YUMC 10-K & 10-Q changes, risk factors and insider trading

Risks related to our business and industry, including (a) food safety and foodborne illness concerns, (b) significant failure to maintain effective quality assurance systems for our restaurants, (c) significant liability claims, food contamination complaints from our customers or reports of incidents of food tampering, (d) health concerns arising from outbreaks of viruses or other illnesses, (e) the fact that the operation of our restaurants is subject to the terms of the master license agreement with YUM, (f) the fact that substantially all of our revenue is derived from our operations in China, (g) the fact that our success is tied to the success of YUM’s brand strength, marketing campaigns and product innovation, (h) shortages or interruptions in the availability and delivery of food products and other supplies, (i) fluctuation of raw materials prices, (j) our inability to attain our target development goals, the potential cannibalization of existing sales by aggressive development and the possibility that new restaurants will not be profitable, (k) risks associated with leasing real estate, (l) inability to obtain desirable restaurant locations on commercially reasonable terms, (m) labor shortages or increases in labor costs, (n) the fact that our success depends substantially on our corporate reputation and on the value and perception of our brands, (o) challenges and risks related to our franchise development, (p) failures or interruptions of service or security breaches in our information technology systems, (q) the occurrence of security breaches and cyber-attacks, (qr) 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, (r) failures or interruptions of service or security breaches in our information technology systems, (s) the fact that our business depends on the performance of, and our long-term relationships with, third-party mobile payment processors, internet infrastructure operators, internet service providers, delivery aggregators and third-party e-commerce platforms, (t) failure to provide timely and reliable delivery services by our restaurants,restaurants and the continued increase in delivery sales mix, (u) our growth strategy with respect to our coffee business may not be successful, (v) the anticipated benefits of our acquisitions may not be realized in a timely manner or at all, (w) challenges and risks related to our new retail business, (x) use of GenAI technologies, (y) our inability or failure to recognize, respond to and effectively manage the impact of social media, (z) failure to comply with anti-bribery or anti-corruption laws, (aa) U.S. federal income taxes, changes in tax rates, disagreements with tax authorities and imposition of new taxes, (bb) changes in consumer discretionary spending and general economic conditions, (cc) the fact that the restaurant industry in which we operate is highly competitive, (dd) loss of or failure to obtain or renew any or all of the approvals, licenses and permits to operate our business, (ee) our inability to adequately protect the intellectual property we own or have the right to use, (ff) our licensor’s failure to protect its intellectual property, (gg) seasonality and certain major events in China, (hh) our failure to detect, deter and prevent all instances of fraud or other misconduct committed by our employees, customers or other third parties, (ii) the fact that our success depends on the continuing efforts of our key management and experienced and capable personnel as well as our ability to recruit new talent, (jj) our strategic investments or acquisitions may be unsuccessful; (kk) our investment in technology and innovation may not generate the expected level of returns, (ll) fairfluctuation valueof changes for our investment in equity securities,investments measured at fair value, lower yields of our short-term investments or lower returns of our future long-term bank deposits and notes may adversely affect our financial condition and results of operations,results, and (mm) our operating results or net income may be adversely affected by our investment in equity method investees;

Risks related to doing business in China, including (a) changes in Chinese political policies and economic and social policies or conditions, (b) the interpretation and enforcement of Chinese laws, rules and regulations may change from time to time with little advance notice, and the risk that the PRC government may intervene or influence our operations, which could result in a material change in our operations and/or the value of our securities to decline, (c) the audit report included in this Form 10-K is prepared by auditors who are located in China, and in the event the PCAOB is unable to inspect our auditors, our common stock will be subject to potential delisting from the New York Stock Exchange, (d) changes in political, business, economic and trade relations between the United States and China, (e) fluctuation in the value of the Chinese Renminbi, (f) the fact that we face increasing focus and evolving requirements on environmental sustainability issues, (g) limitation on our ability to utilize our cash balances effectively, including making funds held by our China-based subsidiaries unavailable for use outside of mainland China, due to interventions in or the imposition of restrictions and limitations by the PRC government on currency conversion and payments of foreign currency and RMB out of mainland China, (h) changes in the laws and regulations of China or noncompliance with applicable laws and regulations, (i) reliance on dividends and other distributions on equity paid by our principal subsidiaries in China to fund offshore cash requirements, and uncertainties regarding the application of the withholding tax rates could have a material adverse effect on our business and financial results, (j) potential unfavorable tax consequences resulting from our classification as a China resident enterprise for Chinese enterprise income tax purposes, (k) uncertainty regarding indirect transfers of equity interests in China resident enterprises and enhanced scrutiny by Chinese tax authorities, (l) difficulties in effecting service of legal process, conducting investigations, collecting evidence, enforcing foreign judgments or bringing original actions in China against us, (m) the Chinese government may determine that the variable interest entity structure of Daojia does not comply with Chinese laws on foreign investment in restricted industries, (n) inability to use properties due to defects caused by non-registration of lease agreements related to certain properties, (o) risk in relation to unexpected land acquisitions, building closures or demolitions, (p) potential fines and other legal or administrative sanctions for failure to comply with Chinese regulations regarding our employee equity incentive plans and various employee benefit plans, (q) proceedings instituted by the SEC against certain China-based accounting firms, including our independent registered public accounting firm, could result in our financial statements being determined to not be in compliance with the requirements of the Exchange Act, (r) restrictions on our ability to make loans or additional capital contributions to our Chinese subsidiaries due to Chinese regulation of loans to, and direct investment in, Chinese entities by offshore holding companies and governmental administration of currency conversion, (s) difficulties in pursuing growth through acquisitions due to regulations regarding acquisitions, and (t) the PRC government has significant oversight and discretion to exert supervision over offerings of securities conducted outside of China and over foreign investment in China-based issuers, and may limit or completely hinder our ability to offer securities to investors, or cause the value of our securities to significantly decline; these risks are each discussed in detail in the section “Risks Related to Doing Business in China.”

The master license agreement may also be terminated upon the occurrence of certain events. We do not believe there has been any material breach of the master license agreement, and we actively monitor our compliance with the terms of the master license agreement on an on-going basis. Under the master license agreement, we have the right to cure any breach of the agreement, except for the dissolution, liquidation, insolvency or bankruptcy of the Company or upon the occurrence of an unauthorized transfer or change of control or other breach that YUM determines will not or cannot be cured. Upon the occurrence of a non-curable breach, YUM will have the right to terminate the master license agreement (or our rights to a particular brand) on delivery of written notice. Upon the occurrence of a curable breach, YUM will provide a notice of breach that sets forth a cure period that is reasonably tailored to the applicable breach. If we do not cure the breach, YUM will have the right to terminate the master license agreement (or our rights to a particular brand). The master license agreement also contemplates remedies other than termination that YUM may use as appropriate. These remedies include: actions for injunctive and/or declaratory relief (including specific performance) and/or damages; limitations on our future development rights or suspension of restaurant operations pending a cure; modification or elimination of our territorial exclusivity; and YUM’s right to repurchase from us the business operated under an affected brand at fair market value, less YUM’s damages. In addition, under the master license agreement with YUM, as amended, we arewere required to have at least 225 Taco Bell restaurants by the end of 2025, subject to the terms of the agreement (the “2025 Measurement Condition”). As of December 31, 2024,2025, there were 4228 Taco Bell restaurants in China. If we do not meetAs the 2025 Measurement Condition orwas wenot met, the Company and YUM are unablecurrently toin renegotiatethe process of renegotiating the terms with respect to the development of the 2025Taco MeasurementBell Condition,brand in China. If an agreement cannot be reached, YUM will have the right to terminate our right to enter into new Taco Bell sublicenses and territorial protections,protections andfor YUM will have a right to establish, operate or sublicensethe Taco Bell restaurantsbrand in China.

The KFC, Pizza Hut and Taco Bell trademarks and related intellectual property are owned by YUM and licensed to us in China, excluding Hong Kong, Macau and Taiwan. The value of these marks depends on the enforcement of YUM’s trademark and intellectual property rights, as well as the strength of YUM’s brands. Due to the nature of licensing and our agreements with YUM, our success is, to a large extent, directly related to the success of the YUM brand strength, including the management, marketing and product innovation success of YUM. Further, if YUM were to reallocate resources away from the KFC, Pizza Hut or Taco Bell brands, these brands and the license rights that have been granted to us could be harmed globally or regionally, which could have a material adverse effect on our results of operations and our competitiveness in China. In addition, strategic decisions made by YUM management related to its brands, marketing and restaurant systemssystems, including with respect to the review of strategic options for the Pizza Hut brand that YUM announced in November 2025, may not be in our best interests and may conflict with our strategic plans.

