Yum China Holdings Inc.

11/10/2025 | Press release | Distributed by Public on 11/10/2025 05:05

Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

Management's Discussion and Analysis ofFinancial Condition and Results of Operations

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

Introduction

Yum China Holdings, Inc. is the largest restaurant company in China in terms of 2024 system sales, with 17,514 restaurants covering over 2,500 cities primarily in China as of September 30, 2025. Our growing restaurant network consists of our flagship KFC and Pizza Hut brands, as well as emerging brands such as Lavazza, Huang Ji Huang, Little Sheep and Taco Bell. We have the exclusive right to operate and sublicense the KFC, Pizza Hut and, subject to achieving certain agreed-upon milestones, 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 35 years of operations, we have developed extensive operating experience in the China market. We believe that there are significant opportunities to further expand within China, and we intend to focus our efforts on increasing our geographic footprint in both existing and new cities.

KFC is the leading and the largest quick-service restaurant ("QSR") brand in China in terms of system sales. As of September 30, 2025, KFC operated 12,640 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 September 30, 2025, Pizza Hut operated 4,022 restaurants in over 900 cities.

Overview

We intend for this MD&A to provide the reader with information that will assist in understanding our results of operations, including metrics that management uses to assess the Company's performance. Throughout this MD&A, we discuss the following performance metrics:

•
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 Condensed Consolidated Statements of Income; however, the franchise fees are included in the Company's revenues. We believe system sales growth is useful to investors as a significant indicator of the overall strength of our business as it incorporates all of our revenue drivers, Company and franchise same-store sales as well as net unit growth.
•
Effective January 1, 2018, the Company revised its definition of same-store sales growth to represent the estimated percentage change in sales of food of all restaurants in the Company system that have been open prior to the first day of our prior fiscal year, 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.

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

Quarters and Years to Date Ended September 30, 2025 and 2024

Results of Operations

Summary

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 2024, also including e-commerce segment, are combined and referred to as All Other Segments, as those operating segments are insignificant both individually and in the aggregate. Additional details on our reportable operating segments are included in Note 13.

Quarter Ended

%/ppts Change

Year to Date Ended

%/ppts Change

9/30/2025

9/30/2024

Reported

Ex F/X

9/30/2025

9/30/2024

Reported

Ex F/X

System Sales Growth(a)(%)

4

4

NM

NM

4

5

NM

NM

Same-Store Sales Growth
(Decline)(a)(%)

1

(3

)

NM

NM

1

(3

)

NM

NM

Operating Profit

400

371

+8

+8

1,103

1,011

+9

+9

Adjusted Operating Profit(b)

400

371

+8

+8

1,103

1,011

+9

+9

Core Operating Profit(b)

399

371

NM

+8

1,107

1,011

NM

+9

OP Margin(c)(%)

12.5

12.1

+0.4

+0.4

12.3

11.6

+0.7

+0.7

Core OP Margin(b)(%)

12.5

12.1

NM

+0.4

12.3

11.6

NM

+0.7

Net Income

282

297

(5

)

(5

)

789

796

(1

)

(1

)

Adjusted Net Income(b)

282

297

(5

)

(5

)

789

796

(1

)

(1

)

Diluted Earnings Per
Common Share

0.76

0.77

(1

)

(1

)

2.11

2.03

+4

+4

Adjusted Diluted Earnings
Per Common Share(b)

0.76

0.77

(1

)

(1

)

2.11

2.03

+4

+4

NM refers to not meaningful.

(a)
System Sales and Same-Store Sales growth percentages as shown in the table 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.
(b)
See "Non-GAAP Measures" below for definitions and reconciliations of the most directly comparable GAAP financial measures to the non-GAAP measures.
(c)
OP margin is defined as Operating Profit divided by Total revenues.

As compared to the third quarter of 2024, Total revenues in the third quarter of 2025 increased 4%, including or excluding the impact of F/X. Total revenues for the year to date ended September 30, 2025 increased 3%, including or excluding the impact of F/X. The increase in Total revenues for the quarter ended September 30, 2025, excluding the impact of F/X, was primarily driven by 3% net new unit contribution and 1% same-store sales growth. The increase in Total revenues for the year to date ended September 30, 2025, excluding the impact of F/X, was primarily driven by 3% net new unit contribution.

Operating profit for the third quarter increased 8%, including or excluding the impact of F/X. The increase in Operating profit for the quarter ended September 30, 2025 was primarily driven by the increase in Total revenues, efficiency improvement from streamlined operations and favorable commodity prices, partially offset by increased delivery cost associated with higher delivery sales mix in the current period and increased value-for-money offerings.

Operating profit for the year to date ended September 30, 2025 increased 9%, including or excluding the impact of F/X. The increase in Operating profit for the year to date ended September 30, 2025 was primarily driven by the increase in Total revenues, favorable commodity prices and efficiency improvement from streamlined operations, partially offset by increased value-for-money offerings and increased delivery cost associated with higher delivery sales mix in the current period.

Net income, including or excluding the impact of F/X, decreased 5% and 1% for the quarter and year to date ended September 30, 2025, respectively. The decrease in Net income was mainly due to the decrease in fair value of our investment in Meituan, less interest income due to lower investment balance and interest rates, offset by the increase in Operating Profit.

