products from suppliers and then sells and delivers to restaurants, including franchisees and unconsolidated affiliates. Amounts have not been allocated to any segment for purposes of making operating decisions or assessing financial performance as the transactions are deemed corporate revenues and expenses in nature.

(d) Primarily includes gain from re-measurement of the previously held equity interest in connection with the acquisition of Wuxi KFC (See Note 2).

(e) Primarily includes store closure impairment charges as well as incremental restaurant-level impairment charges as a result of adopting ASC 842 (See Note 11).

(f) Includes investments in unconsolidated affiliates.

(g) Primarily includes cash and cash equivalents, short-term investments, investment in equity securities, and inventories that are centrally managed.

Note 14 – Contingencies 

Indemnification of China Tax on Indirect Transfers of Assets

In February 2015, the Chinese State Administration of Taxation (“SAT”) issued Bulletin 7 on Income arising from Indirect Transfers of Assets by Non-Resident Enterprises. Pursuant to Bulletin 7, an “indirect transfer” of Chinese taxable assets, including equity interests in a Chinese resident enterprise, by a non-resident enterprise, may be recharacterized and treated as a direct transfer of Chinese taxable assets, if such arrangement does not have reasonable commercial purpose and the transferor has avoided payment of Chinese enterprise income tax. As a result, gains derived from such an indirect transfer may be subject to Chinese enterprise income tax at a rate of 10%.

YUM concluded and we concurred that it is more likely than not that YUM will not be subject to this tax with respect to the distribution. However, there are significant uncertainties regarding what constitutes a reasonable commercial purpose, how the safe harbor provisions for group restructurings are to be interpreted and how the taxing authorities will ultimately view the distribution. As a result, YUM’s position could be challenged by Chinese tax authorities resulting in a 10% tax assessed on the difference between the fair market value and the tax basis of the separated China business. As YUM’s tax basis in the China business is minimal, the amount of such tax could be significant.

Any tax liability arising from the application of Bulletin 7 to the distribution is expected to be settled in accordance with the tax matters agreement between the Company and YUM. Pursuant to the tax matters agreement, to the extent any Chinese indirect transfer tax pursuant to Bulletin 7 is imposed, such tax and related losses will be allocated between YUM and the Company in proportion to their respective share of the combined market capitalization of YUM and the Company during the 30 trading days after the separation. Such a settlement could be significant and have a material adverse effect on our results of operations and our financial condition. At the inception of the tax indemnity being provided to YUM, the fair value of the non-contingent obligation to stand ready to perform was insignificant and the liability for the contingent obligation to make payment was not probable or estimable.

23

Guarantees

From time to time we have guaranteed certain lines of credit and loans of franchisees and unconsolidated affiliates. As of March 31, 2019, we have provided guarantees of approximately $1 million on behalf of franchisees and no guarantees were outstanding for unconsolidated affiliates.  

Legal Proceedings

From time to time, the Company is subject to various lawsuits covering a variety of allegations. The Company believes that the ultimate liability, if any, in excess of amounts already provided for these matters in the Condensed Consolidated Financial Statements, is not likely to have a material adverse effect on the Company’s results of operations, financial condition or cash flows. Matters faced by the Company from time to time include, but are not limited to, claims from landlords, employees, customers and others related to operational, contractual or employment issues.

Note 15 – Subsequent Events

On April 29, 2019, the Company announced that the Board of Directors declared a cash dividend of $0.12 per share, payable as of the close of business on June 17, 2019 to stockholders of record as of the close of business on May 28, 2019. The total estimated cash dividend payable is approximately $46 million.

24

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

References to the Company throughout this Management’s Discussion and Analysis of Financial Condition and Results of Operations (this “MD&A”) are made using the first person notations of “we,” “us” or “our.” This MD&A contains forward-looking statements, including statements with respect to the retail tax structure reform and the potential effects thereof, our growth plans, future capital resources to fund our operations and anticipated capital expenditures, share repurchases, our ability to pay dividends and the impact of new accounting pronouncements not yet adopted. See “Cautionary Note Regarding Forward-Looking Statements” at the end of this Item 2 for information regarding forward-looking statements.

Introduction

Yum China Holdings, Inc. is the largest restaurant company in China, with over 8,600 restaurants as of March 31, 2019. Our growing restaurant base consists of China’s leading restaurant brands and concepts, primarily the KFC and Pizza Hut brands, as well as brands such as East Dawning, Little Sheep, Taco Bell and COFFii & JOY. Following our separation from YUM, we obtained the exclusive right to operate and sub-license the KFC, Pizza Hut and, subject to achieving certain agreed-upon milestones, Taco Bell brands in China, excluding Hong Kong, Taiwan and Macau (the “PRC” or “China”), and we own the intellectual property of the East Dawning, Little Sheep and COFFii & JOY concepts outright. We were the first major global restaurant brand when we entered China in 1987 and we have developed deep operating experience in the market. We have since grown to become one of China’s largest restaurant developers with locations in over 1,300 cities as of March 31, 2019.

KFC is the leading Quick-Service Restaurant (“QSR”) brand in the PRC in terms of system sales and number of restaurants. As of March 31, 2019, KFC operated over 6,000 restaurants in over 1,300 cities across China. Measured by number of restaurants, we believe KFC has an approximate two-to-one lead over the nearest Western QSR competitor in China, and KFC has continued to grow in both large and small cities. During the first quarter of 2018, the Company completed the acquisition of an additional 36% interest in an unconsolidated affiliate that operates KFC stores in Wuxi, China (“Wuxi KFC”), increasing the equity interest to 83% and allowing the Company to consolidate the entity.

Pizza Hut is the leading casual dining restaurant (“CDR”) brand in China in terms of system sales and number of restaurants. As of March 31, 2019, Pizza Hut operated over 2,200 restaurants in over 500 cities. We believe Pizza Hut has an approximate four-to-one lead in terms of number of restaurants over its nearest competitor in China.

25

Overview

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.  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.  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 non-Company-owned restaurants for which we do not receive a sales-based royalty.  Sales of franchise and unconsolidated affiliate restaurants typically generate ongoing franchise fees for the Company at a rate of approximately 6% of system sales.  Franchise and unconsolidated affiliate restaurant sales are not included in Company sales in the Condensed Consolidated Statements of Income; however, the franchise fees are included in the Company’s revenues.  We believe system sales growth is useful to investors as a significant indicator of the overall strength of our business as it incorporates all of our revenue drivers, Company and franchise same-store sales as well as net unit growth.

• Effective January 1, 2018, the Company revised its definition of same-store sales growth to represent the estimated percentage change in sales of food of all restaurants in the Company system that have been open prior to the first day of our prior fiscal year. We refer to these as our “base” stores. Previously, same-store sales growth represented the estimated percentage change in sales of all restaurants in the Company system that have been open for one year or more, and the base stores changed on a rolling basis from month to month. This revision was made to align with how management measures performance internally and focuses on trends of a more stable base of stores.

• Company Restaurant profit (“Restaurant profit”) is defined as Company sales less expenses incurred directly by our Company-owned restaurants in generating Company sales.  Company restaurant margin percentage is defined as Restaurant profit divided by Company sales.  Within the Company sales and Restaurant profit analysis, Store Portfolio Actions represent the net impact of new unit openings, acquisitions, refranchising and store closures, and Other primarily represents the impact of same-store sales as well as the impact of changes in restaurant operating costs such as inflation/deflation.

• In addition to the results provided in accordance with GAAP throughout this MD&A, the Company provides measures adjusted for Special Items, which include Adjusted Operating Profit, Adjusted Net Income, Adjusted Earnings Per Common Share, Adjusted Effective Tax Rate and Adjusted EBITDA, which we define as net income including noncontrolling interests adjusted for income tax, interest income, net, investment gain or loss, depreciation and amortization, and other items, including store impairment charges and Special Items. The Special Item for the quarter ended March 31, 2019 represents impact from the U.S. Tax Cuts and Jobs Act (the “Tax Act”). The Special Item for the quarter ended March 31, 2018 represents a gain recognized from the re-measurement of our previously held equity interest in Wuxi KFC at fair value upon acquisition, as described in Note 2. The Company excludes impact from Special Items for the purpose of evaluating performance internally. Special Items are not included in any of our segment results. In addition, the Company provides Adjusted EBITDA because we believe that investors and analysts may find it useful in measuring operating performance without regard to items such as income tax, interest income, net, investment gain or loss, depreciation and amortization, and other items, including store impairment charges and Special Items. These adjusted measures are not intended to replace the presentation of our financial results in accordance with GAAP. 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.

All Note references in this MD&A refer to the Notes to the Condensed Consolidated Financial Statements. Tabular amounts are displayed in millions of U.S. dollars except percentages and per share and unit count amounts, or as otherwise specifically identified. Percentages may not recompute due to rounding. References to quarters are references to the Company’s fiscal quarters.

26

Quarters Ended March 31, 2019 and 2018

Results of Operations

Summary

The Company has two reportable segments: KFC and Pizza Hut. Starting from the first quarter of 2019, our newly developed COFFii & JOY concept and e-commerce business became operating segments, as their financial results started being regularly reviewed by the Company’s chief operating decision maker. Accordingly, our six non-reportable operating segments, including the operations of East Dawning, Little Sheep, Taco Bell, Daojia, COFFii & JOY and our e-commerce business, are combined and referred to as All Other Segments, as those operating segments are insignificant both individually and in the aggregate. Segment financial information for prior quarters has been recast to align with this change in segment reporting. There was no impact on the consolidated financial statements of the Company as a result of this change. Additional details on our reportable operating segments are included in Note 13.

Quarterly highlights:

% Change

System Sales(a)

Same-Store Sales(a)

Net New Units

Operating Profit (Reported)

Operating Profit (Ex F/X)

KFC

+11

+5

+8

(3

)

+3

Pizza Hut

+3

+1

+2

+48

+57

All Other Segments(b)

1

(15

)

+10

+2

(3

)

Total

+9

+4

+7

(23

)

(18

)

NM refers to changes over 100%, from negative to positive amounts or from zero to an amount.

(a) System Sales and Same-Store Sales percentages as shown in tables exclude the impact of F/X.

(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.  

As of March 31, 2019, the Company operated over 8,600 units, predominately KFC and Pizza Hut restaurants, which are the leading QSR and CDR brand, respectively, in mainland China. Given our strong competitive position, a growing economy and a population of approximately 1.4 billion in mainland China, the Company has rapidly added KFC and Pizza Hut restaurants.  

As compared to the first quarter of 2018, Company sales in the first quarter of 2019 increased 4%, or 10% if excluding the impact of F/X. The increase in Company sales for the quarter, excluding the impact of F/X, was driven by net unit growth and same-store sales growth.

The increase in Restaurant profit for the quarter, excluding the impact of F/X, was driven by same-store sales growth, net unit growth, labor efficiency and less depreciation expenses, partially offset by wage inflation, higher promotion and product upgrade cost and commodity inflation.

27

The Consolidated Results of Operations for the quarters ended March 31, 2019 and 2018 are presented below:

	Quarter Ended						% B/(W) (a)
	3/31/2019			3/31/2018			Reported				Ex F/X
Company sales	$	2,089		$	2,016			4				10
Franchise fees and income		39			40			(1	)			5
Revenues from transactions with    franchisees and unconsolidated affiliates		170			161			5				12
Other revenues		6			4			55				62
Total revenues	$	2,304		$	2,221			4				10
Restaurant profit	$	386		$	361			7				14
Restaurant Margin %		18.5	%		17.9	%		0.6		ppts.		0.6		ppts.
Operating Profit	$	303		$	395			(23	)			(18	)
Interest income, net		9			8			17				24
Investment gain		10			—		NM				NM
Income tax provision		(93	)		(107	)		13				9
Net Income - including noncontrolling interests		229			296			(23	)			(17	)
Net Income - noncontrolling interests		7			8			13				7
Net Income - Yum China Holdings, Inc.	$	222		$	288			(23	)			(17	)
Diluted Earnings Per Common Share	$	0.57		$	0.72			(21	)			(15	)
Effective tax rate		28.9	%		26.6	%
Adjusted Operating Profit	$	303		$	297
Adjusted Net Income - Yum China Holdings, Inc.	$	230		$	214
Adjusted Diluted Earnings Per Common Share	$	0.59		$	0.53
Adjusted Effective Tax Rate		26.5	%		27.1	%
Adjusted EBITDA	$	428		$	417

(a) Represents period-over-period change in percentage.

Performance Metrics

	Quarter Ended
	3/31/2019			3/31/2018
System Sales Growth		3	%		15	%
System Sales Growth, excluding F/X		9	%		6	%
Same-Store Sales Growth		4	%		3	%

Unit Count	3/31/2019		3/31/2018		% Increase
Company-owned		6,974		6,563		6
Unconsolidated affiliates		834		762		9
Franchisees		845		787		7
		8,653		8,112		7

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Special Items

Special Items, along with the reconciliation to the most comparable GAAP financial measure, are presented below.

	Quarter Ended
Detail of Special Items	3/31/2019			3/31/2018
Gain from re-measurement of equity interest upon acquisition(a)	$	—		$	98
Special Items, Operating Profit		—			98
Tax Expenses on Special Items(b)		—			(24	)
Impact from the Tax Act(c)		(8	)		—
Special items, net income – including noncontrolling interests		(8	)		74
Special items, net income – noncontrolling interests		—			—
Special Items, Net income – Yum China Holdings, Inc.	$	(8	)	$	74
Weighted-average diluted shares outstanding (in millions)		388			401
Special Items, Diluted Earnings Per Common Share	$	(0.02	)	$	0.19
Reconciliation of Operating Profit to Adjusted Operating Profit
Operating Profit	$	303		$	395
Special Items, Operating Profit		—			98
Adjusted Operating Profit	$	303		$	297
Reconciliation of Net Income to Adjusted Net Income
Net Income - Yum China Holdings, Inc.	$	222		$	288
Special Items, Net Income – Yum China Holdings, Inc.		(8	)		74
Adjusted Net Income - Yum China Holdings, Inc.	$	230		$	214
Reconciliation of EPS to Adjusted EPS
Basic Earnings Per Common Share	$	0.59		$	0.75
Special Items, Basic Earnings Per Common Share		(0.02	)		0.20
Adjusted Basic Earnings Per Common Share	$	0.61		$	0.55
Diluted Earnings Per Common Share	$	0.57		$	0.72
Special Items, Diluted Earnings Per Common Share		(0.02	)		0.19
Adjusted Diluted Earnings Per Common Share	$	0.59		$	0.53
Reconciliation of Effective Tax Rate to Adjusted Effective Tax Rate
Effective tax rate (See Note 12)		28.9	%		26.6	%
Impact on effective tax rate as a result of Special Items(b)(c)		2.4	%		(0.5	)%
Adjusted effective tax rate		26.5	%		27.1	%

(a) As a result of the acquisition of Wuxi KFC in the first quarter of 2018, the Company recognized a gain of $98 million from the re-measurement of our previously held 47% equity interest at fair value, which was not allocated to any segment for performance reporting purposes. (See Note 2)

(b) The tax expense was determined based upon the nature, as well as the jurisdiction, of each Special Item at the applicable tax rate.

(c) We completed the evaluation of the impact on our transition tax computation based on the final regulations that were released by the U.S. Treasury Department and the IRS and became effective in the first quarter of 2019, and recorded an additional amount of $8 million for the transition tax accordingly.

29

Adjusted EBITDA

Net income, along with the reconciliation to Adjusted EBITDA, is presented below.

	Quarter Ended
Reconciliation of Net Income to Adjusted EBITDA	3/31/2019			3/31/2018
Net Income — Yum China Holdings, Inc.	$	222		$	288
Net Income — noncontrolling interests		7			8
Income tax provision		93			107
Interest income, net		(9	)		(8	)
Investment gain		(10	)		—
Operating Profit		303			395
Special Items, Operating Profit		—			(98	)
Adjusted Operating Profit		303			297
Depreciation and amortization		111			118
Store impairment charges		14			2
Adjusted EBITDA	$	428		$	417

Segment Results

KFC

	Quarter Ended
							% B/(W)
	3/31/2019			3/31/2018			Reported				Ex F/X
Company sales	$	1,539		$	1,444			7				13
Franchise fees and income		36			37			(3	)			3
Revenues from transactions     with franchisees and     unconsolidated affiliates		17			17			—				2
Total revenues	$	1,592		$	1,498			6				13
Restaurant profit	$	309		$	301			2				9
Restaurant margin %		20.0	%		20.9	%		(0.9	)	ppts.		(0.9	)	ppts.
G&A expenses	$	49		$	46			(5	)			(12	)
Franchise expenses	$	19		$	19			1				(5	)
Expenses for transactions     with franchisees and     unconsolidated affiliates	$	17		$	17			1				(1	)
Closures and impairment     expenses, net	$	7		$	—		NM				NM
Other income, net	$	(18	)	$	(23	)		(24	)			(19	)
Operating Profit	$	288		$	296			(3	)			3

	Quarter Ended
	3/31/2019			3/31/2018
System Sales Growth		5	%		18	%
System Sales Growth, excluding F/X		11	%		9	%
Same-Store Sales Growth		5	%		5	%

30

Unit Count	3/31/2019		3/31/2018		% Increase
Company-owned		4,732		4,353		9
Unconsolidated affiliates		834		762		9
Franchisees		512		487		5
		6,078		5,602		8

Company Sales and Restaurant Profit

The changes in Company sales and Restaurant profit were as follows:

	Quarter Ended
Income (Expense)	3/31/2018			Store Portfolio Actions			Other			F/X			3/31/2019
Company sales	$	1,444		$	128		$	64		$	(97	)	$	1,539
Cost of sales		(424	)		(41	)		(41	)		30			(476	)
Cost of labor		(293	)		(26	)		(22	)		21			(320	)
Occupancy and other     operating expenses		(426	)		(36	)		1			27			(434	)
Restaurant profit	$	301		$	25		$	2		$	(19	)	$	309

The increase in Company sales and Restaurant profit for the quarter, excluding the impact of F/X, was primarily driven by net unit growth including the acquisition of Wuxi KFC, same-store sales growth and lower depreciation expenses, partially offset by commodity inflation of 5%, higher labor costs mainly due to wage inflation of 6% and higher promotion costs.

Franchise Fees and Income

The increase in Franchise fees and income for the quarter, excluding the impact of F/X, was primarily driven by the same-store sales growth of unconsolidated affiliates and franchisees and net unit growth, partially offset by the impact of the acquisition of Wuxi KFC.

G&A Expenses

The increase in G&A expenses for the quarter, excluding the impact of F/X, was primarily driven by higher compensation costs mainly due to merit increases.

Operating Profit

The increase in Operating Profit for the quarter, excluding the impact of F/X, was primarily driven by same-store sales growth and net unit growth including the acquisition of Wuxi KFC, partially offset by higher restaurant operating costs, higher store impairment charges due to an additional impairment evaluation performed in the first quarter of 2019 as a result of adopting the new lease standard, and higher G&A expenses.

31

Pizza Hut

	Quarter Ended
							% B/(W)
	3/31/2019			3/31/2018			Reported				Ex F/X
Company sales	$	541		$	564			(4	)			2
Franchise fees and income		1			1			45				54
Revenues from transactions     with franchisees and     unconsolidated affiliates		1			—		NM				NM
Total revenues	$	543		$	565			(4	)			2
Restaurant profit	$	77		$	60			31				39
Restaurant margin %		14.3	%		10.5	%		3.8		ppts.		3.8		ppts.
G&A expenses	$	24		$	28			14				9
Franchise expenses	$	1		$	1			(50	)			(59	)
Expenses for transactions     with franchisees and     unconsolidated affiliates	$	1		$	—		NM				NM
Closures and impairment     expenses, net	$	3		$	(1	)	NM				NM
Other income, net	$	—		$	(1	)		(100	)			(100	)
Operating Profit	$	50		$	34			48				57

	Quarter Ended
	3/31/2019			3/31/2018
System Sales (Decline) Growth		(3	)%		7	%
System Sales Growth (Decline), excluding F/X		3	%		(1	)%
Same-Store Sales Growth (Decline)		1	%		(5	)%

Unit Count	3/31/2019		3/31/2018		% Increase
Company-owned		2,190		2,183		—
Franchisees		59		31		90
		2,249		2,214		2

Company Sales and Restaurant Profit

The changes in Company sales and Restaurant profit were as follows:

	Quarter Ended
Income (Expense)	3/31/2018			Store Portfolio Actions			Other			F/X			3/31/2019
Company sales	$	564		$	5		$	6		$	(34	)	$	541
Cost of sales		(167	)		(1	)		(1	)		10			(159	)
Cost of labor		(147	)		—			(4	)		8			(143	)
Occupancy and other     operating expenses		(190	)		—			18			10			(162	)
Restaurant profit	$	60		$	4		$	19		$	(6	)	$	77

32

The increase in Company sales and Restaurant profit for the quarter, excluding the impact of F/X, was primarily driven by same-store sales growth, net unit growth, labor efficiency, lower depreciation expenses and commodity deflation, partially offset by higher labor costs mainly attributable to wage inflation of 5%, and higher promotion and product upgrade costs.