Our restaurant business depends on reliable sources of large quantities of raw materials such as protein (including poultry, pork, beef and seafood), cheese, oil, flour and vegetables (including potatoes and lettuce). Our raw materials are subject to price volatility caused by any fluctuation in aggregate supply and demand, or other external conditions, such as changes in international trade policies and international barriers to trade, the emergence of a trade war, climate and environmental conditions where weather conditions or natural events or disasters may affect expected harvests of such raw materials, as well as outbreak of viruses and diseases. For example, in 2019, the price of protein, including poultry, increased significantly in China as a result of the African swine flu. We cannot assure you that we will continue to purchase raw materials at reasonable prices, or that our raw materials prices will remain stable in the future. Significant increase in commodity prices may also cause suppliers to repudiate, renegotiate, or fail to perform under their existing agreements with us, particularly under fixed-price or long-term agreements, which could result in increased costs for our raw materials. In addition, because we and our franchisees provide competitively priced food, our ability to pass along commodity price increases to our customers is limited. When commodity prices increase, we may not be able to recover the increased costs through higher pricing in our products. If we are unable to manage the cost of our raw materials or to increase the prices of our products, it may have an adverse impact on our future profit margin.

Expansion of our store network is a key component of our growth strategy. We are accelerating our store network expansion to reachtarget our 20,000 store milestone byin 2026.2026 and 30,000 stores in 2030. The successful development of new units depends in large part on our ability and our franchisees’ ability to open new restaurants and to operate these restaurants profitably. We cannot guarantee that we, or our franchisees, will be able to achieve our expansion goals or that new restaurants will be operated profitably. Further, there is no assurance that any new restaurant will produce operating results similar to those of our existing restaurants. Other risks which could impact our ability to increase the number of our restaurants include prevailing economic conditions and our or our franchisees’ ability to obtain suitable restaurant locations, negotiate acceptable lease or purchase terms for the locations, obtain required permits and approvals in a timely manner, hire and train qualified restaurant crews and meet construction schedules.

our degree of penetration in existing markets and new cities;

As a significant number of our restaurants are operating on leased properties, we are exposed to retail rental market conditions. As of year-end 2024,2025, we leased overapproximately 13,80015,000 properties in China for our Company-owned restaurants. For information regarding our leased properties, please refer to Item 2. “Properties.” Accordingly, we are subject to all of the risks generally associated with leasing real estate, including changes in the investment climate for real estate, demographic trends, trade zone shifts, central business district relocations, and supply or demand for the use of the restaurants, as well as potential liability for environmental contamination.

We generally enter into lease agreements with initial terms of 10 to 20 years. OverApproximately 5%6% of our existing lease agreements expire before the end of 2025.2026. Most of our lease agreements contain an early termination clause that permits us to terminate the lease agreement early if the restaurant’s restaurant profit is negative for a specified period of time. We generally do not have renewal options for our leases and need to negotiate the terms of renewal with the lessor, who may insist on a significant modification to the terms and conditions of the lease agreement.

The rent under the majority of our current restaurant lease agreements is generally payable in one of three ways: (i) fixed rent; (ii) the higher of a fixed base rent or a percentage of the restaurant’s annual sales revenue; or (iii) a percentage of the restaurant’s annual sales revenue. In addition to increases in rent resulting from fluctuations in annual sales revenue, certain of our lease agreements include provisions specifying fixed increases in rental payments over the respective terms of the lease agreements. While these provisions have been negotiated and are specified in the lease agreement, they willmay increase our costs of operation and therefore may materially and adversely affect our results of operation and financial condition if we are not able to pass on the increased costs to our customers. Certain of our lease agreements also provide for the payment of a management fee at either a fixed rate or fixed amount per square meter of the relevant leased property.

We may also face challenges relating to temporary shortage of staff,staff or riders required for our delivery business, including as a result of events outside our control. For example, due to widespread infections following the relaxation of COVID restrictions in China, we experienced a shortage of restaurant staff in December 2022. A shortage of staff and riders could result in higher labor costs.

As of December 31, 2024,2025, approximately 15%17% of our restaurants were operated by franchisees. We anticipate that the franchise mix of net new stores will gradually increase to 40% to 50% for both KFC and 20% to 30% for Pizza Hut overfrom 2026 to 2028, targeting to raise the nexttotal fewfranchise years.mix to twenties percentages by 2028. The success of our franchise development depends on several factors, including our ability to attract new franchisees or retaining existing franchisees, our capability to manage our franchisees, including ensuring the consistency of the product and service quality across our company-owned and franchised stores, and our supply chain capabilities in places where franchisees operate stores. If our franchise development does not achieve the expected level of profitability, our business and operating results could be adversely affected.

In addition, our franchisees may not be able to manage and operate their stores successfully, or achieve expected business performance, which may result in reduced franchise income and revenues generated from transactions with franchisees. We also cannot guarantee that our franchisees will fully comply with relevant provisions in our agreements with them, including regarding various operational standards. If any of our franchisees engage in any type of misconduct or unlawful activities, or fail to comply with our operational standards, our reputation could be adversely affected, which in turn could adversely affect our operating results and financial conditions. We may have disputes with our franchisees with respect to the performance of the franchise agreements, which may adversely affect our reputation. Termination or non-renewal of franchise agreements, and the resulting closure of related stores, whether due to franchisees’ non-compliance with our franchise agreements and/or brand standards, may have an adverse impact on our operating results and financial condition.

Our operations are dependent upon the successful and uninterrupted functioning of our computer and information technology systems. We rely heavily on information technology systems across our operations, including those we use for finance and accounting functions, supply chain management, point-of-sale processing, online and mobile platforms, delivery services, mobile payment processing, loyalty programs and various other processes and functions, and many of these systems are interdependent on one another for their functionality. Additionally, the success of several of our initiatives to drive growth, including our priority to expand digital engagement with our customers,customers and drive operational efficiency through technologies (including AI), is highly dependent on the reliability, availability, integrity, scalability and capacity of our information technology systems. We also rely on third-party providers and platforms for some of these information technology systems and support.

Our operational safeguards may not be effective in preventing the failure of these systems to operate effectively and be continuously available to run our business. Such failures may be caused by various factors, including fire, natural disaster, power loss, telecommunications failure, problems with transitioning to upgraded or replacement systems, system overloads, physical break-ins, programming errors, flaws in third-party software or services, disruptions or service failures of technology infrastructure facilities, such as storage servers, provided by third parties, errors or malfeasance by our employees or third-party service providers or breaches in the security of these systems or platforms, including unauthorized entry and computer viruses. We cannot assure you that we will resolve these system failures and restore our systems and operations in an effective and timely manner. Such system failures and any delayed restore process could result in:

negative impact on the availability and the efficiency of our restaurant operations; and exposure to litigation claims, government investigations and enforcement actions, fraud losses or other liabilities.services;

Our delivery business depends on the performance of, and our long-term relationships with, third-party delivery aggregators. We allow our products to be listed on and ordered through their mobile or online platforms. In addition, we sell and promote our products on third-party e-commerce platforms. Competitive dynamics among third-party delivery aggregator platforms in China, including their promotional campaigns involving subsidies or other incentives, as well as our and our competitors’ decisions regarding participation in such campaigns, could also impact on our results of operation. If we fail to extend or renew the agreements with these delivery aggregators or e-commerce platforms on acceptable terms, or at all, our business and results of operations may be materially and adversely affected. Any increase in the fees charged by these delivery aggregators or e-commerce platforms could negatively impact our operating results.

Our restaurants offer delivery services. Major failures to provide timely and reliable delivery services by us may materially and adversely affect our business and reputation.reputation, and the continued increase in delivery sales mix may pressure our profitability.

As of year-end 2024,2025, over 85%90% of KFC restaurants and over 90%95% of Pizza Hut restaurants offer delivery services. Delivery sales mix continued to grow in the past few years and contributed to approximately 39%48% of KFC and Pizza Hut Company sales for 2024.2025. Customers may order delivery service through KFC and Pizza Hut’s Apps and WeChat mini programs. We have also partnered with third-party delivery aggregators, allowing our products to be listed on and ordered through their online platforms. We intend to further optimize our delivery strategy and operational capabilities to capture delivery sales.

