Yum China

ANNUAL 
REPORT 

2020

Dear Stockholders,

I want to start by thanking our employees for their dedication, and our customers, business partners and shareholders 
for their trust placed in Yum China in this most unprecedented year.

Good times build confidence; bad times build character. While the COVID-19 pandemic challenged our people, 
systems and capabilities, Yum China showed its resilience, responding with compassion, world-class execution and 
innovation. After the pandemic hit in the first quarter, KFC and Pizza Hut recovered sales sequentially and delivered 
solid profit. Our financial strength allowed us to honor commitments to our employees for scheduled hours and 
extend much needed support to our employees and business partners. We captured market opportunities and 
accelerated new store openings, ending the year with 10,506 stores. We drove growth in coffee and Chinese dining 
with the joint venture with Lavazza and acquisition of Huang Ji Huang, respectively. Finally, we improved our access 
to shareholders in Asia by listing in Hong Kong in September, making us the first Delaware-incorporated company to 
list on both the New York Stock Exchange and Hong Kong Stock Exchange.

Commitment to Employee Care

We could not have navigated the challenges we faced 
without the commitment and creativity of our employees. 
Yum China is committed to a “People First” philosophy, 
and the pandemic reinforced our determination to care 
for our employees. After the COVID-19 outbreak, we 
extended our family care coverage for critical illness 
and accidents to the restaurant management team and 
supervisors. By year end, more than 18,000 employees 
and 40,000 family members were covered under 
this program. In addition, we established a fund with 
contributions from our senior executives, board members 
and employees to help frontline employees and their 
families impacted by COVID-19.

As a testament to our commitment to employee care, for 
the third consecutive year, we were both certified as a 
Top Employer China by the Top Employers Institute and 
named to the Bloomberg Gender-Equality Index (GEI). 
Yum China is the only company operating in mainland 
China included in the latest Bloomberg GEI. Yum 
China has also endorsed the United Nations Women’s 
Empowerment Principles, demonstrating our commitment 
to promoting gender equality in our workplace, industry 
and communities.

$961

million
Operating Profit

$732

million
Adjusted Operating Profit

$695

million

Free cash flow from 
operations (Net cash from 
operating activities minus 
capital expenditure)

This letter contains “forward-looking statements.” We intend all forward-looking statements to be covered by the safe harbor provisions of 
the Private Securities Litigation Reform Act of 1995. Refer to page 1 of our Annual Report on Form 10-K for additional information.

Serving the Community and 
Protecting the Environment

We strive to be a responsible corporate citizen, and 
support our communities during times of difficulty. Even 
at the peak of the outbreak, a majority of our restaurants 
remained open, so that millions of people could have 
access to safe and hearty meals. To protect the health 
and safety of our employees and customers, we quickly 
put in place robust health measures such as contactless 
delivery and takeaway. Yum China also supported our 
communities by providing donations, free meals, and 
volunteer services to medical workers on the frontline.

We have also made significant progress in sustainability 
and were named the Industry Leader for the Restaurant 
& Leisure Facilities Industry in the 2020 Dow Jones 
Sustainability Indices. In December 2020, we launched 
a series of plastic reduction initiatives, such as 
replacing plastic straws, cutleries and packaging 
with environmental friendly materials. In addition to 
complying with regulatory requirements, we are working 
towards a 30% reduction on non-degradable plastic 
packaging weight by 2025. We also refuse to purchase 
paper products from suppliers that knowingly cause 
deforestation.

Innovation-Led Strategy

COVID-19 did not derail us from our vision to be the 
world’s most innovative pioneer in the restaurant industry. 
One area of innovation of which I am most proud is our 
ability to launch disruptive products that resonate with 
consumers. In 2020, we launched approximately 500 
new or upgraded products at great prices. For example, 
at KFC we launched the Wagyu beef burger, tea-infused 
hard-boiled egg and tofu pudding, while at Pizza Hut we 
introduced roasted sirloin steak with rice on an iron pan, 
baked crayfish with salted eggs and volcano tiramisu 
with Belgian chocolate. We also tested regional flavors 
in selected markets, such as Wuhan hot dry noodles and 
Sichuan spicy crayfish (a great late-night snack!).

Our innovation capabilities have made it possible for us to 
quickly adapt to evolving consumer demands. KFC, Pizza 
Hut and Taco Bell were among the first western restaurant 
brands to introduce plant-based meat products in 
China, providing consumers with more healthy choices. 
To address the home-consumption trend, Pizza Hut 
launched ready-to-cook steak for takeaway and delivery 
in early 2020. We also launched ready-to-heat chicken 
soup, fried rice, and a popular spicy noodle dish (Luosifen) 
in late 2020 under a new retail brand, which leverages our 
product innovation capabilities, supply chain and online/
offline assets. We are encouraged by the excitement 
surrounding the launch and are working on other 
attractive additions to our offerings. 

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Small Town model

Hub and Spoke model

Our Growth Initiatives

Despite the challenges in 2020, we remain confident in the 
growth opportunities in China and have been staying the 
course with our long-term strategy. We believe the Yum 
China of the future will have a much larger footprint across 
China, enabled by growth in our store network, growth 
in our portfolio of brands and growth in our digital and 
delivery capabilities.

Store Network Expansion

In a year that was anything but normal, we opened 
1,165 new stores. This marks the highest number of 
new openings in our history of operating in China. 
More importantly, we remain disciplined with our store 
expansion. The payback period for new stores continues 
to be healthy at approximately 2 years for KFC and 3 to 
4 years for Pizza Hut. There is still ample white space in 
China to grow. We have been tracking several hundred 
cities that we currently do not have a presence yet for 
KFC and even more cities for Pizza Hut. Smaller store 
formats such as the “small town model” at KFC and “Hub 
and Spoke model” at Pizza Hut will enable us to penetrate 
lower-tier cities and increase density in existing cities. 
While it took us 33 years to reach 10,000 stores, we intend 
to accelerate our store expansion to reach the next 10,000 
at a faster pace!

Our leadership position in China is underpinned 
by our world-class supply chain management and 
nationwide network. Consisting of 25 logistics centers, 7 
consolidation centers, over 2,000 cold-chain trucks and 
real-time monitoring systems, our supply chain enables 
us to serve quality food to our customers and helps fuel 
store expansion in China. To efficiently and adequately 
support our store expansion, we will continue to invest 
in strengthening our logistics and other operational 
infrastructures.

1,165

New stores

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10,506

Total stores 
(at year end 2020)
across 
1,500+ cities

>300
million members

~80% 
Digital orders 

>50%
Off-premise sales

KFC and Pizza Hut combined 

(at year end 2020)

KFC and Pizza Hut’s 

Company sales

KFC and Pizza Hut’s 

Company sales

Growing Emerging Brands

While we remain dedicated to the growth of our core 
brands, there are considerable opportunities in scaling 
our emerging brands, including two segments with 
strong growth potential: coffee and Chinese dining.

We have three distinct coffee brands with clear 
segmentation and strategy. At KFC, K-Coffee offers 
good quality coffee at affordable prices. Over 140 million 
cups of K-Coffee were sold in 2020. Meanwhile, COFFii 
& JOY offers specialty coffee for coffee lovers utilizing 
an asset-light model. In addition, we opened Lavazza’s 
first flagship store in Asia in early 2020 with premium 
coffee and high-quality food offerings. Since then, four 
additional beautiful Lavazza stores have been opened in 
Shanghai. Encouraged by the overwhelmingly positive 
consumer feedback of our initial stores, we expect to 
accelerate the store openings for Lavazza and test 
different store formats. We are excited about the growth 
potential across all our coffee brands and are committed 
to making coffee a meaningful part of Yum China.

The Chinese cuisine market is massive. In particular, 
hot pot is very popular in China. In 2020, we acquired 
Huang Ji Huang, an industry-leading simmer pot brand. 
In tandem with this acquisition, we established a Chinese 
dining business unit to consolidate and strengthen our 
capabilities in Chinese dining. We are pleased with the 
integration progress and will continue to drive synergies 
between Huang Ji Huang and Little Sheep in the areas 
of menu innovation, seasoning distribution, supply chain 
and franchise development. 

K-coffee capsules

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Joey Wat

Chief Executive Officer
Yum China Holdings, Inc.

Driving Growth with Digital and Delivery

We started to accelerate our digital capabilities over 
half a decade ago. Today, Yum China has developed a 
powerful digital ecosystem, which allows us to better 
engage with our customers throughout the customer 
journey. Digital ordering increased from approximately 
55% of KFC and Pizza Hut Company sales in 2019 to 
80% in 2020, reflecting the increased popularity of 
delivery and mobile ordering. Our membership base 
continued to grow, exceeding 300 million by year end, 
and accounting for approximately 60% of system sales 
of KFC and Pizza Hut in 2020. We are leveraging a 
variety of tools to further improve member stickiness 
and spending. For example, our privilege subscription 
program has been effective in increasing member 
spending during the subscription period.

Powered by our digital and delivery capabilities, we 
captured the shift in customer demand to delivery 
and takeaway. Off-premise dining accounted for over 
50% of our KFC and Pizza Hut Company sales in 
2020, compared to approximately 40% in 2019. With 
redesigned menu items, packaging suitable for takeaway 
and enhanced digital platforms, Pizza Hut nearly doubled 
its takeaway sales mix in 2020. We continued to improve 
our delivery rider management by upgrading our rider 
platform with better zoning and rider routing, and rolling 
out trade zone and cross-brand rider sharing.

4

The pandemic highlighted the importance of digital and 
delivery. We will continue to invest in this area, to achieve 
greater digitization, automation and intelligence across 
our operations. The capability to track, analyze and 
automate across our value chain, from farm to fork, will 
make us even stronger and nimbler.

Last but not least, Yum China is committed to providing 
steady shareholder returns. With our strong cash 
generation capabilities, we have returned approximately 
$1.2 billion to our shareholders since we became an 
independent public company in 2016. After suspending 
our share repurchases and, for two quarters, cash 
dividends due to the unprecedented effects of the 
COVID-19 pandemic, we resumed cash dividends in the 
fourth quarter of 2020. I am confident that our strategic 
growth initiatives will position Yum China well to yield 
sustainable returns for our shareholders in the long-run.

I am humbled to lead this talented and dedicated team. 
We will remain focused on positioning Yum China for 
sustainable long-term growth, while working with our 
employees, customers, shareholders, and business 
partners to create positive impact on our communities 
and the environment.

Joey Wat
Chief Executive Officer

Yum China Holdings, Inc.

7100 Corporate Drive
Plano, Texas 75024
United States of America

Yum China Building
20 Tian Yao Qiao Road
Shanghai 200030
People’s Republic of China

April 15, 2021

Dear Fellow Stockholders:

We are pleased to invite you to attend the 2021 Annual Meeting of Stockholders of Yum China Holdings, Inc. (the
“Annual Meeting”). The Annual Meeting will be held on Friday, May 28, 2021, at 8:00 a.m. Beijing/Hong Kong time
(Thursday, May 27, 2021, at 8:00 p.m. U.S. Eastern time). Our Board of Directors implemented a virtual meeting format
in 2020, and determined that it is prudent to hold a virtual meeting again this year, in light of the continued public health
concerns regarding the novel coronavirus (COVID-19) pandemic and related travel restrictions.

You may attend the Annual Meeting via the internet at www.virtualshareholdermeeting.com/YUMC2021. To participate
in the Annual Meeting, you will need the 16-digit control number which appears on your Notice of Internet Availability
of Proxy Materials (the “Notice”), proxy card or the instructions that accompanied your proxy materials. The attached
notice of annual meeting and proxy statement contain details of the business to be conducted at the Annual Meeting and
the detailed procedures for attending, submitting questions and voting at the Annual Meeting. In addition, the Compa-
ny’s 2020 annual report, which is being made available to you along with the proxy statement, contains information
about the Company and its performance.

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Your vote is important. We encourage you to vote promptly, whether or not you plan to attend the Annual Meeting. You
may vote your shares over the Internet or via telephone. If you received a paper copy of the proxy materials, you may
complete, sign, date and mail the proxy card in the postage-paid envelope provided.

Sincerely,

Joey Wat
Chief Executive Officer

[THIS PAGE INTENTIONALLY LEFT BLANK]

Time and Date:

Location:

Items of Business:

Yum China Holdings, Inc.
Notice Of Annual Meeting
Of Stockholders

8:00 a.m. Beijing/Hong Kong time on Friday, May 28, 2021 /
8:00 p.m. U.S. Eastern time on Thursday, May 27, 2021.

Online at www.virtualshareholdermeeting.com/YUMC2021.

(1) To elect the 10 director nominees named in the accompanying proxy statement to serve

for a one-year term expiring at the 2022 annual meeting of the Company’s stockholders.

(2) To ratify the appointment of KPMG Huazhen LLP as the Company’s independent audi-

tor for 2021.

(3) To approve, on an advisory basis, the Company’s named executive officer compensation.
(4) To approve an amendment to the Company’s Amended and Restated Certificate of
Incorporation to allow stockholders holding 25% of the Company’s outstanding shares
the right to call special meetings.

(5) To transact such other business as may properly come before the meeting or any adjourn-

ment or postponement thereof.

Who Can Vote:

Attending the Meeting:

You can vote if you were a stockholder of record as of the close of business on March 29,
2021.

Stockholders of record as of the close of business on March 29, 2021 and the general public
will be able to attend the Annual Meeting by visiting our Annual Meeting website at
www.virtualshareholdermeeting.com/YUMC2021. To participate in the Annual Meeting, you
will need the 16-digit control number included on your Notice, on your proxy card or on the
instructions that accompanied your proxy materials.

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How to Vote:

The Annual Meeting will begin promptly at 8:00 a.m. Beijing/Hong Kong time on
May 28, 2021 / 8:00 p.m. U.S. Eastern time on May 27, 2021. Online check-in will
begin 15 minutes prior to the start of the meeting, and you should allow ample time
for the online check-in procedures.

You may vote over the Internet or via telephone by following the instructions set forth in the
accompanying proxy statement. If you received a paper copy of the proxy materials, you may
also vote by completing, signing, dating and returning the proxy card. If you attend the Annual
Meeting using your 16-digit control number, you may vote during the Annual Meeting. Your
vote is important. Whether or not you plan to attend the Annual Meeting, please vote
promptly.

Date of Mailing:

This notice of annual meeting, the accompanying proxy statement and the form of proxy are
first being mailed to stockholders on or about April 15, 2021.

By Order of the Board of Directors,

Joseph Chan
Chief Legal Officer

[THIS PAGE INTENTIONALLY LEFT BLANK]

PROXY STATEMENT – TABLE OF CONTENTS

PROXY STATEMENT SUMMARY

QUESTIONS AND ANSWERS ABOUT THE MEETING AND VOTING

GOVERNANCE OF THE COMPANY

1

5

11

Governance Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Board Composition and Director Elections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Board Meetings and Director Attendance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Selection of Director Nominees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Director Qualifications and Skills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Diversity of the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Stockholder Nominations for Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Board Leadership Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Governance Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Risk Oversight

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Management Development and Succession Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Director Independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Stockholder Communications and Engagement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Policies Regarding Accounting and Auditing Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Committees of the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Related Person Transactions Policies and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Director and Executive Officer Stock Ownership Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Policy Regarding Hedging and Speculative Trading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

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MATTERS REQUIRING STOCKHOLDER ACTION

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ITEM 1 Election of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ITEM 2 Ratification of Independent Auditor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ITEM 3 Advisory Vote on Named Executive Officer Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ITEM 4 Approval of an Amendment to the Company’s Amended and Restated Certificate of Incor-

poration to Allow Stockholders Holding 25% of the Company’s Outstanding Shares the
Right to Call Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

STOCK OWNERSHIP INFORMATION

35

EXECUTIVE COMPENSATION

37

Named Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Impact of COVID-19 on Our Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

2020 Business Overview and Performance Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

Company Total Shareholder Return Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

Recent Compensation Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

Alignment of Executive Compensation Program with Business Performance . . . . . . . . . . . . . . . . . . 42

Pay Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

Executive Compensation Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Stockholder Engagement

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Elements of the Executive Compensation Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

2020 Named Executive Officer Compensation and Performance Summary . . . . . . . . . . . . . . . . . . . 57

How Compensation Decisions Are Made . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

Compensation Policies and Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62

Compensation Committee Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

Executive Compensation Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

Pay Ratio Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

2020 DIRECTOR COMPENSATION

EQUITY COMPENSATION PLAN INFORMATION

AUDIT COMMITTEE REPORT

ADDITIONAL INFORMATION

APPENDIX A

APPENDIX B

77

79

80

83

86

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PROXY STATEMENT SUMMARY

This summary highlights information contained elsewhere in this proxy statement. This summary does not contain all
of the information that you should consider, and you should read the entire proxy statement carefully before voting.
MEETING INFORMATION

Time and Date:

8:00 a.m. Beijing/Hong Kong time on Friday, May 28, 2021 /
8:00 p.m. U.S. Eastern time on Thursday, May 27, 2021

Location:

Online at www.virtualshareholdermeeting.com/YUMC2021

Record Date:

March 29, 2021

HOW TO VOTE

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Stockholders of record as of the close of business on
March 29, 2021 may vote by using any of the fol-
lowing methods:

U.S. Eastern time on May 27, 2021. Proxies submit-
ted by mail must be received prior to the meeting.

Before the Annual Meeting:

During the Annual Meeting:

• Via Internet by following the instructions on

www.proxyvote.com;

• Via telephone by calling 1 (800) 690-6903 (toll-
free in the U.S.) and following the instructions
provided by the recorded message; or

• Via mail, if you received your proxy materials by
mail, by completing, signing, dating and mailing
the proxy card in the postage-paid envelope pro-
vided.

Proxies submitted through the Internet or by tele-
phone as described above must be received by
11:59 p.m. Beijing/Hong Kong time / 11:59 a.m.

ITEMS OF BUSINESS

• Vote online during the Annual Meeting. You
may vote during the Annual Meeting through
www.virtualshareholdermeeting.com/
YUMC2021 using your 16-digit control number.

Even if you plan to attend the Annual Meeting, we
encourage you to vote your shares by proxy. You
may still vote your shares during the Annual Meet-
ing even if you have previously voted by proxy.

If you hold your shares in the name of a bank, broker
or other nominee, your ability to vote depends on
their voting processes. Please follow the directions
of your bank, broker or other nominee carefully.

Proposal

Board Voting
Recommendation

Page
Reference

1. Election of the 10 Director Nominees Named in this Proxy Statement to Serve for

a One-Year Term

FOR each nominee

2. Ratification of the Appointment of KPMG Huazhen LLP as the Company’s

Independent Auditor for 2021

3. Advisory Vote on Named Executive Officer Compensation

4. Approval of an amendment to the Company’s Amended and Restated Certificate
of Incorporation to allow stockholders holding 25% of the Company’s outstanding
shares the right to call special meetings

FOR

FOR

FOR

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30

32

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YUM CHINA – 2021 Proxy Statement 1

PROXY STATEMENT SUMMARY

COMPANY OVERVIEW

Yum China Holdings, Inc., a Delaware corporation (the
“Company,” “we,” “us” or “our”) is the largest restau-
rant company in China in terms of system sales, with
$8.3 billion of revenue in 2020 and over 10,500 restau-
rants as of year-end 2020. Our growing restaurant net-
work consists of our flagship KFC and Pizza Hut brands,
as well as emerging brands such as Little Sheep, Huang
Ji Huang, COFFii & JOY, East Dawning, Taco Bell and

Lavazza. 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, Huang
Ji Huang, COFFii & JOY and East Dawning concepts
outright.

SUMMARY INFORMATION REGARDING NOMINEES

The following table provides summary information about each of the nominees to our board of directors (the “Board
of Directors” or the “Board”).

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Name

Director
Since

Age

Fred Hu (Chairman)

. . . . 57

2016

Joey Wat . . . . . . . . . . . . . . 49

2017

Peter A. Bassi

. . . . . . . . . 71

2016

Edouard Ettedgui

. . . . . . 69

2016

Cyril Han . . . . . . . . . . . . . . 43

2019

Louis T. Hsieh . . . . . . . . . 56

2016

Primary Occupation

Chairman and founder of
Primavera Capital Group

Chief Executive Officer of the
Company

Former Chairman of Yum!
Restaurants International

Non-Executive Chairman of
Alliance Française, Hong Kong

Chief Financial Officer of Ant
Group Co., Ltd.

Former Chief Financial Officer
of NIO Inc.

Ruby Lu . . . . . . . . . . . . . . 50

2016

Venture capitalist

Zili Shao . . . . . . . . . . . . . . 61

2016

William Wang . . . . . . . . . . 46

2017

Min (Jenny) Zhang . . . . . 47

—

Non-executive Chairman of
Fangda Partners

Partner of Primavera Capital
Group

Vice-chairlady of Huazhu
Group Limited

✓

✓

✓

✓

✓

✓

✓

✓

Board Committee
Membership as of
April 15, 2021*

Independent
✓

A

C

G
CC

F

X

X

X

X

X

X

X

CC

X

CC

X

A – Audit Committee; C – Compensation Committee; G – Nominating and Governance Committee; F – Food Safety and Sustainability Committee; CC –
Committee Chair

*

Christian L. Campbell is the chair of Audit Committee, and a member of Compensation Committee and Nominating and Governance Committee. Ed Yiu-Cheong Chan is
a member of Audit Committee. Messrs. Campbell and Chan will not stand for re-election to the Board at the Annual Meeting.

2 YUM CHINA – 2021 Proxy Statement

PROXY STATEMENT SUMMARY

GOVERNANCE HIGHLIGHTS

The Board believes that good corporate governance is a critical factor in achieving business success and in fulfilling
the Board’s responsibilities to stockholders. The Board believes that its principles and practices align management
and stockholder interests. Highlights include:

Director Independence

• Independent Board Chairman

• 9 of 10 director nominees are independent

Director Elections and
Attendance

• Annual election of all directors

• Majority voting policy for elections of directors in uncontested elections

• Proxy access for director nominees by stockholders

• 97% director attendance at Board and committee meetings in 2020

Board Refreshment and
Diversity

• Directors with experience, qualifications and skills across a wide range of public and pri-

vate companies

• Directors reflect a diversity of gender, race and ethnicity

• Average director nominee age of 55 as of April 15, 2021

• Independent and non-management directors may generally not stand for re-election after

age 75

Other Governance
Practices

• Active stockholder engagement

• No shareholder rights plan (also known as a poison pill)

• Director and executive officer stock ownership policies

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• Policy prohibiting hedging or other speculative trading of Company stock

• Policy regarding resignation if any director experiences a significant change in profes-

sional roles and responsibilities

• Board access to senior management and independent advisors

YUM CHINA – 2021 Proxy Statement 3

PROXY STATEMENT SUMMARY

WHERE YOU CAN FIND ADDITIONAL INFORMATION

is

located

Investor Relations website

at
Our
ir.yumchina.com. Although the information contained on
or connected to our website is not part of this proxy state-
ment, you can view additional information on our web-
site, such as our 2020 annual report, the charters of our
Board committees, our Corporate Governance Principles,
our Code of Conduct and reports that we file with the
Securities and Exchange Commission (the “SEC”) and

the Stock Exchange of Hong Kong Limited (the “Hong
Kong Stock Exchange” or the “HKEX”). Copies of these
documents may also be obtained free of charge by writing
Yum China Holdings, Inc., 7100 Corporate Drive, Plano,
Texas 75024, or Yum China Holdings, Inc., Yum China
Building, 20 Tian Yao Qiao Road, Shanghai 200030 Peo-
ple’s Republic of China, Attention: Corporate Secretary.

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4 YUM CHINA – 2021 Proxy Statement

QUESTIONS AND ANSWERS ABOUT THE MEETING
AND VOTING

The Board of Directors of Yum China Holdings, Inc.
solicits the enclosed proxy for use at the Annual Meeting
to be held at 8:00 a.m. Beijing/Hong Kong time on Friday,
May 28, 2021 / 8:00 p.m. U.S. Eastern time on Thursday,
May 27, 2021. This year, the Annual Meeting will be held
in a virtual-only format, through a live audio webcast. The

meeting will only be conducted via webcast; there will be
no physical meeting location. This proxy statement con-
tains information about the matters to be voted on at the
Annual Meeting and the voting process, as well as infor-
mation about our directors and most highly paid executive
officers.

What is the purpose of the Annual Meeting?

At the Annual Meeting, stockholders will vote on several
important Company matters. In addition, our manage-
ment will report on the Company’s performance over the

last fiscal year and, following the meeting, respond to
questions from stockholders.

Why am I receiving these materials?

You received these materials because our Board of Direc-
tors is soliciting your proxy to vote your shares at the
Annual Meeting. As a stockholder of record as of the

close of business on March 29, 2021, you are invited to
attend the Annual Meeting and are entitled to vote on the
items of business described in this proxy statement.

Why did I receive a one-page notice in the mail regarding
the Internet availability of proxy materials instead of a full
set of proxy materials?

As permitted by SEC rules, we are making this proxy
statement and our 2020 annual report available to our
stockholders electronically via the Internet. On or about
April 15, 2021, we mailed to our stockholders the Notice
containing instructions on how to access this proxy state-
ment and our 2020 annual report and vote online. If you
received a Notice by mail, you will not receive a printed
copy of the proxy materials unless you request a copy.
The Notice contains instructions on how to access and
review all of the important information contained in the
proxy statement and the annual report. The Notice also

instructs you on how you may submit your proxy over the
Internet. If you received a Notice by mail and would like
to receive a printed copy of our proxy materials, you
should follow the instructions for requesting such materi-
als contained on the Notice.

We encourage you to take advantage of the availability of
the proxy materials on the Internet in order to help lower
the costs of delivery and reduce the Company’s environ-
mental impact.

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YUM CHINA – 2021 Proxy Statement 5

QUESTIONS AND ANSWERS ABOUT THE MEETING AND VOTING

Why is the Annual Meeting a virtual meeting this year?

In light of the continued public health concerns regarding
the COVID-19 pandemic and related travel restrictions,
the Board of Directors has determined that it is prudent to
hold the Annual Meeting in a virtual-only format, con-
ducted via live audio webcast.

The Board of Directors has been monitoring the impact of
the COVID-19 pandemic, including with regard to the

health and well-being of our employees and stockholders,
as well as the related government-imposed restrictions on
travel. Hosting the Annual Meeting in a virtual-only for-
mat protects our employees and stockholders during this
time. It provides easy access for stockholders and facili-
tates participation without the need to travel, since stock-
holders can participate from any location around the
world.

How do I attend the Annual Meeting?

The Annual Meeting will be held in a virtual-only format,
through a live audio webcast. The Annual Meeting will
only be conducted via webcast; there will be no physical
meeting location. Stockholders of record as of the close of
business on March 29, 2021 and the general public will be
able to attend the Annual Meeting by visiting our Annual
Meeting website at www.virtualshareholdermeeting.com/
YUMC2021. To participate in the Annual Meeting, you
will need the 16-digit control number included on your
Notice, on your proxy card or on the instructions that
accompanied your proxy materials.

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The Annual Meeting will begin promptly at 8:00 a.m.
Beijing/Hong Kong time on May 28, 2021 / 8:00 p.m.
U.S. Eastern time on May 27, 2021. Online check-in will
begin 15 minutes prior to the start of the meeting, and you
should allow ample time for the online check-in proce-
dures. We encourage our stockholders to access the meet-
ing prior to the start time.

May stockholders ask questions?

Yes. Stockholders will have the ability to submit ques-
tions during the Annual Meeting via the Annual Meeting
website. As part of the Annual Meeting, we will hold a
live Q&A session, during which we intend to answer all

questions submitted during the meeting in accordance
with the Annual Meeting’s Rules of Conduct which are
pertinent to the Company and the meeting matters, as time
permits.

What if I have technical difficulties or trouble accessing
the Annual Meeting?

Beginning 30 minutes prior to the start of and during the Annual Meeting, you may contact 1 (844) 986-0822 (U.S.) or
1 (303) 562-9302 (International) for technical assistance.

Who may vote?

You may vote if you owned any shares of Company com-
mon stock as of the close of business on the record date,
March 29, 2021. Each share of Company common stock

is entitled to one vote. As of March 29, 2021, there were
420,467,575 shares of Company common stock out-
standing.

6 YUM CHINA – 2021 Proxy Statement

QUESTIONS AND ANSWERS ABOUT THE MEETING AND VOTING

What am I voting on?

You will be voting on the following four items of business
at the Annual Meeting:

• The approval, on an advisory basis, of the Company’s

named executive officer compensation; and

• The election of the 10 director nominees named in this

proxy statement to serve for a one-year term;

• The ratification of the appointment of KPMG Huaz-
hen LLP as the Company’s independent auditor for
2021;

• The approval of an amendment to the Company’s
Amended and Restated Certificate of Incorporation to
allow stockholders holding 25% of the Company’s out-
standing shares the right to call special meetings.

We will also consider other business that properly comes
before the meeting.

How does the Board of Directors recommend that I vote?

Our Board of Directors recommends that you vote your
shares:

• FOR the proposal on named executive officer com-

pensation.

• FOR each of the 10 nominees named in this proxy

statement for election to the Board;

• FOR the ratification of the appointment of KPMG
Huazhen LLP as our independent auditor for 2021; and

• FOR the proposal to amend the Company’s Amended
and Restated Certificate of Incorporation to allow
stockholders holding not less than 25% of the Compa-
ny’s outstanding shares the right to call special meet-
ings.

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How do I vote before the Annual Meeting?

There are three ways to vote before the meeting:

• By Internet—we encourage you to vote online at
www.proxyvote.com by following instructions on the
Notice or proxy card;

• By telephone—you may vote by making a telephone

call to 1 (800) 690-6903 (toll-free in the U.S.); or

• By mail—if you received your proxy materials by mail,
you may vote by completing, signing, dating and mail-
ing the proxy card in the postage-paid envelope pro-
vided.

Proxies submitted through the Internet or by telephone as
described above must be received by 11:59 p.m. Beijing/
Hong Kong time / 11:59 a.m. U.S. Eastern time on
May 27, 2021. Proxies submitted by mail must be
received prior to the meeting.

If you hold your shares in the name of a bank, broker or
other nominee, your ability to vote before the Annual
Meeting depends on their voting processes. Please follow
the directions of your bank, broker or other nominee
carefully.

YUM CHINA – 2021 Proxy Statement 7

QUESTIONS AND ANSWERS ABOUT THE MEETING AND VOTING

Can I vote during the Annual Meeting?

Yes. To vote during the Annual Meeting, you will need
the 16-digit control number included on your Notice, on
your proxy card, or on the instructions that accompanied
your proxy materials. Even if you plan to attend the
Annual Meeting, we encourage you to vote your shares by
proxy. You may still vote your shares during the Annual
Meeting even if you have previously voted by proxy.

If you hold your shares in the name of a bank, broker or
other nominee, your ability to vote during the Annual
Meeting depends on their voting processes. Please follow
the directions of your bank, broker or other nominee
carefully.

Can I change my mind after I vote?

You may change your vote at any time before the polls
close at the Annual Meeting. You may do this by:

• giving written notice to the Corporate Secretary of the

Company prior to the Annual Meeting; or

• signing another proxy card with a later date and return-

• voting again during the Annual Meeting.

ing it to us for receipt prior to the Annual Meeting;

• voting again through the Internet or by telephone prior
to 11:59 p.m. Beijing/Hong Kong time / 11:59 a.m.
U.S. Eastern time on May 27, 2021;

If you hold your shares in the name of a bank, broker or
other nominee, your ability change your vote depends on
their voting processes. Please follow the directions of
your bank, broker or other nominee carefully.

Who will count the votes?

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Representatives of Broadridge Financial Solutions will count the votes and will serve as the independent inspector of
election.

What if I return my proxy card but do not provide voting
instructions?

If you vote by proxy card, your shares will be voted as you
instruct by the individuals named on the proxy card. If you
sign and return a proxy card but do not specify how your

shares are to be voted, the persons named as proxies on the
proxy card will vote your shares in accordance with the
recommendations of the Board set forth on page 1.

What does it mean if I receive more than one Notice or
proxy card?

If you received more than one Notice or proxy card, it
means that you have multiple accounts with brokers and/
or our transfer agent. Please vote all of these shares. We
recommend that you contact your broker and/or our
transfer agent to consolidate as many accounts as possible
under the same name and address. Our U.S. transfer agent

is Computershare Trust Company, N.A., which may be
reached at 1 (877) 854-0865 (U.S.) and 1 (781) 575-3102
(International). Computershare Investor Services Lim-
ited, which can be reached at 852-2862-8500 (Hong
Kong), acts as our co-transfer agent to maintain the Hong
Kong share register.

8 YUM CHINA – 2021 Proxy Statement

QUESTIONS AND ANSWERS ABOUT THE MEETING AND VOTING

Will my shares be voted if I do not provide my proxy?

Your shares may be voted on certain matters if they are
held in the name of a brokerage firm, even if you do not
provide the brokerage firm with voting instructions. Bro-
kerage firms have the authority under the New York
Stock Exchange (the “NYSE”) rules to vote shares for
which their customers do not provide voting instructions
on certain “routine” matters.

The proposal to ratify the appointment of KPMG Huaz-
hen LLP as our independent auditor for 2021 is consid-
ered a routine matter for which brokerage firms may vote

shares for which they have not received voting instruc-
tions. The other matters to be voted on at our Annual
Meeting are not considered “routine” under applicable
rules. When a matter is not a routine matter and the bro-
kerage firm has not received voting instructions from the
beneficial owner of the shares with respect to that matter,
the brokerage firm cannot vote the shares on that proposal.
This is called a “broker non-vote.”

How many votes must be present to hold the Annual
Meeting?

Your shares are counted as present at the Annual Meeting
if you attend the Annual Meeting via webcast using your
16-digit control number or if you properly submit a proxy
by Internet, telephone or mail. In order for us to conduct
our Annual Meeting, a majority of the shares of Company

common stock outstanding as of March 29, 2021 must be
present via webcast or represented by proxy at the Annual
Meeting. This is referred to as a “quorum.” Abstentions
and broker non-votes will be counted for purposes of
establishing a quorum at the Annual Meeting.

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How many votes are needed to elect directors?

You may vote “FOR” each nominee or “AGAINST”
each nominee, or “ABSTAIN” from voting on one or
more nominees. Unless you mark “AGAINST” or
“ABSTAIN” with respect to a particular nominee or
nominees or for all nominees, your proxy will be voted
“FOR” each of the director nominees named in this proxy
statement. In an uncontested election, a nominee will be
elected as a director if the number of “FOR” votes

exceeds 50% of the number of votes cast with respect to
that director’s election. Abstentions will be counted as
present but not voted. Abstentions and broker non-votes
will not affect the outcome of the election of directors.
Full details of the Company’s majority voting policy are
set out in our Corporate Governance Principles and are
the Company—
described under “Governance of
Majority Voting Policy.”

YUM CHINA – 2021 Proxy Statement 9

QUESTIONS AND ANSWERS ABOUT THE MEETING AND VOTING

How many votes are needed to approve the other
proposals?

Proposals 2 and 3 must receive the “FOR” vote of a
majority of the shares of our common stock, present via
webcast or represented by proxy, and entitled to vote at
the Annual Meeting. For each of these proposals, you may
vote “FOR,” “AGAINST” or “ABSTAIN.” Abstentions
will be counted as shares present and entitled to vote at the
Annual Meeting. Accordingly, abstentions will have the
same effect as a vote “AGAINST” Proposals 2 and 3.
Broker non-votes will not be counted as shares present
and entitled to vote with respect to the particular matter on

which the broker has not voted. Thus, broker non-votes
will not affect the outcome of either of these proposals.

Proposal 4 must receive the “FOR” vote of a majority of
the shares of our common stock outstanding and entitled
to vote on the proposal. For Proposal 4, you may vote
“FOR,” “AGAINST” or “ABSTAIN.” Abstentions and
broker non-votes constitute shares outstanding and enti-
tled to vote for purposes of Proposal 4, and so a vote to
“ABSTAIN” or a broker non-vote will have the same
effect as a vote “AGAINST” Proposal 4.

When will the Company announce the voting results?

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The Company will announce the voting results of the
Annual Meeting on a Current Report on Form 8-K filed
with the SEC within four business days of the Annual

Meeting. The voting results will also be filed with HKEX
simultaneously.

What if other matters are presented for consideration at
the Annual Meeting?

The Company knows of no other matters to be submitted
to the stockholders at the Annual Meeting, other than the
proposals referred to in this proxy statement. If any other
matters properly come before the stockholders at the

Annual Meeting, it is the intention of the persons named
on the proxy to vote the shares represented thereby on
such matters in accordance with their best judgment.

10 YUM CHINA – 2021 Proxy Statement

GOVERNANCE OF THE COMPANY

The business and affairs of the Company are managed
under the direction of the Board of Directors. The Board
believes that good corporate governance is a critical factor
in achieving business success and in fulfilling the Board’s
responsibilities to stockholders. The Board believes that
its practices align management and stockholder interests.

The corporate governance section of our website makes
available certain of the Company’s corporate governance
materials, including our Corporate Governance Princi-
ples, the charters for each committee and our Code of
Conduct. To access these documents on our Investor
Relations website, ir.yumchina.com, click on “ABOUT
YUM CHINA—Governance” and then “Corporate Gov-
ernance Documents.”