G&A Expenses

The decrease in G&A expenses for the quarter, excluding the impact of F/X, was primarily driven by lower cost allocation reflecting reduced development activities, and higher government incentives received.

Operating Profit

The increase in Operating Profit for the quarter, excluding the impact of F/X, was primarily driven by same-store sales growth, net unit growth, lower restaurant operating costs and lower G&A expenses, partially offset by higher store impairment charges due to an additional impairment evaluation performed in the first quarter of 2019 as a result of adopting the new lease standard.

All Other Segments

All Other Segments includes East Dawning, Little Sheep, Taco Bell, Daojia, COFFii & JOY and our e-commerce business.

	Quarter Ended
							% B/(W)
	3/31/2019			3/31/2018			Reported				Ex F/X
Company sales	$	9		$	8			3				9
Franchise fees and income		2			2			29				36
Revenues from transactions     with franchisees and     unconsolidated affiliates		7			7			4				11
Other revenues		14			4		NM				NM
Total revenues	$	32		$	21			50				59
Restaurant profit	$	(1	)	$	—		NM				NM
Restaurant margin %		(5.6	)%		1.7	%		(7.3	)	ppts.		(7.3	)	ppts.
G&A expenses	$	8		$	7			(7	)			(13	)
Expenses for transactions     with franchisees and     unconsolidated affiliates	$	6		$	6			(9	)			(16	)
Other operating costs and expenses	$	12		$	4		NM				NM
Closures and impairment expenses, net	$	1		$	—		NM				NM
Operating Loss	$	(5	)	$	(4	)		2				(3	)

	Quarter Ended
	3/31/2019			3/31/2018
Same-Store Sales Decline		(15	)%		(5	)%

33

The increase in Company sales for the quarter, excluding the impact of F/X, was primarily driven by the launch of our e-commerce business and COFFii & JOY, partially offset by the decrease in Company sales of Little Sheep.

The increase in Other revenue for the quarter, excluding the impact of F/X, was primarily driven by inter-segment revenue generated from our e-commerce business and Daojia.

The increase in G&A expenses for the quarter, excluding the impact of F/X, was mainly due to G&A expenses incurred by COFFii & JOY, which was launched in the second half of 2018.

Corporate and Unallocated

	Quarter Ended
							% B/(W)
	3/31/2019			3/31/2018			Reported			Ex F/X
Revenues from transactions     with franchisees and     unconsolidated affiliates	$	145		$	137			6			13
Other revenue		1			1			71			83
Expenses for transactions     with franchisees and     unconsolidated affiliates		143			137			(5	)		(12	)
Other operating costs and expenses		1			1			(24	)		(33	)
Corporate G&A expenses		33			33			(1	)		(6	)
Other unallocated income (See Note 13)		(1	)		(102	)		(100	)		(100	)
Interest income, net		9			8			17			24
Investment gain		10			—		NM			NM
Income tax provision (See Note 12)		(93	)		(107	)		13			9
Effective tax rate (See Note 12)		28.9	%		26.6	%		(2.3	)%		(2.3	)%

Revenues from Transactions with Franchisees and Unconsolidated Affiliates

The increase in Revenues from transactions with franchisees and unconsolidated affiliates for the quarter, excluding the impact of F/X, was mainly driven by system sales growth of franchisees and unconsolidated affiliates and an increase in the selling prices of food and paper products due to commodity inflation, partially offset by the impact from the acquisition of Wuxi KFC.

G&A Expenses

The increase in Corporate G&A expenses for the quarter, excluding the impact of F/X, was mainly driven by lower government incentives received.

Other Unallocated Income

The decrease in Other unallocated income for the quarter, excluding the impact of F/X, was primarily due to a gain of $98 million recognized from the re-measurement of our previously held equity interest in Wuxi KFC at fair value upon acquisition in the first quarter of 2018.

Interest and Other Income, Net

The increase in interest income, net was mainly driven by higher returns on balances of short-term investments and cash equivalents which mainly include time deposits.

Investment Gain

The Investment gain represents the unrealized gain of $10 million related to investment in equity securities of Meituan Dianping (“Meituan”). See Note 6.

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Income Tax Provision

Our income tax provision includes tax on our earnings at the Chinese statutory tax rate of 25%, withholding tax on repatriation of earnings outside of China and U.S. corporate income tax, if any. Our effective tax rate was 28.9% and 26.6% for the quarters ended March 31, 2019 and 2018, respectively. The higher effective tax rate for the quarter was primarily due to an adjustment of transition tax based on the final regulations that were released by the U.S. Treasury Department and the IRS and became effective in the first quarter of 2019.

Significant Known Events, Trends or Uncertainties Expected to Impact Future Results

Tax Examination on Transfer Pricing

We are subject to reviews, examinations and audits by Chinese tax authorities, the IRS and other taxing authorities with respect to income and non-income based taxes. Currently we are under a national audit on transfer pricing by the SAT in China regarding our related party transactions for the period from 2006 to 2015. It is reasonably possible that there could be significant developments within the next 12 months. The ultimate assessment will depend upon further review of the information provided and ongoing discussions with the SAT and in-charge local tax authorities, and therefore it is not possible to reasonably estimate the potential impact. We will continue to defend our transfer pricing position. However, if the SAT 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.

PRC Value-Added Tax (“VAT”)

Effective May 1, 2016, the Chinese government implemented reform to its retail tax structure, which is intended to be a progressive and positive shift to more closely align with a more modern service-based economy. Under this reform, a 6% output value-added tax (“VAT”) replaced the 5% business tax (“BT”) previously applied to certain restaurant sales. VAT was imposed on goods and services at the rates of 17%, 13%, 11% and 6%. Input VAT would be creditable to the aforementioned 6% output VAT. Effective from July 1, 2017, the 13% VAT rate primarily applicable to certain agricultural products was reduced to 11%. Effective from May 1, 2018, the VAT rates of 17% and 11% were lowered to 16% and 10%, respectively. Effective from April 1, 2019, the VAT rates of 16% and 10% were further lowered to 13% and 9%, respectively. These rate changes impact our input VAT on all materials and certain services, mainly including construction, transportation and leasing. However, the impact on our operating results is not expected to be significant.

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. When the output VAT exceeds the input VAT, the difference is remitted to tax authorities, usually on a monthly basis; whereas when the input VAT exceeds the output VAT, the difference is treated as an input VAT credit asset which can be carried forward indefinitely to offset future net VAT payables. VAT related to purchases and sales which have not been settled at the balance sheet date is disclosed separately as an asset and liability, respectively, on the Condensed Consolidated Balance Sheets. At each balance sheet date, the Company reviews the outstanding balance of any input VAT credit asset for recoverability based on its forecasted operating results. We evaluate the recoverability of the net VAT credit asset based on our estimated operating results and capital spending, which inherently includes significant assumptions that are subject to change.  

As of March 31, 2019, an input VAT credit asset of $249 million and payable of $6 million were recorded in Other assets and Accounts payable and other current liabilities, respectively, on the Condensed Consolidated Balance Sheets. The Company has not made an allowance for the recoverability of the input VAT credit asset, as the balance is expected to be utilized to offset against VAT payables more than one year from March 31, 2019. Any input VAT credit asset would be classified as Prepaid expenses and other current assets if the Company expected to use the credit within one year.

We have been benefiting from the retail tax structure reform since it was implemented on May 1, 2016. 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, the timetable for enacting the prevailing VAT regulations into national VAT law, including ultimate enacted VAT rates, 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.

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Foreign Currency Exchange Rate

The reporting currency of the Company is the US$. Most of the revenues, costs, assets and liabilities of the Company are denominated in Chinese Renminbi (“RMB”). Any significant change in the exchange rate between US$ 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 3. Quantitative and Qualitative Disclosures About Market Risk” for further discussion.

Consolidated Cash Flows

Our cash flows for the quarters ended March 31, 2019 and 2018 were as follows:

Net cash provided by operating activities was $344 million in 2019 as compared to $551 million in 2018. The decrease was primarily driven by timing of payments for inventory.

Net cash used in investing activities was $267 million in both 2019 and 2018, which is mainly due to higher cash outflow related to short-term investment activities in 2019, lapping cash outflow in 2018 related to the acquisition of Wuxi KFC.

Net cash used in financing activities was $113 million in 2019 as compared to $51 million in 2018.  The increase was primarily driven by share repurchases in 2019, while no shares were repurchased in the quarter ended March 31, 2018.

Liquidity and Capital Resources

Historically we have funded our operations through cash generated from the operation of our Company-owned stores and from our franchise operations and dividend payments from our unconsolidated affiliates.

Our ability to fund our future operations and capital needs will depend on our ongoing ability to generate cash from operations. We believe our principal uses of cash in the future will be primarily to fund our operations and to make capital expenditures, distributions to our stockholders and share repurchases as well as any acquisition or investment we may make. We believe that our future cash from operations, together with our access to funds on hand and capital markets, will provide adequate resources to fund these uses of cash and that our existing cash and net cash from operations will be sufficient to fund our operations and anticipated capital expenditures for the next 12 months.  

If our cash flows from operations are less than we require, we may need to access the capital markets to obtain financing. Our access to, and the availability of, financing on acceptable terms and conditions in the future or at all will be impacted by many factors, including, but not limited to:

• our financial performance;

• our credit ratings or absence of a credit rating;

• the liquidity of the overall capital markets; and

• the state of the Chinese, U.S. and global economies.

There can be no assurance, particularly as a relatively new company that currently has no credit rating, that we will have access to the capital markets on terms acceptable to us or at all.

Generally our income is subject to the Chinese statutory tax rate of 25%. However, to the extent our cash flows from operations exceed our China cash requirements, the excess cash may be subject to an additional 10% withholding tax levied by the Chinese tax authority, subject to any reduction or exemption set forth in relevant tax treaties or tax arrangements.

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Dividends and Share Repurchases

On February 7, 2017, we announced that our Board of Directors authorized a $300 million share repurchase program. On October 4, 2017, the Board of Directors increased Yum China’s share repurchase authorization from $300 million to an aggregate of $550 million. On October 30, 2018, the Board of Directors further increased the share repurchase authorization to an aggregate of $1.4 billion. Yum China may repurchase shares under this program from time to time in open market or privately negotiated transactions, including block trades, accelerated share repurchase transactions and the use of Rule 10b5-1 trading plans. During the quarter ended March 31, 2019, the Company repurchased $65 million, or 1.7 million shares, of common stock under the repurchase program.The Company did not repurchase any shares of common stock under the repurchase program for the quarter ended March 31, 2018.

For the quarters ended March 31, 2019 and 2018, we paid cash dividends of approximately $46 million and $39 million, respectively, to our stockholders through quarterly dividend payments of $0.12 and $0.10 per share, respectively.

On April 29, 2019, the Board of Directors declared a cash dividend of $0.12 per share, payable as of the close of business on June 17, 2019 to stockholders of record as of the close of business on May 28, 2019. The total estimated cash dividend payable is approximately $46 million.

Our ability to declare and pay any dividends on our stock may be restricted by applicable Chinese laws. The laws, rules and regulations applicable to our Chinese subsidiaries permit payments of dividends only out of their accumulated profits, if any, determined in accordance with applicable Chinese accounting standards and regulations. 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. As a result, our Chinese subsidiaries are restricted in their ability to transfer a portion of their net assets to us in the form of 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. These reserve funds and staff welfare and bonus funds are not distributable as cash dividends.

Borrowing Capacity

As of March 31, 2019, the Company had credit facilities of RMB 2,842 million (approximately $423 million), comprised of onshore credit facilities of RMB1,500 million (approximately $223 million) in the aggregate and offshore credit facilities of $200 million in the aggregate.

The credit facilities had remaining terms of one year or less as of March 31, 2019. Each credit facility bears interest based on the prevailing rate stipulated by the People’s Bank of China or London Interbank Offered Rate (LIBOR) administered by the ICE Benchmark Administration. 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 including, among other things, limitations on certain additional indebtedness and liens, and certain other transactions specified in the respective agreement. Some of the onshore credit facilities contain sublimits for overdrafts, non-financial bonding, standby letters of credit and guarantees. As of March 31, 2019, we had outstanding bank guarantees of RMB 68 million (approximately $10 million) to secure our lease payment to landlords for certain Company-owned restaurants. The borrowing capacity under the credit facilities was therefore reduced by the same amount, while there were no borrowings outstanding as of March 31, 2019.

Off-Balance Sheet Arrangements

See the Guarantees section of Note 14 for discussion of our off-balance sheet arrangements.

New Accounting Pronouncements

Recently Adopted Accounting Pronouncements

See Note 2 for details of recently adopted accounting pronouncements.

New Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires measurement and recognition of expected versus incurred credit losses for

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financial assets held. In November 2018, the FASB issued ASU 2018-19: Codification Improvements to Topic 326, Financial Instruments-Credit Losses to clarify the implementation guidance. ASU 2016-13 is effective for the Company from January 1, 2020, with early adoption permitted. The adoption of this standard may result in a change of our provision policy primarily for accounts receivable, and we are currently evaluating the impact the adoption of this standard will have on our financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which amended the fair value measurement guidance by modifying the disclosure requirements. ASU 2018-13 is effective for the Company from January 1, 2020, with early adoption permitted. We are currently evaluating the impact the adoption of this standard will have on our financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”), which aligns the requirements for capitalizing implementation costs in a cloud computing arrangement service contract with those for an internal-use software license. ASU 2018-15 is effective for the Company from January 1, 2020, with early adoption permitted. We are currently evaluating the impact the adoption of this standard will have on our financial statements.

In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements  (Topic 808), Clarifying the Interaction between Topic 808 and Topic 606 (ASU 2018-18) (“ASU 2018-18”), which clarifies that transactions in a collaborative arrangement should be accounted for under ASC 606 when the counterparty is a customer for a distinct good or service. The amendment also precludes an entity from presenting consideration from a transaction in a collaborative arrangement as revenue if the counterparty is not a customer for that transaction. ASU 2018-18 is effective for the Company from January 1, 2020, with early adoption permitted. We are currently evaluating the impact the adoption of this standard will have on our financial statements.

Cautionary Note Regarding Forward-Looking Statements

Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts.  These statements often include words such as “may,” “will,” “estimate,” “intend,” “seek,” “expect,” “project,” “anticipate,” “believe,” “plan,” “could,” “target,” “predict,” “likely,” “should,” “forecast,” “outlook,” “model,” “continue,” “ongoing” or other similar terminology.  Forward-looking statements are based on our expectations, estimates, assumptions or projections concerning future results or events as of the date of the filing of this Form 10-Q.  Forward-looking statements are neither predictions nor guarantees of future events, circumstances or performance and are inherently subject to known and unknown risks, uncertainties and assumptions that could cause our actual results and events to differ materially from those indicated by those statements.  We cannot assure you that any of our assumptions are correct or any of our expectations, estimates or projections will be achieved.  Numerous factors could cause our actual results to differ materially from those expressed or implied by forward-looking statements, including, without limitation, the following:

• Risks related to our business and industry, such as (a) food safety and food-borne illness concerns, (b) significant failure to maintain effective quality control 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 diseases, (e) the fact that we derive substantially all of our revenue from our operations in China, (f) the fact that the operation of our restaurants is subject to the terms of the master license agreement with YUM, (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 and other supplies, (i) fluctuation of raw materials prices, (j) our inability to attain our target development goals and the potential cannibalization of existing sales by aggressive development, (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, delivery aggregators, internet infrastructure operators and internet service providers, (s) failure to provide timely and reliable delivery services by our restaurants, (t) our growth strategy with respect to COFFii & JOY may not be successful, (u) challenges and risks related to our new e-commerce business; (v) the anticipated benefits of the acquisition of Daojia may not be realized in a timely manner or at all, (w) the Chinese government may determine that the VIE structure of Daojia does not comply with Chinese laws on foreign investment in restricted industries, (x) our inability or failure to recognize, respond to and effectively manage the accelerated impact of social media, (y) litigation and failure to comply with anti-bribery or anti-corruption laws, (z) U.S. federal income taxes, changes in tax rates, disagreements with taxing authorities and imposition of new taxes, (aa) changes in consumer discretionary spending and general economic conditions, (bb) competition in the retail food industry, (cc) loss 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) YUM’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) changes in accounting standards and subjective assumptions, estimates and judgments by management related to complex accounting matters, (ii) failure of our insurance policies to provide adequate coverage for claims associated with our business operations, (jj) failure by us to

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maintain effective disclosure controls and procedures and internal control over financial reporting in accordance with the rules of the SEC and (kk) unforeseeable business interruptions;

• Risks related to doing business in China, such as (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, (c) changes in trade relations between the United States and China, including the imposition of new or higher taxes on goods imported from the United States, (d) fluctuation in the value of the Chinese Renminbi, (e) limitations on our ability to utilize our cash balances effectively due to governmental control of currency conversion and payments of foreign currency, (f) changes in laws and regulations, (g) reliance on distributions by our operating subsidiaries in China to fund offshore cash requirements, (h) potential unfavorable tax consequences resulting from our classification as a China resident enterprise for Chinese enterprise income tax purposes, (i) uncertainty regarding indirect transfers of equity interests and enhanced scrutiny by Chinese tax authorities, (j) difficulties in effecting service of legal process, enforcing foreign judgments or bringing original actions in China against us, (k) inability to use properties due to defects caused by non-registration of lease agreements related to certain properties, (l) risk in relation to unexpected land acquisitions, building closures or demolitions, (m) potential fines for failure to comply with law and (n) 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;

• Risks related to the separation and related transactions, such as (a) not achieving all of the anticipated benefits, (b) 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, (c) 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, (d) limitations on our ability to engage in strategic transactions as a result of the separation, (e) our inability to satisfy financial reporting and other requirements to which we are subject as an independent publicly traded company, (f) limited experience of our management in managing a public company, (g) inability to access capital markets on acceptable terms, (h) increased administrative and other costs incurred by virtue of our status as an independent public company, (i) limitations on our ability to compete with YUM and other restrictions on our operations contained in the master license agreement, (j) failure by YUM to perform its obligations under the transaction agreements that we entered into with it as part of the separation, (k) potential indemnification liabilities owing to YUM pursuant to the separation and distribution agreement and there being no assurance that the indemnity provided by YUM with respect to certain liabilities in connection with the separation will be sufficient to insure us against the full amount of such liabilities, (l) the possibility that a court would require that we assume responsibility for obligations allocated to YUM under the separation and distribution agreement, (m) potential liabilities due to fraudulent transfer considerations and (n) actual or potential conflicts of interest of certain of our executive officers and directors because of their previous positions at YUM.

In addition, other risks and uncertainties not presently known to us or that we currently believe to be immaterial could affect the accuracy of any such forward-looking statements. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. You should consult our filings with the Securities and Exchange Commission (including the information set forth under the captions “Forward-Looking Statements” and “Risk Factors” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018) for additional information regarding factors that could affect our financial and other results. You should not place undue reliance on forward-looking statements, which speak only as of the date of the filing of this Form 10-Q. We are not undertaking to update any of these statements, except as required by law.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Foreign Currency Exchange Rate Risk

Changes in foreign currency exchange rates impact the translation of our reported foreign currency denominated earnings, cash flows and net investments in foreign operations, virtually all of which are denominated in RMB. While 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 the corresponding local currencies when practical, to minimize the related foreign currency exposure with immaterial impact on our financial statements.  

As substantially all of the Company’s assets are located in China, the Company is exposed to movements in the RMB foreign currency exchange rate. For the quarter ended March 31, 2019, the Company’s Operating Profit would have decreased approximately $28 million if the RMB weakened 10% relative to the US$. This estimated reduction assumes no changes in sales volumes or local currency sales or input prices.

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Commodity Price Risk

We are subject to volatility in food costs as a result of market risks associated with commodity prices. Our ability to recover increased costs through higher pricing is, at times, limited by the competitive environment in which we operate. We manage our exposure to this risk primarily through pricing agreements with our vendors.