Interruptions or failures in our delivery services could prevent the timely or successful delivery of our products. These interruptions may be due to unforeseen events that are beyond our control or the control of third-party aggregators and outsourced riders, such as inclement weather, natural disasters, transportation disruptions or labor unrest.shortages. The occurrence of food safety or product quality issues may also result in interruptions or failures in our delivery service. If our products are not delivered on time and in proper condition, customers may refuse to accept our products and have less confidence in our services, in which case our business and reputation may be adversely affected.

We are committed to making coffee a meaningful part of our business. We are building a coffee portfolio to capture the underserved coffee market in China across different customer segments. In addition to offering coffee products at our KFC stores, we developed and expanded KCOFFEE Cafes from approximately 50 cafes in 2023 to about 7002,200 cafes in 2024.2025, with a target of over 5,000 Cafes by 2029. We also partnered with Lavazza Group to explore and develop the Lavazza coffee concept in China to offer a premium andan authentic Italian coffee experience since 2020. As of December 31, 2024,2025, there were 112146 Lavazza stores in China.mainland China and Hong Kong. We are targeting to open 1,000 Lavazza stores inby the next few years, which may require significant capital2029 and managementto attention.further grow its retail business.

InTo complement our business and strengthen our market-leading position, we may make strategic investments and acquisitions from time to time. For example, in May 2017, we acquired a controlling interest in Daojia with the expectation that the acquisition will further enhance our digital and delivery capabilities, and accelerate growth by building know-how and expertise in the expanding delivery market. In 2018 and 2019, due to declining sales as a result of intensified competition among delivery aggregators, we recorded impairment charges of $23 million and wrote down the Daojia reporting unit goodwill and intangible assets to zero. InWe Aprilalso 2020,made weother completedacquisitions in the acquisitionpast, of a 93.3% interest inincluding Huang Ji Huang, a leading Chinese-style casual dining franchise business, for cash consideration of $185 million. With this acquisition, we aimbusiness to gain a stronger foothold and enhancedenhance know-how in the Chinese dining space and create synergies. Achieving those anticipated benefits from these and future acquisitions is subject to a number of uncertainties. The operation of the acquired businesses could also involve further unanticipated costs and divert management’s attention away from day-to-day business concerns.concerns, and the expected synergies from the acquisition may not be realized. We may experience difficulties in integrating our operations with new investments or acquired businesses, implementing our strategies or achieving expected levels of revenues, profitability, productivity or other benefits. We cannot assure you that weour investments or acquisitions will bebenefit ableour business strategy, generate sufficient revenues to achieveoffset the anticipatedassociated benefitsinvestment ofor anyacquisition businesscosts, acquisitions.or otherwise result in the intended benefits. Additional information about the Company’s goodwill and intangible assets acquired from our acquisitions is included in Note 87 to the Consolidated Financial Statements in Part II, Item 8. We evaluate indefinite-lived intangible assets and goodwill for impairment on an annual basis or more often if an event occurs or circumstances change that indicates impairment might exist. In the event these assets are impaired, our financial results could be adversely impacted.

In order to drive growth from off-premise occasions, we launched packaged foods to capture at-home consumption demand. Our new retail business exposes us to challenges and risks associated with, for example, anticipating customer demand and preferences, managing inventory and handling more complex supply, quality control, product return and delivery service issues. WeOur arelimited relativelyexperience in new to thisretail business and our lack of experience may make it more difficult for us to keep pace with evolving customer demands and preferences. We may misjudge customer demand, resulting in inventory buildup and possible inventory write-downs and write-offs. We may also experience higher return rates on these products, receive more customer complaints about them and face costly product liability claims as a result of selling them, which would harm our brands and reputation as well as our financial performance. Furthermore, we rely on third parties to provide logistics and delivery services for our new retail products. Any major disruptions or delays or quality issues in our third-party logistics operations may adversely affect our business and reputation. If we do not successfully address challenges and risks specific to the new retail business and compete effectively, our business, results of operations and financial condition may be adversely affected.

We use GenAI technologies to innovate new business scenarios and solutions, such as media creatives generation, digital avatars, customer feedback analysis and customer service. The use of GenAI may be affected by global trends and applicable laws. We may become subject to new or heightened legal, ethical or other challenges arising out of the perceived or actual impact of AI on intellectual property, privacy, and employment, among other issues, and we may experience brand or reputational harm, be subject to legal liabilities or increased costs associated with those issues. Furthermore, if we fail to leverage GenAI technologies as effectively or rapidly as our peers, our competitiveness could be materially and adversely impacted.

As a customer-facing industry, the Company is heavily reliant on its brand, the perception of which may be significantly impacted by social media. In recent years, there has been a marked increase in the use of social media platforms and other forms of internet-based communications, which allow individual access to a broad audience of consumers and other interested persons. Many social media platforms immediately publish the content their subscribers and participants’ post, often without filters or checks on accuracy of the content posted. Information posted on such platforms at any time may be adverse to our interests and/or may be inaccurate. The online dissemination of negative comments about our brands and business, including inaccurate or malicious information, could generate negative publicity which could harm our business, reputation, prospects, results of operations and financial condition. It may be difficult to address such negative publicity, including as a result of fictitious media content, including content produced by GenAI, and quick and broad dissemination enabled by AI technologies across media channels. The damage may be immediate and intense, without affording us an opportunity for redress or correction, and we may not be able to recover from any negative publicity in a timely manner or at all. If we fail to recognize, respond to and effectively manage the accelerated impact of social media, our reputation, business and results of operation could be materially and adversely affected.

Moreover, the tax regime in China is rapidly evolving and there can be significant uncertainty for taxpayers in China as Chinese tax laws may change significantly or be subject to uncertain interpretations. Effective May 1, 2016, VAT reform has been rolled out to cover all business sectors nationwide to completely replace the BT that has historically been applied to certain industries. The interpretation and application of the new VAT regime are not settled at some local governmental levels. On December 25, 2024, China enacted the prevailing VAT regulations into the VAT Law, which will comecame into effect on January 1, 2026.2026 along with its implementation rules. In terms of tax rates, the VAT Law maintains the existing standard rates of 13%, 9% and 6%. However, since the VAT Law is relatively new and the detailedits implementation rules are yetrelatively to be released,new, uncertainty still remains with respect to itstheir interpretation, implementationinterpretation and enforcement. Changes in legislation, regulation or interpretation of existing laws and regulations in the U.S., China, and other jurisdictions where we are subject to taxation could increase our taxes and have an adverse effect on our results of operations and financial condition.

In addition, changes in diet, whether due to increased awareness about nutrition and healthy lifestyles, use of weight loss drugs or other factors, may influence demands for our products and offerings, and further affect our business and results of operations. Shifts in consumer preferences toward off-premise consumption (such as delivery and takeaway) or dine-in experiences could occur due to changing economic conditions, convenience factors, or other trends. If we are unable to respond to such changes in consumer taste and preferences in a timely manner or at all, or if our competitors are able to address these concerns more effectively, our business, financial condition and results of operations may be materially and adversely affected.

Any inability to successfully compete with the other restaurants, food delivery aggregators, other food delivery services and shared kitchens in our markets in terms of pricing, value perception or other competitive factors may prevent us from increasing or sustaining our revenues and profitability and could have a material adverse effect on our business, results of operations, financial condition and/or cash flows. We may also need to modify or refine elements of our restaurant system in order to compete with popular new restaurant styles or concepts, including delivery aggregators, that develop from time to time. There can be no assurance that we will be successful in implementing any such modifications or that such modifications will not reduce our profitability.

We are required under the master license agreement with YUM to police, protect and enforce the trademarks and other intellectual property rights used by us, and to protect trade secrets. Such actions to police, protect or enforce could result in substantial costs and diversion of resources, which could negatively affect our sales, profitability and prospects. Furthermore, the laws governing intellectual property rights in China isare evolving and subject to interpretation, and could involve substantial risks to us. Even if actions to police, protect or enforce are resolved in our favor, we may not be able to successfully enforce the judgment and remedies awarded by the court and such remedies may not be adequate to compensate us for our actual or anticipated losses.

The success of our business depends in large part on our continued ability to use the trademarks, service marks, recipes and other components of the KFC, Pizza Hut and Taco Bell branded systems that we license from YUM pursuant to the master license agreement we entered into in connection with the separation.agreement.