The Consolidated Results of Operations for the quarters and years to date ended September 30, 2025 and 2024 and other data are presented below:

Quarter Ended

% B/(W)(a)

Year to Date Ended

% B/(W)(a)

9/30/2025

9/30/2024

Reported

Ex F/X

9/30/2025

9/30/2024

Reported

Ex F/X

Company sales

$

2,998

$

2,895

4

3

$

8,412

$

8,217

2

3

Franchise fees and income

28

25

11

11

79

72

10

10

Revenues from transactions with
franchisees

140

116

22

22

376

319

18

19

Other revenues

40

35

12

12

107

100

6

6

Total revenues

$

3,206

$

3,071

4

4

$

8,974

$

8,708

3

3

Company restaurant expenses

$

2,479

$

2,401

(3

)

(3

)

$

6,951

$

6,839

(2

)

(2

)

Operating Profit

$

400

$

371

8

8

$

1,103

$

1,011

9

9

OP Margin (%)

12.5

%

12.1

%

0.4

ppts.

0.4

ppts.

12.3

%

11.6

%

0.7

ppts.

0.7

ppts.

Interest income, net

23

31

(27

)

(27

)

74

100

(26

)

(26

)

Investment (loss) gain

(10

)

34

NM

NM

(25

)

50

NM

NM

Income tax provision

(114

)

(119

)

4

4

(313

)

(309

)

(1

)

(2

)

Equity in net earnings (losses) from
equity method investments

6

2

199

201

12

2

540

552

Net Income - including
noncontrolling interests

305

319

(4

)

(5

)

851

854

(1

)

-

Net Income - noncontrolling
interests

23

22

(4

)

(4

)

62

58

(6

)

(6

)

Net Income - Yum China
Holdings, Inc.

$

282

$

297

(5

)

(5

)

$

789

$

796

(1

)

(1

)

Diluted Earnings Per Common Share

$

0.76

$

0.77

(1

)

(1

)

$

2.11

$

2.03

4

4

Effective tax rate

27.6

%

27.3

%

27.2

%

26.6

%

Supplementary information
- Non-GAAP Measures(b)

Restaurant profit

$

519

$

494

6

5

$

1,461

$

1,378

6

6

Restaurant margin (%)

17.3

%

17.0

%

0.3

ppts.

0.3

ppts.

17.4

%

16.8

%

0.6

ppts.

0.6

ppts.

Adjusted Operating Profit

$

400

$

371

$

1,103

$

1,011

Core Operating Profit

$

399

$

371

$

1,107

$

1,011

Core OP Margin (%)

12.5

%

12.1

%

12.3

%

11.6

%

Adjusted Net Income - Yum China
Holdings, Inc.

$

282

$

297

$

789

$

796

Adjusted Diluted Earnings Per
Common Share

$

0.76

$

0.77

$

2.11

$

2.03

Adjusted Effective Tax Rate

27.6

%

27.3

%

27.2

%

26.6

%

Adjusted EBITDA

$

520

$

501

$

1,461

$

1,395

(a)
Represents the period-over-period change in percentage.
(b)
See "Non-GAAP Measures" below for definitions and reconciliations of the most directly comparable GAAP financial measures to the non-GAAP measures.

Performance Metrics

Quarter Ended 9/30/2025

Year to Date Ended 9/30/2025

% change

% change

System Sales Growth

5

%

3

%

System Sales Growth, excluding F/X

4

%

4

%

Same-Store Sales Growth

1

%

1

%

Unit Count

9/30/2025

9/30/2024

% Increase

Company-owned

14,682

13,571

8

Franchisees

2,832

2,290

24

17,514

15,861

10

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.

The following table sets forth the reconciliations of the most directly comparable GAAP financial measures to the non-GAAP financial measures:

Quarter Ended

Year to Date Ended

9/30/2025

9/30/2024

9/30/2025

9/30/2024

Reconciliation of Operating Profit to Adjusted Operating Profit

Operating Profit

$

400

$

371

$

1,103

$

1,011

Special Items, Operating Profit

-

-

-

-

Adjusted Operating Profit

$

400

$

371

$

1,103

$

1,011

Reconciliation of Net Income to Adjusted Net Income

Net Income - Yum China Holdings, Inc.

$

282

$

297

$

789

$

796

Special Items, Net Income -Yum China Holdings, Inc.

-

-

-

-

Adjusted Net Income - Yum China Holdings, Inc.

$

282

$

297

$

789

$

796

Reconciliation of EPS to Adjusted EPS

Basic Earnings Per Common Share

$

0.76

$

0.77

$

2.12

$

2.04

Special Items, Basic Earnings Per Common Share

-

-

-

-

Adjusted Basic Earnings Per Common Share

$

0.76

$

0.77

$

2.12

$

2.04

Diluted Earnings Per Common Share

$

0.76

$

0.77

$

2.11

$

2.03

Special Items, Diluted Earnings Per Common Share

-

-

-

-

Adjusted Diluted Earnings Per Common Share

$

0.76

$

0.77

$

2.11

$

2.03

Reconciliation of Effective Tax Rate to Adjusted Effective Tax Rate

Effective tax rate

27.6

%

27.3

%

27.2

%

26.6

%

Impact on effective tax rate as a result of Special Items

-

-

-

-

Adjusted effective tax rate

27.6

%

27.3

%

27.2

%

26.6

%

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

Quarter Ended

Year to Date Ended

9/30/2025

9/30/2024

9/30/2025

9/30/2024

Net Income - Yum China Holdings, Inc.