Investment Risk

In September 2018, we invested $74 million in Meituan’s ordinary shares. The equity investment is recorded at fair value, which is measured on a recurring basis and is subject to market price volatility. See Note 6 for further discussion on our investment in Meituan.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 as of the end of the period covered by this report.  Based on the evaluation, performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (the “CEO”) and the Chief Financial Officer (the “CFO”), the Company’s management, including the CEO and the CFO, concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in Internal Control Over Financial Reporting

There were no changes with respect to the Company’s internal control over financial reporting or in other factors that materially affected, or are reasonably likely to materially affect, internal control over financial reporting during the quarter ended March 31, 2019.

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PART II – Other Information

Item 1. Legal Proceedings

Information regarding legal proceedings is incorporated by reference from Note 14 to the Company’s Condensed Consolidated Financial Statements set forth in Part I of this report.

Item 1A. Risk Factors

We face a variety of risks that are inherent in our business and our industry, including operational, legal and regulatory risks.  Such risks could cause our actual results to differ materially from our forward-looking statements, expectations and historical trends.  There have been no material changes from the risk factors disclosed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018, which was filed with the SEC on February 27, 2019.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On February 7, 2017, we announced that our Board of Directors authorized a $300 million share repurchase program. On October 4, 2017, the Board of Directors increased Yum China’s share repurchase authorization from $300 million to an aggregate of $550 million.

On October 30, 2018, the Board of Directors further increased the share repurchase authorization to an aggregate of $1.4 billion. The authorizations do not have an expiration date.

The following table provides information as of March 31, 2019 with respect to shares of Yum China common stock repurchased by the Company during the quarter then ended:

Period	Total Number of Shares Repurchased (thousands)		Average Price Paid Per Share		Total Number of Shares Repurchased as Part of Publicly Announced Plans or Programs (thousands)		Approximate Dollar Value of Shares that May Yet Be Repurchased under the Plans or Programs (millions)
1/1/19-1/31/19		896	$	34.24		896	$	929
2/1/19-2/28/19		314	$	41.44		314	$	916
3/1/19-3/31/19		497	$	42.28		497	$	895
Total		1,707	$	37.90		1,707	$	895

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Item 6. Exhibits

Exhibit Number	Description of Exhibits
3.1	Amended and Restated Certificate of Incorporation of Yum China Holdings, Inc. (incorporated by reference to Exhibit 3.1 to Yum China Holdings, Inc.’s Current Report on Form 8-K filed on November 1, 2016).
3.2	Amended and Restated Bylaws of Yum China Holdings, Inc. (incorporated by reference to Exhibit 3.2 to Yum China Holdings, Inc.’s Current Report on Form 8-K filed on November 1, 2016).
10.1	Term Employment Agreement, dated as of March 22, 2019, by and between Yum China Holdings, Inc. and Shella Ng (incorporated by reference to Exhibit 10.1 to Yum China Holdings, Inc.’s Current Report on Form 8-K filed on March 22, 2019).
31.1	Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2	Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
32.2	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
101.INS	XBRL Instance Document *
101.SCH	XBRL Taxonomy Extension Schema Document  *
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document  *
101.LAB	XBRL Taxonomy Extension Label Linkbase Document  *
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document  *
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document  *

*Filed or furnished herewith.

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SIGNATURES

Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Yum China Holdings, Inc.

(Registrant)

Date:	May 10, 2019	/s/  Xueling Lu
		Controller and Principal Accounting Officer

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EX-31.1

Exhibit 31.1

CERTIFICATION

I, Joey Wat, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Yum China Holdings, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant, as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 10, 2019	/s/ Joey Wat
	Joey Wat Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Jacky Lo, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Yum China Holdings, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant, as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 10, 2019	/s/ Jacky Lo
	Jacky Lo Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Yum China Holdings, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Periodic Report”), I, Joey Wat, Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Periodic Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 10, 2019	/s/ Joey Wat
	Joey Wat Chief Executive Officer

A signed original of this written statement required by Section 906 has been provided to Yum China Holdings, Inc. and will be retained by Yum China Holdings, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Yum China Holdings, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Periodic Report”), I, Jacky Lo, Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Periodic Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 10, 2019	/s/ Jacky Lo
	Jacky Lo Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to Yum China Holdings, Inc. and will be retained by Yum China Holdings, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

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Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2019	May 03, 2019
Document And Entity Information [Abstract]
Entity Registrant Name	Yum China Holdings, Inc.
Entity Central Index Key	0001673358
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q1
Document Type	10-Q
Trading Symbol	YUMC
Amendment Flag	false
Entity Small Business	false
Entity Emerging Growth Company	false
Document Period End Date	Mar. 31, 2019
Entity Common Stock Shares Outstanding		378,250,599

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Condensed Consolidated Statements of Income (Unaudited) - USD ($) shares in Millions, $ in Millions		3 Months Ended
		Mar. 31, 2019	Mar. 31, 2018
Revenues
Total revenues		$ 2,304	$ 2,221
Costs and Expenses, Net
General and administrative expenses		114	114
Other operating costs and expenses		5	4
Closures and impairment expenses (income), net		11	(1)
Other income, net		(19)	(126)
Total costs and expenses, net		2,001	1,826
Operating Profit		303	395
Interest income, net	[1]	9	8
Investment gain	[1]	10
Income Before Income Taxes		322	403
Income tax provision		(93)	(107)
Net income – including noncontrolling interests		229	296
Net income – noncontrolling interests		7	8
Net Income – Yum China Holdings, Inc.		$ 222	$ 288
Weighted-average common shares outstanding (in millions):
Basic	[2]	379	386
Diluted		388	401
Basic Earnings Per Common Share		$ 0.59	$ 0.75
Diluted Earnings Per Common Share		0.57	0.72
Cash Dividends Declared Per Common Share		$ 0.12	$ 0.10
Company Sales [Member]
Revenues
Revenues		$ 2,089	$ 2,016
Franchise [Member]
Revenues
Revenues		39	40
Costs and Expenses, Net
Cost of goods and services sold		20	20
Transactions With Franchisees and Unconsolidated Affiliates [Member]
Revenues
Revenues		170	161
Costs and Expenses, Net
Cost of goods and services sold		167	160
Other Revenues [Member]
Revenues
Revenues		6	4
Company Restaurant Expenses [Member]
Costs and Expenses, Net
Food and paper		638	594
Payroll and employee benefits		466	442
Occupancy and other operating expenses		599	619
Cost of goods and services sold		$ 1,703	$ 1,655

[1] Amounts have not been allocated to any segment for performance reporting purposes.

[2] As a result of the separation, shares of Yum China common stock were distributed to YUM’s shareholders of record as of October 19, 2016 and included in the calculated weighted-average common shares outstanding. Holders of outstanding YUM equity awards generally received both adjusted YUM awards and Yum China awards, or adjusted awards on shares of common stock of either YUM or Yum China in their entirety. Any subsequent exercise of these awards, whether held by the Company’s employees or YUM’s employees, would increase the number of common shares outstanding. The outstanding equity awards are included in the computation of diluted EPS, if there is dilutive effect.

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Condensed Consolidated Statements of Comprehensive Income (Unaudited) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Statement Of Income And Comprehensive Income [Abstract]
Net income - including noncontrolling interests	$ 229	$ 296
Other comprehensive income, net of tax of nil:
Foreign currency translation adjustments	59	90
Comprehensive income - including noncontrolling interests	288	386
Comprehensive income - noncontrolling interests	10	11
Comprehensive Income - Yum China Holdings, Inc.	$ 278	$ 375

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Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Millions		3 Months Ended
		Mar. 31, 2019	Mar. 31, 2018
Cash Flows – Operating Activities
Net income - including noncontrolling interests		$ 229	$ 296
Depreciation and amortization		111	118
Amortization of operating lease right-of-use assets		83
Closures and impairment expenses (income)		11	(1)
Gain from re-measurement of equity interest upon acquisition	[1]		(98)
Investment gain	[2]	(10)
Equity income from investments in unconsolidated affiliates		(23)	(23)
Distributions of income received from unconsolidated affiliates		28	36
Deferred income taxes		6	23
Share-based compensation expense		6	6
Changes in accounts receivable		5	11
Changes in inventories		34	48
Changes in prepaid expenses and other current assets		(3)	(7)
Changes in accounts payable and other current liabilities		(39)	85
Changes in income taxes payable		24	63
Changes in non-current operating lease liabilities		(103)
Other, net		(15)	(6)
Net Cash Provided by Operating Activities		344	551
Cash Flows – Investing Activities
Capital spending		(110)	(111)
Purchases of short-term investments		(235)	(160)
Maturities of short-term investments		76	93
Acquisition of business, net of cash acquired			(88)
Other, net		2	(1)
Net Cash Used in Investing Activities		(267)	(267)
Cash Flows – Financing Activities
Repayment of short-term borrowings assumed from acquisition			(10)
Repurchase of shares of common stock		(68)
Cash dividends paid on common stock		(46)	(39)
Other, net		1	(2)
Net Cash Used in Financing Activities		(113)	(51)
Effect of Exchange Rates on Cash and Cash Equivalents		17	26
Net (Decrease) Increase in Cash and Cash Equivalents		(19)	259
Cash and Cash Equivalents - Beginning of Period		1,266	1,059
Cash and Cash Equivalents - End of Period		1,247	1,318
Supplemental Cash Flow Data
Cash paid for income tax		$ 53	$ 20

[1] As a result of the acquisition of Wuxi KFC in the first quarter of 2018, as disclosed in Note 2, the Company recognized a gain of $98 million from the re-measurement of our previously held 47% equity interest at fair value, which was not allocated to any segment for performance reporting purposes.

[2] Amounts have not been allocated to any segment for performance reporting purposes.

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Condensed Consolidated Balance Sheets (Unaudited) - USD ($) $ in Millions	Mar. 31, 2019	Dec. 31, 2018	Mar. 31, 2018	Dec. 31, 2017
Current Assets
Cash and cash equivalents	$ 1,247	$ 1,266	$ 1,318	$ 1,059
Short-term investments	284	122
Accounts receivable, net	77	80
Inventories, net	280	307
Prepaid expenses and other current assets	179	177
Total Current Assets	2,067	1,952
Property, plant and equipment, net	1,620	1,615
Operating lease right-of-use assets	2,016
Goodwill	273	266
Intangible assets, net	111	116
Deferred income taxes	104	89
Investments in unconsolidated affiliates	44	81
Other assets	527	491
Total Assets	6,762	4,610	$ 4,610
Current Liabilities
Accounts payable and other current liabilities	1,507	1,199
Income taxes payable	80	54
Total Current Liabilities	1,587	1,253
Non-current operating lease liabilities	1,869
Non-current finance lease liabilities	23	25
Other liabilities	220	355
Total Liabilities	3,699	1,633
Redeemable Noncontrolling Interest	1	1
Equity
Common stock, $0.01 par value; 1,000 million shares authorized; 394 million shares and 392 million shares issued at March 31, 2019 and December 31, 2018, respectively; 379 million shares and 379 million shares outstanding at March 31, 2019 and December 31, 2018, respectively	4	4
Treasury stock	(525)	(460)
Additional paid-in capital	2,408	2,402
Retained earnings	1,060	944
Accumulated other comprehensive income (loss)	39	(17)
Total Equity – Yum China Holdings, Inc.	2,986	2,873
Noncontrolling interests	76	103
Total Equity	3,062	2,976
Total Liabilities, Redeemable Noncontrolling Interest and Equity	$ 6,762	$ 4,610

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Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - $ / shares	Mar. 31, 2019	Dec. 31, 2018
Statement Of Financial Position [Abstract]
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	1,000,000,000	1,000,000,000
Common stock, shares issued	394,000,000	392,000,000
Common stock, shares outstanding	379,000,000	379,000,000

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Description of the Business

3 Months Ended

Mar. 31, 2019

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Description of the Business

Note 1 – Description of the Business

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

The Company owns, franchises or has an ownership in entities that own and operate restaurants under the KFC, Pizza Hut, East Dawning, Little Sheep, Taco Bell and COFFii & JOY concepts (collectively, the “Concepts”). In connection with the separation of the Company from YUM, Yum! Restaurants Asia Pte. Ltd., a wholly-owned indirect subsidiary of YUM, and Yum Restaurants Consulting (Shanghai) Company Limited (“YCCL”), a wholly-owned indirect subsidiary of Yum China, entered into a 50-year master license agreement with automatic renewals for additional consecutive renewal terms of 50 years each, subject only to YCCL being in “good standing” and unless YCCL gives notice of its intent not to renew, for the exclusive right to use and sub-license the use of intellectual property owned by YUM and its subsidiaries for the development and operation of the KFC, Pizza Hut and, subject to achieving certain agreed-upon milestones, Taco Bell brands and their related marks and other intellectual property rights for restaurant services in the People’s Republic of China (the “PRC” or “China”), excluding Hong Kong, Taiwan and Macau. In exchange, we pay a license fee to YUM equal to 3% of net system sales from both our Company and franchise restaurants.

We own the intellectual property of East Dawning, Little Sheep, and COFFii & JOY and pay no license fee related to these Concepts.

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

In addition, the Company started a new e-commerce business in 2017, offering a wide selection of products including electronics, home and kitchen accessories, and other general merchandise to customers directly through the Company’s e-commerce platform.

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Basis of Presentation

3 Months Ended

Mar. 31, 2019

Accounting Policies [Abstract]

Basis of Presentation

Note 2 – Basis of Presentation

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

We have prepared the Condensed Consolidated Financial Statements in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The Condensed Consolidated Financial Statements include all normal and recurring adjustments considered necessary to present fairly our financial position as of March 31, 2019, and the results of our operations, comprehensive income and cash flows for the quarters ended March 31, 2019 and 2018. Our results of operations, comprehensive income and cash flows for these interim periods are not necessarily indicative of the results to be expected for the full year. These statements should be read in conjunction with the consolidated financial statements and notes thereto defined and included in the Company’s Annual Report on Form 10-K as filed with the SEC on February 27, 2019.

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

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

Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) (“ASU 2016-02” or “ASC 842”), which increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The FASB subsequently issued amendments to clarify the implementation guidance. The Company adopted these standards on January 1, 2019, using a modified retrospective method for leases that exist at, or are entered into after, January 1, 2019, and has not recast the comparative periods presented in the Condensed Consolidated Financial Statements. Additionally, we elected the package of practical expedients that allowed us to not reassess: (1) whether any expired or existing contracts are or contain leases, (2) lease classification for any expired or existing leases and (3) initial direct costs for any expired or existing leases. We also elected the hindsight practical expedient to determine the reasonably certain lease term for existing leases.

Upon the adoption of ASC 842, the Company recognized right-of-use assets and lease liabilities of approximately $2.0 billion and $2.2 billion, respectively, for operating leases of the land and/or building of our restaurants and office spaces based on the present value of lease payments over the lease term. In addition, an impairment charge of $60 million (net of related impact on deferred taxes and noncontrolling interests) on right-of-use assets arising from existing operating leases as of January 1, 2019 was recorded as an adjustment to retained earnings, as the additional impairment charge would have been recorded before adoption had the operating lease right-of-use assets been recognized at the time of impairment.

The following table summarizes the effect on the Consolidated Balance Sheet as a result of adopting ASC 842.

	December 31, 2018			Effect of adoption				January 1, 2019
ASSETS
Current Assets
Cash and cash equivalents	$	1,266						$	1,266
Short-term investments		122							122
Accounts receivable, net		80							80
Inventories, net		307							307
Prepaid expenses and other current assets		177			(39	)	(a)		138
Total Current Assets		1,952			(39	)			1,913
Property, plant and equipment, net		1,615			(1	)			1,614
Operating lease right-of-use assets		—			1,997		(b)		1,997
Goodwill		266							266
Intangible assets, net		116			(2	)	(c)		114
Deferred income taxes		89			19		(d)		108
Investments in unconsolidated affiliates		81			(1	)			80
Other assets		491			(4	)	(c)		487
Total Assets	$	4,610		$	1,969			$	6,579
LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND EQUITY
Current Liabilities
Accounts payable and other current liabilities	$	1,199		$	320		(e)	$	1,519
Income taxes payable		54							54
Total Current Liabilities		1,253			320				1,573
Non-current operating lease liabilities		—			1,860		(f)		1,860
Non-current finance lease liabilities		25			—				25
Other liabilities		355			(148	)	(g)		207
Total Liabilities		1,633			2,032				3,665
Redeemable Noncontrolling Interest		1							1
Equity
Common stock		4							4
Treasury stock		(460	)						(460	)
Additional paid-in capital		2,402							2,402
Retained earnings		944			(60	)	(h)		884
Accumulated other comprehensive loss		(17	)						(17	)
Total Equity – Yum China Holdings, Inc.		2,873			(60	)			2,813
Noncontrolling interests		103			(3	)	(i)		100
Total Equity		2,976			(63	)			2,913
Total Liabilities, Redeemable Noncontrolling Interest and Equity	$	4,610		$	1,969			$	6,579

(a) Represents the current portion of prepaid rent reclassified to operating lease right-of-use assets.

(b) Represents the net result of capitalization of operating lease payments and reclassification of prepaid rent, initial direct cost, deferred rent accrual and lease incentives, and offset by impairment of operating lease right-of-use assets that existed prior to the date of adoption.

(c) Represents initial direct cost, favorable lease and non-current prepaid rent reclassified to operating lease right-of-use assets.

(d) Represents the deferred tax impact related to impairment of operating lease right-of-use assets.

(e) Represents recognition of the current portion of operating lease liabilities, offset by the reclassification of accrued rental payments and the current portion of deferred rent accrual to operating lease right-of-use assets.

(f) Represents recognition of the non-current operating lease liabilities.

(g) Represents reclassification of the non-current portion of deferred rent accrual and lease incentives to operating lease right-of-use assets.

(h) Represents an impairment charge on operating lease right-of-use assets arising from existing operating leases as of January 1, 2019, net of related impact on deferred taxes and noncontrolling interests, with a corresponding reduction to the carrying amount of operating lease right-of-use assets. The impairment charge was recorded for those restaurants under operating leases with full impairment on the long-lived assets before January 1, 2019, as the additional impairment charge would have been recorded before January 1, 2019 had the operating lease right-of-use assets been recognized at the time of impairment.

(i) Represents impairment of operating lease right-of-use assets attributable to noncontrolling interests.

In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (“ASU 2018-02”). The new guidance allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (the “Tax Act”) and will improve the usefulness of information reported to financial statement users. ASU 2018-02 is effective for the Company from January 1, 2019, with early adoption permitted. We adopted the standard on January 1, 2019, and such adoption did not have a material impact on our financial statements.

In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718) Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). The new guidance largely aligns the accounting for share-based awards issued to employees and non-employees. Existing guidance for employee awards will apply to nonemployee share-based transactions with limited exceptions. The new guidance also clarifies that any share-based payment awards issued to customers should be evaluated under ASC 606, Revenue from Contracts with Customers. ASU 2018-07 is effective for the Company from January 1, 2019, with early adoption permitted. We adopted the standard on January 1, 2019, and such adoption did not have a material impact on our financial statements.

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

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Revenue Recognition

3 Months Ended

Mar. 31, 2019

Revenue From Contract With Customer [Abstract]

Revenue Recognition

Note 3 – Revenue Recognition

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

Company Sales

Revenues from Company-owned restaurants are recognized when a customer takes possession of the food and tenders payment, which is when our obligation to perform is satisfied. The Company presents sales net of sales-related taxes. We also offer our customers delivery through both our own mobile applications and third-party aggregators’ platforms. For delivery orders placed through our mobile applications, we use our dedicated riders, while for orders placed through third-party aggregators’ platforms, we use our dedicated riders, or, in limited cases, third-party aggregators’ delivery staff. With respect to delivery orders delivered by our dedicated riders, we control and determine the price for the delivery service and generally recognize revenue, including delivery fees, when a customer takes possession of the food. When orders are fulfilled by the delivery staff of third-party aggregators, who control and determine the price for the delivery service, we recognize revenue, excluding delivery fees, when control of the food is transferred to the third-party aggregators’ delivery staff. The payment terms with respect to these sales are short-term in nature.

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

Our privilege membership program offers privilege members benefits, such as free delivery and discounts on coffee or breakfast items. The associated membership fees are recognized ratably over the membership period.