Our sales are subject to seasonality. For example, we typically generate higher sales during Chinese festivities, holiday seasons as well as summer months, but relatively lower sales and lower operating profit during the second and fourth quarters. As a result of these fluctuations, softer sales during a period in which we have historically experienced higher sales (such as the disruption in operations from the COVID-19 outbreak) would have a disproportionately negative effect on our full-year results, and comparisons of sales and results of operations within a financial year may not be able to be relied on as indicators of our future performance. Any seasonal fluctuations reported in the future may differ from the expectations of our investors.

Our future success is significantly dependent upon the continued service of our key management as well as experienced and capable personnel generally. If we lose the services of any member of key management, we may not be able to locate suitable or qualified replacements, and may incur additional expenses to recruit and train new staff, which could severely disrupt our business and growth. If any of our key management joins a competitor or forms a competing business, we may lose customers, know-how and key professionals and staff members. Our rapid growth also requires us to hire, train, and retain a wide range of talenttalents who can adapt to a dynamic, competitive and challenging business environment and are capable of helping us conduct effective marketing and management. We will need to continue to attract, train and retain talent at all levels as we expand our business and operations. We may need to offer attractive compensation and other benefits packages, including share-based compensation, to attract and retain them. We also need to provide our employees with sufficient training to help them to realize their career development and grow with us. Any failure to attract, train, retain or motivate key management and experienced and capable personnel could severely disrupt our business and growth.

We have invested and intend to continue to invest significantly in technology systemssystems, including AI technologies, and innovation to enhance digitalization and the guestcustomer experience and improve the efficiency of our operations. We cannot assure you that our investments in technology and innovation will generate sufficient returns or have the expected effects on our business operations, if at all. If our technology and innovation investments do not meet expectations for the above or other reasons, our prospects and share price may be materially and adversely affected.

FairFluctuation valueof changes for our investment in equity securities,investments measured at fair value, lower yields of our short-term investments or lower returns of our future long-term bank deposits and notes may adversely affect our financial condition and results of operations.results.

We may invest in equity securitiesinvestments measured at fair value from time to time. InFor example, in September 2018, we invested in the equity securities of Meituan Dianping, the fair value of which is determined based on the closing market price for the shares at the end of each reporting period, with subsequent fair value changes recorded in our consolidated statements of income. We recorded a pre-tax loss of $26 million, a pre-tax gain of $38 million,million and a pre-tax loss of $50 million and $27 million for the years ended 2024,2025, 20232024 and 2022,2023, respectively. We also invest in short-term investments, such as time deposits, and long-term bank deposits and notes. Our short-term investments and long-term bank deposits and notes as of December 31, 20242025 amounted to $1,121$878 million and $1,088$678 million, respectively. We cannot guarantee that our investment in equity securitiesinvestments measured at fair value will not experience fair value losses, which may adversely affect our period-to-period earnings, financial condition and results of operations. In addition, our short-term investments may earn yields lower than anticipated, and our future long-term bank deposits and notes return may decline due to lower interest rates. Failures to realize the benefits we expected from these investments may adversely affect our financial results.

TheIn United2025, Statesthe andU.S. has imposed several rounds of tariffs on a wide range of goods imported from various countries, including China. China havehas imposedalso newenacted or higheradditional tariffs on goods imported from eachthe other, including tariff increases announced by both countries in early 2025.U.S. If the United States or China continues imposing such tariffs, or if additional tariffs or trade restrictions are implemented by the United States or by China, the resulting trade barriers could have a significant adverse impact on our business. The adoption and expansion of trade restrictions and tariffs, quotas and embargoes, sanctions, the occurrence of a trade war, or other governmental action related to tariffs or trade agreements or policies, has the potential to adversely impact costs, our suppliers and the world economy in general, which in turn could have a material adverse effect on our business, results of operations and financial condition.

During President Trump’s first term in office, he signed executive orders banning transactions by any person, or with respect to any property, subject to the jurisdiction of the United States with respect to WeChat, and with persons that develop or control the following Chinese-connected software applications: Alipay, CamScanner, QQ Wallet, SHAREit, Tencent QQ, VMate, WeChat Pay, and WPS Office, some of which are critical to the operation of our business. These executive orders were revoked on June 9, 2021 by former President Biden, who then signed an executive order directing the Department of Commerce to launch a national security review of apps with links to foreign adversaries (which is defined to include China) and issue recommendations for regulatory and legislative action to address the associated risks. Digital ordering, including delivery, mobile orders and kiosk orders, accounted for approximately 90%94% of total Company sales in 2024,2025, and digital payments, including mobile payments, accounted for approximately 99% of Yum China Company sales in 2024.2025. As a result, the implementation of this executive orderorder, or future executive orders or other regulations affecting digital ordering or electronic payment systems, could adversely affect our business in a material way.

Additionally, China has enacted laws and regulations to respond to foreign sanctions and exterritorialextraterritorial measures, including the Anti-Foreign Sanctions Law dated June 10, 2021. For details, please refer to “—Changes in the laws and regulations of China or noncompliance with applicable laws and regulations may have a significant impact on our business, results of operations and financial condition, and may cause the value of our securities to decline.” At this time, we do not know the extent to which our operations will be impacted by these laws and regulations.

We cannot foresee whether and how developments in similar policy actions or any other policy actions taken by the U.S. or Chinese government will impact our business and financial performance. In addition, changes in political, business, economic and trade relations between the U.S. and China, including the potential for heightened tensions under the current U.S. administration, may trigger negative customer sentiment towards western brands in China, potentially resultingdiminishing indemand afor negativeour impactproducts, onwhich would negatively affect our business, financial condition, and results of operations and financial condition.operations. For example, our results of operations in the third quarter of 2016 were adversely impacted by an international court ruling in July 2016 regarding claims to sovereignty over the South China Sea, which triggered a series of regional protests and boycotts in China, intensified by social media, against a few international companies with well-known western brands.

We rely to a significant extent on dividends and other distributions on equity paid by our principal operating subsidiaries in China to fund offshore cash requirements.requirements, and uncertainties regarding the application of the withholding tax rates could have a material adverse effect on our business and financial results.

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. In addition, under Chinese laws, an enterprise incorporated in China is required to set aside at least 10% of its after-tax profits each year, after making up previous years’ accumulated losses, if any, to fund certain statutory reservesurplus funds,reserve, 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 staffdiscretionary welfaresurplus and bonus funds.reserve. These reserve funds and staff welfare and bonus fundsreserves are not distributable as cash dividends. Any limitation on the ability of our Chinese subsidiaries to pay dividends or make other distributions to us could limit our ability to make investments or acquisitions outside of China that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business.

In addition, the EIT Law and its implementation rules provide that a withholding tax at a rate of 10% will be applicable to dividends payable by Chinese companies to companies that are not China resident enterprises unless otherwise reduced according to treaties or arrangements between the Chinese central government and the governments of other countries or regions where the non-China resident enterprises are incorporated.incorporated, as well as the interpretation in applying these treaties and arrangements. Hong Kong has a tax arrangement with mainland China that provides for a 5% withholding tax on dividends distributed to a Hong Kong resident enterprise, upon meeting certain conditions and requirements, including, among others, that the Hong Kong resident enterprise directly owns at least 25% equity interests of the Chinese enterprise and is a “beneficial owner” of the dividends. We believe that our principal Hong Kong subsidiary, which is the equity holder of our Chinese subsidiaries operating substantially all of our KFC and Pizza Hut restaurants, met the relevant requirements pursuant to the tax arrangement between the mainland China and Hong Kong in 2018 and is expected to meet the requirements in subsequent years, thus, it is more likely than not that our dividends or earnings expected to be repatriated to our principal Hong Kong subsidiary since 2018 are subject to the reduced withholding tax of 5%. However, if the Hong Kong subsidiary is not considered to be the “beneficial owner” of the dividends by the Chinese local tax authority,authorities, any dividend paid to it by our Chinese subsidiaries would be subject to a withholding tax rate of 10% with retrospective effect, which would significantly increase our tax liability and reduce the amount of cash available to our company.

As of December 31, 2024,2025, we leased overapproximately 13,80015,000 properties in China, and to our knowledge, the lessors of most properties leased by us, most of which are used as premises for our restaurants, had not registered the lease agreements with government authorities in China.