$

282

$

297

$

789

$

796

Net income - noncontrolling interests

23

22

62

58

Equity in net (earnings) losses from equity method investments

(6

)

(2

)

(12

)

(2

)

Income tax provision

114

119

313

309

Interest income, net

(23

)

(31

)

(74

)

(100

)

Investment loss (gain)

10

(34

)

25

(50

)

Operating Profit

400

371

1,103

1,011

Special Items, Operating Profit

-

-

-

-

Adjusted Operating Profit

400

371

1,103

1,011

Depreciation and amortization

114

120

333

355

Store impairment charges

6

10

25

29

Adjusted EBITDA

$

520

$

501

$

1,461

$

1,395

Reconciliation of GAAP Operating Profit to Restaurant Profit is as follows:

Quarter Ended 9/30/2025

KFC

Pizza Hut

All Other Segments

Corporate
and
Unallocated

Elimination

Total

GAAP Operating Profit (Loss)

$

384

$

57

$

1

$

(42

)

$

-

$

400

Less:

Franchise fees and income

22

3

3

-

-

28

Revenues from transactions with franchisees

18

2

23

97

-

140

Other revenues

1

6

235

18

(220

)

40

Add:

General and administrative expenses

66

27

7

43

-

143

Franchise expenses

9

1

1

-

-

11

Expenses for transactions with franchisees

15

2

21

96

-

134

Other operating costs and expenses

1

6

230

18

(220

)

35

Closures and impairment expenses, net

2

2

-

-

-

4

Restaurant profit (loss)

$

436

$

84

$

(1

)

$

-

$

-

$

519

Company sales

2,363

624

11

-

-

2,998

Restaurant margin (%)

18.5

%

13.4

%

(8.2

)%

N/A

N/A

17.3

%

Quarter Ended 9/30/2024

KFC

Pizza Hut

All Other Segments

Corporate
and
Unallocated

Elimination

Total

GAAP Operating Profit (Loss)

$

364

$

52

$

(4

)

$

(41

)

$

-

$

371

Less:

Franchise fees and income

19

2

4

-

-

25

Revenues from transactions with franchisees

15

2

19

80

-

116

Other revenues

1

5

176

17

(164

)

35

Add:

General and administrative expenses

62

26

9

42

-

139

Franchise expenses

8

1

1

-

-

10

Expenses for transactions with franchisees

13

1

17

79

-

110

Other operating costs and expenses

1

5

172

17

(163

)

32

Closures and impairment expenses, net

4

1

3

-

-

8

Restaurant profit (loss)

$

417

$

77

$

(1

)

$

-

$

1

$

494

Company sales

2,276

606

13

-

-

2,895

Restaurant margin (%)

18.3

%

12.8

%

(13.2

)%

N/A

N/A

17.0

%

Year to Date Ended 9/30/2025

KFC

Pizza Hut

All Other Segments

Corporate
and
Unallocated

Elimination

Total

GAAP Operating Profit (Loss)

$

1,062

$

163

$

(2

)

$

(120

)

$

-

$

1,103

Less:

Franchise fees and income

62

7

10

-

-

79

Revenues from transactions with franchisees

51

5

59

261

-

376

Other revenues

3

19

577

52

(544

)

107

Add:

General and administrative expenses

186

79

23

124

-

412

Franchise expenses

28

3

1

-

-

32

Expenses for transactions with franchisees

44

5

54

258

-

361

Other operating costs and expenses

3

17

565

52

(543

)

94

Closures and impairment expenses, net

15

5

2

-

-

22

Other income, net

-

-

-

(1

)

-

(1

)

Restaurant profit (loss)

$

1,222

$

241

$

(3

)

$

-

$

1

$

1,461

Company sales

6,630

1,753

29

-

-

8,412

Restaurant margin (%)

18.4

%

13.7

%

(13.0

)%

N/A

N/A

17.4

%

Year to Date Ended 9/30/2024

KFC

Pizza Hut

All Other Segments

Corporate
and
Unallocated

Elimination

Total

GAAP Operating Profit (Loss)

$

1,000

$

139

$

(12

)

$

(116

)

$

-

$

1,011

Less:

Franchise fees and income

53

6

13

-

-

72

Revenues from transactions with franchisees

41

4

55

219

-

319

Other revenues

9

17

484

48

(458

)

100

Add:

General and administrative expenses

183

80

29

120

-

412

Franchise expenses

25

3

1

-

-

29

Expenses for transactions with franchisees

36

3

50

217

-

306

Other operating costs and expenses

7

16

476

47

(456

)

90

Closures and impairment expenses, net

11

6

5

-

-

22

Other income, net

-

-

-

(1

)

-

(1

)

Restaurant profit (loss)

$

1,159

$

220

$

(3

)

$

-

$

2

$

1,378

Company sales

6,452

1,723

42

-

-

8,217

Restaurant margin (%)

18.0

%

12.8

%

(11.8

)%

N/A

N/A

16.8

%

Reconciliation of GAAP Operating Profit to Core Operating Profit is as follows:

Quarter ended

% Change

Year to Date Ended

% Change

9/30/2025

9/30/2024

B/(W)

9/30/2025

9/30/2024

B/(W)

Operating profit

$

400

$

371

8

$

1,103

$

1,011

9

Special Items, Operating Profit

-

-

-

-

Adjusted Operating Profit

$

400

$

371

8

$

1,103

$

1,011

9

Items Affecting Comparability

-

-

-

-

F/X impact

(1

)

-

4

-

Core Operating Profit

$

399

$

371

8

$

1,107

$

1,011

9

Total revenues

3,206

3,071

4

8,974

8,708

3

F/X impact

(3

)

-

28

-

Total revenues, excluding the impact of F/X

$

3,203

$

3,071

4

$

9,002

$

8,708

3

Core OP margin (%)

12.5

%

12.1

%

0.4

ppts.

12.3

%

11.6

%

0.7

ppts.