Franchise Fees and Income

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

Revenues from Transactions with Franchisees and Unconsolidated Affiliates

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

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

For advertising services, the Company often engages third parties to provide services and acts as a principal in the transaction based on our responsibilities of defining the nature of the services and administering and directing all marketing and advertising programs in accordance with the provisions of our franchise agreements. The Company collects advertising contributions, which are generally based on certain percentage of sales from substantially all of our restaurants, including franchisees and unconsolidated affiliates. Other services provided to franchisees and unconsolidated affiliates consist primarily of customer support and technology support services. Advertising services and other services provided are highly interrelated to franchise right, and are not considered individually distinct. We recognize revenue when the related sales occur.

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

Disaggregation of Revenue

The following table presents revenue disaggregated by types of arrangements and segments:

	Quarter Ended 3/31/2019
Revenues	KFC		Pizza Hut		All Other Segments(a)		Corporate and Unallocated(a)		Combined		Elimination			Consolidated
Company sales	$	1,539	$	541	$	9	$	—	$	2,089	$	—		$	2,089
Franchise fees and income		36		1		2		—		39		—			39
Revenues from transactions     with franchisees and     unconsolidated affiliates		17		1		7		145		170		—			170
Other revenues		—		—		14		1		15		(9	)		6
Total revenues	$	1,592	$	543	$	32	$	146	$	2,313	$	(9	)	$	2,304

	Quarter Ended 3/31/2018
Revenues	KFC		Pizza Hut		All Other Segments(a)		Corporate and Unallocated(a)		Combined		Elimination			Consolidated
Company sales	$	1,444	$	564	$	8	$	—	$	2,016	$	—		$	2,016
Franchise fees and income		37		1		2		—		40		—			40
Revenues from transactions     with franchisees and     unconsolidated affiliates		17		—		7		137		161		—			161
Other revenues		—		—		4		1		5		(1	)		4
Total revenues	$	1,498	$	565	$	21	$	138	$	2,222	$	(1	)	$	2,221

(a) As COFFii & JOY and our e-commerce business became operating segments starting from the first quarter of 2019, revenue by segment information for prior quarters has been recast to align with the change in segment reporting. Additional details on our reportable segments are included in Note 13.

Accounts Receivable

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

Costs to Obtain Contracts

Costs to obtain contracts consist of upfront license fees that we paid to YUM prior to the separation in relation to initial fees or renewal fees we received from franchisees and unconsolidated affiliates, as well as license fees that are payable to YUM in relation to our deferred revenue of prepaid stored-value products and customer loyalty programs. They meet the requirements to be capitalized as they are incremental costs of obtaining contracts with customers and the Company expects to generate future economic benefits from such costs incurred. Such costs to obtain contracts are included in Other assets on the Condensed Consolidated Balance Sheets and are amortized on a systematic basis that is consistent with the transfer to the customer of the goods or services to which the assets relate. Subsequent to the separation, we are no longer required to pay YUM initial or renewal fees that we receive from franchisees and unconsolidated affiliates. The Company did not incur any impairment losses related to costs to obtain contracts during any of the periods presented. Costs to obtain contracts were $10 million and $8 million at March 31, 2019 and December 31, 2018, respectively.

Contract Liabilities

Contract liabilities at March 31, 2019 and December 31, 2018 were as follows:

Contract liabilities	3/31/2019		12/31/2018
- Deferred revenue related to prepaid stored-value products	$	80	$	73
- Deferred revenue related to customer loyalty programs		22		17
- Deferred revenue related to upfront fees		39		37
Total	$	141	$	127

Contract liabilities consist of deferred revenue related to prepaid stored-value products, customer loyalty programs and upfront fees. Deferred revenue related to prepaid stored-value products and customer loyalty programs is included in Accounts payable and other current liabilities on the Condensed Consolidated Balance Sheets. Deferred revenue related to upfront fees that we expect to recognize as revenue in the next 12 months is included in Accounts payable and other current liabilities, and the remaining balance is included in Other liabilities on the Condensed Consolidated Balance Sheets. Revenue recognized that was included in the contract liability balance at the beginning of each period amounted to $33 million and $19 million in the quarter ended March 31, 2019 and March 31, 2018, respectively. Changes in contract liability balances were not materially impacted by business acquisition, change in estimate of transaction price or any other factors during any of the periods presented.

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

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Earnings Per Common Share ("EPS")

3 Months Ended

Mar. 31, 2019

Earnings Per Share [Abstract]

Earning Per Common Share (EPS)

Note 4 – Earnings Per Common Share (“EPS”)

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

	Quarter Ended
	3/31/2019		3/31/2018
Net Income – Yum China Holdings, Inc.	$	222	$	288
Weighted-average common shares outstanding    (for basic calculation)(a)		379		386
Effect of dilutive share-based awards(a)		7		12
Effect of dilutive warrants(b)		2		3
Weighted-average common and dilutive potential    common shares outstanding (for diluted calculation)		388		401
Basic Earnings Per Common Share	$	0.59	$	0.75
Diluted Earnings Per Common Share	$	0.57	$	0.72
Share-based awards excluded from the diluted EPS computation(c)		2		1

(a) As a result of the separation, shares of Yum China common stock were distributed to YUM’s shareholders of record as of October 19, 2016 and included in the calculated weighted-average common shares outstanding. Holders of outstanding YUM equity awards generally received both adjusted YUM awards and Yum China awards, or adjusted awards on shares of common stock of either YUM or Yum China in their entirety. Any subsequent exercise of these awards, whether held by the Company’s employees or YUM’s employees, would increase the number of common shares outstanding. The outstanding equity awards are included in the computation of diluted EPS, if there is dilutive effect.

(b) Pursuant to the investment agreements dated September 1, 2016, Yum China issued to strategic investors two tranches of warrants on January 9, 2017, with each tranche providing the right to purchase 8,200,405 shares of Yum China common stock, at an exercise price of $31.40 and $39.25 per share, respectively, subject to customary anti-dilution adjustments. The warrants may be exercised at any time through October 31, 2021. The outstanding warrants are included in the computation of diluted EPS, if there is dilutive effect when the average market price of Yum China common stock for the period exceeds the exercise price of the warrants.

(c) These outstanding stock appreciation rights, restricted stock units and performance share units were not included in the computation of diluted EPS because to do so would have been antidilutive for the quarters presented.

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Equity

3 Months Ended

Mar. 31, 2019

Stockholders Equity Note [Abstract]

Equity

Note 5 – Equity

Changes in Equity and Redeemable Noncontrolling Interest

	Yum China Holdings, Inc.
										Accumulated
	Common				Additional					Other															Redeemable
	Stock				Paid-in		Retained			Comprehensive			Treasury Stock						Noncontrolling			Total			Noncontrolling
	Shares		Amount		Capital		Earnings			(Loss) Income			Shares			Amount			Interests			Equity			Interest
Balance at December 31, 2018		392	$	4	$	2,402	$	944		$	(17	)		(13	)	$	(460	)	$	103		$	2,976		$	1
Net Income								222												7			229
Foreign currency translation adjustments											56									3			59
Comprehensive income																							288
Cash dividends declared    ($0.12 per common share)								(46	)														(46	)
Dividends declared																				(34	)		(34	)
Repurchase of shares of common stock														(2	)		(65	)					(65	)
Exercise and vesting of share-based awards		2		—		—																	—
Share-based compensation						6																	6
Cumulative effect  of accounting change								(60	)											(3	)		(63	)
Balance at March 31, 2019		394	$	4	$	2,408	$	1,060		$	39			(15	)	$	(525	)	$	76		$	3,062		$	1

Share Repurchase Program

On February 7, 2017, we announced that our Board of Directors authorized a $300 million share repurchase program. On October 4, 2017, the Board of Directors increased Yum China’s existing share repurchase authorization from $300 million to an aggregate of $550 million. On October 30, 2018, the Board of Directors further increased the share repurchase authorization to an aggregate of $1.4 billion. The Company repurchased 1.7 million shares of Yum China common stock at a total cost of $65 million during the quarter ended March 31, 2019. This includes approximately 46 thousand shares repurchased for $2 million with trade dates prior to March 31, 2019 but cash settlement dates subsequent to March 31, 2019. There were no shares repurchased during the quarter ended March 31, 2018. As of March 31, 2019, $895 million remained available for future share repurchases under the authorization.

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Items Affecting Comparability of Net Income and Cash Flows

3 Months Ended

Mar. 31, 2019

Items Affecting Comparability Of Net Income And Cash Flows [Abstract]

Items Affecting Comparability of Net Income and Cash Flows

Note 6 – Items Affecting Comparability of Net Income and Cash Flows

Gain from Re-Measurement of Equity Interest Upon Acquisition

In the first quarter of 2018, the Company completed the acquisition of Wuxi KFC. In connection with the acquisition, the Company also recognized a gain of $98 million from the re-measurement of our previously held 47% equity interest at fair value using discounted cash flow valuation approach and incorporating assumptions and estimates that were not observable in the market. Key assumptions used in estimating future cash flows included projected revenue growth and operating expenses, which were based on internal projections, historical performance of stores and the business environment, as well as the selection of an appropriate discount rate based on weighted-average cost of capital and company-specific risk premium. The gain was not allocated to any segment for performance reporting purposes.

Meituan Dianping (“Meituan”) Investment

In the third quarter of 2018, the Company subscribed for 8.4 million, or less than 1%, of the ordinary shares of Meituan, an e-commerce platform for services in China, for a total consideration of approximately $74 million, when it launched its initial public offering on the Hong Kong Stock Exchange in September 2018. The Company accounted for the equity securities at fair value with subsequent fair value changes recorded in our Condensed Consolidated Statements of Income. The fair value of the investment in Meituan is determined based on the closing market price for the shares at the end of each reporting period. As of March 31, 2019, the fair value of the investment was $57 million. The unrealized gain of $10 million was included in Investment gain in our Condensed Consolidated Statements of Income during the quarter ended March 31, 2019.

Incremental Restaurant-Level Impairment Upon Adoption of ASC 842

We performed an additional impairment evaluation of long-lived assets of restaurants as a result of adopting ASC 842 and recorded an incremental restaurant-level impairment charge of $12 million in the first quarter of 2019. See Note 11 for additional information.

Transition Tax

We completed the evaluation of the impact on our transition tax computation based on the final regulations that were released by the U.S. Treasury Department and the Internal Revenue Service (“IRS”) and became effective in the first quarter of 2019, and recorded an additional amount of $8 million for the transition tax accordingly. See Note 12 for additional information.

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Other Income, Net

3 Months Ended

Mar. 31, 2019

Other Income And Expenses [Abstract]

Other Income, Net

Note 7 – Other Income, net

	Quarter Ended
	3/31/2019			3/31/2018
Equity income from investments in unconsolidated affiliates	$	23		$	23
Gain from re-measurement of equity interest upon acquisition(a)		—			98
Foreign exchange impact and other		(4	)		5
Other income, net	$	19		$	126

(a) As a result of the acquisition of Wuxi KFC in the first quarter of 2018, as disclosed in Note 2, the Company recognized a gain of $98 million from the re-measurement of our previously held 47% equity interest at fair value, which was not allocated to any segment for performance reporting purposes.

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Supplemental Balance Sheet Information

3 Months Ended

Mar. 31, 2019

Balance Sheet Related Disclosures [Abstract]

Supplemental Balance Sheet Information

Note 8 – Supplemental Balance Sheet Information

Accounts Receivable, net	3/31/2019			12/31/2018
Accounts receivable, gross	$	79		$	81
Allowance for doubtful accounts		(2	)		(1	)
Accounts receivable, net	$	77		$	80

Prepaid Expenses and Other Current Assets	3/31/2019		12/31/2018
Receivables from payment processors and aggregators	$	46	$	49
Dividends receivable from unconsolidated affiliates		53		20
Prepaid rent		—		42
Other prepaid expenses and current assets		80		66
Prepaid expenses and other current assets	$	179	$	177

Property, Plant and Equipment	3/31/2019			12/31/2018
Buildings and improvements	$	2,209		$	2,121
Finance leases, primarily buildings		26			26
Machinery, equipment and construction in progress		1,218			1,201
Property, plant and equipment, gross		3,453			3,348
Accumulated depreciation		(1,833	)		(1,733	)
Property, plant and equipment, net	$	1,620		$	1,615

Other Assets	3/31/2019		12/31/2018
VAT assets	$	249	$	226
Land use right		141		138
Long-term deposits		67		64
Investment in equity securities		57		47
Costs to obtain contracts		10		8
Others		3		8
Other Assets	$	527	$	491

Accounts Payable and Other Current Liabilities	3/31/2019		12/31/2018
Accounts payable	$	556	$	619
Operating leases liabilities		364		—
Accrued compensation and benefits		163		200
Contract liabilities		109		96
Accrued capital expenditures		106		137
Accrued marketing expenses		76		32
Other current liabilities		133		115
Accounts payable and other current liabilities	$	1,507	$	1,199

Other Liabilities	3/31/2019		12/31/2018
Accrued income tax payable	$	80	$	71
Deferred income tax liabilities		64		65
Contract liabilities		32		31
Deferred rent accrual		—		144
Other non-current liabilities		44		44
Other liabilities	$	220	$	355

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Goodwill and Intangible Assets

3 Months Ended

Mar. 31, 2019

Goodwill And Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets

Note 9 – Goodwill and Intangible Assets

The changes in the carrying amount of goodwill are as follows:

	Total Company			KFC		Pizza Hut		All Other Segments
Balance as of December 31, 2018
Goodwill, gross	$	648		$	238	$	19	$	391
Accumulated impairment losses(a)		(382	)		—		—		(382	)
Goodwill, net		266			238		19		9
Effect of currency translation adjustment		7			6		1		—
Balance as of March 31, 2019
Goodwill, gross		655			244		20		391
Accumulated impairment losses(a)		(382	)		—		—		(382	)
Goodwill, net	$	273		$	244	$	20	$	9

(a) Accumulated impairment losses represent Little Sheep goodwill impairment.

Intangible assets, net as of March 31, 2019 and December 31, 2018 are as follows:

	3/31/2019										12/31/2018
	Gross Carrying Amount(a)		Accumulated Amortization			Accumulated impairment losses			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Accumulated impairment losses			Net Carrying Amount
Definite-lived intangible assets
Reacquired franchise rights	$	154	$	(108	)	$	—		$	46	$	150	$	(100	)	$	—		$	50
Daojia platform		16		(3	)		(10	)		3		16		(3	)		(10	)		3
Customer-related assets		12		(8	)		(2	)		2		12		(8	)		(2	)		2
Others(b)		9		(3	)		—			6		17		(9	)		—			8
	$	191	$	(122	)	$	(12	)	$	57	$	195	$	(120	)	$	(12	)	$	63
Indefinite-lived intangible assets
Little Sheep trademark	$	54	$	—		$	—		$	54	$	53	$	—		$	—		$	53
Total intangible assets	$	245	$	(122	)	$	(12	)	$	111	$	248	$	(120	)	$	(12	)	$	116

(a) Changes in gross carrying amount include effect of currency translation adjustment.

(b) Decrease in Others during the quarter ended March 31, 2019 is primarily due to the reclassification of favorable lease assets, with gross carrying amount of $7 million and accumulated amortization of $5 million, to right-of-use assets upon adoption of ASC 842.

Amortization expense of definite-lived intangible assets was $6 million and $6 million for the quarters ended March 31, 2019 and 2018, respectively. As of March 31, 2019, expected amortization expense for the unamortized definite-lived intangible assets is approximately $11 million for the remainder of 2019, $13 million in 2020, $13 million in 2021, $13 million in 2022 and $3 million in 2023.

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Leases

3 Months Ended

Mar. 31, 2019

Leases [Abstract]

Leases

Note 10 – Leases

As of March 31, 2019, we operated more than 8,600 restaurants, leasing the underlying land and/or building. We generally enter into lease agreements with initial terms of 10 to 20 years. Most of our lease agreements contain termination options that permit us to terminate the lease agreement early if the restaurant’s unit contribution is negative for a specified period of time. We generally do not have renewal options for our leases. Such options are accounted for only when it is reasonably certain that we will exercise the options. 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 sales revenue; or (iii) a percentage of the restaurant’s sales revenue. Most leases require us to pay common area maintenance fees for the leased property. In addition to restaurants leases, we also lease office spaces, logistics centers and equipment. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Prior to the adoption of ASC 842, operating leases were not recognized on the balance sheet of the Company, but rent expenses were recognized on a straight-line basis over the lease term. Upon adoption, right-of-use assets and lease liabilities are recognized upon lease commencement for operating leases based on the present value of lease payments over the lease term. This is consistent with the historical recognition of finance leases, which is unchanged upon adoption of ASC 842. Variable lease payments that do not depend on a rate or index are expensed as incurred. The Company has elected not to recognize right-of-use assets or lease liabilities for leases with an initial term of 12 months or less; we recognize lease expense for these leases on a straight-line basis over the lease term. In addition, the Company has elected not to separate non-lease components (e.g., common area maintenance fees) from the lease components.

In limited cases, we sublease certain restaurants to franchisees in connection with refranchising transactions or lease our properties to other third parties. The lease payments under these leases are generally based on the higher of a fixed base rent or a percentage of restaurant’s annual sales revenue. Income from sublease agreements with franchisees or lease agreements with other third parties are included in Franchise fees and income and Other revenue, respectively, within our Condensed Consolidated Statements of Income. The impact of ASC 842 on our accounting as a lessor was not significant.

Supplemental Balance Sheet
	3/31/2019		Account Classification
Assets
Operating lease right-of-use assets	$	2,016	Operating lease right-of-use assets
Finance lease right-of-use assets		14	Property, plant and equipment, net
Total leased assets	$	2,030
Liabilities
Current
Operating lease liabilities	$	364	Accounts payable and other current liabilities
Finance lease liabilities		2	Accounts payable and other current liabilities
Non-current
Operating lease liabilities		1,869	Non-current operating lease liabilities
Finance lease liabilities		23	Non-current finance lease liabilities
Total lease liabilities	$	2,258

Summary of Lease Cost	Quarter Ended			Account Classification
	3/31/2019
Operating lease cost	$	117		Occupancy and other operating expenses, G&A   or Franchise expenses
Variable lease cost		91		Occupancy and other operating expenses   or Franchise expenses
Short-term lease cost		3		Occupancy and other operating expenses or G&A
Sublease income		(7	)	Franchise fees and income or Other revenues
Total lease cost	$	204

Finance lease cost for the quarter ended March 31, 2019 is not material.

Supplemental Cash Flow Information		Quarter Ended
	3/31/2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	127
Right-of-use assets obtained in exchange for new lease liabilities:
Operating leases	$	57

Cash paid related to finance leases and right-of-use assets obtained in exchange for new finance lease liabilities for the quarter ended   March 31, 2019 is not material.

	Quarter Ended
Lease Term and Discount Rate	3/31/2019
Weighted-average remaining lease term (years)
Operating leases		7.3
Finance leases		12.0
Weighted-average discount rate
Operating leases		6.1	%
Finance leases		5.7	%

Summary of Future Lease Payments and Lease Liabilities

Maturities of lease liabilities as of March 31, 2019 were as follows:

	Amount of Operating Leases		Amount of Finance Leases		Total
Remainder of 2019	$	372	$	2	$	374
2020		460		3		463
2021		413		3		416
2022		353		3		356
2023		287		3		290
Thereafter		903		21		924
Total undiscounted lease payment		2,788		35		2,823
Less: imputed interest (a)		555		10		565
Present value of lease liabilities	$	2,233	$	25	$	2,258

(a) As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the lease commencement date in determining the imputed interest and present value of lease payments. We used the incremental borrowing rate on January 1, 2019, for operating leases that commenced prior to that date.

As of March 31, 2019, we have additional lease agreements that have been signed but not yet commenced of $87 million. These leases will commence between the second quarter of 2019 and 2020 with lease term of 1 year to 20 years.

Future minimum lease payments under non-cancellable leases as of December 31, 2018 were as follows:

	Commitments
	Amount of Operating Leases		Amount of Finance Leases		Total
2019	$	466	$	3	$	469
2020		440		3		443
2021		394		3		397
2022		336		3		339
2023		275		3		278
Thereafter		864		22		886
	$	2,775	$	37	$	2,812

At December 31, 2018, the present value of minimum payments under finance leases was $27 million, after deducting imputed interest of $10 million. The current portion of finance lease obligations was $2 million as of December 31, 2018, and was classified in Accounts payable and other current liabilities.

