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YoY shift: Neutral
Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is -0.01pp more bearish than last year's.
Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.
Tone shift by section
The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.
Risk Factors
-
Not scored
Net-tone change vs last year's 10-K.
MD&A
-0.01pp
Flat
Net-tone change vs last year's 10-K.
Per-snippet highlights
Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.
No section text extracted for this filing. The 10-K may use a non-standard template that the parser doesn't recognize - the original doc is still linked in the Stats tab.
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase
Negative rising
losses+6
impairment+2
closures+1
renegotiating+1
Positive rising
effective+3
gains+2
improvement+1
better+1
strong+1
MD&A (Item 7)
36,133 words
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following Management’s Discussion and Analysis (“MD&A”) should be read in conjunction with the Consolidated Financial Statements in Item 8, the “Forward-Looking Statements” section at the beginning of this Form 10-K and the “Risk Factors” section set forth in Item 1A.
All Note references in this MD&A refer to the Notes to the Consolidated Financial Statements included in Item 8. of this Form 10-K. Tabular amounts are displayed in millions of U.S. dollars except per share and unit count amounts, or as otherwise specifically identified. Percentages may not recompute due to rounding. Throughout this Form 10-K when we refer to the “financial statements,” we are referring to the “Consolidated Financial Statements,” unless the context indicates otherwise. This MD&A includes a discussion of our results of operations for the year ended December 31, 2025 compared to the year ended December 31, 2024. For a discussion of our operating results for the year ended December 31, 2024 compared to the year ended December 31, 2023, please refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2024.
Overview
Yum China Holdings, Inc. is the largest restaurant company in China in terms of 2025 system sales, with $11.8 billion of revenues in 2025 and 18,101 restaurants as of year-end 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 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 have since grown to become the largest restaurant company in China in terms of 2025 system sales, with 18,101 restaurants covering over 2,500 cities primarily in China as of December 31, 2025. We believe that there are significant 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, 2025, KFC operated 12,997 restaurants in over 2,500 cities across China.
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, 2025, Pizza Hut operated 4,168 restaurants in over 1,000 cities.
We have two reportable segments: KFC and Pizza Hut. Our non-reportable operating segments, including the operations of Lavazza, Huang Ji Huang, Little Sheep, Taco Bell and our delivery operating segment, and for 2024, also including e-commerce 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 15.
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:
Certain performance metrics and non-GAAP measures are presented excluding the impact of foreign currency translation (“F/X”). These amounts are derived by translating current year results at prior year average exchange rates. We believe the elimination of the F/X impact provides better year-to-year comparability without the distortion of foreign currency fluctuations.
System sales growth reflects the results of all restaurants regardless of ownership, including Company-owned and franchise restaurants, except for sales from non-Company-owned restaurants for which we do not receive a sales-based royalty. Sales of franchise restaurants typically generate ongoing franchise fees for the Company at an average rate of approximately 6% of system sales. Franchise restaurant sales are not included in Company sales in the Consolidated Statements of Income; however, the franchise fees are included in the Company’s revenues. 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.
2025 Form 10-K
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, excluding the period during which stores are temporarily closed. 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, including stores temporarily closed, 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 sales represent revenues from Company-owned restaurants. Within the analysis of Company sales, Total revenue and Restaurant profit, store portfolio actions represent the net impact from new-unit openings, acquisitions, refranchising and store closures. Net new unit contribution represents net revenue growth primarily from store portfolio actions excluding temporary store closures. Other primarily represents the impact of same-store sales as well as the impact of changes in restaurant operating costs such as inflation/deflation.
Results of Operations
Summary
All comparisons within this summary are versus the same period a year ago. Refer to Item 1. Business for a discussion of the seasonality of our operations.
In 2025, the Company’s total revenues increased 4%, including or excluding the impact of F/X, mainly attributable to 3% of net new unit contribution and 1% same-store sales growth. Operating profit increased 11%, including or excluding the impact of F/X, primarily driven by the increase in Total revenues, favorable commodity prices and efficiencyimprovement from streamlined operations, partially offset by increased delivery cost associated with higher delivery sales mix in the current year and value-for-money offerings. Net income for 2025 increased 2%, including or excluding the impact of F/X, mainly due to the increase in Operating profit, partially offset by the decrease in fair value of our investment in Meituan, less interest income due to lower investment balance and interest rates and higher income tax expenses in line with the increase in pre-tax income.
2025 financial highlights are below:
%/ppts Change
Reported
System Sales Growth (a) (%)
Same-Store Sales Growth (Decline) (a) (%)
Operating Profit
Adjusted Operating Profit (b)
Core Operating Profit (b)
OP Margin (c) (%)
Core OP Margin (b) (%)
Net Income
Adjusted Net Income (b)
Diluted Earnings Per Common Share
Adjusted Diluted Earnings Per Common Share (b)
NM refers to not meaningful.
System Sales and Same-Store Sales growth percentages as shown in 2025 financial highlights exclude the impact of F/X. Effective January 1, 2018, temporary store closures are normalized in the same-store sales calculation by excluding the period during which stores are temporarily closed.
See “Non-GAAP Measures” below for definitions and reconciliations of the most directly comparable GAAP financial measures to the non-GAAP measures.
OP margin is defined as Operating Profit divided by Total revenues.
2025 Form 10-K
The Consolidated Results of Operations for the years ended December 31, 2025 and 2024 and other data are presented below:
Reported
Company sales
Franchise fees and income
Revenues from transactions with franchisees
Other revenues
Total revenues
Company restaurant expenses
Operating Profit
OP Margin (%)
ppts.
ppts.
Interest income, net
Investment (loss) gain
Income tax provision
Equity in net earnings (losses) from
equity method investments
Net Income – including
noncontrolling interests
Net income – noncontrolling interests
Net Income – Yum China Holdings, Inc.
Diluted Earnings Per Common Share
Effective tax rate
Supplementary information
– Non-GAAP Measures (b)
Restaurant profit
Restaurant margin (%)
Adjusted Operating Profit
Core Operating Profit
Core OP Margin (%)
Adjusted Net Income – Yum China Holdings, Inc.
Adjusted Diluted Earnings Per Common Share
Adjusted Effective Tax Rate
Adjusted EBITDA
Represents year-over-year change in percentage.
See “Non-GAAP Measures” below for definitions and reconciliations of the most directly comparable GAAP financial measures to the non-GAAP measures.
Performance Metrics
% Change
System Sales Growth
System Sales Growth, excluding F/X
Same-Store Sales Growth
Unit Count
% Increase
Company-owned
Franchisees
2025 Form 10-K
Non-GAAP Measures
In addition to the results provided in accordance with GAAP throughout this MD&A, the Company provides the following non-GAAP measures:
Measures adjusted for Special Items, which include Adjusted Operating Profit, Adjusted Net Income, Adjusted Earnings Per Common Share (“EPS”), Adjusted Effective Tax Rate and Adjusted EBITDA;
Company Restaurant Profit (“Restaurant profit”) and Restaurant margin;
Core Operating Profit and Core OP margin, which exclude Special Items, and further adjusted for Items Affecting Comparability and the impact of F/X;
These non-GAAP 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 non-GAAP measures provides additional information to investors to facilitate the comparison of past and present results, excluding those items that the Company does not believe are indicative of our core operations.
With respect to non-GAAP measures adjusted for Special Items, the Company excludes impact from Special Items for the purpose of evaluating performance internally and uses them as factors in determining compensation for certain employees. Special Items are not included in any of our segment results.
Adjusted EBITDA is defined as net income including noncontrolling interests adjusted for equity in net earnings (losses) from equity method investments, income tax, interest income, net, investment gain or loss, depreciation and amortization, store impairment charges, and Special Items. Store impairment charges included as an adjustment item in Adjusted EBITDA primarily resulted from our semi-annual impairment evaluation of long-lived assets of individual restaurants, and additional impairment evaluation whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. If these restaurant-level assets were not impaired, depreciation of the assets would have been recorded and included in EBITDA. Therefore, store impairment charges were a non-cash item similar to depreciation and amortization of our long-lived assets of restaurants. The Company believes that investors and analysts may find it useful in measuring operating performance without regard to such non-cash items.
Restaurant profit is defined as Company sales less expenses incurred directly by our Company-owned restaurants in generating Company sales, including cost of food and paper, restaurant-level payroll and employee benefits, rent, depreciation and amortization of restaurant-level assets, advertising expenses, and other operating expenses. Company restaurant margin percentage is defined as Restaurant profit divided by Company sales. We also use Restaurant profit and Restaurant margin for the purpose of internally evaluating the performance of our Company-owned restaurants and we believe they provide useful information to investors as to the profitability of our Company-owned restaurants.
Core Operating Profit is defined as Operating Profit adjusted for Special Items, and further excluding Items Affecting Comparability and the impact of F/X. We consider quantitative and qualitative factors in assessing whether to adjust for the impact of items that may be significant or that could affect an understanding of our ongoing financial and business performance or trends. Items such as charges, gains and accounting changes, which are viewed by management as significantly impacting the current period or the comparable period, due to changes in policy or other external factors, or non-cash items pertaining to underlying activities that are different from or unrelated to our core operations, are generally considered “Items Affecting Comparability.” Examples of Items Affecting Comparability include, but are not limited to: temporary relief from landlords and government agencies; VAT deductions due to tax policy changes; and amortization of reacquired franchise rights recognized upon acquisitions. We believe presenting Core Operating Profit provides additional information to further enhance comparability of our operating results and we use this measure for purposes of evaluating the performance of our core operations. Core OP margin is defined as Core Operating Profit divided by Total revenues, excluding the impact of F/X.
2025 Form 10-K
The following table sets forth the reconciliations of the most directly comparable GAAP financial measures to the non-GAAP financial measures:
Reconciliation of Operating Profit to Adjusted Operating Profit
Operating Profit
Special Items, Operating Profit
Adjusted Operating Profit
Reconciliation of Net Income to Adjusted Net Income
Net Income – Yum China Holdings, Inc.
Special Items, Net Income – Yum China Holdings, Inc.
Adjusted Net Income – Yum China Holdings, Inc.
Reconciliation of EPS to Adjusted EPS
Basic Earnings Per Common Share
Special Items, Basic Earnings Per Common Share
Adjusted Basic Earnings Per Common Share
Diluted Earnings Per Common Share
Special Items, Diluted Earnings Per Common Share
Adjusted Diluted Earnings Per Common Share
Reconciliation of Effective Tax Rate to Adjusted Effective Tax Rate
Effective tax rate (See Note 14)
Impact on effective tax rate as a result of Special Items
Adjusted effective tax rate
Net income, along with the reconciliation to Adjusted EBITDA, is presented below:
Net Income – Yum China Holdings, Inc.
Net income – noncontrolling interests
Equity in net (earnings) losses from
equity method investments
Income tax provision
Interest income, net
Investment loss (gain)
Operating Profit
Special Items, Operating Profit
Adjusted Operating Profit
Depreciation and amortization
Store impairment charges
Adjusted EBITDA
2025 Form 10-K
Reconciliation of GAAP Operating Profit to Restaurant Profit is as follows:
KFC
Pizza Hut
All Other Segments
Corporate
and
Unallocated
Elimination
Total
GAAP Operating Profit (Loss)
Less:
Franchise fees and income
Revenues from transactions with franchisees
Other revenues
Add:
General and administrative expenses
Franchise expenses
Expenses for transactions with franchisees
Other operating costs and expenses
Closures and impairment expenses, net
Other income, net
Restaurant profit (loss)
Company sales
Restaurant margin (%)
KFC
Pizza Hut
All Other Segments
Corporate
and
Unallocated
Elimination
Total
GAAP Operating Profit (Loss)
Less:
Franchise fees and income
Revenues from transactions with franchisees
Other revenues
Add:
General and administrative expenses
Franchise expenses
Expenses for transactions with franchisees
Other operating costs and expenses
Closures and impairment expenses, net
Other income, net
Restaurant profit (loss)
Company sales
Restaurant margin (%)
Reconciliation of GAAP Operating Profit to Core Operating Profit is as follows:
% Change
Operating Profit
Special Items, Operating Profit
Adjusted Operating Profit
Items Affecting Comparability
F/X impact
Core Operating Profit
Total revenues
F/X impact
Total revenues, excluding the impact of F/X
Core OP margin (%)
ppts.
2025 Form 10-K
Reconciliation of GAAP Operating Profit to Core Operating Profit by segment is as follows:
KFC
Pizza Hut
All Other Segments
Corporate
and
Unallocated
Elimination
Total
GAAP Operating Profit (Loss)
Special Items, Operating Profit
Adjusted Operating Profit (Loss)
Items Affecting Comparability
F/X impact
Core Operating Profit (Loss)
KFC
Pizza Hut
All Other Segments
Corporate
and
Unallocated
Elimination
Total
GAAP Operating Profit (Loss)
Special Items, Operating Profit
Adjusted Operating Profit (Loss)
Items Affecting Comparability
F/X impact
Core Operating Profit (Loss)
2025 Form 10-K
Segment Results
KFC
KFC delivered strong performance in 2025 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 side-by-side modules, such as KCOFFEE 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 customer experience. KFC’s loyalty program members exceeded 550 million at year-end 2025 and contributed approximately 61% of system sales at KFC in 2025. Delivery sales accounted for approximately 48% of Company sales at KFC in 2025 with store and city coverage of 92% and 98%, respectively, at the end of 2025.
Reported
Company sales
Franchise fees and income
Revenues from transactions with franchisees
Other revenues
Total revenues
Company restaurant expenses
G&A expenses
Franchise expenses
Expenses for transactions with franchisees
Other operating costs and expenses
Closures and impairment expenses, net
Operating Profit
Core Operating Profit
OP margin (%)
ppts.
ppts.
Restaurant profit
Restaurant margin (%)
ppts.
ppts.
% Change
System Sales Growth
System Sales Growth, excluding F/X
Same-Store Sales Growth
Unit Count
% Increase
Company-owned
Franchisees
New Builds
Closures
Acquired
Refranchised
Company-owned
Franchisees
Total
2025 Form 10-K
Company Sales and Restaurant Profit
The changes in Company sales and Restaurant profit were as follows:
Income (Expense)
Store Portfolio
Actions
Other
Company sales
Cost of sales
Cost of labor
Occupancy and other operating expenses
Restaurant profit
In 2025, the increase in Company sales, excluding the impact of F/X, was primarily driven by net unit growth and same-store sales growth. The increase in Restaurant profit, excluding the impact of F/X, was primarily driven by the increase in Company sales, favorable commodity prices and efficiencyimprovement from streamlined operations, partially offset by increased rider cost associated with higher delivery sales mix in the current year and value-for-money offerings.
Franchise Fees and Income/Revenues from Transactions with Franchisees
In 2025, the increase in Franchise fees and income and Revenues from transactions with franchisees, excluding the impact of F/X, was primarily driven by acceleration of franchise store openings.
G&A Expenses
In 2025, the increase in G&A expenses, excluding the impact of F/X, was primarily driven by higher performance-based compensation costs.
Operating Profit
In 2025, the increase in Operating profit, excluding the impact of F/X, was primarily driven by the increase in Restaurant profit, partially offset by higher G&A expenses.
2025 Form 10-K
Pizza Hut
Pizza Hut delivered strong performance in 2025 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 new store models like Pizza Hut WOW. During 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 210 million at year-end 2025 and contributed approximately 59% of system sales at Pizza Hut in 2025. Delivery sales accounted for approximately 47% of Company sales at Pizza Hut in 2025 with store and city coverage of 96% and 96%, respectively, at the end of 2025.
Reported
Company sales
Franchise fees and income
Revenues from transactions with franchisees
Other revenues
Total revenues
Company restaurant expenses
G&A expenses
Franchise expenses
Expenses for transactions with franchisees
Other operating costs and expenses
Closures and impairment expenses, net
Operating Profit
Core Operating Profit
OP margin (%)
ppts.
ppts.
Restaurant profit
Restaurant margin (%)
ppts.
ppts.
% Change
System Sales Growth
System Sales Growth, excluding F/X
Same-Store Sales Growth
Unit Count
% Increase
Company-owned
Franchisees
New Builds
Closures
Refranchised
Company-owned
Franchisees
Total
2025 Form 10-K
Company Sales and Restaurant Profit
The changes in Company sales and Restaurant profit were as follows:
Income (Expense)
Store Portfolio
Actions
Other
Company sales
Cost of sales
Cost of labor
Occupancy and other operating expenses
Restaurant profit
In 2025, the increase in Company sales, excluding the impact of F/X, was primarily driven by net unit growth and same-store sales growth. The increase in Restaurant profit, excluding the impact of F/X, was primarily driven by the increase in Company sales, favorable commodity prices and efficiencyimprovement from streamlined operations, partially offset by value-for-money offerings and increased delivery cost associated with higher delivery sales mix in the current year.