Reconciliation of GAAP Operating Profit to Core Operating Profit by segment is as follows:

Quarter Ended 9/30/2025

KFC

Pizza Hut

All Other Segments

Corporate
and
Unallocated

Elimination

Total

GAAP Operating Profit (Loss)

$

384

$

57

$

1

$

(42

)

$

-

$

400

Special Items, Operating Profit

-

-

-

-

-

-

Adjusted Operating Profit (Loss)

$

384

$

57

$

1

$

(42

)

$

-

$

400

Items Affecting Comparability

-

-

-

-

-

-

F/X impact

(1

)

-

-

-

-

(1

)

Core Operating Profit (Loss)

$

383

$

57

$

1

$

(42

)

$

-

$

399

Quarter Ended 9/30/2024

KFC

Pizza Hut

All Other Segments

Corporate
and
Unallocated

Elimination

Total

GAAP Operating Profit (Loss)

$

364

$

52

$

(4

)

$

(41

)

$

-

$

371

Special Items, Operating Profit

-

-

-

-

-

-

Adjusted Operating Profit (Loss)

$

364

$

52

$

(4

)

$

(41

)

$

-

$

371

Items Affecting Comparability

-

-

-

-

-

-

F/X impact

-

-

-

-

-

-

Core Operating Profit (Loss)

$

364

$

52

$

(4

)

$

(41

)

$

-

$

371

Year to Date Ended 9/30/2025

KFC

Pizza Hut

All Other Segments

Corporate
and
Unallocated

Elimination

Total

GAAP Operating Profit (Loss)

$

1,062

$

163

$

(2

)

$

(120

)

$

-

$

1,103

Special Items, Operating Profit

-

-

-

-

-

-

Adjusted Operating Profit (Loss)

$

1,062

$

163

$

(2

)

$

(120

)

$

-

$

1,103

Items Affecting Comparability

-

-

-

-

-

-

F/X impact

3

1

-

-

-

4

Core Operating Profit (Loss)

$

1,065

$

164

$

(2

)

$

(120

)

$

-

$

1,107

Year to Date Ended 9/30/2024

KFC

Pizza Hut

All Other Segments

Corporate
and
Unallocated

Elimination

Total

GAAP Operating Profit (Loss)

$

1,000

$

139

$

(12

)

$

(116

)

$

-

$

1,011

Special Items, Operating Profit

-

-

-

-

-

-

Adjusted Operating Profit (Loss)

$

1,000

$

139

$

(12

)

$

(116

)

$

-

$

1,011

Items Affecting Comparability

-

-

-

-

-

-

F/X impact

-

-

-

-

-

-

Core Operating Profit (Loss)

$

1,000

$

139

$

(12

)

$

(116

)

$

-

$

1,011

Segment Results

KFC

Quarter Ended

Year to Date Ended

% B/(W)

% B/(W)

9/30/2025

9/30/2024

Reported

Ex F/X

9/30/2025

9/30/2024

Reported

Ex F/X

Company sales

$

2,363

$

2,276

4

4

$

6,630

$

6,452

3

3

Franchise fees and income

22

19

17

17

62

53

15

15

Revenues from transactions with
franchisees

18

15

25

25

51

41

26

26

Other revenues

1

1

(35

)

(35

)

3

9

(68

)

(68

)

Total revenues

$

2,404

$

2,311

4

4

$

6,746

$

6,555

3

3

Company restaurant expenses

$

1,927

$

1,859

(4

)

(4

)

$

5,408

$

5,293

(2

)

(2

)

G&A expenses

$

66

$

62

(6

)

(6

)

$

186

$

183

(2

)

(2

)

Franchise expenses

$

9

$

8

(16

)

(16

)

$

28

$

25

(11

)

(12

)

Expenses for transactions with
franchisees

$

15

$

13

(20

)

(20

)

$

44

$

36

(26

)

(26

)

Other operating costs and
expenses

$

1

$

1

6

7

$

3

$

7

64

64

Closures and impairment
expenses, net

$

2

$

4

54

53

$

15

$

11

(23

)

(23

)

Operating Profit

$

384

$

364

6

6

$

1,062

$

1,000

6

7

OP Margin (%)

16.0

%

15.7

%

0.3

ppts.

0.3

ppts.

15.8

%

15.2

%

0.6

ppts.

0.6

ppts.

Restaurant profit

$

436

$

417

5

5

$

1,222

$

1,159

5

6

Restaurant margin (%)

18.5

%

18.3

%

0.2

ppts.

0.2

ppts.

18.4

%

18.0

%

0.4

ppts.

0.4

ppts.

Quarter Ended 9/30/2025

Year to Date Ended 9/30/2025

% change

% change

System Sales Growth

5

%

4

%

System Sales Growth, excluding F/X

5

%

5

%

Same-Store Sales Growth

2

%

1

%

Unit Count

9/30/2025

9/30/2024

% Increase

Company-owned

10,775

9,958

8

Franchisees

1,865

1,325

41

12,640

11,283

12

Company Sales and Restaurant Profit

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

Quarter Ended

Income (Expense)

9/30/2024

Store
Portfolio
Actions

Other

F/X

9/30/2025

Company sales

$

2,276

$

50

$

35

$

2

$

2,363

Cost of sales

(713

)

(16

)

5

(1

)

(725

)

Cost of labor

(558

)

(16

)

(42

)

-

(616

)

Occupancy and other operating expenses

(588

)

(11

)

13

-

(586

)

Restaurant profit

$

417

$

7

$

11

$

1

$

436

Year to Date Ended

Income (Expense)

9/30/2024

Store
Portfolio
Actions

Other

F/X

9/30/2025

Company sales

$

6,452

$

168

$

31

$

(21

)

$

6,630

Cost of sales

(2,033

)

(57

)

42

7

(2,041

)

Cost of labor

(1,613

)

(48

)

(70

)

5

(1,726

)

Occupancy and other operating expenses

(1,647

)

(41

)

42

5

(1,641

)

Restaurant profit

$

1,159

$

22

$

45

$

(4

)

$

1,222

As compared to the third quarter of 2024, the increase in Company sales for the quarter, excluding the impact of F/X, was primarily driven by net unit growth and same-store sales growth. The increase in Restaurant profit for the quarter, excluding the impact of F/X, was primarily driven by the increase in Company sales, efficiency improvement from streamlined operations and favorable commodity prices, partially offset by increased rider cost associated with higher delivery sales mix in the current period and increased value-for-money offerings.