Highlights of our corporate governance policies and practices are described below.

Director Independence

• Independent Board Chairman

• 9 of 10 director nominees are independent

Director Elections and Attendance

• Annual election of all directors

• Majority voting policy for elections of directors in uncontested elections

• Proxy access for director nominees by stockholders

• 97% director attendance at Board and committee meetings in 2020

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Board Refreshment and Diversity

• Directors with experience, qualifications and skills across a wide range of pub-

lic and private companies

• Directors reflect a diversity of gender, race and ethnicity

• Average director nominee age of 55 as of April 15, 2021

• Independent and non-management directors may generally not stand for

re-election after age 75

Other Governance Practices

• Active stockholder engagement

• No shareholder rights plan (also known as a poison pill)

• Director and executive officer stock ownership policies

• Policy prohibiting hedging or other speculative trading of Company stock

• Policy regarding resignation if any director experiences a significant change in

professional roles and responsibilities

• Board access to senior management and independent advisors

YUM CHINA – 2021 Proxy Statement 11

GOVERNANCE OF THE COMPANY

What is the composition of the Board of Directors and
how often are members elected?

Our Board of Directors presently consists of 11 directors,
nine of whom are standing for re-election at the Annual
Meeting. Each director is elected for a one-year term.

Two of our current directors, Christian L. Campbell and
Ed Yiu-Cheong Chan will not stand for re-election at the

Annual Meeting. The Company thanks Messrs.
Campbell and Chan for their service as members of our
Board. The Board determined that, effective at the con-
clusion of the Annual Meeting, the size of the Board will
be decreased from 11 to ten directors.

How often did the Board meet in 2020?

Directors are expected, absent extraordinary circum-
stances, to attend all Board meetings and meetings of
committees on which they serve. Our Board met 10 times
and the committees collectively met 25 times during
2020. In 2020, overall attendance at Board and committee
meetings was 97% and all directors attended at least 75%

of the aggregate total of meetings of the Board and com-
mittees on which the director served. Our independent
directors meet privately in executive session without
management present at each regularly scheduled Board
meeting. Our independent Chairman leads these Board
executive sessions.

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What is the Board’s policy regarding director attendance
at the Annual Meeting?

All directors are encouraged to attend the Annual Meeting. All incumbent directors attended the 2020 annual meeting of
the Company’s stockholders.

How are director nominees selected?

The Nominating and Governance Committee is responsi-
ble for recommending director candidates to the full
Board for nomination and election at the annual meetings
of stockholders. The Nominating and Governance Com-
mittee will interview a director candidate before the can-
didate is submitted to the full Board for approval. The
Nominating and Governance Committee’s charter pro-
vides that it may retain a third-party search firm to identify
candidates from time to time. This year, with the assis-
tance of a third-party search firm, the Nominating and
Governance Committee undertook a broad and extensive
search for new directors who would contribute to the col-
lective skills, experience and diversity of the Board. The
Nominating and Governance Committee provided the
search firm with guidance as to the skills, experience and
qualifications that it was seeking in potential candidates,
and the search firm identified several potential candidates.

After considering and interviewing a number of highly
qualified candidates, the Nominating and Governance
Committee recommended to the Board that Min (Jenny)
Zhang be nominated to stand for election by our stock-
holders at the Annual Meeting.

The Nominating and Governance Committee will also
consider director candidates recommended by stockhold-
ers or other sources in the same manner as nominees iden-
tified by the Committee. For a stockholder to submit a
candidate for consideration by the Nominating and Gov-
ernance Committee, a stockholder must notify the Com-
pany’s Corporate Secretary by mail at Yum China
Holdings, Inc., 7100 Corporate Drive, Plano, Texas
75024 or at Yum China Holdings, Inc., Yum China
Building, 20 Tian Yao Qiao Road, Shanghai 200030,
People’s Republic of China.

12 YUM CHINA – 2021 Proxy Statement

GOVERNANCE OF THE COMPANY

In accordance with the Corporate Governance Principles,
our Board seeks members from diverse professional
backgrounds who combine a broad spectrum of experi-
ence and expertise with a reputation for integrity. Direc-
tors should have experience in positions with a high
degree of responsibility and be leaders in the companies
or institutions with which they are affiliated, and are
selected based upon contributions they can make to the
Board and management. The Nominating and Gover-
nance Committee seeks to complete customary vetting
procedures and background checks with respect to indi-
viduals suggested for potential Board membership by
stockholders of the Company or other sources. We
believe that each of our directors and director nominees

has met the guidelines set forth in the Corporate Gover-
nance Principles.

The Company is party to a shareholders agreement with
Primavera Capital Group (“Primavera”), and API (Hong
Kong) Investment Limited, an affiliate of Zhejiang Ant
Small and Micro Financial Services Group Co., Ltd. (cur-
rently known as Ant Group Co., Ltd., “Ant Group”) pur-
suant to which Primavera has identified two director
designees, Dr. Fred Hu and Mr. William Wang. In addi-
tion, Mr. Cyril Han served as the non-voting Board
observer designated by Ant Group since November 2016
and was elected as a director at the 2019 annual meeting
of the Company’s stockholders.

What are the directors’ qualifications and skills?

As listed below, our directors have experience, qualifica-
tions and skills across a wide range of public and private
companies spanning many different industries, possess-

ing a broad spectrum of experience both individually and
collectively. They bring a diverse mix of regional, indus-
try and professional expertise to the Company.

Director Qualifications and Skills
(Number of Directors)

Industry

Information Technology

5

5

Regional (China/Asia Pacific)

9

Public Company Board

10

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How does the composition of our Board reflect diversity?

The Nominating and Governance Committee seeks to
recommend nominees that bring a unique perspective to
the Board in order to contribute to the collective diversity
of the Board. As a part of this process, in connection with
director nominations, the Nominating and Governance
Committee considers several factors to ensure the entire
Board collectively embraces a wide variety of character-
istics, including professional background, experience,

skills and knowledge. Each director nominee will gener-
ally exhibit different and varying degrees of these charac-
teristics. With respect to the Company’s current slate of
director nominees, the Company also benefits from the
diversity inherent from differences in Board member age,
gender, race and ethnicity. Thirty percent of director
nominees are women.

YUM CHINA – 2021 Proxy Statement 13

GOVERNANCE OF THE COMPANY

Can stockholders nominate directors for election to the
Board?

Yes, under our Amended and Restated Bylaws (the
“Bylaws”), stockholders may nominate persons for elec-

tion as directors at an annual meeting by following the
procedures described under “Additional Information.”

What is the Board’s leadership structure?

Our Board is currently led by an independent Chairman,
Dr. Fred Hu. Our Board believes that Board independence
and oversight of management are effectively maintained
through a strong independent Chairman and through the
Board’s composition, committee system and policy of
having regular executive sessions of non-management
directors, all of which are discussed below this section.
Further, separating the Chairman and Chief Executive
Officer roles enables the Chairman to focus on corporate
governance matters and the Chief Executive Officer to

focus on the Company’s business. We find that this struc-
ture works well to foster an open dialogue and construc-
tive feedback among the independent directors and
management. It further allows the Board to effectively
represent the best interests of all stockholders and con-
tribute to the Company’s long-term success.

To promote effective independent oversight, the Board
has adopted a number of governance practices discussed
below.

What are the Company’s governance policies and ethical
guidelines?

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• Board Committee Charters. The Audit Committee,
Compensation Committee, Nominating and Gover-
nance Committee and Food Safety and Sustainability
Committee of the Board of Directors operate pursuant
to their respective written charters. These charters were
approved by the Board of Directors and are reviewed
annually by the respective committees. Each charter is
available
at
ir.yumchina.com.

Company’s website

the

on

• Governance Principles. The Board of Directors has
adopted Corporate Governance Principles, which are
intended to embody the governance principles and pro-
cedures by which the Board functions. These principles
are
at
available on the Company’s website
ir.yumchina.com.

• Ethical Guidelines. Yum China’s Code of Conduct
was adopted to emphasize the Company’s commitment

14 YUM CHINA – 2021 Proxy Statement

to the highest standards of business conduct. The Code
of Conduct also sets forth information and procedures
for employees to report ethical or accounting concerns,
misconduct or violations of the Code of Conduct in a
confidential manner. The Code of Conduct applies to all
directors and employees of the Company, including the
principal executive officer, the principal financial offi-
cer and the principal accounting officer. All employees
of the Company are required, on an annual basis, to
complete the Yum China Code of Conduct Question-
naire and certify in writing that they have read and
understand the Code of Conduct. The Code of Conduct
at
is
ir.yumchina.com. The Company intends to post
amendments to or waivers from the Code of Conduct
(to the extent applicable to directors or executive offi-
cers and required by the rules of the SEC, NYSE or
HKEX) on this website.

the Company’s website

available

on

GOVERNANCE OF THE COMPANY

What other significant Board governance practices does
the Company have?

• Annual Election of Directors. In accordance with our
Amended and Restated Certificate of Incorporation, our
directors are elected to serve a one-year term and until
their successors are elected and qualified or until their
earlier death, resignation or removal.

• Role of Lead Director. Our Corporate Governance
Principles require the independent directors to appoint a
Lead Director when the Chairman does not qualify as
independent in accordance with the applicable rules of
the NYSE. The Company currently does not have a
Lead Director because the Chairman of the Board is
independent.

• Executive

independent

Sessions. Our

and
non-management directors meet regularly in executive
session. The executive sessions are attended only by the
independent and non-management directors and are
presided over by the independent Chairman. Our inde-
pendent directors also meet in executive session at least
once per year.

• Board and Committee Evaluations. The Board rec-
ognizes that a thorough, constructive evaluation process
enhances our Board’s effectiveness and is an essential
element of good corporate governance. Each year, the
Nominating and Governance Committee oversees the
design and implementation of the evaluation process,
focused on the Board’s contribution to the Company
and on areas in which the Board believes a better con-
tribution could be made. In addition, each of the Audit
Committee, the Compensation Committee, the Nomi-
nating and Governance Committee and the Food Safety
and Sustainability Committee also conducts a similar
annual self-evaluation pursuant to their respective char-
ters. Written questionnaires completed by each director,
as well as discussions with selected directors, solicit
feedback on a wide range of issues, including Board/
committee composition and leadership, meetings,
responsibilities and overall effectiveness. A summary
of the Board and committee evaluation results is dis-
cussed with the Board and with the respective commit-
tees, and policies and practices are updated in response

to the evaluation results. Director suggestions for
improvements to evaluation questionnaires and pro-
cesses are considered for incorporation for the follow-
ing year.

• Retirement Policy. Pursuant to our Corporate Gover-
independent or non-management
nance Principles,
directors may not stand for re-election to the Board after
they have reached the age of 75, unless the Board unan-
imously elects to have the director stand for re-election.

• Limits on Director Service on Other Public Com-
pany Boards. Our Corporate Governance Principles
provide that directors may serve on no more than four
other public company boards. The Company’s Chief
Executive Officer, if a director, may serve on no more
than one other public company board. All directors are
expected to advise the Chairman and the Chair of the
Nominating and Governance Committee prior to
accepting any other public company directorship or any
assignment to the audit committee or compensation
committee of other public company boards.

• Majority Voting Policy. Our Bylaws require majority
voting for the election of directors in uncontested elec-
tions. This means that director nominees in an uncon-
tested election for directors must receive a number of
votes “FOR” their election in excess of 50% of the
number of votes cast with respect to that director’s elec-
tion. The Corporate Governance Principles further pro-
vide that any incumbent director who does not receive a
majority of “FOR” votes will promptly tender to the
Board his or her resignation from the Board. The resig-
nation will specify that it is effective upon the Board’s
acceptance of the resignation. The Board will, through a
process managed by the Nominating and Governance
Committee and excluding the nominee in question,
accept or reject the resignation and publicly disclose the
Board’s decision regarding the resignation and the
rationale behind the decision within 90 days from the
date of the certification of the election results.

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YUM CHINA – 2021 Proxy Statement 15

GOVERNANCE OF THE COMPANY

• Access to Management and Employees. Our direc-
tors have complete and open access to senior members
of management. Our Chief Executive Officer invites
key employees of the Company to attend Board ses-
sions at which the Chief Executive Officer believes they
can meaningfully contribute to Board discussion.

• Access to Outside Advisors. The Board and Board
committees have the right to consult and retain inde-
pendent legal and other advisors at the expense of the
Company. The Audit Committee has the sole authority

to appoint, determine funding for and replace the inde-
pendent auditor. The Compensation Committee has the
sole authority to retain any advisor to assist it in the per-
formance of its duties, after taking into consideration all
factors relevant to the advisor’s independence from
management. The Nominating and Governance Com-
mittee has the sole authority to retain search firms to be
used to identify director candidates. The Food Safety
and Sustainability Committee has the authority to con-
sult and retain any advisor to assist it in connection with
the exercise of its responsibilities and authority.

What is the Board’s role in risk oversight?

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The Board maintains overall responsibility for overseeing
the Company’s risk management framework. In further-
ance of its responsibility, the Board has delegated specific
risk-related responsibilities to the Audit Committee, the
Compensation Committee and the Food Safety and Sus-
tainability Committee.

Audit Committee

The Audit Committee engages in substantive discussions
with management regarding the Company’s major risk
exposures and the steps management has taken to monitor
and control such exposures, including the Company’s risk
assessment and risk management policies. Our Head of
Corporate Audit reports directly to the Audit Committee,
as well as our Chief Financial Officer. The Audit Com-
mittee also receives reports at each committee meeting
regarding legal and regulatory risks from management
and meets periodically in separate executive sessions with
our independent auditor and our Head of Corporate Audit.
The Chief Legal Officer reports regularly to the Audit
Committee on the Company’s key risk areas and compli-
ance programs. The Audit Committee periodically pro-
vides a summary to the full Board of the risk areas
reviewed together with any other risk-related subjects dis-
cussed at the Audit Committee meeting. Alternatively, the
Board may review and discuss directly with management
the major risks arising from the Company’s business and
operations.

16 YUM CHINA – 2021 Proxy Statement

Compensation Committee

The Compensation Committee considers the risks that
may be implicated by our compensation programs
through a risk assessment conducted by management and
reports its conclusions to the full Board. This oversight
helps ensure the Company’s compensation programs
align with the Company’s goals and compensation phi-
losophies and, along with other factors, operate to miti-
gate against the risk that such programs would encourage
excessive or inappropriate risk-taking.

Food Safety and Sustainability
Committee

The Food Safety and Sustainability Committee assists the
Board in its oversight of the Company’s practices, poli-
cies, procedures, strategies and initiatives relating to the
protection of food safety. The Committee monitors
trends, issues and concerns affecting the Company’s food
safety practices, and the risks arising therefrom, in light of
the Company’s overall efforts related to food safety.

The Food Safety and Sustainability Committee also
assists the Board in its oversight of the Company’s prac-
tices, policies, procedures, strategies and initiatives relat-
ing to sustainability, including environmental, supply
chain and food nutrition and health. The Committee mon-
itors trends, issues and concerns affecting the Company’s
sustainability practices, policies, procedures, strategies
and initiatives.

GOVERNANCE OF THE COMPANY

How does the Board oversee food safety risk?

The Board and the Food Safety and Sustainability Com-
mittee are involved in oversight of the Company’s food
safety risk. The Food Safety and Sustainability Commit-
tee assists the Board in the oversight of food safety risk
and regularly receives reports from management in con-
nection with the Company’s practices, procedures, strat-
egies and initiatives relating to food safety and the risks
arising therefrom. The Board and the Food Safety and

Sustainability Committee also monitor and evaluate sig-
nificant changes in regulatory requirements on food
safety, material food safety incidents that could poten-
tially affect the Company, as well as any severe public
health situations, including the COVID-19 pandemic, that
could adversely affect the Company’s business and oper-
ations.

How does the Board oversee cybersecurity risk?

The Board and the Audit Committee are involved in over-
sight of the Company’s cybersecurity risk. The Audit
Committee assists the Board in the oversight of cyberse-
curity and other technology risks, discusses with manage-
ment
cybersecurity risk mitigation and incident
management, and reviews management reports regarding
the Company’s cybersecurity governance processes, inci-
dent response system and applicable cybersecurity laws,
regulations and standards, status of projects to strengthen
internal cybersecurity, the evolving threat environment,

vulnerability assessments, specific cybersecurity inci-
dents and management’s efforts to monitor, detect and
prevent cybersecurity threats.

The Company’s cybersecurity programs are regularly
audited by independent third parties against established
regulatory and industry standards. We incorporate regular
information security training as part of our employee edu-
cation and development program. In addition, the Com-
pany maintains cybersecurity insurance as part of its
overall insurance portfolio.

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How has the Board overseen the Company’s response to
COVID-19?

Since the outbreak of COVID-19, the Board and its com-
mittees took additional actions to ensure effective over-
sight of the Company’s response plans to mitigate the
risks related to the pandemic. In addition to a COVID-19
crisis management team comprised of cross-brand and
cross-functional executives at the management level, the
Board has formed a crisis management committee to sup-
port management during the COVID-19 pandemic.

Through regular updates and additional communications
with management, the Board has actively participated in

overseeing the Company’s management of
the
COVID-19 crisis, including protecting the health and
safety of our employees and customers, evaluating the
impact of the pandemic on the Company’s operations and
strategies, monitoring continued compliance with appli-
cable regulatory requirements, managing human capital
and assessing the impact of the pandemic on the Compa-
ny’s liquidity and financial position. With the ongoing
COVID-19 pandemic, it will continue to be a key focus of
the Board’s risk oversight activity.

YUM CHINA – 2021 Proxy Statement 17

GOVERNANCE OF THE COMPANY

What is the Board’s role in management development and
succession planning?

The Board considers management development and suc-
cession planning to be a critical part of our Company’s
long-term strategy. In accordance with our Corporate
Governance Principles, the Board reviews the Company’s
succession planning, including succession planning in the
case of retirement of the Chief Executive Officer of the
Company. The Chief Executive Officer periodically
reports to the Board with regard to his or her recommen-

dations for potential successors to senior executive posi-
tions and development plans for such individuals. In addi-
the Board reviews recommendations from an
tion,
independent committee with regard to the performance
evaluation of the Chief Executive Officer, which the
committee conducts annually, in accordance with its
charter.

How does the Board determine which directors are
considered independent?

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The Company’s Corporate Governance Principles,
adopted by the Board, require that a majority of the direc-
tors qualify as independent in accordance with the appli-
cable rules of the NYSE. The Board also considers
independence requirements of the Rules Governing the
Listing of Securities on The Stock Exchange of Hong
Kong Limited (the “HK Listing Rules”). The Board
determines on an annual basis whether each director
qualifies as independent pursuant to the applicable rules
of the NYSE and the HK Listing Rules.

Pursuant to the Corporate Governance Principles, the
Board undertook its annual review of director indepen-
dence. During this review, the Board considered transac-
tions and relationships between each director or any
member of his or her immediate family and the Company
and its subsidiaries and affiliates. As provided in the Cor-
porate Governance Principles, the purpose of this review

was to determine whether any such relationships or trans-
actions were inconsistent with a determination that the
director is independent.

As a result of the review, the Board affirmatively deter-
mined that all of the directors and director nominees are
independent of the Company and its management under
NYSE rules and the HK Listing Rules, with the exception
of Joey Wat. Ms. Wat is not considered an independent
director because she is the current Chief Executive Officer
of the Company.

In reaching this conclusion, the Board determined that
Dr. Hu, Messrs. Bassi, Campbell, Chan, Ettedgui, Han,
Hsieh, Shao and Wang and Mess. Lu and Zhang had no
material relationship with the Company other than, in the
case of incumbent directors, their relationship as a direc-
tor.

How do stockholders communicate with the Board?

Stockholders or other parties who wish to communicate
directly with the non-management directors, individually
or as a group, or the entire Board may do so by writing to
the Nominating and Governance Committee, c/o the Cor-
porate Secretary, Yum China Holdings, Inc., 7100 Cor-
porate Drive, Plano, Texas, 75024. The Nominating and
Governance Committee of the Board has approved a pro-

cess for handling correspondence received by the Com-
pany and addressed to non-management members of the
Board or the entire Board. Under that process, the Corpo-
rate Secretary of the Company reviews all such corre-
spondence and regularly forwards to a designated
member of the Nominating and Governance Committee
copies of all such correspondence (except commercial

18 YUM CHINA – 2021 Proxy Statement

GOVERNANCE OF THE COMPANY

correspondence and correspondence that is duplicative in
nature) and a summary of all such correspondence. Direc-
tors may at any time review a log of all correspondence
received by the Company that is addressed to members of
the Board and request copies of any such correspondence.
Written correspondence from stockholders relating to
internal controls or auditing matters are
accounting,

brought to the attention of the Chairperson of the Audit
Committee and to the internal audit department and are
handled in accordance with procedures established by the
Audit Committee with respect to such matters (described
below). Correspondence from stockholders relating to
Compensation Committee matters are referred to the
Chairperson of the Compensation Committee.

How do the Board and management engage with
stockholders?

Our Board and management are committed to regular
engagement with our stockholders. In 2020, we reached
out to our top 25 stockholders, which comprise holders of
more than 50% of the outstanding shares of Company
common stock, in order to solicit their input on important
governance, executive compensation, sustainability and
other matters. Additionally, our senior management team,
including our Chief Executive Officer and Chief Finan-
cial Officer, regularly engage in meaningful dialogue with
our stockholders, including through our quarterly earn-
ings calls and investor conferences and meetings. Our
senior management team regularly reports to our Board
and, as applicable, committees of our Board, regarding
stockholder views.

We evaluate and respond to the views voiced by our
stockholders. Based on feedback received during the
Company’s stockholder engagement efforts over the past
several years, the Compensation Committee approved

certain changes to the Company’s executive compensa-
tion program in 2020, including expanding the recipients
of annual performance stock unit (“PSU”) grants, and
using PSU grants with multiple performance metrics to
replace the existing restricted stock unit (“RSU”) compo-
nent. For more information on stockholder engagement
regarding compensation for executive officers, please see
“Executive Compensation—Stockholder Engagement.”

With the increasing focus on environmental sustainability
issues, the responsibilities of the Food Safety Committee
(recently renamed as the Food Safety and Sustainability
Committee) have been expanded to also cover the over-
sight of environmental, supply chain and food nutrition
and health issues. In addition, beginning with the 2021
annual incentive program, environmental, social and gov-
ernance (“ESG”) measures will be incorporated into the
key performance indicators that are used to determine the
individual performance factor for each leadership team
member.

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What are the Company’s policies on reporting of
concerns regarding accounting and auditing matters?

The Audit Committee has established policies on report-
ing concerns regarding accounting and auditing matters in
addition to our policy on communicating with our
non-management directors. Any employee may, on a
confidential or anonymous basis, submit complaints or
concerns regarding accounting or auditing matters to the
Chief Legal Officer of the Company through the Compa-
ny’s Employee Hotline or by e-mail or regular mail. If an

employee is uncomfortable for any reason contacting the
Chief Legal Officer, the employee may contact the Chair-
person of the Audit Committee. The Chief Legal Officer
maintains a log of all complaints or concerns, tracking
their receipt, investigation and resolution and prepares a
periodic summary report thereof for the Audit Commit-
tee.

YUM CHINA – 2021 Proxy Statement 19

GOVERNANCE OF THE COMPANY

What are the Committees of the Board?

The Board of Directors has standing Audit, Compensation, Nominating and Governance and Food Safety and Sustain-
ability Committees. Set forth below is a summary of the functions of each committee, the members of each committee as
of April 15, 2021 and the number of meetings each committee held in 2020.

Audit Committee

• Possesses sole authority regarding the selection and retention of the independent

Christian L. Campbell*, Chair
Peter A. Bassi
Ed Yiu-Cheong Chan*
Cyril Han
Louis T. Hsieh

Number of meetings held in
2020: 11

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auditor

• Reviews and has oversight over the Company’s internal audit function
• Reviews and approves all auditing services, internal control-related services and per-
mitted non-audit services to be performed for the Company by the independent audi-
tor

• Reviews the independence, qualification and performance of the independent auditor
• Reviews and discusses with management and the independent auditor any major
issues as to the adequacy of the Company’s internal controls, any special steps
adopted in light of material control deficiencies and the adequacy of disclosures about
changes in internal control over financial reporting

• Reviews and discusses with management and the independent auditor the annual
audited financial statements, results of the review of the Company’s quarterly finan-
cial statements and significant financial reporting issues and judgments made in con-
nection with the preparation of the Company’s financial statements

• Review and discuss with the independent auditor any critical audit matter (“CAM”)
addressed in the audit of the Company’s financial statements and the relevant finan-
cial statement accounts and disclosures that relate to each CAM.

• Reviews the Company’s accounting and financial reporting principles and practices,

including any significant changes thereto

• Advises the Board with respect to Company policies and procedures regarding com-
pliance with applicable laws and regulations and with the Company’s Code of Con-
duct

• Discusses with management the Company’s major risk exposures and the steps man-
agement has taken to monitor and control such exposures; and assists the Board in the
oversight of cybersecurity and other technology risks. Further detail about the role of
the Audit Committee in risk assessment and risk management is included in the sec-
tion entitled “What is the Board’s role in risk oversight?” and “How does the Board
oversee cybersecurity risk?”

The Board of Directors has determined that all of the members of the Audit Committee are independent within the
meaning of applicable SEC regulations and the listing standards of the NYSE. The Board has also determined that each
member of the Audit Committee is financially literate within the meaning of the listing standards of the NYSE and that
each of Messrs. Bassi, Chan, Han and Hsieh is qualified as an audit committee financial expert within the meaning of
SEC regulations.

20 YUM CHINA – 2021 Proxy Statement

GOVERNANCE OF THE COMPANY

Compensation
Committee

Ruby Lu, Chair
Christian L. Campbell*
Edouard Ettedgui
William Wang

Number of meetings
held in 2020: 9

• Oversees the Company’s executive compensation plans and programs and reviews and

recommends changes to these plans and programs

• Monitors the performance of the Chief Executive Officer and other senior executives in

light of corporate goals set by the Committee

• Reviews and approves the corporate goals and objectives relevant to the Chief Executive
Officer’s and other senior executives’ compensation and evaluates their performance in
light of those goals and objectives

• Determines and approves the compensation level of the Chief Executive Officer and

other senior executive officers based on this evaluation

• Reviews the Company’s compensation plans, policies and programs to assess the extent
to which they encourage excessive or inappropriate risk-taking or earnings manipulation

The Board has determined that all of the members of the Compensation Committee are independent within the meaning
of the listing standards of the NYSE.

Nominating and
Governance
Committee

Fred Hu, Chair
Christian L. Campbell*
Edouard Ettedgui
Ruby Lu

Number of meetings
held in 2020: 3

• Identifies and proposes to the Board individuals qualified to become Board members and

recommends to the Board director nominees for each committee

• Advises the Board on matters of corporate governance
• Reviews and reassesses from time to time the adequacy of the Company’s Corporate
Governance Principles and recommends any proposed changes to the Board for approval
• Receives comments from all directors and reports annually to the Board with assessment

of the Board’s performance

• Reviews annually and makes recommendations to the Board with respect to the compen-

sation and benefits of directors

• Reviews management succession planning and makes recommendations to the Board
• Review emerging corporate governance issues and best practices

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The Board has determined that all of the members of the Nominating and Governance Committee are independent
within the meaning of the listing standards of the NYSE.

Food Safety and
Sustainability
Committee

Zili Shao, Chair
Peter A. Bassi
Edouard Ettedgui

Number of meetings
held in 2020: 2

• Reviews, evaluates and advises the Board regarding the practices, procedures, strategies

and initiatives to protect food safety

• Reviews, evaluates and advises the Board regarding trends, issues and concerns which
affect or could affect the Company’s food safety practices, and the risks arising there-
from, in light of the Company’s overall efforts related to food safety

• Reviews and evaluates any corrective action taken by management to address any food
safety related risks or incident, if any, and advises the Board regarding any proposed
action in relation thereto

• Reviews, evaluates and advises the Board regarding the Company’s practices, policies,
procedures, strategies and initiatives relating to sustainability, including environmental,
supply chain and food nutrition and health

• Reviews and evaluates the trends, issues and concerns which affect or could affect the

Company’s sustainability practices, policies, procedures, strategies and initiatives

• Reviews and oversees the development and implementation of the goals the Company

may establish from time to time with respect to its sustainability initiatives

• Oversees the reporting and communication with stakeholders with respect to sustain-

ability

* At the Annual Meeting, Messrs. Campbell and Chan are stepping down from the Board and its committees and are not
standing for re-election.

YUM CHINA – 2021 Proxy Statement 21

GOVERNANCE OF THE COMPANY

What are the Company’s policies and procedures with
respect to related person transactions?

Under the Company’s Related Person Transaction Poli-
cies and Procedures, the Audit Committee reviews the
material facts of all related person transactions that require
the Audit Committee’s approval and either approves or
disapproves of the entry into the related person transac-
tion. In determining whether to approve or ratify a related
person transaction, the Audit Committee will determine
whether such transaction is in, or not opposed to, the best
interest of the Company and will take into account, among
other factors it deems appropriate, whether such transac-
tion is on terms no less favorable to the Company than
terms generally available to an unaffiliated third party
under the same or similar circumstances and the extent of
the related person’s interest in the transaction. Transac-
tions, arrangements or relationships or any series of simi-
lar transactions, arrangements or relationships in which
(i) a related person has or will have a direct or indirect
material interest, (ii) the Company is a participant and
(iii) that exceed $120,000 in any calendar year are subject
to the Audit Committee’s review. Any director who is a
related person with respect to a transaction under review
may not participate in any discussion or approval of the
transaction, except that the director will provide all mate-
rial information concerning the transaction to the Audit
Committee.

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Related persons are directors, director nominees, execu-
tive officers, beneficial owners of 5% or more of the out-
standing shares of Company common stock and their
immediate family members. An immediate family mem-
ber includes a person’s children, stepchildren, parents,
stepparents, spouse, siblings, mothers- and fathers-in-law,
and
sons-
sisters-in-law and anyone sharing such person’s house-
hold (other than a tenant or employee).

daughters-in-law,

brothers-

and

and

After its review, the Audit Committee may approve or
ratify the transaction. The policies and procedures provide
that certain transactions are deemed to be pre-approved
even if they will exceed $120,000. These transactions
include employment of executive officers, director com-
pensation and transactions with other companies if the
aggregate amount of the transaction does not exceed the
greater of $1 million or 2% of that company’s total con-
solidated gross revenues and the related person is not an
executive officer of the other company.

There were no transactions considered to be a related per-
son transaction from January 1, 2020 through the date of
this proxy statement.

Does the Company require stock ownership by directors?

The Board believes that the number of shares of Company
common stock owned by each director is a personal deci-
sion. However, the Board strongly supports the position
that directors should own a meaningful number of shares
of Company common stock and expects that a director
will not sell any shares received as director compensation
until at least 12 months following the director’s retirement
or departure from the Board.

The Company’s non-employee directors receive a signif-
icant portion of their annual compensation in shares of
Company common stock. The Company believes that the
emphasis on the equity component of director compensa-
tion serves to further align the interests of directors with
those of our stockholders.

22 YUM CHINA – 2021 Proxy Statement

GOVERNANCE OF THE COMPANY

Does the Company require stock ownership by executive
officers?

The Board has adopted Stock Ownership Guidelines,
which require executive officers to own a substantial
amount of Company common stock in order to promote
an ownership mentality among management and align

their interests with those of stockholders. See “Executive
Compensation—Compensation Policies and Practices—
Stock Ownership Guidelines” for more information.

How many shares of Company common stock do the
directors and executive officers own?

Stock ownership information for our directors and executive officers is shown under “Stock Ownership Information.”

Does the Company have a policy on hedging or other
speculative trading in Company common stock?

Directors, executive officers and certain other designated employees are prohibited from speculative trading in Company
common stock, including trading in puts, calls or other hedging or monetization transactions.

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How are directors compensated?

Employee directors do not receive additional compensation for serving on the Board of Directors. The annual compen-
sation for each director who is not an employee of the Company is discussed under “2020 Director Compensation.”

YUM CHINA – 2021 Proxy Statement 23

MATTERS REQUIRING STOCKHOLDER ACTION

ITEM 1. Election of Directors

Who are the director nominees?

Each of the director nominees, other than Min (Jenny)
Zhang, currently serves as a director of the Company.
Ms. Zhang is being nominated as a director for election at
the Annual Meeting following a search process under-
taken by the Nominating and Governance Committee, as
described above under “Governance of the Company—
How are director nominees selected?”

Each nominee has been nominated by the Board for elec-
tion at the Annual Meeting to hold office for a one-year
term. If elected, the nominees will hold office until the
2022 annual meeting of the Company’s stockholders and
until their respective successors have been duly elected
and qualified or until their earlier death, resignation or
removal.

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At the Annual Meeting, proxies cannot be voted for a
greater number of individuals than the 10 nominees
named in this proxy statement.

The biographies of each of the nominees below contain
information regarding the person’s service as a director,
business experience, director positions held currently or at
any time during the last five years, information regarding
involvement
administrative
proceedings, if applicable, and the experiences, qualifica-
tions, attributes or skills that caused the Nominating and
Governance Committee and the Board to determine that

certain

legal

or

in

the person should serve as a director for the Company. In
addition to the information presented below regarding
each nominee’s specific experience, qualifications, attrib-
utes and skills that led our Board to the conclusion that he
or she should serve as a director, we also believe that all of
our director nominees have a reputation for integrity, hon-
esty and adherence to high ethical standards. They each
have demonstrated business acumen and an ability to
exercise sound judgment, as well as a commitment of ser-
vice to the Company and our Board.

There are no family relationships among any of the direc-
tors, director nominees and executive officers of the
Company. Ages are as of April 15, 2021.

What if a nominee is unwilling or unable to serve?

That is not expected to occur. If it does, proxies may be
voted for a substitute nominated by the Board of Direc-
tors.

What vote is required to elect directors?

A nominee will be elected as a director if the number of
“FOR” votes exceeds the number of “AGAINST” votes
with respect to his or her election.

The Board of Directors recommends that you vote
FOR the election of the 10 director nominees.

24 YUM CHINA – 2021 Proxy Statement

MATTERS REQUIRING STOCKHOLDER ACTION

Director Nominees

Fred Hu
Age 57
Director Since 2016

Fred Hu has served as the chairman and founder of Primavera, a China-based global investment firm, since its inception
in 2011. Prior to Primavera, Dr. Hu served in various roles at Goldman Sachs from 1997 to 2010, including as partner
and chairman of Greater China at Goldman Sachs Group, Inc. From 1991 to 1996, he served as an economist at the Inter-
national Monetary Fund (IMF) in Washington D.C. Dr. Hu currently is a member of the board of directors of Hong Kong
Exchanges and Clearing Limited, a company listed on the Hong Kong Stock Exchange (stock code: 0388), Industrial
and Commercial Bank of China Limited, a company listed on both the Hong Kong Stock Exchange (stock code: 1398)
and the Shanghai Stock Exchange (SHA: 601398), and UBS Group AG, a company listed on both the SIX Swiss Stock
Exchange (SIX: UBSG) and the New York Stock Exchange (NYSE: UBS). From May 2011 to May 2018, Dr. Hu
served as an independent non-executive director of Hang Seng Bank Limited, a company listed on the Hong Kong Stock
Exchange (stock code: 0011). Dr. Hu serves as an independent non-executive director for Ant Group since August 2020
and as a co-director of the National Center for Economic Research and a professor at Tsinghua University. Dr. Hu
obtained his doctoral degree in economics from Harvard University. Dr. Hu brings to our Board extensive expertise in
international affairs and the Chinese economy. In addition, Dr. Hu brings valuable business, strategic development and
corporate leadership experience as well as expertise in economics, finance and global capital markets.

Joey Wat
Age 49
Director Since 2017

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Joey Wat has served as a director of our Company since July 2017 and as the Chief Executive Officer of our Company
since March 2018. She served as our President and Chief Operating Officer from February 2017 to February 2018 and
the Chief Executive Officer, KFC from October 2016 to February 2017, a position she held at Yum! Restaurants China,
from August 2015 to October 2016. Ms. Wat joined Yum! Restaurants China in September 2014 as President of KFC
China and was promoted to Chief Executive Officer for KFC China in August 2015. Before joining YUM, Ms. Wat
served in both management and strategy positions at A.S. Watson Group (“Watson”), an international health, beauty and
lifestyle retailer, in the U.K. from 2004 to 2014. Her last position at Watson was managing director of Watson Health &
Beauty U.K., which operates Superdrug and Savers, two retail chains specializing in the sale of pharmacy and health and
beauty products, from 2012 to 2014. She made the transition from head of strategy of Watson in Europe to managing
director of Savers in 2007. Before joining Watson, Ms. Wat spent seven years in management consulting including with
McKinsey & Company’s Hong Kong office from 2000 to 2003. Ms. Wat obtained a master of management degree from
Kellogg School of Management at Northwestern University in 2000. Ms. Wat brings to our Board extensive knowledge
of the Company’s business and her industry acumen acquired in the course of a career that included several leadership
roles in retail companies.