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Fair Value Measurements

3 Months Ended

Mar. 31, 2019

Fair Value Disclosures [Abstract]

Fair Value Measurements

Note 11 – Fair Value Measurements

The Company’s financial assets and liabilities primarily consist of cash and cash equivalents, short-term investments, accounts receivable and accounts payable, and the carrying values of these assets and liabilities approximate their fair value in general.

The Company accounts for its investment in the equity securities of Meituan at fair value, 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 Condensed Consolidated Statements of Income.

The following table is a summary of our financial assets measured on a recurring basis or disclosed at fair value and the level within the fair value hierarchy in which the measurement falls. The Company classifies its cash equivalents, short-term investments and investment in equity securities within Level 1 or Level 2 in the fair value hierarchy because it uses quoted market prices or alternative pricing sources and models utilizing market observable inputs to determine their fair value, respectively. No transfers among the levels within the fair value hierarchy occurred during the quarter ended March 31, 2019.

			Fair Value Measurement or Disclosure at March 31, 2019
	Balance at March 31, 2019		Level 1		Level 2		Level 3
Cash equivalents:
Time deposits	$	720	$	—	$	720	$	—
Money market funds		129		129
Fixed rate debt securities(a)		89		89
Total cash equivalents		938		218		720		—
Short-term investments:
Time deposits		284				284
Total short-term investments		284		—		284		—
Other assets:
Investment in equity securities		57		57
Total	$	1,279	$	275	$	1,004	$	—

			Fair Value Measurement or Disclosure at December 31, 2018
	Balance at December 31, 2018		Level 1		Level 2		Level 3
Cash equivalents:
Time deposits	$	570	$	—	$	570	$	—
Money market funds		226		226
Fixed rate debt securities(a)		153		153
Total cash equivalents		949		379		570		—
Short-term investments:
Time deposits		122				122
Total short-term investments		122		—		122		—
Other assets:
Investment in equity securities		47		47
Total	$	1,118	$	426	$	692	$	—

(a) Classified as held-to-maturity investments and measured at amortized cost.

Non-Recurring Fair Value Measurements

In addition, certain of the Company’s assets, such as operating lease right-of-use (“ROU”) assets, property, plant and equipment, goodwill and intangible assets, are measured at fair value on a non-recurring basis, if determined to be impaired.

The following table presents amounts recognized from all non-recurring fair value measurements during the quarter ended March 31, 2019. All fair value measurements were based on unobservable inputs (Level 3). These amounts exclude fair value measurements made for restaurants that were subsequently closed or refranchised prior to those respective quarter-end dates.

		Amount	Account Classification
ROU impairment prior to the adoption of ASC 842(a)	$	82	Retained Earnings
Incremental restaurant-level impairment   upon adoption of ASC 842(b)		12	Closure and impairment expenses, net
Total		94

(a) ROU impairment prior to the adoption of ASC 842 represents an impairment charge on operating lease right-of-use assets arising from existing operating leases as of January 1, 2019. After netting with related impact on deferred taxes of $19 million and the impact on noncontrolling interests of $3 million, we recorded a cumulative adjustment of $60 million to retained earnings in accordance with the transition guidance for the new lease standard. For those restaurants under operating leases with full impairment on their long-lived assets (primarily property, plant and equipment) before January 1, 2019, an additional impairment charge would have been recorded before January 1, 2019 had the operating lease right-of-use assets been recognized at the time of impairment. The fair value measurements used in these impairment evaluations were based on discounted cash flow estimates using unobservable inputs (Level 3) at the time of impairment.

(b) Incremental restaurant-level impairment upon adoption of ASC 842 represents additional impairment charges as a result of adopting the new lease standard in the first quarter of 2019. We performed an additional impairment evaluation of long-lived assets of restaurants, which includes operating lease right-of-use assets, and property, plant and equipment. The fair value measurements used in these impairment evaluations were based on discounted cash flow estimates using unobservable inputs (Level 3).

During the quarter ended March 31, 2018, we recorded restaurant-level impairment (Level 3) of nil.

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Income Taxes

3 Months Ended

Mar. 31, 2019

Income Tax Disclosure [Abstract]

Income Taxes

Note 12 – Income Taxes

	Quarter Ended
	3/31/2019			3/31/2018
Income tax provision	$	93		$	107
Effective tax rate		28.9	%		26.6	%

The higher effective tax rate for the quarter ended March 31, 2019 was primarily due to an adjustment of transition tax based on the final regulations that were released by the U.S. Treasury Department and the IRS and became effective in the first quarter of 2019.

In December 2017, the U.S. enacted the Tax Act, which included a broad range of tax reforms, including, but not limited to, the establishment of a flat corporate income tax rate of 21%, the elimination or reduction of certain business deductions and the imposition of tax on deemed repatriation of accumulated undistributed foreign earnings. The Tax Act impacted Yum China in two material aspects: (1) in general, all of the foreign-source dividends received by Yum China from its foreign subsidiaries will be exempted from taxation starting from the tax year beginning after December 31, 2017 and (2) Yum China recorded additional income tax expense in the fourth quarter of 2017, including an estimated one-time transition tax on its deemed repatriation of accumulated undistributed foreign earnings and additional tax related to revaluation of certain deferred tax assets.

We completed our analysis of the Tax Act in the fourth quarter of 2018 according to guidance released by the U.S. Treasury Department and the IRS as of December 2018 and made a reversal to provisional amount in the amount of $36 million for the transition tax recorded in 2017 accordingly. The U.S. Treasury Department and the IRS released the final transition tax regulations on January 15, 2019, which were published in the Federal Register and became effective on February 5, 2019. 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 an additional amount of $8 million for the transition tax accordingly.

The Tax Act requires a U.S. shareholder to be subject to tax on Global Intangible Low Taxed Income (“GILTI”) earned by certain foreign subsidiaries. We have elected the option to account for current year GILTI tax as a period cost as incurred, and therefore included it in estimating the annual effective tax rate.

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Segment Reporting

3 Months Ended

Mar. 31, 2019

Segment Reporting [Abstract]

Segment Reporting

Note 13 –Segment Reporting

We have two reportable segments: KFC and Pizza Hut. Starting from the first quarter of 2019, our newly developed COFFii & JOY concept and e-commerce business became operating segments, as their financial results started being regularly reviewed by the Company’s chief operating decision maker. Accordingly, our six non-reportable operating segments, including the operations of East Dawning, Little Sheep, Taco Bell, Daojia, COFFii & JOY and our e-commerce business, are combined and referred to as All Other Segments, as those operating segments are insignificant both individually and in the aggregate. Segment financial information for prior quarters has been recast to align with this change in segment reporting. There was no impact on the consolidated financial statements of the Company as a result of this change.

	Quarter Ended 3/31/2019
Revenues	KFC		Pizza Hut		All Other Segments		Corporate and Unallocated(a)		Combined		Elimination			Consolidated
Revenue from external     customers	$	1,592	$	543	$	23	$	146		2,304	$	—		$	2,304
Inter-segment revenue		—		—		9		—		9		(9	)		—
Total	$	1,592	$	543	$	32	$	146	$	2,313	$	(9	)	$	2,304

	Quarter Ended 3/31/2018
Revenues	KFC		Pizza Hut		All Other Segments		Corporate and Unallocated(a)		Combined		Elimination			Consolidated
Revenue from external     customers	$	1,498	$	565	$	20	$	138		2,221	$	—		$	2,221
Inter-segment revenue		—		—		1		—		1		(1	)		—
Total	$	1,498	$	565	$	21	$	138	$	2,222	$	(1	)	$	2,221

	Quarter Ended
Operating Profit	3/31/2019			3/31/2018
KFC(b)	$	288		$	296
Pizza Hut		50			34
All Other Segments		(5	)		(4	)
Unallocated revenues from transactions with    franchisees and unconsolidated affiliates(c)		145			137
Unallocated Other revenues		1			1
Unallocated expenses from transactions with    franchisees and unconsolidated affiliates(c)		(143	)		(137	)
Unallocated Other operating costs and expenses		(1	)		(1	)
Unallocated and corporate G&A expenses		(33	)		(33	)
Unallocated Other income(d)		1			102
Operating Profit	$	303		$	395
Interest income, net(a)		9			8
Investment gain(a)		10			—
Income Before Income Taxes	$	322		$	403

	Quarter Ended
Impairment Charges	3/31/2019		3/31/2018
KFC(e)	$	8	$	1
Pizza Hut(e)		5		1
All Other Segments		1	$	—
	$	14	$	2

	Total Assets
	3/31/2019		12/31/2018
KFC(f)	$	3,082	$	1,745
Pizza Hut		1,073		558
All Other Segments		161		132
Corporate and Unallocated(g)		2,446		2,175
	$	6,762	$	4,610

(a) Amounts have not been allocated to any segment for performance reporting purposes.

(b) Includes equity income from investments in unconsolidated affiliates of $23 million and $23 million for the quarters ended March 31, 2019 and 2018, respectively.

(c) Primarily includes revenues and associated expenses of transactions with franchisee and unconsolidated affiliates derived from the Company’s central procurement model whereby the Company centrally purchases substantially all food and paper products from suppliers and then sells and delivers to restaurants, including franchisees and unconsolidated affiliates. Amounts have not been allocated to any segment for purposes of making operating decisions or assessing financial performance as the transactions are deemed corporate revenues and expenses in nature.

(d) Primarily includes gain from re-measurement of the previously held equity interest in connection with the acquisition of Wuxi KFC (See Note 2).

(e) Primarily includes store closure impairment charges as well as incremental restaurant-level impairment charges as a result of adopting ASC 842 (See Note 11).

(f) Includes investments in unconsolidated affiliates.

(g) Primarily includes cash and cash equivalents, short-term investments, investment in equity securities, and inventories that are centrally managed.

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Contingencies

3 Months Ended

Mar. 31, 2019

Commitments And Contingencies Disclosure [Abstract]

Contingencies

Note 14 – Contingencies 

Indemnification of China Tax on Indirect Transfers of Assets

In February 2015, the Chinese State Administration of Taxation (“SAT”) issued Bulletin 7 on Income arising from Indirect Transfers of Assets by Non-Resident Enterprises. Pursuant to Bulletin 7, an “indirect transfer” of Chinese taxable assets, including equity interests in a Chinese resident enterprise, by a non-resident enterprise, may be recharacterized and treated as a direct transfer of Chinese taxable assets, if such arrangement does not have reasonable commercial purpose and the transferor has avoided payment of Chinese enterprise income tax. As a result, gains derived from such an indirect transfer may be subject to Chinese enterprise income tax at a rate of 10%.

YUM concluded and we concurred that it is more likely than not that YUM will not be subject to this tax with respect to the distribution. However, there are significant uncertainties regarding what constitutes a reasonable commercial purpose, how the safe harbor provisions for group restructurings are to be interpreted and how the taxing authorities will ultimately view the distribution. As a result, YUM’s position could be challenged by Chinese tax authorities resulting in a 10% tax assessed on the difference between the fair market value and the tax basis of the separated China business. As YUM’s tax basis in the China business is minimal, the amount of such tax could be significant.

Any tax liability arising from the application of Bulletin 7 to the distribution is expected to be settled in accordance with the tax matters agreement between the Company and YUM. Pursuant to the tax matters agreement, to the extent any Chinese indirect transfer tax pursuant to Bulletin 7 is imposed, such tax and related losses will be allocated between YUM and the Company in proportion to their respective share of the combined market capitalization of YUM and the Company during the 30 trading days after the separation. Such a settlement could be significant and have a material adverse effect on our results of operations and our financial condition. At the inception of the tax indemnity being provided to YUM, the fair value of the non-contingent obligation to stand ready to perform was insignificant and the liability for the contingent obligation to make payment was not probable or estimable.

Guarantees

From time to time we have guaranteed certain lines of credit and loans of franchisees and unconsolidated affiliates. As of March 31, 2019, we have provided guarantees of approximately $1 million on behalf of franchisees and no guarantees were outstanding for unconsolidated affiliates.  

Legal Proceedings

From time to time, the Company is subject to various lawsuits covering a variety of allegations. The Company believes that the ultimate liability, if any, in excess of amounts already provided for these matters in the Condensed Consolidated Financial Statements, is not likely to have a material adverse effect on the Company’s results of operations, financial condition or cash flows. Matters faced by the Company from time to time include, but are not limited to, claims from landlords, employees, customers and others related to operational, contractual or employment issues.

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Subsequent Events

3 Months Ended

Mar. 31, 2019

Subsequent Events [Abstract]

Subsequent Events

Note 15 – Subsequent Events

On April 29, 2019, the Company announced that the Board of Directors declared a cash dividend of $0.12 per share, payable as of the close of business on June 17, 2019 to stockholders of record as of the close of business on May 28, 2019. The total estimated cash dividend payable is approximately $46 million.

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Basis of Presentation (Policies)

3 Months Ended

Mar. 31, 2019

Accounting Policies [Abstract]

Basis of Presentation

Note 2 – Basis of Presentation

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

We have prepared the Condensed Consolidated Financial Statements in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The Condensed Consolidated Financial Statements include all normal and recurring adjustments considered necessary to present fairly our financial position as of March 31, 2019, and the results of our operations, comprehensive income and cash flows for the quarters ended March 31, 2019 and 2018. Our results of operations, comprehensive income and cash flows for these interim periods are not necessarily indicative of the results to be expected for the full year. These statements should be read in conjunction with the consolidated financial statements and notes thereto defined and included in the Company’s Annual Report on Form 10-K as filed with the SEC on February 27, 2019.

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

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

Recently Adopted Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) (“ASU 2016-02” or “ASC 842”), which increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The FASB subsequently issued amendments to clarify the implementation guidance. The Company adopted these standards on January 1, 2019, using a modified retrospective method for leases that exist at, or are entered into after, January 1, 2019, and has not recast the comparative periods presented in the Condensed Consolidated Financial Statements. Additionally, we elected the package of practical expedients that allowed us to not reassess: (1) whether any expired or existing contracts are or contain leases, (2) lease classification for any expired or existing leases and (3) initial direct costs for any expired or existing leases. We also elected the hindsight practical expedient to determine the reasonably certain lease term for existing leases.

Upon the adoption of ASC 842, the Company recognized right-of-use assets and lease liabilities of approximately $2.0 billion and $2.2 billion, respectively, for operating leases of the land and/or building of our restaurants and office spaces based on the present value of lease payments over the lease term. In addition, an impairment charge of $60 million (net of related impact on deferred taxes and noncontrolling interests) on right-of-use assets arising from existing operating leases as of January 1, 2019 was recorded as an adjustment to retained earnings, as the additional impairment charge would have been recorded before adoption had the operating lease right-of-use assets been recognized at the time of impairment.

The following table summarizes the effect on the Consolidated Balance Sheet as a result of adopting ASC 842.

	December 31, 2018			Effect of adoption				January 1, 2019
ASSETS
Current Assets
Cash and cash equivalents	$	1,266						$	1,266
Short-term investments		122							122
Accounts receivable, net		80							80
Inventories, net		307							307
Prepaid expenses and other current assets		177			(39	)	(a)		138
Total Current Assets		1,952			(39	)			1,913
Property, plant and equipment, net		1,615			(1	)			1,614
Operating lease right-of-use assets		—			1,997		(b)		1,997
Goodwill		266							266
Intangible assets, net		116			(2	)	(c)		114
Deferred income taxes		89			19		(d)		108
Investments in unconsolidated affiliates		81			(1	)			80
Other assets		491			(4	)	(c)		487
Total Assets	$	4,610		$	1,969			$	6,579
LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND EQUITY
Current Liabilities
Accounts payable and other current liabilities	$	1,199		$	320		(e)	$	1,519
Income taxes payable		54							54
Total Current Liabilities		1,253			320				1,573
Non-current operating lease liabilities		—			1,860		(f)		1,860
Non-current finance lease liabilities		25			—				25
Other liabilities		355			(148	)	(g)		207
Total Liabilities		1,633			2,032				3,665
Redeemable Noncontrolling Interest		1							1
Equity
Common stock		4							4
Treasury stock		(460	)						(460	)
Additional paid-in capital		2,402							2,402
Retained earnings		944			(60	)	(h)		884
Accumulated other comprehensive loss		(17	)						(17	)
Total Equity – Yum China Holdings, Inc.		2,873			(60	)			2,813
Noncontrolling interests		103			(3	)	(i)		100
Total Equity		2,976			(63	)			2,913
Total Liabilities, Redeemable Noncontrolling Interest and Equity	$	4,610		$	1,969			$	6,579

(a) Represents the current portion of prepaid rent reclassified to operating lease right-of-use assets.

(b) Represents the net result of capitalization of operating lease payments and reclassification of prepaid rent, initial direct cost, deferred rent accrual and lease incentives, and offset by impairment of operating lease right-of-use assets that existed prior to the date of adoption.

(c) Represents initial direct cost, favorable lease and non-current prepaid rent reclassified to operating lease right-of-use assets.

(d) Represents the deferred tax impact related to impairment of operating lease right-of-use assets.

(e) Represents recognition of the current portion of operating lease liabilities, offset by the reclassification of accrued rental payments and the current portion of deferred rent accrual to operating lease right-of-use assets.

(f) Represents recognition of the non-current operating lease liabilities.

(g) Represents reclassification of the non-current portion of deferred rent accrual and lease incentives to operating lease right-of-use assets.

(h) Represents an impairment charge on operating lease right-of-use assets arising from existing operating leases as of January 1, 2019, net of related impact on deferred taxes and noncontrolling interests, with a corresponding reduction to the carrying amount of operating lease right-of-use assets. The impairment charge was recorded for those restaurants under operating leases with full impairment on the long-lived assets before January 1, 2019, as the additional impairment charge would have been recorded before January 1, 2019 had the operating lease right-of-use assets been recognized at the time of impairment.

(i) Represents impairment of operating lease right-of-use assets attributable to noncontrolling interests.

In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (“ASU 2018-02”). The new guidance allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (the “Tax Act”) and will improve the usefulness of information reported to financial statement users. ASU 2018-02 is effective for the Company from January 1, 2019, with early adoption permitted. We adopted the standard on January 1, 2019, and such adoption did not have a material impact on our financial statements.

In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718) Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). The new guidance largely aligns the accounting for share-based awards issued to employees and non-employees. Existing guidance for employee awards will apply to nonemployee share-based transactions with limited exceptions. The new guidance also clarifies that any share-based payment awards issued to customers should be evaluated under ASC 606, Revenue from Contracts with Customers. ASU 2018-07 is effective for the Company from January 1, 2019, with early adoption permitted. We adopted the standard on January 1, 2019, and such adoption did not have a material impact on our financial statements.

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

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Basis of Presentation (Tables)

3 Months Ended

Mar. 31, 2019

Accounting Policies [Abstract]

Summary of Effect on Consolidated Balance Sheets as Result of Adopting ASU 2016-02

The following table summarizes the effect on the Consolidated Balance Sheet as a result of adopting ASC 842.

	December 31, 2018			Effect of adoption				January 1, 2019
ASSETS
Current Assets
Cash and cash equivalents	$	1,266						$	1,266
Short-term investments		122							122
Accounts receivable, net		80							80
Inventories, net		307							307
Prepaid expenses and other current assets		177			(39	)	(a)		138
Total Current Assets		1,952			(39	)			1,913
Property, plant and equipment, net		1,615			(1	)			1,614
Operating lease right-of-use assets		—			1,997		(b)		1,997
Goodwill		266							266
Intangible assets, net		116			(2	)	(c)		114
Deferred income taxes		89			19		(d)		108
Investments in unconsolidated affiliates		81			(1	)			80
Other assets		491			(4	)	(c)		487
Total Assets	$	4,610		$	1,969			$	6,579
LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND EQUITY
Current Liabilities
Accounts payable and other current liabilities	$	1,199		$	320		(e)	$	1,519
Income taxes payable		54							54
Total Current Liabilities		1,253			320				1,573
Non-current operating lease liabilities		—			1,860		(f)		1,860
Non-current finance lease liabilities		25			—				25
Other liabilities		355			(148	)	(g)		207
Total Liabilities		1,633			2,032				3,665
Redeemable Noncontrolling Interest		1							1
Equity
Common stock		4							4
Treasury stock		(460	)						(460	)
Additional paid-in capital		2,402							2,402
Retained earnings		944			(60	)	(h)		884
Accumulated other comprehensive loss		(17	)						(17	)
Total Equity – Yum China Holdings, Inc.		2,873			(60	)			2,813
Noncontrolling interests		103			(3	)	(i)		100
Total Equity		2,976			(63	)			2,913
Total Liabilities, Redeemable Noncontrolling Interest and Equity	$	4,610		$	1,969			$	6,579

(a) Represents the current portion of prepaid rent reclassified to operating lease right-of-use assets.