The increase in Company sales for the year to date ended September 30, 2025, excluding the impact of F/X, was primarily driven by net unit growth and same-store sales growth. The year to date increase in Restaurant profit, excluding the impact of F/X, was primarily driven by the increase in Company sales, favorable commodity prices and efficiency improvement from streamlined operations, partially offset by increased rider cost associated with higher delivery sales mix in the current period and increased value-for-money offerings.

Franchise Fees and Income/Revenues from Transactions with Franchisees

The quarter and year to date 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

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

Pizza Hut

Quarter Ended

Year to Date Ended

% B/(W)

% B/(W)

9/30/2025

9/30/2024

Reported

Ex F/X

9/30/2025

9/30/2024

Reported

Ex F/X

Company sales

$

624

$

606

3

3

$

1,753

$

1,723

2

2

Franchise fees and income

3

2

27

27

7

6

23

24

Revenues from transactions with
franchisees

2

2

40

40

5

4

50

50

Other revenues

6

5

12

12

19

17

10

10

Total revenues

$

635

$

615

3

3

$

1,784

$

1,750

2

2

Company restaurant expenses

$

540

$

529

(2

)

(2

)

$

1,512

$

1,503

(1

)

(1

)

G&A expenses

$

27

$

26

(7

)

(7

)

$

79

$

80

1

1

Franchise expenses

$

1

$

1

(17

)

(17

)

$

3

$

3

(16

)

(16

)

Expenses for transactions with
franchisees

$

2

$

1

(23

)

(23

)

$

5

$

3

(34

)

(34

)

Other operating costs and
expenses

$

6

$

5

(15

)

(15

)

$

17

$

16

(7

)

(7

)

Closures and impairment
expenses, net

$

2

$

1

(179

)

(182

)

$

5

$

6

14

15

Operating Profit

$

57

$

52

7

7

$

163

$

139

16

17

OP Margin (%)

8.9

%

8.6

%

0.3

ppts.

0.3

ppts.

9.1

%

8.0

%

1.1

ppts.

1.1

ppts.

Restaurant profit

$

84

$

77

8

8

$

241

$

220

9

9

Restaurant margin (%)

13.4

%

12.8

%

0.6

ppts.

0.6

ppts.

13.7

%

12.8

%

0.9

ppts.

0.9

ppts.

Quarter Ended 9/30/2025

Year to Date Ended 9/30/2025

% change

% change

System Sales Growth

4

%

3

%

System Sales Growth, excluding F/X

4

%

3

%

Same-Store Sales Growth

1

%

1

%

Unit Count

9/30/2025

9/30/2024

% Increase

Company-owned

3,742

3,428

9

Franchisees

280

178

57

4,022

3,606

12

Company Sales and Restaurant Profit

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

Quarter Ended

Income (Expense)

9/30/2024

Store
Portfolio
Actions

Other

F/X

9/30/2025

Company sales

$

606

$

13

$

5

$

-

$

624

Cost of sales

(202

)

(4

)

(4

)

-

(210

)

Cost of labor

(167

)

(1

)

2

-

(166

)

Occupancy and other operating expenses

(160

)

(4

)

-

-

(164

)

Restaurant profit

$

77

$

4

$

3

$

-

$

84

Year to Date Ended

Income (Expense)

9/30/2024

Store
Portfolio
Actions

Other

F/X

9/30/2025

Company sales

$

1,723

$

28

$

8

$

(6

)

$

1,753

Cost of sales

(567

)

(8

)

-

2

(573

)

Cost of labor

(479

)

(4

)

(2

)

2

(483

)

Occupancy and other operating expenses

(457

)

(10

)

10

1

(456

)

Restaurant profit

$

220

$

6

$

16

$

(1

)

$

241

As compared to the third quarter of 2024, the increase in Company sales for the quarter, excluding the impact of F/X, was primarily driven by net unit growth and same-store sales growth. The increase in Restaurant profit for the quarter, excluding the impact of F/X, was primarily driven by the increase in Company sales, favorable commodity prices and efficiency improvement from streamlined operations, partially offset by increased value-for-money offerings and increased delivery cost associated with higher delivery sales mix in the current period.

The increase in Company sales for the year to date ended September 30, 2025, excluding the impact of F/X, was primarily driven by net unit growth and same-store sales growth, partially offset by more temporary closures mainly during the Chinese New Year holiday compared with the prior year. The year to date increase in Restaurant profit, excluding the impact of F/X, was primarily driven by the increase in Company sales, favorable commodity prices and efficiency improvement from streamlined operations, partially offset by increased value-for-money offerings and increased delivery cost associated with higher delivery sales mix in the current period.

Operating Profit

The quarter and year to date 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, our delivery operating segment, and for 2024, also the e-commerce segment.