YUM CHINA – 2021 Proxy Statement 25

MATTERS REQUIRING STOCKHOLDER ACTION

Peter A. Bassi
Age 71
Director Since 2016

Peter A. Bassi served as Chairman of Yum! Restaurants International from 2003 to 2005 and as its President from 1997
to 2003. Prior to that position, Mr. Bassi spent 25 years in a wide range of financial and general management positions at
PepsiCo, Inc., Pepsi-Cola International, Pizza Hut (U.S. and International), Frito-Lay and Taco Bell. Mr. Bassi currently
serves as lead independent director and chairman of the governance and nominating committee of BJ’s Restaurant, Inc.
(NASDAQ: BJRI), where he also serves on the audit committee and compensation committee. He has been a member of
the board of BJ’s Restaurant, Inc. since 2004. From January 2009 to May 2019, Mr. Bassi held various positions on the
board of Potbelly Corporation (NASDAQ: PBPB). From June 2015 to December 2018, Mr. Bassi served on the value
optimization board for Mekong Capital Partners, a private equity firm based in Vietnam. He also served on the board of
supervisors of AmRest Holdings SE (WSE: EAT) from 2013 to 2015, and served on the board of the Pep Boys-Manny,
Moe & Jack from 2002 to 2009. Mr. Bassi received his master’s degree of business administration (MBA) from the Uni-
versity of Rhode Island in 1972. He brings to our Board knowledge of the restaurant industry and global franchising, as
well as financial expertise and extensive public company board and corporate governance experience.

Edouard Ettedgui
Age 69
Director Since 2016

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Edouard Ettedgui has served as the non-executive chairman of Alliance Française, Hong Kong since 2016. He also
served as a non-executive director of Mandarin Oriental International Limited from April 2016 to May 2020, the com-
pany for which he was the group chief executive from 1998 to 2016. Prior to his time at Mandarin Oriental International,
Mr. Ettedgui was the chief financial officer for Dairy Farm International Holdings, and he served in various roles for
British American Tobacco (“BAT”), including as the business development director, group finance controller and group
head of finance. From 1990 to 1996, he spent around six years with BAT Industries PLC in London, initially as the head
of finance and later as the group finance controller and director for new business development. Mr. Ettedgui graduated
from ESSEC Business School (France) in 1975. He brings to our Board senior management experience in various inter-
national consumer-product industries, extensive financial expertise and public company board experience.

26 YUM CHINA – 2021 Proxy Statement

MATTERS REQUIRING STOCKHOLDER ACTION

Cyril Han
Age 43
Director Since 2019

Cyril Han has served as the chief financial officer of Ant Group, an innovative technology provider, since April 2020.
Mr. Han joined Ant Group in May 2014 and previously served as senior director and vice president. He joined Alibaba
Group, a Chinese multinational conglomerate, as senior director of the corporate finance department in 2011. Before
joining Alibaba Group, Mr. Han worked at the investment banking division of China International Capital Corporation
from July 2001 to September 2011. He has served as a non-executive director of Hundsun Technologies Inc., a company
listed on the Shanghai Stock Exchange (SHA: 600570), since February 2016, and has served as a non-executive director
of Zhong An Online P & C Insurance Co., Ltd., a company listed on the Hong Kong Stock Exchange (stock code: 6060),
since October 2016. Mr. Han obtained his master’s degree in economics from Tsinghua University. He brings to our
Board deep knowledge and insights in the fields of finance and technology.

Louis T. Hsieh
Age 56
Director Since 2016

Louis T. Hsieh served as the chief financial officer of NIO Inc., an electric and autonomous vehicle developer that is
listed on the New York Stock Exchange (NYSE: NIO), from May 2017 to October 2019. Mr. Hsieh has held various
positions at New Oriental Education & Technology Group, a private educational service provider that is listed on the
New York Stock Exchange (NYSE: EDU), including positions as a director since 2007, the president from 2009 to 2016
and the chief financial officer from 2005 to 2015. In addition, Mr. Hsieh serves as an independent director, member of the
nominating and corporate governance committee and chairman of the audit committee for JD.com, Inc., an e-commerce
company that is listed on the Nasdaq Stock Market (NASDAQ: JD) and the Hong Kong Stock Exchange (stock code:
9618). Previously, Mr. Hsieh served as an independent director and chairman of the audit committee for Nord Anglia
Education, Inc. (NYSE: NORD). He also served as an independent director and the chairman of audit committee for both
Perfect World Co., Ltd. and China Digital TV Holding Co., Ltd. Mr. Hsieh obtained a juris doctor degree from the Uni-
versity of California at Berkeley in 1990. He brings to our Board corporate leadership and public company board experi-
ence as well as his extensive financial and international business experience.

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Ruby Lu
Age 50
Director Since 2016

Ruby Lu is a venture capitalist investing in technology start-ups in the U.S. and China. Ms. Lu founded Atypical Ven-
tures, an early-stage technology venture investment firm, in 2019. In 2006, she co-founded DCM China, a venture capi-
tal firm. During her more than 12-year tenure at DCM, she invested in, and served as a board member for, many leading
technology companies, including BitAuto Holdings Limited, Ecommerce China Dangdang Inc. and Pactera Technology
International Ltd. Prior to joining DCM in 2003, Ms. Lu was a vice president in the investment banking group of tech-
nology, media and telecommunications at Goldman Sachs & Co. in Menlo Park, California. She also served as an inde-
pendent director and on the audit committee of iKang Healthcare Group, Inc., and served as an independent director and
Chairman of the special committee for iDreamSky Technologies Limited before these two companies were taken pri-
vate. She is currently an independent director on the board of Uxin Limited (NASDAQ: UXIN) and Blue City Holdings
Limited (NASDAQ: BLCT). In both companies, she serves as the chairman of the compensation committee and a mem-
ber of the audit committee, and in Uxin Limited, she also serves as a member of nominating and corporate governance
committee. Ms. Lu obtained her master of arts from Johns Hopkins University in 1996. She brings to our Board public
company board experience as well as extensive financial and global market experience.

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Zili Shao
Age 61
Director Since 2016

Zili Shao has served as the non-executive chairman of Fangda Partners, a leading law firm, since June 2017. Mr. Shao also
serves as an independent non-executive director of Bank of Montreal (China) Co., Ltd. Mr. Shao is the founder and
chairman of MountVue Capital Management Co. Ltd. From September 2015 to January 2018, he served as a non-executive
director of Elife Holdings Limited, a company listed on the Hong Kong Stock Exchange (stock code: 0223). From April
2015 to May 2017, he served as co-chairman and partner at King & Wood Mallesons China, a law firm. From 2010 to
2015, Mr. Shao held various positions at JP Morgan Chase & Co. (“JP Morgan”), a financial services company, including
roles such as chairman and chief executive officer of JP Morgan China and vice chairman of JP Morgan Asia Pacific. Prior
to JP Morgan, he was a former partner at Linklaters LLP, a leading international law firm, for 12 years. He acted as
managing partner of Linklaters of Greater China and subsequently was appointed managing partner of the Asia Pacific
region. Mr. Shao obtained his master’s degree in law from the University of Melbourne in 1994. Mr. Shao brings to our
Board extensive professional experience in Asia and public company board and corporate governance experience.

28 YUM CHINA – 2021 Proxy Statement

MATTERS REQUIRING STOCKHOLDER ACTION

William Wang
Age 46
Director Since 2017

William Wang is one of the founding partners of Primavera. Prior to Primavera, Mr. Wang served as a managing director of
Goldman Sachs Merchant Banking/Principal Investment Area, where he led significant successful investments in China for
the group. Prior to that, Mr. Wang worked in the investment banking division and private equity group of China
International Capital Corporation Limited. Mr. Wang currently serves as a director on the board of Geely Automobile
Holdings Limited, a company listed on the Hong Kong Stock Exchange (stock code: 0175), and Sunlands Technology
Group, a company listed on the New York Stock Exchange (NYSE: STG), in addition to directorships at Primavera’s
portfolio companies. Mr. Wang obtained a master of management degree in management science and engineering from
Shanghai Jiao Tong University in 2000. He brings to our Board deep knowledge and investment insights of the Chinese
market.

Min (Jenny) Zhang
Age 47
Director Nominee

Min (Jenny) Zhang has served as the vice-chairlady of Huazhu Group Limited (“Huazhu”), a multi-brand hotel group listed
on both the Nasdaq Stock Market (NASDAQ: HTHT) and the Hong Kong Stock Exchange (stock code: 1179), since
July 20, 2020. Ms. Zhang joined Huazhu in September 2007 and held various leadership positions, including as executive
vice-chairlady from November 2019 to July 2020, chief executive officer from May 2015 to November 2019, president
from January 2015 to May 2015, chief financial officer from March 2008 to May 2015, chief strategic officer from
November 2013 to January 2015 and senior vice president of finance from September 2007 to February 2008. Ms. Zhang
also serves as an independent director of LAIX Inc., an artificial intelligence company listed on the New York Stock
Exchange (NYSE: LAIX). She served as an independent non-executive director of Genscript Biotech Corporation, a
company listed on the Hong Kong Stock Exchange (stock code: 1548), from August 2015 to November 2018, and an
independent director of OneSmart Education Group Limited, a company listed on the New York Stock Exchange (NYSE:
ONE), from March 2018 to February 2020. Ms. Zhang received a master of business administration degree from Harvard
Business School in 2003. Ms. Zhang will bring to our board leadership experience in a consumer-focused industry in China,
extensive financial expertise and public company board experience.

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MATTERS REQUIRING STOCKHOLDER ACTION

ITEM 2. Ratification of Independent Auditor

What am I voting on?

We are asking stockholders to approve a proposal to ratify
the appointment of KPMG Huazhen LLP (“KPMG”) as
our independent auditor for 2021. KPMG has served as
our independent auditor since 2016.

As part of its audit engagement process, the Audit Com-
mittee considers on at least an annual basis the engage-
ment of the independent auditor. In deciding to engage
KPMG as the independent auditor for 2021, the Audit
Committee considered:

• KPMG’s performance in 2020;

• KPMG’s independence;

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• The depth and expertise of the KPMG’s audit team,
including its understanding of the Company’s industry,
business, operations and systems, as well as accounting
policies and processes;

• The appropriateness of KPMG’s fees;

• A consideration of KPMG’s known legal risks and sig-
nificant proceedings that may impair its ability to per-
form the audit; and

• KPMG’s tenure as the Company’s independent auditor.

KPMG rotates its lead audit engagement partner every
five years. The Audit Committee is directly involved in
the evaluation of the lead audit engagement partner to
ensure that the he or she is appropriately qualified to lead
the Company’s audit. After considering the criteria set
forth above, the Audit Committee believes that retaining
KPMG as the Company’s independent auditor is in the
best interests of the Company and its stockholders.

Will a representative of KPMG attend the Annual
Meeting?

Representatives of KPMG will attend the Annual Meet-
ing, will have the opportunity to make a statement if they

30 YUM CHINA – 2021 Proxy Statement

desire and will be available to respond to appropriate
questions from stockholders.

What vote is required to approve this proposal?

Approval of this proposal requires the affirmative vote of
a majority of the shares present via webcast or represented
by proxy and entitled to vote at the Annual Meeting.

The Audit Committee and the Board of Directors
recommend that you vote FOR approval of this
proposal.

What were KPMG’s fees for audit and other
services for 2020 and 2019?

The following table presents fees for professional services
rendered by KPMG for the audit of the Company’s
annual financial statements, and fees billed for audit-
related services, tax services and all other services ren-
dered by KPMG for 2020 and 2019. All KPMG services
for 2020 and 2019 were approved in advance by the Audit
Committee specifically or pursuant to procedures outlined
below.

Audit fees(1)
Audit-related fees(2) . . . . . . .
Tax fees(3) . . . . . . . . . . . . . . .
All other fees . . . . . . . . . . . .

2020
. . . . . . . . . . . . . $ 3,840,887 $ 2,613,403
12,237
25,905
—

236,235
29,253
—

2019

TOTAL FEES . . . . . . . . . . . . $ 4,106,375 $ 2,651,545

(1) Audit fees include fees for the audit of the annual
consolidated financial statements included in the
Company’s annual reports, reviews of the interim
condensed consolidated financial
statements
included in the Company’s quarterly reports, and
services related to statutory filings or engagements.
Audit fees in 2020 also included audit services in
connection with our global offering and secondary
listing on the HKEX.

(2) Audit-related fees

include audits of certain
employee benefit plans and agreed-upon proce-
dures. Audit-related fees in 2020 also included the

MATTERS REQUIRING STOCKHOLDER ACTION

review of internal controls in connection with our
global offering and secondary listing on the
HKEX, which are not reported under “Audit fees.”

(3)

Tax fees consist principally of fees for tax filling
assistance services.

is the Company’s policy regarding the

What
approval of audit and non-audit services?

The Audit Committee has implemented a policy for the
pre-approval of all audit and permitted non-audit services,
including tax services, proposed to be provided to the
Company by its independent auditor. Under the policy,
the Audit Committee may approve engagements on a
case-by-case basis or pre-approve engagements on a cate-
gorical basis pursuant
to the Audit Committee’s
pre-approval policy. The Audit Committee may delegate
pre-approval authority to one of its independent members
and has currently delegated pre-approval authority up to
certain amounts to its Chairperson.

In considering pre-approvals, the Audit Committee con-
siders the nature, scope and fees of the service to be pro-

vided to the Company as well as the principles and guid-
ance established by the SEC and the Public Company
Accounting Oversight Board (“PCAOB”) with respect to
auditor independence. Services as to which a general
pre-approval has been granted on an annual basis are
effective for the applicable year. Any proposed service for
which the estimated fees would cause the total fees for
that class of service to exceed the applicable estimated fee
threshold requires specific approval by the Audit Com-
mittee or its delegate.

The Principal Accounting Officer monitors the perfor-
mance of all services provided by the independent auditor
and determines whether such services are in compliance
with this policy. The Principal Accounting Officer reports
periodically to the Audit Committee with respect to com-
pliance with this policy and the status of outstanding
engagements, including actual services provided by the
independent auditor and associated fees, and must
promptly report to the Chairperson of the Audit Commit-
tee any non-compliance (or attempted non-compliance)
with this policy of which the Corporate Controller
becomes aware.

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MATTERS REQUIRING STOCKHOLDER ACTION

ITEM 3. Advisory Vote on Named Executive Officer
Compensation

What am I voting on?

In accordance with SEC rules, we are asking stockholders
to approve, on a non-binding basis, the compensation of
the Company’s named executive officers as disclosed in
this proxy statement. This non-binding advisory vote is
also known as the “Say on Pay” vote. This is not a vote on
the Company’s general compensation policies or the
compensation of the Board. At the 2020 annual meeting
of the Company’s stockholders, approximately 94% of
the votes cast by our stockholders were voted in approval
of the compensation of our named executive officers as
disclosed in the 2020 proxy statement.

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Our performance-based executive compensation program
is designed to attract, reward and retain the talented lead-
ers necessary for our Company to succeed in the highly
competitive market for talent, while maximizing stock-
holder returns. This approach has made our management
team a key driver in the Company’s strong performance
over both the long and short term. We believe that our
compensation program has attracted and retained strong
leaders, and is closely aligned with the interests of our
stockholders.

In deciding how to vote on this proposal, we urge you to
read the Compensation Discussion and Analysis section
of this proxy statement, which discusses in detail how our
compensation policies and procedures operate and are

designed to meet our compensation goals and how our
Compensation Committee makes compensation deci-
sions under our programs.

Accordingly, we ask our stockholders to vote in favor of
the following resolution at the Annual Meeting:

“RESOLVED, that the compensation paid to the named
executive officers, as disclosed in the Compensation Dis-
cussion and Analysis, the compensation tables and related
materials included in the proxy statement, is hereby
approved.”

What vote is required to approve this proposal?

Approval of this proposal requires the affirmative vote of
a majority of shares present via webcast or represented by
proxy and entitled to vote at the Annual Meeting. While
this vote is advisory and non-binding on the Company,
the Board of Directors and the Compensation Committee
will review the voting results and consider stockholder
concerns in their continuing evaluation of the Company’s
compensation program.

What is the recommendation of the Board of
Directors?

The Board of Directors recommends that you vote
FOR approval of this proposal.

32 YUM CHINA – 2021 Proxy Statement

MATTERS REQUIRING STOCKHOLDER ACTION

ITEM 4. Approval of an Amendment to the Company’s
Amended and Restated Certificate of Incorporation to
Allow Stockholders Holding 25% of the Company’s
Outstanding Shares the Right to Call Special Meetings

In connection with the secondary listing of the Compa-
ny’s common stock on the HKEX, the Board agreed to
propose an amendment to the Company’s Amended and
Restated Certificate of Incorporation to allow stockhold-
ers holding not less than 25% of the Company’s out-
standing shares the right to call special meetings of
stockholders (the “Special Meeting Amendment”), and if
the stockholders approve the Special Meeting Amend-
ment, to amend the Company’s Bylaws accordingly. The
description in this Proposal 4 of the proposed Special
Meeting Amendment is qualified in its entirety by and
should be read in conjunction with the full text of the Spe-
cial Meeting Amendment
forth in Article
SEVENTH(b) of the proposed Amended and Restated
Certificate of Incorporation, which is included as Appen-
dix A to this proxy statement.

set

If this Proposal 4 is approved by our stockholders, the
Board plans to adopt amendments to the Bylaws to
implement the special meeting request right. The descrip-
tion in this Proposal 4 of the contemplated amendments to
the Bylaws is qualified in its entirety by and should be
read in conjunction with the full text of the contemplated
amendments, which are set forth in Appendix B to this
proxy statement.

Description of the Amendment to the Amended
and Restated Certificate of Incorporation

Delaware law does not grant stockholders of a corporation
the absolute right to call or to request that the corporation
call a special meeting. Rather, it provides that special
meetings of stockholders may be called by the board of
directors or by such person or persons as may be autho-
rized by the certificate of incorporation or by the bylaws
of the corporation. Our Amended and Restated Certificate
of Incorporation currently allows special meetings of
stockholders to be called only (i) by the Board or (ii) by
the Chairman of the Board, the CEO or the Corporate

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Secretary, in each case with the concurrence of a majority
of the Board. If this Proposal 4 is approved by stockhold-
ers, special meetings may also be called by the Corporate
Secretary upon the written request of stockholders hold-
ing at least 25% of our outstanding shares of common
stock and who otherwise comply with the requirements
set forth in the Bylaws.

The Board believes that a 25% ownership threshold
strikes an appropriate balance between giving stockhold-
ers the ability to call a special meeting to vote on impor-
tant matters and protecting the interests of all Yum China
stockholders and resources of Yum China. The 25%
ownership threshold is also aligned with the interests of
stockholders and is consistent with prevailing market
practice at large U.S. public companies.

Overview of Related Changes to the Bylaws

If this Proposal 4 is approved by our stockholders, our
Board of Directors will adopt amendments to the Bylaws
to implement the special meeting request right, which are
expected to include provisions setting forth the holding
period, procedural and informational
requirements
described below. Our Board of Directors believes that
these requirements are important to protect the long-term
interests of the Company and its stockholders by deterring
against the abuse of the right to request a special meeting.
Among other things, these procedural and informational
requirements are designed to ensure that the Company
avoids duplicative and unnecessary special meetings
addressing matters recently considered by stockholders or
that stockholders will soon consider at an upcoming
stockholder meeting. In addition, they provide certain
protections so that the special meeting right is not abused
by short-term stockholders, including those with special
interests, and prevent them from triggering the expense
and distraction of a special meeting (i) to pursue interests
that are not widely shared by our stockholders or (ii) for
reasons that may not be in the best interests of Yum China

YUM CHINA – 2021 Proxy Statement 33

MATTERS REQUIRING STOCKHOLDER ACTION

and our stockholders. These provisions are also intended
to provide the Company with reasonable information
regarding the identity of the requesting stockholders and
the matters proposed to be addressed at the special meet-
ing. These requirements include, without limitation:

• The requesting stockholder(s) must have held the req-
uisite amount of the Company’s common stock for at
least one year prior to requesting the special meeting.

• The requesting stockholder(s) must provide informa-
tion demonstrating that such stockholders have contin-
uously owned 25% or more of the Company’s common
stock for at least one year.

• The requesting stockholder(s) must provide informa-
tion regarding the business proposed to be conducted at
the special meeting and information regarding the
requesting stockholder(s) that is generally similar to the
information required in order for a stockholder to nomi-
nate directors or propose business at our annual meet-
ings.

• In order to avoid duplicative or unnecessary special
meetings, the provisions provide for certain circum-
stances where a special meeting request would not be
valid. For example, a special meeting cannot be
requested beginning 90 days prior to the first anniver-
sary date of the preceding annual meeting of stock-
holders and ending on the date of the final adjournment
of the next annual meeting, or if a substantially similar
item was presented at any meeting of stockholders held
within 120 days prior to our receipt of the special meet-
ing request or is included in our notice of a stockholder
meeting that has been or will be called and will be held
within 90 days after receipt of the special meeting
request. We are also not required to call a special meet-
ing if the proposed special meeting relates to an item of
business that is not a matter on which stockholders are

authorized to act under, or that involves a violation of,
applicable law.

If the conditions described in the Bylaw amendments are
satisfied, we would be required to hold a stockholder-
requested special meeting within 90 days after receipt of
proper stockholder request for the meeting. Business
transacted at
the meeting would be limited to the
purpose(s) stated in the special meeting request, and any
other matters submitted to the meeting by our Board.

After these Bylaw amendments are adopted, these provi-
sions will be subject to further possible amendments or
modifications from time to time by the Board in accor-
dance with the amendment provisions of the Bylaws.

What vote is required to approve this proposal?

In order to be approved, this Proposal 4 requires the affir-
mative vote of the holders of a majority of the shares of
our common stock outstanding and entitled to vote on the
Special Meeting Amendment. If the Company’s stock-
holders approve this Proposal 4, we intend to promptly
file with the Secretary of State of the State of Delaware the
Amended and Restated Certificate of Incorporation set-
ting forth the Special Meeting Amendment attached to
this proxy statement as Appendix A, and we will adopt
amendments to the Bylaws attached to this proxy state-
ment as Appendix B to implement the special meeting
request right. If the Company’s stockholders do not
approve this Proposal 4, stockholders will not have the
ability to request that the Company call a special meeting.

What is the recommendation of the Board of
Directors?

The Board of Directors recommends that you vote
FOR approval of this proposal.

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34 YUM CHINA – 2021 Proxy Statement

STOCK OWNERSHIP INFORMATION

Who are our largest stockholders?

The following table sets forth the number of shares of
Company common stock beneficially owned as of
March 29, 2021 by (i) beneficial owners of more than 5%
of the outstanding shares of Company common stock,
(ii) each of the Company’s named executive officers,
(iii) each of the Company’s directors and director nomi-
nees and (iv) all of the Company’s directors and executive
officers as a group.

Name of Beneficial Owner

In accordance with SEC rules, beneficial ownership
includes all shares the stockholder actually owns benefi-
cially or of record, all shares over which the stockholder
has or shares voting or dispositive control and all shares
the stockholder has the right to acquire within 60 days of
March 29, 2021. Except as indicated in the footnotes to
the table, the Company believes that the persons named in
the table have sole voting and investment power with
respect to all shares owned beneficially by them.

Number of Shares
Beneficially Owned

Percent of
Shares(1)

More Than 5% Owners
Invesco Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

41,897,729(2)

1555 Peachtree Street NE, Suite 1800
Atlanta, GA 30309

BlackRock, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

29,685,927(3)

55 East 52nd Street
New York, NY 10055

10.0%

7.1%

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Goldman Sachs & Co. LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

23,919,072(4)

5.7%

200 West Street
New York, NY 10282

Named Executive Officers
Joey Wat . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Andy Yeung . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Johnson Huang . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Danny Tan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aiken Yuen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Non-Employee Directors and Director Nominees
Peter A. Bassi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Christian L. Campbell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ed Yiu-Cheong Chan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Edouard Ettedgui
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cyril Han . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Louis T. Hsieh . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fred Hu . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ruby Lu . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Zili Shao . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
William Wang . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Min (Jenny) Zhang . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

416,251(5)
7,926(6)
110,972(7)
108,719(8)
32,046(9)

57,588
169,881(10)
27,876
28,083
12,386
59,669
33,043
31,898
27,980
24,688
—

Ownership of all directors and executive officers as a group (20 total)

. . . . . . . . . . . . . . . . . . . .

1,284,626(11)

*
*
*
*
*

*
*
*
*
*
*
*
*
*
*
—

*

YUM CHINA – 2021 Proxy Statement 35

STOCK OWNERSHIP INFORMATION

*

Represents less than one percent

(1)

(2)

(3)

(4)

Percentage ownership is determined based on a total of 420,467,575 shares of Company common stock outstand-
ing as of March 29, 2021.

Based on Amendment No. 2 to the Schedule 13G filed by Invesco Ltd. on February 12, 2021, which indicated
that, as of December 31, 2020, Invesco Ltd. had sole voting power over 41,865,970 shares of Company common
stock and sole dispositive power over 41,897,729 shares of Company common stock.

Based on Amendment No. 5 to the Schedule 13G filed by BlackRock, Inc. on March 15, 2021, which indicated
that, as of December 31, 2020, BlackRock, Inc. had sole voting power over 25,046,301 shares of Company com-
mon stock and sole dispositive power over 29,685,927 shares of Company common stock.

Based on the Schedule 13G filed by The Goldman Sachs Group, Inc. on February 12, 2021, which indicated that,
as of December 31, 2020, The Goldman Sachs Group, Inc. had shared voting power over 23,744,213 shares of
Company common stock and shared dispositive power over 23,919,072 shares of Company common stock.

(5)

Includes 232,021 shares issuable upon the exercise of vested stock appreciation rights (“SARs”).

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(6)

Includes 3,016 shares issuable upon the exercise of vested SARs.

(7)

Includes 86,688 shares issuable upon the exercise of vested SARs.

(8)

Includes 78,264 shares issuable upon the exercise of vested SARs.

(9)

Includes 28,388 shares issuable upon the exercise of vested SARs.

(10)

Includes 109,924 shares issuable upon the exercise of vested SARs. Also includes 80 shares held by
Mr. Campbell’s spouse.

(11)

Includes 642,409 shares issuable upon the exercise of vested SARs.

36 YUM CHINA – 2021 Proxy Statement

EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

This Compensation Discussion and Analysis (our
“CD&A”) provides an overview of our executive com-
pensation program for 2020 and our executive compen-
sation philosophies and objectives.

Our named executive officers (“NEOs”) consist of our
Chief Executive Officer, our Chief Financial Officer, and
our three other most highly compensated executive offi-
cers for 2020.

For 2020, our NEOs were:

Name
Joey Wat

Andy Yeung

Title
Chief Executive Officer (“CEO”)

Chief Financial Officer (“CFO”)

Johnson Huang

General Manager, KFC

Danny Tan

Aiken Yuen

Chief Supply Chain Officer

Chief People Officer

This CD&A is divided into four sections:

Executive Summary

• Impact of COVID-19 on Our Business

• 2020 Business Overview and Performance Highlights

• Company Total Shareholder Return Performance

• Recent Compensation Highlights

• Alignment of Executive Compensation Program with Business Performance

Elements of the Executive
Compensation Program

How Compensation
Decisions Are Made

• Pay Components

• Executive Compensation Practices

• Stockholder Engagement

• Base Salary

• Annual Performance-Based Cash Bonuses

• Long-Term Equity Incentives

• 2020 Partner Long-Term Performance-Based Grants

• 2021 Chairman Grants

• Other Elements of Executive Compensation Program

• 2020 NEO Compensation and Performance Summary

• Executive Compensation Philosophy

• Role of the Compensation Committee

• Role of the Independent Consultant

• Competitive Market Review

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YUM CHINA – 2021 Proxy Statement 37

EXECUTIVE COMPENSATION

Compensation Policies
and Practices

• Compensation Recovery Policy

• Equity-Based Awards Grant Policy

• Stock Ownership Guidelines

• Hedging and Pledging of Company Stock

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Executive Summary

Impact of COVID-19 on Our Business

The COVID-19 pandemic has presented unprecedented
challenges and has significantly impacted the Company’s
operations and financial results in 2020. During the 2020
Chinese New Year holiday period, the pandemic led to
same-store sales declines of 40-50% compared to the
comparable period in 2019. Approximately 35% of stores
were closed by mid-February 2020 at the peak of the out-
break, with significant regional differences. For restau-
rants that remained open, same-store sales declined due to
shortened operating hours and reduced traffic, with a sig-
nificant portion of stores providing only delivery and
takeaway services. Operating results improved sequen-
tially in the following three quarters of 2020, although
sales continued to be impacted by reduced traffic at trans-
portation and tourist locations, delayed and shortened
school holidays, regional resurgences and the other lin-
gering effects of the COVID-19 pandemic.

The management team led the implementation of key
actions that we undertook to protect our employees, serve
our customers, drive stockholder value-creation and give
back to the community in connection with the COVID-19
pandemic, all of which we believe have contributed to our
ability to navigate the pandemic to date. These actions
included:

• We prioritized the safety and health of our employees
and customers. We supported our employees and their
families by extending their holiday pay and strengthen-
ing their medical insurance coverage. Our Board mem-
bers and senior executives contributed to a fund to
provide additional assistance for frontline employees
and their families impacted by COVID-19 as well as
other emergency relief.

critical food service in a time of crisis. For stores that
were temporarily closed, we honored our commitments
to our employees for scheduled hours, which allowed
us to re-open the stores quickly as restrictions eased and
when appropriate. Actions such as this allowed us to
nimbly respond to changing circumstances and foster
goodwill among our employees.

• We leveraged our vast member platform to provide
information to, and engage with, members. Our loyalty
program continued to grow with over 300 million
members at the end of 2020, with member sales
accounting for approximately 60% of our system sales
in 2020.

• Leveraging our digital pre-order capability and strong
value proposition, we captured consumer demand for
delivery and takeaway. In late January 2020, we rolled
out contactless delivery on our Super App at both KFC
and Pizza Hut, which was well received by our custom-
ers. Delivery was crucial to driving online orders to our
stores, while takeaway offered a safe alternative as
dine-in services were limited or closed. Delivery sales
grew rapidly and contributed to approximately 30% of
Company sales in 2020, compared to approximately
21% in 2019.

• We quickly implemented measures to control costs,
including managing inventory in order to reduce write-
offs, and dynamically scheduling employees to reflect
reduced volumes and increased safety protocols. With
the dedication of our employees across dine-in, delivery
and takeaway and a strong digital platform, we were
quick to adapt and tackle operational challenges, from
inventory management to labor productivity improve-
ment.

• A majority of our stores remained open, and our
employees and delivery riders continued to provide a

• We provided over 170,000 free meals to many hospitals

and community health centers across China.

38 YUM CHINA – 2021 Proxy Statement

EXECUTIVE COMPENSATION

• While new store openings were interrupted due to
outbreak-related traffic restrictions and reduced avail-
ability of construction workers, we overcame many
operational challenges to accelerate development
schedule in the second half of 2020. The Company
opened 1,165 new stores in 2020, marking the highest
new store openings in our 33-year history of operating
in China.

• When responding to the challenges created by the
COVID-19 pandemic, our management team under-
took immediate and strategic actions to protect our
businesses, sales and operations. Despite the significant
impact of the COVID-19 pandemic on our operations,
we managed to achieve total revenues at a year-over-
year decline of 6%, from $8.78 billion in 2019 to
$8.26 billion in 2020;

2020 Business Overview and
Highlights

Performance

2020 was an unprecedented year that tested our people,
systems and capabilities. As noted above, we adjusted our
operations and leveraged our digital and delivery
resources to capture dine-in and off-premise opportuni-
ties. Sales and traffic recovered sequentially since the first
quarter of 2020.

Despite the impact of the COVID-19 pandemic on our
operations, we had strong execution against our 2020
operating plan and our 2020 performance highlights
include the following:

• We delivered a total shareholder return (“TSR”) in
2020 of 22.74%, calculated based on the 20 trading day
average closing price prior to and including the start and
end dates of the 2020 calendar year and assuming rein-
vestment of all dividends;

• Opened 1,165 new stores during the year, bringing total
store count to 10,506 across more than 1,500 cities in
China;

• Remodeled 939 stores;

• The KFC and Pizza Hut loyalty programs exceeded
300 million members combined, with member sales
accounting for approximately 60% of system sales in
2020;

• We completed our secondary listing on the main board
of the Hong Kong Stock Exchange and global offering
on September
proceeds
of $2.2 billion and which expanded our stockholder
base in China and Asia;

2020, with

10,

net

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• With the additional measures implemented to control
the Company delivered Operating Profit of
costs,
$961 million, compared to $901 million in 2019, with
the year-over-year
increase primarily due to the
re-measurement gain of the Suzhou KFC acquisition
and a year-over-year decline of 20% in Adjusted Oper-
ating Profit from $912 million to $732 million;

• Net Income increased 10% to $784 million from
$713 million in the prior year, primarily due to the
increase in Operating Profit, Adjusted Net Income
declined 16% to $615 million from $729 million in the
prior year (a 19% decline excluding $75 million and
$63 million net gains in 2020 and 2019, respectively,
from our equity investment in Meituan); and

• Diluted Earnings Per Common Share increased 6% to
$1.95 from $1.84 in the prior year, and Adjusted
Diluted Earnings Per Common Share declined 19% to
$1.53 from $1.88 in the prior year (a 22% decline
excluding the net gains from our equity investment in
Meituan in 2020 and 2019).

See the Company’s Annual Report on Form 10-K for
the year ended December 31, 2020 for a reconciliation
of the most directly comparable GAAP financial mea-
sures to the non-GAAP adjusted financial measures.

Company Total Shareholder Return Performance

The Board and the Compensation Committee believe
that the leadership provided by the Company’s manage-
ment team was key to the Company’s execution and
strong performance in 2020. In addition, since its spin-
off from YUM! Brands, Inc. (“YUM”) on November 1,
2016, the Company’s TSR outperformed that of the
MSCI China Index, as shown in the graph below. The
graph assumes that the value of the investment in the

YUM CHINA – 2021 Proxy Statement 39

EXECUTIVE COMPENSATION

Company’s common stock and the MSCI China Index
on November 1, 2016 was $100 and that all dividends
were reinvested, and tracks it each year thereafter on the

last day of each calendar year through December 31,
2020. Under such assumption, the Company delivered a
TSR of 19.47% in 2020 and 124.55% since its spin-off.

$250

$200

$150

$100

$50

$0

11/01/16

12/31/17

12/31/18

12/31/19

12/31/20

YUMC

MSCI China Index

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The Company delivered a TSR of 22.74% in 2020, calculated based on the 20 trading day average closing price prior to
and including the start and end dates of the 2020 calendar year and assuming reinvestment of all dividends.

Recent Compensation Highlights

As part of its ongoing review of the executive compensa-
tion program and after considering market practices, input
from the Compensation Committee’s compensation con-
sultant and stockholder feedback,
the Compensation
Committee implemented the changes set forth below to
the Company’s executive compensation program. Certain
of these compensation changes were made in response to
the pandemic and its resulting impact.

• Voluntary Salary Reductions to Address Impact of
COVID-19—During 2020, our Board members and
senior executives, including the NEOs, agreed to vol-
untarily forgo 10% of their base compensation during
the period of April 2020 to December 2020 as contri-
butions to fund additional assistance for frontline
employees and their families impacted by COVID-19
as well as other emergency relief.

• Supplemented Annual Incentive Program Perfor-
Impact of
to Address
mance Measures
COVID-19—In July 2020, the Compensation Com-
mittee considered the impact of the COVID-19 pan-
demic on the Company’s operations and the restaurant

the

industry in general, and the shifting consumer demand
from dine-in services to delivery and takeaway services.
To further incentivize the capturing of market opportu-
nities in takeaway and delivery, the Compensation
Committee evaluated whether any adjustments to the
2020 annual incentive plan were necessary in order to
continue to incentivize and reward actions designed to
support critical strategies and long-term value creation,
including strategies designed to help the Company nav-
igate through the pandemic and emerge as an innova-
tive and strong market leader. On July 16, 2020, the
Compensation Committee determined that it was in the
best interests of the Company and its stockholders to
supplement the annual performance metrics with addi-
tional key performance indicators (“KPIs”) as well as a
relative total shareholder return (“rTSR”) measure.
These KPIs were viewed as supportive of the Compa-
ny’s long-term strategy and the creation of stockholder
value and the Compensation Committee believed that
performance against these measures would reflect the
extent of the Company’s success in the execution of its
operating plan after the outbreak of COVID-19. Spe-
cifically, the KPIs measured the Company’s ability to
grow non-dine-in transactions, capture the market, con-
tain costs, and increase stockholder value.