Franchise Fees and Income/Revenues from Transactions with Franchisees
In 2025, the increase in Franchise fees and income and Revenues from transactions with franchisees, excluding the impact of F/X, was primarily driven by acceleration of franchise store openings.
Operating Profit
In 2025, the increase in Operating profit, excluding the impact of F/X, was primarily driven by the increase in Restaurant profit.
All Other Segments
All Other Segments reflects the results of Lavazza, Huang Ji Huang, Little Sheep, Taco Bell and our delivery operating segment, and for 2024, also the e-commerce segment.
Reported
Company sales
Franchise fees and income
Revenues from transactions with franchisees
Other revenues
Total revenues
Company restaurant expenses
G&A expenses
Franchise expenses
Expenses for transactions with franchisees
Other operating costs and expenses
Closure and impairment expenses, net
Operating Loss
OP margin (%)
ppts.
ppts.
Restaurant loss
Restaurant margin (%)
ppts.
ppts.
2025 Form 10-K
Total Revenues
In 2025, the increase in Total revenues, 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 as a result of increased delivery sales, partially offset by decline in Company sales.
Operating Loss
In 2025, the improvement in Operating loss, excluding the impact of F/X, was primarily driven by the decrease in Operating loss from certain emerging brands.
Corporate & Unallocated
Reported
Revenues from transactions with franchisees (a)
Other revenues
Expenses for transactions with franchisees (a)
Other operating costs and expenses
Corporate G&A expenses
Other unallocated income, net
Interest income, net
Investment (loss) gain
Income tax provision (See Note 14)
Equity in net earnings (losses) from
equity method investments
Effective tax rate (See Note 14)
ppts
ppts
Primarily includes revenues and associated expenses of transactions with franchisees derived from the Company’s central procurement model whereby food and paper products are centrally purchased and then mainly sold to KFC and Pizza Hut franchisees. Amounts have not been allocated to any segment for purposes of making operating decisions or assessing financial performance as the transactions are corporate revenues and expenses in nature.
Revenues from Transactions with Franchisees
In 2025, the increase in Revenues from transactions with franchisees, excluding the impact of F/X, was mainly due to the increase in system sales for franchisees primarily driven by acceleration of franchise store openings.
Corporate G&A Expenses
In 2025, the increase in Corporate G&A expenses, excluding the impact of F/X, was primarily driven by higher performance-based compensation costs.
Interest Income, Net
In 2025, the decrease in interest income, excluding the impact of F/X, was primarily driven by lower interest rates and lower investment balance with cash used in return to shareholders.
Investment (Loss) Gain
The investment (loss) gain mainly relates to the change in fair value of our investment in Meituan Dianping (“Meituan”). See Note 3 for additional information.
2025 Form 10-K
Income Tax Provision
Our income tax provision primarily includes tax on our earnings generally at the Chinese statutory tax rate of 25% with certain Chinese subsidiaries qualified 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. Our effective tax rate was 27.2% and 26.7% in 2025 and 2024, respectively. The higher effective tax rate in 2025 compared with that in 2024 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.
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 tax authorities with respect to income and non-income based taxes. Since 2016, we have been under a national audit on transfer pricing by the STA in China regarding our related party transactions for the period from 2006 to 2015. The information and views currently exchanged with the tax authorities focus on our franchise arrangement with YUM. We continue to provide information requested by the tax authorities to the extent it is available to the Company. It is reasonably possible that there could be significant developments, including expert review and assessment by the STA, within the next 12 months. The ultimate assessment and decision of the STA will depend upon further review of the information provided, as well as ongoing technical and other discussions with the STA and in-charge local tax authorities, and therefore it is not possible to reasonably estimate the potential impact at this time. We will continue to defend our transfer pricing position. However, if the STA prevails in the assessment of additional tax due based on its ruling, the assessed tax, interest and penalties, if any, could have a material adverse impact on our financial position, results of operations and cash flows.
PRC Value-Added Tax (“VAT”)
Effective May 1, 2016, a 6% output VAT replaced the 5% business tax (“BT”) previously applied to certain restaurant sales. Input VAT would be creditable to the aforementioned 6% output VAT. Our new retail business is generally subject to VAT rates at 9% or 13%. 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 was insignificant.
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, on the 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 December 31, 2025 and 2024, 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.
In June 2022, the Chinese Ministry of Finance (“MOF”) and the STA jointly issued Announcement [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.
2025 Form 10-K
As of December 31, 2025, current VAT assets of $142 million, non-current VAT assets of $14 million and net VAT payable of $6 million were recorded in Prepaid expenses and other current assets, Other assets and Accounts payable and other current liabilities, respectively, on the Consolidated Balance Sheets.
The Company will continue to review the classification of VAT assets at each balance sheet date, giving consideration to different local implementation practices of refunding VAT assets and the outcome of potential administrative reviews.
We have been benefiting from the retail tax structure reform since it was implemented on May 1, 2016. However, the amount of our expected benefit from this VAT regime depends on a number of factors, some of which are outside of our control. The interpretation and application of the new VAT regime are not settled at some local governmental levels. On December 25, 2024, China enacted the VAT Law, which came into effect on January 1, 2026 along with its implementation rules. In terms of tax rates, the VAT Law maintains the existing standard rates of 13%, 9%, and 6%. The Company will continue to monitor regulatory developments and evaluate any potential impact on our financial statements as further guidance becomes available.
Foreign Currency Exchange Rate
The reporting currency of the Company is the US$. 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 7A. Quantitative and Qualitative Disclosures About Market Risk” for further discussion.
Consolidated Cash Flows
Net cash provided by operating activities was $1,466 million in 2025 as compared to $1,419 million in 2024. The increase was primarily driven by the increase in Operating profit along with working capital changes.
Net cash used in investing activities was $5 million in 2025 as compared to $178 million in 2024. The decrease was mainly due to the net impact on cash flows resulting from purchases and maturities of short-term investments, long-term bank deposits and notes, and the decrease in capital spending.
Net cash used in financing activities was $1,689 million in 2025 as compared to $1,636 million in 2024. The increase was primarily driven by the increase of cash dividends paid on common stock, the decrease in the net proceeds from short-term bank borrowings, partially offset by the fluctuation in share repurchases.
Liquidity and Capital Resources
Historically we have funded our operations through cash generated from the operation of our Company-owned stores and our franchise operations. Our global offering in September 2020 provided us with $2.2 billion in net proceeds.
Our ability to fund our future operations and capital needs will primarily depend on our ongoing ability to generate cash from operations. 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. We believe that our future cash from operations, together with our funds on hand and access to the capital markets, will provide adequate resources to fund these uses of cash, and that our existing cash, net cash from operations and credit facilities will be sufficient to fund our operations and anticipated capital expenditures for the next 12 months. We currently expect our fiscal year 2026 capital expenditures to be in the range of approximately $600 million to $700 million.
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;
2025 Form 10-K
our credit ratings;
the liquidity of the overall capital markets and our access to capital markets; and
the state of the Chinese, U.S. and global economies, as well as relations between the Chinese and U.S. governments.
There can be no assurance 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.
Share Repurchases and Dividends
On December 11, 2025, our Board of Directors increased the share repurchase authorization by $1 billion to an aggregate of $5.4 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, 2025 and 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, respectively, under the repurchase program, excluding transaction costs and excise tax.
The Company paid a cash dividend of $0.24 and $0.16 per share for each quarter of 2025 and 2024, respectively. Total cash dividends of $353 million and $248 million were paid to stockholders in 2025 and 2024, respectively.
The Company plans to return $1.5 billion to shareholders in 2026, adding to both $1.5 billion it delivered to shareholders in 2025 and 2024 in share repurchases and dividends. On February 4, 2026, the Board of Directors declared a 21% increase in the cash dividend, raising it to $0.29 per share, payable on March 25, 2026, to stockholders of record as of the close of business on March 4, 2026. The Company has entered into share repurchase agreements in the U.S. and Hong Kong for an aggregate repurchase amount of approximately $460 million through open market transactions for the first half of 2026. The share repurchase agreements include approximately $350 million under Rule 10b5-1 trading plans in the U.S. and approximately HK$880 million ($110 million) for a similar program in Hong Kong.
The Company 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. 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 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.
Borrowing Capacity
As of December 31, 2025, the Company had credit facilities of RMB10,495 million (approximately $1,502 million), comprised of onshore credit facilities in the aggregate amount of RMB7,700 million (approximately $1,102 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.
2025 Form 10-K
The credit facilities had remaining terms ranging from less than one year to three years as of December 31, 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, 2025, we had outstanding short-term bank borrowings of RMB210 million (approximately $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, 2025, we also had outstanding bank guarantees of RMB296 million (approximately $42 million) mainly to secure our lease payments to landlords for certain Company-owned 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 outstanding guarantees. As of December 31, 2025, the Company had unused credit facilities of approximately $1,378 million.
Material Cash Requirements
Our material short-term and long-term cash requirements as of December 31, 2025 included:
Total
Less than
1 Year
1-3 Years
3-5 Years
More than
5 Years
Finance Leases (a)
Operating Leases (a)
Short-term borrowings (b)
Purchase Obligations (c)
Total
These obligations, which are shown on a nominal basis, relate primarily to approximately 15,000 Company-owned restaurants. See Note 9 for additional information.
This represents outstanding principal amount of short-term borrowings, by excluding the impact of debt discounts as of December 31, 2025. See Note 8 for additional information.
Purchase obligations relate primarily to capital expenditure commitment for infrastructure, as well as supply and service agreements. We have excluded agreements that are cancelable without penalty or have a remaining term not in excess of one year. Such commitments are generally near term in nature, will be funded from operating cash flows, and are not significant to the Company’s overall financial position.
We have not included in the table above approximately $24 million of liabilities for unrecognized tax benefits related to the uncertainty with regard to the deductibility of certain business expenses incurred as well as related accrued interest and penalties. These liabilities may increase or decrease over time as a result of tax examinations, and given the status of the examinations, we cannot reliably estimate the period of any cash settlement with the respective taxing authorities. These liabilities exclude amounts that are temporary in nature and for which we anticipate that over time there will be no net cash outflow.
We had no material contingent obligations as of December 31, 2025. Please see Note 16 for further discussion.
New Accounting Pronouncements
Recently Adopted Accounting Pronouncements
See Note 2 for details of recently adopted accounting pronouncements.
2025 Form 10-K
New Accounting Pronouncements Not Yet Adopted
In November 2024, the FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40) ( “ASU 2024-03”) , requiring public business entities to disclose in the notes to the financial statements, among other things, specific information about certain costs and expenses including purchases of inventory, employee compensation, depreciation, amortization and depletion expenses for each caption on the income statement where such expenses are included. ASU 2024-03 is effective for the Company for annual period from January 1, 2027, and for interim periods from January 1, 2028, with early adoption permitted. We are currently evaluating the impact the adoption of this standard may have on our financial statements.
In July 2025, the FASB issued ASU 2025-05, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses for Accounts Receivable and Contract Assets (“ASU 2025-05”), which provides the option to elect a practical expedient to assume that the current conditions as of the balance sheet date will remain unchanged for the remaining life of the asset when developing a reasonable and supportable forecast as part of estimating expected credit losses on these assets. ASU 2025-05 is effective for the Company from January 1, 2026, with early adoption permitted. We will adopt this standard in the first quarter of 2026, and do not expect that the adoption of this standard will have a material impact on our financial statements.
In September 2025, the FASB issued Accounting Standards Update 2025-06, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software " (“ASU 2025-06”), which better aligns the accounting guidance to how software is developed by eliminating project stages from capitalization criteria, and further clarifies the threshold entities apply to begin capitalizing costs. The amendment also enhances the disclosure requirements for internal-use software. ASU 2025-06 is effective for the Company from January 1, 2028, with early adoption permitted. We are currently evaluating the impact the adoption of this standard may have on our financial statements.
In December 2025, the FASB issued ASU 2025-10, Government Grants (Topic 832): Accounting for Government Grants Received by Business Entities (“ASU 2025-10”) to establish guidance on the recognition, measurement, and presentation of government grants received by business entities. The new standard leverages the principles in the accounting framework for government assistance in International Accounting Standard 20. ASU 2025-10 is effective for the Company for annual period from January 1, 2029, with early adoption permitted. We are currently evaluating the impact the adoption of this standard may have on our financial statements.
Critical Accounting Policies and Estimates
Our reported results are impacted by the application of certain accounting policies that require us to make subjective or complex judgments. These judgments involve estimations of the effect of matters that are inherently uncertain and may significantly impact our quarterly or annual results of operations or financial condition. Changes in the estimates and judgments could significantly affect our results of operations, financial condition and cash flows in future years. A description of what we consider to be our most significant critical accounting policies and estimates follows.
2025 Form 10-K
Loyalty Programs
Each of the Company’s KFC and Pizza Hut reportable segments operates a loyalty program that allows registered members to earn points for each qualifying purchase. 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 in the 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 and reviews such estimates periodically based upon the latest available information regarding redemption and expiration patterns.
Breakage Revenue
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.
Impairment or Disposal of Long-Lived Assets
We review long-lived assets of restaurants (primarily operating lease right-of-use assets and property, plant and equipment (“PP&E”)) semi-annually for impairment, or whenever events or changes in circumstances indicate that the carrying amount of a restaurant may not be recoverable. We evaluate recoverability based on the restaurant’s forecasted undiscounted cash flows, which are based on our entity-specific assumptions, to the carrying value of such assets. The forecasted undiscounted cash flows incorporate our best estimate of sales growth based upon our operation plans for the unit and actual results at comparable restaurants. For restaurant assets that are deemed not to be recoverable, we write down the impaired restaurant to its estimated fair value. In determining the fair value of restaurant-level assets, we consider the highest and best use of the assets from market participants’ perspective, which is represented by the higher of the forecasted discounted cash flows of operating restaurants and the price market participants would pay to sub-lease the operating lease right-of-use assets and acquire remaining restaurant assets, even if that use differs from the current use by the Company. Key assumptions in the determination of fair value include reasonable sales growth assumption in generating after-tax cash flows that would be used by a franchisee in the determination of a purchase price for the restaurant, and market rental assumption for estimating the price market participants would pay to sub-lease the operating lease right-of-use assets. Estimates of forecasted cash flows of operating restaurants are highly subjective judgments and can be significantly impacted by changes in the business or economic conditions. Estimates of the price market participants would pay to sub-lease the operating lease right-of-use assets are based on comparable market rental information that could be reasonably obtained for the property. In situations where the highest and best use of the restaurant-level assets from market participants’ perspective is represented by sub-leasing the operating lease right-of-use assets and acquiring the remaining restaurant assets, the Company continues to use these assets in operating its restaurant business, which is consistent with its long-term strategy of growing revenue through operating restaurant concepts.
When we believe it is more likely than not a restaurant or groups of restaurants will be refranchised for a price less than their carrying value, but do not believe the restaurant(s) have met the criteria to be classified as held for sale, we review the restaurants for impairment. Expected net sales proceeds are generally based on actual bids from the buyer.
The discount rate used in the fair value calculations is our estimate of the required rate-of-return that a franchisee would expect to receive when purchasing a similar restaurant or groups of restaurants and the related long-lived assets.
2025 Form 10-K
We evaluate indefinite-lived intangible assets for impairment on an annual basis or more often if an event occurs or circumstances change that indicates impairment might exist. We perform our annual test for impairment of our indefinite-lived intangible assets at the beginning of our fourth quarter. When we evaluate these assets for impairment, we have the option to first perform a qualitative assessment to determine whether an intangible asset group is impaired. If we believe, as a result of the qualitative assessment, that it is more likely than not that the fair value of the intangible asset group is less than its carrying amount, we will then perform a quantitative assessment. Fair value is an estimate of the price a willing buyer would pay for the intangible asset and is generally estimated by discounting the expected future after-tax cash flows associated with the intangible asset. The discount rate is our estimate of the required rate-of-return that a third-party buyer would expect to receive. These estimates are highly subjective, and our ability to achieve the forecasted cash is affected by factors such as changes in our operating performance and business strategies and changes in economic conditions. Our indefinite-lived intangible assets had a book value of $128 million and $123 million as of December 31, 2025 and 2024, respectively, representing two material indefinite-lived intangible assets, which are our Little Sheep and Huang Ji Huang trademarks.
In the year ended December 31, 2025, we elected to perform the qualitative impairment assessment for the Little Sheep and Huang Ji Huang trademarks by evaluating all pertinent factors, including but not limited to macroeconomic conditions, industry and market conditions and financial performance and concluded that it was more likely than not that the assets were not impaired. No impairment charges on trademarks related to Little Sheep and Huang Ji Huang were recorded in 2025 and 2024.