Under the PRC Anti-monopoly Law, companies undertaking certain investments and acquisitions relating to businesses in China must notify the anti-monopoly enforcement agency in advance of any transactions which are deemed a concentration and where the parties’ revenues in the China market exceed certain thresholds as stipulated in the Provisions of the State Council on the Thresholds for Declaring Concentration of Business Operators. Furthermore, where, although a concentration of undertakings does not reach the threshold of notification prescribed by the State Council, the anti-monopoly agency may still require the undertakings to notify the concentration if there is evidence proving that the concentration of undertakings has or may have the effect of eliminating or restricting competition. In addition, on August 8, 2006, six PRC regulatory agencies, including the MOFCOM, the State-Owned Assets Supervision and Administration Commission, the STA, the State Administration for Industry and Commerce of the PRC (now known as the StatementState Administration for Market Regulation of the PRC), the CSRC and the SAFE, jointly adopted the Provisions of the Ministry of Commerce on M&A of a Domestic Enterprise by Foreign Investors (“M&A Rules”), which came into effect on September 8, 2006 and was amended on June 22, 2009. Under the M&A Rules, the approval of MOFCOM must be obtained in circumstances where overseas companies established or controlled by PRC enterprises or residents acquire domestic companies affiliated with PRC enterprises or residents. Applicable Chinese laws, rules and regulations also require certain merger and acquisition transactions to be subject to security review.

If, notwithstanding receipt of the opinions, the distribution werewas determined to be a taxable transaction, YUM would be treated as having sold shares of the Company in a taxable transaction, likely resulting in a significant taxable gain. Pursuant to the tax matters agreement, the Company and YCCL agreed to indemnify YUM for any taxes and related losses resulting from any breach of covenants regarding the preservation of the tax-free status of the distribution, certain acquisitions of our equity securities or assets, or those of certain of our affiliates or subsidiaries, and any breach by us or any member of our group of certain representations in the documents delivered by us in connection with the distribution. Therefore, if the distribution fails to qualify as a transaction that is generally tax-free as a result of one of these actions or events, we may be required to make material payments to YUM under this indemnity.

Our Board of Directors commenced a quarterly cash dividend and authorized a share repurchase program since 2017. However, due to the impact of COVID-19 pandemic, the dividend payment was temporarily suspended during part of 2020 and the share repurchases were temporarily suspended during parts of 2020 and 2021. In 2024, the Company announced its plan to step up capital returns to shareholders from $3.0 billion to $4.5 billion from 2024 to 2026. In 2025, the Company announced that it plans to return an average annual return of approximately $900 million to over $1 billion in 2027 and 2028, and to exceed $1 billion in 2028. Our plan of capital returns to shareholders is based on current expectations, which may change based on market conditions, capital needs or otherwise, and our ability to fund our capital returns to our shareholders will primarily depend on our ongoing ability to generate cash from operations and the ability of our Chinese subsidiaries to repatriate funds out of mainland China. We believe our principal uses of cash in the future will be primarily to fund our operations and capital expenditures for accelerating store network expansion and store remodeling, to step up investments in digitalization, automation and logistics infrastructure, to provide returns to our stockholders, as well as to explore opportunities for investments that build and support our ecosystem or strategic acquisitions. Any determination to declare and pay cash dividends and repurchase shares will be at the discretion of our Board of Directors and will depend on, among other things, our financial condition, results of operations, actual or anticipated cash requirements, tax considerations, contractual or regulatory restrictions and such other factors as our Board of Directors deems relevant. For more information, see Item 5. “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.”

Yum China Holdings, Inc. is the largest restaurant company in China in terms of 20242025 system sales, with $11.3$11.8 billion of revenues in 20242025 and 16,39518,101 restaurants as of year-end 2024.2025. Our growing restaurant network consists of our flagship KFC and Pizza Hut brands, as well as emerging brands such as Lavazza, Huang Ji Huang, Little Sheep and Taco Bell. We have the exclusive right to operate and sublicense the KFC, Pizza Hut and, subject to achievingthe certainagreed agreed-upon milestones,terms, Taco Bell brands in China (excluding Hong Kong, Macau and Taiwan), and own the intellectual property of the Little Sheep and Huang Ji Huang concepts outright. We also established a joint venture with Lavazza Group, the world-renowned family-owned Italian coffee company, to explore and develop the Lavazza coffee concept in China. KFC was the first major global restaurant brand to enter China in 1987. With more than 35three yearsdecades of operations, we have developed extensive operating experience in the China market. We have since grown to become the largest restaurant company in China in terms of 20242025 system sales, with 16,39518,101 restaurants covering over 2,2002,500 cities primarily in China as of December 31, 2024.2025. We believe that there are significant opportunities to further expand within China, and we intend to focus our efforts on increasing our geographic footprint in both existing and new cities.

KFC is the leading and the largest quick-service restaurant (“QSR”) brand in China in terms of system sales. As of December 31, 2024,2025, KFC operated 11,64812,997 restaurants in over 2,2002,500 cities across China. KFC primarily competes with western QSR brands in China, such as McDonald’s, Dicos and Burger King, among which we believe KFC had an approximate two-to-one lead over its nearest competitor in terms of store count as of the end of 2024.

Pizza Hut is the leading and the largest casual dining restaurant (“CDR”) brand in China in terms of system sales and number of restaurants. As of December 31, 2024,2025, Pizza Hut operated 3,7244,168 restaurants in over 8001,000 cities. Measured by number of restaurants, we believe Pizza Hut had an approximate four-to-one lead over its nearest western CDR competitor in China as of the end of 2024.

We have two reportable segments: KFC and Pizza Hut. Our non-reportable operating segments, including the operations of Lavazza, Huang Ji Huang, Little Sheep andSheep, Taco Bell,Bell and our delivery operating segmentsegment, and ourfor 2024, also including e-commerce business,segment, are combined and referred to as All Other Segments, as these operating segments are insignificant both individually and in the aggregate. Additional details on our reportable operating segments are included in Note 16.15.

In 2024,2025, the Company’s total revenues increased 3%,4%, including or 5% excluding $200the millionimpact of F/X impact,X, mainly attributable to 7%3% of net new unit contribution,contribution partiallyand offset by1% same-store sales decline resulting from lower ticket average offset by same-store transaction growth. Operating profit increased 5%,11%, including or 8% excluding $28 million F/X impact. Further excluding the lapping impact fromof the VAT deductions and temporary relief from landlords and government agencies received in prior year, the increase in Operating profit wasF/X, primarily driven by the increase in Total revenues, operational efficiency improvement, favorable commodity prices, lower advertising expensesprices and lowerefficiency performance-basedimprovement compensationfrom costs,streamlined operations, partially offset by increased value-for-moneydelivery offeringscost andassociated wagewith inflationhigher delivery sales mix in the lowcurrent singleyear digits.and value-for-money offerings. Net income for 20242025 increased 10%,2%, including or 13% excluding the impact of F/X, mainly due to the increase in Operating profitprofit, andpartially increaseoffset by the decrease in fair value of our investment in Meituan, partially offset by lowerless interest income due to lower investment balance and interest rates and higher income tax expenses in line with the increase in pre-tax income.

KFC delivered resilientstrong performance in 20242025 with increases in both total revenues and core operating profit. With flexible store models, KFC is expanding through both equity and franchise stores. Franchisees enable us to expand into remote areas, lower-tier cities and strategic locations previously beyond our reach. KFC continued to focus on innovative products, creating abundant value for our customers, updating ingredients and tastes to meet Chinese consumers’ needs, as well as on introducing entry price point products. Our breakthroughside-by-side business models,modules, such as KCOFFEE Cafes,Cafes and KPRO, have enabled us to broaden our addressable market and capture new customer demand. KFC also continued its digital and delivery initiatives to enhance the customer experience. KFC’s loyalty program members exceeded 490550 million at year-end 20242025 and contributed approximately 65%61% of system sales at KFC in 2024.2025. Delivery sales accounted for approximately 40%48% of Company sales at KFC in 20242025 with store and city coverage of 86%92% and 98%, respectively, at the end of 2024.2025.