40 YUM CHINA – 2021 Proxy Statement

• 2021 Chairman Grants—In February 2021, the Com-
pensation Committee awarded three-year cliff-vesting
RSU awards to select Company executive officers and
employees. These awards are intended to provide rec-
ognition for exemplary individual leadership demon-
strated by select executives and employees during 2020,
in particular in resolving many novel and complex regu-
latory issues to execute the Company’s secondary list-
ing on the Hong Kong Stock Exchange and navigating
the Company through the COVID-19 crisis. While in
the midst of the constraints of a global pandemic, we
completed the listing on an accelerated timeframe,
resulting in the Company being the first Delaware and
non-TMT company to qualify as an innovative com-
pany and successfully list on the Hong Kong Stock
Exchange. The secondary listing on the Hong Kong
Stock Exchange raised net proceeds of $2.2 billion and
expanded the Company’s stockholder base in China and
Asia. Among the NEOs, Ms. Wat and Mr. Yeung were
selected as recipients of the Chairman long-term equity
grant. While these awards were granted in recognition of
the significant individual achievements and leadership
displayed by recipients during 2020, the Compensation
Committee elected to deliver the Chairman grants as
RSUs that cliff-vest on the third anniversary of the grant
date to incentivize retention over this three-year period.

• Incorporate ESG Metrics into 2021 Annual Incentive
Program—Management and the Board have engaged
in extensive discussions regarding how to further
incentivize and assess performance with respect to spe-
cific ESG, Sustainability and Human Capital Manage-
initiatives. Beginning with the 2021 annual
ment
incentive program, ESG measures will be incorporated
into the KPIs that are used to determine the individual
performance factor for each leadership team member.
Depending on their roles and responsibilities, leader-
ship team members will be required to reflect ESG in
their performance goals, against which the Committee
will assess their performance in these areas. As such,
the NEOs’ performance on ESG-related areas could
significantly impact payouts under the Company’s
2021 annual incentive program.

• Expanded Recipients of Annual PSU Grants—Since
2018, the CEO’s annual equity grant has been deliv-
ered in the form of equally weighted PSUs and SARs

EXECUTIVE COMPENSATION

while the Company’s other NEOs generally received
an equal mix of SARs and time-based RSUs. Begin-
ning with the 2020 annual equity grants, the PSU pro-
the
gram has been expanded to include all of
Company’s executive officers, with a 2020 annual
equity grant in the form of SARs and PSUs. As a result
of this change, the entire portion of the annual equity
grant is considered by the Compensation Committee to
be performance-based. The 2020 PSUs will vest based
only on the Company’s achievement of performance
goals relating to growth in total revenue adjusted to
exclude certain items for the purpose of the Annual
PSU Grants (“Adjusted Total Revenue Growth”) and
growth in diluted earnings per common share adjusted
to exclude certain items for the purpose of Annual PSU
Grants (“Adjusted Diluted Earnings Per Common
Share Growth”), with a rTSR payout modifier based
on our performance against the MSCI China Index.
The SARs will realize value only to the extent the
Company’s stock price increases from the date of
grant.

• Expanded Performance Metrics Used under the LTI
Program—Beginning with the 2020 PSU grants, vest-
ing will be determined based on three performance
measures (Adjusted Total Revenue Growth, Adjusted
Diluted Earnings Per Common Share Growth and
rTSR) as compared to our prior practice of using rTSR
as the sole performance measure under our PSU pro-
gram. The Compensation Committee believes that this
combination of metrics strikes an appropriate balance
with respect to incentivizing top-line growth, profit-
ability and stock price performance.

• February 2020 Partner PSU Awards—As further
described below in the “2020 Partner Long-Term
Performance-Based Grants” section, the Compensation
Committee endorsed the design of special PSUs (the
“Partner PSU Awards”), and approved, on February 7,
2020 a grant of Partner PSU Awards to select employ-
ees of the Company and its subsidiaries who were
deemed critical to the Company’s execution of its stra-
tegic operating plan, including each of the NEOs. The
Partner PSU Awards will vest only if threshold perfor-
mance goals relating to stock price, growth in Adjusted
Total Revenue Growth, growth in EBITDA adjusted to
exclude certain items for the purpose of Partner PSU

YUM CHINA – 2021 Proxy Statement 41

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EXECUTIVE COMPENSATION

also

include

non-competition

Awards (“Adjusted EBITDA Growth”), and transfor-
mational objectives are achieved over a four-year per-
formance period commencing on January 1, 2020 and
ending on December 31, 2023. The Partner PSU
Awards
and
non-solicitation restrictive covenants. The Partner PSU
Awards were granted to (i) address increased competi-
tion from new retail platform companies in China as
well as other startup companies and the existing pay gap
between the Company’s executive compensation pro-
competitive market,
gram and
(ii) incentivize an entrepreneurial mindset and transfor-
mational performance that the Compensation Commit-
tee believes will contribute to business growth and
and
exceptional
(iii) facilitate long-term retention, which has become
increasingly important in light of senior leadership
changes over the past several years.

stockholder

creation

relevant

value

the

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Alignment of Executive Compensation Program
with Business Performance

Attracting, motivating and retaining talented executives is
critical to our success, and our executive compensation
program is designed to support this objective. The Com-
pany’s executive compensation program is structured to
support the long-term sustainable growth of the Company
and create value for stockholders by aligning our execu-
tives with business performance goals. As such, the Com-
pensation Committee reviews and endorses performance
goals that are deemed central to the Company’s business
performance and stockholder value creation. Specifically,
the Compensation Committee has selected performance
goals under the Company’s 2020 incentive programs that
are based on metrics such as operating profit, same store
sales, new builds, customer satisfaction, total shareholder
return, revenue growth, earnings per share growth, and
other key performance indicators described in greater
detail below. These performance goals comprise an over-
all executive compensation program that the Compensa-
tion Committee believes appropriately reflects the
Company’s emphasis on increasing profitability and rev-
enue, enhancing customer experience and creating stock-
holder value.

42 YUM CHINA – 2021 Proxy Statement

While the Compensation Committee’s practice has been
to establish and communicate goals at the beginning of
each year, the Compensation Committee also retains flex-
ibility to modify the Company’s executive compensation
program when circumstances warrant in order to continue
to incentivize actions to drive operational performance
and long-term strategies. For 2020, the Compensation
Committee incorporated additional performance factors
to be considered when determining annual incentive
compensation in light of the impact of COVID-19 on the
Company and the unprecedented challenging business
environment on the economy in general and the restaurant
industry in particular that had caused a shifting consumer
demand from dine-in services to delivery and takeaway
services. To further incentivize the capturing of market
opportunities in takeaway and delivery, the Compensa-
tion Committee approved additional team performance
factors in order to continue to incentivize and reward
actions designed to support critical strategies and long-
term value creation, including strategies designed to help
the Company navigate through the pandemic and emerge
as an innovative and strong market leader. The Compen-
sation Committee believes that maintaining this flexibility
allows the Company to appropriately reward performance
in areas deemed critical to the Company’s long-term
strategy.

The following chart provides an overview of the 2020 tar-
get total direct compensation program applicable to our
CEO, consisting of base salary, annual performance-
based cash incentives (i.e., short-term incentives, or
“STI”), and long-term equity incentives (“LTI”). As
demonstrated by the following chart, 2020 compensation
for our CEO was heavily weighted toward variable pay
elements, and such elements represented approximately
85% of the 2020 annual target compensation for Ms. Wat
(consisting of the target payout opportunity under the cash
bonus plan, target annual PSUs and stock-settled SARs).
For purposes of this calculation, we have excluded the
Partner PSU Awards described below, as such grants do
not represent an annual component of the Company’s
executive compensation program.

EXECUTIVE COMPENSATION

2020 CEO Target Compensation Mix

Base
15%

PSUs
31%

2020 CEO
Target
Compensation
Mix

STI
23%

SARs
31%

Performance Based - 85%

Pay Components

The Company’s executive compensation program has
three primary pay components: (i) base salary; (ii) annual
performance-based cash bonuses (i.e., short-term incen-
tives); and (iii) long-term equity awards. We believe that

these key elements are aligned with the Company’s com-
pensation philosophy and objectives, as illustrated in the
following table.

Objective

Annual
Performance-
Based Cash
Bonuses

Long-Term
Equity
Incentives

Base
Salary

Attract and retain the right talent to achieve superior stockholder
results — Competitive total reward program structure that enables pay
to vary based on role, responsibility, experience, market value and future
. . . . . .
potential of talent in order to drive superior results year over year.

X

Reward performance — Motivate both short-term and long-term
performance through annual and long-term equity programs. A majority
of NEO annual target compensation is performance-based or variable
and, therefore, at-risk. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Emphasize long-term value creation — The Company’s belief is
simple: if it creates long-term value for stockholders, then it shares a
portion of that value with those responsible for the results. SARs and
PSUs focus on the long-term performance of the Company and directly
align the interests of the recipients with those of the Company’s
stockholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Drive ownership mentality — We require executives to invest in the
Company’s success by owning a substantial amount of Company
stock.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

X

X

X

X

X

X

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YUM CHINA – 2021 Proxy Statement 43

EXECUTIVE COMPENSATION

Executive Compensation Practices

The Compensation Committee reviews on an ongoing
basis the Company’s executive compensation program to
evaluate whether it supports the Company’s executive
compensation philosophies and objectives and is aligned

with stockholder interests. Our executive compensation
practices include the following, each of which the Com-
pensation Committee believes reinforces our executive
compensation philosophy and objectives:

Our Executive Compensation Practices
✓ We deliver a significant percentage of annual target compensation in the form of variable compensation tied to
performance, with 85% of Ms. Wat’s 2020 annual target compensation in the form of variable pay elements

✓ We deliver a significant portion of total compensation in the form of equity
✓ We have multi-year vesting periods for equity awards
✓ We perform market comparisons of executive compensation against a relevant peer group, recognizing the dif-

ferent geographic regions where executives are sourced and recruited

✓ We use an independent compensation consultant reporting directly to the Compensation Committee
✓ We have double-trigger vesting for equity awards in the event of a change in control under our long-term incen-

tive plan

✓ We maintain stock ownership guidelines, which includes a retention requirement until the guideline is achieved
✓ We maintain a compensation recovery policy
✓ We maintain an equity-based awards grant policy specifying pre-determined dates for annual equity grants
✓ We hold an annual “say on pay” vote
✓ We maintain an annual stockholder engagement process
✓ Our Compensation Committee regularly meets in executive session without any members of management

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present

X We do not pay dividends or dividend equivalents on PSUs unless and until they vest

X We do not allow repricing of underwater SARs under our long-term incentive plan without stockholder approval

X We do not allow hedging, short sales or pledging of our securities

X We do not allow backdating of SARs

Stockholder Engagement

In its compensation review process, the Compensation
Committee focuses on structuring the executive compen-
sation program to serve the interests of our stockholders.
In that respect, as part of its ongoing review of our execu-
tive compensation program, the Compensation Commit-
tee considered the approval by approximately 94% of the
votes cast for the Company’s “say on pay” vote at our
2020 Annual Meeting of Stockholders. Although the
Compensation Committee was pleased with this favor-
able outcome and interpreted this level of support as an
endorsement by our stockholders of our executive com-

44 YUM CHINA – 2021 Proxy Statement

pensation program and policies, the Compensation Com-
mittee continuously evaluates program design and con-
siders adjustments to the Company’s compensation
program based on stockholder feedback, market practices
and other considerations in order to deliver a program
designed to be aligned with our business strategy, the cre-
ation of long-term value and our stockholders’ interests.

During 2020, the Company reached out to its 25 largest
stockholders (which represented more than 50% of the
Company’s outstanding shares) to solicit feedback on a

variety of corporate governance matters (including with
respect to executive compensation), and the Company
held discussions with all stockholders who accepted an
invitation. Management shared this stockholder feedback
with the Compensation Committee for its consideration in
designing the Company’s executive compensation pro-
gram.

Based on feedback received during the Company’s stock-
holder engagement efforts over the past several years, the
Compensation Committee approved the following
changes to the Company’s executive compensation pro-
gram:

• Expanded Use of PSUs—Beginning in 2020, the
Compensation Committee expanded the PSU pro-
gram to include all NEOs.

• 50% of Equity Compensation Delivered as PSUs—
Beginning with the 2020 annual PSU grants, the
NEOs’ annual equity awards are delivered in the
form of PSUs and SARs, each weighted 50%, with
the PSUs vesting based on the achievement of

EXECUTIVE COMPENSATION

pre-established performance goals and the SARs
only delivering value if the stock price appreciates
from the grant date. By replacing the RSU compo-
nent with PSUs, the Compensation Committee con-
siders the entire portion of the annual equity grant to
be performance-based.

• Expanded Performance Metrics Used under the
LTI Program—Beginning with the 2020 PSU
grants, vesting will be determined based on three per-
formance measures
(Adjusted Total Revenue
Growth, Adjusted Diluted Earnings Per Common
Share Growth and rTSR) as compared to our prior
practice of using rTSR as the sole performance mea-
sure under our PSU program.

• Incorporate ESG Metrics into 2021 Annual Incen-
tive Program— As noted above, beginning with the
2021 annual incentive program, ESG measures will
be incorporated into the key performance indicators
that are used to determine the individual performance
factor for each leadership team member.

Elements of the Executive Compensation Program

The Company’s 2020 executive compensation program
consists of three primary pay components: (i) base salary;
(ii) annual performance-based cash bonuses (i.e., short-
term incentives); and (iii) long-term equity awards. The
following charts demonstrate that 2020 annual target
compensation for Ms. Wat, our CEO, and our other NEOs
was heavily weighted toward variable pay elements. Such
elements represented approximately 85% of the 2020

2020 CEO Target Compensation Mix

annual target compensation for Ms. Wat and, on average,
70% of the 2020 annual target compensation for our other
NEOs (consisting of the target payout opportunity under
the cash bonus plan and target annual equity grants and
excluding the Partner PSU Awards and all other compen-
sation reported in the 2020 Summary Compensation
Table).

2020 Other NEOs Average
Target Compensation Mix

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15%

31%

2020 CEO
Target
Compensation
Mix

23%

31%

Base

STI

SARs

PSUs

23%

30%

2020 Other NEOs
Average Target
Compensation
Mix

23%

24%

Performance Based - 85%

Performance Based - 70%

YUM CHINA – 2021 Proxy Statement 45

EXECUTIVE COMPENSATION

Base Salary

The Company provides a fixed level of cash compensa-
tion to attract and retain high-caliber talent. Base salary in
the form of cash compensates executives for their primary
roles and responsibilities. An executive’s actual salary is
dependent on factors such as the executive’s role (includ-
ing the market value of the role), level of responsibility,
experience, individual performance and future potential.
The Compensation Committee annually reviews salary
levels of the Company’s executive officers.

As noted above, during 2020, senior executives, including
the NEOs, agreed to voluntarily forgo 10% of their base
compensation during the period of April 2020 to
December 2020 as contributions to fund additional assis-
tance for frontline employees and their families impacted
by COVID-19 as well as other emergency relief.

Annual Performance-Based Cash Bonuses

The principal purpose of our cash-based annual incentive
program is to motivate and reward short-term team and
individual performance. The following is the formula
used to calculate 2020 annual performance-based cash
bonuses:

Base Salary

×

Target Bonus
Percentage
(As a % of
Base Salary)

×

Team
Performance
Factor
(0%-200%)

×

Individual
Performance
Factor
(0%-150%)

=

Final
Individual
Performance
Bonus Payout

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Team Performance Factors

The Compensation Committee reviewed the performance
measures used in the annual incentive plan to assess the
program’s alignment of the incentive payouts with key
performance measures of the Company’s overall business
and operating segments at the time the measures were set.
In reviewing the performance measures used in the annual
incentive plan, the Compensation Committee considered
the Company’s operational plans and strategic priorities,
in light of the current and expected future operating envi-
ronment. The measures described below were selected
because they were viewed at the time to be key indicators
of the Company’s success in executing against its busi-
ness plans.

The Compensation Committee established the team per-
formance measures, targets and weights for the 2020
bonus program at the beginning of the year after receiving
input and recommendations from management and the
Compensation Committee’s compensation consultant.

planning process, which took into account growth strat-
egies, historical performance, and the existing and
expected future operating environment of the Company,
including the Company’s very strong performance in
2019 which reset the performance baseline to measure
2020 improvement. Because the target setting process
begins in late 2019 and is completed in early 2020, these
targets were set prior to the full onset of the COVID-19
pandemic.

At the time the targets were set, the performance targets
were designed to be challenging but achievable with
strong management performance. A leverage formula for
each team performance measure magnifies the potential
impact that performance above or below the performance
target will have on the calculation of the annual bonus.
This leverage increases the payouts when targets are
exceeded and reduces payouts when performance is
below target, with a threshold level of performance
required in order for any bonus associated with such met-
ric to be paid and a cap on bonus payments.

The team performance objectives and targets in 2020
were developed through the Company’s annual financial

The team performance targets, actual results, weights and
overall performance for each measure established at the

46 YUM CHINA – 2021 Proxy Statement

EXECUTIVE COMPENSATION

beginning of 2020 for the Company’s NEOs are outlined
below. The Company’s performance metrics were estab-
lished as growth rate goals with 2019 as the base line
measure. This methodology required performance better
than in 2019 in order to receive a target payout. As such,
while the Adjusted Operating Profit Growth rate goal was

set below last year’s growth rate goal, such goal would
still require improvement over last year’s actual results.
This methodology resulted in particularly challenging
goals in 2020 given that 2019 was an exceptionally strong
performance year and was not
impacted by the
COVID-19 pandemic.

COMPANY

Team Performance Measures

Target

Adjusted Operating Profit Growth* . . . . .

2.5%

Same Store Sales Growth . . . . . . . . . . . . .
System Gross New Builds** . . . . . . . . . . .
System Customer Satisfaction*** . . . . . . .

2.8%
832
—

FINAL COMPANY TEAM FACTOR . . . . . .

Actual
Negative
Growth Rate
Negative
Growth Rate
1,044
—

Earned As a
% of Target

Weighting
(at the beginning
of 2020)

Final Team
Performance

0

0
200
198

50%

25%
15%
10%

0

0
30
19.8

49.8

*

**

Adjusted Operating Profit Growth as a team performance measure is the adjusted operating profit growth,
excluding the impact from the acquisition of Huang Ji Huang, the launch of Lavazza and foreign exchange rate.
The impact from the acquisition of Huang Ji Huang and the launch of Lavazza were excluded to allow adjusted
operating profit growth to be calculated on a comparable basis with 2019. We also excluded the effects of RMB to
USD translations (either positive or negative) because we believe that changes in the foreign exchange rate can
cause Operating Profit Growth to appear more or less favorable than business results indicate.

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The Compensation Committee excluded Huang Ji Huang and Lavazza, when determining the Company’s target
and actual results for the System Gross New Builds performance measure because the Lavazza business remains
in an initial testing stage, with the Company’s annual plans for new builds subject to change, and Huang Ji Huang
was acquired after the setting of the performance targets.

*** System Customer Satisfaction is measured based on feedback obtained from customers through online customer

surveys. For the Company, this goal is measured on an aggregate basis for all of the Company’s brands.

In light of the impact of the COVID-19 pandemic, begin-
ning in May 2020, the Compensation Committee began to
re-evaluate the 2020 annual incentive plan and acknowl-
edged that the unprecedented challenging business envi-
ronment on the economy in general and the restaurant
industry in particular had caused a shifting consumer
demand from dine-in services to delivery and takeaway
services. This shift in services and the impact of the pan-
demic made the achievement of the team performance
targets described above significantly more challenging
than was originally intended. To further incentivize the
capturing of market opportunities in takeaway and deliv-
ery, the Compensation Committee evaluated whether any
Team Performance Factor adjustments were necessary to

the 2020 annual incentive plan in order to continue to
incentivize and reward actions designed to support critical
strategies and long-term value creation, including strat-
egies designed to help the Company navigate through the
pandemic and emerge as an innovative and strong market
leader. Specifically,
the Compensation Committee
wanted to support the following strategies, which would
be critical to the Company’s success in successfully
responding to the pandemic: implementing end to end
digitalization; deepening the B2B ecosystem; accelerating
delivery and business-to-business opportunities; and
expanding new retail businesses, with the goal of moti-
vating transformative actions to grow the business post-
pandemic.

YUM CHINA – 2021 Proxy Statement 47

EXECUTIVE COMPENSATION

In its review, the Compensation Committee discussed a
number of alternatives, including the use of a discretion-
ary year-end adjustment
to recognize the strategic
achievements and replacing the performance goals
entirely. The Compensation Committee determined that it
was still appropriate to use the initial goals set at the
beginning of the year to determine annual incentive
payouts in order to hold management accountable to such
goals, but with such goals supplemented with additional
KPIs as well as a rTSR measure to help motivate man-
agement to focus on critical strategies discussed above
that were deemed essential to the Company’s ability to
operate in the COVID-19 environment and which were
deemed supportive of long-term value creation and
aligned with stockholder interests. At the time, the Com-
pensation Committee determined to establish a perfor-
mance framework for evaluating the supplemental KPIs,
which included target goals.

After reviewing feedback from management regarding
the KPIs as well as input from the Compensation Com-
mittee’s compensation consultant, in July 2020, the Com-
pensation Committee approved (i) the maintaining of the
original KPIs to hold participants accountable to such
goals, but with a reduction in the weighting of the team
performance factors described above from 100% to 35%
of the team factor weighting, (ii) the introduction of six
supplemental KPIs, accounting for 35% of the team factor
weighting in order to motivate strategic actions designed
to help the Company navigate through the pandemic and
emerge as an innovative and strong market leader, and
(iii) the introduction of a rTSR metric, accounting for the
remaining 30% of the team factor weighting, as illustrated
in the following graphic:

2020 Adjusted Team Performance Factors and Weighting

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A

Original Targets

(cid:129) Adjusted Operating Profit

Growth

(cid:129) Same Store Sales Growth
(cid:129) System Gross New Builds
(cid:129) System Customer

Satisfaction

B

New KPIs Aligned
with New 2020
Strategic Initiatives

(cid:129) Market penetration
(cid:129) Digital
(cid:129) B2B ecosystem
(cid:129) Year-over-year delivery
sales growth of KFC

(cid:129) Non-dine-in sales

contribution of Pizza Hut

(cid:129) Cost control

C

Relative TSR KPI

(cid:129) Against MSCI China Index
(cid:129) Target payout at 55th
percentile ranking

(cid:129) Payout capped at target
if YUMC’s 2020 TSR is
negative

Weighted: 35% *

Weighted: 35%

Weighted: 30%

*

Based on the achievement of the original team performance measures discussed above and the adjusted weighting
approved in July 2020, the final team performance factor for the original KPIs was 17.5 (team performance factor
of 49.8 multiplied by adjusted weighting).

48 YUM CHINA – 2021 Proxy Statement

EXECUTIVE COMPENSATION

The Compensation Committee determined that this com-
bination of performance metrics was appropriate to moti-
vate management to focus on the successful execution
against the Company’s operational plan during this chal-
lenging time and, at the same time, were aligned with the
Company’s strategic priorities in order to position the
Company as a strong market leader.

The six new KPIs approved by the Compensation Com-
mittee in July 2020 are set forth in the table below. Four of
the KPIs (Digital, B2B Ecosystem, KFC Delivery Sales
Growth and Pizza Hut Non-Dine-In Transactions) were

aligned with the Company’s strategy of exploring new
growth opportunities given the reduced dine-in traffic
during 2020 and were deemed essential to the Company’s
ability to navigate the COVID-19 pandemic and emerge
as a strong market leader. The cost control measure was
viewed as a critical measure to protect operating margin
and profitability. Finally, the market penetration factor
was viewed as a strong factor contributing to the Compa-
ny’s long-term growth. The KPIs were designed to moti-
vate the NEOs to achieve strategically important goals
that were also designed to be challenging but attainable
with strong management performance.

Key Performance Indicator
Market Penetration* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Digital** . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
B2B Ecosystem*** . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
KFC Delivery Sales Growth**** . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pizza Hut Non-Dine-In Transactions***** . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost Control****** . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

*

Target Actual
*
60.0% 60.2%
1,015

on target
on target
above target
38.0% 41.9% above target
42.0% 45.2% above target
-10.0% -12% above target

920

25%
15%
10%
25%
15%
10%

Performance
v. Target

Weighting

*

Market Penetration measures the Company’s total store count as a percentage of the total store count of the
Company and its key peer companies. The Company is not disclosing this goal due to the competitively sensitive
nature of such goal. The goal was designed to be challenging but achievable with strong management perfor-
mance.

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**

Digital measures digital member sales for the KFC and Pizza Hut brands as a percentage of total system sales.

***

B2B Ecosystem measures the Company’s total business-to-business gross merchandising value in millions of
U.S. dollars.

**** KFC measures the year-over-year delivery sales growth of our KFC brand.

***** Pizza Hut measures the percentage of sales of our Pizza Hut brand that are attributable to non-dine-in transac-

tions.

****** Cost Control measures actual general and administrative expenses for 2020 compared to the Company’s operat-

ing plan for the year.

Based on an assessment of performance, the Committee
assigned 40 points to the achievement of the six new
KPIs. This performance assessment reflected the Compa-
ny’s overall strong performance in these categories in the
challenging COVID-19 environment, as evidenced by the
on target and above target attainment levels.

In July 2020, the Compensation Committee also deter-
mined to include rTSR as a supplemental Team Perfor-

mance Factor in the adjusted annual incentive program.
The Compensation Committee determined that rTSR was
viewed as a core measure to evaluate the Company’s per-
formance and stockholder value creation. In addition, the
use of rTSR was viewed as appropriate in light of the
unpredictable operating environment as a result of the
COVID-19 pandemic. In making this decision, the Com-
pensation Committee also considered the fact that the
rTSR performance measure was in addition to the abso-

YUM CHINA – 2021 Proxy Statement 49

EXECUTIVE COMPENSATION

lute performance goals, both in terms of the original KPIs
and the supplemental business transformation KPIs intro-
duced in July 2020, in order to strike an appropriate bal-
ance in 2020 with respect to incentivizing financial,
operational, transformational and TSR performance.

The rTSR portion of the annual incentive program was to
be paid out based on the Company’s 2020 rTSR perfor-

mance as compared to the constituents of the MSCI China
Index as of January 1, 2020 in accordance with the sched-
ule set forth below. Based on the Company’s TSR perfor-
mance of 22.74% and a corresponding percentile ranking
at the 57th percentile, the TSR team performance factor
was 32 points based on the weighting assigned to the TSR
performance metric (TSR vesting level of 106.77% of
target multiplied by the TSR weighting).

Percentile Ranking Achieved . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proportion of Target Award Vesting . . . . . . . . . . . . . . . . . . . . . .

<40th

YUMC TSR v. Constituents of MSCI CHINA INDEX*
55th
100%

85th
200%

50%

40th

0%

Actual
106.77%

*

Calculated based on the 20 trading day average closing price prior to and including the start and end dates of the
2020 calendar year and assuming reinvestment of all dividends.

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Based on the achievement of the Team Factor perfor-
mance goals, including the original and supplemental
KPIs and the rTSR metric discussed above, the Compen-
sation Committee determined a Team Performance Fac-
tor of 90%.

Individual Performance Factors

In February 2020, the Compensation Committee estab-
lished the performance goals that would be used to deter-
mine the Individual Performance Factor for the CEO and
provided input on the performance goals set by the CEO
for the other NEOs, which would subsequently be used by
the CEO to recommend the Individual Performance Fac-
tor for each NEO. As part of the Company’s annual per-
formance evaluation process, the CEO, after having
received input from the Compensation Committee and
after consultation with each NEO, establishes that NEO’s
performance objectives for the coming year, which are
ultimately approved by the Compensation Committee.
These performance objectives are not intended to be rigid
or formulaic, but rather to serve as the framework upon
which the CEO evaluates the NEO’s overall performance.

These annual performance goals generally fell within the
performance categories of mitigating the impact of the
COVID-19 pandemic, increasing stockholder returns,
accelerating the growth of our brands, driving new busi-
ness initiatives, and building people capabilities and orga-
nizational
each
performance goal category, each NEO has a number of

resilience. Under

strength

and

50 YUM CHINA – 2021 Proxy Statement

underlying pre-established goals against which the
NEO’s performance is assessed to determine whether the
NEO has achieved the overall performance goal. The
evaluation of an executive’s performance relative to these
goals is inherently subjective, involving a high degree of
judgment based on the CEO’s observations of, and inter-
actions with, the executive throughout the year. As an
additional input to the evaluation of an executive’s per-
formance, the CEO assesses the overall performance of
the Company in light of the dynamics of the China mar-
ket. As a result, no single performance goal or group of
goals is determinative for the CEO’s evaluation of the
executive’s performance.

The above evaluation provides the basis for the CEO’s
recommendation to the Compensation Committee for the
executive’s Individual Performance Factor. The Com-
pensation Committee then meets with the CEO and dis-
cusses the CEO’s recommendations and meets separately
in executive session to discuss the CEO’s recommenda-
tions and make a determination of the Individual Perfor-
mance Factor for the NEOs, excluding the CEO.

The Compensation Committee applies similar factors in
determining the Individual Performance Factor for the
CEO. The Compensation Committee meets in executive
session to discuss the CEO’s individual performance and
then consults with the Chairman of the Board for their
collective determination of the CEO’s Individual Perfor-
mance Factor. The evaluation of the CEO’s overall per-
formance relative to these factors is also inherently

subjective, involving a high degree of judgment. The
Compensation Committee and the other independent
directors assess the overall performance of the Company
in light of the dynamics of the China market in which the
Company operates. As a result, no single performance
goal or group of goals is determinative for the evaluation
of the CEO’s performance.

The use of Individual Performance Factors provides the
Company with a degree of flexibility (applied reasonably
and in moderation by the Compensation Committee) to
reward contributions to strategic business initiatives and
the building of organizational capabilities supportive of
the creation of long-term value.

Based on the foregoing, the Compensation Committee
assigned 2020 Individual Performance Factors for the
NEOs ranging from 100% to 150%, as described below
under “2020 NEO Compensation and Performance
Summary.”

Long-Term Equity Incentives

The Company provides long-term equity compensation to
its executives to encourage decision-making that creates
long-term sustainable stockholder value. In determining
the size of the annual equity awards, the Compensation
Committee considers the following:

• Prior year individual and team performance;

• Expected contributions in future years;

• The market value of the executive’s role compared with
similar roles in the Company’s peer group, based on
compensation survey data; and

• Achievement of the Company’s stock ownership

guidelines.

Beginning with the 2020 annual equity grants, the PSU
program has been expanded to include each of the NEOs,
resulting in 2020 annual equity grants in the form of SARs
and PSUs, equally weighted. As a result of this change,

EXECUTIVE COMPENSATION

the entire portion of the annual equity grant is considered
by the Compensation Committee to be performance-
based as the PSUs will vest based only on the Company’s
achievement of performance goals relating to Adjusted
Total Revenue Growth and Adjusted Diluted Earnings
Per Common Share Growth, with a rTSR payout modi-
fier, and the SARs will realize value only to the extent the
Company’s stock price increases from the date of grant.

The SARs vest annually in equal installments of 25%,
beginning on the first anniversary of the grant date and
generally subject to continued employment through the
applicable vesting date. The exercise price of each SAR
grant is based on the closing market price of the underly-
ing Company stock on the date of grant.

The annual PSU grants (the “Annual PSU Awards”) are
designed to incentivize each NEO’s performance over the
January 1, 2020 to December 31, 2022 performance
period and to further align their interests with the interests
of our stockholders. The Annual PSU Awards will vest
based on the achievement of performance goals relating to
Adjusted Total Revenue Growth (with a weighting of
60%), Adjusted Diluted Earnings Per Common Share
Growth (with a weighting of 40%), and a rTSR payout
modifier. The Adjusted Total Revenue Growth and
Adjusted Diluted Earnings Per Share Growth goals use
the 2019 results as a baseline from which to measure
growth. Given 2019 performance and the Company’s
operating plan over the three-year performance period,
the Adjusted Total Revenue Growth and Adjusted
Diluted Earnings Per Share Growth performance goals
were designed to be challenging but achievable with
strong management performance. If the Company out-
performed or underperformed the MCSI China Index by
20%, then the number of PSUs that would vest based on
the Company’s Adjusted Total Revenue Growth and
Adjusted Diluted Earnings Per Common Share Growth
performance would be increased or decreased by 20%
based on the Company’s rTSR. Based on performance,
vesting may range from 0% to 240% of the target number
of shares subject to the Annual PSU Awards

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YUM CHINA – 2021 Proxy Statement 51

EXECUTIVE COMPENSATION

The PSU program was first used by the Company in 2018
and 2020 represented the final year of the 2018-2020 per-
formance period for Ms. Wat’s 2018 PSU award.
Ms. Wat served as the Company’s CEO for nearly the
entire performance period. Under the 2018 PSU program,
Ms. Wat’s 2018 PSUs would be settled in shares of our

common stock based on our rTSR performance over the
2018-2020 performance period relative to the 149 com-
panies in the MSCI International China Index as of
January 1, 2018. Under the program, payout would be
capped at target if the Company’s TSR was negative over
the three-year performance period.

TSR Percentile Rank Achieved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . <30%

Proportion of Target Award Vesting* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0%

Threshold

30%

35%

Target
55%

100%

Maximum

85%

200%

*

Vesting proportion for performance between performance levels would be determined based on linear interpola-
tion.

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Based on the Company’s 44.76% TSR performance dur-
ing the three-year performance period, the Company
ranked at the 79th percentile as compared to the TSR per-
formance of the active constituents of the MSCI Interna-
tional China Index at the end of the performance period,
resulting in 181.27% of the target PSUs and dividend
equivalents vesting, or 111,489.79 shares of our common
stock.

2020 Partner Long-Term Performance-Based
Grants

The Compensation Committee supplemented the execu-
tive compensation program in 2020 to include an award of
PSUs in the form of the Partner PSU Awards to select
employees of the Company and its subsidiaries, including
the NEOs, who were deemed critical to the Company’s
execution of its strategic operating plan. The Compensa-
these Partner PSU
tion Committee determined that
Awards were necessary to:

• Address Increased Competition and the Existing Pay
Gap—The Company is increasingly competing for
executive talent with new food retail platform compa-
nies in China as well as other startup companies. The
Company, with a proven and successful track record, is
prominent in the restaurant and retail industry in China.
Competitors in the new retail space, including startups
considering United States or overseas listing, are
increasingly competing for executive talent with deep
knowledge of both the United States and China market
practices and regulatory environments. These competi-
tors often offer compensation programs with significant
one-time equity grants, which is a common practice in

52 YUM CHINA – 2021 Proxy Statement

the Chinese executive compensation market. This
increased competition and the related new-hire offers of
significant one-time equity grants, coupled with an
already challenging market for executive talent, has
created a pay gap for the Company’s leadership team as
compared to the competitive market and has posed sig-
nificant challenges to the Company’s ability to retain
and motivate the Company’s visionary and entrepre-
neurial leadership team. In 2019, four executive team
members left the Company and joined startups or com-
panies with new retail platforms preparing for overseas
listing. The Compensation Committee believes that the
Partner PSU Awards will help address the existing pay
gap, are responsive to the compensation packages
offered by this increased competition, including the
practice of granting significant one-time equity grants,
and are designed to create an entrepreneurial mindset.

• Motivate

Transformational

Performance—The
Compensation Committee determined that the Partner
PSU Awards were particularly important as the Com-
pany is at a strategic inflection point as it executes on its
vision to become the world’s most innovative pioneer
in the restaurant industry. Specifically, the Partner PSU
Awards are designed to support the execution of the
Company’s multi-year strategic operating plan, focus-
ing on the transformation and reengineering of the
Company’s strong casual dining businesses and
expanding their monetization capabilities by deepening
the connections with customers, suppliers, distributors
and business partners via the Company’s end-to-end
digital ecosystem. The Company believes that integrat-
ing offline restaurants with online presence and its lead-
ership in digital, data and delivery are crucial to building

a transformational business model aimed at meeting the
evolving needs of its customers. The Partner PSU
Awards have been designed to incentivize an entrepre-
neurial mindset and transformational performance that
the Compensation Committee believes will contribute
to business growth and exceptional stockholder value
creation.

• Encourage Long-Term Retention—Over the past sev-
eral years, the Company has experienced a number of
senior leadership changes. The Board is committed to
building an organization with continuity in its leader-
ship. In designing the award, the Compensation Com-
mittee considered,
the challenges
associated with attracting and retaining high-quality
leadership over the long-term to manage the complex-
ities of the Company’s business. The Committee sought
to structure an award that would incentivize longer-
term retention.

in particular,

The Compensation Committee evaluated a number of
alternatives to structure this special incentive in a way to
address the pay gap as compared to the competitive mar-
ket and to serve as a meaningful incentive for retention
and the execution of the Company’s strategic operating
plan. With advice from the Compensation Committee’s
independent compensation consultant, the Compensation
Committee determined that the best way to retain key
leaders for at least the next four years was to provide them
with a compelling upside compensation opportunity,
beyond the Company’s regular long-term incentive pro-
grams, that would motivate them to achieve the Compa-
ny’s strategic priorities, including growth of the business
and continued execution of innovation and strategy.
These grants are intended to provide value to the execu-
tive officers only if the Company successfully executes on
its strategic operating plan, which the Compensation
Committee believes will contribute to a significant
increase in stockholder value. Given the unique nature of
these grants, the Compensation Committee has commit-
ted not to grant similar, special grants of performance
units during the performance period, although award
recipients will continue to receive equity awards as part of
the Company’s regular annual program.