Our finite-lived intangible assets that are not allocated to an individual restaurant are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of the intangible asset may not be recoverable. An intangible asset that is deemed not recoverable on an undiscounted basis is written down to its estimated fair value, which is our estimate of the price a willing buyer would pay for the intangible asset based on discounted expected future after-tax cash flows. For purposes of our impairment analysis, we update the cash flows that were initially used to value the finite-lived intangible asset to reflect our current estimates and assumptions over the asset’s future remaining life.
Impairment of Goodwill
We evaluate goodwill for impairment on an annual basis as of the beginning of our fourth quarter or more often if an event occurs or circumstances change that indicates impairment might exist. When we evaluate goodwill for impairment, we have the option to first perform a qualitative assessment to determine whether it is more likely than not the fair value of a reporting unit is less than its carrying amount. If we believe, as a result of the qualitative assessment, that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, we will then perform a quantitative assessment. Our reporting units are our individual operating segments. Fair value is the price a willing buyer would pay for the reporting unit, and is generally estimated using discounted expected future after-tax cash flows from the business operation of the reporting unit.
Future cash flow estimates and the discount rate are the key assumptions when estimating the fair value of a reporting unit. Future cash flows are based on growth expectations relative to recent historical performance and incorporate sales growth and margin improvement assumptions that we believe a third-party buyer would assume when determining a purchase price for the reporting unit. The sales growth and margin improvement assumptions that factor into the discounted cash flows are highly correlated as cash flow growth can be achieved through various interrelated strategies such as product pricing and restaurant productivity initiatives. The discount rate is our estimate of the required rate-of-return that a third-party buyer would expect to receive when purchasing a business from us that constitutes a reporting unit. We believe the discount rate is commensurate with the risks and uncertainty inherent in the forecasted cash flows. These estimates are highly subjective, and our ability to achieve the forecasted cash is affected by factors such as changes in our operating performance and business strategies and changes in economic conditions.
Our goodwill of $1,963 million as of December 31, 2025 was related to the KFC, Pizza Hut, Huang Ji Huang and Lavazza reporting units. In the year ended December 31, 2025, we elected to perform a qualitative impairment assessment for each of our individual reporting units of KFC, Pizza Hut, Huang Ji Huang and Lavazza. Based on our qualitative assessment, the Company concluded that no changes in events or circumstances have occurred that indicated impairment may exist and it was more likely than not that the fair value of the reporting units exceeds their carrying amount and therefore no quantitative assessment was required. No impairment charge on goodwill was recorded in 2025 and 2024.
2025 Form 10-K
Share-Based Compensation
We account for share awards issued to employees in accordance with Accounting Standards Codification Topic 718 (“ASC 718”), Compensation-Stock Compensation . Share-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as an expense, net of estimated forfeitures, over the requisite service period, which is generally the vesting period. We recognize share-based compensation expense for awards granted to employees and non-employee directors using the straight-line method.
We estimated the fair value of 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.
Under the BS and MCS models, we made a number of assumptions regarding the fair value of the share-based awards, including:
the expected future volatility of the price of shares of Yum China common stock;
the risk-free interest rate;
the expected dividend yield; and
the expected term.
We estimated the expected future volatility of the price of shares of Yum China common stock based on its historical 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.
Income Taxes
Uncertain Tax Positions
We are subject to reviews, examinations and audits by Chinese tax authorities, the IRS and other tax authorities with respect to income and non-income based taxes. We recognize the benefit of positions taken or expected to be taken in our tax returns when it is more likely than not that the position would be sustained upon examination by these tax authorities. A recognized tax position is then measured at the largest amount of benefit that is greater than 50% likely of being realized upon settlement. At December 31, 2025 and 2024, we had $20 million and $19 million, respectively, of unrecognized tax benefits related to the uncertainty with regard to the deductibility of certain business expenses incurred. The ultimate outcome for a particular tax position may not be determined with certainty prior to the conclusion of a tax audit and, in some cases, appeal or litigation process. The actual benefits ultimately realized may differ from the Company’s estimates. We evaluate unrecognized tax benefits, including interest and penalty thereon, on a quarterly basis to ensure that they have been appropriately adjusted for events, including change or developments with respect to tax audits, audit settlements and expiration of the statute of limitation, which may impact our ultimate payment for such exposures.
Since 2016, we have been under a national audit on transfer pricing by the STA in China regarding our related party transactions for the period from 2006 to 2015. The information and views currently exchanged with the tax authorities focus on our franchise arrangement with YUM. We continue to provide information requested by the tax authorities to the extent it is available to the Company. It is reasonably possible that there could be significant developments, including expert review and assessment by the STA, within the next 12 months. The ultimate assessment and decision of the STA will depend upon further review of the information provided, as well as ongoing technical and other discussions with the STA and in-charge local tax authorities, and therefore it is not possible to reasonably estimate the potential impact at this time. We will continue to defend our transfer pricing position. However, if the STA prevails in the assessment of additional tax due based on its ruling, the assessed tax, interest and penalties, if any, could have a material adverse impact on our financial position, results of operations and cash flows.
2025 Form 10-K
Unremitted Earnings of Foreign Subsidiaries
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, 2025. The foreign withholding tax rate on this amount is 5% or 10% depending on the manner of repatriation, the applicable tax treaties or tax arrangements, as well as the interpretation in applying these treaties and arrangements.
See Note 14 for a further discussion of our income taxes.
Item 7A. Quantitative and Qualitat ive Disclosures About Market Risk.
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 with third parties to purchase certain amount of goods and services sourced overseas and make payments in the corresponding local currencies at predetermined exchange rates when practical, to minimize the related foreign currency exposure with immaterial impact on our financial statements.
As substantially all of the Company’s operations are located in China, the Company is exposed to movements in the RMB foreign currency exchange rate. For the year ended December 31, 2025, the Company’s Operating profit would have decreased by approximately $120 million if the RMB weakened 10% relative to the U.S. dollar. This estimated reduction assumes no changes in sales volumes or local currency sales or input prices.
Commodity Price Risk
We are subject to volatility in food costs as a result of market risk 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 8.4 million of Meituan’s ordinary shares. The Company sold 4.2 million of its ordinary shares of Meituan in the second quarter of 2020 for proceeds of approximately $54 million. Equity investment in Meituan is recorded at fair value, which is measured on a recurring basis and is subject to market price volatility. See Note 3 for further discussion on our investment in Meituan.
2025 Form 10-K
Item 8. Financial Statemen ts and Supplementary Data.
INDEX TO FINANCIAL INFORMATION
Page
Reference
Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Income for the years ended December 31, 2025, 2024 and 2023
Consolidated Statements of Comprehensive Income for the years ended December 31, 2025, 2024 and 2023
Consolidated Statements of Cash Flows for the years ended December 31, 2025, 2024 and 2023
Consolidated Balance Sheets as of December 31, 2025 and 2024
Consolidated Statements of Equity for the years ended December 31, 2025, 2024 and 2023
Notes to Consolidated Financial Statements
Financial Statement Schedule
Schedule I - Condensed Financial Statements of Parent Company
2025 Form 10-K
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Yum China Holdings, Inc.:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of Yum China Holdings, Inc. and subsidiaries (the Company) as of December 31, 2025 and 2024, the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2025, and the related notes and financial statement schedule I (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission .
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2025, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
2025 Form 10-K
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Assessment of impairment of long-lived assets of restaurants
As discussed in Notes 2, 6 and 9 to the consolidated financial statements, property, plant and equipment, net and operating lease right-of-use assets were US$2,543 million and US$2,189 million, respectively, as of December 31, 2025, which included the long-lived assets of the Company’s restaurants. For restaurant assets with indicators that the carrying value may not be recoverable, the Company evaluates the recoverability of these assets by comparing the forecasted undiscounted cash flows of the restaurant’s operation to the carrying value of such assets. For restaurant assets that are not deemed to be recoverable, the Company writes down the restaurant assets to the estimated fair value. The Company determines the fair value of the restaurant assets based on the higher of the forecasted discounted cash flows of the restaurant’s operation and the price market participants would pay to sub-lease the operating lease right-of-use assets and acquire the remaining restaurant assets.
We identified the assessment of impairment of long-lived assets of restaurants as a critical audit matter. A high degree of auditor judgment was required in assessing the sales growth rates used to estimate the forecasted undiscounted cash flows of the restaurants’ operations. In addition, specialized skills and knowledge were needed to assess the Company’s market rental assumptions to estimate the fair values of the operating lease right-of-use assets.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s long-lived assets of restaurants impairment assessment process. This included controls related to the determination of the sales growth rates and the market rentals. To evaluate the sales growth rates, we compared the sales growth rates of a sample of restaurants to the historical sales growth rates and the Company’s operation plans for the respective restaurants. We performed sensitivity analyses over the sales growth rates for a selection of restaurants to assess their impact on the restaurants’ forecasted undiscounted cash flows. We involved valuation professionals with specialized skills and knowledge, who assisted in:
Comparing the market rentals of a sample of restaurants to respective market rental ranges that we independently developed using external data; and
Developing independent estimates of the fair values of the operating lease right-of-use assets based on the price that market participants would pay to sub-lease the right-of-use assets for a sample of restaurants and comparing the results of our estimates to the Company’s estimates.
2025 Form 10-K
Evaluation of uncertain tax position
As discussed in Notes 2 and 14 to the consolidated financial statements, the Company recognizes the benefit of positions taken or expected to be taken in tax returns in the financial statements when it is more likely than not (more than a 50% likelihood) that the position would be sustained upon examination by tax authorities. Since 2016, the Company has been under a national audit on transfer pricing by the Chinese State Taxation Administration (STA) in China regarding the related party transactions for the period from 2006 to 2015.
We identified the evaluation of the Company’s uncertain tax position pertaining to the transfer pricing used in the related party transactions under audit by the STA as a critical audit matter. A high degree of auditor judgment and specialized skills and knowledge were required in evaluating the Company’s interpretation of the applicable tax laws and regulations and the estimate of the more likely than not assessment of tax position being sustained under examination by tax authorities.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of the internal control related to the Company’s assessment process pertaining to the transfer pricing audit, including the control related to the interpretation of the applicable tax laws and regulations and the assessment of the uncertain tax position being sustained under examination by tax authorities. Since tax law is complex and often subject to interpretation, we involved tax professionals with specialized skills and knowledge, who assisted in:
Evaluating the Company’s identification and consideration of information that could significantly affect the recognition and measurement of the uncertain tax position; and
Evaluating the Company’s interpretation of applicable tax laws and regulations, technical analysis and the application of the accounting standards in assessing the recognition and measurement of the potential impact from the uncertain tax position.
/s/ KPMG Huazhen LLP
We have served as the Company’s auditor since 2016.
Shanghai, China
February 27, 2026
2025 Form 10-K
Consolidated Stat ements of Income
Yum China Holdings, Inc.
Years ended December 31, 2025, 2024 and 2023
(in US$ millions, except per share data)
Revenues
Company sales
Franchise fees and income
Revenues from transactions with franchisees
Other revenues
Total revenues
Costs and Expenses, Net
Company restaurants
Food and paper
Payroll and employee benefits
Occupancy and other operating expenses
Company restaurant expenses
General and administrative expenses
Franchise expenses
Expenses for transactions with franchisees
Other operating costs and expenses
Closures and impairment expenses, net
Other income, net
Total costs and expenses, net
Operating Profit
Interest income, net
Investment (loss) gain
Income Before Income Taxes and Equity in
Net Earnings (Losses) from Equity Method Investments
Income tax provision
Equity in net earnings (losses) from
equity method investments
Net income – including noncontrolling interests
Net income – noncontrolling interests
Net Income – Yum China Holdings, Inc.
Weighted-average common shares outstanding (in millions):
Basic
Diluted
Basic Earnings Per Common Share
Diluted Earnings Per Common Share
See accompanying Notes to Consolidated Financial Statements.
2025 Form 10-K
Consolidated Statements of Comprehensive Income
Yum China Holdings, Inc.
Years ended December 31, 2025, 2024 and 2023
(in US$ millions)
Net income – including noncontrolling interests
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments
Comprehensive income – including noncontrolling interests
Comprehensive income – noncontrolling interests
Comprehensive Income – Yum China Holdings, Inc.
See accompanying Notes to Consolidated Financial Statements.
2025 Form 10-K
Consolidated Statem ents of Cash Flows
Yum China Holdings, Inc.
Years ended December 31, 2025, 2024 and 2023
(in US$ millions)
Cash Flows – Operating Activities
Net income – including noncontrolling interests
Depreciation and amortization
Non-cash operating lease cost
Closures and impairment expenses
Investment loss (gain)
Equity in net (earnings) losses from equity method investments
Distributions of income received from equity method investments
Deferred income taxes
Share-based compensation expense
Changes in accounts receivable
Changes in inventories
Changes in prepaid expenses, other current assets and value-added tax assets
Changes in accounts payable and other current liabilities
Changes in income taxes payable
Changes in non-current operating lease liabilities
Other, net
Net Cash Provided by Operating Activities
Cash Flows – Investing Activities
Capital spending
Purchases of short-term investments, long-term bank deposits and notes
Maturities of short-term investments, long-term bank deposits and notes
Acquisitions of equity investments
Other, net
Net Cash Used in Investing Activities
Cash Flows – Financing Activities
Proceeds from short-term borrowings
Repayment of short-term borrowings
Repurchase of shares of common stock
Cash dividends paid on common stock
Dividends paid to noncontrolling interests
Acquisitions of noncontrolling interests
Contributions from noncontrolling interests
Payment of acquisition related holdback
Other, net
Net Cash Used in Financing Activities
Effect of Exchange Rates on Cash, Cash Equivalents and Restricted Cash
Net Decrease in Cash, Cash Equivalents and Restricted Cash
Cash, Cash Equivalents and Restricted Cash - Beginning of Year
Cash, Cash Equivalents and Restricted Cash - End of Year
Supplemental Cash Flow Data
Cash paid for income tax
Cash paid for interest
Non-cash Investing and Financing Activities
Capital expenditures included in accounts payable and other current liabilities
See accompanying Notes to Consolidated Financial Statements.
2025 Form 10-K
Consolidated B alance Sheets
Yum China Holdings, Inc.
December 31, 2025 and 2024
(in US$ millions)
ASSETS
Current Assets
Cash and cash equivalents
Short-term investments
Accounts receivable, net
Inventories, net
Prepaid expenses and other current assets
Total Current Assets
Property, plant and equipment, net
Operating lease right-of-use assets
Goodwill
Intangible assets, net
Long-term bank deposits and notes
Equity investments
Deferred income tax assets
Other assets
Total Assets
LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST
AND EQUITY
Current Liabilities
Accounts payable and other current liabilities
Short-term borrowings
Income taxes payable
Total Current Liabilities
Non-current operating lease liabilities
Non-current finance lease liabilities
Deferred income tax liabilities
Other liabilities
Total Liabilities
Redeemable Noncontrolling Interest
Equity
Common stock, $ 0.01 par value; 1,000 million shares authorized;
355 million shares and 379 million shares issued at December 31, 2025 and 2024,
respectively; 354 million shares and 378 million shares outstanding at December 31,
2025 and 2024, respectively.
Treasury stock
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total Yum China Holdings, Inc. Stockholders' Equity
Noncontrolling interests
Total Equity
Total Liabilities, Redeemable Noncontrolling Interest and Equity
See accompanying Notes to Consolidated Financial Statements.
2025 Form 10-K
Consolidated Statements of Equity
Yum China Holdings, Inc.
Years ended December 31, 2025, 2024 and 2023
(in US$ millions)
Yum China Holdings, Inc.
Accumulated
Common
Additional
Other
Redeemable
Stock
Paid-in
Retained
Comprehensive
Treasury Stock
Noncontrolling
Total
Noncontrolling
Shares*
Amount
Capital
Earnings
Income (Loss)
Shares*
Amount
Interests
Equity
Interest
Balance at December 31, 2022
Net Income
Foreign currency translation adjustments
Comprehensive income
Cash dividends declared
($ 0.52 per common share)
Distributions to/contributions from noncontrolling interests
Repurchase and retirement of shares
Exercise and vesting of share-based awards
Share-based compensation
Balance at December 31, 2023
Net Income
Foreign currency translation adjustments
Comprehensive income
Cash dividends declared
($ 0.64 per common share)
Distributions to/contributions from noncontrolling interests
Repurchase and retirement of shares
Exercise and vesting of share-based awards
Share-based compensation
Balance at December 31, 2024
Net Income
Foreign currency translation adjustments
Comprehensive income
Acquisition of noncontrolling interest
Cash dividends declared
($ 0.96 per common share)
Distributions to/contributions from noncontrolling interests
Repurchase and retirement of shares
Exercise and vesting of share-based awards
Share-based compensation
Balance at December 31, 2025
*: Shares may not add due to rounding.
See accompanying Notes to Consolidated Financial Statements.