In 2024,2025, the increase in Company sales, excluding the impact of F/X, was primarily driven by net unit growth,growth partially offset byand same-store sales decline.growth. The increase in Restaurant profit remained flat,profit, excluding the impact of F/X. Further excluding the lapping impact from the temporary relief from landlords and government agencies and VAT deductions received in prior year, the increase in Restaurant profitX, was primarily driven by the increase in Company sales, favorable commodity prices,prices operationaland efficiency improvement,improvement lowerfrom advertisingstreamlined expenses and lower performance-based compensation,operations, partially offset by increased value-for-moneyrider offeringscost andassociated wagewith inflationhigher delivery sales mix in the lowcurrent singleyear digits.and value-for-money offerings.

In 2024,2025, the decreaseincrease in G&A expenses, excluding the impact of F/X, was primarily driven by lowerhigher performance-based compensation costs.

In 2024,2025, the increase in Operating profit, excluding the impact of F/X, was primarily driven by lowerthe increase in Restaurant profit, partially offset by higher G&A expenses.

Pizza Hut delivered strong performance in 20242025 by accelerating store expansion with healthy returns and expanding profitability. We are transforming Pizza Hut into a more mass-market brand by widening price ranges, expanding the menu, and introducing breakthroughnew businessstore models like Pizza Hut WOW. During 2024,2025, we continued to focus on investing in value-for-money strategy, strengthening digital capabilities, fortifying delivery, expanding into new occasions and consumer segments and enhancing our asset portfolio to drive growth. Pizza Hut’s loyalty program members exceeded 180210 million at year-end 20242025 and contributed approximately 64%59% of system sales at Pizza Hut in 2024.2025. Delivery sales accounted for approximately 39%47% of Company sales at Pizza Hut in 20242025 with store and city coverage of 92%96% and 92%,96%, respectively, at the end of 2024.2025.

In 2024,2025, the increase in Company sales, excluding the impact of F/X, was primarily driven by net unit growth,growth partially offset byand same-store sales decline.growth. The increase in Restaurant profit increased,profit, excluding the impact of F/X. Further excluding the lapping impact from the temporary relief from landlords and government agencies and VAT deductions received in prior year, the increase in Restaurant profitX, was primarily driven by the increase in Company sales, operational efficiency improvement, favorable commodity prices, lower performance-based compensationprices and lowerefficiency advertisingimprovement expenses,from streamlined operations, partially offset by increased value-for-money offerings and wageincreased inflationdelivery cost associated with higher delivery sales mix in the lowcurrent single digits.year.

In 2024,2025, the decreaseincrease in G&AFranchise expenses,fees and income and Revenues from transactions with franchisees, excluding the impact of F/X, was primarily driven by loweracceleration performance-basedof compensationfranchise costs.store openings.

In 2024,2025, the increase in Operating profit, excluding the impact of F/X, was primarily driven by the increase in Restaurant profit and lower G&A expenses.profit.

All Other Segments reflects the results of Lavazza, Huang Ji Huang, Little Sheep andSheep, Taco Bell,Bell and our delivery operating segmentsegment, and ourfor 2024, also the e-commerce business.segment.

In 2024,2025, the decreaseimprovement in Operating loss, excluding the impact of F/X, was primarily driven by the decrease in Operating loss from certain emerging brands.

In 2024,2025, the decreaseincrease in Corporate G&A expenses, excluding the impact of F/X, was primarily driven by lowerhigher performance-based compensation costs.

In 2024,2025, the decrease in interest income, excluding the impact of F/X, was primarily driven by lower interest rates and lower investment balance duringwith thecash year.used in return to shareholders.

Investment Gain (Loss) Gain

The investment gain (loss) gain mainly relates to the change in fair value of our investment in Meituan Dianping (“Meituan”). See Note 3 for additional information.

Our income tax provision primarily includes tax on our earnings generally at the Chinese statutory tax rate of 25% with certain Chinese subsidiaries qualified atfor preferential tax rates, withholding tax on planned or actual repatriation of earnings outside of China, Hong Kong profits tax, and U.S. corporate income tax, if any. Our effective tax rate was 26.7%27.2% and 26.9%26.7% in 20242025 and 2023,2024, respectively. The lowerhigher effective tax rate in 20242025 compared with that in 20232024 was primarily due to higher withholding tax associated with higher planned repatriation of earnings outside of China and the impact from fair value change of our investment in Meituan.

Effective May 1, 2016, a 6% output VAT replaced the 5% business tax (“BT”) previously applied to certain restaurant sales. Input VAT would be creditable to the aforementioned 6% output VAT. Our new retail business is generally subject to VAT rates at 9% or 13%. The latest VAT rates imposed on our purchase of materials and services mainly included 13%, 9% and 6%, which were gradually changed from 17%, 13%, 11% and 6% since 2017. 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 iswas not expected to be significant.insignificant.

OnIn June 7, 2022, the Chinese Ministry of Finance ("“MOF"”) and the STA jointly issued CircularAnnouncement [2022] No. 21, to extend full VAT credit refunds to more sectors and increase the frequency for accepting taxpayers’ applications. Beginning on July 1, 2022, entities engaged in providing catering services in China are allowed to apply for a lump sum refund of VAT assets accumulated prior to March 31, 2019. In addition, VAT assets accumulated after March 31, 2019 can be refunded on a monthly basis. In August 2025, the MOF and the STA jointly issued Announcement [2025] No. 7, amending the VAT refund policy. Effective September 1, 2025, certain industries (including the catering sector) are only eligible for a partial refund of VAT assets, subject to additional criteria stipulated in the announcement.

As of December 31, 2024,2025, current andVAT assets of $142 million, non-current VAT assets of $117 million and $8$14 million and net VAT payable of $8$6 million were recorded in Prepaid expenses and other current assets, Other assets and Accounts payable and other current liabilities, respectively, on the Consolidated Balance Sheets.

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. On December 25, 2024, China enacted the prevailing VAT regulations into the VAT Law, which will comecame into effect on January 1, 2026.2026 along with its implementation rules. In terms of tax rates, the VAT Law maintains the existing standard rates of 13%, 9%9%, and 6%. WeThe Company will continue to monitor the regulatory developments and evaluate theany impact,potential ifimpact any,on onceour thefinancial detailedstatements implementationas rulesfurther areguidance released.becomes available.

Net cash provided by operating activities was $1,419$1,466 million in 20242025 as compared to $1,473$1,419 million in 2023.2024. The decreaseincrease was primarily driven by the increase in Operating profit along with working capital changes.

Net cash used in investing activities was $178$5 million in 20242025 as compared to $743$178 million in 2023.2024. The decrease was mainly due to the net impact on cash flows resulting from purchases and maturities of short-term investments, and long-term bank deposits and notes.notes, and the decrease in capital spending.

Net cash used in financing activities was $1,636$1,689 million in 20242025 as compared to $716$1,636 million in 2023.2024. The increase was primarily driven by the increase of cash dividends paid on common stock, the decrease in sharethe repurchasesnet andproceeds repayment offrom short-term bank borrowings.borrowings, partially offset by the fluctuation in share repurchases.

On NovemberDecember 4,11, 2024,2025, our Board of Directors increased the share repurchase authorization by $1 billion to an aggregate of $4.4$5.4 billion.billion, of which $1.2 billion remained available as of December 31, 2025. Yum China may repurchase shares under this program from time to time in the open market or, subject to applicable regulatory requirements, through privately negotiated transactions, block trades, accelerated share repurchase transactions and the use of Rule 10b5-1 trading plans. During the years ended December 31, 20242025 and 2023,2024, the Company repurchased 24.7 million shares of common stock for $1,136 million and 31.3 million shares of common stock for $1,242 million and 12.4 million shares of common stock for $617 million, respectively, under the repurchase program, excluding transaction costs and excise tax.

The Company plans to stepreturn up$1.5 its capital returnsbillion to shareholders fromin $32026, billionadding to $4.5 billion between 2024 to 2026, representing an increase of 50%. The Company returnedboth $1.5 billion it delivered to shareholders in 2025 and 2024 in share repurchases and dividends in 2024, and plans to return $3 billion to shareholders from the beginning of 2025 through the end of 2026.dividends. On February 5,4, 2025,2026, the Board of Directors declared a 50%21% increase in the cash dividend, raising it to $0.24$0.29 per share, payable on March 27,25, 2025,2026, to stockholders of record as of the close of business on March 6,4, 2025.2026. The Company has entered into share repurchase agreements in the U.S. and Hong Kong for an aggregate repurchase amount of approximately $360$460 million through open market transactions for the first half of 2025.2026. The share repurchase agreements include approximately $290$350 million under Rule 10b5-1 trading plans in the U.S. and approximately HK$550HK$880 million ($70$110 million) for a similar program in Hong Kong.