EXECUTIVE COMPENSATION

Accordingly, in February 2020, the Compensation Com-
mittee approved the long-term Partner PSU Awards to the
NEOs. On the grant date, Partner PSU Awards with an
aggregate grant date fair value, assuming target perfor-
mance, were granted to the NEOs as follows: Ms. Wat,
$12,000,000; Mr. Yeung, $2,000,000; Mr. Huang,
$2,000,000; Mr. Tan, $1,500,000; and Mr. Yuen,
$1,500,000. With the annualized value of the Partner PSU
Awards over their four-year performance period, target
total direct compensation for Ms. Wat would be posi-
tioned at approximately the median of that of the com-
pensation peers and between approximately the lower
quartile and median of the relevant market for the other
NEOs.

These long-term Partner PSU Awards will vest only if
threshold performance goals relating to stock price
(weighted 55%), Adjusted Total Revenue Growth
(weighted 20%), Adjusted EBITDA Growth (weighted
15%) and transformational objectives (weighted 10%) are
achieved over a four-year performance period, com-
mencing on January 1, 2020 and ending on December 31,
2023. Target vesting with respect to the stock price trigger
will not occur unless the Company’s stock price is at least
$80.00 measured as the trailing 60-day average closing
price, with threshold vesting and maximum vesting
occurring based on average stock prices equal to $60.00
and $100.00, respectively. The closing stock price on the
date of grant was $42.71. The other performance goals
were designed to be challenging but achievable with
strong execution of the Company’s strategic operating
plan. Adjusted Total Revenue Growth and Adjusted
EBITDA Growth are set at a compound annual growth
rate (CAGR) using the 2019 results as the baseline, and
are aligned with the Company’s long-term growth plan to
drive value creation for stockholders. Based on perfor-
mance, vesting may range from 0% to 200% of the target
number of shares subject to the Partner PSU Awards.

In designing the Partner PSU Awards, the Compensation
Committee sought to align the interests of the recipients
with the Company’s stockholders and to incentivize long-
term stockholder value creation, resulting in the following
features in the Partner PSU Award design:

• 4-Year Performance and Vesting Period—Even if the
performance goals are achieved prior to the expiration

YUM CHINA – 2021 Proxy Statement 53

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EXECUTIVE COMPENSATION

of the performance period, the Partner PSU Awards
remain subject to service-based vesting through the
expiration of the performance period.

• Challenging Stock Price Targets—In order to receive
target payout for the award, the stock price must almost
double from the closing stock price on the date of grant
and threshold payout requires a 40% increase in the
stock price.

• Payout Cap to Incentivize Stock Price Performance for
Duration of Performance Period—In order to incentiv-
ize stock price performance throughout the entire per-
formance period, payout will be capped at target if the
average stock price for the last 60 days of the perfor-
mance period is below threshold, even if a higher stock
price average was attained earlier in the performance
period.

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• Termination Provisions—The awards will generally
vest pro rata based on actual performance through the
end of the performance period in the event of termina-
tion due to death, retirement, or termination without
cause. In the event of a termination of employment by
the Company without cause or by the award recipient
due to good reason within two years following a change
in control of the Company, the award will vest based on
the greater of actual performance and target.

• Compensation Recovery Policy—The Partner PSU
Awards are subject to the Company’s Compensation
Recovery Policy, which allows the Company to recover
or cancel performance awards, such as the Partner PSU
Awards.

• Restrictive Covenants—The Partner PSU Awards also
include non-competition and non-solicitation restrictive
covenants.

2021 Chairman Grants

In February 2021, the Compensation Committee awarded
three-year cliff-vesting RSU awards to select Company
executive officers and employees. Among the NEOs,
Ms. Wat and Mr. Yeung were selected as recipients of the
Chairman long-term equity grant. These awards are
intended to provide recognition for exemplary individual

54 YUM CHINA – 2021 Proxy Statement

leadership demonstrated by select executives and
employees during 2020, in particular in resolving many
novel and complex regulatory issues to execute the Com-
pany’s secondary listing on the Hong Kong Stock
Exchange and navigating the Company through the
COVID-19 crisis. The Company considers it important to
retain the flexibility to make long-term equity awards to
specifically reward demonstrated individual leadership
actions and behaviors that are not factored into the corpo-
rate performance goals underlying the equity awards
made to our entire management team, but which still rec-
ognize individual actions and behaviors that the Company
wants to encourage and foster. While these awards were
granted in recognition of the significant
individual
achievements and leadership displayed by recipients dur-
ing 2020, the Compensation Committee elected to deliver
the Chairman grants as RSUs that cliff-vest on the third
anniversary of the grant date to incentivize retention over
this three-year period. Factors considered in awarding the
Chairman Awards included:

• Listing on the Stock Exchange of Hong Kong—
Management assumed a significant amount of addi-
tional duties to resolve many novel and complex regu-
latory issues to execute the Company’s secondary
listing on the Hong Kong Stock Exchange on an accel-
erated timeframe in the midst of the global pandemic to
become the first Delaware and non-TMT company to
qualify as an innovative company and successfully list
on the exchange. The secondary listing on the Hong
Kong Stock Exchange raised net proceeds of
$2.2 billion and expanded the Company’s stockholder
base in China and Asia.

• COVID-19 Responsiveness—The management team
led the implementation of key actions that we under-
took to protect our employees, serve our customers,
drive stockholder value-creation and give back to the
community in connection with the COVID-19 pan-
demic, all of which we believe have contributed to our
ability to navigate the pandemic to date. These actions
included: implementing stringent health measures at
our restaurants and workplaces and providing extended
healthcare and other support to employees; keeping
majority of our stores open even at the peak of the out-
break; launching contactless delivery, takeaway and
corporate catering to support businesses during the time

of reduced dine-in traffic; and addressing operational
complexities and challenges in response to changes in
regulatory requirements imposed by governmental
authorities. Throughout the pandemic, management
demonstrated their commitment to our long-term suc-
cess by taking actions that were key to the Company’s
ability to effectively navigate the pandemic and emerge
even stronger, even if such actions entail certain addi-
tional costs. For example, while many of our competi-
tors elected to lay-off employees during the pandemic,
we kept employees on our payroll to allow us to recall
employees as soon as possible once restrictions eased
and it was appropriate to open stores. Actions such as
this allowed us to nimbly respond to changing circum-
stances and foster goodwill among our employees.
Sales and traffic recovered sequentially since the first
quarter of 2020. The Company also served over
170,000 free meals to 1,450 hospitals and medical cen-
ters.

• Strong Execution Against

the Company’s Strategic
Operating Plan—In the context of a challenging year
without precedent, the Company delivered strong results,
including the opening of 1,165 new stores, bringing total
store count to over 10,500 across more than 1,500 cities
in China. The KFC and Pizza Hut loyalty programs
exceeded 300 million members combined, with member
sales accounted for approximately 60% of system sales
in 2020. Leveraging its digital and delivery capabilities,
the Company continued to capture dine-in and
off-premise opportunities. These priorities were aligned
with the Company’s strategic operating plan in order to
position the Company as a strong market leader.

The grants to Ms. Wat and Mr. Yeung have a grant date
fair value of $2,500,000 and $1,600,000, respectively,
and will cliff-vest on the three-year anniversary of the
grant date based on continued service through the vesting
date. The Compensation Committee elected to deliver the
Chairman grants as RSUs rather than as cash bonuses in
order to further incentivize the retention of these key con-
tributors over the applicable vesting period and to further
align their interests with the interests of our stockholders.
While the Compensation Committee considered the
strong contributions of these executive officers and
employees to the Company’s performance during 2020 in
determining these awards, these awards are considered

EXECUTIVE COMPENSATION

2021 compensation under applicable SEC disclosure
rules and will be reflected in the 2021 Summary Com-
pensation Table.

Other Elements
Program

of Executive Compensation

As with all Company employees, Company executive
officers receive certain employment benefits. We believe
the benefits we offer are an important part of retention and
capital preservation for all levels of employees. Our bene-
fits are designed to protect against unexpected catastrophic
losses of health and earnings potential and provide a means
to save and accumulate assets for retirement.

Post-Termination and Change in Control Compensation.

The Company provides certain post-termination and
change in control compensation to help accomplish the
Company’s compensation philosophy of attracting and
retaining executive talent. The Compensation Committee
believes change in control compensation promotes man-
agement independence and helps retain, stabilize, and
focus the executive officers in the event of a change in
control. Severance benefits are payable only upon a quali-
fying termination, which is defined as a termination by the
Company without cause or by the participant due to good
reason, within 24 months following the consummation of
a change in control of the Company. In addition, certain
post-termination compensation offered by the Company
helps protect the Company’s interests as such compensa-
tion is provided in exchange for the executive officer
agreeing to comply with post-termination restrictive cov-
enants. The award agreements with respect to the Com-
pany’s outstanding equity awards also provide for
pro-rata accelerated vesting in the event of certain quali-
fying terminations of employment. The terms of the
Company’s post-termination and change in control com-
pensation were determined after considering market data,
the input of the compensation consultant and, in some
cases, the negotiations of the parties.

Please see the “Potential Payments upon a Termination or
a Change in Control” section below for a quantification of
the amounts that would be payable to each of the NEOs in
connection with a termination of employment or change
in control as of December 31, 2020.

YUM CHINA – 2021 Proxy Statement 55

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EXECUTIVE COMPENSATION

Retirement Plans. The Company offers certain executives
working in China retirement benefits under the Bai Sheng
Restaurants China Holdings Limited Retirement Scheme
(“BSRCHLRS”). Under the BSRCHLRS, executives
may make personal contributions, and the Company pro-
vides a company-funded contribution ranging from 5% to
10% of a participating executive’s base salary. During
2020, all of our NEOs were participants in the
BSRCHLRS, and each NEO received a company-funded
contribution.

tives working in international companies based in main-
land China. For example, the Company may offer perqui-
sites such as housing cost subsidies, dependent education,
and home leave payments to executives performing ser-
vices in China. These perquisites are considered to be a
necessary component of the Company’s executive com-
pensation program in order to attract and retain high-
performing executives from different countries who have
the skill sets and experience to successfully manage and
lead the Company in mainland China.

Medical, Dental, and Life Insurance and Disability
Coverage. The Company provides benefits such as medi-
cal, dental, and life insurance and disability coverage to its
executive officers through the same benefit plans that are
provided to all eligible China-based employees.

Perquisites. Certain perquisites are provided to certain
Company executive officers relating to overseas assign-
ments. These perquisites are governed by the Company’s
formal
on
policy,
a case-by-case basis and reflect each executive’s particu-
lar circumstances while also generally reflecting market
practices for similarly situated, globally mobile execu-

mobility

offered

are

Prior to our spin-off from YUM, certain of our NEOs
were offered tax equalization benefits as an element of
their compensation. These tax equalization benefits rep-
resent legacy compensation arrangements entered into
with our former parent. After the spin-off, the Compensa-
tion Committee began to phase out tax equalization bene-
fits for the NEOs (other than certain grandfathered
benefits pursuant to the legacy arrangements).

See the 2020 All Other Compensation Table in this
CD&A for details regarding the perquisites received by
our NEOs during 2020.

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EXECUTIVE COMPENSATION

2020 NEO Compensation and Performance Summary

Below is a summary of our NEOs’ 2020 compensation—
which includes base salary, annual cash bonus, and equity

awards—and an overview of our NEOs’ 2020 perfor-
mance relative to the annual performance goals.

Joey Wat
Chief Executive Officer

2020 Performance Summary. The Compensation
Committee determined Ms. Wat’s performance to be
significantly above target with an Individual Perfor-
mance Factor of 150%. The Compensation Com-
mittee recognized that Ms. Wat’s foresight and
leadership were critical in guiding the Company
through the crisis. Ms. Wat directed an immediate
strategic response plan to navigate and tackle the
emerging challenges of the unprecedented pan-
demic, such as evolving government regulations,
city lockdowns, logistics challenges and potential
material write-offs. Ms. Wat demonstrated her
strong leadership to transform the Company’s busi-
ness focus to capture new opportunities. With the
innovative “contactless delivery” model, she guided
KFC and Pizza Hut to drive significant growth from
their delivery and non-dine-in businesses. Ms. Wat
also supported a flexible operating model to help
identify and satisfy customers’ unmet needs and fast-
tracked the Company’s corporate catering business.
The Compensation Committee also attached impor-
tance to Ms. Wat’s building of a B2B ecosystem
through collaboration with selected strategic part-
ners, which have demonstrated promising new busi-
ness opportunities. Under her oversight,
the
Company’s secondary listing on the Hong Kong
Stock Exchange was successfully completed in
September 2020, raising net proceeds of $2.2 billion
and expanding the Company’s stockholder base in
China and Asia. In the context of a challenging year
the Company still delivered
without precedent,
strong results, including the opening of 1,165 new
stores, bringing total store count to over 10,500
across more than 1,500 cities in China, the expansion
of the KFC and Pizza Hut loyalty programs, which

exceeded 300 million members combined and with
member sales accounting for approximately 60% of
system sales in 2020, and delivering a total share-
holder return for 2020 of 22.74%. Leveraging its
digital and delivery capabilities, the Company also
continued to capture dine-in and off-premise oppor-
tunities. These priorities were aligned with the Com-
pany’s strategic operating plan in order to position
the Company as a strong market leader.

Decisions.

Compensation

2020
Effective
February 1, 2020, the Compensation Committee set
Ms. Wat’s 2020 compensation levels after consider-
ing the advice of its compensation consultant, market
practices and Ms. Wat’s individual performance.

• Base Salary. Ms. Wat’s base salary was increased

from $1,188,000 to $1,250,000.

• Annual Incentive Plan Target and Payout Level.
Ms. Wat’s annual cash bonus target increased
from 130% to 150% of her base salary, resulting in
a blended bonus target for the year of $1,853,825.
Ms. Wat’s 2020 annual cash bonus award payout
was $2,502,664, reflecting a total payout of 135%
of target based on the Team Performance Factor of
90% and Individual Performance Factor of 150%.

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• Long-Term Incentive Award. Ms. Wat received an
annual long-term incentive award with a grant date
fair value of approximately $5,000,000 in 2020,
unchanged from 2019 and delivered equally in
SARs and PSUs. Ms. Wat also received a Partner
PSU Award with an aggregate grant date fair
of
target
value,
$12,000,000.

performance,

assuming

YUM CHINA – 2021 Proxy Statement 57

EXECUTIVE COMPENSATION

Andy Yeung
Chief Financial Officer

2020 Performance Summary. The Compensation Com-
mittee determined Mr. Yeung’s performance to be signif-
icantly above target with an Individual Performance
Factor of 140%. Mr. Yeung was recognized for his sig-
nificant contribution as the overall leader for the success-
ful completion of Company’s secondary listing on the
main board of the Hong Kong Stock Exchange in
September 2020. He led the team in resolving many novel
and complex issues, making Yum China the first
Delaware-incorporated company listed in Hong Kong, as
well as the first non-TMT company to complete a sec-
ondary listing in Hong Kong as an innovative company.
This global offering raised net proceeds of $2.2 billion
and expanded the Company’s stockholder base in China
and Asia. Mr. Yeung was instrumental in protecting the
Company’s liquidity during the peak of the pandemic
through a number of proactive measures, including disci-
plined working capital management as well as thoughtful
operating and cash flow models and cash allocation
guidelines. To address the sharp drop in sales particularly
in the first quarter of 2020, Mr. Yeung quickly developed
and orchestrated a Company-wide cost control plan,
resulting in 12% in savings in general and administrative
expenses for 2020 compared to the Company’s operating
plan for the year.

2020 Compensation Decisions. Effective February 1,
2020, the Compensation Committee set Mr. Yeung’s
2020 compensation levels after considering the advice of
its compensation consultant, market practices and
Mr. Yeung’s strong individual performance since he
assumed the role of CFO.

• Base Salary. Mr. Yeung’s base salary was increased

from $650,000 to $700,000.

• Annual Incentive Plan Target and Payout Level.
Mr. Yeung’s annual cash bonus target increased from
75% to 80% of his base salary, resulting in a blended
bonus target for the year of $557,036. Mr. Yeung’s
2020 annual cash bonus award payout was $701,865,
reflecting a total payout of 126% of target based on the
Team Performance Factor of 90% and Individual Per-
formance Factor of 140%.

• Long-Term Incentive Award. Mr. Yeung received an
annual long-term incentive award with a grant date fair
value of approximately $1,200,000 in 2020, delivered
equally in SARs and PSUs. Mr. Yeung also received a
Partner PSU Award with an aggregate grant date fair
value, assuming target performance, of $2,000,000.

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Johnson Huang
General Manager, KFC

2020 Performance Summary. During 2020, Mr. Huang
served as General Manager, KFC. The Compensation
Committee determined that Mr. Huang’s 2020 perfor-
mance was on target with an Individual Performance Fac-
tor of 100%. As previously disclosed, Mr. Huang took a
medical leave of absence during the year and returned
leave in December 2020. Before
from his medical
Mr. Huang’s medical leave in 2020, he effectively led the
KFC team in keeping most of the stores open even at the
peak of the outbreak, while implementing safety mea-
sures for employees and customers, and capturing
off-premise consumption opportunities leveraging KFC’s
digital and delivery capabilities. Throughout 2020,
Mr. Huang provided direction and guidance to his team in

58 YUM CHINA – 2021 Proxy Statement

managing various complex issues, including city lock-
downs, mandated store closures and potential raw mate-
rial write-offs.

2020 Compensation Decisions. Effective February 1,
2020, the Compensation Committee set Mr. Huang’s
2020 compensation levels after considering the advice of
its
practices,
Mr. Huang’s individual performance and the strong per-
formance of KFC.

consultant, market

compensation

• Base Salary. Mr. Huang’s base salary was increased

from $700,000 to $740,000.

EXECUTIVE COMPENSATION

• Annual Incentive Plan Target and Payout Level.
Mr. Huang’s annual cash bonus target was increased
from 85% to 90% of his base salary, resulting in a
the year of $662,866.
for
blended bonus target
Mr. Huang’s 2020 annual cash bonus award payout was
$251,021, reflecting a total payout of 38% of target
based on the blended Team Performance Factor of 90%
and Individual Performance Factor of 100% and
pro-rated for his period of service during the year.

• Long-Term Incentive Award. Mr. Huang received a
long-term incentive award with a grant date fair value of
approximately $1,200,000 in 2020, delivered equally in
SARs and PSUs, as the compensation review showed
that the prior year award size, which had remained
unchanged from that of the year before last, was under-
competitive. Mr. Huang also received a Partner PSU
Award with an aggregate grant date fair value, assum-
ing target performance, of $2,000,000.

Danny Tan
Chief Supply Chain Officer

2020 Performance Summary. The Compensation Com-
mittee determined Mr. Tan’s performance to be signifi-
cantly above target with an Individual Performance
Factor of 130%. Mr. Tan was recognized for his signifi-
cant contribution to address the many operational chal-
lenges and complexities during the pandemic, and for
being a core member of the Company’s crisis manage-
ment team. Under Mr. Tan’s leadership, the supply chain
team overcame the global shortage at the time to secure
adequate protective equipment
for employees, and
addressed the complex logistics issues due to city lock-
downs. Mr. Tan also ensured the continuous compliance
with food safety requirements and precautionary mea-
sures imposed by different levels of governments across
China, both in our stores and with our supply chains.
Mr. Tan also successfully led the effort in conjunction of
the brand teams in minimizing raw materials write-offs at
the outbreak of the pandemic. Mr. Tan led the refinement
of the Company’s sustainability strategy and roadmap as
well as the preparation of its sustainability report. In 2020,
Yum China made significant progress on sustainability
and was ranked by Dow Jones Sustainability Index
(DJSI) as number one out of 30 companies in the global
restaurant industry.

2020 Compensation Decisions. Effective February 1,
2020, the Compensation Committee set Mr. Tan’s 2020

Aiken Yuen
Chief People Officer

compensation levels after considering the advice of its
compensation consultant, market practices and Mr. Tan’s
individual performance.

• Base Salary. Mr. Tan’s base salary was increased from

$630,000 to $670,000.

• Annual Incentive Plan Target and Payout Level.
Mr. Tan’s annual cash bonus target was set at 80% of
his base salary, unchanged from the prior year, resulting
in a bonus target for the year of $536,000. Mr. Tan’s
2020 annual cash bonus award payout was $631,166,
reflecting a total payout of 118% of target based on the
Team Performance Factor of 90% and Individual Per-
formance Factor of 130%.

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• Long-Term Incentive Award. Mr. Tan received a long-
term incentive award with a grant date fair value of
approximately $950,000 in 2020, delivered equally in
SARs and PSUs, as the compensation review shows
that the prior year long-term incentive award, which
had remained unchanged from the prior year, was
under-competitive. Mr. Tan also received a Partner
PSU Award with an aggregate grant date fair value,
assuming target performance, of $1,500,000.

2020 Performance Summary. The Compensation Com-
mittee determined Mr. Yuen’s performance to be signifi-
cantly above target with an Individual Performance

Factor of 140%. Mr. Yuen was in charge of coordinating
the Company’s COVID-19 crisis management team. In
such role, Mr. Yuen was responsible for establishing and

YUM CHINA – 2021 Proxy Statement 59

EXECUTIVE COMPENSATION

implementing measures to protect the safety and health of
our employees and to comply with the differentiated
health tracking and reporting requirements across China.
Mr. Yuen also directed timely employee communication
to maintain employee morale, engagement and confi-
dence during the unprecedented pandemic. Mr. Yuen
helped re-evaluate performance objectives used for eligi-
ble employees to establish bonus programs that would
serve as a strong incentive device and redirect employees
to focus on key performance goals designed to address the
particularly challenging environment due to the pandemic
and to position the Company as a strong market
leader. Mr. Yuen was also a key participant in the
Company-wide cost management initiatives and worked
with all functions to adjust their people planning, contrib-
uting to a 12% savings in general and administrative
expenses for 2020 compared to the Company’s operating
plan for the year.

2020 Compensation Decisions. Effective February 1,
2020, the Compensation Committee set Mr. Yuen’s 2020
compensation levels after considering the advice of its
compensation
and
consultant, market
Mr. Yuen’s individual performance.

practices

• Base Salary. Mr. Yuen’s base salary was increased

from $518,000 to $560,000.

• Annual Incentive Plan Target and Payout Level.
Mr. Yuen’s annual cash bonus target remained at 65%
of his base salary, resulting in a bonus target for the year
of $364,000. Mr. Yuen’s 2020 annual cash bonus
award payout was $461,599, reflecting a total payout of
127% of target based on the Team Performance Factor
of 90% and Individual Performance Factor of 140%.

• Long-Term Incentive Award. Mr. Yuen received a
long-term incentive award with a grant date fair value of
approximately $650,000 in 2020, delivered equally in
SARs and PSUs, as the compensation review showed
that the prior year annual long-term incentive award
was under-competitive. Mr. Yuen also received a Part-
ner PSU Award with an aggregate grant date fair value,
assuming target performance, of $1,500,000.

• Retention Award. Mr. Yuen received the second of two
installment payments of his 2018 cash retention award
in the amount of $100,566 in February 2020, based on
his continued employment with the Company through
the applicable payment date.

How Compensation Decisions Are Made

Executive Compensation Philosophy

Role of the Compensation Committee

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A unique feature of the Company is that while it is regis-
tered in the U.S. and listed on the NYSE, it operates
largely in China. As a result, knowledge and expertise of
both U.S. and China regulatory regimes and business
practices are required for many of the Company’s execu-
tive officers.

The Company’s executive compensation program has
been designed to attract and retain the talent necessary to
achieve superior stockholder results and support the long-
term sustainable growth of the Company while simulta-
neously
to
continuously achieve results year after year. In addition,
the program has been designed to reward performance,
emphasize long-term value creation and drive an owner-
ship mentality.

accountable

executives

holding

our

The Compensation Committee reviews and approves
goals and objectives relevant to the compensation of the
CEO and other executive officers, sets the compensation
levels of each of the executive officers, and together with
the other independent directors of the Board, approves the
compensation of the CEO. The Compensation Commit-
tee’s responsibilities under its charter are further described
in the “Governance of the Company” section of this Proxy
Statement. While not members of the Compensation
Committee, the CEO, the CFO, the Chief People Officer,
and the Chief Legal Officer, when necessary, also
attended meetings of the Compensation Committee in
2020 to contribute to and understand the Compensation
Committee’s oversight of, and decisions relating to, exec-
utive compensation. The CEO, the CFO, the Chief People
Officer, and the Chief Legal Officer did not attend por-
tions of the meetings relating to their own compensation.

60 YUM CHINA – 2021 Proxy Statement

EXECUTIVE COMPENSATION

Competitive Market Review

One of the key objectives of our executive compensation
program is to retain and reward the right talent by provid-
ing reasonable and competitive compensation. One
method that the Compensation Committee utilizes to
attain this objective is by establishing a group of peer
companies for comparison of executive compensation
practices.

The peer group approved by the Compensation Commit-
tee based on the recommendations of Mercer consisted of
companies in the restaurant, food and consumer services
industries in the United States, Greater China and Europe.
In addition, Mercer suggested that, for purposes of bench-
marking compensation levels for NEOs other than the
CEO, the peer group data be supplemented with compen-
sation survey data to provide a broader perspective on
market practices. References in this CD&A to market data
refer to the peer group or survey data, as appropriate.

After considering the advice of Mercer, the Compensa-
tion Committee approved a revised peer group for evalu-
ating 2020 compensation decisions for the NEOs, which
consisted of the companies below. As part of these revi-
sions,
the Compensation Committee added Haidilao
International Holding Ltd. and McDonald’s Corporation
to the revised peer group because these companies operate
in the same industry and are direct competitors, and
removed The Gap, Inc. because it considered specialty
retail to be a less relevant industry. Our peer group reflects
a median market capitalization of $12.6 billion and
median annual revenues of $7.9 billion, both as of
June 30, 2020, and consists of 13 U.S. and 14 non-U.S.
companies.

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The Compensation Committee regularly conducts execu-
tive sessions without management present. The Compen-
sation Committee also engages in an ongoing dialog with
its compensation consultant, the CEO, and the Chief Peo-
ple Officer for the evaluation and establishment of the ele-
ments of our executive compensation program.

Role of the Independent Consultant

During 2020, the Compensation Committee retained
Mercer (Hong Kong) Limited (“Mercer”) as its indepen-
dent consultant to advise it on executive compensation
matters. Mercer attended Compensation Committee
meetings in 2020 and provided advice and guidance to the
Compensation Committee on (i) the market competitive-
ness of the Company’s executive pay practices and levels;
(ii) the Partner PSU Awards; (iii) trends in the restaurant
sector affecting executive compensation, due to the
impact of COVID-19, regulatory changes, and institu-
tional shareholder views; (iv) the incorporation of addi-
tional performance factors into the 2020 annual incentive
plan in light of the impact of COVID-19 on the Company;
(v) the 2021 compensation peer group; (vi) the results of
equity compensation analytics and award valuations; (vii)
2021 Chairman equity awards for select Company offi-
cers; (viii) the Company’s stock ownership guidelines and
retention policies; and (ix) pay disclosures, including this
CD&A. The Compensation Committee has assessed the
independence of Mercer pursuant to NYSE rules and
conflicts of interest specifically enumerated by the SEC’s
six factors, and the Company has concluded that Mercer’s
work for the Compensation Committee does not raise any
conflicts of interest. The Compensation Committee annu-
ally reviews its relationship with Mercer and determines
whether to renew the engagement. Only the Compensa-
tion Committee has the right to approve the services to be
provided by, or to terminate the services of, its compensa-
tion consultant.

YUM CHINA – 2021 Proxy Statement 61

EXECUTIVE COMPENSATION

Peer Group
Aramark Corporation
Chipotle Mexican Grill, Inc.
Compass Group PLC
Conagra Brands, Inc.
Darden Restaurants, Inc.
Domino’s Pizza, Inc.
Haidilao International Holdings Ltd.
Hilton Worldwide Holdings Inc.
Hyatt Hotels Corporation
Lenovo Group Limited
Link Real Estate Investment Trust
McDonald’s Corporation
Melco International Development
Restaurant Brands International Inc.

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Data from our 2020 peer group was supplemented by data
from companies included in three executive compensa-
tion surveys conducted by Mercer in China, Hong Kong,
and the U.S., size adjusted to reflect the Company’s reve-
nue. During 2020,
the Compensation Committee
reviewed a report summarizing compensation levels at the
25th, 50th and 75th percentiles of the peer group and, as
applicable, of the survey data for positions comparable to
our NEOs. The report compared target and actual total
cash compensation (base salary and annual incentives)
and total direct compensation (base salary plus annual
incentives plus long-term incentives) for each of the
NEOs against these benchmarks. The Compensation
Committee also reviewed detailed tally sheets that cap-
tured comprehensive compensation, benefits and stock
ownership details.

In December 2020, the Compensation Committee revised
the Company’s compensation peer group and decided to
seven
remove

companies

seven

add

and

(7)

Compensation Policies and Practices

Compensation Recovery Policy

Pursuant to the Company’s Compensation Recovery Pol-
icy, in the event of any restatement of the Company’s
financial statements due to material noncompliance with
any financial reporting requirement under the securities
laws, the Compensation Committee will recover or cancel
any performance awards that were awarded to a current or

62 YUM CHINA – 2021 Proxy Statement

Sodexo S.A.
Starbucks Corporation
Techtronic Industries Company Limited
The Hershey Company
Tingyi (Cayman Islands) Holding Corp.
US Foods Holding Corp.
Want Want China Holdings Limited
WH Group Limited
Whitbread PLC
Wm Morrison Supermarkets PLC
Wynn Macau, Limited
X5 Retail Group N.V.
YUM! Brands, Inc.

(7) companies so as to eliminate casino and gaming as
well as food retail companies and to place greater empha-
sis on internet- and direct marketing retail and packaged
food sectors. The Compensation Committee added
Beyond Meat, Inc., China Mengniu Dairy, eBay Inc.,
Expedia Group, Inc., Kellogg Company, Marriott Inter-
national, Inc., and McCormick & Co. and removed Hyatt
Hotels Corporation, Melco International Development
Limited, US Foods Holding Corp., Whitbread PLC, Wm
Morrison Supermarkets PLC, Wynn Macau, Limited and
X5 Retail Group N.V. The new compensation peer group
consists of 17 U.S. and 10 non-U.S. peers. These changes
were made in order to further align the peer group with the
Company’s size and operations. This revised peer group
will be used to evaluate 2021 compensation decisions.
Founder CEOs at Beyond Meat, Inc., Haidilao Interna-
tional Holdings Ltd., and Want Want China Holdings
Limited are expected to be excluded from the competitive
market review.

former executive officer as a result of achieving perfor-
mance targets that would not have been met under the
restated results. The Company’s recovery authority
applies to any performance award received by a current or
former executive officer during the three most-recently
completed fiscal years immediately preceding the date on
which the Company is required to prepare the restate-
ment. Under the terms of the policy, a performance award

EXECUTIVE COMPENSATION

means any cash or equity-based award that is made, vests
or is payable based wholly or in part on the results of a
financial reporting measure.

Equity-Based Awards Grant Policy

The Company’s Equity-Based Awards Grant Policy pro-
vides for certain procedures with respect to the granting of
equity awards, including specifying pre-determined dates
for annual and off-cycle grants and specifying that the
Company will not purposely accelerate or delay the public
release of material information in consideration of pend-
ing equity grants. Generally, annual equity grants are
effective as of the date that is two business days after the
Company publicly discloses its results for the previous
fiscal year.

Stock Ownership Guidelines

To align the efforts of our executives with the long-term
interests of our stockholders and to reinforce their com-
mitment to the Company’s long-term objectives, the
Compensation Committee established a stock ownership
and retention policy that applies to our Section 16 Officers
and all members of our Leadership Team. Under the stock
ownership and retention policy, the executives have a
five-year period from July 1, 2017 or, if later, the date of
appointment to a covered position to attain the required
ownership level. During the five-year phase-in period, the
executives must retain, until the required ownership
guideline levels have been achieved, at least 50% of the
after-tax shares resulting from the vesting or exercise of

equity awards, including PSUs. If the guideline is not
achieved after such five-year period, the executive officer
will be required to retain 100% of after-tax shares result-
ing from the vesting or exercise of equity awards until the
guideline is achieved.

The chart below shows stock ownership requirements as a
multiple of annual base salary for our NEOs. As of the
Record Date, each NEO is in compliance with the Com-
pany’s stock ownership requirements.

NEO
CEO . . . . . . . . . . . . . . . . . . . . . . . . . .
CFO . . . . . . . . . . . . . . . . . . . . . . . . . .
General Manager, KFC . . . . . . . . . .
Chief Supply Chain Officer
. . . . . . .
Chief People Officer . . . . . . . . . . . . .

Stock Ownership as
a Multiple of Annual
Base Salary
6X
3X
2X
2X
2X

Hedging and Pledging of Company Stock

Under the Company’s Code of Conduct, no employee or
director is permitted to engage in securities transactions
that would allow such employee or director either to insu-
late himself or herself from, or profit from, a decline in the
Company’s stock price. Similarly, no employee or direc-
tor may enter into hedging transactions in Company
stock. Such transactions include, without limitation, short
sales as well as any hedging transactions in derivative
securities (e.g., puts, calls, swaps or collars) or other spec-
ulative transactions related to the Company’s stock.
Pledging of Company stock by executive officers and
directors is also prohibited.

COMPENSATION COMMITTEE REPORT

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with manage-
ment.

Based on such review and discussion with management, the Compensation Committee recommended to the Board of
Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and incorporated by refer-
ence in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

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Compensation Committee:
Ruby Lu (Chair)
Christian L. Campbell
Edouard Ettedgui
William Wang

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EXECUTIVE COMPENSATION

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2020 SUMMARY COMPENSATION TABLE

The following table and footnotes summarize the total compensation awarded to, earned by or paid to the NEOs for fiscal
year 2020 and, to the extent required by SEC executive compensation disclosure rules, fiscal years 2019 and 2018. The
Company’s NEOs for the 2020 fiscal year are its Chief Executive Officer, Chief Financial Officer, and the three other
most highly compensated executive officers.

Name and Principal Position

Year

Salary
($)(1)

Bonus
($)(2)

Stock
Awards
($)(3)

Option/
SAR
Awards
($)(4)

Non-Equity
Incentive Plan
Compensation
($)(5)

All Other
Compensation
($)(6)

Total
($)(7)

Joey Wat . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2020 1,151,083
2019 1,180,667
Chief Executive Officer
2018 1,041,667

— 14,500,084 2,500,003
— 2,500,031 2,500,012
— 2,500,032 2,516,929

2,502,664
4,355,208
1,635,469

517,744
1,634,083
2,792,279

21,171,578
12,170,001
10,486,376

Andy Yeung . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2020
2019
Chief Financial Officer

Johnson Huang(8) . . . . . . . . . . . . . . . . . . . . . . . . . . 2020
2019
General Manager, KFC
2018

Danny Tan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2020
2019
Chief Supply Chain Officer
2018

643,333
189,895

516,814
695,833
644,583

618,431
624,689
592,990

— 2,600,068
— 1,000,030

600,013
—

701,865
322,407

— 2,600,068
440,013
—
440,007
—

— 1,975,039
380,023
—
380,015
—

600,013
440,007
440,011

475,001
380,013
380,005

251,021
1,682,635
866,775

631,166
1,313,575
554,218

Aiken Yuen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2020
2019
Chief People Officer

517,413 100,566
99,552
512,527

1,825,078
228,005

325,011
228,010

461,599
882,224

149,144
29,638

209,701
386,480
453,540

602,913
666,369
1,338,085

542,754
193,251

4,694,423
1,541,970

4,177,617
3,644,968
2,844,916

4,302,550
3,364,669
3,245,313

3,772,421
2,143,569

(1) During 2020, our senior executives, including the NEOs, agreed to voluntarily forgo 10% of their base compen-
sation during the period of April 2020 to December 2020 as contributions to fund additional assistance for front-
line employees and their families impacted by COVID-19 as well as other emergency relief. The amounts
reported in this column for 2020 reflect the 10% salary reduction.

(2)

(3)

The amount reported in this column for 2020 represents the second installment of a 2018 cash retention award
paid to Mr. Yuen.

The amounts reported in this column for 2020 represent the grant date fair value of the Annual PSU Awards and
the Partner PSU Awards granted to each of the NEOs, calculated in accordance with Accounting Standards Codi-
fication Topic 718 (“ASC 718”), Compensation—Stock Compensation. The aggregate fair value of PSU awards
with performance-based conditions are based on the closing price of our Common Stock on the date of grant and
the probable satisfaction of the performance conditions for such awards as of the date of grant. The fair value of
PSU awards with market–based conditions has been determined based on the outcome of a Monte-Carlo simula-
tion model. The maximum value of the 2020 PSU awards at the grant date assuming that the highest level of per-
formance conditions will be achieved is as follows: Ms. Wat, Annual PSU Award—$5,000,037 and Partner PSU
Award—$17,400,104; Mr. Yeung, Annual PSU Award—$1,200,036 and Partner PSU Award—$2,900,078;
Mr. Huang, Annual PSU Award—$1,200,036 and Partner PSU Award—$2,900,078; Mr. Tan, Annual PSU
Award—$950,000 and Partner PSU Award—$2,175,071; and Mr. Yuen, Annual PSU Award—$650,077 and
Partner PSU Award—$2,175,071. See Note 14 to the Company’s Consolidated Financial Statements included in
the Annual Report on Form 10-K for the year ended December 31, 2020 (the “Audited Financial Statements”)
for further discussion of the relevant assumptions used in calculating these amounts.