2025 Form 10-K
Notes to Consolidated Financial Statements
(Tabular amounts in US$ millions, except as otherwise noted)
Note 1 – Description of 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”) on October 31, 2016 (the “separation”).
The Company owns, franchises or has ownership in entities that own and operate restaurants (also referred to as “stores” or “units”) under the KFC, Pizza Hut, Lavazza, Huang Ji Huang, Little Sheep and Taco Bell concepts (collectively, the “concepts”). Our right to use and sublicense the use of intellectual property owned by YUM and its subsidiaries for the development and operation of the KFC, Pizza Hut and Taco Bell brands and their related marks and other intellectual property rights for restaurant services is governed by the master license agreement between Yum Restaurants Consulting (Shanghai) Company Limited (“YCCL”), a wholly-owned indirect subsidiary of the Company and YUM, through YRI China Franchising LLC, a subsidiary of YUM, effective from January 1, 2020 and previously through Yum! Restaurants Asia Pte. Ltd., another subsidiary of YUM, from October 31, 2016 to December 31, 2019. Pursuant to the master license agreement, we are the exclusive licensee of the KFC, Pizza Hut and, subject to the agreed terms, 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, Macau and Taiwan. The term of the license is 50 years from October 31, 2016 for the KFC and Pizza Hut brands and, subject to achieving certain agreed-upon milestones, 50 years from April 15, 2022 for the Taco Bell brand, with automatic renewals for additional consecutive renewal terms of 50 years each, subject only to us being in “good standing” and unless we give notice of our intent not to renew. In exchange, we pay a license fee to YUM equal to 3 % of net system sales from both our Company and franchise restaurants. The agreed-upon milestone for the Taco Bell brand included at least 225 stores by the end of 2025, subject to the terms of the agreement. There were 28 Taco Bell restaurants in China at the end of 2025, and the Company and YUM are currently in the process of renegotiating the terms with respect to the development of the Taco Bell brand in China. We own the intellectual property of Huang Ji Huang and Little Sheep and pay no license fee related to these concepts.
In 1987, KFC was the first major global restaurant brand to enter China. As of December 31, 2025, there were 12,997 KFC stores in China. We maintain a controlling interest of 58 %, 70 %, 83 %, 92 % and approximately 60 % in the entities that own and operate the KFCs in and around Shanghai, Beijing, Wuxi, Suzhou and Hangzhou, respectively.
The first Pizza Hut in China opened in 1990. As of December 31, 2025, there were 4,168 Pizza Hut restaurants in China.
In the second quarter of 2020, the Company partnered with Luigi Lavazza S.p.A. (“Lavazza Group”), the world-renowned family-owned Italian coffee company, and established a joint venture (“Lavazza joint venture”) to explore and develop the Lavazza coffee concept in China. Lavazza joint venture operates both the coffee shop business and the retail business. We maintain a controlling interest of 65 % equity interest in the Lavazza joint venture.
In 2017, the Company acquired a controlling interest in the holding company of DAOJIA.com.cn (“Daojia”), an online food delivery service provider in China. This business was extended to also include a team managing the delivery services for restaurants, including restaurants in our system, with their results reported under our delivery operating segment.
The Company has two reportable segments: KFC and Pizza Hut. Our non-reportable operating segments, including the operations of Lavazza, Huang Ji Huang, Little Sheep, Taco Bell and our delivery operating segment are combined and referred to as All Other Segments, as these operating segments are insignificant both individually and in the aggregate. For 2023 and 2024, All Other Segments also consisted of e-commerce segment, which included the operating results of Shaofaner, a retail brand selling packaged foods through online and offline channels until August 2024. Additional details on our segment reporting are included in Note 15.
The Company’s common stock is listed on the New York Stock Exchange (“NYSE”) under the symbol “YUMC”. On September 10, 2020, the Company completed a secondary listing of its common stock on the Main Board of the Hong Kong Stock Exchange (“HKEX”) under the stock code “9987,” in connection with a global offering of 41,910,700 shares of its common stock. Net proceeds raised by the Company from the global offering after deducting underwriting fees and the offering expenses amounted to $ 2.2 billion. On October 24, 2022, the Company’s voluntary conversion of its secondary listing status to a primary listing status on the HKEX became effective (“Primary Conversion”) and the Company became a dual primary listed company on the NYSE and HKEX. On the same day, the Company’s shares of common stock traded on the HKEX were included in the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect. The Company’s common stock listed on the NYSE and HKEX continue to be fully fungible.
2025 Form 10-K
Note 2 – Summary of Significant Accounting Policies
Our preparation of the accompanying 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.
Basis of Preparation and Principles of Consolidation. Intercompany accounts and transactions have been eliminated in consolidation. We consolidate entities in which we have a controlling financial interest, the usual condition of which is ownership of a majority voting interest. We also consider consolidating an entity in which we have certain interests where the controlling financial interest may be achieved through arrangements that do not involve voting interests. Such an entity, known as a variable interest entity (“VIE”), is required to be consolidated by its primary beneficiary. The primary beneficiary is the entity that possesses the power to direct the activities of the VIE that most significantly impact its economic performance and has the obligation to absorb losses or the right to receive benefits from the VIE that are significant to it.
Our most significant variable interests are in entities that operate restaurants under franchise arrangements. We do not generally have an equity interest in our franchisee businesses. Additionally, we do not typically provide significant financial support such as loans or guarantees to our franchisees. We have variable interests in certain entities that operate restaurants under franchise agreements through real estate and property, plant and equipment (“PP&E”) lease arrangements with them to which we are a party. At December 31, 2025, the Company had future lease payments due from franchisees, on a nominal basis, of approximately $ 25 million . As our franchise arrangements provide our franchisee entities the power to direct the activities that most significantly impact their economic performance, we do not consider ourselves the primary beneficiary of any such entity that might otherwise be considered a VIE.
Through the acquisition of Daojia, the Company also acquired a 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 is entitled to substantially all of the profits and has the obligation to absorb 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 Consolidated Financial Statements since the acquisition date.
We consolidate the entities that operate KFCs in and around Shanghai, Beijing, Wuxi, Suzhou and Hangzhou, as well as the Lavazza joint venture where we have controlling interests since the respective acquisition dates.
Comparative Information. Certain comparative items in the Consolidated Financial Statements have been reclassified
to conform to the current year’s presentation to facilitate comparison.
Fiscal Calendar. Our fiscal year ends on December 31, with each quarter comprised of three months.
Foreign Currency. Our functional currency for the operating entities in China is the Chinese Renminbi (“RMB”), the currency of the primary economic environment in which they operate. Income and expense accounts for our operations are then translated into U.S. dollars at the average exchange rates prevailing during the period. Assets and liabilities are then translated into U.S. dollars at exchange rates in effect at the balance sheet date. Foreign currency translation adjustments are recorded in the Accumulated other comprehensive income on the Consolidated Balance Sheets. Gains and losses arising from the impact of foreign currency exchange rate fluctuations on transactions in foreign currency, to the extent they arise, are included in our Consolidated Statements of Income.
Franchise Operations. We execute agreements which set out the terms of our arrangement with franchisees. Our franchise agreements typically require the franchisee to pay a combination of upfront franchise fees and continuing fees based upon a percentage of sales. Subject to our approval and their payment of a renewal fee, a franchisee may generally renew the franchise agreement upon its expiration.
The 3 % license fees we pay to YUM for the right to sublicense the KFC, Pizza Hut and Taco Bell intellectual property to franchisees are recorded in Franchise expenses. License fees due to YUM for our Company-owned stores are included in Occupancy and other operating expenses. Total license fees paid to YUM were $ 344 million, $ 327 million and $ 317 million during the years ended December 31, 2025, 2024 and 2023, respectively.
2025 Form 10-K
Certain direct costs of our franchise operations are charged to Franchise expenses. These costs include provisions for estimated uncollectible fees, rent or depreciation expense associated with restaurants we sub-lease to franchisees, and certain other direct incremental franchise support costs.
We also have certain transactions with franchisees, which consist primarily of sales of food and paper products, advertising services, delivery services and other services. Related revenues and expenses are included in Revenues from and Expenses for transactions with franchisees.
Revenue Recognition. The Company’s revenues include Company sales, Franchise fees and income, Revenues from transactions with franchisees, and Other revenues.
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. We use both our dedicated riders and platform riders to deliver orders. When orders are fulfilled by our dedicated riders or platform 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 programs offer privilege members rights to multiple benefits, such as free delivery and discounts on certain products. For certain privilege membership programs offering a pre-defined amount of benefits that can be redeemed ratably over the membership period, revenue is ratably recognized over the period based on the elapse of time. With respect to privilege membership programs offering members a mix of distinct benefits, including a welcome gift and assorted discount coupons with pre-defined quantities, consideration collected is allocated to the benefits provided based on their relative standalone selling price and revenue is recognized when food or services are delivered or the benefits expire. In determining the relative standalone selling price of the benefits, the Company considers likelihood of future redemption based on historical redemption pattern and reviews such estimates periodically based upon the latest available information regarding redemption and expiration patterns.
Franchise Fees and Income
Franchise fees and income primarily include a combination of upfront franchise fees and continuing fees. We have determined that the services we provide in exchange for upfront franchise fees and continuing fees are highly interrelated with the franchise right. We recognize upfront franchise 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. The franchise agreement term is generally 10 years for KFC and Pizza Hut, generally five years for Little Sheep and three to 10 years for Huang Ji Huang. We recognize continuing fees, which are based upon a percentage of franchisee sales, as those sales occur.
Revenues from Transactions with Franchisees
Revenues from transactions with franchisees consist primarily of sales of food and paper products, advertising services, delivery services and other services provided to franchisees.
2025 Form 10-K
The Company centrally purchases substantially all food and paper products from suppliers for substantially all of our restaurants, including franchisees, and then sells and delivers them to the restaurants. In addition, the Company owns seasoning facilities for its Chinese dining business unit, which primarily manufacture and sell seasoning products to Huang Ji Huang and Little Sheep franchisees. The Company also provides delivery services to franchisees. 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 such services 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. Revenue is recognized upon transfer of control over ordered items or services, generally upon delivery to the franchisees.
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. Other services provided to franchisees consist primarily of customer 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.
Other Revenues
Other revenues primarily include i) sales of products to customers through e-commerce channels, sales of Lavazza coffee retail products beyond Lavazza coffee shops, and sales of our seasoning products to distributors, and ii) revenues from logistics and warehousing services provided to third parties through our supply chain network. Our segment disclosures also include revenues relating to delivery services that were provided to our Company-owned restaurants and, therefore, were eliminated for consolidation purposes.
Other revenues are recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services.
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 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 and reviews such estimates periodically based upon the latest available information regarding redemption and expiration patterns.
Direct Marketing Costs. We charge direct marketing costs to expense ratably in relation to revenues over the year in which incurred and, in the case of advertising production costs, in the year the advertisement is first shown. Deferred direct marketing costs, which are classified as prepaid expenses, consist of media and related advertising production costs which will generally be used for the first time in the next fiscal year and have historically not been significant. Our direct marketing expenses incurred for Company-owned restaurants were $ 354 million, $ 346 million and $ 374 million in 2025, 2024 and 2023, respectively, and were included in Occupancy and other operating expenses. In addition, the direct marketing costs incurred for franchisees were $ 32 million, $ 26 million and $ 25 million in 2025, 2024 and 2023 , respectively, and were recorded in Expenses for transactions with franchisees.
2025 Form 10-K
Research and Development Expenses. Research and development expenses associated with our food innovation activities, which are expensed as incurred, are reported in general and administrative ("G&A") expenses. Research and development expenses were $ 8 million, $ 6 million and $ 6 million during the years ended December 31, 2025, 2024 and 2023 .
Share-Based Compensation. We recognize all share-based payments to employees and directors, including grants of stock options, stock appreciation rights (“SARs”), restricted stock units (“RSUs”) and performance share units (“PSUs”), in the Consolidated Financial Statements as compensation cost over the service period based on their fair value on the date of grant. This compensation cost is recognized over the service period on a straight-line basis, net of an assumed forfeiture rate, for awards that actually vest and when performance conditions are probable of being achieved, if applicable. Forfeiture rates are estimated at grant date based on historical experience and compensation cost is adjusted in subsequent periods for differences in actual forfeitures from the previous estimates. We present this compensation cost consistent with the other compensation costs for the employee recipient in either payroll and employee benefits or G&A expenses.
Impairment or Disposal of Long-Lived Assets. Long-lived assets, primarily PP&E and operating lease right-of-use (“ROU”) assets are tested for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. The assets are not recoverable if their carrying value is higher than the undiscounted cash flows we expect to generate from such assets. If the assets are not deemed to be recoverable, impairment is measured based on the excess of their carrying value over their fair value.
For purposes of impairment testing for our restaurants, we have concluded that an individual restaurant is the lowest level of independent cash flows unless our intent is to refranchise restaurants as a group. We review our long-lived assets of such individual restaurants (primarily operating lease ROU assets and PP&E) semi-annually for impairment, or whenever events or changes in circumstances indicate that the carrying amount of a restaurant may not be recoverable. Our primary indicators of potential impairment for our semi-annual impairment testing of these restaurant assets include two consecutive years of operating losses after a restaurant has been open for three years. We evaluate the recoverability of these restaurant assets by comparing the forecasted undiscounted cash flows of the restaurant’s operation, which are based on our entity-specific assumptions, to the carrying value of such assets. The forecasted undiscounted cash flows incorporate our best estimate of sales growth based upon our operation plans for the unit and actual results at comparable restaurants. For restaurant assets that are not deemed to be recoverable, we write down an impaired restaurant to its estimated fair value, which becomes its new cost basis. Fair value is an estimate of the price market participants would pay for the restaurant and its related assets. In determining the fair value of restaurant-level assets, we considered the highest and best use of the assets from market participants’ perspective, which is represented by the higher of the forecasted discounted cash flows from operating restaurants and the price market participants would pay to sub-lease the operating lease ROU assets and acquire remaining restaurant assets, even if that use differs from the current use by the Company. The after-tax cash flows incorporate reasonable assumptions we believe a franchisee would make such as sales growth and include a deduction for royalties we would receive under a franchise agreement with terms substantially at market. The discount rate used in the fair value calculation is our estimate of the required rate-of-return that a franchisee would expect to receive when purchasing a similar restaurant and the related long-lived assets. Estimates of the price market participants would pay to sub-lease the operating lease ROU assets are based on comparable market rental information that could be reasonably obtained for the property. In situations where the highest and best use of the restaurant-level assets from market participants’ perspective is represented by sub-leasing the operating lease ROU assets and acquiring remaining restaurant assets, the Company continues to use these assets in operating its restaurant business, which is consistent with its long-term strategy of growing revenue through operating restaurant concepts.
When we believe it is more likely than not a restaurant or groups of restaurants will be refranchised for a price less than their carrying value, but do not believe the restaurant(s) have met the criteria to be classified as held for sale, we review the restaurants for impairment. We evaluate the recoverability of these restaurant assets by comparing estimated sales proceeds plus holding period cash flows, if any, to the carrying value of the restaurant or group of restaurants. For restaurant assets that are not deemed to be recoverable, we recognize impairment for any excess of carrying value over the fair value of the restaurants, which is based on the expected net sales proceeds, and such impairment charges are recorded in Refranchising gain. Refranchising gain also includes the gains or losses from the sales of our restaurants to new and existing franchisees, which is recognized when the sale transaction closes and control of the franchise operations has transferred to the franchisees.
2025 Form 10-K
When we decide to close a restaurant, it is reviewed for impairment, and depreciable lives are adjusted based on the expected disposal date. Other costs incurred when closing a restaurant such as costs of disposing of the assets as well as other facility-related expenses are generally expensed as incurred. Additionally, at the time we decide to close a restaurant, we reassess whether it is reasonably certain that we will exercise the termination option, and remeasure lease liability to reflect changes in lease term and remaining lease payments based on the planned exit date, if applicable. The amount of the re-measurement of the lease liability is recorded as an adjustment to the operating lease ROU asset first, with any remaining amount recorded in Closures and impairment expenses if the carrying amount of the operating lease ROU asset is reduced to zero. Any costs recorded upon store closure as well as any subsequent adjustments to remaining operating lease ROU assets and lease liabilities as a result of lease termination are recorded in Closures and impairment expenses. In the event we are forced to close a store and receive compensation for such closure, that compensation is recorded in Closures and impairment expenses. To the extent we sell assets associated with a closed store, any gain or loss upon that sale is also recorded in Closures and impairment expenses. Closures and impairment expenses also included impairment and disposal gain or losses for non-restaurant long-lived assets.
Considerable management judgment is necessary to estimate future cash flows, including cash flows from continuing use, terminal value, lease term and refranchising proceeds. Accordingly, actual results could vary significantly from our estimates.