Quarter Ended

Year to Date Ended

% B/(W)

% B/(W)

9/30/2025

9/30/2024

Reported

Ex F/X

9/30/2025

9/30/2024

Reported

Ex F/X

Company sales

$

11

$

13

(14

)

(14

)

$

29

$

42

(30

)

(30

)

Franchise fees and income

3

4

(22

)

(22

)

10

13

(18

)

(17

)

Revenues from transactions with
franchisees

23

19

22

22

59

55

7

7

Other revenues

235

176

33

33

577

484

19

20

Total revenues

$

272

$

212

28

28

$

675

$

594

14

14

Company restaurant expenses

$

12

$

14

18

18

$

32

$

45

30

29

G&A expenses

$

7

$

9

21

21

$

23

$

29

20

20

Franchise expenses

$

1

$

1

(15

)

(15

)

$

1

$

1

(35

)

(35

)

Expenses for transactions with
franchisees

$

21

$

17

(24

)

(24

)

$

54

$

50

(8

)

(8

)

Other operating costs and
expenses

$

230

$

172

(34

)

(33

)

$

565

$

476

(19

)

(19

)

Closures and impairment
expenses, net

$

-

$

3

NM

NM

$

2

$

5

61

60

Operating Profit (Loss)

$

1

$

(4

)

NM

NM

$

(2

)

$

(12

)

89

89

OP Margin (%)

0.7

%

(1.9

)%

2.6

ppts.

2.6

ppts.

(0.2

)%

(2.1

)%

1.9

ppts.

1.9

ppts.

Restaurant loss

$

(1

)

$

(1

)

47

47

$

(3

)

$

(3

)

23

21

Restaurant margin (%)

(8.2

)%

(13.2

)%

5.0

ppts.

5.0

ppts.

(13.0

)%

(11.8

)%

(1.2

)

ppts.

(1.2

)

ppts.

Total Revenues

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

Operating Profit (Loss)

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

Corporate and Unallocated

Quarter Ended

Year to Date Ended

% B/(W)

% B/(W)

9/30/2025

9/30/2024

Reported

Ex F/X

9/30/2025

9/30/2024

Reported

Ex F/X

Revenues from transactions
with franchisees

$

97

$

80

21

21

$

261

$

219

19

20

Other revenues

$

18

$

17

5

5

$

52

$

48

8

8

Expenses for transactions
with franchisees

$

96

$

79

(21

)

(21

)

$

258

$

217

(19

)

(19

)

Other operating costs and
expenses

$

18

$

17

(5

)

(5

)

$

52

$

47

(10

)

(10

)

Corporate G&A expenses

$

43

$

42

(5

)

(5

)

$

124

$

120

(4

)

(4

)

Other unallocated income,
net

$

-

$

-

NM

NM

$

(1

)

$

(1

)

4

5

Interest income, net

$

23

$

31

(27

)

(27

)

$

74

$

100

(26

)

(26

)

Investment (loss) gain

$

(10

)

$

34

NM

NM

$

(25

)

$

50

NM

NM

Income tax provision
(See Note 12)

$

(114

)

$

(119

)

4

4

$

(313

)

$

(309

)

(1

)

(2

)

Equity in net earnings
(losses) from
equity method investments

$

6

$

2

199

201

$

12

$

2

540

552

Effective tax rate
(See Note 12)

27.6

%

27.3

%

(0.3

)

ppts.

(0.3

)

ppts.

27.2

%

26.6

%

(0.6

)

ppts.

(0.6

)

ppts.

Revenues from Transactions with Franchisees

Revenues from transactions with franchisees primarily include revenues derived from the Company's central procurement model, whereby food and paper products are centrally purchased and then mainly sold to KFC and Pizza Hut franchisees. The quarter and year to date increase in revenues from transactions with franchisees, 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.

Interest Income, Net

The quarter and year to date decrease in interest income, net, 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. See Note 3 for additional information.

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. The higher effective tax rate for the quarter ended September 30, 2025 was primarily due to the impact from fair value change of our investment in Meituan. The higher effective tax rate for the year to date ended September 30, 2025 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 Internal Revenue Service 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 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, in the Condensed Consolidated Balance Sheets. At each balance sheet date, the Company reviews the outstanding balance of any VAT asset for recoverability, giving consideration to the indefinite life of VAT assets as well as its forecasted operating results and capital spending, which inherently includes significant assumptions that are subject to change. As of September 30, 2025 and December 31, 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.

As of September 30, 2025, current VAT assets of $124 million, non-current VAT assets of $13 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, in the Condensed 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 prevailing VAT regulations into the VAT Law, which will come into effect on January 1, 2026. In terms of tax rates, the VAT Law maintains the existing rates of 13%, 9% and 6%. We will monitor the regulatory developments and evaluate the impact, if any, once the detailed implementation rules are released.

Foreign Currency Exchange Rate

The reporting currency of the Company is the US$. Most of the revenues, costs, assets and liabilities of the Company are denominated in Chinese Renminbi ("RMB"). Any significant change in the exchange rate between US$ and RMB may materially affect the Company's business, results of operations, cash flows and financial condition, depending on the weakening or strengthening of RMB against the US$. See "Item 3. Quantitative and Qualitative Disclosures About Market Risk" for further discussion.

Condensed Consolidated Cash Flows

Our cash flows for the years to date ended September 30, 2025 and 2024 were as follows:

Net cash provided by operating activitieswas $1,341 million in 2025 as compared to $1,252 million in 2024. The increase was primarily driven by the increase in Operating profit along with working capital changes.

Net cash used in investing activitieswas $316 million in 2025 as compared to $28 million in 2024. The increase was mainly due to the net impact on cash flows resulting from purchases and maturities of short-term investments, and long-term bank deposits and notes, partially offset by the decrease in capital spending.

Net cash used in financing activitieswas $1,107 million in 2025 as compared to $1,159 million in 2024. The decrease was primarily driven by the fluctuation in share repurchases, partially offset by the decrease in the proceeds from short-term bank borrowings and increase of cash dividends paid on common stock.