(4)

The amounts reported in this column for 2020 represent the grant date fair value of the annual SAR awards
granted to each of the NEOs, calculated in accordance with ASC 718. To compute the grant date fair value of SAR

64 YUM CHINA – 2021 Proxy Statement

EXECUTIVE COMPENSATION

awards, the Company uses the Black-Scholes model with the following assumptions: risk-free interest rate of
1.5%, expected term based on historical experience of 6.5 years, expected volatility of 33.2%, and expected divi-
dend yield of 1.1%. See Note 14 to the Company’s Audited Financial Statements for further discussion of the rel-
evant assumptions used in calculating these amounts.

(5) Amounts in this column reflect the annual incentive awards earned for the applicable fiscal year performance
periods under the annual bonus program, which is described further in our CD&A under the heading “Annual
Performance-Based Cash Bonuses.”

(6)

(7)

The amounts in this column for 2020 are detailed in the 2020 All Other Compensation Table and footnotes to that
table, which follow.

Certain compensation included in the All Other Compensation column was denominated in Chinese Renminbi.
Messrs. Tan and Yuen’s salaries and 2020 annual incentive and bonus awards were denominated in Hong Kong
dollars. Compensation paid in Chinese Renminbi or Hong Kong dollars was converted to U.S. dollars using an
exchange rate of 6.8946 and 7.7561, respectively, for disclosure purposes.

(8) During 2020, Mr. Huang took a medical leave of absence from the Company and returned from such leave in
December 2020. Mr. Huang’s 2020 base salary and annual incentive award compensation is reduced as compared
to 2019 due to such medical leave.

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EXECUTIVE COMPENSATION

2020 ALL OTHER COMPENSATION TABLE

The following table and footnotes summarize the compensation and benefits included under the “All Other Compensa-
tion” column in the 2020 Summary Compensation Table that were awarded to, earned by or paid to the Company’s
NEOs for the fiscal year ended December 31, 2020.

Name
(a)

Perquisites and
Other Personal
Benefits
($)(1)
(b)

Tax
Reimbursements
($)(2)
(c)

Retirement
Scheme
Contributions
($)(3)
(d)

Ms. Wat
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mr. Yeung . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mr. Huang . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mr. Tan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mr. Yuen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

148,474

92,004

113,131

167,277

83,679

176,100

—

—

333,677

383,907

124,608

34,826

73,740

67,044

55,965

Other
($)(4)
(e)

68,562

22,314

22,830

34,915

19,203

Total
($)
(f)

517,744

149,144

209,701

602,913

542,754

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(1) Amounts in this column represent: for Ms. Wat, an education reimbursement ($34,340) and housing cost subsidy
($114,134); for Messrs. Yeung, Huang and Yuen, a housing cost subsidy; and for Mr. Tan, an education reim-
bursement ($43,703) and housing cost subsidy ($123,574). Such amounts are valued based on the amounts paid
directly to the NEOs or the service providers, as applicable.

(2) Amounts in this column for Messrs. Tan and Yuen represent legacy tax reimbursements for gains realized in 2020
on equity awards granted before 2018. For Ms. Wat, the amount consists of legacy tax reimbursements for the
exercise of Yum! Brands, Inc. SARs.

(3)

This column represents contributions to the BSRCHLRS for all of our NEOs.

(4)

This column reports the total amount of other benefits provided. Such amounts, which are reflective of market
practice for similarly situated global executives working in international companies based in mainland China, are
paid directly to the NEOs or service providers, as applicable. Other than for certain benefits described below, none
of the other benefits individually exceeded the greater of $25,000 or 10% of the total amount of these other bene-
fits and the perquisites and other personal benefits shown in column (b) for the NEO. These other benefits consist
of amounts paid for utilities, home leave expenses, transportation allowances, repatriation expense reimbursement
and executive physicals. In 2020, Ms. Wat received home leave reimbursement of $29,566.

66 YUM CHINA – 2021 Proxy Statement

EXECUTIVE COMPENSATION

2020 GRANTS OF PLAN-BASED AWARDS

The following table provides information on the annual incentive program that the Company’s NEOs participated in
during 2020 and the SARs, Annual PSU Awards and Partner PSU Awards granted under the Company’s Long Term
Incentive Plan in 2020 to the Company’s NEOs.

Estimated Future Payouts
Under Non-Equity Incentive
Plan Awards(1)
Target
($)
(d)

Threshold
($)
(c)

Maximum
($)
(e)

Grant
Date
(b)

Estimated Future Payouts
Under Equity Incentive
Plan Awards
Target
(#)
(g)

Threshold
(#)
(f)

Maximum
(#)
(h)

All Other
Stock
Awards:
Number of
Shares of
Stock or
Units
(#)
(i)

All Other
Option/
SAR
Awards:
Number of
Securities
Underlying
Options
(#)(2)
(j)

Exercise or
Base Price
of
Option/
SAR
Awards
($/Sh)(3)
(k)

Grant Date
Fair Value
of Stock,
Option and
SAR
Awards
($)(4)
(l)

—
—
2/7/2020
—
2/7/2020(5) —
2/7/2020(6) —

—
—
2/7/2020
—
2/7/2020(5) —
2/7/2020(6) —

—
—
2/7/2020
—
2/7/2020(5) —
2/7/2020(6) —

—
—
2/7/2020
—
2/7/2020(5) —
2/7/2020(6) —

—
—
2/7/2020
—
2/7/2020(5) —
2/7/2020(6) —

—
1,853,825 5,561,475
—
—
23,213
—
— 156,333

—
—
—

—
—

—
—
58,032 139,277
312,666 625,332

557,036 1,671,108
—
—
—

—
—
—

662,866 1,988,598
—
—
—

—
—
—

536,000 1,608,000
—
—
—

—
—
—

364,000 1,092,000
—
—
—

—
—
—

—
—
5,571
26,056

—
—
5,571
26,056

—
—
4,410
19,542

—
—
3,018
19,542

—
—
—
—
33,427
13,928
52,112 104,224

—
—
—
—
33,427
13,928
52,112 104,224

—
—
11,026
39,084

—
—
7,545
39,084

—
—
26,462
78,168

—
—
18,108
78,168

—
—
—
—

—
—
—
—

—
—
—
—

—
—
—
—

—
—
—
—

—
187,063
—
—

—
44,896
—
—

—
44,896
—
—

—
35,542
—
—

—
24,319
—
—

—
$42.71
—
—

—
$42.71
—
—

—
$42.71
—
—

—
$42.71
—
—

—
$42.71
—
—

—
2,500,003
2,500,019
12,000,065

—
600,013
600,018
2,000,050

—
600,013
600,018
2,000,050

—
475,001
475,000
1,500,039

—
325,011
325,039
1,500,039

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Name
(a)

Ms. Wat

. . .

Mr. Yeung . .

Mr. Huang .

Mr. Tan . . . .

Mr. Yuen . . .

(1) Amounts in columns (c), (d) and (e) provide the minimum, target and maximum amounts payable as annual
incentive compensation to each NEO based on team and individual performance during 2020. The actual amounts
of annual incentive compensation awards paid for 2020 performance are shown in the “Non-Equity Incentive
Plan Compensation” column of the 2020 Summary Compensation Table. The performance measurements, per-
formance targets and target bonus percentages are described in the CD&A, beginning under the heading “Annual
Performance-Based Cash Bonuses.”

(2)

SARs allow the grantee to receive the number of shares of the underlying common stock that is equal in value to
the appreciation in the underlying common stock with respect to the number of SARs granted from the date of
grant to the date of exercise. SARs become exercisable in equal installments on the first, second, third and fourth
anniversaries of the grant date, subject to the recipient’s continued employment through the applicable vesting
date.

(3)

The exercise price of the SARs equals the closing price of the underlying common stock on the grant date.

(4)

The amounts reported in this column for 2020 represent the grant date fair value of the annual SAR awards, the
Annual PSU awards and the Partner PSU Awards granted to each of the NEOs, calculated in accordance with

YUM CHINA – 2021 Proxy Statement 67

EXECUTIVE COMPENSATION

ASC 718. The aggregate fair value of PSU awards with performance-based conditions are based on the closing
price of our Common Stock on the date of grant and the probable satisfaction of the performance conditions as of
the date of grant. The fair value of PSU awards with market –based conditions has been determined based on the
outcome of a Monte-Carlo simulation model. To compute the grant date fair value of SAR awards, the Company
uses the Black-Scholes model with the following assumptions: risk-free interest rate of 1.5%, expected term based
on historical experience of 6.5 years, expected volatility of 33.2%, and expected dividend yield of 1.1%. See Note
14 to the Company’s Audited Financial Statements for further discussion of the relevant assumptions used in cal-
culating the grant date fair value for the SARs and PSU awards.

(5) Amounts reported in this row and associated with columns (f), (g) and (h) provide the threshold, target and maxi-
mum numbers of shares of common stock that may be received by the grantee upon vesting of the Annual PSU
Awards. The Annual PSU Awards granted to each of the NEOs on February 7, 2020 will be settled in shares of
common stock, subject to the achievement of performance goals relating to Adjusted Total Revenue Growth and
Adjusted Diluted Earnings Per Common Share Growth, with a rTSR payout modifier, during a performance
period beginning on January 1, 2020 and extending through December 31, 2022, and the NEO’s continued
employment through the last day of the performance period. Amounts reported in the “Threshold” column repre-
sent payout of 40% of target PSUs awarded, and amounts reported in the “Maximum” column represent payout of
240% of the target PSUs awarded.

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(6) Amounts reported in this row and associated with columns (f), (g) and (h) provide the threshold, target and maxi-
mum numbers of shares of common stock that may be received by the grantee upon vesting of the Partner PSU
Awards. The Partner PSU Awards granted to each of the NEOs on February 7, 2020 will be settled in shares of
common stock, subject to the achievement of performance goals relating to absolute stock price hurdles, Adjusted
Total Revenue Growth, Adjusted EBITDA Growth and transformational objectives during a four-year perfor-
mance period beginning on January 1, 2020 and ending on December 31, 2023, and the NEO’s continued
employment through the last day of the performance period. Amounts reported in the “Threshold” column repre-
sent payout of 50% of target PSUs awarded, and amounts reported in the “Maximum” column represent payout of
200% of the target PSUs awarded.

68 YUM CHINA – 2021 Proxy Statement

EXECUTIVE COMPENSATION

OUTSTANDING EQUITY AWARDS AT 2020 YEAR-END

The following table shows the number of Company shares covered by exercisable and unexercisable SARs, unvested
RSUs and unvested PSUs held by the Company’s NEOs on December 31, 2020. This table excludes any YUM shares
received by the NEOs upon conversion of their outstanding YUM equity awards in connection with the spin-off.

Option/SAR Awards

Stock Awards

Name

(a)
Ms. Wat . . . . . .

Number of
Securities
Underlying
Unexercised
Options/
SARs
(#)
Exercisable
(c)
27,063
32,309
41,316
48,846
83,830
93,075
46,525
—
—

Grant
Date
(b)

2/6/2015
3/25/2015
2/5/2016
11/11/2016
2/10/2017
2/9/2018
2/7/2019
2/7/2020
2/7/2020

Mr. Yeung . . . . 11/1/2019
2/7/2020
2/7/2020

Mr. Huang . . . .

Mr. Tan . . . . . . .

2/8/2012
2/6/2013
2/5/2014
2/5/2014
2/6/2015
2/5/2016
11/11/2016
2/10/2017
11/1/2017
2/9/2018
2/7/2019
2/7/2020
2/7/2020

2/8/2012
2/6/2013
2/5/2014
2/5/2014
2/6/2015
2/5/2016
11/11/2016
2/10/2017
2/9/2018
2/7/2019
2/7/2020
2/7/2020

—
—
—

8,994
9,652
6,797
9,516
10,149
13,772
24,423
27,943
—
16,271
8,188
—
—

3,679
7,556
6,797
7,681
10,149
13,772
24,423
27,943
14,052
7,072
—
—

Number of
Securities
Underlying
Unexercised
Options/ SARs
(#)
Unexercisable(1)
(d)

—
—
—
—
27,944(i)
93,076(ii)
139,575(iii)
187,063(iv)

—

—

44,896(iv)

—

—
—
—
—
—
—
—
9,315(i)
—

16,272(ii)
24,566(iii)
44,896(iv)

—

—
—
—
—
—
—
—
9,315(i)
14,053(ii)
21,216(iii)
35,542(iv)

—

Equity
Incentive
Plan Awards:
Number of
Unearned
Shares, Units
or Other
Rights
That Have
Not Vested
(#)(4)
(i)

Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights
That Have
Not Vested
($)(3)
(j)

Number
of Shares
or Units of
Stock
That Have
Not Vested
(#)(2)
(g)

Market
Value
of Shares
or Units of
Stock That
Have
Not Vested
($)(3)
(h)

—
—
—
—
77,532(i)
—
—
—
—

16,287(ii)

—
—

—
—
—
—
—
—
—
—

20,801(iii)
11,217(iv)
10,728(v)

—
—

—
—
—
—
—
—
—
—
9,688(iv)
9,265(v)
—
—

—
—
—
—
4,426,314
—
—
—
—

929,809
—
—

—
—
—
—
—
—
—
—
1,187,549
640,387
612,436
—
—

—
—
—
—
—
—
—
—
553,075
528,938
—
—

—
—
—
—
—
—
83,950(i)
23,213(ii)
156,333(iii)

—
5,571(ii)
26,056(iii)

—
—
—
—
—
—
—
—
—
—
—
5,571(ii)
26,056(iii)

—
—
—
—
—
—
—
—
—
—
4,410(ii)
19,542(iii)

—
—
—
—
—
—
4,792,706
1,325,219
8,925,051

—
318,060
1,487,537

—
—
—
—
—
—
—
—
—
—
—
318,060
1,487,537

—
—
—
—
—
—
—
—
—
—
251,790
1,115,653

Option/
SAR
Exercise
Price
($)
(e)
22.32
23.90
21.06
26.98
26.56
40.29
41.66
42.71
—

—
42.71
—

19.46
19.00
21.30
21.30
22.32
21.06
26.98
26.56
—
40.29
41.66
42.71
—

19.46
19.00
21.30
21.30
22.32
21.06
26.98
26.56
40.29
41.66
42.71
—

Option/
SAR
Expiration
Date
(f)

2/6/2025
3/25/2025
2/5/2026
11/11/2026
2/10/2027
2/9/2028
2/7/2029
2/7/2030
—

—
2/7/2030
—

2/8/2022
2/6/2023
2/5/2024
2/5/2024
2/6/2025
2/5/2026
11/11/2026
2/10/2027
—
2/9/2028
2/7/2029
2/7/2030
—

2/8/2022
2/6/2023
2/5/2024
2/5/2024
2/6/2025
2/5/2026
11/11/2026
2/10/2027
2/9/2028
2/7/2029
2/7/2030
—

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Option/SAR Awards

Stock Awards

Name

(a)
Mr. Yuen . . . . .

Number of
Securities
Underlying
Unexercised
Options/
SARs
(#)
Exercisable
(c)
2,290
3,591
3,602
4,060
4,060
4,614
8,523
8,431
4,243
—
—

Grant
Date
(b)

2/8/2012
2/6/2013
2/5/2014
2/6/2015
2/6/2015
2/5/2016
2/10/2017
2/9/2018
2/7/2019
2/7/2020
2/7/2020

Number of
Securities
Underlying
Unexercised
Options/ SARs
(#)
Unexercisable(1)
(d)

—
—
—
—
—
—
2,841(i)
8,432(ii)
12,730(iii)
24,319(iv)

—

Option/
SAR
Exercise
Price
($)
(e)
19.46
19.00
21.30
22.32
22.32
21.06
26.56
40.29
41.66
42.71
—

Option/
SAR
Expiration
Date
(f)
2/8/2022
2/6/2023
2/5/2024
2/6/2025
2/6/2025
2/5/2026
2/10/2027
2/9/2028
2/7/2029
2/7/2030
—

Number
of Shares
or Units of
Stock
That Have
Not Vested
(#)(2)
(g)

Market
Value
of Shares
or Units of
Stock That
Have
Not Vested
($)(3)
(h)

—
—
—
—
—
—
—
5,812(iv)
5,559(v)
—
—

—
—
—
—
—
—
—
331,833
317,350
—
—

(1)

The actual vesting dates for unexercisable SARs are as follows:

(i)

Remainder of the unexercisable award vested on February 10, 2021.

Equity
Incentive
Plan Awards:
Number of
Unearned
Shares, Units
or Other
Rights
That Have
Not Vested
(#)(4)
(i)

Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights
That Have
Not Vested
($)(3)
(j)

—
—
—
—
—
—
—
—
—
3,018(ii)
19,542(iii)

—
—
—
—
—
—
—
—
—
172,298
1,115,653

(ii) One-half of the unexercisable award vested or will vest on each of February 9, 2021 and 2022.

(iii) One-third of the unexercisable award vested or will vest on each of February 7, 2021, 2022 and 2023.

(iv) One-fourth of the unexercisable award vested or will vest on each of February 7, 2021, 2022, 2023 and

2024.

(2)

The RSUs reported in this column include additional RSUs received with respect to dividend equivalents, which
remain subject to the same underlying vesting conditions. The actual vesting dates for unvested RSUs are as fol-
lows:

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(i)

The RSUs vested in full on February 10, 2021.

(ii) One-half of the RSUs will vest on each of November 1, 2021 and 2022.

(iii) The RSUs will vest in full on November 1, 2021.

(iv) The RSUs vested in full on February 9, 2021.

(v)

The RSUs will vest in full on February 7, 2022.

(3)

The market value of each award is calculated by multiplying the number of shares covered by the award by
$57.09, the closing price of the Company’s stock on the NYSE on December 31, 2020.

(4)

The awards reported in this column represent PSU awards granted to the NEOs with the following vesting terms:

(i)

PSU award scheduled to vest based on the Company’s rTSR performance against constituents of the MSCI
International China Index over the January 1, 2019 through December 31, 2021 performance period, sub-

70 YUM CHINA – 2021 Proxy Statement

EXECUTIVE COMPENSATION

ject to Ms. Wat’s continued employment through the last day of the performance period except as other-
wise provided for in the underlying equity award agreement upon a qualifying termination of employment.
In accordance with SEC disclosure rules, the amount reported for this award is reported assuming maxi-
mum payout. Based on performance, these PSUs will vest in full on December 31, 2021.

(ii)

PSU awards that are scheduled to vest based on the Company’s Adjusted Total Revenue Growth and
Adjusted Diluted Earnings Per Common Share Growth, with a rTSR payout modifier, over the January 1,
2020 through December 31, 2022 performance period, subject to the NEO’s continued employment
through the last day of the performance period except as otherwise provided for in the underlying equity
award agreement upon a qualifying termination of employment. In accordance with SEC disclosure rules,
the amount reported for this award is reported assuming threshold payout. Based on performance, these
PSUs will vest in full on December 31, 2022.

(iii) PSU awards that are scheduled to vest based on the absolute Company stock price hurdles, Adjusted Total
Revenue Growth, Adjusted EBITDA Growth and transformational objectives, over the January 1, 2020
through December 31, 2023 performance period, subject to the NEO’s continued employment through the
last day of the performance period except as otherwise provided for in the underlying equity award agree-
ment upon a qualifying termination of employment. In accordance with SEC disclosure rules, the amount
reported for this award is reported assuming threshold payout. Based on performance, these PSUs will vest
in full on December 31, 2023.

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EXECUTIVE COMPENSATION

2020 OPTION/SAR EXERCISES AND STOCK VESTED

The table below shows the number of Company shares acquired during 2020 upon the exercise of Company SAR
awards and the vesting of Company stock awards and before payment of applicable withholding taxes and broker com-
missions. This table does not include any shares acquired upon the exercise or vesting of outstanding YUM equity
awards.

Name
(a)
Ms. Wat . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mr. Yeung . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mr. Huang . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mr. Tan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mr. Yuen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Option/SAR Awards
Number
of Shares
Acquired on
Exercise
(#)
(b)

Value
Realized
on
Exercise
($)
(c)

—

—

—

5,238

2,015

—

—

—

305,584

116,713

Stock Awards

Number
of Shares
Acquired on
Vesting
(#)
(d)

Value
Realized on
Vesting
($)
(e)

111,489(1)

6,364,952(1)

8,005

426,103

—

—

—

—

—

—

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(1)

This amount includes the number of shares acquired upon the vesting of the 2018 PSU award based on perfor-
mance during the 2018-2020 performance period, with the value realized on vesting determined based on the
closing stock price of our common stock on December 31, 2020.

Nonqualified Deferred Compensation

The Company offers certain executives working in China
retirement benefits under the BSRCHLRS. Under this
program, executives may make personal contributions
and the Company provides a company-funded contribu-
tion ranging from 5% to 10% of an executive’s base sal-
ary. In 2020, Mr. Tan made a personal contribution to the
BSRCHLRS equal to 5% of base salary. The Company’s
contribution for 2020 was equal to 5% of salary for
Mr. Yeung and 10% of salary for each of Ms. Wat and
Messrs. Huang, Tan and Yuen. Participants may elect a

variety of mutual funds in which to invest their account
balances under the plan. Additionally, upon termination,
participants receive a lump sum equal to a percentage of
the Company’s contributions,
including investment
returns. This percentage is based on a vesting schedule
that provides participants with a vested 30% interest upon
completion of a minimum of three years of service, and an
additional 10% vested interest for each additional com-
pleted year, up to a maximum of 100%.

72 YUM CHINA – 2021 Proxy Statement

EXECUTIVE COMPENSATION

2020 NONQUALIFIED DEFERRED COMPENSATION
TABLE

Name

Executive
Contributions
in Last Fiscal
Year
($)(1)
(a)

Registrant
Contributions
in Last Fiscal
Year
($)(2)
(b)

Aggregate
Earnings in
Last Fiscal
Year
($)(3)
(c)

Aggregate
Withdrawals/
Distributions
($)
(d)

Ms. Wat . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mr. Yeung . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mr. Huang . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mr. Tan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mr. Yuen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

—

—

33,522

—

124,608

34,826

73,740

67,044

55,965

—

—

—

—

—

—

—

—

—

—

Aggregate
Balance at
Last
Fiscal
Year End
($)(4)
(e)

444,920(5)

43,972(5)

422,252(5)

392,809(5)

286,095(5)

(1) Amounts in this column reflect Mr. Tan’s personal contributions to the BSRCHLRS with respect to 2020.

(2) Amounts in this column reflect registrant contributions to the BSRCHLRS for the NEOs and which are reflected

in the 2020 Summary Compensation Table.

(3) Under the Hong Kong Data Privacy Act, the administrator of the BSRCHLRS is restricted from disclosing indi-
vidual account balances under the BSRCHLRS, and accordingly, the Company is unable to compile earnings
information with respect to the BSRCHLRS. Under the terms of the BSRCHLRS, participants may elect a variety
of mutual funds in which to invest their account balances under the BSRCHLRS.

(4)

The amounts reflected in this column are the estimated year-end balances for the NEOs under the BSRCHLRS.

(5)

This amount represents the aggregate amount of Company contributions, excluding investment returns. See
note (3) to this table for further information regarding investment returns with respect to the BSRCHLRS. This
amount was denominated in Hong Kong dollars and was converted to U.S. dollars using an exchange rate of
7.7561 Hong Kong dollars to U.S. dollars for disclosure purposes.

Potential Payments upon a Termination or a Change in Control

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to

Termination of Employment without a Change in
Control. The Company is party to Restrictive Covenant
Letter Agreements with each NEO. The Restrictive Cov-
enant Letter Agreements include restrictive covenants
relating
non-competition,
non-disclosure,
non-solicitation and non-disparagement, as well as coop-
eration in investigations and litigation clauses. As consid-
eration for the restrictive covenants, the Company is
obligated to pay an amount equivalent to five times the
NEO’s average monthly salary upon a termination of
a
employment,
of
change-in-control-related termination or
the NEO’s
death. Such amount is offset by amounts otherwise owed
under any other termination-related agreement between
the employee and the Company (including the agree-

other

than

case

the

in

ments described below for Ms. Wat and Mr. Yeung) so
that there is no duplication of payments.

As of December 31, 2020, Ms. Wat was party to an indi-
vidual agreement with the Company, which provided that
if Ms. Wat’s employment had been terminated by the
Company without “cause” prior to March 1, 2021, then
Ms. Wat would have been entitled to a severance payment
($6,250,000), payable in monthly installments, equal to
two times her annual base salary and annual bonus target,
subject to Ms. Wat’s execution of a post-termination
agreement that includes restrictive covenants relating to
non-solicitation, non-competition and non-disclosure.
The amount payable under Mr. Wat’s letter agreement
would be offset by the amount paid pursuant to the

YUM CHINA – 2021 Proxy Statement 73

EXECUTIVE COMPENSATION

Restrictive Covenant Letter Agreement. In addition, in the
event Ms. Wat became eligible for benefits under the
Change in Control Severance Plan, such benefits would
be paid in lieu of any amounts under her letter agreement.

As of December 31, 2020, Mr. Yeung was party to a letter
agreement with the Company, which provided that if
Mr. Yeung’s employment is terminated by the Company
without “cause,” the Company will pay Mr. Yeung a
lump sum payment ($289,930) equal to five times his
average monthly base salary during the 12-month period
prior
this payment,
Mr. Yeung must comply with certain non-competition
restrictive covenants for one year following his termina-
tion of employment. The amount payable under
Mr. Yeung’s letter agreement would be offset by the
amount paid pursuant to the Restrictive Covenant Letter
Agreement.

to termination.

In return for

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The Company’s equity awards provide for pro-rata vest-
ing for terminations due to death, retirement (age 55 and
ten years of service or age 65 and five years of service) or
involuntary termination by the Company without cause,
with PSUs determined based on actual performance. Out-
standing equity awards are forfeited upon a termination
for cause. If the NEOs’ employment had terminated as of
December 31, 2020 without cause or due to death, they
would have been entitled to pro-rata vesting of their out-
standing RSUs, SARs and PSUs as follows: Ms. Wat,
$14,323,412; Mr. Yeung, $1,237,918; Mr. Huang,
$3,617,420; Mr. Tan, $2,233,000; and Mr. Yuen,
$1,514,707, assuming target performance for purposes of
this disclosure. As of December 31, 2020, Messrs. Huang
and Yuen were retirement eligible.

Termination of Employment Following a Change in
Control. As noted in the CD&A, the Company maintains
the Change in Control Severance Plan, which provides
severance benefits to our NEOs in the event of a termina-
tion of employment by the Company without “cause” or
by the NEO due to “good reason,” in each case within 24
months following a change in control (a “Qualifying
Termination”). Each NEO has executed a participation
and restrictive covenant agreement to participate in the
Change in Control Severance Plan, which contains

74 YUM CHINA – 2021 Proxy Statement

restrictive covenants in favor of the Company relating to
non-competition, non-solicitation, non-disclosure, and
non-disparagement. In the event of a Qualifying Termi-
nation under the Change in Control Severance Plan, the
NEO would receive, in lieu of any severance benefits
under any other arrangement with the participant, the fol-
lowing severance benefits:

• An amount equal to the “Severance Multiple” multi-
plied by the sum of (x) such NEO’s monthly base salary
in effect immediately prior to a Qualifying Termination
(or prior to any reduction for purposes of good reason)
and (y) 1/12 of the greater of such NEO’s annual target
cash bonus for the calendar year in which the Qualify-
ing Termination occurs and the most recent annual cash
bonus paid to the NEO, with such amounts payable
over the 12-month period following the NEO’s termi-
nation of employment. The Severance Multiple is 30
for the CEO and 24 for each of the other participating
NEOs. For purposes of the 2020 calculation, the sever-
ance calculation for each NEO other than Mr. Yeung
was determined based on 2019 actual bonus, while
Mr. Yeung’s severance calculation was determined
based on 2020 target bonus.

• Any accrued, but unpaid as of the date of the Qualifying
Termination, annual cash bonus for any completed fis-
cal year preceding a Qualifying Termination, to be paid
within 60 days of the Qualifying Termination.

• Accrued benefits under any retirement plan or health or

welfare plan.

• If permitted by the terms of the Company’s health plan
and applicable law, continued health insurance cover-
age, subsidized by the Company at active employee
rates, through the earlier of the one-year anniversary of
the participant’s termination of employment and the
participant becoming eligible for health insurance cov-
erage under another employer’s plan.

• Outplacement services, in an aggregate cost to the
Company not to exceed $25,000, for a one-year period
(or, if earlier, until the NEO accepts an offer of employ-
ment).

EXECUTIVE COMPENSATION

Under the terms of our equity agreements prior to 2020,
all outstanding SARs, RSUs and PSUs would fully and
immediately vest following a change in control of the
Company if the NEO is employed on the date of the
change in control and is involuntarily terminated (other
than for cause) on or within two years following the
change in control, with performance measured through
the date of termination and subject to proration for time
served during the performance period in the case of the
PSUs. Under the terms of the 2020 Annual PSU Awards
and Partner PSU Awards, if the NEO is employed on the
date of the change in control and resigns for good reason
or is involuntarily terminated other than for cause within
two years following a change in control, then vesting shall
be measured based on the greater of (i) actual perfor-
mance for the performance period through the date of ter-

mination of employment and (ii) target performance (pro-
vided, however, that if the change in control and termina-
tion of employment occur during the first year of the
performance period, then performance will be measured
based on target performance). In addition, beginning with
the 2020 equity awards, if awards are not effectively
assumed in a change in control of the Company, then the
awards will vest in full upon such change in control with
any stock price performance goal vesting based on the per
share transaction price in such change in control and the
other performance goals vesting at the greater of actual
performance through the date of the change in control and
target performance (provided, however, if the change in
control occurs during the first year of the performance
period, then performance will be measured based on tar-
get performance).

The below table shows the maximum amount of payments and other benefits that each NEO would have received upon a
change in control and qualifying termination on December 31, 2020 under the terms of the Change in Control Severance
Plan and the Company’s equity award agreements, assuming target performance of the PSUs for purposes of this disclo-
sure.

Cash Severance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Continued Health Insurance Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outplacement Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accelerated Vesting of SARs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accelerated Vesting of RSUs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accelerated Vesting of PSUs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Wat
$
14,013,020
17,664
25,000
7,260,415
4,426,314
22,886,919

Yeung
$
2,520,000
10,773
25,000
645,604
929,809
3,788,245

Huang
$
4,845,270
10,773
25,000
1,582,414
2,440,371
3,788,245

Tan
$
3,967,150
16,621
25,000
1,358,934
1,082,012
2,874,455

Yuen
$
2,884,448
12,615
25,000
774,524
649,184
2,674,774

TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

48,629,332

7,919,432

12,692,074

9,324,172

7,020,545

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PAY RATIO DISCLOSURE

As required by Section 953(b) of the Dodd-Frank Wall
Street Reform and Consumer Protection Act, the Com-
pany is providing the following disclosure about the rela-
tionship of
total compensation of our
employees to the annual total compensation of Ms. Wat.

the annual

Identification of Median Pay Employee

The Company employed over 400,000 persons as of
year-end 2020, and substantially all of them are based in
China. Given the nature of its operations, approximately
90% of the Company’s employees were restaurant crew-
members. Approximately 74% of the 366,000 crew-
members worked part-time, approximately 42% of whom
attended university at the same time, and were paid on an
hourly basis. Our wage rates for crewmembers are deter-

mined based on a number of factors, including but not
limited to cost of living, labor supply and demand, and
competitive market pay rates in the city in which the
crewmember works.

We selected December 31, 2020, as the date on which to
determine our median employee. For purposes of identi-
fying the median employee from the employee population
base (excluding Ms. Wat), we considered the total com-
pensation of all of our employees, as compiled from our
payroll records. In addition, we measured compensation
for purposes of determining the median employee using
December 2020 payroll records. Compensation paid in
foreign currencies was converted to U.S. dollars based on
a weighted average exchange rate for the relevant period.

YUM CHINA – 2021 Proxy Statement 75

EXECUTIVE COMPENSATION

Using this methodology, our median employee was iden-
tified as a part-time crewmember attending university and
located in a second-tier city in China.

Ratio

For 2020:

• The annual

total compensation of

the median

employee, as identified above, was $5,507.

• Ms. Wat’s annual total compensation, as reported in the
Total column of the 2020 Summary Compensation
Table, was $21,171,578.

• Based on this information, the ratio of the annual total
compensation of Ms. Wat to the median of the annual
total compensation of all employees is approximately
3,844 to 1.

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Our pay ratio is significantly impacted by the fact that
substantially all of our employees are based in China,
approximately 74% of our 366,000 crewmembers are
employed on a part-time and hourly basis, and typical
wages vary between the cities in which our restaurants are
located.

The above ratio and annual total compensation amount of
the median employee are reasonable estimates that have
been calculated using methodologies and assumptions
permitted by SEC rules. The ratio and annual total com-
pensation amount may not be directly comparable to
those of other companies because the methodologies and
assumptions used to identify the median employee may
vary significantly among companies.

Alternative Ratio Annualizing Partner PSU Awards

As discussed above in the CD&A during 2020, each of
the NEOs, including Ms. Wat, received a Partner PSU
Award to address increased competition and the Compa-

76 YUM CHINA – 2021 Proxy Statement

ny’s existing pay gap, motivate transformational perfor-
mance, and encourage long-term retention over the four-
year performance period. Under SEC disclosure rules, the
entire grant date fair value of the Partner PSU Award is
required to be reported in the Summary Compensation
Table in the year of grant rather than over the performance
period. Accordingly, when calculating the pay ratio dis-
closed above, Ms. Wat’s 2020 Partner PSU Award was
included in the calculation at its full grant date fair value.

When determining grant levels, however, the Compensa-
tion Committee considers the long-term performance
period of the Partner PSU Awards and reviews executive
pay on an annualized basis rather than on a grant date
basis. The Compensation Committee believes that annu-
alizing Ms. Wat’s 2020 Partner PSU Award over the per-
formance period is more representative of how the awards
are earned and provides a better comparison to market
levels that are reported on an annualized basis. In addition
to the required pay ratio calculation above, the Company
has calculated an alternative pay ratio using an adjusted
amount of compensation for Ms. Wat that annualizes
Ms. Wat’s 2020 Partner PSU Award by (i) deducting the
grant date fair value of the 2020 Partner PSU Award from
2020 compensation and (ii) instead including as 2020
compensation one-fourth of the grant date fair value of the
2020 Partner PSU Award granted to Ms. Wat to reflect
the four-year performance period. When calculated in this
is
manner, Ms. Wat’s
$12,171,529 and the ratio of the annual total compensa-
tion of Ms. Wat to the median of the annual total compen-
sation of all of the Company’s employees other than
Ms. Wat is estimated to be 2,210 to 1.

compensation

adjusted

This alternative pay ratio is not a substitute for the pay
ratio calculated in accordance with the SEC disclosure
rules, but the Company believes it is helpful in fully eval-
uating the ratio of Ms. Wat’s annual total compensation to
the median of the annual total compensation of all of the
Company’s employees.

2020 DIRECTOR COMPENSATION

The Company primarily uses stock-based compensation
to attract and retain qualified candidates to serve on the
Board. In setting director compensation, the Board con-
siders the significant amount of time that directors expend
in fulfilling their duties to the Company as well as the skill
level required by the Company of members of the Board.
The Nominating and Governance Committee of the
Board considers advice from the compensation consultant
and reviews and makes recommendations to the Board
with respect to the compensation and benefits of directors
on an annual basis. The Company’s director compensa-
tion structure for 2020 is discussed below.

Employee Directors. Employee directors do not receive
additional compensation for serving on the Board of
Directors. Please see the 2020 Summary Compensation
Table for the compensation received by Ms. Wat during
2020 for her role as CEO of the Company.

Non-Employee Directors Retainer. Our non-employee
directors were each compensated with an annual retainer
equal to $275,000, payable in Company common stock
or, if requested by a director, up to one-half in cash. The
annual retainers were paid in June 2020 to compensate the

directors for their services from June 1, 2020 to May 31,
2021. During 2020, members of our Board agreed to vol-
untarily forgo 10% of their retainers during the period of
June 2020 to December 2020 as contributions to fund
additional assistance for frontline employees and their
families impacted by COVID-19 as well as other emer-
gency relief, which are reflected in the table disclosing the
retainers to non-employee directors during 2020.

to

the

paid

retainer

Chairman and Committee Chairperson Retainer. In
addition
to
annual
all non-employee directors, the Chairman of the Board
(Dr. Hu) received an additional annual cash retainer of
$225,000. The Chairperson of the Audit Committee
(Mr. Campbell) received an additional $30,000 stock
retainer, the Chairperson of the Compensation Committee
(Ms. Lu) received an additional $20,000 stock retainer,
the Chairperson of the Nominating and Governance
Committee (Dr. Hu) received an additional $15,000 stock
retainer, and the Chairperson of the Food Safety and Sus-
tainability Committee (Mr. Shao) received an additional
$15,000 stock retainer. All such retainers were paid in
June 2020 to compensate the directors for their services
from June 1, 2020 to May 31, 2021.