Government Subsidies. Government subsidies generally consist of financial subsidies received from provincial and local governments for operating a business in their jurisdictions and compliance with specific policies promoted by the local governments. The eligibility to receive such benefits and amount of financial subsidy to be granted are determined at the discretion of the relevant government authorities. Government subsidies are recognized when it is probable that the Company will comply with the conditions attached to them, and the subsidies are received. If the subsidy is related to an expense item, it is recognized as a reduction to the related expense to match the subsidy to the costs that it is intended to compensate. If the subsidy is related to an asset, it is deferred and recorded in Other liabilities and then recognized ratably over the expected useful life of the related asset in the Consolidated Statements of Income. The balances of deferred government subsidies were $ 6 million as of both December 31, 2025 and 2024, respectively, and are included in Other liabilities in the Consolidated Balance Sheets. There were no significant commitment or contingencies for the government subsidies received for the years ended December 31, 2025, 2024 and 2023.
Government subsidies in the form of cash were recognized as reduction in following expense line items in our Consolidated Statements of Income as follows:
Costs and Expenses, Net
Company restaurant
Payroll and employee benefits
Occupancy and other operating expenses
Company restaurant expenses
General and administrative expenses
Total
Income Taxes. We record deferred tax assets and liabilities for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases as well as operating loss, capital loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those differences or carryforwards are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Additionally, in determining the need for recording a valuation allowance against the carrying amount of deferred tax assets, we consider the amount of taxable income and periods over which it must be earned, actual levels of past taxable income and known trends and events or transactions that are expected to affect future levels of taxable income. Where we determine that it is more likely than not that all or a portion of an asset will not be realized, we record a valuation allowance.
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. We recognize the benefit of positions taken or expected to be taken in our tax returns when it is more likely than not that the position would be sustained upon examination by these tax authorities. A recognized tax position is then measured at the largest amount of benefit that is greater than 50 % likely of being realized upon settlement. We evaluate unrecognized tax benefits, including interest thereon, on a quarterly basis to ensure that they have been appropriately adjusted for events, including change or developments with respect to tax audits, audit settlements and expiration of the statute of limitation, which may impact our ultimate payment for such exposures.
2025 Form 10-K
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 Cuts and Jobs Act (“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.
Pursuant to the China Enterprise Income Tax Law (“EIT Law”), a 10 % PRC withholding tax is generally levied on dividends declared by companies in China to their non-resident enterprise investors 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. 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 own at least 25 % equity interest 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 mainland China and Hong Kong in 2018 and in the 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 %.
See Note 14 for a further discussion of our income taxes.
Fair Value Measurements. Fair value is the price we would receive to sell an asset or pay to transfer a liability (exit price) in an orderly transaction between market participants. For those assets and liabilities we record or disclose at fair value, we determine fair value based upon the quoted market price, if available. If a quoted market price is not available for identical assets, we determine fair value based upon the quoted market price of similar assets or the present value of expected future cash flows considering the risks involved, including counterparty performance risk if appropriate, and using discount rates appropriate for the duration. The fair values are assigned a level within the fair value hierarchy, depending on the source of the inputs into the calculation.
Level 1
Inputs based upon quoted prices in active markets for identical assets.
Level 2
Inputs other than quoted prices included within Level 1 that are observable for the asset, either directly or indirectly.
Level 3
Inputs that are unobservable for the asset.
Cash and Cash Equivalents. Cash equivalents represent highly liquid investments with original maturities not exceeding three months and are primarily comprised of time deposits, fixed income debt securities and money market funds. Cash and overdraft balances that meet the criteria for right to offset are presented net on our Consolidated Balance Sheets. See Note 10 for detail discussion on our Cash equivalents.
Short-term Investments. Short-term investments purchased primarily represent i) time deposits, fixed income debt securities with original maturities of over three months but less than one year when purchased; ii) time deposits with original maturities over one year but are expected to be realized in cash within one year; iii) variable return investments offered by financial institutions measured at fair value and expected to be realized in cash within one year; and iv) certain structured deposits that are principal-protected and provide returns in the form of both fixed and variable interests with original maturities of less than one year. Such variable interest rates indexed to gold prices or foreign exchange rates are considered embedded derivatives and bifurcated from host contracts, and measured at fair value on a recurring basis. The fair value change of the embedded derivatives is recorded in Investment gain or loss in the Consolidated Statements of Income. The remaining host contracts to receive guaranteed principal and fixed interest are measured at amortized cost, with accretion of interest recorded in Interest income, net in the Consolidated Statements of Income. As of December 31, 2025 and 2024 , the fair value of embedded derivatives included in Short-term investments was immaterial. See Note 10 for detail discussion on our Short-term investments.
Long-term Bank Deposits and Notes. Long-term bank deposits and notes represent time deposits, bank notes and structured deposits bearing fixed or variable interest rate with remaining maturities exceeding one year for which the Company has the positive intent to hold for more than one year. See Note 10 for detail discussion on our Long-term bank deposits and notes.
2025 Form 10-K
Accounts Receivable. Accounts receivable primarily consist of trade receivables and royalties from franchisees, and are generally due within 30 days of the period in which the corresponding sales occur. Our provision of credit losses for accounts receivable is based upon the current expected credit losses ("CECL") model. The CECL model requires an estimate of the credit losses expected over the life of accounts receivable since initial recognition, and accounts receivable with similar risk characteristics are grouped together when estimating CECL. In assessing the CECL, the Company considers both quantitative and qualitative information that is reasonable and supportable, including historical credit loss experience, adjusted for relevant factors impacting collectability and forward-looking information indicative of external market conditions. 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. Accounts receivable that are ultimately deemed to be uncollectible, and for which collection efforts have been exhausted, are written off against the allowance for doubtful accounts. As of December 31, 2025 and 2024, the ending balances of provision for accounts receivable were $ 2 million and $ 1 million , respectively, and amounts of accounts receivable past due were immaterial.
Receivables from Payment Processors or Aggregators. Receivables from payment processors such as WeChat and Alipay or aggregators including delivery aggregators and third-party e-commerce platforms are cash due from them for clearing transactions and are included in Prepaid expenses and other current assets. The cash was paid by customers through these payment processors or aggregators for food provided or coupons sold by the Company. The Company considers and monitors the credit worthiness of the third-party payment processors and aggregators used. We adopted the same methodology of estimating expected credit losses based upon the CECL model as described above. Receivable balances are written off after all collection efforts have been exhausted. As of December 31, 2025 and 2024 , no allowance for doubtful accounts was provided for such receivables.
Inventories. We value our inventories at the lower of cost (computed on the first-in, first-out method) or net realizable value.
Property, Plant and Equipment. We state PP&E at cost less accumulated depreciation and amortization. We calculate depreciation and amortization on a straight-line basis over the estimated useful lives of the assets as follows: generally 20 to 50 years for buildings, the lesser of estimated useful lives (generally 6 to 16 years ) and remaining lease term for leasehold improvements, 3 to 10 years for restaurant machinery and equipment, 3 to 5 years for capitalized software costs and 5 to 20 years for logistics centers machinery and equipment. We suspend depreciation and amortization on assets related to restaurants that are held for sale. The useful life of PP&E is periodically reviewed.
We capitalize direct costs associated with the site acquisition and construction of a Company unit on that site, including direct internal payroll and payroll-related costs. Only those site-specific costs incurred subsequent to the time that the site acquisition is considered probable are capitalized. If we subsequently make a determination that it is probable a site for which internal development costs have been capitalized will not be acquired or developed, any previously capitalized internal development costs are expensed and included in G&A expenses.
We capitalize software costs incurred in connection with developing or obtaining computer software for internal use. We cap italize payroll and payroll-related costs for employees that are directly attributable to the development of our internal-use software. Internal costs incurred in the software application development stage are capitalized and amortized over the estimated useful lives of software. Costs associated with planning and post-implementation operation and software maintenance costs are expensed and included in G&A expenses.
Leases. ROU assets and lease liabilities are recognized upon lease commencement for operating leases based on the present value of lease payments over the lease term. As the rate implicit in the lease cannot be readily determined, we use our incremental borrowing rate at the lease commencement date in determining the imputed interest and present value of lease payments. The incremental borrowing rate was determined using a portfolio approach based on the rate of interest that we would have to borrow an amount equal to the lease payments on a collateralized basis over a similar term. The incremental borrowing rate is primarily influenced by the risk-free interest rate of China, the Company’s credit rating and lease term, and is updated on a quarterly basis for measurement of new lease liabilities.
For operating leases, the Company recognizes a single lease cost on a straight-line basis over the remaining lease term. For finance leases, the Company recognizes straight-line amortization of the ROU asset and interest on the lease liability. For rental payments either based on a percentage of the restaurant’s sales in excess of a fixed base amount or solely based on a percentage of the restaurant’s sales, they are recognized as variable lease expenses as incurred.
The Company has elected not to recognize ROU 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.
2025 Form 10-K
From time to time, we purchase the rights to use government-owned land and the building occupying the land for a fixed period of time. Prior to the adoption of Accounting Standards Update No. 2016-02, Leases (Topic 842) (“ASC 842”), these land use rights and related buildings were recorded in Other Assets and Property, Plant and Equipment in our Consolidated Balance Sheets, and are amortized on a straight-line basis over the term of the land use rights. Upon the adoption of ASC 842 on January 1, 2019, land use rights acquired are assessed in accordance with ASC 842 and recognized in ROU assets if they meet the definition of lease.
See Note 9 for further discussions on our leases.
Goodwill and Intangible Assets. From time to time, the Company acquires restaurants from our existing franchisees or acquires another business, including restaurants business of former unconsolidated affiliates that operate our concepts. Goodwill from these acquisitions represents the excess of the cost of a business acquired over the net of the amounts assigned to assets acquired, including identifiable intangible assets and liabilities assumed. Goodwill is not amortized and has been assigned to reporting units for purposes of impairment testing. Our reporting units are our individual operating segments.
We evaluate goodwill for impairment on an annual basis or more often if an event occurs or circumstances change that indicate impairment might exist. We have selected the beginning of our fourth quarter as the date on which to perform our ongoing annual impairment test for goodwill. We may elect to perform a qualitative assessment for our reporting units to determine whether it is more likely than not that the fair value of the reporting unit is greater than its carrying value. If a qualitative assessment is not performed, or if as a result of a qualitative assessment it is not more likely than not that the fair value of a reporting unit exceeds its carrying value, then the reporting unit’s fair value is compared to its carrying value. Fair value is the price a willing buyer would pay for a reporting unit, and is generally estimated using discounted expected future after-tax cash flows from the business operation of the reporting unit. The discount rate is our estimate of the required rate-of-return that a third-party buyer would expect to receive when purchasing a business from us that constitutes a reporting unit. We believe the discount rate is commensurate with the risks and uncertainty inherent in the forecasted cash flows. If the carrying value of a reporting unit exceeds its fair value, we will record an impairment charge based on that difference. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit.
We determine the useful life of intangible assets with consideration of factors including the expected use of the asset, the expected useful life of another asset or a group of assets to which the useful life of the intangible asset may relate, any legal, regulatory or contractual provisions that may limit the useful life, our historical experience in renewing or extending similar arrangements, the effects of obsolescence, demand, competition and other economic factors, and the level of maintenance expenditures required to obtain the expected future cash flows from the assets. We evaluate the remaining useful life of an intangible asset that is not being amortized each reporting period to determine whether events and circumstances continue to support an indefinite useful life. If an intangible asset that is not being amortized is subsequently determined to have a finite useful life, we amortize the intangible asset prospectively over its estimated remaining useful life. The Company’s indefinite-lived intangible asset represents Little Sheep and Huang Ji Huang trademarks as we consider their useful life to be indefinite since we intend to use Little Sheep and Huang Ji Huang trademarks indefinitely and there are no legal, regulatory or contractual provisions that may limit the useful life of the trademarks. Intangible assets that are deemed to have a finite life are generally amortized over their estimated useful lives on a straight-line basis to their residual value as follows:
Reacquired franchise rights
1 to 10 years
Huang Ji Huang franchise related assets
19 years
Daojia platform
8 years
Customer-related assets
2 to 15 years
Others
up to 20 years
The useful life of reacquired franchise rights was determined based on the contractual term whereas both the contractual term and historical pattern of renewing franchise agreements were considered in assessing the useful life of Huang Ji Huang franchise related assets. Customer-related assets primarily represent the customer relationship and user base acquired and the estimate of the useful life was based on the historical pattern of extending similar arrangements and attrition rate of users. Others primarily represent Little Sheep’s secret recipe. The useful life of the Daojia platform and Little Sheep’s secret recipe was assessed based on our estimate of periods generating cash flows from utilizing such assets.
2025 Form 10-K
We evaluate our indefinite-lived intangible assets for impairment on an annual basis or more often if an event occurs or circumstances change that indicate impairments might exist. We perform our annual test for impairment of our indefinite-lived intangible assets at the beginning of our fourth quarter. We may elect to perform a qualitative assessment to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is greater than its carrying value. If a qualitative assessment is not performed, or if as a result of a qualitative assessment it is not more likely than not that the fair value of an indefinite-lived intangible asset exceeds its carrying value, then the asset’s fair value is compared to its carrying value. Fair value is an estimate of the price a willing buyer would pay for the intangible asset and is generally estimated by discounting the expected future after-tax cash flows associated with the intangible asset.
Our finite-lived intangible assets that are not allocated to an individual restaurant are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of the intangible asset may not be recoverable. An intangible asset that is deemed not recoverable based on forecasted undiscounted future cash flow is written down to its estimated fair value, which is our estimate of the price a willing buyer would pay for the intangible asset based on discounted expected future after-tax cash flows. For purposes of our impairment analysis, we update the cash flows that were initially used to value the finite-lived intangible asset to reflect our current estimates and assumptions over the asset’s future remaining life.
Equity Investments. The Company’s equity investments include investments in equity method investees, investments in equity securities with readily determinable fair value and investments in available-for-sale debt securities.
The Company applies the equity method to account for the investments in equity method investees over which it has significant influence but does not control. Our share of earnings or losses and share of changes in other comprehensive income or losses of equity method investees is included in net income and other comprehensive income or losses, respectively. We record impairment charges related to an investment in equity method investees whenever events or circumstances indicate that a decrease in the fair value of an investment has occurred which is other than temporary. Management’s assessment as to the nature of a decline in fair value is based on, among other things, the length of time and the extent to which the market value has been less than our cost basis; the financial condition and near-term prospects of the equity method investees; and our intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in market value.
For our investments in equity securities with readily determinable fair value, over which the Company has neither significant influence nor control, they are measured at fair value with subsequent changes recognized in net income.
Certain of our investments may contain preferential rights, including the right to redeem at the Company’s option upon contingent events and is therefore accounted for as available-for sales debt securities measured at the estimated fair value, with unrealized gains or losses, arising from the change in fair value, net of tax, recognized in Other comprehensive income (loss) in the Consolidated Statement of Comprehensive Income.
See Note 3 and Note 6 for further discussions on our equity investments.
Short-term Borrowings. Borrowings are recognized initially at fair value, net of debt discounts or premiums and debt issuance costs, if applicable. Debt discounts or premiums and debt issuance costs are recorded as an adjustment to the principal amount and the related accretion is amortized into interest expense in the Consolidated Statements of Income over the term of the borrowings using the effective interest method. Borrowings are subsequently measured at amortized cost. Interest expense is recognized over the term of the borrowing and recorded in the Consolidated Statements of Income. See Note 8 for additional information.
Financial Instruments. We account for derivative instruments as either assets or liabilities in the Consolidated Balance Sheets. The financial instruments are recorded at their respective fair value as determined on the day of issuance and subsequently adjusted to the fair value at each reporting date. Changes in the fair value of financial instruments are recognized periodically in the Consolidated Statements of Income. The estimated fair values of derivative instruments are determined at discrete points in time using standard valuation techniques.
Noncontrolling Interests. We report Net income attributable to noncontrolling interests separately on the face of our Consolidated Statements of Income. The portion of equity attributable to noncontrolling interests is reported within equity, separately from the Company’s stockholders’ equity on the Consolidated Balance Sheets.
2025 Form 10-K
When the noncontrolling interest is redeemable at the option of the noncontrolling shareholder, or contingently redeemable upon the occurrence of a conditional event that is not solely within the control of the Company, the noncontrolling interest is separately classified as mezzanine equity. In connection with the acquisition of Huang Ji Huang in April 2020, redeemable noncontrolling interests were initially recognized at fair value and classified outside of permanent equity on our Consolidated Balance Sheets due to redemption rights being held by noncontrolling shareholders. Subsequent changes in the redemption value of redeemable noncontrolling interests are immediately recognized as they occur and adjusted to the carrying amount of redeemable noncontrolling interests. In September 2025, the Company acquired the remaining 6.7 % equity interest for a cash consideration of $ 9 million pursuant to the redemption right. This was accounted for as an equity transaction, with the difference between the carrying amount of redeemable noncontrolling interest and purchase consideration recorded in Additional paid-in capital in our Consolidated Statement of Equity.