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 2025 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:

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our financial performance;
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our credit ratings;
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the liquidity of the overall capital markets and our access to capital markets; and
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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

The Company's Board of Directors has authorized an aggregate of $4.4 billion for our share repurchase program, including its most recent increase in authorization on November 4, 2024. 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 to date ended September 30, 2025 and 2024, the Company repurchased 14.9 million shares of common stock for $682 million and 27.3 million shares of common stock for $1,055 million, respectively, under the repurchase program, excluding transaction costs and excise tax.

For the quarters ended September 30, 2025 and 2024, the Company paid cash dividends of approximately $88 million and $61 million, respectively, and for the years to date ended September 30, 2025 and 2024, the Company paid aggregate cash dividends of approximately $268 million and $187 million, respectively, to stockholders through a quarterly dividend payment of $0.24 and $0.16 per share, respectively.

The Company plans to return $3 billion to shareholders in 2025 through 2026, adding to the $1.5 billion it delivered to shareholders in 2024. The Company expects to return a total of approximately $1.5 billion to shareholders in 2025 in share repurchases and dividends.

On November 4, 2025, the Board of Directors declared a cash dividend of $0.24 per share, payable on December 23, 2025, to stockholders of record as of the close of business on December 2, 2025. The total estimated cash dividend payable is approximately $87 million.

Our plan of capital returns to shareholders is based on current expectations, which may change based on market conditions, capital needs or otherwise. In addition, our ability to declare and pay any dividends on our stock may be restricted by our earnings available for distribution under applicable Chinese laws. The laws, rules and regulations applicable to our Chinese subsidiaries permit payments of dividends only out of their accumulated profits, if any, determined in accordance with applicable Chinese accounting standards and regulations. Under Chinese laws, an enterprise incorporated in China is required to set aside at least 10% of its after-tax profits each year, after making up previous years' accumulated losses, if any, to fund certain statutory reserve funds, until the aggregate amount of such a fund reaches 50% of its registered capital. As a result, our Chinese subsidiaries are restricted in their ability to transfer a portion of their net assets to us in the form of dividends. At the discretion of the board of directors, as an enterprise incorporated in China, each of our Chinese subsidiaries may allocate a portion of its after-tax profits based on Chinese accounting standards to staff welfare and bonus funds. These reserve funds and staff welfare and bonus funds are not distributable as cash dividends.

Borrowing Capacity

As of September 30, 2025, the Company had credit facilities of RMB9,649 million (approximately $1,355 million), comprised of onshore credit facilities in the aggregate amount of RMB6,800 million (approximately $955 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 September 30, 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 September 30, 2025, we had outstanding short-term bank borrowings of RMB210 million (approximately $29 million), mainly to manage working capital at our operating subsidiaries. Such bank borrowings are due within one year from their issuance dates. As of September 30, 2025, we also had outstanding bank guarantees of RMB280 million (approximately $40 million) mainly to secure our lease payments to landlords for certain Company-owned restaurants. Our credit facilities were therefore reduced by outstanding short-term bank borrowings, adjusted for unamortized interest and outstanding guarantees. As of September 30, 2025, the Company had unused credit facilities of approximately $1,286 million.

New Accounting Pronouncements

Recently Adopted Accounting Pronouncements

See Note 2 for details of recently adopted accounting pronouncements.

New Accounting Pronouncements Not Yet Adopted

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 2025, with early adoption permitted. We are currently evaluating the impact the adoption of this standard may have on our financial statements.

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 are currently evaluating the impact the adoption of this standard may have 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.