Our plan of capital returns to shareholders is based on current expectations, which may change based on market conditions, capital needs or otherwise. Our ability to return capital to shareholders in the future is also subject to the factor described above under “Forward-Looking Statements.” In addition, our ability to declare and pay any dividends on our stock may be restricted by our earnings available for distribution under 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 laws, an enterprise incorporated in China is required to set aside at least 10% of its after-tax profits each year, after making up previous years’ accumulated losses, if any, to fund certain statutory reservesurplus funds,reserve, 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 staffdiscretionary welfaresurplus and bonus funds.reserve. These reserve funds and staff welfare and bonus fundsreserves are not distributable as cash dividends.

The credit facilities had remaining terms ranging from less than one year to three years as of December 31, 2024.2025. Our credit facilities mainly include term loans, overdrafts, letters of credit, banker’s acceptance notes and bank guarantees. The credit facilities in general bear interest based on the Loan Prime Rate (“LPR”) published by the National Interbank Funding Centre of the PRC, or Secured Overnight Financing Rate (“SOFR”) published by the Federal Reserve Bank of New York. Each credit facility contains a cross-default provision whereby our failure to make any payment on a principal amount from any credit facility will constitute a default on other credit facilities. Some of the credit facilities contain covenants limiting, among other things, certain additional indebtedness and liens, and certain other transactions specified in the respective agreements. As of December 31, 2024,2025, we had outstanding short-term bank borrowings of RMB929RMB210 million (approximately $127$30 million), mainly to manage working capital at our operating subsidiaries. Such bank borrowings are due within one year from their issuance dates. As of December 31, 2024,2025, we also had outstanding bank guarantees of RMB258RMB296 million (approximately $35$42 million) mainly to secure our lease payments to landlords for certain Company-owned restaurants.restaurants, as well as outstanding bank guarantees of RMB360 million (approximately $52 million) to secure the balance of prepaid stored-value cards issued by the Company pursuant to regulatory requirements. Our credit facilities were therefore reduced by outstanding short-term bank borrowings, adjusted for unamortized interest and collateral, and outstanding guarantees. As of December 31, 2024,2025, the Company had unused credit facilities of approximately $1,041$1,378 million.

These obligations, which are shown on a nominal basis, relate primarily to overapproximately 13,80015,000 Company-owned restaurants. See Note 109 for additional information.

We estimated the fair value of stock options and SARs at the grant date using the Black-Scholes option-pricing model (“the BS model”). PSUs have market conditions that are based on the closing price of Yum China’s stock or relative total shareholder return against selected indices or the constituents of the indices measured over the performance period. The fair values of PSUs have been determined based on the outcome of a Monte-Carlo Simulation model (the “MCS model”). It should be noted that these pricing models require the input of highly subjective assumptions. Changes in the subjective input assumptions can materially affect the fair value estimate and, as a result, our operating profit and net income.

We estimated the expected future volatility of the price of shares of Yum China common stock based on theits historical volatility of the Company’s common stock and historical price volatility of the publicly traded shares of common stock of comparable companies in the same business as Yum China.volatility. The risk-free interest rate was based on the U.S. Treasury zero-coupon yield in effect with maturity terms equal to the expected term or performance measurement period of the awards. The dividend yield was estimated based on the Company’s dividend policy at the time of the grant. We use historical turnover data to estimate the expected forfeiture rate.

We have investments in our foreign subsidiaries where the carrying values for financial reporting exceed the tax basis. Except for the planned but yet to be distributed earnings, we have not provided deferred tax on the portion of the excess that we believe is indefinitely reinvested, as we have the ability and intent to indefinitely postpone the basis differences from reversing with a tax consequence. The Company’s separation from YUM was intended to qualify as a tax-free reorganization for U.S. income tax purposes resulting in the excess of financial reporting basis over tax basis in our investment in the China business continuing to be indefinitely reinvested. The excess of financial reporting basis over tax basis as of December 31, 2017 was subject to the one-time transition tax under the Tax Act as a deemed repatriation of accumulated undistributed earnings from the foreign subsidiaries. However, we continue to believe that the portion of the excess of financial reporting basis over tax basis (including earnings and profits subject to the one-time transition tax) is indefinitely reinvested in our foreign subsidiaries for foreign withholding tax purposes. We estimate that our total temporary difference for which we have not provided foreign withholding taxes is approximately $3 billion at December 31, 2024.2025. The foreign withholding tax rate on this amount is 5% or 10% depending on the manner of repatriation andrepatriation, the applicable tax treaties or tax arrangements, as well as the interpretation in applying these treaties and arrangements.

Yum China Holdings, Inc. is the largest restaurant company in China in terms of 2025 system sales, with 18,73719,297 restaurants covering over 2,6002,700 cities primarily in China as of MarchJune 31,30, 2026. Our growing restaurant network consists of our flagship KFC and Pizza Hut brands, as well as emerging brands such as Lavazza, Huang Ji Huang, Little Sheep and Taco Bell. We have the exclusive right to operate and sublicense the KFC, Pizza Hut and, subject to the agreed terms, Taco Bell brands in China (excluding Hong Kong, Macau and Taiwan), and own the intellectual property of the Little Sheep and Huang Ji Huang concepts outright. We also established a joint venture with Lavazza Group, the world-renowned family-owned Italian coffee company, to explore and develop the Lavazza coffee concept in China. KFC was the first major global restaurant brand to enter China in 1987. With more than three decades of operations, we have developed extensive operating experience in the China market. We believe that there are significant opportunities to further expand within China, and we intend to focus our efforts on increasing our geographic footprint in both existing and new cities.

KFC is the leading and the largest quick-service restaurant (“QSR”) brand in China in terms of 2025 system sales. As of MarchJune 31,30, 2026, KFC operated 13,45413,789 restaurants in over 2,6002,700 cities across China.

Pizza Hut is the leading and the largest casual dining restaurant (“CDR”) brand in China in terms of 2025 system sales and number of restaurants.restaurants as of December 31, 2025. As of MarchJune 31,30, 2026, Pizza Hut operated 4,3754,549 restaurants in over 1,1001,200 cities.

Quarters and Years to Date Ended MarchJune 31,30, 2026 and 2025

Operating profit for the firstsecond quarter increased 12%,14%, or 6%7% excluding the impact of F/X,X. The increase in Operating profit for the quarter ended June 30, 2026 was primarily driven by the increase in Total revenues, efficiency improvement from streamlined operations and favorable commodity prices, lower G&A and closures and impairment expenses, partially offset by increased delivery cost associated with higher delivery sales mix in the current period and value-for-money offerings.

Net income for the second quarter increased 6%,14%, or remained flat6% excluding the impact of F/X,X. Net income for the quarteryear to date ended MarchJune 31,30, 2026,2026 increased 9%, or 3% excluding the impact of F/X. The increase in Net income was mainly due to the increase in Operating Profit, partially offset by the decrease in fair value of our investment in Meituan and less interest income from lower investment balance and interest rates.

The Consolidated Results of Operations for the quarters and years to date ended MarchJune 31,30, 2026 and 2025 and other data are presented below:

The increase in Company sales for the quarter,quarter and year to date ended June 30, 2026, excluding the impact of F/X, was primarily driven by net unit growth and same-store sales growth. The increase in Restaurant profit for the quarter,quarter and year to date ended June 30, 2026, excluding the impact of F/X, was primarily driven by the increase in Company sales, efficiency improvement from streamlined operations and favorable commodity prices, partially offset by increased rider cost associated with higher delivery sales mix in the current period and value-for-money offerings.

The quarter and year to date increase in Franchise fees and income and Revenues from transactions with franchisees for the quarter,franchisees, excluding the impact of F/X, was primarily driven by acceleration of franchise store openings.

The quarter and year to date increase in Operating profit for the quarter,profit, excluding the impact of F/X, was primarily driven by lower closures and impairment expenses, increased profit generated from acceleration of franchise store openings andthe increase in Restaurant profit.

TheAs compared to the second quarter of 2025, the increase in Company sales for the quarter, excluding the impact of F/X, was primarily driven by net unit growth,growth partially offset byand same-store sales decline.growth. The increase in Restaurant profit for the quarter, excluding the impact of F/X, was primarily driven by the increase in Company sales, efficiency improvement from streamlined operations and favorable commodity prices, partially offset by value-for-money offerings and increased delivery cost associated with higher delivery sales mix in the current period.period and value-for-money offerings.