Guarantees. We account for guarantees in accordance with Accounting Standards Codification Topic 460 (“ASC 460”), Guarantees . Accordingly, the Company evaluates its guarantees to determine whether (a) the guarantee is specifically excluded from the scope of ASC 460, (b) the guarantee is subject to ASC 460 disclosure requirements only, but not subject to the initial recognition and measurement provisions, or (c) the guarantee is required to be recorded in the financial statements at fair value. The Company provides: (i) indemnifications to certain investors and other parties for certain lossessuffered or incurred by the indemnified party in connection with third-party claims; and (ii) indemnifications of officers and directors against third-party claims arising from the services they provide to the Company. To date, the Company has not incurred costs as a result of these obligations and does not expect to incur material costs in the future. Accordingly, the Company has not accrued any liabilities on the Consolidated Balance Sheets related to these indemnifications.
Asset Retirement Obligations. We recognize an asset and a liability for the fair value of a required asset retirement obligation (“ARO”) when such an obligation is incurred. The Company’s AROs are primarily associated with leasehold improvements which, at the end of the lease, the Company is contractually obligated to remove in order to comply with the lease agreement. As such, we amortize the asset on a straight-line basis over the lease term and accrete the liability to its nominal value using the effective interest method over the lease term.
Contingencies. The Company records accruals for certain of its outstanding legal proceedings or claims when it is probable that a liability will be incurred and the amount of loss can be reasonably estimated. The Company evaluates, on a quarterly basis, developments in legal proceedings or claims that could affect the amount of any accrual, as well as any developments that would make a loss contingency both probable and reasonably estimable. The Company discloses the amount of the accrual if it is material.
Retirement Plans. The Company offers certain defined contribution plans to employees. The total contribution for such employee benefits was expensed as incurred. The Company has no additional legal obligation or liabilities for the benefits beyond the paid and accrued amounts. See Note 11 for additional information.
PRC Value-Added Tax (“VAT”). The Company has been subject to VAT within the normal course of its restaurant business nationwide since May 1, 2016.
Entities that are VAT general taxpayers are permitted to offset qualified input VAT paid to suppliers against their 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, on the Consolidated Balance Sheets. VAT assets are classified as Prepaid expenses and other current assets if they are expected to be used within one year. At each balance sheet date, the Company reviews the outstanding balance of VAT assets for recoverability assessment.
Pursuant to the tax policy issued by relevant government authorities, general VAT taxpayers in certain industries that meet certain criteria are allowed to claim an additional 10 % or 15 % input VAT, which will be used to offset their VAT payables. This VAT policy was further extended to December 31, 2023 but the additional deduction was reduced to 5 % or 10 % respectively. Accordingly, the Company recognized such VAT deductions of $ 44 million in 2023. The VAT deductions were recorded as a reduction to the related expense item, primarily in Company restaurant expenses included in the Consolidated Statements of Income. Such preferential policy was not extended beginning in 2024 .
Earnings Per Share. Basic earnings per share represent net earnings to common stockholders divided by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common shares were exercised or converted into common shares. See Note 5 for further information.
2025 Form 10-K
Common Stock Repurchases. We may repurchase shares of Yum China common stock under a program authorized by our Board of Directors from time to time in 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 . Shares repurchased are included in treasury stock in the financial statements until they are retired. When repurchased shares are retired, the Company’s accounting policy is to allocate the excess of the repurchase price over the par value of shares acquired between Additional paid-in capital and Retained earnings. The amount allocated to Additional paid-in capital is based on the value of Additional paid-in capital per share outstanding at the time of retirement and the number of shares to be retired. Any remaining amount is allocated to Retained earnings. See Note 13 for further information.
Recently Adopted Accounting Pronouncements
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) — Improvements to Income Tax Disclosures (“ASU 2023-09”), requiring public business entities to provide additional information in the rate reconciliation and additional disclosures about income taxes paid. ASU 2023-09 is effective for the Company ’ s annual disclosure from January 2025, with early adoption permitted. We adopted this standard on January 1, 2025, and applied the disclosure requirements retrospectively to all periods presented. See Note 14 for further information.
Note 3 – Business Acquisitions and Equity Investments
Consolidation of Hangzhou KFC and Equity Investment in Hangzhou Catering
In the fourth quarter of 2021, the Company completed its investment in a 28 % equity interest in Hangzhou Catering, an entity holding a 45 % equity interest in Hangzhou KFC, of which the Company previously held a 47 % equity interest. Upon completion of the transaction, the Company directly and indirectly holds an approximately 60 % equity interest in Hangzhou KFC and has majority representation on the board, and thus obtained control over Hangzhou KFC and started to consolidate its results from the acquisition date. In addition to its equity interest in Hangzhou KFC, Hangzhou Catering operates Chinese dining restaurants under four time-honored brands and a food processing business. The Company applies the equity method of accounting to the 28 % equity interest in Hangzhou Catering excluding the Hangzhou KFC business and recorded this investment in Equity investments based on its then fair value. The Company elected to report its share of Hangzhou Catering’s financial results with a one-quarter lag because its results are not available in time for the Company to record them in the concurrent period. The Company ’ s equity earnings (losses) from Hangzhou Catering, net of taxes, were immaterial for the years ended December 31, 2025, 2024 and 2023, and included in Equity in net earnings (losses) from equity method investments in our Consolidated Statement of Income. As of December 31, 2025 and 2024 , the carrying amount of the Company’s equity method investment in Hangzhou Catering was $ 54 million and $ 45 million, respectively, exceeding the Company’s interest in Hangzhou Catering’s underlying net assets by $ 22 million and $ 22 million, respectively. Substantially all of this difference was attributable to its self-owned properties and impact of related deferred tax liabilities determined upon acquisition, which is being depreciated over a weighted-average remaining useful life of 20 years.
The Company purchased inventories of $ 1 million, $ 4 million and $ 6 million from Hangzhou Catering for the years ended December 31, 2025, 2024 and 2023, respectively. The Company’s accounts payable and other current liabilities due to Hangzhou Catering were immaterial at both December 31, 2025 and 2024.
Fujian Sunner Development Co., Ltd. (“Sunner”) Investment
In the first quarter of 2021, the Company acquired a 5 % equity interest in Sunner, a Shenzhen Stock Exchange listed company. Sunner is China’s largest white-feathered chicken producer and the Company’s largest poultry supplier.
In May 2021, the Company obtained one seat on Sunner’s board of directors upon Sunner’s shareholder approval. The representation on the board, along with the Company being one of Sunner’s significant shareholders, provides the Company with the ability to exercise significant influence over the operating and financial policies of Sunner. As a result, the Company started to apply the equity method of accounting to the investment in May 2021 based on its then fair value. The Company elected to report its share of Sunner’s financial results with a one-quarter lag because Sunner’s results are not available in time for the Company to record them in the concurrent period. The Company’s equity earnings from Sunner, net of taxes, was $ 10 million, $ 1 million and $ 6 million for the years ended December 31, 2025, 2024 and 2023, respectively, and included in Equity in net earnings (losses) from equity method investments in our Consolidated Statement of Income.
The Company purchased inventories of $ 367 million, $ 476 million and $ 507 million for years ended December 31, 2025, 2024 and 2023, respectively. The Company’s accounts payable and other current liabilities due to Sunner were $ 34 million and $ 46 million as of December 31, 2025 and 2024, respectively.
2025 Form 10-K
As of December 31, 2025 and 2024, the Company’s investment in Sunner was stated at the carrying amount of $ 231 million and $ 216 million, respectively, which was $ 153 million and $ 147 million higher than the Company’s interest in Sunner’s underlying net assets, respectively. Of this basis difference, $ 15 million and $ 15 million was related to finite-lived intangible assets which are being amortized over estimated useful life of 20 years, respectively. The remaining differences were related to goodwill and indefinite-lived intangible assets, which are not subject to amortization, as well as deferred tax liabilities impact. As of December 31, 2025 and 2024, the market value of the Company’s investment in Sunner was $ 147 million and $ 123 million based on its quoted closing price, respectively.
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, a delivery aggregator in China, for a total consideration of approximately $ 74 million, when it launched its initial public offering on the HKEX in September 2018. In the second quarter of 2020, the Company sold 4.2 million of the ordinary shares of Meituan.
The Company accounts for the equity securities at fair value with subsequent fair value changes recorded in our 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. The fair value change, to the extent the closing market price of shares of Meituan as of the end of reporting period is higher than our cost, is subject to U.S. tax.
A summary o f pre-tax gains or losses on investment in equity securities of Meituan recognized, which were included in Investment gain (loss) in our Consolidated Statements of Income, is as follows:
Unrealized (loss) gain recorded on equity securities
still held as of the end of the year
Other Equity Investments
In addition, the Company has strategic equity investments in its eco-system partners, including food and information technology service suppliers. For investments over which the Company has significant influence but does not control, the Company applies equity method to account for such investments. These investments were immaterial both individually and in aggregate, totaling $ 30 million and $ 25 million as of December 31, 2025 and 2024, respectively. The Company purchased inventories or services from these investees and the purchase amounts were immaterial for the years ended December 31, 2025, 2024 and 2023.
In the first quarter of 2025, the Company completed a strategic investment in SnowValley Agricultural Group, one of the Company’s key suppliers for potato and a private company, for a total consideration of $ 14 million. The investment contains certain preferential rights, including the right to redeem shares at the Company’s option upon contingent events, and is therefore accounted for as available-for-sale debt securities measured at the estimated fair value. The unrealized gains or losses, arising from the change in fair value, net of tax, is recognized in Other comprehensive income (loss) in the Consolidated Statement of Comprehensive Income. As of December 31, 2025 , the carrying amount of the investment was $ 15 million and fair value change, net of tax was immaterial for the year ended December 31, 2025 .
Note 4 – Revenue
The following tables present revenue disaggregated by types of arrangements and segments:
Revenues
KFC
Pizza Hut
All Other Segments
Corporate and Unallocated
Combined
Elimination
Consolidated
Company sales
Franchise fees and income
Revenues from transactions
with franchisees
Other revenues
Total revenues
2025 Form 10-K
Revenues
KFC
Pizza Hut
All Other Segments
Corporate and Unallocated
Combined
Elimination
Consolidated
Company sales
Franchise fees and income
Revenues from transactions
with franchisees
Other revenues
Total revenues
Revenues
KFC
Pizza Hut
All Other Segments
Corporate and Unallocated
Combined
Elimination
Consolidated
Company sales
Franchise fees and income
Revenues from transactions
with franchisees
Other revenues
Total revenues
Franchise Fees and Income
Initial fees, including renewal fees
Continuing fees and rental income
Franchise fees and income
Costs to Obtain Contracts
Costs to obtain contracts consist of license fees that are payable to YUM in relation to our deferred revenue of prepaid stored-value products, privilege membership programs and customer loyalty programs, as well as upfront franchise fees that we paid to YUM prior to the separation in relation to initial fees or renewal fees we received from franchisees. 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 in the 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. The Company did no t incur any impairmentlosses related to costs to obtain contracts during any of the periods presented. Costs to obtain contracts were $ 6 million at both December 31, 2025 and 2024.
Contract Liabilities
Contract liabilities at December 31, 2025 and 2024 were as follows:
Contract liabilities
- Deferred revenue related to prepaid stored-value products
- Deferred revenue related to upfront franchise fees
- Deferred revenue related to customer loyalty programs
- Deferred revenue related to privilege membership programs
Total
2025 Form 10-K
Contract liabilities primarily consist of deferred revenue related to prepaid stored-value products, privilege membership programs, customer loyalty programs and upfront franchise fees, including initial fees and pre-opening service fees. Deferred revenue related to prepaid stored-value products, privilege membership programs, and customer loyalty programs is included in Accounts payable and other current liabilities in the Consolidated Balance Sheets. Deferred revenue related to upfront franchise 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 in the Consolidated Balance Sheets. Revenue recognized that was included in the contract liability balance at the beginning of the year amounted to $ 110 million and $ 109 million in 2025 and 2024, 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 years 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 based on a certain percentage of sales, as those sales occur.
Note 5 – Earnings Per Common Share (“EPS”)
The following table summarizes the components of basic and diluted EPS (in millions, except per share data):
Net Income – Yum China Holdings, Inc.
Weighted-average common shares outstanding
(for basic calculation) (a)
Effect of dilutive share-based awards (a)
Weighted-average common and dilutive potential common shares
outstanding (for diluted calculation)
Basic Earnings Per Common Share
Diluted Earnings Per Common Share
Share-based awards excluded from the diluted EPS computation (b)
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 were 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 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 incremental shares arising from outstanding equity awards are included in the computation of diluted EPS, if there is dilutive effect. See Note 12 for a further discussion of share-based compensation.
These outstanding SARs, RSUs and PSUs were excluded from the computation of diluted EPS because to do so would have been antidilutive for the years presented, or because certain PSUs are contingently issuable based on the achievement of performance and market conditions, which have not been met as of December 31, 2025, 2024 and 2023 .
Note 6 – Supplemental Balance Sheet Information
Accounts Receivable, net
Accounts receivable, gross
Allowance for doubtful accounts
Accounts receivable, net
Prepaid Expenses and Other Current Assets
VAT assets
Interest receivables
Receivables from payment processors and aggregators
Deposits, primarily lease deposits
Other prepaid expenses and current assets
Prepaid expenses and other current assets
2025 Form 10-K
Buildings and improvements, and construction in progress
Finance leases, primarily buildings
Machinery and equipment
PP&E, gross
Accumulated depreciation
PP&E, net
Depreciation and amortization expense related to property, plant and equipment was $ 438 million, $ 467 million and $ 442 million in 2025, 2024 and 2023, respectively.
Equity Investments
Investment in equity method investees
Investment in equity securities
Investment in available-for-sale debt securities
Equity investments
Other Assets
Prepayment for acquisition of PP&E (a)
Long-term deposits, primarily lease deposits
Land use right (b)
VAT assets
Costs to obtain contracts
Others
Other assets
The increase was primarily due to a prepayment made in relation to the acquisition of a building located in Shanghai to house the Company’s headquarters and flagship stores, which is currently expected to be delivered to the Company in 2027.
Amortization expense related to land use right was $ 4 million, $ 4 million and $ 4 million in 2025, 2024 and 2023 , respectively.
Accounts Payable and Other Current Liabilities
Accounts payable
Operating lease liabilities
Accrued compensation and benefits
Contract liabilities
Accrued capital expenditures
Dividends payable
Accrued marketing expenses
Other current liabilities
Accounts payable and other current liabilities
Other Liabilities
Contract liabilities
Accrued income tax payable
Other non-current liabilities
Other liabilities
2025 Form 10-K
Note 7 – 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, 2023
Goodwill, gross
Accumulated impairmentlosses (a)
Goodwill, net
Effect of currency translation adjustments
Balance as of December 31, 2024
Goodwill, gross
Accumulated impairmentlosses (a)
Goodwill, net
Effect of currency translation adjustments
Balance as of December 31, 2025
Goodwill, gross
Accumulated impairmentlosses (a)
Goodwill, net
Accumulated impairmentlosses represent goodwill impairment attributable to the reporting units of Little Sheep and Daojia.
Intangible assets, net as of December 31, 2025 and 2024 are as follows:
Gross Carrying
Amount (a)
Accumulated
Amortization (a)
Accumulated ImpairmentLosses (b)
Net Carrying Amount
Gross Carrying
Amount
Accumulated
Amortization
Accumulated ImpairmentLosses (b)
Net Carrying Amount
Finite-lived intangible assets
Reacquired franchise rights
Huang Ji Huang franchise
related assets
Daojia platform
Customer-related assets
Other
Indefinite-lived intangible assets
Little Sheep trademark
Huang Ji Huang trademark
Total intangible assets
Changes in gross carrying amount and accumulated amortization include the effect of currency translation adjustments.
Accumulated impairmentlosses represent impairment charges on intangible assets acquired from Daojia primarily attributable to the Daojia platform.
Amortization expense for finite-lived intangible assets was $ 2 million in 2025, $ 2 million in 2024 and $ 4 million in 2023. Amortization expense for finite-lived intangible assets is expected to approximate $ 2 million in each of 2026, 2027, 2028, 2029 and 2030.
2025 Form 10-K
Note 8 – Credit Facilities and Short-term Borrowings
As of December 31, 2025, the Company had credit facilities of RMB 10,495 million (approximately $ 1,502 million), comprised of onshore credit facilities in the aggregate amount of RMB 7,700 million (approximately $ 1,102 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 December 31, 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, 2025 and 2024 , we had outstanding short-term bank borrowings of $ 30 million and $ 127 million, respectively, mainly to manage working capital at our operating subsidiaries. The RMB denominated bank borrowings bear a weighted-average interest rate of 1.5 % and 1.7 % for the years ended December 31, 2025 and 2024 , respectively, and are due within one year from their issuance dates. As of December 31, 2025 , we also had outstanding bank guarantees of RMB 296 million (approximately $ 42 million) mainly to secure our lease payments to landlords for certain Company-owned restaurants, as well as outstanding bank guarantees of RMB 360 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, 2025 , the Company had unused credit facilities of approximately $ 1,378 million.