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The table below summarizes cash compensation earned by and stock retainers granted to each non-employee director
during 2020.

Name
(a)
Peter A. Bassi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Christian L. Campbell
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Ed Yiu-Cheong Chan . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Edouard Ettedgui . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cyril Han . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Louis T. Hsieh . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fred Hu . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ruby Lu . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Zili Shao . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
William Wang . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Fees Earned or
Paid in Cash($)(1)
(b)

129,479

—

—

—

—

—

225,000

—

—

—

Stock Awards
($)(2)
(c)

129,479

288,958

275,000

258,958

258,958

275,000

273,958

278,958

273,958

258,958

Total
($)
(d)

258,958

288,958

275,000

258,958

258,958

275,000

498,958

278,958

273,958

258,958

YUM CHINA – 2021 Proxy Statement 77

2020 DIRECTOR COMPENSATION

(1)

(2)

Represents the portion of the annual retainer that Mr. Bassi elected to receive in cash rather than equity and the
annual cash retainer paid to Dr. Hu as Chairman of the Board.

Represents the grant date fair value for annual stock retainer awards granted in 2020. Each director received shares
of Company common stock determined by dividing the applicable annual retainer by the closing market price of a
share of Company common stock on the date of grant, with any fractional shares paid in cash rather than equity.

Stock Ownership Requirements. Although our direc-
tors are not subject to the Stock Ownership Guidelines,
we nevertheless expect our directors to own a meaningful
number of shares of Company common stock, and we
have a share retention policy in place for directors. Pursu-

ant to the share retention policy, no director may sell any
shares received as director compensation until at least
12 months following the director’s retirement or departure
from the Board.

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78 YUM CHINA – 2021 Proxy Statement

EQUITY COMPENSATION PLAN INFORMATION

The following table summarizes, as of December 31, 2020, the equity compensation we may issue to our directors, offi-
cers, employees and other persons under the Company’s Long Term Incentive Plan (the “LTIP”), which was approved
by YUM as the Company’s sole stockholder prior to the Company’s spin-off from YUM.

Plan Category

Equity compensation plans approved by security

Number of Securities to
be Issued Upon
Exercise of Outstanding
Options, Warrants and
Rights
(a)

Weighted-
Average
Exercise Price
of Outstanding
Options,
Warrants and
Rights
(b)

Number of Securities
Remaining Available
For Future Issuance
Under Equity
Compensation Plans
(Excluding Securities
Reflected in
Column (a))
(c)

holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

13,627,981(1)

27.49(2)

11,640,269(3)

Equity compensation plans not approved by security

holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

13,627,981

—

27.49

—

11,640,269

(1)

Includes 1,778,057 shares issuable in respect of restricted stock units and performance share units.

(2)

Restricted stock units and performance share units do not have an exercise price. Accordingly, this amount repre-
sents the weighted-average exercise price of outstanding stock appreciation rights and stock options.

(3) After the spin-off, full value awards granted to the Company’s employees under the LTIP, including restricted
stock units and performance share units, will reduce the number of shares available for issuance by two shares.
Stock appreciation rights granted to the Company’s employees under the LTIP will reduce the number of shares
available for issuance only by one share.

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YUM CHINA – 2021 Proxy Statement 79

AUDIT COMMITTEE REPORT

Who serves on the Audit Committee of the Board of
Directors?

The members of the Audit Committee are Christian
L. Campbell (Chair), Peter A. Bassi, Ed Yiu-Cheong
Chan, Cyril Han and Louis T. Hsieh, each of whom are
independent within the meaning of applicable SEC regu-

lations and the listing standards of the NYSE. For addi-
tional information about the members of the Audit Com-
mittee, see “Governance of the Company—What are the
Committees of the Board?”

What document governs the activities of the Audit
Committee?

The Audit Committee operates under a written charter
adopted by the Board of Directors. The Audit Commit-
tee’s responsibilities are set forth in the charter. The Audit
Committee annually reviews and reassesses the adequacy

of its charter and recommends any proposed changes to
the Board for approval. The charter is available on our
website at ir.yumchina.com.

What are the responsibilities of the Audit Committee?

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The Audit Committee assists the Board in fulfilling its
responsibilities for general oversight of the integrity of the
Company’s financial statements, the adequacy of the
Company’s system of internal controls and procedures
and disclosure controls and procedures, the Company’s
risk management, the Company’s compliance with legal
and regulatory requirements, the independent auditor’s
qualifications and independence and the performance of
the Company’s internal audit function and independent
auditor. The Audit Committee has the authority to obtain
advice and assistance from independent legal, accounting
or other advisors as the Audit Committee deems neces-
sary or appropriate to carry out its duties and receive
appropriate funding, as determined by the Audit Com-
mittee, from the Company for such advice and assistance.

The Audit Committee has sole authority to appoint, deter-
mine funding for or replace the independent auditor and
manages the Company’s relationship with its independent
auditor, which reports directly to the Audit Committee.
Each year, the Audit Committee evaluates the perfor-

80 YUM CHINA – 2021 Proxy Statement

mance, qualifications and independence of the indepen-
dent auditor. In doing so, the Audit Committee considers
whether the independent auditor’s quality controls are
adequate and the provision of permitted non-audit ser-
vices is compatible with maintaining the auditor’s inde-
the opinions of
pendence,
management and internal auditor.

taking into account

The members of the Audit Committee meet periodically
in separate executive sessions with management (includ-
ing the Company’s Chief Financial Officer, Chief Legal
Officer and Principal Accounting Officer), the internal
auditors and the independent auditor, and have such other
direct and independent interaction with such persons from
time to time as the members of the Audit Committee
deem appropriate. The Audit Committee may request any
officer or employee of the Company or the Company’s
outside counsel or independent auditor to attend a meeting
of the Audit Committee or to meet with any members of,
or consultants to, the Audit Committee.

AUDIT COMMITTEE REPORT

What matters have members of the Audit Committee
discussed with management and the independent
auditor?

As part of its oversight of the Company’s financial state-
ments, the Audit Committee reviews and discusses with
both management and the Company’s independent audi-
tor all annual and quarterly financial statements prior to
their issuance. During 2020, management advised the
Audit Committee that each set of financial statements
reviewed had been prepared in accordance with account-
ing principles generally accepted in the U.S. and reviewed
significant accounting and disclosure issues with the
Audit Committee. These reviews included discussions
with the independent auditor of matters required to be dis-
the
cussed pursuant
PCAOB and the SEC, including the quality (not merely
the acceptability) of the Company’s accounting princi-
ples, the reasonableness of significant judgments, the
clarity of disclosures in the financial statements, disclo-
sures related to critical accounting practices, and critical
audit matters during the course of the audit. The Audit
Committee has also discussed with KPMG matters relat-
ing to its independence, including a review of audit and
non-audit fees and the written disclosures and letter
received from KPMG required by applicable require-

to applicable requirements of

ments of the PCAOB regarding KPMG’s communica-
tions with the Audit Committee concerning indepen-
dence. The Audit Committee also considered whether
non-audit services provided by the independent auditor
are compatible with the independent auditor’s indepen-
dence. The Audit Committee also received regular
updates, and written summaries as required by the
PCAOB rules (for tax and other services), on the amount
of fees and scope of audit, audit-related, tax and other ser-
vices provided.

In addition, the Audit Committee reviewed key initiatives
and programs aimed at strengthening the effectiveness of
the Company’s internal and disclosure control structure.
As part of this process, the Audit Committee monitored
the scope and adequacy of the Company’s internal audit-
ing program, reviewing staffing levels and steps taken to
implement recommended improvements in internal pro-
cedures and controls. The Audit Committee also reviewed
and discussed legal and compliance matters with man-
agement, and, as necessary or advisable, the Company’s
independent auditor.

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Has the Audit Committee made a recommendation
regarding the audited financial statements for fiscal 2020?

Based on the Audit Committee’s discussions with man-
agement and the independent auditor and the Audit Com-
mittee’s review of the representations of management and
the report of the independent auditor to the Board of
Directors, and subject to the limitations on the Audit
Committee’s role and responsibilities referred to above

and in the Audit Committee Charter, the Audit Commit-
tee recommended to the Board of Directors that it include
the audited consolidated financial statements in the Com-
pany’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2020 for filing with the SEC.

YUM CHINA – 2021 Proxy Statement 81

AUDIT COMMITTEE REPORT

Who prepared this report?

This report has been furnished by the members of the Audit Committee:

Christian L. Campbell, Chair
Peter A. Bassi
Ed Yiu-Cheong Chan
Cyril Han
Louis T. Hsieh

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82 YUM CHINA – 2021 Proxy Statement

ADDITIONAL INFORMATION

Who pays the expenses incurred in connection with the
solicitation of proxies?

Expenses in connection with the solicitation of proxies
will be paid by us. Proxies are being solicited principally
by mail, by telephone and through the Internet. We have
retained Georgeson Inc. to act as a proxy solicitor for a fee
estimated to be $10,000, plus
reimbursement of
out-of-pocket expenses. In addition, our directors, officers

and regular employees, without additional compensation,
may solicit proxies personally, by e-mail, telephone, fax
or special letter. We will reimburse brokerage firms and
others for their expenses in forwarding proxy materials to
the beneficial owners of shares of Company common
stock.

How may I elect to receive stockholder materials?

For stockholders of our common stock registered
on our U.S. register

Stockholders with shares registered directly in their name
who received stockholder materials in the mail may elect
to receive future annual reports and proxy statements
from us and to vote their shares through the Internet
instead of receiving copies through the mail. We are
offering this service to provide stockholders with added
convenience, to reduce our environmental impact and to
reduce annual report printing and mailing costs.

To elect this option, go to www.computershare.com, click
on Shareholder Account Access, log in and locate the
option to receive Company mailings via e-mail. Stock-
holders who elect this option will be notified by mail how
to access the proxy materials and how to vote their shares
on the Internet or by phone.

If you consent to receive future proxy materials electroni-
cally, your consent will remain in effect unless it is with-
drawn by writing our transfer agent, Computershare Trust
Company, N.A., 505000, Louisville, KY 40233-5000, or
by logging onto www.computershare.com and following
the applicable instructions. Also, while this consent is in
effect, if you decide you would like to receive a hard copy
of the proxy materials, you may call, write or e-mail
Computershare Trust Company, N.A.

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For stockholders of our common stock registered
on our Hong Kong register

We will publish annual reports and proxy statements on
our website and on HKEX’s website in English and
Chinese. We will provide printed copies of proxy materi-
als in English and Chinese at no cost upon your request.

I share an address with another stockholder, and we
received only one paper copy of the proxy materials. How
may I obtain an additional copy of the proxy materials?

adopted a procedure

The Company has
called
“householding,” which has been approved by the SEC.
The Company and some brokers household proxy mate-
rials, delivering a single Notice and, if applicable, this

proxy statement and the annual report, to multiple stock-
holders sharing an address unless contrary instructions
have been received from the affected stockholders or they
participate in electronic delivery of proxy materials.

YUM CHINA – 2021 Proxy Statement 83

ADDITIONAL INFORMATION

Stockholders who participate in householding will con-
tinue to access and receive separate proxy cards. This pro-
cess will help reduce our printing and postage fees, as well
as save natural resources. If at any time you no longer
wish to participate in householding and would prefer to
receive a separate proxy statement, or if you are receiving
multiple copies of the proxy statement and wish to receive

only one, please notify your broker if your shares are held
in a brokerage account or us if you hold registered shares.
You can notify us by sending a written request to Yum
China Holdings, Inc., 7100 Corporate Drive, Plano, Texas
75024, or to Yum China Holdings, Inc., Yum China
Building, 20 Tian Yao Qiao Road, Shanghai 200030 Peo-
ple’s Republic of China, Attention: Investor Relations.

May I propose actions for consideration at next year’s
annual meeting of the Company’s stockholders or
nominate individuals to serve as directors?

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Under the rules of the SEC, if a stockholder wants us to
include a proposal in our proxy statement and proxy card
for presentation at the 2022 annual meeting of the Com-
pany’s stockholders, the proposal must be received by our
Corporate Secretary at our principal executive offices,
Yum China Holdings, Inc., 7100 Corporate Drive, Plano,
Texas 75024, or Yum China Holdings, Inc., Yum China
Building, 20 Tian Yao Qiao Road, Shanghai 200030,
People’s Republic of China, by December 16, 2021. We
strongly encourage any stockholder interested in submit-
ting a proposal to contact our Chief Legal Officer in
advance of this deadline to discuss the proposal. Stock-
holders may want to consult knowledgeable counsel with
regard to the detailed requirements of applicable securities
laws. Submitting a proposal does not guarantee that we
will include it in our proxy statement.

In addition, our Bylaws include provisions permitting,
subject to certain terms and conditions, stockholders
owning at least 3% of the outstanding shares of Company
common stock for at least three consecutive years to use
our annual meeting proxy statement to nominate a num-
ber of director candidates not to exceed 20% of the num-
ber of directors in office, subject to reduction in certain
circumstances (the “Proxy Access”). Pursuant to our
Proxy Access bylaw, stockholder nomination of directors
to be included in our proxy statement and proxy card for
the 2022 annual meeting of the Company’s stockholders
must be received by our Corporate Secretary no earlier
than November 16, 2021 and no later than December 16,
2021. Stockholders must also satisfy the other require-
ments specified in our Bylaws. You may contact the

84 YUM CHINA – 2021 Proxy Statement

Company’s Corporate Secretary at the addresses men-
tioned above for a copy of the relevant bylaw provisions
regarding the requirements for nominating director candi-
dates pursuant to Proxy Access.

Under our Bylaws, stockholders may also nominate per-
sons for election as directors at an annual meeting or
introduce an item of business that is not included in our
proxy statement. These procedures provide that nomina-
tions for director nominees and/or an item of business to
be introduced at an annual meeting must be submitted in
writing to our Corporate Secretary at our principal execu-
tive offices, and the stockholder submitting any such
nomination or item of business must include information
set forth in our Bylaws. For the 2022 annual meeting of
the Company’s stockholders, we must receive the notice
of your intention to introduce a nomination or to propose
an item of business no earlier than January 28, 2022 and
no later than February 27, 2022, unless we hold the 2022
annual meeting before April 28, 2022 or after June 27,
2022, in which case notice must be received no later than
10 days after notice of the date of the annual meeting is
mailed or public disclosure of the date of the annual meet-
ing is made, whichever first occurs. Stockholders must
also satisfy the other requirements specified in our
Bylaws. You may contact the Company’s Corporate Sec-
retary at the addresses mentioned above for a copy of the
relevant bylaw provisions regarding the requirements for
making stockholder proposals and nominating director
candidates.

ADDITIONAL INFORMATION

Is any other business expected to be conducted at the
Annual Meeting?

The Board is not aware of any matters that are expected to
come before the Annual Meeting other than those referred
to in this proxy statement. If any other matter should come
before the Annual Meeting, the individuals named on the
form of proxy intend to vote the proxies in accordance
with their best judgment.

The chairman of the Annual Meeting may refuse to allow
the transaction of any business, or to acknowledge the
nomination of any person, not made in compliance with
the foregoing procedures.

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YUM CHINA – 2021 Proxy Statement 85

APPENDIX A

PROPOSED AMENDMENTS TO ARTICLE SEVENTH(b) OF
YUM CHINA’S AMENDED AND RESTATED CERTIFICATE
OF INCORPORATION

For the text of the proposed amendments, deletions are indicated by strikeouts and additions are indicated by underlin-
ing.

(b) Special meetings of the Stockholders may be called exclusively: (i) by the Board of Directors; or (ii) by the Chairman
of the Board of Directors, the Corporation’s Chief Executive Officer or the Corporation’s Secretary, in each case with the
concurrence of a majority of the Board of Directors; or (iii) by the Corporation’s Secretary upon written request by
Stockholders owning at least twenty five (25) percent of all outstanding shares of common stock of the Corporation as
determined pursuant to the Bylaws and who otherwise comply with such other requirements and procedures set forth in
the Bylaws, as now or hereinafter in effect. Special meetings of Stockholders shall be held at such places and times as
determined by the Board of Directors in its discretion. Advance notice of stockholder nominations for the election of
Directors and of business to be brought before any meeting of the Stockholders shall be given in the manner provided in
the Bylaws.

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86 YUM CHINA – 2021 Proxy Statement

APPENDIX B

PROPOSED AMENDMENTS TO YUM CHINA’S AMENDED
AND RESTATED BYLAWS

If the stockholders approve Proposal 4 at the Annual Meeting, the Board of Directors currently intends to amend Sec-
tion 3 and 4 of Article 2 of the Company’s Bylaws as follows:

For the text of the proposed amendments, deletions are indicated by strikeouts and additions are indicated by underlin-
ing.

Section 3. Special Meetings.

(a) General. Special meetings of the Stockholders may be called exclusively: (ai) by the Board of Directors; or(bii) by
the Chairman of the Board of Directors, the Corporation’s Chief Executive Officer or the Corporation’s Secretary, in
each case with the concurrence of a majority of the Board of Directors; Special meetings of the Stockholders shall be held
at such places, if any, and times as: or (iii) by the Corporation’s Secretary upon the written request (each such request, a
“Special Meeting Request” and such meeting, a “Stockholder Requested Special Meeting”) of Stockholders of record
representing not less than 25% of all outstanding shares of common stock, par value $0.01 per share, of the Corporation
(“Common Stock”) entitled to vote on the matter or matters to be brought before the Stockholder Requested Special
Meeting (such percentage, the “Requisite Percentage”) that have complied in full with the requirements set forth in this
Section 3 and related provisions of these Bylaws; provided, that each such Stockholder of record, or beneficial owner
directing such Stockholder of record, must have continuously held all of his, her or its shares included in such aggregate
amount constituting the Requisite Percentage for at least one (1) year prior to the date such Special Meeting Request is
delivered to the Corporation. Whether the Stockholders have submitted valid Special Meeting Requests representing the
Requisite Percentage and complying with the requirements of this Section 3 and related provisions of these Bylaws (a
“Valid Special Meeting Request”) shall be determined in good faith by the Board of Directors, in its discretionwhich
determination shall be conclusive and binding on the Corporation and the Stockholders.

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(b) Calling a Stockholder Requested Special Meeting. In order for a Stockholder Requested Special Meeting to be
called, the Special Meeting Requests must be signed by Stockholders of record (or their duly authorized agents) repre-
senting in the aggregate not less than the Requisite Percentage, and be dated and delivered personally or by registered
mail to the Corporation’s Secretary at the principal executive offices of the Corporation. Such Special Meeting Requests
shall comply with Section 3 and shall include with particularity as to the Stockholders of record submitting the Special
Meeting Requests and any Stockholder Associated Persons (as defined below)(collectively,
the “Requesting
Stockholders”): (i) a statement of the specific purpose or purposes of the Stockholder Requested Special Meeting,
including a description of all intended proposals; (ii) except with respect to any Solicited Stockholders (as defined
below), all information required to be set forth in a notice under Section 9(a)–(d) of this Article 2; (iii) documentary evi-
dence that the Requisite Percentage of shares have been owned continuously for the one-year period by each Stockholder
of record who signed a Special Meeting Request; provided, however, that if any Stockholders of record making a Special
Meeting Request are not the beneficial owner of the shares of Common Stock representing the Requisite Percentage,
then to be valid, each such Special Meeting Request must also include documentary evidence that the beneficial owners
on whose behalf such Special Meeting Request is made beneficially owned, together with the Stockholders of record

YUM CHINA – 2021 Proxy Statement 87

APPENDIX B

who are beneficial owners, the Requisite Percentage as of the date on which such Special Meeting Request is delivered to
the Corporation’s Secretary and for a minimum of one full year prior to the date of such delivery; (iv) an acknowledg-
ment by each Requesting Stockholder and the beneficial owners, if any, on whose behalf a Special Meeting Request is
being made (or their respective duly authorized agents) that any reduction in the number of shares owned by such Stock-
holders as of the date of delivery of the Special Meeting Request and prior to the record date for the proposed Stockholder
Requested Special Meeting shall constitute a revocation of the Special Meeting Request to the extent of such reduction,
and a commitment to promptly notify the Corporation of any such decrease; and (v) a representation that at least one
Requesting Stockholder, or a qualified representative of at least one Requesting Stockholder, intends to appear in person
to present each item of business to be brought before the Stockholder Requested Special Meeting. In addition, each
Requesting Stockholder that is not a Solicited Stockholder shall promptly provide any other information reasonably
requested by the Corporation in connection with the Special Meeting Request. If the Board of Directors determines that
the Special Meeting Request complies with the provisions of these Bylaws and that the proposal to be considered or
business to be conducted is a proper subject for Stockholder action under applicable law, the Board of Directors shall call
and send notice of a Stockholder Requested Special Meeting for the purpose set forth in the Special Meeting Request in
accordance with Section 4 of this Article 2.

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In addition, to be considered timely, proper and valid, a Special Meeting Request shall further be updated, if necessary, so
that the information provided or required to be provided in such Special Meeting Request shall be true and correct (x) as
of the record date for the Stockholder Requested Special Meeting and (y) as of the date that is ten (10) business days prior
to such meeting or any adjournment or postponement thereof (provided that such update shall be delivered to the Corpo-
ration’s Secretary at the principal executive offices of the Corporation not later than five (5) business days after the record
date for the meeting in the case of the update required to be made pursuant to the foregoing clause (x), and not later than
eight (8) business days prior to the date for the meeting or any adjournment or postponement thereof in the case of the
update required to be made pursuant to the foregoing clause (y)). For the avoidance of doubt, the obligation to update as
set forth in this Section 3 or any other section of these Bylaws shall not limit the Corporation’s rights with respect to any
deficiencies in any Special Meeting Request or other notice provided by a Stockholder, extend any applicable deadlines
hereunder to amend or update any proposal or nomination (or notice thereof) or to submit any new proposal or nomina-
tion (or notice thereof), including, without limitation, by changing or adding nominees, matters, business and/or resolu-
tions proposed to be brought before a meeting of the Stockholders.

For the purposes of this Section 3, “Solicited Stockholder” shall mean any Stockholder that has provided a request to call
a special meeting in response to a solicitation made pursuant to, and in accordance with, Section 14 of the Exchange Act;
and “Stockholder Associated Person” shall mean (A) any person who is a member of a “group” (as such term is used in
Rule 13d-5 under the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (as so
amended and inclusive of such rules and regulations, the “Exchange Act”) (or any successor provision at law)) with or
otherwise acting in concert with such Stockholder providing notice, (B) any beneficial owner of Common Stock owned
of record by such Stockholder (other than a Stockholder that is a depositary), (C) any affiliate or associate of such Stock-
holder or such Stockholder Associated Person, (D) any participant (as defined in paragraphs (a)(ii)-(vi) of Instruction 3 to
Item 4 of Schedule 14A, or any successor instructions) with such Stockholder or other Stockholder Associated Person in
respect of any proposals or nominations, as applicable and (E) any person whom the Stockholder proposes to nominate
for election or reelection as a director of the Corporation; provided, however, that in no case shall it mean a Solicited
Stockholder.

(c) Multiple Special Meeting Requests. In determining whether Special Meeting Requests have met the requirements
of this Section 3, multiple Special Meeting Requests will be considered together only if (i) each Special Meeting Request
identifies the same or substantially the same purpose or purposes of the Stockholder Requested Special Meeting and the
same or substantially the same items of business proposed to be brought before the Stockholder Requested Special
Meeting (which, if such purpose is the nominating of a person or persons for election to the Board of Directors, will mean

88 YUM CHINA – 2021 Proxy Statement

APPENDIX B

that the exact same person or persons are nominated in each relevant Special Meeting Request), and (ii) such Special
Meeting Requests have been dated and delivered to the Corporation’s Secretary within sixty (60) days of the delivery to
the Corporation’s Secretary of the earliest dated Special Meeting Request relating to such item(s) of business. A
Requesting Stockholder may revoke a Special Meeting Request at any time by written revocation delivered to the Cor-
poration’s Secretary and if, following such revocation, there are outstanding un-revoked requests from Requesting
Stockholders holding less than the Requisite Percentage, the Board of Directors may, in its discretion, cancel the Stock-
holder Requested Special Meeting.

(d) Valid Items of Business for a Stockholder Requested Special Meeting. Notwithstanding the foregoing provisions
of this Section 3, a Stockholder Requested Special Meeting shall not be held if (i) the Special Meeting Request does not
comply with these Bylaws; (ii) the Special Meeting Request relates to an item of business that is not a proper subject for
Stockholder action under applicable law; (iii) the Special Meeting Request is received by the Corporation’s Secretary
during the period commencing ninety (90) days prior to the anniversary date of the prior year’s annual meeting of Stock-
holders and ending on the date of the final adjournment of the next annual meeting of Stockholders; (iv) an identical or
substantially similar item (a “Similar Item”) was presented at any meeting of Stockholders held not more than one hun-
dred twenty (120) days prior to receipt by the Corporation’s Secretary of the Special Meeting Request; (v) the Board of
Directors has called or calls for an annual or special meeting of Stockholders to be held within ninety (90) days after the
Corporation’s Secretary receives the Special Meeting Request and the Board of Directors determines that the business of
such meeting includes (among any other matters properly brought before the annual or special meeting) a Similar Item;
or (vi) the Special Meeting Request was made in a manner that involved a violation of Regulation 14A under the
Exchange Act, would violate an applicable law or regulation, or would cause the company to violate the law or other
applicable law. For purposes of this Section 3(d), the nomination, election or removal of directors shall be deemed a
“Similar Item” with respect to all items of business involving the nomination, election or removal of directors, the
changing of the size of the Board of Directors and the filling of vacancies and/or newly created directorships resulting
from any increase in the authorized number of Directors. If none of the Requesting Stockholders appears or sends a
qualified representative to present the item of business submitted by the Stockholder(s) for consideration at the Stock-
holder Requested Special Meeting, such item of business shall not be submitted for a vote of the Stockholders at such
Stockholder Requested Special Meeting, notwithstanding that proxies in respect of such vote may have been received by
the Corporation or such Stockholder(s). Whether the Requesting Stockholders have complied with the requirements of
this Section 3 and related provisions of these Bylaws shall be determined in good faith by the Board of Directors, which
determination shall be exclusive and binding on the Corporation and the Stockholders. Nothing contained in this
Section 3 shall prohibit the Board of Directors from submitting matters to Stockholders at any Stockholder Requested
Special Meeting.

(e) Holding a Special Meeting. Special meetings of Stockholders shall be held at such date, time and place as may be
fixed by the Board of Directors; provided, however, that the date of any Stockholder Requested Special Meeting
requested pursuant to a Valid Special Meeting Request shall be not more than ninety (90) days after the date on which a
Valid Special Meeting Request has been delivered to the Corporation’s Secretary.

Section 4. Notice of Meetings. At least ten (10) and no more than sixty (60) days prior to any annual or special meeting
of the Stockholders, the Corporation shall notify the Stockholders of the date, time and place, if any, and means of remote
communication, if any, of the meeting and, in the case of a special meeting or where otherwise required by the Corpora-
tion’s Amended and Restated Certificate of Incorporation (the “Certificate”) or by statute, shall briefly describe the pur-
pose or purposes of the meeting. Without limiting the manner by which notice otherwise may be given effectively to
Stockholders, notice of meetings may be given to Stockholders by means of electronic transmission in accordance with
applicable law. Only business within the purpose or purposes described in the notice may be conducted at a special
meeting. Nothing contained herein shall prohibit the Board of Directors from submitting matters to the Stockholders at

YUM CHINA – 2021 Proxy Statement 89

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APPENDIX B

any Stockholder Requested Special Meeting. Unless otherwise required by the Certificate or by statute, the Corporation
shall be required to give notice only to the Stockholders entitled to vote at the meeting. If an annual or special Stockhol-
ders’ meeting is adjourned to a different date, time or place, notice thereof need not be given if the new date, time or
place, if any, and means of remote communication, if any, is announced at the meeting before adjournment. If a new
record date for the adjourned meeting is fixed pursuant to Article 7, Section 5 hereof, notice of the adjourned meeting
shall be given to persons who are Stockholders as of the new record date. If mailed, notice shall be deemed to be effective
when deposited in the United States mail with postage thereon prepaid, correctly addressed to the Stockholder’s address
shown in the Corporation’s current record of Stockholders.

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90 YUM CHINA – 2021 Proxy Statement

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the fiscal year ended December 31, 2020

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

OR

Í

‘

For the transition period from

to

Commission file number 001-37762
Yum China Holdings, Inc.
(Exact Name of Registrant as Specified in Its Charter)

Delaware
(State or Other Jurisdiction of
Incorporation or Organization)

7100 Corporate Drive
Plano, Texas 75024
United States Of America

81-2421743
(I.R.S. Employer
Identification No.)
Yum China Building
20 Tian Yao Qiao Road
Shanghai 200030
People’s Republic Of China

Title of Each Class

Common Stock, Par Value $0.01 Per Share

Name of Each Exchange on Which Registered
New York Stock Exchange
The Stock Exchange of Hong Kong Limited

(Address, including Zip Code, of Principal Executive Offices)
Registrant’s telephone number, including area code: (469) 980-2898
Securities registered pursuant to Section 12(b) of the Act:
Trading Symbol(s)
YUMC
9987
Securities registered pursuant to Section 12(g) of the Act:
None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ✓ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No ✓
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the pre-
ceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes ✓ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ✓ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of
the Exchange Act.

Large accelerated filer: Í
Non-accelerated filer: ‘

Accelerated filer: ‘
Smaller reporting company: ‘
Emerging growth company: ‘

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting stan-
dards provided pursuant to Section 13(a) of the Exchange Act. ‘
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Sec-
tion 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Í
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No ✓
The aggregate market value of the voting stock (which consists solely of shares of common stock) held by non-affiliates of the registrant as of June 30, 2020, the last business day of the regis-
trant’s most recently completed second fiscal quarter, was approximately $18.1 billion. Solely for purposes of this disclosure, shares of common stock held by executive officers and directors of
the registrant as of such date have been excluded because such persons may be deemed to be affiliates. The number of shares of the registrant’s common stock outstanding as of February 22, 2021
was 420,407,023 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the registrant’s 2021 annual meeting of stockholders (the “2021 Proxy Statement”), to be filed not later than 120 days after the end of the registrant’s
fiscal year, are incorporated by reference into Part III of this Form 10-K.

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TABLE OF CONTENTS

PART I

ITEM 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Information about our Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 3.

Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 4. Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART II

ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Pur-

chases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of

Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 8.

Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2

13

19

59

59

59

59

60

62

65

90

91

ITEM 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclo-

sure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145
ITEM 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145
ITEM 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145

PART III

ITEM 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . 146
ITEM 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stock-

holder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146
ITEM 13. Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . 146
ITEM 14. Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146

PART IV

ITEM 15. Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147
ITEM 16. Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151

SIGNATURES

152

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FORWARD-LOOKING STATEMENTS

This annual report on Form 10-K (this “Form 10-K”) includes “forward-looking statements” within the meaning of Sec-
tion 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”). We intend all forward-looking statements to be covered by the safe harbor provisions of the Pri-
vate Securities Litigation Reform Act of 1995.

Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. These
statements often include words such as “may,” “will,” “estimate,” “intend,” “seek,” “expect,” “project,” “anticipate,”
“believe,” “plan,” “could,” “target,” “predict,” “likely,” “should,” “forecast,” “outlook,” “model,” “continue,”
“ongoing” or other similar terminology. Forward-looking statements are based on our current expectations, estimates,
assumptions or projections concerning future results or events, including, without limitation, statements regarding our
strategies to expand our restaurant network and restaurant portfolio, our strategies to improve store performance and
develop new sources of revenue, plans to invest in technology and high-quality assets, plans to enhance digital and deliv-
ery capabilities, franchise development, logistics and supply chain management, anticipated effects of population and
macroeconomic trends and the expected impact of the novel coronavirus (COVID-19) outbreaks. Forward-looking
statements are neither predictions nor guarantees of future events, circumstances or performance and are inherently sub-
ject to known and unknown risks, uncertainties and assumptions that could cause our actual results and events to differ
materially from those indicated by those forward-looking statements. We cannot assure you that any of our expectations,
estimates, assumptions or projections will be achieved. Factors that could cause actual results and events to differ materi-
ally from our expectations, estimates, assumptions or projections include (i) the risks and uncertainties described in the
Risk Factors included in Part I, Item 1A of this Form 10-K and (ii) the factors described in Management’s Discussion and
Analysis of Financial Condition and Results of Operations included in Part II, Item 7 of this Form 10-K. You should not
place undue reliance on forward-looking statements, which speak only as of the date hereof. We disclaim any obligation
to publicly update any forward-looking statement to reflect subsequent events or circumstances, except as required by
law.

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YUM CHINA – 2020 Form 10-K 1

PART I

ITEM 1. Business.

References to “Yum China” mean Yum China Holdings,
Inc. and references to the “Company,” “we,” “us,” and
“our” mean Yum China and its subsidiaries.

“U.S. dollars”, “$” or “US$” refers to the legal currency
of the United States, and “RMB” or “Renminbi” refers to
the legal currency of the People’s Republic of China (the
“PRC” or “China”).

The KFC, Pizza Hut, Little Sheep, Huang Ji Huang,
COFFii & JOY, East Dawning, Taco Bell and Lavazza
brands are collectively referred to as the “brands” or “con-
cepts”. Throughout this Form 10-K, the terms “brands”
and
used
and
“restaurants,” “stores” and “units” are used interchange-
ably.

interchangeably

“concepts”

are

General

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Yum China is the largest restaurant company in China in
terms of 2020 system sales. We had $8.3 billion of reve-
nue in 2020 and over 10,500 restaurants as of
December 31, 2020. Our growing restaurant network
consists of our flagship KFC and Pizza Hut brands, as
well as emerging brands such as Little Sheep, Huang Ji
Huang, COFFii & JOY, East Dawning, Taco Bell and
Lavazza.

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. We own the intellectual
property of the Little Sheep, Huang Ji Huang, COFFii &
JOY and East Dawning concepts outright. KFC was the
first major global restaurant brand to enter China in 1987.
With more than 30 years of operations, we have devel-
oped extensive operating experience in the China market.

2 YUM CHINA – 2020 Form 10-K

We have since grown to become the largest restaurant
company in China in terms of 2020 system sales, with
10,506 restaurants covering over 1,500 cities primarily in
China as of December 31, 2020. We believe that there is
significant opportunity to expand within China, and we
intend to focus our efforts on increasing our geographic
footprint in both existing and new cities.

As of December 31, 2020, we owned and operated
approximately 84% of our restaurants. Franchisees con-
tribute to our revenues on an ongoing basis through the
payment of royalties based on a percentage of sales.

Restaurant Concepts

KFC

KFC is the leading and the largest quick-service restaurant
(“QSR”) brand in China in terms of 2020 system sales.
Founded in Corbin, Kentucky by Colonel Harland D.
Sanders in 1939, KFC opened its first restaurant in
Beijing, China in 1987. As of December 31, 2020, there
were over 7,100 KFC restaurants in over 1,500 cities
across China. In addition to Original Recipe® chicken,
KFC in China has an extensive menu featuring pork, sea-
food, rice dishes, fresh vegetables, soups, congee, desserts
and many other products, including fresh ground coffee.
KFC also seeks to increase revenue from different cate-
gories and channels, including delivery, breakfast, coffee,
dessert kiosks and ready meals. KFC primarily competes
with western QSR brands in China, such as McDonald’s,
Dicos and Burger King, among which we believe KFC
had an approximate two-to-one lead over its nearest com-
petitor in terms of store count as of the end of 2020.

Pizza Hut

Pizza Hut is the leading and the largest casual dining res-
taurant (“CDR”) brand in China in terms of 2020 system
sales and number of restaurants as of December 31, 2020,
offering multiple dayparts, including breakfast, lunch,
afternoon tea and dinner. Since opening its first China res-
taurant unit in Beijing in 1990, Pizza Hut has grown rap-
idly and, as of year-end 2020, there were over 2,300 Pizza
Hut restaurants in over 500 cities across China. Pizza Hut
has an extensive menu offering a broad variety of pizzas,
steaks, pasta, rice dishes and other entrees, appetizers,
beverages and desserts. Measured by number of restau-
rants, we believe Pizza Hut has an approximate six-to-one
lead over its nearest CDR competitor in China as of the
end of 2020.

Other Concepts

In addition to KFC and Pizza Hut, our restaurant brand
portfolio also includes Little Sheep, Huang Ji Huang,
COFFii & JOY, East Dawning, Taco Bell and Lavazza.

Little Sheep. Little Sheep, with its roots in Inner
Mongolia, China, specializes in “Hot Pot” cooking, which
is very popular in China, particularly during the winter
months. Little Sheep had 270 units in both China and
international markets as of December 31, 2020. Of these,
over 240 units were franchise restaurants.

Huang Ji Huang. In April 2020, we completed the acqui-
in Huang Ji Huang.
sition of a controlling interest
Founded in 2004, Huang Ji Huang had over 640 units in
China and internationally as of December 31, 2020.
Huang Ji Huang primarily operates a franchise model and
is an industry-leading simmer pot brand.