(b) Represents the net result of capitalization of operating lease payments and reclassification of prepaid rent, initial direct cost, deferred rent accrual and lease incentives, and offset by impairment of operating lease right-of-use assets that existed prior to the date of adoption.

(c) Represents initial direct cost, favorable lease and non-current prepaid rent reclassified to operating lease right-of-use assets.

(d) Represents the deferred tax impact related to impairment of operating lease right-of-use assets.

(e) Represents recognition of the current portion of operating lease liabilities, offset by the reclassification of accrued rental payments and the current portion of deferred rent accrual to operating lease right-of-use assets.

(f) Represents recognition of the non-current operating lease liabilities.

(g) Represents reclassification of the non-current portion of deferred rent accrual and lease incentives to operating lease right-of-use assets.

(h) Represents an impairment charge on operating lease right-of-use assets arising from existing operating leases as of January 1, 2019, net of related impact on deferred taxes and noncontrolling interests, with a corresponding reduction to the carrying amount of operating lease right-of-use assets. The impairment charge was recorded for those restaurants under operating leases with full impairment on the long-lived assets before January 1, 2019, as the additional impairment charge would have been recorded before January 1, 2019 had the operating lease right-of-use assets been recognized at the time of impairment.

(i) Represents impairment of operating lease right-of-use assets attributable to noncontrolling interests.

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Revenue Recognition (Tables)

3 Months Ended

Mar. 31, 2019

Revenue From Contract With Customer [Abstract]

Schedule of Disaggregation of Revenue by Types of Arrangements and Segments

The following table presents revenue disaggregated by types of arrangements and segments:

	Quarter Ended 3/31/2019
Revenues	KFC		Pizza Hut		All Other Segments(a)		Corporate and Unallocated(a)		Combined		Elimination			Consolidated
Company sales	$	1,539	$	541	$	9	$	—	$	2,089	$	—		$	2,089
Franchise fees and income		36		1		2		—		39		—			39
Revenues from transactions     with franchisees and     unconsolidated affiliates		17		1		7		145		170		—			170
Other revenues		—		—		14		1		15		(9	)		6
Total revenues	$	1,592	$	543	$	32	$	146	$	2,313	$	(9	)	$	2,304

	Quarter Ended 3/31/2018
Revenues	KFC		Pizza Hut		All Other Segments(a)		Corporate and Unallocated(a)		Combined		Elimination			Consolidated
Company sales	$	1,444	$	564	$	8	$	—	$	2,016	$	—		$	2,016
Franchise fees and income		37		1		2		—		40		—			40
Revenues from transactions     with franchisees and     unconsolidated affiliates		17		—		7		137		161		—			161
Other revenues		—		—		4		1		5		(1	)		4
Total revenues	$	1,498	$	565	$	21	$	138	$	2,222	$	(1	)	$	2,221

(a) As COFFii & JOY and our e-commerce business became operating segments starting from the first quarter of 2019, revenue by segment information for prior quarters has been recast to align with the change in segment reporting. Additional details on our reportable segments are included in Note 13.

Contract Liabilities

Contract liabilities at March 31, 2019 and December 31, 2018 were as follows:

Contract liabilities	3/31/2019		12/31/2018
- Deferred revenue related to prepaid stored-value products	$	80	$	73
- Deferred revenue related to customer loyalty programs		22		17
- Deferred revenue related to upfront fees		39		37
Total	$	141	$	127

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Earnings Per Common Share ("EPS") (Tables)

3 Months Ended

Mar. 31, 2019

Earnings Per Share [Abstract]

Earnings Per Common Share

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

	Quarter Ended
	3/31/2019		3/31/2018
Net Income – Yum China Holdings, Inc.	$	222	$	288
Weighted-average common shares outstanding    (for basic calculation)(a)		379		386
Effect of dilutive share-based awards(a)		7		12
Effect of dilutive warrants(b)		2		3
Weighted-average common and dilutive potential    common shares outstanding (for diluted calculation)		388		401
Basic Earnings Per Common Share	$	0.59	$	0.75
Diluted Earnings Per Common Share	$	0.57	$	0.72
Share-based awards excluded from the diluted EPS computation(c)		2		1

(a) As a result of the separation, shares of Yum China common stock were distributed to YUM’s shareholders of record as of October 19, 2016 and included in the calculated weighted-average common shares outstanding. Holders of outstanding YUM equity awards generally received both adjusted YUM awards and Yum China awards, or adjusted awards on shares of common stock of either YUM or Yum China in their entirety. Any subsequent exercise of these awards, whether held by the Company’s employees or YUM’s employees, would increase the number of common shares outstanding. The outstanding equity awards are included in the computation of diluted EPS, if there is dilutive effect.

(b) Pursuant to the investment agreements dated September 1, 2016, Yum China issued to strategic investors two tranches of warrants on January 9, 2017, with each tranche providing the right to purchase 8,200,405 shares of Yum China common stock, at an exercise price of $31.40 and $39.25 per share, respectively, subject to customary anti-dilution adjustments. The warrants may be exercised at any time through October 31, 2021. The outstanding warrants are included in the computation of diluted EPS, if there is dilutive effect when the average market price of Yum China common stock for the period exceeds the exercise price of the warrants.

(c) These outstanding stock appreciation rights, restricted stock units and performance share units were not included in the computation of diluted EPS because to do so would have been antidilutive for the quarters presented.

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Equity (Tables)

3 Months Ended

Mar. 31, 2019

Stockholders Equity Note [Abstract]

Changes in Equity and Redeemable Noncontrolling Interest

	Yum China Holdings, Inc.
										Accumulated
	Common				Additional					Other															Redeemable
	Stock				Paid-in		Retained			Comprehensive			Treasury Stock						Noncontrolling			Total			Noncontrolling
	Shares		Amount		Capital		Earnings			(Loss) Income			Shares			Amount			Interests			Equity			Interest
Balance at December 31, 2018		392	$	4	$	2,402	$	944		$	(17	)		(13	)	$	(460	)	$	103		$	2,976		$	1
Net Income								222												7			229
Foreign currency translation adjustments											56									3			59
Comprehensive income																							288
Cash dividends declared    ($0.12 per common share)								(46	)														(46	)
Dividends declared																				(34	)		(34	)
Repurchase of shares of common stock														(2	)		(65	)					(65	)
Exercise and vesting of share-based awards		2		—		—																	—
Share-based compensation						6																	6
Cumulative effect  of accounting change								(60	)											(3	)		(63	)
Balance at March 31, 2019		394	$	4	$	2,408	$	1,060		$	39			(15	)	$	(525	)	$	76		$	3,062		$	1

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Other Income, Net (Tables)

3 Months Ended

Mar. 31, 2019

Other Income And Expenses [Abstract]

Other Income, Net

	Quarter Ended
	3/31/2019			3/31/2018
Equity income from investments in unconsolidated affiliates	$	23		$	23
Gain from re-measurement of equity interest upon acquisition(a)		—			98
Foreign exchange impact and other		(4	)		5
Other income, net	$	19		$	126

(a) As a result of the acquisition of Wuxi KFC in the first quarter of 2018, as disclosed in Note 2, the Company recognized a gain of $98 million from the re-measurement of our previously held 47% equity interest at fair value, which was not allocated to any segment for performance reporting purposes.

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Supplemental Balance Sheet Information (Tables)

3 Months Ended

Mar. 31, 2019

Balance Sheet Related Disclosures [Abstract]

Accounts Receivable, Net

Accounts Receivable, net	3/31/2019			12/31/2018
Accounts receivable, gross	$	79		$	81
Allowance for doubtful accounts		(2	)		(1	)
Accounts receivable, net	$	77		$	80

Prepaid Expenses and Other Current Assets

Prepaid Expenses and Other Current Assets	3/31/2019		12/31/2018
Receivables from payment processors and aggregators	$	46	$	49
Dividends receivable from unconsolidated affiliates		53		20
Prepaid rent		—		42
Other prepaid expenses and current assets		80		66
Prepaid expenses and other current assets	$	179	$	177

Property, Plant and Equipment

Property, Plant and Equipment	3/31/2019			12/31/2018
Buildings and improvements	$	2,209		$	2,121
Finance leases, primarily buildings		26			26
Machinery, equipment and construction in progress		1,218			1,201
Property, plant and equipment, gross		3,453			3,348
Accumulated depreciation		(1,833	)		(1,733	)
Property, plant and equipment, net	$	1,620		$	1,615

Accounts Payable and Other Current Liabilities

Other Assets	3/31/2019		12/31/2018
VAT assets	$	249	$	226
Land use right		141		138
Long-term deposits		67		64
Investment in equity securities		57		47
Costs to obtain contracts		10		8
Others		3		8
Other Assets	$	527	$	491

Accounts Payable and Other Current Liabilities	3/31/2019		12/31/2018
Accounts payable	$	556	$	619
Operating leases liabilities		364		—
Accrued compensation and benefits		163		200
Contract liabilities		109		96
Accrued capital expenditures		106		137
Accrued marketing expenses		76		32
Other current liabilities		133		115
Accounts payable and other current liabilities	$	1,507	$	1,199

Other Liabilities and Deferred Credits

Other Liabilities	3/31/2019		12/31/2018
Accrued income tax payable	$	80	$	71
Deferred income tax liabilities		64		65
Contract liabilities		32		31
Deferred rent accrual		—		144
Other non-current liabilities		44		44
Other liabilities	$	220	$	355

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Goodwill and Intangible Assets (Tables)

3 Months Ended

Mar. 31, 2019

Goodwill And Intangible Assets Disclosure [Abstract]

Changes in the Carrying Amount of Goodwill

The changes in the carrying amount of goodwill are as follows:

	Total Company			KFC		Pizza Hut		All Other Segments
Balance as of December 31, 2018
Goodwill, gross	$	648		$	238	$	19	$	391
Accumulated impairment losses(a)		(382	)		—		—		(382	)
Goodwill, net		266			238		19		9
Effect of currency translation adjustment		7			6		1		—
Balance as of March 31, 2019
Goodwill, gross		655			244		20		391
Accumulated impairment losses(a)		(382	)		—		—		(382	)
Goodwill, net	$	273		$	244	$	20	$	9

(a) Accumulated impairment losses represent Little Sheep goodwill impairment.

Schedule of Finite and Indefinite Lived Intangible Assets by Major Class

Intangible assets, net as of March 31, 2019 and December 31, 2018 are as follows:

	3/31/2019										12/31/2018
	Gross Carrying Amount(a)		Accumulated Amortization			Accumulated impairment losses			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Accumulated impairment losses			Net Carrying Amount
Definite-lived intangible assets
Reacquired franchise rights	$	154	$	(108	)	$	—		$	46	$	150	$	(100	)	$	—		$	50
Daojia platform		16		(3	)		(10	)		3		16		(3	)		(10	)		3
Customer-related assets		12		(8	)		(2	)		2		12		(8	)		(2	)		2
Others(b)		9		(3	)		—			6		17		(9	)		—			8
	$	191	$	(122	)	$	(12	)	$	57	$	195	$	(120	)	$	(12	)	$	63
Indefinite-lived intangible assets
Little Sheep trademark	$	54	$	—		$	—		$	54	$	53	$	—		$	—		$	53
Total intangible assets	$	245	$	(122	)	$	(12	)	$	111	$	248	$	(120	)	$	(12	)	$	116

(a) Changes in gross carrying amount include effect of currency translation adjustment.

(b) Decrease in Others during the quarter ended March 31, 2019 is primarily due to the reclassification of favorable lease assets, with gross carrying amount of $7 million and accumulated amortization of $5 million, to right-of-use assets upon adoption of ASC 842.

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Leases (Tables)

3 Months Ended

Mar. 31, 2019

Leases [Abstract]

Summary of Supplemental Balance Sheet

Supplemental Balance Sheet
	3/31/2019		Account Classification
Assets
Operating lease right-of-use assets	$	2,016	Operating lease right-of-use assets
Finance lease right-of-use assets		14	Property, plant and equipment, net
Total leased assets	$	2,030
Liabilities
Current
Operating lease liabilities	$	364	Accounts payable and other current liabilities
Finance lease liabilities		2	Accounts payable and other current liabilities
Non-current
Operating lease liabilities		1,869	Non-current operating lease liabilities
Finance lease liabilities		23	Non-current finance lease liabilities
Total lease liabilities	$	2,258

Summary of Lease Cost

Summary of Lease Cost	Quarter Ended			Account Classification
	3/31/2019
Operating lease cost	$	117		Occupancy and other operating expenses, G&A   or Franchise expenses
Variable lease cost		91		Occupancy and other operating expenses   or Franchise expenses
Short-term lease cost		3		Occupancy and other operating expenses or G&A
Sublease income		(7	)	Franchise fees and income or Other revenues
Total lease cost	$	204

Schedule of Supplemental Cash Flow Information

Supplemental Cash Flow Information		Quarter Ended
	3/31/2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	127
Right-of-use assets obtained in exchange for new lease liabilities:
Operating leases	$	57

Schedule of Lease Terms and Discount Rate

	Quarter Ended
Lease Term and Discount Rate	3/31/2019
Weighted-average remaining lease term (years)
Operating leases		7.3
Finance leases		12.0
Weighted-average discount rate
Operating leases		6.1	%
Finance leases		5.7	%

Summary of Maturities of Lease Liabilities

Maturities of lease liabilities as of March 31, 2019 were as follows:

	Amount of Operating Leases		Amount of Finance Leases		Total
Remainder of 2019	$	372	$	2	$	374
2020		460		3		463
2021		413		3		416
2022		353		3		356
2023		287		3		290
Thereafter		903		21		924
Total undiscounted lease payment		2,788		35		2,823
Less: imputed interest (a)		555		10		565
Present value of lease liabilities	$	2,233	$	25	$	2,258

(a) As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the lease commencement date in determining the imputed interest and present value of lease payments. We used the incremental borrowing rate on January 1, 2019, for operating leases that commenced prior to that date.

Summary of Future Minimum Lease Payments under Non-Cancellable Leases

Future minimum lease payments under non-cancellable leases as of December 31, 2018 were as follows:

	Commitments
	Amount of Operating Leases		Amount of Finance Leases		Total
2019	$	466	$	3	$	469
2020		440		3		443
2021		394		3		397
2022		336		3		339
2023		275		3		278
Thereafter		864		22		886
	$	2,775	$	37	$	2,812

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Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2019

Fair Value Disclosures [Abstract]

Assets Measured on Recurring Basis or Disclosed at Fair Value

The following table is a summary of our financial assets measured on a recurring basis or disclosed at fair value and the level within the fair value hierarchy in which the measurement falls. The Company classifies its cash equivalents, short-term investments and investment in equity securities within Level 1 or Level 2 in the fair value hierarchy because it uses quoted market prices or alternative pricing sources and models utilizing market observable inputs to determine their fair value, respectively. No transfers among the levels within the fair value hierarchy occurred during the quarter ended March 31, 2019.

			Fair Value Measurement or Disclosure at March 31, 2019
	Balance at March 31, 2019		Level 1		Level 2		Level 3
Cash equivalents:
Time deposits	$	720	$	—	$	720	$	—
Money market funds		129		129
Fixed rate debt securities(a)		89		89
Total cash equivalents		938		218		720		—
Short-term investments:
Time deposits		284				284
Total short-term investments		284		—		284		—
Other assets:
Investment in equity securities		57		57
Total	$	1,279	$	275	$	1,004	$	—

			Fair Value Measurement or Disclosure at December 31, 2018
	Balance at December 31, 2018		Level 1		Level 2		Level 3
Cash equivalents:
Time deposits	$	570	$	—	$	570	$	—
Money market funds		226		226
Fixed rate debt securities(a)		153		153
Total cash equivalents		949		379		570		—
Short-term investments:
Time deposits		122				122
Total short-term investments		122		—		122		—
Other assets:
Investment in equity securities		47		47
Total	$	1,118	$	426	$	692	$	—

(a) Classified as held-to-maturity investments and measured at amortized cost.

Schedule of Amounts Recognized From Non-recurring Fair Value Measurements

The following table presents amounts recognized from all non-recurring fair value measurements during the quarter ended March 31, 2019. All fair value measurements were based on unobservable inputs (Level 3). These amounts exclude fair value measurements made for restaurants that were subsequently closed or refranchised prior to those respective quarter-end dates.

		Amount	Account Classification
ROU impairment prior to the adoption of ASC 842(a)	$	82	Retained Earnings
Incremental restaurant-level impairment   upon adoption of ASC 842(b)		12	Closure and impairment expenses, net
Total		94

(a) ROU impairment prior to the adoption of ASC 842 represents an impairment charge on operating lease right-of-use assets arising from existing operating leases as of January 1, 2019. After netting with related impact on deferred taxes of $19 million and the impact on noncontrolling interests of $3 million, we recorded a cumulative adjustment of $60 million to retained earnings in accordance with the transition guidance for the new lease standard. For those restaurants under operating leases with full impairment on their long-lived assets (primarily property, plant and equipment) before January 1, 2019, an additional impairment charge would have been recorded before January 1, 2019 had the operating lease right-of-use assets been recognized at the time of impairment. The fair value measurements used in these impairment evaluations were based on discounted cash flow estimates using unobservable inputs (Level 3) at the time of impairment.

(b) Incremental restaurant-level impairment upon adoption of ASC 842 represents additional impairment charges as a result of adopting the new lease standard in the first quarter of 2019. We performed an additional impairment evaluation of long-lived assets of restaurants, which includes operating lease right-of-use assets, and property, plant and equipment. The fair value measurements used in these impairment evaluations were based on discounted cash flow estimates using unobservable inputs (Level 3).

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Income Taxes (Tables)

3 Months Ended

Mar. 31, 2019

Income Tax Disclosure [Abstract]

Income Tax And Effective Tax Rate

	Quarter Ended
	3/31/2019			3/31/2018
Income tax provision	$	93		$	107
Effective tax rate		28.9	%		26.6	%

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Segment Reporting (Tables)

3 Months Ended

Mar. 31, 2019

Segment Reporting [Abstract]

Schedule of Segment Reporting Information, by Segment

	Quarter Ended 3/31/2019
Revenues	KFC		Pizza Hut		All Other Segments		Corporate and Unallocated(a)		Combined		Elimination			Consolidated
Revenue from external     customers	$	1,592	$	543	$	23	$	146		2,304	$	—		$	2,304
Inter-segment revenue		—		—		9		—		9		(9	)		—
Total	$	1,592	$	543	$	32	$	146	$	2,313	$	(9	)	$	2,304

	Quarter Ended 3/31/2018
Revenues	KFC		Pizza Hut		All Other Segments		Corporate and Unallocated(a)		Combined		Elimination			Consolidated
Revenue from external     customers	$	1,498	$	565	$	20	$	138		2,221	$	—		$	2,221
Inter-segment revenue		—		—		1		—		1		(1	)		—
Total	$	1,498	$	565	$	21	$	138	$	2,222	$	(1	)	$	2,221

	Quarter Ended
Operating Profit	3/31/2019			3/31/2018
KFC(b)	$	288		$	296
Pizza Hut		50			34
All Other Segments		(5	)		(4	)
Unallocated revenues from transactions with    franchisees and unconsolidated affiliates(c)		145			137
Unallocated Other revenues		1			1
Unallocated expenses from transactions with    franchisees and unconsolidated affiliates(c)		(143	)		(137	)
Unallocated Other operating costs and expenses		(1	)		(1	)
Unallocated and corporate G&A expenses		(33	)		(33	)
Unallocated Other income(d)		1			102
Operating Profit	$	303		$	395
Interest income, net(a)		9			8
Investment gain(a)		10			—
Income Before Income Taxes	$	322		$	403

	Quarter Ended
Impairment Charges	3/31/2019		3/31/2018
KFC(e)	$	8	$	1
Pizza Hut(e)		5		1
All Other Segments		1	$	—
	$	14	$	2

	Total Assets
	3/31/2019		12/31/2018
KFC(f)	$	3,082	$	1,745
Pizza Hut		1,073		558
All Other Segments		161		132
Corporate and Unallocated(g)		2,446		2,175
	$	6,762	$	4,610

(a) Amounts have not been allocated to any segment for performance reporting purposes.

(b) Includes equity income from investments in unconsolidated affiliates of $23 million and $23 million for the quarters ended March 31, 2019 and 2018, respectively.