Note 9 – Leases
As of December 31, 2025, we leased approximately 15,000 properties in China for our Company-owned restaurants. We generally enter into lease agreements for our restaurants 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 profit 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; or (iii) a percentage of the restaurant’s sales. 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.
In limited cases, we sub-lease 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 the restaurant’s annual sales. Income from sub-lease agreements with franchisees or lease agreements with other third parties are included in Franchise fees and income and Other revenues, respectively, within our Consolidated Statements of Income.
Supplemental Balance Sheet
Account Classification
Assets
Operating lease right-of-use assets
Operating lease right-of-use assets
Finance lease right-of-use assets
Total leased assets (a)
Liabilities
Current
Operating lease liabilities
Accounts payable and other current liabilities
Finance lease liabilities
Accounts payable and other current liabilities
Non-current
Operating lease liabilities
Non-current operating lease liabilities
Finance lease liabilities
Non-current finance lease liabilities
Total lease liabilities
2025 Form 10-K
Summary of Lease Cost
Account Classification
Operating lease cost
Occupancy and other operating expenses,
G&A or Franchise expenses
Finance lease cost
Amortization of leased assets
Occupancy and other operating expenses
Interest on lease liabilities
Interest expense, net
Variable lease cost (b)
Occupancy and other operating expenses
or Franchise expenses
Short-term lease cost
Occupancy and other operating expenses
Sub-lease income
Franchise fees and income or Other revenues
Total lease cost
As of December 31, 2025, excluding the impact of foreign currency translation, right-of-use (“ROU”) assets decreased, primarily due to the amortization of assets relating to existing leases with fixed lease payments and a higher portion of our leases with variable lease payments. The decrease of lease liabilities, excluding the impact of foreign currency translation, was consistent with the decrease of ROU assets.
The Company was granted $ 11 million in lease concessions from landlords related to the effects of the COVID-19 pandemic for the year ended December 31, 2023. The lease concessions were primarily in the form of rent reduction over the period of time when the Company’s restaurant business was adversely impacted. The Company applied the interpretive guidance in a FASB staff question-and-answer document issued in April 2020 and elected: (1) not to evaluate whether a concession received in response to the COVID-19 pandemic is a lease modification and (2) to assume such concession was contemplated as part of the existing lease contract with no contract modification. Such concession was recognized as negative variable lease cost in the period the concession was granted. The Company was no longer granted such lease concession beginning in 2024.
Supplemental Cash Flow Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Operating cash flows from finance leases
Financing cash flows from finance leases
Right-of-use assets obtained in exchange for lease liabilities (c) :
Operating leases
Finance leases
This supplemental non-cash disclosure for ROU assets obtained in exchange for lease liabilities includes an increase in lease liabilities associated with obtaining new ROU assets of $ 355 million, $ 400 million and $ 451 million for the years ended December 31, 2025, 2024 and 2023, respectively, as well as adjustments to lease liabilities or ROU assets due to modification or other reassessment events, which resulted in a decrease of $ 8 million, a decrease of $ 10 million, and an increase of $ 12 million in lease liabilities for the years ended December 31, 2025, 2024 and 2023, respectively.
Lease Term and Discount Rate
Weighted-average remaining lease term (years)
Operating leases
Finance leases
Weighted-average discount rate
Operating leases
Finance leases
2025 Form 10-K
Summary of Future Lease Payments and Lease Liabilities
Maturities of lease liabilities as of December 31, 2025 were as follows:
Amount of
Operating Leases
Amount of
Finance Leases
Total
Thereafter
Total undiscounted lease payment
Less: imputed interest (d)
Present value of lease liabilities
As the rate implicit in the lease cannot be readily determined, 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 December 31, 2025, we have additional lease agreements that have been signed but not yet commenced, with total undiscounted minimum lease payments of $ 68 million. These leases will commence between 2026 and 2027 with lease terms of 1 year to 20 years.
Note 10 – Fair Value Measurements and Disclosures
The Company’s financial assets and liabilities primarily consist of cash and cash equivalents, short-term investments, long-term bank deposits and notes, accounts receivable, accounts payable, short-term borrowings and lease liabilities, and the carrying values of these assets and liabilities approximate their fair value in general.
The Company’s financial assets also include its investment in equity securities and available-for-sale debt securities. Investment in equity securities is measured at fair value 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. Investment in available-for-sales debt securities is measured at estimated fair value with subsequent fair value changes recorded in Other comprehensive income (loss) in the Consolidated Statements of Comprehensive 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, long-term bank deposits and notes, 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. The Company classifies its investment in available-for-sale debt securities in Level 3 in the fair value hierarchy because it is valued based on unobservable inputs. No transfers among the levels within the fair value hierarchy occurred in 2025 and 2024.
2025 Form 10-K
Fair Value Measurement or Disclosure
at December 31, 2025
Balance at
December 31, 2025
Level 1
Level 2
Level 3
Cash equivalents:
Fixed income debt securities (a)
Money market funds
Total cash equivalents
Short-term investments:
Time deposits
Fixed income debt securities (a)
Variable return investments
Structured deposits
Total short-term investments
Long-term bank deposits and notes
Time deposits
Variable return investments
Fixed income bank notes
Structured deposits
Total long-term bank deposits and notes
Equity investments:
Investment in equity securities
Investment in available-for-sale debt securities
Total Equity investments
Total
Fair Value Measurement or Disclosure
at December 31, 2024
Balance at
December 31, 2024
Level 1
Level 2
Level 3
Cash equivalents:
Time deposits
Fixed income debt securities (a)
Money market funds
Total cash equivalents
Short-term investments:
Time deposits
Structured deposits
Variable return investments
Total short-term investments
Long-term bank deposits and notes
Time deposits
Fixed income bank notes
Total long-term bank deposits and notes
Equity investments:
Investment in equity securities
Total
Classified as held-to-maturity investments and measured at amortized cost.
2025 Form 10-K
The Company is required to provide bank deposits, insurance or guarantees to secure the balance of prepaid stored-value cards issued by the Company pursuant to regulatory requirements. $ 29 million of time deposits in Short-term investments and $ 34 million of time deposits in Long-term bank deposits and notes were restricted for use as of December 31, 2025. $ 60 million of time deposits in Long-term bank deposits and notes were restricted for use as of December 31, 2024.
Non-recurring fair value measurements
In addition, certain of the Company’s restaurant-level assets (including operating lease ROU assets and PP&E), goodwill and intangible assets are measured at fair value based on unobservable inputs (Level 3) on a non-recurring basis, if determined to be impaired. As of each relevant measurement date, the fair value of restaurant-level assets, if determined to be impaired, is primarily represented by a price market participant would pay to sub-lease the operating lease ROU assets and acquire the remaining restaurant assets, which reflects the highest and best use of the assets. Significant unobservable inputs used in the fair value measurement include market rental prices, which were determined with the assistance of an independent valuation specialist. The direct comparison approach is used as the valuation technique by assuming a sub-lease of each of the properties in its existing state with vacant possession. By making reference to lease transactions as available in the relevant market, comparable properties in close proximity have been selected and adjustments have been made to account for any difference in factors such as location and property size.
The following table presents amounts recognized from all non-recurring fair value measurements based on unobservable inputs (Level 3) during the years ended December 31, 2025, 2024 and 2023. These amounts exclude fair value measurements made for restaurants that were subsequently closed or refranchised prior to those respective year-end dates.
Account Classification
Restaurant-level impairment (a)
Closures and impairment expenses, net
Restaurant-level impairment charges are recorded in Closures and impairment expenses, net and resulted mainly from our semi-annual impairment evaluation of long-lived assets of individual restaurants that were being operated at the time of impairment and had not been offered for refranchising. After considering the impairment charges recorded during the corresponding years, the fair value of such assets as of the relevant measurement date was $ 62 million, $ 51 million and $ 68 million during the years ended December 31, 2025, 2024 and 2023 , respectively.
Note 11 – Retirement Plans
As stipulated by Chinese state regulations, the Company participates in a government-sponsored defined contribution retirement plan. Substantially all employees are entitled to an annual pension equal to a fixed proportion of the average basic salary amount of the geographical area of their last employment at their retirement date. We are required to make contributions to the local social security bureau between 13 % and 20 % of the previous year’s average basic salary amount of the geographical area where the employees are under our employment. Contributions are recorded in the Consolidated Statements of Income as they become payable. We have no obligation for the payment of pension benefits beyond the annual contributions as set out above. The Company contributed $ 232 million, $ 239 million and $ 230 million to the government-sponsored plan for the year ended December 31, 2025, 2024 and 2023, respectively.
The Company also offers certain of the Company’s employees and executives retirement benefits under defined contribution plans, through which we provide a Company-funded contribution ranging from 5 % to 10 % of the base salary. Under the plans, participants will receive a lump sum equal to a percentage of the Company’s contributions inclusive of investment return upon termination. This percentage is generally based on a vesting schedule that provides participants with a vested 30 % interest upon completion of a minimum of 3 years of service, and an additional 10 % vested interest for each additional completed year, up to a maximum of 100 %. The Company’s contribution amount to the plans for the years ended December 31, 2025, 2024 and 2023 was immaterial.
Note 12 – Share-Based Compensation
Overview
Upon the separation, holders of outstanding YUM equity awards generally received both adjusted YUM awards and Yum China awards, or adjusted awards of either YUM or Yum China in their entirety, to maintain the pre-separation intrinsic value of the awards. Share issuances for Yum China awards held by YUM’s employees will be satisfied by Yum China. Share issuances for YUM awards held by the Company’s employees will be satisfied by YUM. As a result, Yum China may issue shares of common stock to YUM’s employees upon exercise or vesting of various types of awards, including stock options, SARs, RSUs, and awards from the executive income deferral plan.
2025 Form 10-K
Effective October 31, 2016, the Company adopted the Yum China Holdings, Inc. Long Term Incentive Plan (the “2016 Plan”). The Company has reserved for issuance under the 2016 Plan of 45,000,000 shares of our common stock. Under this plan, the exercise price of stock options and SARs granted must be equal to or greater than the fair market value of the Company’s stock on the date of grant.
In connection with the Primary Conversion, the Company’s stockholders approved the Yum China Holdings, Inc. 2022 Long Term Incentive Plan (the “2022 Plan”), with 31,000,000 shares of Company common stock authorized for grants. The 2022 Plan replaced the 2016 Plan and became effective on October 24, 2022. The 2016 Plan continued to govern awards granted prior to the effectiveness of the 2022 Plan. Under the 2022 Plan, the exercise price of stock options and SARs granted must be the higher of 1) the fair market value of the Company’s stock on the date of grant and (ii) the average fair market value for the five trading days immediately preceding the date of grant. The 2022 Plan is largely based on the 2016 Plan, but with updates to conform to the requirements of the HKEX, to delete provisions relating to our spin-off that are no longer applicable and to make certain other administrative changes.
Similar to the 2016 Plan, potential awards to employees and non-employee directors under the 2022 Plan include stock options, incentive options, SARs, common stock, restricted stock, RSUs, performance shares, PSUs, and cash incentive awards. Awards under the 2016 and 2022 Plan have varying vesting provisions and exercise periods. Stock options and SARs expire 10 years after grant.
The Company recognizes all share-based payments to employees and non-employee directors in the Consolidated Financial Statements as compensation cost on a straight-line basis over the service period based on their fair value on the date of grant, for awards that actually vest and when performance conditions are probable of being achieved, if applicable. If no substantive service condition exists, the grant-date fair value is fully recognized as expense upon grant.
Award Valuation
SARs
The Company estimated the fair value of each SAR award granted to the Company’s employees as of the date of grant, using the BS model with the following assumptions:
Risk-free interest rate
Expected term (years)
Expected volatility
Expected dividend yield
SAR awards granted to employees typically have a graded vesting schedule of 25 % per year over four years and expire 10 years after grant. The Company uses a single weighted-average term for awards that have a graded vesting schedule and determined average terms of exercise based on analysis of the historical exercise and post-vesting termination behavior. Forfeitures were estimated based on historical experience. Historical data used to estimate the expected term and forfeiture rate include data associated with the Company’s employees who were granted share-based awards by YUM prior to the separation.
For those awards granted by the Company after the separation, the Company considered the historical volatility of the Company’s common stock. The dividend yield was estimated based on the Company’s dividend policy at the time of the grant.
RSUs
RSU awards generally vest over three to four years , with either cliff vesting or graded vesting on anniversary dates. The fair values of RSU awards are based on the closing price of the Company’s stock on the date of grant.
PSUs
The Company grants PSUs that cliff vest only if threshold performance goals are achieved over a performance period, with the payout ranging from 0 % to 200 % of the target number of shares. These PSU awards are based on the achievement of one or more performance goals, including stock price, relative total shareholder return against selected indices or the constituents of the indices, sales growth, profitability, and strategic imperative.
2025 Form 10-K
In February 2020, the Company’s Board of Directors granted a special award of PSUs (“Partner PSU Awards”) to select employees who were deemed critical to the Company’s execution of its strategic operating plan under the 2016 Plan. These Partner PSU Awards are subject to market and performance conditions, and will cliff vest only if threshold performance goals are achieved over a four-year performance period, with the payout ranging from 0 % to 200 % of the target number of shares. These awards vested as of December 31, 2023 with a payout in the first quarter of 2024.
The fair value of PSU awards with performance conditions was determined based on the closing price of the Company’s stock on the date of the grant. The fair value of PSU awards with market conditions was determined based on the outcome of the MCS model with the following assumptions:
Risk-free interest rate
Expected volatility
Compensation costs associated with PSU awards are recognized on a straight-line basis over the performance period when performance conditions are probable of being achieved, adjusted for estimated forfeiture rate.
Others
Commencing from November 11, 2016, Yum China also granted annual awards of common stock to non-employee directors for their service on Yum China’s Board of Directors. The fair value of these awards is based on the closing price of the Company’s common stock on the date of grant. The shares were issued outright to the directors on the date of grant, with no conditions attached. Therefore, the fair value of the awards was fully recognized as expenses upon grant. For the years ended December 31, 2025, 2024 and 2023, the Company recognized in full the grant-date fair value of $ 3.3 million, $ 3.2 million and $ 2.7 million , respectively, in the Consolidated Statements of Income and issued a total of 74,885 , 86,972 and 45,843 shares of Yum China common stock, respectively.
Award Activity
SARs
Shares
(in thousands)
Weighted-average
Exercise
Price
Weighted-average
Remaining
Contractual Term
(years)
Aggregate Intrinsic Value
(in millions)
Outstanding at the beginning of 2025
Granted
Exercised
Forfeited or expired
Outstanding at the end of 2025
Exercisable at the end of 2025
Outstanding awards represent Yum China’s SAR awards held by employees of both the Company and YUM.
The weighted-average grant-date fair value of SARs granted in 2025, 2024 and 2023 was $ 17.65 , $ 14.55 and $ 24.67 , respectively. The total intrinsic value of SARs exercised by the Company’s employees during the years ended December 31, 2025, 2024 and 2023 was $ 25 million, $ 17 million and $ 25 million , respectively.
As of December 31, 2025, $ 7 million of unrecognized compensation cost related to unvested SARs, which will be reduced by any forfeitures that occur, is expected to be recognized over a remaining weighted-average vesting period of approximately 1.53 years. The total fair value at grant date of awards held by the Company’s employees that vested during 2025, 2024 and 2023 was $ 10 million, $ 13 million and $ 15 million, respectively.
2025 Form 10-K
RSUs
Shares
(in thousands)
Weighted-
Average
Grant Date
Fair Value
Unvested at the beginning of 2025
Granted
Vested
Forfeited
Unvested at the end of 2025
The weighted-average grant-date fair value of RSUs granted in 2025, 2024 and 2023 was $ 47.72 , $ 40.47 and $ 61.17 , respectively. As of December 31, 2025, $ 33 million of unrecognized compensation cost related to 1,258,233 unvested RSUs, which will be reduced by any forfeiture that occurs, is expected to be recognized over a remaining weighted-average vesting period of approximately 1.58 years. The total fair value at grant date of awards that vested during 2025, 2024 and 2023 was $ 22 million, $ 32 million and $ 8 million, respectively.