The quarter and year to date increase in Franchise fees and income and Revenues from transactions with franchisees for the quarter,franchisees, excluding the impact of F/X, was primarily driven by acceleration of franchise store openings.

The quarter and year to date increase in Operating profit for the quarter,profit, excluding the impact of F/X, was primarily driven by the increase in Restaurant profit.profit and lower closures and impairment expenses.

The quarter and year to date increase in Total revenues of All other segments for the quarter,segments, excluding the impact of F/X, was primarily driven by inter-segment revenue generated by our delivery team for services provided to Company-owned restaurants, which is inter-segment revenue, and franchise restaurants as a result of increased delivery sales.

The quarter and year to date improvement in Operating profit (loss) for the quarter, excluding the impact of F/X, was primarily driven by the decrease in Operating loss from certain emerging brands.

Revenues from transactions with franchisees primarily include revenues derived from the Company’s central procurement model, whereby food and paper products are centrally purchased and then mainly sold to KFC and Pizza Hut franchisees. The quarter and year to date increase in revenues from transactions with franchisees for the quarter,franchisees, excluding the impact of F/X, was mainly due to the increase in system sales for franchisees primarily driven by acceleration of franchise store openings.

The decrease in Corporate G&A expenses for the quarter,quarter remained flat. The year to date decrease in Corporate G&A expenses, excluding the impact of F/X, was primarily due to lower compensation costs and timing of government subsidies and lower compensation costs.subsidies.

The quarter and year to date decrease in interest income, net for the quarter,net, excluding the impact of F/X, was primarily driven by lower investment balance with cash used in return to shareholders and lower interest rates.

Investment (Loss) Gain

The investment (loss) gain mainly relates to the change in fair value of our investment in Meituan. See Note 3 for additional information.

Our income tax provision primarily includes tax on our earnings generally at the Chinese statutory tax rate of 25% with certain Chinese subsidiaries qualified for preferential tax rates, withholding tax on planned or actual repatriation of earnings outside of China, Hong Kong profits tax, and U.S. corporate income tax, if any. The lowerhigher effective tax rate for the quarter ended MarchJune 31,30, 2026 was primarily due to higher U.S. tax impact. The lower effective tax rate for the year to date ended June 30, 2026 was primarily due to higher excess tax benefits upon exercise of share-based awards.

Entities that are general VAT taxpayers are permitted to offset qualified input VAT paid to suppliers against their output VAT upon receipt of appropriate supplier VAT invoices on an entity-by-entity basis. 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 a VAT asset which can be carried forward indefinitely to offset future net VAT payables. VAT related to purchases and sales which have not been settled at the balance sheet date is disclosed separately as an asset and liability, respectively, in the Condensed Consolidated Balance Sheets. At each balance sheet date, the Company reviews the outstanding balance of any VAT asset for recoverability, giving consideration to the indefinite life of VAT assets as well as its forecasted operating results and capital spending, which inherently includes significant assumptions that are subject to change. As of MarchJune 31,30, 2026 and December 31, 2025, the Company has not made an allowance for the recoverability of VAT assets, as the balance is expected to be utilized to offset against VAT payables or be refunded in the future.

As of MarchJune 31,30, 2026, current VAT assets of $147$159 million, non-current VAT assets of $14 million and net VAT payable of $6$7 million were recorded in Prepaid expenses and other current assets, Other assets and Accounts payable and other current liabilities, respectively, in the Condensed Consolidated Balance Sheets.

Our cash flows for the quartersyears to date ended MarchJune 31,30, 2026 and 2025 were as follows:

Net cash used in investing activities was $233$265 million in 2026 as compared to $72$290 million in 2025. The increasedecrease was mainly due to the net impact on cash flows resulting from purchases and maturities of short-term investments, and long-term bank deposits and notes.

Net cash used in financing activities was $353$739 million in 2026 as compared to $280$709 million in 2025. The increase was primarily driven by the increase of share repurchases,repurchases and cash dividends paid on common stockstock, andpartially netoffset outflowby relatedthe toincrease in the proceeds from short-term borrowings.

IfFor ourlong cashterm flows from operations are less than we require, we may need to accessfinancing, the capitalCompany marketsis toevaluating obtaina financing.range of options. The timing and terms of any such financing will depend on market conditions and other factors. 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:

As of MarchJune 31,30, 2026, our Board of Directors authorized an aggregate of $5.4 billion for our share repurchase program, of which $0.9$641 billionmillion remained available as of MarchJune 31,30, 2026. Yum China may repurchase shares under this program from time to time in the open market or, subject to applicable regulatory requirements, through privately negotiated transactions, block trades, accelerated share repurchase transactions and the use of Rule 10b5-1 trading plans. During the quartersyears to date ended MarchJune 31,30, 2026 and 2025, the Company repurchased 4.110.7 million shares of common stock for $214$515 million and 3.67.7 million shares of common stock for $172$356 million, respectively, under the repurchase program, excluding transaction costs and excise tax.

For the quarters ended MarchJune 31,30, 2026 and 2025, the Company paid cash dividends of approximately $102$101 million and $90 million, respectively, and for the years to date ended June 30, 2026 and 2025, the Company paid aggregate cash dividends of approximately $203 million and $180 million, respectively, to stockholders through a quarterly dividend payment of $0.29 and $0.24 per share, respectively.

The Company plans to return $1.5 billion to shareholders in 2026, adding to boththe $1.5 billion it delivered to shareholders in each of 2025 and 2024 in share repurchases and dividends.

On AprilJuly 29,30, 2026, the Board of Directors declared a cash dividend of $0.29 per share, payable on JuneSeptember 17, 2026, to stockholders of record as of the close of business on MayAugust 27, 2026. The total estimated cash dividend payable is approximately $101$99 million.

Our plan of capital returns to shareholders is based on current expectations, which may change based on market conditions, capital needs or otherwise. Our ability to return capital to shareholders in the future is also subject to the factorfactors described below under “Forward-Looking Statements.” In addition, our ability to declare and pay any dividends on our stock may be restricted by our earnings available for distribution under 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 laws, an enterprise incorporated in China is required to set aside at least 10% of its after-tax profits each year, after making up previous years’ accumulated losses, if any, to fund statutory surplus reserve, 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 discretionary surplus reserve. These reserves are not distributable as cash dividends.

As of MarchJune 31,30, 2026, the Company had credit facilities of RMB10,758RMB10,715 million (approximately $1,560$1,579 million), comprised of onshore credit facilities in the aggregate amount of RMB8,000 million (approximately $1,160$1,179 million), offshore credit facilities in the aggregate amount of $200 million and a credit facility of $200 million that can be used for either onshore or offshore.

The credit facilities had remaining terms ranging from less than one year to three years as of MarchJune 31,30, 2026. Our credit facilities mainly include term loans, overdrafts, letters of credit, banker’s acceptance notes and bank guarantees. The credit facilities in general bear interest based on the Loan Prime Rate (“LPR”) published by the National Interbank Funding Centre of the PRC, or Secured Overnight Financing Rate (“SOFR”) published by the Federal Reserve Bank of New York. Each credit facility contains a cross-default provision whereby our failure to make any payment on a principal amount from any credit facility will constitute a default on other credit facilities. Some of the credit facilities contain covenants limiting, among other things, certain additional indebtedness and liens, and certain other transactions specified in the respective agreements. As of MarchJune 31,30, 2026, we had outstanding short-term bank borrowings of RMB137RMB445 million (approximately $20$66 million), mainly to manage working capital at our operating subsidiaries. Such bank borrowings are due within one year from their issuance dates. As of MarchJune 31,30, 2026, we also had outstanding bank guarantees of RMB306RMB315 million (approximately $44$46 million) mainly to secure our lease payments to landlords for certain Company-owned restaurants, as well as outstanding bank guarantees of RMB360RMB600 million (approximately $52$89 million) to secure the balance of prepaid stored-value cards issued by the Company pursuant to regulatory requirements. Our credit facilities were therefore reduced by outstanding short-term bank borrowings, adjusted for unamortized interest and outstanding guarantees. As of MarchJune 31,30, 2026, the Company had unused credit facilities of approximately $1,444$1,378 million.