Cautionary Note Regarding Forward-Looking Statements

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

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Risks related to our business and industry, such as (a) food safety and foodborne illness concerns, (b) significant failure to maintain effective quality assurance systems for our restaurants, (c) significant liability claims, food contamination complaints from our customers or reports of incidents of food tampering, (d) health concerns arising from outbreaks of viruses or other illnesses, (e) the fact that the operation of our restaurants is subject to the terms of the master license agreement with YUM, (f) the fact that substantially all of our revenue is derived from our operations in China, (g) the fact that our success is tied to the success of YUM's brand strength, marketing campaigns and product innovation, (h) shortages or interruptions in the availability and delivery of food products and other supplies, (i) fluctuation of raw materials prices, (j) our inability to attain our target development goals, the potential cannibalization of existing sales by aggressive development and the possibility that new restaurants will not be profitable, (k) risks associated with leasing real estate, (l) inability to obtain desirable restaurant locations on commercially reasonable terms, (m) labor shortages or increases in labor costs, (n) the fact that our success depends substantially on our corporate reputation and on the value and perception of our brands, (o) challenges and risks related to our franchise development, (p) the occurrence of security breaches and cyber-attacks, (q) failure to protect the integrity and security of our customer or employee personal, financial or other data or our proprietary or confidential information that is stored in our information systems or by third parties on our behalf, (r) failures or interruptions of service or security breaches in our information technology systems, (s) the fact that our business depends on the performance of, and our long-term relationships with, third-party mobile payment processors, internet infrastructure operators, internet service providers, delivery aggregators and third-party e-commerce platforms, (t) failure to provide timely and reliable delivery services by our restaurants, (u) our growth strategy with respect to our coffee business may not be successful, (v) the anticipated benefits of our acquisitions may not be realized in a timely manner or at all, (w) challenges and risks related to our new retail business, (x) use of GenAI technologies, (y) our inability or failure to recognize, respond to and effectively manage the impact of social media, (z) failure to comply with anti-bribery or anti-corruption laws, (aa) U.S. federal income taxes, changes in tax rates, disagreements with tax authorities and imposition of new taxes, (bb) changes in consumer discretionary spending and general economic conditions, (cc) the fact that the restaurant industry in which we operate is highly competitive, (dd) loss of or failure to obtain or renew any or all of the approvals, licenses and permits to operate our business, (ee) our inability to adequately protect the intellectual property we own or have the right to use, (ff) our licensor's failure to protect its intellectual property, (gg) seasonality and certain major events in China, (hh) our failure to detect, deter and prevent all instances of fraud or other misconduct committed by our employees, customers or other third parties, (ii) the fact that our success depends on the continuing efforts of our key management and experienced and capable personnel as well as our ability to recruit new talent, (jj) our strategic investments or acquisitions may be unsuccessful; (kk) our investment in technology and innovation may not generate the expected level of returns, (ll) fair value changes for our investment in equity securities, lower yields of our short-term investments or lower returns of our future long-term bank deposits and notes may adversely affect our financial condition and results of operations, and (mm) our operating results or net income may be adversely affected by our investment in equity method investees;
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Risks related to doing business in China, such as (a) changes in Chinese political policies and economic and social policies or conditions, (b) the interpretation and enforcement of Chinese laws, rules and regulations may change from time to time with little advance notice, and the risk that the PRC government may intervene or influence our operations, which could result in a material change in our operations and/or the value of our securities to decline, (c) audit reports included in our annual reports prepared by auditors who are located in China, and in the event the PCAOB is unable to inspect our auditors, our common stock will be subject to potential delisting from the New York Stock Exchange, (d) changes in political, business, economic and trade relations between the United States and China, including rising tensions and imposition of additional tariffs on imports by both countries and related consumer reactions to such actions, (e) fluctuation in the value of the Chinese Renminbi, (f) the fact that we face increasing focus and evolving requirements on environmental sustainability issues, (g) limitation on our ability to utilize our cash balances effectively, including making funds held by our China-based subsidiaries unavailable for use outside of mainland China, due to interventions in or the imposition of restrictions and limitations by the PRC government on currency conversion and payments of foreign currency and RMB out of mainland China, (h) changes in the laws and regulations of China or noncompliance with applicable laws and regulations, (i) reliance on dividends and other distributions on equity paid by our principal subsidiaries in China to fund offshore cash requirements, (j) potential unfavorable tax consequences resulting from our classification as a China resident enterprise for Chinese enterprise income tax purposes, (k) uncertainty regarding indirect transfers of equity interests in China resident enterprises and enhanced scrutiny by Chinese tax authorities, (l) difficulties in effecting service of legal process, conducting investigations, collecting evidence, enforcing foreign judgments or bringing original actions in China against us, (m) the Chinese government may determine that the variable interest entity structure of Daojia does not comply with Chinese laws on foreign investment in restricted industries, (n) inability to use properties due to defects caused by non-registration of lease agreements related to certain properties, (o) risk in relation to unexpected land acquisitions, building closures or demolitions, (p) potential fines and other legal or administrative sanctions for failure to comply with Chinese regulations regarding our employee equity incentive plans and various employee benefit plans, (q) proceedings instituted by the SEC against certain China-based accounting firms, including our independent registered public accounting firm, could result in our financial statements being determined to not be in compliance with the requirements of the Exchange Act, (r) restrictions on our ability to make loans or additional capital contributions to our Chinese subsidiaries due to Chinese regulation of loans to, and direct investment in, Chinese entities by offshore holding companies and governmental administration of currency conversion, (s) difficulties in pursuing growth through acquisitions due to regulations regarding acquisitions, and (t) the PRC government has significant oversight and discretion to exert supervision over offerings of securities conducted outside of China and over foreign investment in China-based issuers, and may limit or completely hinder our ability to offer securities to investors, or cause the value of our securities to significantly decline;
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Risks related to the separation and related transactions, such as (a) incurring significant tax liabilities if the distribution does not qualify as a transaction that is generally tax-free for U.S. federal income tax purposes and the Company could be required to indemnify YUM for material taxes and other related amounts pursuant to indemnification obligations under the tax matters agreement, (b) being obligated to indemnify YUM for material taxes and related amounts pursuant to indemnification obligations under the tax matters agreement if YUM is subject to Chinese indirect transfer tax with respect to the distribution, (c) potential indemnification liabilities owing to YUM pursuant to the separation and distribution agreement, (d) the indemnity provided by YUM to us with respect to certain liabilities in connection with the separation may be insufficient to insure us against the full amount of such liabilities, (e) the possibility that a court would require that we assume responsibility for obligations allocated to YUM under the separation and distribution agreement, and (f) potential liabilities due to fraudulent transfer considerations; and
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General risks, such as (a) potential legal proceedings, (b) changes in accounting standards and subjective assumptions, estimates and judgments by management related to complex accounting matters, (c) failure of our insurance policies to provide adequate coverage for claims associated with our business operations, (d) unforeseeable business interruptions, and (e) failure by us to maintain effective disclosure controls and procedures and internal control over financial reporting in accordance with the rules of the SEC.

In addition, other risks and uncertainties not presently known to us or that we currently believe to be immaterial could affect the accuracy of any such forward-looking statements. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. You should consult our filings with the SEC (including the information set forth under the captions "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors" included in the Company's Annual Report on Form 10-K for the year ended December 31, 2024) for additional information regarding factors that could affect our financial and other results. You should not place undue reliance on forward-looking statements, which speak only as of the date of the filing of this Form 10-Q. We are not undertaking to update any of these statements, except as required by law.

Yum China Holdings Inc. published this content on November 10, 2025, and is solely responsible for the information contained herein. Distributed via Edgar on November 10, 2025 at 11:05 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]