PSUs
Shares
(in thousands)
Weighted-
Average
Grant Date
Fair Value
Unvested at the beginning of 2025
Granted
Vested
Forfeited
Unvested at the end of 2025
The weighted-average grant-date fair value of PSUs granted in 2025, 2024 and 2023 was $ 54.37 , $ 44.52 and $ 71.01 , respectively. As of December 31, 2025, $ 10 million of unrecognized compensation cost related to 370,662 unvested PSUs, which will be reduced by any forfeiture that occurs and adjusted based on the Company’s achievement of performance goals, is expected to be recognized over a remaining weighted-average vesting period of approximately 1.78 years. The total fair value at grant date of awards that vested during 2025, 2024 and 2023 was $ 8 million, $ 4 million and $ 41 million, respectively.
Impact on Net Income
Share-based compensation expense was $ 42 million, $ 41 million and $ 64 million for 2025, 2024 and 2023, respectively. Deferred tax benefits and tax benefits realized on our tax returns from tax deductions associated with share-based compensation were immaterial in each of 2025, 2024 and 2023.
Note 13 – Equity
Immediately after the separation on October 31, 2016, Yum China authorized capital stock consisted of 1,000 million shares of common stock, par value $ 0.01 per share, and 364 million shares of Yum China common stock were issued and outstanding. As of December 31, 2025, 355 million shares of Yum China common stock were issued and 354 million shares were outstanding.
Share Repurchase and Retirement
The Company repurchased 24.7 million shares of common stock for $ 1,136 million, 31.3 million shares of common stock for $ 1,242 million and 12.4 million shares of common stock for $ 617 million, excluding transaction costs and excise tax, for the years ended December 31, 2025, 2024 and 2023, respectively. In December 2025, our Board of Directors increased the share repurchase authorization by $ 1 billion to an aggregate of $ 5.4 billion, of which $ 1.2 billion remained available as of December 31, 2025.
2025 Form 10-K
Of the shares repurchased for the year ended December 31, 2025 , 24.1 million shares were retired and resumed the status of authorized and unissued shares of common stock, and 0.6 million shares repurchased on the HKEX are expected to be retired subsequent to December 31, 2025 and included in Treasury stock in the Consolidated Financial Statements.
The Inflation Reduction Act of 2022 (“IRA”), which is discussed further in Note 14, imposes an excise tax of 1 % on net share repurchases that occur after December 31, 2022. Excise tax on net share repurchases, which was recognized as part of the cost of the shares repurchased, amounted to $ 11 million, $ 12 million and $ 6 million for the years ended December 31, 2025, 2024 and 2023, respectively.
Cash Dividend
On October 4, 2017 , the Board of Directors approved a regular quarterly cash dividend program, and we have paid a quarterly cash dividend on Yum China ’s common stock since the fourth quarter of 2017, except for the second and third quarters of 2020 due to the unprecedented effects of the COVID-19 pandemic. Cash dividends totaling $ 353 million, $ 248 million and $ 216 million were paid to stockholders in 2025, 2024 and 2023, respectively.
Restricted net assets
The Company’s ability to pay dividends is primarily dependent on the Company receiving distributions of funds from its subsidiaries. Relevant PRC statutory laws and regulations permit payments of dividends by the Company’s PRC subsidiaries only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. The results of operations reflected in the Consolidated Financial Statements prepared in accordance with U.S. GAAP differ from those reflected in the statutory financial statements of the Company’s subsidiaries.
In accordance with the PRC Company Law, the Company ’s PRC subsidiaries are required to provide certain statutory reserves, namely statutory surplus reserve and the discretionary surplus reserve which are appropriated from net profit as reported in the enterprises’ PRC statutory accounts. Appropriations to the statutory surplus reserve are required to be at least 10 % of their annual after-tax profit until cumulative reserve has reached 50 % of their respective registered capital based on the enterprises’ PRC statutory accounts. Appropriations to the discretionary surplus reserve are at the discretion of the board of directors for respective PRC subsidiaries. The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends.
As a result of these Chinese laws and regulations subject to the limit discussed above that require annual appropriations of 10% of after-tax income to be set aside, prior to payment of dividends as statutory reserves, the Company’s PRC subsidiaries are restricted in their ability to transfer a portion of their net assets to the Company in the form of dividend payments, loans or advances. The restricted net assets including paid-in capital and the statutory reserves of the Company’s PRC subsidiaries were approximately $ 1.5 billion as of December 31, 2025.
Furthermore, cash transfers from the Company’s PRC subsidiaries to its subsidiaries outside of China are subject to PRC government control of currency conversion. Shortages in the availability of foreign currency may restrict the ability of the PRC subsidiaries to remit sufficient foreign currency to pay dividends or other payments to the Company, or otherwise satisfy their foreign currency-denominated obligations.
Note 14 – Income Taxes
In December 2017, the U.S. enacted the Tax Act, which included a broad range of tax reforms. 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.
In August 2022, the IRA was signed into law in the U.S., which contains certain tax measures, including a Corporate Alternative Minimum Tax (“CAMT”) of 15 % on certain large corporations. On December 27, 2022, the U.S. Treasury Department and the Internal Revenue Services (the “IRS”) released Notice 2023-7, announcing their intention to issue proposed regulations addressing the application of the new CAMT. Additional notices or proposed regulations were released subsequently to continue to provide interim guidance regarding certain CAMT issues before proposed regulations are published. The Company will monitor the regulatory developments and continue to evaluate the impact on our financial statements, if any.
2025 Form 10-K
In December 2022, a refined Foreign Sourced Income Exemption (“FSIE”) regime was published in Hong Kong and took effect from January 1, 2023. Under the new FSIE regime, certain foreign sourced income would be deemed as being sourced from Hong Kong and chargeable to Hong Kong Profits Tax, if the recipient entity fails to meet the prescribed exception requirements. Certain dividends, interests, intellectual property income and disposal gains, if any, received by us and our Hong Kong subsidiaries may be subject to the new tax regime. Based on our preliminary analysis, this legislation did not have a material impact on our financial statements. The Company will monitor the developments and continue to evaluate the impact, if any.
The Organization for Economic Cooperation and Development (the “OECD”), the European Union and other jurisdictions (including jurisdictions in which we have operations or presence) have committed to enacting substantial changes to numerous long-standing tax principles impacting how large multinational enterprises are taxed. In particular, the OECD’s Pillar Two initiative introduced a 15 % global minimum tax applied on a jurisdiction-by-jurisdiction basis and for which many jurisdictions have now committed to an effective enactment date starting January 1, 2024. Based on our analysis, this legislation did not have a material impact on our financial statements. The Company will monitor the regulatory developments and continue to evaluate the impact, if any.
In July 2025, the One Big Beautiful Bill Act (the “OBBBA”) was signed into law in the U.S. The OBBBA includes a broad range of provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, modifications to the international tax framework and others. These provisions have multiple effective dates beginning in 2025. Based on our preliminary analysis, we do not expect this legislation to have a material impact on our financial statements. The Company will monitor the regulatory developments and continue to evaluate the impact, if any.
As described in Note 2, effective for the year ended December 31, 2025, we adopted ASU 2023-09 and applied the disclosure requirements retrospectively to all periods presented.
U.S. and foreign income (loss) before taxes are set forth below:
Mainland China
Other Foreign Jurisdictions
The details of our income tax provision are set forth below:
Current:
Federal
State
Foreign
Deferred:
Federal
State
Foreign
2025 Form 10-K
The reconciliation of income taxes calculated at the U.S. federal statutory rate to our effective tax rate is set forth below:
U.S. federal statutory rate
State and local income taxes
Foreign tax effects
Mainland China
Statutory tax rate difference between
Mainland China and the U.S.
Effect of preferential tax benefit
Withholding tax on distributable earnings
Others
Other foreign jurisdictions
Effect of changes in tax laws or rates enacted in
the current period
Effect of cross-border tax laws
Tax credits
Changes in valuation allowances
Nontaxable or nondeductible items
Change in unrecognized tax benefits
Effective income tax rate
Statutory tax rate difference between Mainland China and the U.S. A majority of our income is earned in China, which is generally subject to a 25 % tax rate. The negative impact in 2025, 2024 and 2023 is primarily due to the U.S. federal statutory rate of 21 %, which is lower than China’s statutory income tax rate.
Effect of preferential tax benefit . This item represents the benefits from preferential tax rates applied at certain qualified Chinese subsidiaries.
Withholding tax on distributable earnings . This item represents withholding tax impact on planned or actual repatriation of earnings outside of China, at the withholding tax rate of 5 % or 10 % depending on the manner of repatriation, the applicable tax treaties or tax arrangements, as well as the interpretation in applying these treaties and arrangements.
The details of 2025 and 2024 deferred tax assets (liabilities) are set forth below:
Assets
Liabilities
Total
Assets
Liabilities
Total
Operating losses and tax credit carryforwards
Tax benefit from Little Sheep restructuring
Employee compensation and benefits
Deferred income and other
Lease
Property, plant and equipment
Intangible assets
Gain from re-measurement of equity interest
upon acquisition
Withholding tax on distributable earnings
Unrealized gains from equity securities
Others
Valuation Allowance
Net deferred tax assets (liabilities)
2025 Form 10-K
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, 2025 . The foreign withholding tax rate on this amount is 5 % or 10 % depending on the manner of repatriation, the applicable tax treaties or tax arrangements , as well as the interpretation in applying these treaties and arrangements.
At December 31, 2025, the Company had operating loss carryforwards of $ 157 million , primarily related to certain underperforming entities, most of which will expire by 2030 . These losses are being carried forward in jurisdictions where we are permitted to use tax losses from prior periods to reduce future taxable income.
Cash payments for tax liabilities on income tax returns filed were $ 370 million, $ 393 million and $ 324 million in 2025, 2024 and 2023, respectively.
Federal
State
Mainland China
Other Foreign Jurisdictions
We recognize the benefit of positions taken or expected to be taken in tax returns in the financial statements when it is more likely than not that the position would be sustained upon examination by tax authorities. A recognized tax position is measured at the largest amount of benefit that is greater than 50 % likely of being realized upon settlement.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Beginning of Year
Additions on tax positions
Reductions due to statute expiration
End of Year
In 2025 and 2024, our unrecognized tax benefits were increased by $ 5 million and $ 4 million , respectively. The unrecognized tax benefits balance of $ 20 million as of December 31, 2025 related to the uncertainty with regard to the deductibility of certain business expenses incurred, all of which, if recognized upon audit settlement or statute expiration, would affect the effective tax rate. The accrued interest and penalties related to income taxes at December 31, 2025 and 2024 are set forth below:
Accrued interest and penalties
In each year of 2025, 2024 and 2023 , nil net impact for interest and penalties was recognized in our Consolidated Statements of Income as components of our income tax provision, respectively.
The Company’s results are subject to examination in the U.S. federal jurisdiction as well as various U.S. state jurisdictions as part of YUM’s and our own income tax filings, and separately in foreign jurisdictions. Any liability arising from these examinations related to periods prior to the separation is expected to be settled among the Company, YCCL and YUM in accordance with the tax matters agreement we entered into in connection with the separation.
2025 Form 10-K
We are subject to reviews, examinations and audits by Chinese tax authorities, the IRS and other tax authorities with respect to income and non-income based taxes. Since 2016, we have been under a national audit on transfer pricing by the STA in China regarding our related party transactions for the period from 2006 to 2015. The information and views currently exchanged with the tax authorities focus on our franchise arrangement with YUM. We continue to provide information requested by the tax authorities to the extent it is available to the Company. It is reasonably possible that there could be significant developments, including expert review and assessment by the STA, within the next 12 months. The ultimate assessment and decision of the STA will depend upon further review of the information provided, as well as ongoing technical and other discussions with the STA and in-charge local tax authorities, and therefore, it is not possible to reasonably estimate the potential impact at this time. We will continue to defend our transfer pricing position. However, if the STA prevails in the assessment of additional tax due based on its ruling, the assessed tax, interest and penalties, if any, could have a material adverse impact on our financial position, results of operations and cash flows.
Note 15 – Segment Reporting
The Company has two reportable segments: KFC and Pizza Hut. Our non-reportable operating segments, including the operations of Lavazza, Huang Ji Huang, Little Sheep, Taco Bell and our delivery operating segment, and for 2023 and 2024, our e-commerce segment, are combined and referred to as All Other Segments, as these operating segments are insignificant both individually and in the aggregate. The Company’s chief operating decision maker (“CODM”) is the chief executive officer , who reviews the financial information of each operating segment when making decisions about allocating resources and assessing the performance of the segment.
KFC
Pizza Hut
All Other Segments
Corporate and Unallocated (a)
Combined
Elimination
Consolidated
Revenue from external customers
Inter-segment revenue (c)
Less:
Food and paper
Payroll and employee benefits
Occupancy and other operating expenses
General and administrative expenses
Franchise expenses
Expenses for transactions with franchisees
Other operating costs and expenses
Closures and impairment expenses, net
Other income, net
Operating Profit (Loss)
Interest income, net (a)
Investment loss (a)
Income Before Income Taxes and Equity in
Net Earnings (Losses) from Equity Method
Investments
2025 Form 10-K
KFC
Pizza Hut
All Other Segments
Corporate and Unallocated (a)
Combined
Elimination
Consolidated
Revenue from external customers
Inter-segment revenue (c)
Less:
Food and paper
Payroll and employee benefits
Occupancy and other operating expenses
General and administrative expenses
Franchise expenses
Expenses for transactions with franchisees
Other operating costs and expenses
Closures and impairment expenses, net
Other income, net
Operating Profit (Loss)
Interest income, net (a)
Investment gain (a)
Income Before Income Taxes and Equity in
Net Earnings (Losses) from Equity Method
Investments
KFC
Pizza Hut
All Other Segments
Corporate and Unallocated (a)
Combined
Elimination
Consolidated
Revenue from external customers
Inter-segment revenue (c)
Less:
Food and paper
Payroll and employee benefits
Occupancy and other operating expenses
General and administrative expenses
Franchise expenses
Expenses for transactions with franchisees
Other operating costs and expenses
Closures and impairment expenses, net
Other expenses (income), net
Operating Profit (Loss)
Interest income, net (a)
Investment loss (a)
Income Before Income Taxes and Equity in
Net Earnings (Losses) from Equity Method
Investments
2025 Form 10-K
Depreciation and Amortization
KFC
Pizza Hut
All Other Segments
Corporate and Unallocated
Impairment Charges
KFC (d)
Pizza Hut (d)
All Other Segments (d)
Capital Spending
KFC
Pizza Hut
All Other Segments
Corporate and Unallocated
Total Assets
KFC
Pizza Hut
All Other Segments
Corporate and Unallocated (e)
Amounts have not been allocated to any segment for performance reporting purposes.
Amounts from corporate and unallocated primarily include revenues and associated expenses of transactions with franchisees derived from the Company’s central procurement model whereby the Company centrally purchases substantially all food and paper products from suppliers then sells and delivers to KFC and Pizza Hut restaurants, including franchisees. 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.
Primarily includes revenues and associated costs generated from the delivery services that were provided to our Company-owned restaurants.
Primarily includes store closureimpairment charges and restaurant-level impairment charges resulting from our semi-annual impairment evaluation. See Note 10 for more information.
Primarily includes cash and cash equivalents, short-term investments, long-term bank deposits and notes, equity investments, and inventories that are centrally managed and PP&E that are not specifically identifiable within each segment.
As substantially all of the Company’s revenue is derived from the PRC and substantially all of the Company’s long-lived assets are located in the PRC, no geographical information is presented. In addition, revenue derived from and long-lived assets located in the U.S., the Company’s country of domicile, are immaterial.
2025 Form 10-K
Note 16 – Contingencies
Indemnification of China Tax on Indirect Transfers of Assets
In February 2015, the STA 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 a 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.
Indemnification of Officers and Directors
The Company’s amended and restated certificate of incorporation and amended and restated bylaws include provisions that require the Company to indemnify directors or officers for monetary damages for actions taken as a director or officer of the Company or while serving at the Company’s request as a director or officer or another position at another corporation or enterprise, as the case may be. The Company purchases standard directors and officers insurance to cover claims or a portion of the claims made against its directors and officers. Since a maximum obligation is not explicitly stated in the Company’s bylaws or in the indemnification agreements and will depend on the facts and circumstances that arise out of any future claims, the overall maximum amount of the obligations cannot be reasonably estimated. The Company has not been required to make payments related to these obligations, and the fair value for these obligations is zero as of December 31, 2025.
Legal Proceedings
The Company is subject to various lawsuits covering a variety of allegations from time to time. The Company believes that the ultimate liability, if any, in excess of amounts already provided for these matters in the Consolidated Financial Statements, is not likely to have a material adverse effect on the Company’s annual 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 17 – Subsequent Events
Cash Dividend
On February 4, 2026 , the Company announced that the Board of Directors declared a cash dividend of $ 0.29 per share on Yum China’s common stock, payable on March 25, 2026 , to stockholders of record as of the close of business on March 4, 2026 . Total estimated cash dividend payable is approximately $ 102 million.