(c) Primarily includes revenues and associated expenses of transactions with franchisee and unconsolidated affiliates derived from the Company’s central procurement model whereby the Company centrally purchases substantially all food and paper products from suppliers and then sells and delivers to restaurants, including franchisees and unconsolidated affiliates. Amounts have not been allocated to any segment for purposes of making operating decisions or assessing financial performance as the transactions are deemed corporate revenues and expenses in nature.

(d) Primarily includes gain from re-measurement of the previously held equity interest in connection with the acquisition of Wuxi KFC (See Note 2).

(e) Primarily includes store closure impairment charges as well as incremental restaurant-level impairment charges as a result of adopting ASC 842 (See Note 11).

(f) Includes investments in unconsolidated affiliates.

(g) Primarily includes cash and cash equivalents, short-term investments, investment in equity securities, and inventories that are centrally managed.

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Description of the Business - Narrative (Details)		3 Months Ended
	Oct. 31, 2016	Mar. 31, 2019
Organization Consolidation And Presentation Of Financial Statements [Abstract]
Entity, date of incorporation		Apr. 01, 2016
Entity incorporation, state name		Delaware
Exchange ratio of shares	1
Expiration term of master license agreement		50 years
Additional consecutive renewal terms of license agreement		50 years
Percentage of license fees on net sales		3.00%

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Basis of Presentation - Narrative (Details) - USD ($) $ in Millions		3 Months Ended
	Jan. 01, 2019	Mar. 31, 2018	Mar. 31, 2019	Dec. 31, 2018	[1]
Summary Of Significant Accounting Policies [Line Items]
Operating lease right-of-use assets			$ 2,016
Operating lease liabilities			$ 2,233
ASU 2016-02 [Member]
Summary Of Significant Accounting Policies [Line Items]
Operating lease right-of-use assets	$ 2,000			$ 1,997
Operating lease liabilities	2,200
Asset impairment charge net of related impact on deferred taxes and noncontrolling interests	$ 60
Wuxi KFC [Member]
Summary Of Significant Accounting Policies [Line Items]
Percentage of additional equity interest acquired		36.00%
Cash consideration paid to acquire interest		$ 98
Equity interest in acquiree, including subsequent acquisition, percentage		83.00%

[1] Represents the net result of capitalization of operating lease payments and reclassification of prepaid rent, initial direct cost, deferred rent accrual and lease incentives, and offset by impairment of operating lease right-of-use assets that existed prior to the date of adoption.

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Basis of Presentation - Summary of Effect on Consolidated Balance Sheets as Result of Adopting ASU 2016-02 (Details) - USD ($) $ in Millions		Mar. 31, 2019	Jan. 01, 2019	Dec. 31, 2018		Mar. 31, 2018	Dec. 31, 2017
Current Assets
Cash and cash equivalents		$ 1,247		$ 1,266		$ 1,318	$ 1,059
Short-term investments		284		122
Accounts receivable, net		77		80
Inventories, net		280		307
Prepaid expenses and other current assets		179		177
Total Current Assets		2,067		1,952
Property, plant and equipment, net		1,620		1,615
Operating lease right-of-use assets		2,016
Goodwill		273		266
Intangible assets, net		111		116
Deferred income taxes		104		89
Investments in unconsolidated affiliates		44		81
Other assets		527		491
Total Assets		6,762		4,610		$ 4,610
Current Liabilities
Accounts payable and other current liabilities		1,507		1,199
Income taxes payable		80		54
Total Current Liabilities		1,587		1,253
Non-current operating lease liabilities		1,869
Non-current finance lease liabilities		23		25
Other liabilities		220		355
Total Liabilities		3,699		1,633
Redeemable Noncontrolling Interest		1		1
Equity
Common stock		4		4
Treasury stock		(525)		(460)
Additional paid-in capital		2,408		2,402
Retained earnings		1,060		944
Accumulated other comprehensive loss		39		(17)
Total Equity – Yum China Holdings, Inc.		2,986		2,873
Noncontrolling interests		76		103
Total Equity		3,062		2,976
Total Liabilities, Redeemable Noncontrolling Interest and Equity		$ 6,762		4,610
As Adjusted [Member]
Current Assets
Cash and cash equivalents			$ 1,266
Short-term investments			122
Accounts receivable, net			80
Inventories, net			307
Prepaid expenses and other current assets			138
Total Current Assets			1,913
Property, plant and equipment, net			1,614
Operating lease right-of-use assets			1,997
Goodwill			266
Intangible assets, net			114
Deferred income taxes			108
Investments in unconsolidated affiliates			80
Other assets			487
Total Assets			6,579
Current Liabilities
Accounts payable and other current liabilities			1,519
Income taxes payable			54
Total Current Liabilities			1,573
Non-current operating lease liabilities			1,860
Non-current finance lease liabilities			25
Other liabilities			207
Total Liabilities			3,665
Redeemable Noncontrolling Interest			1
Equity
Common stock			4
Treasury stock			(460)
Additional paid-in capital			2,402
Retained earnings			884
Accumulated other comprehensive loss			(17)
Total Equity – Yum China Holdings, Inc.			2,813
Noncontrolling interests			100
Total Equity			2,913
Total Liabilities, Redeemable Noncontrolling Interest and Equity			6,579
Effect of Adoption [Member]
Current Assets
Prepaid expenses and other current assets	[1]			(39)
Total Current Assets				(39)
Property, plant and equipment, net				(1)
Operating lease right-of-use assets			$ 2,000	1,997	[2]
Intangible assets, net	[3]			(2)
Deferred income taxes	[4]			19
Investments in unconsolidated affiliates				(1)
Other assets	[3]			(4)
Total Assets				1,969
Current Liabilities
Accounts payable and other current liabilities	[5]			320
Total Current Liabilities				320
Non-current operating lease liabilities	[6]			1,860
Other liabilities	[7]			(148)
Total Liabilities				2,032
Equity
Retained earnings	[8]			(60)
Total Equity – Yum China Holdings, Inc.				(60)
Noncontrolling interests	[9]			(3)
Total Equity				(63)
Total Liabilities, Redeemable Noncontrolling Interest and Equity				$ 1,969

[1] Represents the current portion of prepaid rent reclassified to operating lease right-of-use assets.

[2] Represents the net result of capitalization of operating lease payments and reclassification of prepaid rent, initial direct cost, deferred rent accrual and lease incentives, and offset by impairment of operating lease right-of-use assets that existed prior to the date of adoption.

[3] Represents initial direct cost, favorable lease and non-current prepaid rent reclassified to operating lease right-of-use assets.

[4] Represents the deferred tax impact related to impairment of operating lease right-of-use assets.

[5] Represents recognition of the current portion of operating lease liabilities, offset by the reclassification of accrued rental payments and the current portion of deferred rent accrual to operating lease right-of-use assets.

[6] Represents recognition of the non-current operating lease liabilities.

[7] Represents reclassification of the non-current portion of deferred rent accrual and lease incentives to operating lease right-of-use assets.

[8] Represents an impairment charge on operating lease right-of-use assets arising from existing operating leases as of January 1, 2019, net of related impact on deferred taxes and noncontrolling interests, with a corresponding reduction to the carrying amount of operating lease right-of-use assets.

[9] Represents impairment of operating lease right-of-use assets attributable to noncontrolling interests.

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Revenue Recognition - Narrative (Details) - USD ($) $ in Millions	3 Months Ended		12 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018	Sep. 30, 2018
Revenue From Contract With Customer [Line Items]
Prepaid gift cards expiration period	36 months
Product vouchers maximum expiration period	12 months
Points expiration period	18 months
Number of days from the period in which the corresponding sales occur that trade receivables are generally due	30 days
Impairment losses related to costs to obtain contracts	$ 0		$ 0
Costs to obtain contracts	10		$ 8	$ 10
Revenue recognized	$ 33	$ 19
KFC [Member]
Revenue From Contract With Customer [Line Items]
Franchisee agreement term	10 years
Pizza Hut [Member]
Revenue From Contract With Customer [Line Items]
Franchisee agreement term	10 years
Little Sheep [Member] | Minimum [Member]
Revenue From Contract With Customer [Line Items]
Franchisee agreement term	5 years
Little Sheep [Member] | Maximum [Member]
Revenue From Contract With Customer [Line Items]
Franchisee agreement term	10 years

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Revenue Recognition - Schedule of Disaggregation of Revenue by Types of Arrangements and Segments (Details) - USD ($) $ in Millions		3 Months Ended
		Mar. 31, 2019	Mar. 31, 2018
Disaggregation Of Revenue [Line Items]
Total revenues		$ 2,304	$ 2,221
KFC [Member]
Disaggregation Of Revenue [Line Items]
Total revenues		1,592	1,498
Pizza Hut [Member]
Disaggregation Of Revenue [Line Items]
Total revenues		543	565
All Other Segments [Member]
Disaggregation Of Revenue [Line Items]
Total revenues		23	20
Corporate and Unallocated [Member]
Disaggregation Of Revenue [Line Items]
Total revenues	[1]	146	138
Combined [Member]
Disaggregation Of Revenue [Line Items]
Total revenues		2,313	2,222
Elimination [Member]
Disaggregation Of Revenue [Line Items]
Total revenues		(9)	(1)
Elimination [Member] | All Other Segments [Member]
Disaggregation Of Revenue [Line Items]
Total revenues		(9)	1
Operating Segments [Member]
Disaggregation Of Revenue [Line Items]
Total revenues		2,304	2,221
Operating Segments [Member] | KFC [Member]
Disaggregation Of Revenue [Line Items]
Total revenues		1,592	1,498
Operating Segments [Member] | Pizza Hut [Member]
Disaggregation Of Revenue [Line Items]
Total revenues		543	565
Operating Segments [Member] | All Other Segments [Member]
Disaggregation Of Revenue [Line Items]
Total revenues		32	21
Company Sales [Member]
Disaggregation Of Revenue [Line Items]
Revenues		2,089	2,016
Company Sales [Member] | KFC [Member]
Disaggregation Of Revenue [Line Items]
Revenues		1,539	1,444
Company Sales [Member] | Pizza Hut [Member]
Disaggregation Of Revenue [Line Items]
Revenues		541	564
Company Sales [Member] | All Other Segments [Member]
Disaggregation Of Revenue [Line Items]
Revenues		9	8
Company Sales [Member] | Combined [Member]
Disaggregation Of Revenue [Line Items]
Revenues		2,089	2,016
Franchise [Member]
Disaggregation Of Revenue [Line Items]
Revenues		39	40
Franchise [Member] | KFC [Member]
Disaggregation Of Revenue [Line Items]
Revenues		36	37
Franchise [Member] | Pizza Hut [Member]
Disaggregation Of Revenue [Line Items]
Revenues		1	1
Franchise [Member] | All Other Segments [Member]
Disaggregation Of Revenue [Line Items]
Revenues		2	2
Franchise [Member] | Combined [Member]
Disaggregation Of Revenue [Line Items]
Revenues		39	40
Transactions With Franchisees and Unconsolidated Affiliates [Member]
Disaggregation Of Revenue [Line Items]
Revenues		170	161
Transactions With Franchisees and Unconsolidated Affiliates [Member] | KFC [Member]
Disaggregation Of Revenue [Line Items]
Revenues		17	17
Transactions With Franchisees and Unconsolidated Affiliates [Member] | Pizza Hut [Member]
Disaggregation Of Revenue [Line Items]
Revenues		1
Transactions With Franchisees and Unconsolidated Affiliates [Member] | All Other Segments [Member]
Disaggregation Of Revenue [Line Items]
Revenues		7	7
Transactions With Franchisees and Unconsolidated Affiliates [Member] | Corporate and Unallocated [Member]
Disaggregation Of Revenue [Line Items]
Revenues		145	137
Transactions With Franchisees and Unconsolidated Affiliates [Member] | Combined [Member]
Disaggregation Of Revenue [Line Items]
Revenues		170	161
Other Revenues [Member]
Disaggregation Of Revenue [Line Items]
Revenues		6	4
Other Revenues [Member] | All Other Segments [Member]
Disaggregation Of Revenue [Line Items]
Revenues		14	4
Other Revenues [Member] | Corporate and Unallocated [Member]
Disaggregation Of Revenue [Line Items]
Revenues		1	1
Other Revenues [Member] | Combined [Member]
Disaggregation Of Revenue [Line Items]
Revenues		15	5
Other Revenues [Member] | Elimination [Member]
Disaggregation Of Revenue [Line Items]
Revenues		$ (9)	$ (1)

[1] Amounts have not been allocated to any segment for performance reporting purposes.

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Revenue Recognition (Details) - USD ($) $ in Millions	Mar. 31, 2019	Dec. 31, 2018
Contract liabilities
- Deferred revenue related to prepaid stored-value products	$ 80	$ 73
- Deferred revenue related to customer loyalty programs	22	17
- Deferred revenue related to upfront fees	39	37
Total	$ 141	$ 127

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Earnings Per Common Share ("EPS") (Details) - USD ($) $ / shares in Units, shares in Millions, $ in Millions		3 Months Ended
		Mar. 31, 2019	Mar. 31, 2018
Earnings Per Share [Abstract]
Net Income – Yum China Holdings, Inc.		$ 222	$ 288
Weighted-average common shares outstanding (for basic calculation)	[1]	379	386
Effect of dilutive share-based awards	[1]	7	12
Effect of dilutive warrants	[2]	2	3
Weighted-average common and dilutive potential common shares outstanding (for diluted calculation)		388	401
Basic Earnings Per Common Share		$ 0.59	$ 0.75
Diluted Earnings Per Common Share		$ 0.57	$ 0.72
Share-based awards excluded from the diluted EPS computation	[3]	2	1

[1] As a result of the separation, shares of Yum China common stock were distributed to YUM’s shareholders of record as of October 19, 2016 and included in the calculated weighted-average common shares outstanding. Holders of outstanding YUM equity awards generally received both adjusted YUM awards and Yum China awards, or adjusted awards on shares of common stock of either YUM or Yum China in their entirety. Any subsequent exercise of these awards, whether held by the Company’s employees or YUM’s employees, would increase the number of common shares outstanding. The outstanding equity awards are included in the computation of diluted EPS, if there is dilutive effect.

[2] Pursuant to the investment agreements dated September 1, 2016, Yum China issued to strategic investors two tranches of warrants on January 9, 2017, with each tranche providing the right to purchase 8,200,405 shares of Yum China common stock, at an exercise price of $31.40 and $39.25 per share, respectively, subject to customary anti-dilution adjustments. The warrants may be exercised at any time through October 31, 2021. The outstanding warrants are included in the computation of diluted EPS, if there is dilutive effect when the average market price of Yum China common stock for the period exceeds the exercise price of the warrants.

[3] These outstanding stock appreciation rights, restricted stock units and performance share units were not included in the computation of diluted EPS because to do so would have been antidilutive for the quarters presented.

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Earnings Per Common Share ("EPS") (Parenthetical) (Details)	Jan. 09, 2017 Tranche $ / shares shares
Class Of Warrant Or Right [Line Items]
Number of tranches of warrants | Tranche	2
Tranche One Warrants [Member]
Class Of Warrant Or Right [Line Items]
Warrants to purchase shares of common stock | shares	8,200,405
Exercise price of warrants | $ / shares	$ 31.40
Tranche Two Warrants [Member]
Class Of Warrant Or Right [Line Items]
Warrants to purchase shares of common stock | shares	8,200,405
Exercise price of warrants | $ / shares	$ 39.25

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Equity (Details) - USD ($) shares in Millions, $ in Millions	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Class Of Stock [Line Items]
Balance at December 31, 2018	$ 2,976
Net Income	229	$ 296
Foreign currency translation adjustments	59	90
Comprehensive income - including noncontrolling interests	288	386
Cash dividends declared ($0.12 per common share)	(46)
Dividends declared	(34)
Repurchase of shares of common stock	$ (65)	$ 0
Repurchase of shares of common stock, shares	(1.7)	0.0
Share-based compensation	$ 6
Cumulative effect of accounting change	(63)
Balance at March 31, 2019	3,062
Common Stock [Member]
Class Of Stock [Line Items]
Balance at December 31, 2018	$ 4
Balance (in shares) at Dec. 31, 2018	392.0
Exercise and vesting of share-based awards, shares	2.0
Balance at March 31, 2019	$ 4
Balance (in shares) at March 31, 2019	394.0
Additional Paid-in Capital [Member]
Class Of Stock [Line Items]
Balance at December 31, 2018	$ 2,402
Share-based compensation	6
Balance at March 31, 2019	2,408
Retained Earnings [Member]
Class Of Stock [Line Items]
Balance at December 31, 2018	944
Net Income	222
Cash dividends declared ($0.12 per common share)	(46)
Cumulative effect of accounting change	(60)
Balance at March 31, 2019	1,060
Accumulated Other Comprehensive Income (Loss) [Member]
Class Of Stock [Line Items]
Balance at December 31, 2018	(17)
Foreign currency translation adjustments	56
Balance at March 31, 2019	39
Treasury Stock [Member]
Class Of Stock [Line Items]
Balance at December 31, 2018	$ (460)
Balance (in shares) at Dec. 31, 2018	(13.0)
Repurchase of shares of common stock	$ (65)
Repurchase of shares of common stock, shares	(2.0)
Balance at March 31, 2019	$ (525)
Balance (in shares) at March 31, 2019	(15.0)
Noncontrolling Interests [Member]
Class Of Stock [Line Items]
Balance at December 31, 2018	$ 103
Net Income	7
Foreign currency translation adjustments	3
Dividends declared	(34)
Cumulative effect of accounting change	(3)
Balance at March 31, 2019	76
Redeemable Noncontrolling Interest [Member]
Class Of Stock [Line Items]
Balance at December 31, 2018	1
Balance at March 31, 2019	$ 1

XML

Equity (Parenthetical) (Details) - $ / shares	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Equity [Abstract]
Cash dividends declared, per common share	$ 0.12	$ 0.10

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Equity - Narrative (Details) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Oct. 30, 2018	Oct. 04, 2017	Feb. 07, 2017
Equity [Abstract]
Stock repurchase program, authorized amount			$ 1,400,000,000	$ 550,000,000	$ 300,000,000
Treasury stock repurchased, shares	1,700,000	0
Treasury stock repurchased, value	$ 65,000,000	$ 0
Value of shares repurchased with trade dates in the current reporting quarter, but settlement dates subsequent to the current quarter	$ 2,000,000
Number of shares repurchased with trade dates in the current reporting quarter, but settlement dates subsequent to the current quarter	46,000
Stock repurchase program, remaining authorized repurchase amount	$ 895,000,000

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Items Affecting Comparability of Net Income and Cash Flows - Narrative (Details) - USD ($) shares in Millions, $ in Millions		3 Months Ended
		Mar. 31, 2019	Mar. 31, 2018	Sep. 30, 2018
Gain from re-measurement of previously held ownership interest at fair value	[1]		$ 98
Unrealized investment gain	[2]	$ 10
Transaction tax		8
ASU 2016-02 [Member]
Impairment of long lived asset		12
Meituan Dianping [Member]
Number of ordinary shares subscribed				8.4
Maximum percentage of ordinary shares subscribed				1.00%
Fair value of Investment in Meituan's ordinary shares		57		$ 74
Unrealized investment gain		$ 10
Wuxi KFC [Member]
Gain from re-measurement of previously held ownership interest at fair value			$ 98
Ownership interest previously held			47.00%

[1] As a result of the acquisition of Wuxi KFC in the first quarter of 2018, as disclosed in Note 2, the Company recognized a gain of $98 million from the re-measurement of our previously held 47% equity interest at fair value, which was not allocated to any segment for performance reporting purposes.

[2] Amounts have not been allocated to any segment for performance reporting purposes.

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Other Income, Net (Details) - USD ($) $ in Millions		3 Months Ended
		Mar. 31, 2019	Mar. 31, 2018
Other Income And Expenses [Abstract]
Equity income from investments in unconsolidated affiliates		$ 23	$ 23
Gain from re-measurement of equity interest upon acquisition	[1]		98
Foreign exchange impact and other		(4)	5
Other income, net		$ 19	$ 126

[1] As a result of the acquisition of Wuxi KFC in the first quarter of 2018, as disclosed in Note 2, the Company recognized a gain of $98 million from the re-measurement of our previously held 47% equity interest at fair value, which was not allocated to any segment for performance reporting purposes.

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Other Income, Net (Parenthetical) (Details) $ in Millions	3 Months Ended
	Mar. 31, 2018 USD ($)
Other Operating Income (Expense), Net
Gain from re-measurement of previously held ownership interest at fair value	$ 98	[1]
Wuxi KFC [Member]
Other Operating Income (Expense), Net
Gain from re-measurement of previously held ownership interest at fair value	$ 98
Ownership interest previously held	47.00%

[1] As a result of the acquisition of Wuxi KFC in the first quarter of 2018, as disclosed in Note 2, the Company recognized a gain of $98 million from the re-measurement of our previously held 47% equity interest at fair value, which was not allocated to any segment for performance reporting purposes.

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Supplemental Balance Sheet Information (Details) - USD ($) $ in Millions	Mar. 31, 2019	Dec. 31, 2018	Sep. 30, 2018
Accounts Receivable, net
Accounts receivable, gross	$ 79	$ 81
Allowance for doubtful accounts	(2)	(1)
Accounts receivable, net	77	80
Prepaid Expenses and Other Current Assets
Receivables from payment processors and aggregators	46	49
Dividends receivable from unconsolidated affiliates	53	20
Prepaid rent		42
Other prepaid expenses and current assets	80	66
Prepaid expenses and other current assets	179	177
Other Assets
VAT assets	249	226
Land use right	141	138
Long-term deposits	67	64
Investment in equity securities	57	47
Costs to obtain contracts	10	8	$ 10
Others	3	8
Other Assets	527	491
Accounts Payable and Other Current Liabilities
Accounts payable	556	619
Operating leases liabilities	364
Accrued compensation and benefits	163	200
Contract liabilities	109	96
Accrued capital expenditures	106	137
Accrued marketing expenses	76	32
Other current liabilities	133	115
Accounts payable and other current liabilities	1,507	1,199
Other Liabilities
Accrued income tax payable	80	71
Deferred income tax liabilities	64	65
Contract liabilities	32	31
Deferred rent accrual		144
Other non-current liabilities	44	44
Other liabilities	$ 220	$ 355

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Supplemental Balance Sheet Information (Details 1) - USD ($) $ in Millions	Mar. 31, 2019	Dec. 31, 2018
Property Plant And Equipment [Line Items]
Property, plant and equipment, gross	$ 3,453	$ 3,348
Accumulated depreciation	(1,833)	(1,733)
Property, plant and equipment, net	1,620	1,615
Buildings and Improvements [Member]
Property Plant And Equipment [Line Items]
Property, plant and equipment, gross	2,209	2,121
Finance Leases, Primarily Buildings [Member]
Property Plant And Equipment [Line Items]
Property, plant and equipment, gross	26	26
Machinery, Equipment and Construction in Progress [Member]
Property Plant And Equipment [Line Items]
Property, plant and equipment, gross	$ 1,218	$ 1,201

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Goodwill and Intangible Assets (Details) - USD ($) $ in Millions		3 Months Ended
		Mar. 31, 2019	Dec. 31, 2018
Goodwill [Line Items]
Goodwill, gross		$ 655	$ 648
Accumulated impairment losses	[1]	(382)	(382)
Goodwill, net		273	266
Effect of currency translation adjustment		7
KFC [Member]
Goodwill [Line Items]
Goodwill, gross		244	238
Goodwill, net		244	238
Effect of currency translation adjustment		6
Pizza Hut [Member]
Goodwill [Line Items]
Goodwill, gross		20	19
Goodwill, net		20	19
Effect of currency translation adjustment		1
All Other Segments [Member]
Goodwill [Line Items]
Goodwill, gross		391	391
Accumulated impairment losses	[1]	(382)	(382)
Goodwill, net		$ 9	$ 9

[1] Accumulated impairment losses represent Little Sheep goodwill impairment.

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Goodwill and Intangible Assets (Details 1) - USD ($) $ in Millions		Mar. 31, 2019		Dec. 31, 2018
Definite-lived intangible assets
Gross Carrying Amount		$ 191	[1]	$ 195
Accumulated Amortization		(122)		(120)
Accumulated impairment losses		(12)		(12)
Net Carrying Amount		57		63
Total intangible assets
Gross Carrying Amount		245	[1]	248
Intangible assets, net		111		116
Little Sheep [Member] | Trademark [Member]
Indefinite-lived Intangible Assets (Excluding Goodwill) [Abstract]
Net Carrying Amount		54		53
Reacquired franchise rights [Member]
Definite-lived intangible assets
Gross Carrying Amount		154	[1]	150
Accumulated Amortization		(108)		(100)
Net Carrying Amount		46		50
Daojia platform [Member]
Definite-lived intangible assets
Gross Carrying Amount		16	[1]	16
Accumulated Amortization		(3)		(3)
Accumulated impairment losses		(10)		(10)
Net Carrying Amount		3		3
Customer-related assets [Member]
Definite-lived intangible assets
Gross Carrying Amount		12	[1]	12
Accumulated Amortization		(8)		(8)
Accumulated impairment losses		(2)		(2)
Net Carrying Amount		2		2
Others [Member]
Definite-lived intangible assets
Gross Carrying Amount	[2]	9	[1]	17
Accumulated Amortization	[2]	(3)		(9)
Net Carrying Amount	[2]	$ 6		$ 8

[1] Changes in gross carrying amount include effect of currency translation adjustment.

[2] Decrease in Others during the quarter ended March 31, 2019 is primarily due to the reclassification of favorable lease assets, with gross carrying amount of $7 million and accumulated amortization of $5 million, to right-of-use assets upon adoption of ASC 842.

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Goodwill and Intangible Assets (Parenthetical) (Details 1) $ in Millions	3 Months Ended
	Mar. 31, 2019 USD ($)
Goodwill And Intangible Assets Disclosure [Abstract]
Reclassification of favourable lease assets right-of-use assets	$ 7
Lease assets accumulated amortization	$ 5

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Goodwill and Intangible Assets - Narrative (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Definite-lived intangible assets
Definite-lived intangible assets, amortization expense	$ 6	$ 6
Expected amortization expense for the unamortized definite-lived intangible assets - remainder of 2019	11
Expected amortization expense for the unamortized definite-lived intangible assets - 2020	13
Expected amortization expense for the unamortized definite-lived intangible assets - 2021	13
Expected amortization expense for the unamortized definite-lived intangible assets - 2022	13
Expected amortization expense for the unamortized definite-lived intangible assets - 2023	$ 3

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Leases - Summary of Supplemental Balance Sheet (Details) - USD ($) $ in Millions	Mar. 31, 2019	Dec. 31, 2018
Schedule Of Lease Assets And Liabilities [Abstract]
Operating lease right-of-use assets	$ 2,016
Operating Lease, Right-of-Use Asset, Statement of Financial Position [Extensible List]	yumc:OperatingLeaseRightOfUseAssetsMember
Finance lease right-of-use assets	$ 14
Finance Lease, Right-of-Use Asset, Statement of Financial Position [Extensible List]	us-gaap:PropertyPlantAndEquipmentMember
Total leased assets	$ 2,030
Operating leases liabilities	364
Finance lease liabilities, Current	$ 2
Operating Lease, Liability, Current, Statement of Financial Position [Extensible List]	yumc:AccountsPayableAndOtherCurrentLiabilitiesMember
Finance Lease, Liability, Current, Statement of Financial Position [Extensible List]	yumc:AccountsPayableAndOtherCurrentLiabilitiesMember
Non-current operating lease liabilities	$ 1,869
Non-current finance lease liabilities	$ 23	$ 25
Operating Lease, Liability, Noncurrent, Statement of Financial Position [Extensible List]	yumc:NonCurrentOperatingLeaseLiabilitiesMember
Finance Lease, Liability, Noncurrent, Statement of Financial Position [Extensible List]	yumc:NonCurrentFinancingLeaseLiabilitiesMember
Total lease liabilities	$ 2,258

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Leases - Summary of Lease Cost (Details) $ in Millions	3 Months Ended
	Mar. 31, 2019 USD ($)
Lease Cost [Abstract]
Operating lease cost	$ 117
Variable lease cost	91
Short-term lease cost	3
Sublease income	(7)
Total lease cost	$ 204

XML

Leases - Schedule of Supplemental Cash Flow Information (Details) $ in Millions	3 Months Ended
	Mar. 31, 2019 USD ($)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$ 127
Right-of-use assets obtained in exchange for new lease liabilities:
Operating leases	$ 57

XML

Leases - Schedule of Lease Term and Discount Rate (Details)	Mar. 31, 2019
Weighted-average remaining lease term (years)
Operating leases	7 years 3 months 18 days
Finance leases	12 years
Weighted-average discount rate
Operating leases	6.10%
Finance leases	5.70%

XML

Leases - Summary of Maturities of Lease Liabilities (Details) - USD ($) $ in Millions	Mar. 31, 2019	Dec. 31, 2018
Amount of Operating Leases
Remainder of 2019	$ 372
2020	460
2021	413
2022	353
2023	287
Thereafter	903
Total undiscounted lease payment	2,788
Less: Imputed Interest	555
Present value of lease liabilities	2,233
Amount of Finance Leases
Remainder of 2019	2
2020	3
2021	3
2022	3
2023	3
Thereafter	21
Total undiscounted lease payment	35
Less: Imputed Interest	10	$ 10
Present value of lease liabilities	25	$ 27
Amount of Operating And Finance Leases, Total
Remainder of 2019	374
2020	463
2021	416
2022	356
2023	290
Thereafter	924
Total undiscounted lease payment	2,823
Less: Imputed Interest	565
Present value of lease liabilities	$ 2,258

XML

Leases - Narrative (Details) - USD ($) $ in Millions	Mar. 31, 2019	Dec. 31, 2018
Schedule Of Lease Assets And Liabilities [Line Items]
Additional lease signed but not commenced	$ 87
Present value of lease liabilities	25	$ 27
Less: Imputed Interest	10	10
Finance lease liabilities, Current	$ 2
Accounts Payable and Other Current Liabilities [Member]
Schedule Of Lease Assets And Liabilities [Line Items]
Finance lease liabilities, Current		$ 2
Minimum [Member]
Schedule Of Lease Assets And Liabilities [Line Items]
Lease term	1 year
Maximum [Member]
Schedule Of Lease Assets And Liabilities [Line Items]
Lease term	20 years

XML

Leases - Summary of Future Minimum Lease Payments under Non-Cancellable Leases (Details) $ in Millions	Dec. 31, 2018 USD ($)
Operating leases, future minimum commitments [Abstract]
2019	$ 466
2020	440
2021	394
2022	336
2023	275
Thereafter	864
Operating leases, future minimum payments due	2,775
Finance leases, future minimum commitments [Abstract]
2019	3
2020	3
2021	3
2022	3
2023	3
Thereafter	22
Finance leases, total future minimum commitments	37
Operating and Finance leases, future minimum commitments [Abstract]
2019	469
2020	443
2021	397
2022	339
2023	278
Thereafter	886
Operating and finance leases, future minimum commitments	$ 2,812

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Fair Value Measurements - Narrative (Details)	Mar. 31, 2019 USD ($)
Fair Value Disclosures [Abstract]
Transfer from Level 1 to Level 2	$ 0
Transfer from Level 2 to Level 1	$ 0

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Fair Value Measurements - Assets Measured on Recurring Basis or Disclosed at Fair Value (Details) - Recurring Fair Value Measurements [Member] - USD ($) $ in Millions		Mar. 31, 2019	Dec. 31, 2018
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Cash equivalents, Fair Value Measurement or Disclosure		$ 938	$ 949
Short-term investments, Fair Value Measurement or Disclosure		284	122
Total assets, Fair Value Measurement or Disclosure		1,279	1,118
Level 1 [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Cash equivalents, Fair Value Measurement or Disclosure		218	379
Total assets, Fair Value Measurement or Disclosure		275	426
Level 2 [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Cash equivalents, Fair Value Measurement or Disclosure		720	570
Short-term investments, Fair Value Measurement or Disclosure		284	122
Total assets, Fair Value Measurement or Disclosure		1,004	692
Time Deposits [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Cash equivalents, Fair Value Measurement or Disclosure		720	570
Short-term investments, Fair Value Measurement or Disclosure		284	122
Time Deposits [Member] | Level 2 [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Cash equivalents, Fair Value Measurement or Disclosure		720	570
Short-term investments, Fair Value Measurement or Disclosure		284	122
Money Market Funds [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Cash equivalents, Fair Value Measurement or Disclosure		129	226
Money Market Funds [Member] | Level 1 [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Cash equivalents, Fair Value Measurement or Disclosure		129	226
Fixed Rate Debt Securities [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Cash equivalents, Fair Value Measurement or Disclosure	[1]	89	153
Fixed Rate Debt Securities [Member] | Level 1 [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Cash equivalents, Fair Value Measurement or Disclosure	[1]	89	153
Investment in Equity Securities [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Other assets, Fair Value Measurement or Disclosure		57	47
Investment in Equity Securities [Member] | Level 1 [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Other assets, Fair Value Measurement or Disclosure		$ 57	$ 47

[1] Classified as held-to-maturity investments and measured at amortized cost.

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Fair Value Measurements - Schedule of Amounts Recognized From Non-recurring Fair Value Measurements (Details) - ASU 2016-02 [Member] $ in Millions	3 Months Ended
	Mar. 31, 2019 USD ($)
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Incremental restaurant-level impairment upon adoption of ASC 842	$ 12
Fair Value, Measurements, Nonrecurring [Member] | Level 3 [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total accumulated impairment charges on ROU assets	94
Fair Value, Measurements, Nonrecurring [Member] | Level 3 [Member] | Closure and Impairment Expense [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Incremental restaurant-level impairment upon adoption of ASC 842	12	[1]
Fair Value, Measurements, Nonrecurring [Member] | Level 3 [Member] | Cumulative Adjustment to Impairment on ROU Due to Adoption of New Accounting Pronouncement [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
ROU impairment prior to the adoption of ASC 842	$ 82	[2]

[1] Incremental restaurant-level impairment upon adoption of ASC 842 represents additional impairment charges as a result of adopting the new lease standard in the first quarter of 2019. We performed an additional impairment evaluation of long-lived assets of restaurants, which includes operating lease right-of-use assets, and property, plant and equipment. The fair value measurements used in these impairment evaluations were based on discounted cash flow estimates using unobservable inputs (Level 3).

[2] ROU impairment prior to the adoption of ASC 842 represents an impairment charge on operating lease right-of-use assets arising from existing operating leases as of January 1, 2019. After netting with related impact on deferred taxes of $19 million and the impact on noncontrolling interests of $3 million, we recorded a cumulative adjustment of $60 million to retained earnings in accordance with the transition guidance for the new lease standard. For those restaurants under operating leases with full impairment on their long-lived assets (primarily property, plant and equipment) before January 1, 2019, an additional impairment charge would have been recorded before January 1, 2019 had the operating lease right-of-use assets been recognized at the time of impairment. The fair value measurements used in these impairment evaluations were based on discounted cash flow estimates using unobservable inputs (Level 3) at the time of impairment.

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Fair Value Measurements - Schedule of Amounts Recognized From Non-recurring Fair Value Measurements (Parenthetical) (Details) - ASU 2016-02 [Member] $ in Millions	3 Months Ended
	Mar. 31, 2019 USD ($)
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Cumulative adjustment to retained earnings	$ 60
Cumulative Adjustment to Deferred Income Tax Expenses Due to Adoption of New Accounting Pronouncement [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Cumulative adjustment to opening retained earnings due to adoption of new accounting pronouncement	19
Cumulative Adjustment to Net Income (Loss) Attributable to Noncontrolling Interest Due to Adoption of New Accounting Pronouncement [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Cumulative adjustment to opening retained earnings due to adoption of new accounting pronouncement	$ 3

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Income Taxes (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Income Tax Disclosure [Abstract]
Income tax provision	$ 93	$ 107
Effective tax rate	28.90%	26.60%

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Income Taxes - Narrative (Details) - USD ($) $ in Millions	3 Months Ended	12 Months Ended
	Mar. 31, 2019	Dec. 31, 2018
Income Tax Disclosure [Abstract]
U.S. federal statutory rate, percent	21.00%
Adjustment to tax expense	$ 8	$ 36

XML

Segment Reporting - Narrative (Details)	3 Months Ended
	Mar. 31, 2019 Segment
Segment Reporting [Abstract]
Number of reportable segments	2
Number of non-reportable operating segments	6

XML

Segment Reporting (Details) - USD ($) $ in Millions		3 Months Ended
		Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018
Segment Reporting Information [Line Items]
Revenues		$ 2,304	$ 2,221
Operating Profit		303	395
Unallocated Other revenues		1	1
Unallocated Other operating costs and expenses		(1)	(1)
Unallocated and corporate G&A expenses		(33)	(33)
Unallocated Other income	[1]	1	102
Interest income, net	[2]	9	8
Investment gain	[2]	10
Income Before Income Taxes		322	403
Impairment Charges		14	2
Total Assets		6,762	4,610	$ 4,610
KFC [Member]
Segment Reporting Information [Line Items]
Revenues		1,592	1,498
Pizza Hut [Member]
Segment Reporting Information [Line Items]
Revenues		543	565
All Other Segments [Member]
Segment Reporting Information [Line Items]
Revenues		23	20
Corporate and Unallocated [Member]
Segment Reporting Information [Line Items]
Revenues	[2]	146	138
Unallocated revenues from transactions with franchisees and unconsolidated affiliates	[3]	145	137
Unallocated revenues from transactions with franchisees and unconsolidated affiliates	[3]	(143)	(137)
Total Assets	[4]	2,446	2,175
Operating Segments [Member]
Segment Reporting Information [Line Items]
Revenues		2,304	2,221
Operating Segments [Member] | KFC [Member]
Segment Reporting Information [Line Items]
Revenues		1,592	1,498
Operating Profit	[5]	288	296
Impairment Charges	[6]	8	1
Total Assets	[7]	3,082	1,745
Operating Segments [Member] | Pizza Hut [Member]
Segment Reporting Information [Line Items]
Revenues		543	565
Operating Profit		50	34
Impairment Charges	[6]	5	1
Total Assets		1,073	558
Operating Segments [Member] | All Other Segments [Member]
Segment Reporting Information [Line Items]
Revenues		32	21
Operating Profit		(5)	(4)
Impairment Charges		1
Total Assets		161	132
Elimination [Member]
Segment Reporting Information [Line Items]
Revenues		(9)	(1)
Elimination [Member] | All Other Segments [Member]
Segment Reporting Information [Line Items]
Revenues		(9)	1
Combined [Member]
Segment Reporting Information [Line Items]
Revenues		$ 2,313	$ 2,222

[1] Primarily includes gain from re-measurement of the previously held equity interest in connection with the acquisition of Wuxi KFC (See Note 2).

[2] Amounts have not been allocated to any segment for performance reporting purposes.

[3] Primarily includes revenues and associated expenses of transactions with franchisee and unconsolidated affiliates derived from the Company’s central procurement model whereby the Company centrally purchases substantially all food and paper products from suppliers and then sells and delivers to restaurants, including franchisees and unconsolidated affiliates. Amounts have not been allocated to any segment for purposes of making operating decisions or assessing financial performance as the transactions are deemed corporate revenues and expenses in nature.

[4] Primarily includes cash and cash equivalents, short-term investments, investment in equity securities, and inventories that are centrally managed.

[5] Includes equity income from investments in unconsolidated affiliates of $23 million and $23 million for the quarters ended March 31, 2019 and 2018, respectively.

[6] Primarily includes store closure impairment charges as well as incremental restaurant-level impairment charges as a result of adopting ASC 842 (See Note 11).

[7] Includes investments in unconsolidated affiliates.

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Segment Reporting (Parenthetical) (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Segment Reporting [Abstract]
Equity income from investments in unconsolidated affiliates	$ 23	$ 23

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Contingencies - Narrative (Details) - USD ($)	1 Months Ended
	Feb. 28, 2015	Mar. 31, 2019
Commitments And Contingencies Disclosure [Abstract]
Income tax rate on gains derived from indirect transfer of assets	10.00%
Percentage of tax assessed on difference between fair market value and tax basis	10.00%
Guaranteed line of credit and loans of franchisees		$ 1,000,000
Guarantees outstanding of unconsolidated affiliates		$ 0

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Subsequent Events (Details) - Subsequent Event $ / shares in Units, $ in Millions	Apr. 29, 2019 USD ($) $ / shares
Subsequent Event [Line Items]
Dividends declared date	Apr. 29, 2019
Dividends payable, amount per share | $ / shares	$ 0.12
Dividends payable date	Jun. 17, 2019
Dividends payable, date of record	May 28, 2019
Estimated cash dividend payable | $	$ 46