COFFii & JOY. COFFii & JOY is a coffee concept that
we developed in 2018, featuring specialty coffee. As of
December 31, 2020, there were 42 COFFii & JOY units
in China.

East Dawning. East Dawning is a Chinese food QSR
brand located predominantly in transportation hubs. As of
December 31, 2020, there were eight East Dawning units
across China.

PART I

Taco Bell. Taco Bell is the world’s leading western QSR
brand specializing in Mexican-style food, including tacos,
burritos, quesadillas, salads, nachos and similar items. We
opened our first Taco Bell restaurant in Shanghai, China,
in December 2016. As of December 31, 2020, there were
12 Taco Bell units in China.

Lavazza. In April 2020, we partnered with Lavazza
Group, the world-renowned family-owned Italian coffee
company, and established a joint venture, to explore and
develop the Lavazza coffee shop concept in China. As the
first step, we opened our first Lavazza flagship store in
Shanghai, China. As of December 31, 2020, there were
four Lavazza units in China.

Our Strategies

Our primary strategy is to grow sales and profits across
our portfolio of brands through organic growth, growth of
franchise restaurants and development of new restaurant
concepts, along with growing our online business.

Continue to strategically expand our
restaurant network

We are confident in the long-term market opportunities in
China. We believe we have the potential to grow to
20,000 restaurants or more in the future and we are cur-
rently tracking over 700 cities that do not have a KFC or
Pizza Hut restaurant.

Further expand geographical coverage. Restaurant
chains have a low penetration rate in China, especially in
lower-tier cities. Given the rapidly expanding middle
class and dining out population as a result of continued
economic growth and urbanization, we believe there are
significant opportunities to expand within China, and we
intend to focus our efforts on increasing our geographic
footprint in both existing and new cities. For additional
information on the risks associated with this growth strat-
egy, see the section entitled “Item 1A. Risk Factors,”
including the risk factor entitled “We may not attain our
target development goals; aggressive development could
cannibalize existing sales; and new restaurants may not be
profitable.”

Restaurant development pipeline. We are keen to explore
various new restaurant formats to support further store

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PART I

expansion, including different store designs or service
models aimed at addressing the needs of different guests
and for different occasions. We believe that our first-
mover advantage and in-depth local know-how will help
us to build robust development pipelines to seize the mar-
ket opportunities.

the bucket and increased combo options throughout the
day, and Pizza Hut plans to continue its multiple value
campaigns. We believe our continued food innovation
and value proposition are pivotal to enhancing our unit-
level performance by driving order frequency and order
ticket size.

Franchise opportunity. While we continue to focus on the
operation of our Company-owned restaurant units, we
will also continue to seek franchise opportunities for both
our core and emerging brands. As of December 31, 2020,
approximately 16% of our restaurants were operated by
franchisees. We anticipate high franchisee demand for our
brands, supported by strong unit economics, operational
consistency and multiple store formats to drive restaurant
growth. While the franchise market in China is still in an
early stage compared to developed markets, we plan to
continue to develop our franchisee-owned store portfolio
over time, especially in select channels such as gas sta-
tions.

Grow emerging brands. Our key growth strategy for
emerging brands, such as Little Sheep, Huang Ji Huang,
COFFii & JOY, East Dawning, Taco Bell and Lavazza,
focuses on exploring suitable business models to achieve
sustainable growth. In addition, we plan to continue our
efforts in product innovation and operational enhance-
ment for these emerging brands to potentially scale-up
operations in the future.

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Continue to improve unit-level
performance and develop new sources of
revenue

Food innovation and value proposition. We will continue
to focus on food innovation and strengthen our value
proposition. We are keenly aware of the strength of our
core menu items. At the same time, we seek to continue to
introduce innovative items to meet evolving consumer
preferences and local tastes, drive guest engagement and
continue to broaden our brand appeal. Each of our restau-
rant concepts has proprietary menu items, and emphasizes
the preparation of food with high quality ingredients. We
will continue to develop unique recipes and special sea-
sonings to provide appealing, tasty and convenient food
choices at competitive prices. In addition, KFC plans to
continue focusing on value with product offerings such as

4 YUM CHINA – 2020 Form 10-K

Daypart opportunities. We believe there are significant
daypart opportunities across our brands. For example,
KFC expanded its freshly ground coffee (“K-coffee”)
offerings in the breakfast and afternoon dayparts, and
Pizza Hut continued its focus on breakfast and business
lunch to further grow same-store sales.

Best in-store experience. We continuously look for ways
to improve the guest experience. For example, we plan to
continue to invest in refurbishing our restaurants. Our
brands also look to improve efficiency to drive sales
growth. For instance, we have simplified menus and fine-
tuned our digital menu boards and in-store self-service
order devices. We are also expanding our delivery busi-
ness through our proprietary smartphone applications and
pre-order services. To further enhance the guest experi-
ence, we are also evaluating the possibility of adopting
other digital initiatives in our restaurants and will continue
to invest in this area, as discussed more fully below.

Continue to invest in technology, with a
focus on our digital and delivery
capabilities

We will continue to invest in technology to further
empower and maintain our competitive advantages. We
will focus on improving our overall technology infra-
structure and digital and delivery capabilities. We believe
these efforts will further support our sustainable growth,
improve our operational efficiency and ensure quality.
Our digital and delivery strategies are set forth below.

Digital. As of December 31, 2020, our loyalty programs
had over 275 million members and over 85 million mem-
bers for KFC and Pizza Hut, respectively. The programs
have been effective in increasing order frequency and
enhancing guest loyalty. Digital orders accounted for
approximately 80% of KFC and Pizza Hut Company
sales in 2020. Going forward, we will continue to lever-
age our powerful digital ecosystem to drive sales, improve
the guest experience and increase operational efficiency.

We plan to increase our investment in end-to-end digitali-
zation, automation and artificial intelligence (“AI”), to
more effectively connect online traffic with our offline
assets. To improve our operational efficiency, we will
focus on connecting our front-end, guest facing systems
to back-end systems such as operations and supply chain.

Delivery. China is a world leader in the emerging online to
offline, or O2O, market. This is where digital online
ordering technologies interact with traditional brick and
mortar retail to enhance the customer experience. We see
considerable growth potential in the delivery market by
aligning our proven restaurant operation capabilities with
our delivery network that offers consumers the ability to
order restaurant food anywhere. Going forward, we will
continue to optimize our delivery service by adopting
innovative technologies, rolling out new delivery menu
items and developing novel delivery service concepts,
such as our rainy-day delivery menu.

Strategically expand our restaurant
portfolio

We aim to maintain our industry leading position in the
QSR and CDR markets in China with our core brands,
and gain a stronger foothold and enhanced know-how in
the Chinese cuisine space, which represents a significant
share of the restaurant industry in China. In April 2020,
we completed the acquisition of a controlling interest in
Huang Ji Huang, a leading Chinese CDR franchise busi-
ness. Following the acquisition of Huang Ji Huang, we
established a Chinese dining business unit comprising our
three Chinese restaurant brands, namely Little Sheep, East
Dawning and Huang Ji Huang.

We are also building a coffee portfolio to capture today’s
underserved coffee market in China across different cus-
tomer segments, including K-Coffee, which offers con-
venience and value, balanced by our newly incubated
concept COFFii & JOY, which offers specialty coffee for
coffee lovers while utilizing an asset-light model. In 2020,
we sold 140 million cups of coffee at KFC. We have also
partnered with a global coffee brand, Lavazza, to explore
and develop the Lavazza coffee shop concept in China,
which offers premium coffee in an indulgent atmosphere.

PART I

Prudently pursue investments in high-
quality assets

Our investment strategy primarily focuses on two areas,
our brands and the enablers that empower our brands (e.g.
ecosystem, technology). We continue to identify and
evaluate investment opportunities in high-quality brands
to capture growth opportunities. Also, we look for poten-
tial opportunities for enabler investments, to build our
strategic moat and further enhance our competitiveness.
We will prudently assess investment targets based on each
candidate’s strategic value, brand equity, business scale
and financial performance, among other factors.

Operational Management

Restaurant Unit Management

Our restaurant management structure varies among our
restaurant brands and restaurant size. Generally, each res-
taurant that we operate is led by a restaurant general man-
ager, or RGM, together with one or more assistant
managers. RGMs are skilled and highly trained, with
most having a college-level education. The performance
of RGMs is regularly monitored and coached by senior
operations leaders. Each restaurant brand issues detailed
manuals, which may then be customized to meet local
regulations and customs. These manuals set forth stan-
dards and requirements for all aspects of restaurant opera-
tions. The restaurant management team is responsible for
the day-to-day operation of each unit and for ensuring
compliance with operating standards. Each RGM is also
responsible for handling guest complaints and emergency
situations.

Franchise Restaurant Management

As of December 31, 2020, approximately 16% of our res-
taurants were franchise restaurants. Our franchise pro-
gram is designed to promote consistency and quality, and
we are selective in granting franchises. Franchisees sup-
ply capital—initially by paying a franchise fee to us and
by purchasing or leasing the land use rights, building,
equipment, signs, seating, inventories and supplies; and,
over the longer term, by reinvesting in the business
through expansion. Franchisees contribute to our revenue
through the payment of upfront franchise fees and

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PART I

on-going royalties based on a percentage of sales, and
payments for other transactions with us, such as purchases
of food and paper products, advertising services and other
services.

Our franchise agreements set out specific operational
standards, which are consistent with standards required
for Company-owned restaurants. Like our Company-
owned restaurants, our franchise restaurants are also sub-
ject to our internal quality audits and reviews. There are
no notable operational differences between Company-
owned restaurants and franchise restaurants.

We believe that it is important to maintain strong and open
relationships with our franchisees and their representa-
tives. To this end, the Company invests a significant
amount of time working with the franchisees and their
representative organizations on key aspects of the busi-
operational
ness,
products,
improvements and standards and management
tech-
niques.

equipment,

including

Expansion Management

We believe that there are significant opportunities to
expand within China and we intend to focus our efforts on
increasing our geographic footprint in both existing and
new cities. We expanded our restaurant count from 7,176
at the end of 2015 to 10,506 at the end of 2020, represent-
ing a CAGR of approximately 8%. We expect to expand
our business through organic growth, growth of franchise
units and development of new restaurant brands.

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Our expansion strategy has been systematically focused
on high potential locations across city tiers, including
entering new commercial areas within existing cities and
new cities. Each potential restaurant site is assessed and
evaluated individually based on its site potential, potential
financial return and potential impact to nearby stores. We
take into account factors such as economic and demo-
graphic conditions and prospects, consumption patterns,
GDP per capita and population density of the local com-
munity, presence of activity centers such as shopping
complexes, schools and residential areas that generate
guest traffic, and the presence of other restaurants in the
vicinity during our site selection process. We also con-

6 YUM CHINA – 2020 Form 10-K

sider the guest traffic and distance from the existing res-
taurants under the same brand to reduce sales transfer that
may occur from existing restaurant units. The average
capital spending for each new KFC and Pizza Hut restau-
rant unit in 2020 was relatively stable at approximately
RMB2 to 3 million.

Supply Chain Management

The Company’s restaurants, including those operated by
franchisees, are large purchasers of a number of food and
paper products, equipment and other restaurant supplies.
The principal items purchased include protein ingredients
(including poultry, pork, beef and seafood), cheese, oil,
flour, vegetables and paper and packaging materials. The
Company has not experienced any significant, continuous
shortages of supplies, and alternative sources for most of
these products are generally available. Prices paid for sup-
plies fluctuate. When prices increase, the brands may
attempt to pass on such increases to their customers,
although there is no assurance that this can be done practi-
cally. We also control our raw material costs by entering
into long-term bulk purchase agreements for our key food
ingredients.

The Company partners with over 800 independent sup-
pliers, which are mostly China-based. We implement a
strict supplier qualification process that includes supplier
compliance checks and on-site audits to ensure the sup-
plier meets our food safety and quality control standards.
We have formulated detailed specifications for food
ingredients and consumables we procure. We believe
supply chain management is crucial to the sustainability
of our business and we are dedicated to applying digitali-
zation and automation technologies in our supply chain
management system. Our in-house and integrated supply
chain management system employs more than 1,300 staff
in food safety, quality assurance, procurement manage-
ment, logistics, engineering and supply chain system.

In addition, we operate a tailor-made, world-class logis-
tics management system, which is capable of accommo-
dating large scale, wide coverage and advanced
information dissemination as well as fast store expan-
sions. The Company, along with multiple independently

owned and operated distributors, utilizes 25 logistics cen-
ters and seven consolidation centers to distribute supplies
to Company-owned and franchised stores, as well as to
third-party customers. In addition, the Company owns
seasoning facilities for its Chinese dining business unit,
which manufacture and sell seasoning products to Huang
Ji Huang and Little Sheep franchisees. The Company’s
supply chain strategy of working with multiple suppliers,
as well as building a vast logistics network, allows for
continuous supply of products in the event that supply
from an individual supplier or logistics center becomes
unfeasible.

To improve efficiency and effectiveness of the procure-
ment process, the Company has adopted a central pro-
curement model, whereby the Company centrally
purchases the vast majority of food and paper products
from approved suppliers for most of the restaurants
regardless of ownership. The Company believes this
central procurement model allows the Company to main-
tain quality control and achieves better prices and terms
through volume purchases.

Food Safety and Quality Control

Food safety is the top priority at the Company. Food
safety systems include rigorous standards and training of
employees in our restaurants and distribution system, as
well as requirements for suppliers. These standards and
training topics include, but are not limited to, employee
health, product handling, ingredient and product temper-
ature management and prevention of cross contamination.
Food safety training is focused on illness prevention, food
safety and regulation adherence in day-to-day operations.
Our standards also promote compliance with applicable
laws and regulations in China when building new or reno-
vating existing restaurants. For further information on
food safety issues, see “Item 1A. Risk Factors—Risks
Related to Our Business and Industry—Food safety and
foodborne illness concerns may have an adverse effect on
our reputation and business”.

Our quality assurance department regularly conducts
unannounced food safety and operation excellence checks
of all restaurants covering food safety, product quality and
guest service. We also conduct regular product quality
inspections on main menu items, and perform microbio-

PART I

logical testing of restaurants’ utensils, small wares, water,
ice and food to ensure they meet the required standards.

For our delivery system, we have established our own
delivery service teams for KFC and Pizza Hut. We require
all third-party delivery partners to sign and strictly imple-
ment a letter of commitment on the food safety and qual-
ity practice of delivery food, which stipulates clear
requirements for regulatory compliance, staff manage-
ment, catering, delivery facilities, equipment and strict
management of third-party platforms.

Innovation and Digitalization

Our vision is to become the world’s most innovative
pioneer in the restaurant industry. We are dedicated to
adopting innovations in our business model and restaurant
operations, which enables us to comprehensively reach
our guests and provide superior products and services in a
technology-driven and happy way, as vividly demon-
strated by our slogan “Tasty food, great fun, pleasant pre-
sentation with substance”.

We believe we are a pioneer and first-mover among res-
taurant brands in China in utilizing and investing in
emerging digital technologies to modernize our business
operations and accelerate our growth, which is critical to
empower and maintain our competitive advantage in
China. In recent years, we have stepped up our investment
in digitalization, embarking on end-to-end digitalization
of our business operations.

Dining Experience

Menu Innovations

Offering appealing, tasty and convenient food at great
prices is our value proposition. We had a dedicated food
innovation team primarily focus on the development and
innovation of new recipes and improvement of existing
products. In 2020, we launched around 500 new and
improved products across all of our restaurant brands.
Leveraging our local know-how and the wealth of con-
sumer taste preference data accumulated, we have
become a pioneer in food innovation, pushing the bound-
aries of QSR and CDR dining in China.

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PART I

Our menu innovation endeavors are also supported by a
world-class 27,000 square-foot
innovation center in
Shanghai for the development of new recipes, cooking
methods and menu concepts. The innovation center is an
integrated research and development facility that has been
designed to generate new menu ideas and concepts with
new ingredients and cooking methods to enable the rapid
roll-out of innovative products catering to customers’
local tastes.

Ordering

KFC rolled out mobile pre-ordering service on a nation-
wide basis in December 2016, which allows guests to
order online and pick up in store. Pizza Hut launched
table-side mobile ordering in 2018, which enables guests
to order by scanning a QR code with their mobile phone.
Now mobile ordering is a standard feature of our super
Apps including the KFC Super App and the Pizza Hut
Super App. Guests can also order through our proprietary
mini programs embedded in WeChat. In addition, in cer-
tain commercial districts, in-store kiosks provide guests
with convenient and fast digital ordering options. In
January 2019, KFC introduced AI-enabled menus to rec-
ommend personalized menu items and discounts to guests
based on their ordering patterns and taste preferences. In
2020, digital orders accounted for approximately 80% of
KFC and Pizza Hut Company sales, which we believe
was partially influenced by the COVID-19 pandemic.

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Payment

As early as June 2015, we started to partner with Alipay
on digital payment functionalities, making us among the
first batch of restaurant chains in China to make mobile
payment available to guests. We commenced mobile pay-
ment cooperation with WeChat Pay in 2016. Digital pay-
ments accounted for an increasing percentage of our
Company sales, from 33% in 2016 to 61% in 2017, and
further to 81% in 2018, 91% in 2019 and 97% in 2020.
The increasing percentage indicates growing consumer
preference for this feature and reflects our ability to har-
ness the power of technology in our business model.
Adoption of digital and mobile payment technologies not
only provides a better customer experience by, among
other things, reducing guest waiting time and saving

8 YUM CHINA – 2020 Form 10-K

guests from having to reach for their wallets or even cell-
phones, but also reduces staffing needed for cash man-
agement and reduces potential risks associated with cash
management. In addition to the above business relation-
ships with major third-party mobile payment providers,
we developed and launched YUMC Pay in partnership
with UnionPay in the first quarter of 2019.

Through collaboration with Alipay, we were the first in
the world to commercially implement facial recognition
technologies for payment by introducing “Smile to Pay”
in Hangzhou’s KFC restaurant
in September 2017.
“Smile to Pay” enables our guests to make payments for
their orders at digital kiosks without having to reach for
their wallets. Following positive feedback, we have since
implemented “Smile to Pay” in approximately 1,000 KFC
restaurants across China as of December 31, 2020.

Guest loyalty and interaction

functions

China has entered into an age of super Apps, which inte-
including messaging,
grates multiple
e-commerce and payments in a single application by
embedding mini programs or providing in-App links to
other applications. In early 2016, the KFC Super App was
implemented nationwide. Super Apps play a very impor-
tant role in our overall digital ecosystem as they enable a
digital guest experience by offering convenience, effi-
ciency and interesting functionality before, during and
after dining.

Member engagement is fostered through our Super Apps
and WeChat mini programs, as these form the primary
platform for consumers to sign up for our membership
programs. Additionally, we continue to monetize our
membership base by introducing privilege membership
subscription programs that increase frequency and spend
at our brands. These monetization opportunities rely
heavily on our ability to engage with our users through
our Super Apps. As of December 31, 2020, KFC and
Pizza Hut loyalty programs exceeded 300 million mem-
bers combined. Member sales increased to approximately
60% of system sales in 2020. We believe that creative and
engaging interactions with our guests can help us enhance
the guest experience and guest loyalty, which will ulti-
mately lead to increased sales.

Delivery

We believe that food delivery is a significant growth
driver in China. We were one of the first restaurant busi-
nesses in China to offer delivery services. As early as
2010, KFC established its own delivery platform and
started to accept delivery orders placed on its mobile
applications. Starting from 2015, we were also one of the
first to partner with O2O aggregators to further generate
delivery traffic. In addition to ordering through aggrega-
tors’ platforms, guests may also place delivery orders
through the KFC and Pizza Hut Super Apps. The ability
to generate orders from our own channels allows us to be
well-positioned in commercial collaborations with aggre-
gators, and manage costs and commissions in a more
competitive manner. In 2020, approximately 40% of KFC
delivery sales, and approximately 20% of Pizza Hut
delivery sales, were generated from our own channels.

In the past, we either used our own dedicated riders to
deliver orders placed through aggregators’ platforms or
paid an additional commission for the delivery services
provided by aggregators. Starting in 2019, we used our
own dedicated riders to deliver orders placed through
aggregators’ platforms to customers of KFC and Pizza
Hut stores, which we believe will give us greater control
over delivery quality and improve our ability to make
timely deliveries during peak hours. These dedicated
riders are either contracted with us or the aggregators’
platforms to deliver orders exclusively for KFC or Pizza
Hut stores. In 2019, Company sales through delivery
accounted for approximately 21% of total Company sales,
which further increased to approximately 30% for 2020,
partially driven by the increased delivery orders as a result
of the COVID-19 pandemic.

Restaurant Format Innovation

To supplement our growth, we are focusing on develop-
ing new restaurant formats and upgrading existing restau-
rants. We have developed multiple restaurant formats for
KFC and Pizza Hut to meet different guest needs. For
example, we are opening more small-format restaurant
units which will provide us the flexibility for further mar-
ket penetration. We are also reshaping certain restaurants
by providing fewer seats and focusing more on delivery

PART I

orders. In addition, we continuously look for ways to
improve the guest experience. We have accelerated res-
taurant upgrades and remodeling to implement the latest
technology, equipment and infrastructure and improve the
dining experience. Over 75% of KFC restaurant units as
of December 31, 2020 were remodeled or built in the past
five years. Pizza Hut is also well-regarded for offering
consumers a contemporary casual dining setting. In 2020,
over 15% of Pizza Hut units were remodeled. Our brands
also look to improve efficiency to drive sales growth. For
example, we have simplified our menu items and fine-
tuned our digital menu boards and in-store self-service
order kiosks.

Operational Efficiency

We have made significant investments to establish an
efficient technological infrastructure, which serves as the
foundation of our intelligent restaurant network manage-
ment and facilitates efficient and innovative restaurant
operation for all restaurants across our brands. We have
adopted AI-enabled technology to analyze and forecast
transaction volume so that we can improve labor schedul-
ing and inventory management. Moreover, managers and
staff are also equipped with self-designed “smart
watches”, and in some pilot stores, “smart glasses”, to
closely monitor the real-time ordering and serving proce-
dures of the restaurants and make timely staffing adjust-
ments, which substantially improves management
efficiency and guest satisfaction. Our in-house and inte-
grated supply chain management system and logistics
management system are driven by innovative digitaliza-
tion and automation technologies.

Unconsolidated Affiliates

As of year-end 2020, approximately 6% of our system
wide restaurants were operated by unconsolidated affili-
ates. These restaurants were primarily KFC restaurants.
We hold a 47% noncontrolling ownership in Hangzhou
KFC, which operated approximately 9% of the total KFC
restaurants as of year-end 2020. In addition, all of our four
Lavazza units as of year-end 2020 were operated by a
joint venture.

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PART I

Intellectual Property

Competition

Our use of certain material trademarks and service marks
is governed by a master license agreement between Yum
Restaurants Consulting (Shanghai) Company Limited
(“YCCL”), a wholly-owned indirect subsidiary of the
Company, and Yum! Brands Inc. (“YUM”), through YRI
China Franchising LLC, a subsidiary of YUM, effective
from January 1, 2020 and previously through Yum! Res-
taurants 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 achieving certain
agreed-upon milestones, Taco Bell brands and their
related marks and other intellectual property rights for
restaurant services in the PRC, excluding Hong Kong,
Macau and Taiwan. The term of the license is 50 years
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 of the licensed brands. We
have also agreed generally not to compete with YUM. In
addition, we were also granted a right of first refusal to
develop and franchise in the PRC certain restaurant con-
cepts that YUM may develop or acquire.

We were granted by YUM a royalty-free license to use the
name and mark of “YUM” as part of our name, domain
name and stock identification symbol pursuant to a name
license agreement entered into between YUM and us on
October 31, 2016. The name license agreement can be
terminated by YUM in the event of, among other things,
material breach of the agreement by us. Our use of certain
other material intellectual property (including intellectual
property in product recipes, restaurant operation and res-
taurant design) is likewise governed by the master license
agreement with YUM.

We own registered trademarks and service marks relating
to the Little Sheep, Huang Ji Huang, COFFii & JOY and
East Dawning brands and pay no license fee related to
these brands. Collectively, these licensed and owned
marks have significant value and are important to our
business. Our policy is to pursue registration of our
important intellectual property rights whenever feasible
and to oppose vigorously any infringement of our rights.

Data from the National Bureau of Statistics of China indi-
cates that sales in the consumer food service market in
China totaled approximately $606 billion in 2020. Indus-
try conditions vary by region, with local Chinese restau-
rants and western chains present, but we possess the
largest market share (as measured by system sales). While
branded QSR units per million population in China are
well below that of the United States, competition in China
is increasing. We compete with respect to food taste,
quality, value, service, convenience, restaurant location
and concept, including delivery and shared kitchens. The
restaurant business is often affected by changes in con-
sumer tastes; national, regional or local economic condi-
tions; demographic trends; traffic patterns; the type,
number and location of competing restaurants; and dis-
posable income. We compete not only for consumers but
also for management and hourly personnel and suitable
restaurant sites. KFC’s competitors in China are primarily
western QSR brands such as McDonald’s, Dicos and
Burger King, and to a lesser extent, domestic QSR brands
in China. Pizza Hut primarily competes with western
CDR brands, including Domino’s and Papa John’s, as
well as other domestic CDR brands in China.

Seasonality

Due to the nature of our operations, we typically generate
higher sales during Chinese festivities, holiday seasons as
well as summer months, but relatively lower sales and
lower operating profit during the second and fourth
quarters.

Human Capital Management

As of December 31, 2020, the Company employed over
400,000 employees, including approximately 136,000
full-time employees and approximately 270,000 part-time
restaurant crew members. Our full-time employees pri-
marily included 33,600 restaurant management team
members and 96,000 restaurant crew members.

The Company is committed to the “People First” philoso-
phy by creating a “Fair, Care and Pride” workplace for its
employees. With this philosophy, the Company offers a

10 YUM CHINA – 2020 Form 10-K

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safe, inclusive working environment, equal pay for equal
work and flexible working hours, systematic training and
development programs and competitive compensation
and benefits to its employees.

Diversity and Equal Opportunity

appreciated

We are committed to creating an inclusive and
non-discriminatory working environment
to provide
equal opportunities for employees, where differences are
understood,
encouraged. Every
employee, without regard to race, religion, color, age,
gender or gender identity, disability, military or veteran
status, sexual orientation, citizenship or national origin, is
offered the opportunity to unleash their full potential on
the Company’s diverse platform.

and

The Company is committed to gender equality by provid-
ing fair recruitment, training and promotion opportunities
for all employees. By the end of 2020, Yum China
employed over 260,000 women, representing 64% of its
total workforce. The Company continues to make prog-
ress in nurturing talented leaders across all management
levels. By the end of 2020, women holding director and
above positions represented 54% of the senior manage-
ment workforce. In January 2021, the Company was
named to the Bloomberg Gender Equality Index for the
third consecutive year, and was the only company from
mainland China included in this index in 2021.

The Company also strives to create a barrier-free and
friendly workplace for people with disabilities. In 2012,
KFC launched the “Angel Restaurant” project to provide
equal employment opportunities for people with disabili-
ties. Operations processes, restaurant equipment and
training programs are modified to best assist the employ-
ees at these “Angel Restaurants”. By the end of 2020,
KFC had 24 Angel Restaurants, bringing in more than
200 employees with special needs.

Training, Development and Employability

The Company actively invests in employee training and
development and continuously nurtures top talent through
a systematic training program. New employees joining
the Company every year are required to complete struc-
tured training programs tailored to their roles and respon-
sibilities. For example, KFC Business School and Pizza

PART I

Hut Management Institute provide systematic develop-
ment programs for new college graduates, allowing them
to advance from entry-level jobs to RGMs in less than two
years. These programs enable new employees to acquire
the operational, financial and managerial knowledge
required for operating a restaurant and, in the long run, lay
a solid foundation for their future success. In addition, the
Company offers comprehensive training programs with
diversified courses for employees at every stage of their
professional development. In 2020, the number of total
training hours exceeded 8.6 million.

Our training programs have tapped into the digitalization
trends through the mobile learning platform, with the goal
of equipping employees with the knowledge and skills
necessary in the digital era and enabling their sustainable
career development. The Company encourages continu-
ous education by rolling out a continuing education pro-
gram to help employees obtain college degrees.

The Company provides a clear career path and plan for
development, which are further supported by the
promotion-from-within policy for operational roles. The
Company also encourages every manager to coach their
subordinates to succeed.

Total Rewards

The Company is committed to equal pay for equal work.
Based on annual market research, it provides employees
with fair and competitive compensation and benefits, rec-
ognizing and rewarding their contributions, performance
and efforts.

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The Company has launched equity incentive schemes
such as CEO Awards and RGM Restricted Stock Units
(RSUs). The Company believes that its RGMs serve as
the most important leaders and are key contributors to its
long-term success. In 2016, Yum China announced the
grant of RSUs valued at $2,000 to each qualified RGM.
As of the end of 2020, this program has allowed around
9,700 RGMs to become stockholders of Yum China. In
addition, the Company granted RSUs valued at $3,000 to
all eligible RGMs starting in February 2021, and has
granted such RSU awards to approximately 3,500
RGMs. The turnover rate of RGMs was 9% in 2020.

YUM CHINA – 2020 Form 10-K 11

PART I

In line with relevant labor laws and regulations, full-time
employees are covered by pension insurance, medical
insurance, unemployment insurance, work injury insur-
ance and maternity insurance. Part-time employees are
covered by employer liability insurance. Employees also
enjoy paid-leaves in accordance with labor laws.

The Company is also committed to helping employees
and protecting their families when facing crisis such as the
COVID-19 pandemic. Therefore, in addition to social
security insurance, the Company provides additional
insurance coverage for RGMs and restaurant manage-
ment teams. The program is designed to provide addi-
tional health protection for
family members,
covering critical illness and accidents. As of the end of
2020, more than 18,000 employees and 40,000 family
members were covered under this program.

their

For office staff, the Company has rolled out a flexible
benefit platform, allowing employees to select benefits
based on their individual needs, including family medical
insurance, medical examination and recreational activ-
ities. Both office staff and RGMs are covered by the
Company’s housing subsidy scheme.

Health and Safety

The Company is committed to providing employees with
a safe and healthy working environment. The Company
strictly complies with laws and regulations on safety and
health. For activities imposing higher or distinct risks, the
Company implements health and safety measures specif-
ically formulated to protect employees against those risks.
Yum China also incorporates compliance management,
risk controls, inspections and supervisions in daily opera-
tions. The Company regularly inspects and upgrades
employees’ protective equipment, carries out workplace
safety reviews, and trains all employees on the operation
procedures and safety precautions.

In addition, Yum China has launched an employee assis-
tance program to provide professional counseling and
educational sessions to protect their physical and mental
health.

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12 YUM CHINA – 2020 Form 10-K

During the COVID-19 pandemic, the Company lever-
aged technologies and digital platforms to create “con-
tactless” work processes such as online meetings, live
streaming town-hall meetings and mobile learning. It also
offered flexible work arrangements and conducted emer-
gency drills to secure business continuity and employees’
health and safety.

Engagement and Communication

The Company was certified as a Top Employer China
2021 for the third consecutive year by the Top Employers
Institute, a testament to the Company’s commitment to
putting people first in the workplace, especially in light of
the challenges presented by 2020.

The Company maintains multiple communication chan-
nels with employees, including organizational forums,
such as RGM Convention and Founders’ Day, and vari-
ous digital platforms such as corporate WeChat, Apps and
intranet portals, to help ensure effective communication
of our business strategies and corporate messages. In
addition,
the Company regularly conducts employee
engagement surveys to understand employees’ expecta-
tions and concerns. During the COVID-19 pandemic, the
Company has been keeping timely and transparent com-
munication with employees to maintain a high-morale in
this challenging time.

The Company engages and connects employees, located
in 1,500 cities, through wellbeing activities known as the
“Family Systems.” The system is built to provide a plat-
form for employees with common interests to collaborate
and develop camaraderie through events such as national
badminton competitions and KFC-sponsored marathon
events.

The Company complies with the Universal Declaration of
Human Rights and the international conventions signed
by the Chinese government to protect legitimate rights
and interests of its employees. The Company strictly pro-
hibits the use of child labor and forced labor.

PART I

Information about our Executive Officers

The executive officers of the Company as of February 22, 2021, and their ages and current positions as of that date, are as
follows:

Name

Age

Title

Joey Wat

Andy Yeung

Johnson Huang

Jeff Kuai

Danny Tan

Leila Zhang

Joseph Chan

Aiken Yuen

Alice Wang

Xueling Lu

49

48

58

40

51

52

52

61

51

47

Chief Executive Officer

Chief Financial Officer

General Manager, KFC

General Manager, Pizza Hut

Chief Supply Chain Officer

Chief Technology Officer

Chief Legal Officer

Chief People Officer

Chief Public Affairs Officer

Controller and Principal Accounting Officer

Joey Wat has served as our Chief Executive Officer since
March 2018 and as a member of our board of directors
since July 2017. She served as our President and Chief
Operating Officer from February 2017 to February 2018
and the Chief Executive Officer, KFC from October 2016
to February 2017, a position she held at Yum! Restaurants
China, from August 2015 to October 2016. Ms. Wat
joined Yum! Restaurants China in September 2014 as
President of KFC China and was promoted to Chief
Executive Officer for KFC China in August 2015. Before
joining YUM, Ms. Wat served in both management and
strategy positions at A.S. Watson Group (“Watson”), an
international health, beauty and lifestyle retailer, in the
U.K. from 2004 to 2014. Her last position at Watson was
managing director of Watson Health & Beauty U.K.,
which operates Superdrug and Savers, two retail chains
specializing in the sale of pharmacy and health and beauty
products, from 2012 to 2014. She made the transition
from head of strategy of Watson in Europe to managing
director of Savers in 2007. Before joining Watson,
Ms. Wat spent seven years in management consulting
including with McKinsey & Company’s Hong Kong
office from 2000 to 2003. Ms. Wat was ranked number 34
on Forbes World’s Most Powerful Women list in 2020,
named by FORTUNE magazine as one of the Top 25
China Most Powerful Women in Business in 2017, 2018
and 2020, and the Top 50 Most Powerful Women in
International Business in 2018, 2019, 2020. She was also
named to Business Insider 100 People Transforming
Business Asia List in 2020.

Andy Yeung has served as our Chief Financial Officer
since October 2019. Prior to joining Yum China,

Mr. Yeung served as the chief financial officer of Smart
Finance International Limited, a financial technology
company, from April 2017 to August 2019. Between
January 2014 and March 2017, he served as the chief
financial officer of Cheetah Mobile Inc., a NYSE-listed
mobile internet company (NYSE: CMCM) where he led
its successful IPO and built its finance, internal control
and investor relations functions. From 2009 to 2013,
Mr. Yeung worked at Oppenheimer & Co. Inc. as direc-
tor, executive director and then managing director,
responsible for research coverage of the internet and
media sectors in China. From 2004 to 2009, Mr. Yeung
was an associate in equity research at Thomas Weisel
Partners. He has been a Chartered Financial Analyst char-
terholder since 2001.

Johnson Huang has served as General Manager, KFC
since February 2017. He served as our Chief Information
and Marketing Support Officer from October 2016 to
February 2017, a position he held at Yum! Restaurants
China from September 2014 to October 2016. Mr. Huang
joined YUM in 2006 to lead the information technology
department in China. He served as vice president of infor-
mation technology from September 2008 to January 2013
and Chief Information Officer from January 2013 to
September 2014. Mr. Huang has been the key architect of
Yum! Restaurants China’s digital strategy and informa-
tion technology roadmap in China. Prior to joining YUM,
Mr. Huang held various information technology and
business leadership positions with Capgemini Asia
Pacific Pte, Ltd. in Taiwan and the greater China region.

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YUM CHINA – 2020 Form 10-K 13

PART I

Jeff Kuai has served as the General Manager, Pizza Hut
since November 2017. Mr. Kuai previously served as the
General Manager, Pizza Hut Home Service from October
2016 to October 2017, a position he held at Yum! Restau-
rants China from January 2015 to October 2016. From
March 2012 to August 2013, Mr. Kuai was Director of
Delivery Support Center for Yum! Restaurants China,
where he was instrumental in building its online ordering
and e-commerce capabilities. Prior to that, Mr. Kuai spent
nine years in the information technology department of
Yum! Restaurants China, enhancing its information tech-
nology infrastructure and productivity.

Danny Tan has served as the Chief Supply Chain Officer
of Yum China since October 2016, a position he held at
Yum! Restaurants China from January 2015 to October
2016. His responsibilities include overseeing quality
assurance, food safety, engineering, procurement, logis-
tics, sourcing planning and general management of Taco
Bell. Mr. Tan joined YUM in November 1997 as Finance
Manager. He was transferred to the logistics department
in January 2004 and served as Director of Logistics Oper-
ations from January 2006 to December 2007. Mr. Tan
subsequently led supply chain management from January
2008 to December 2014. Prior to joining YUM, Mr. Tan
was a senior analyst with Walt Disney, Hong Kong and a
senior auditor with Deloitte & Touche, Singapore.

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Leila Zhang has served as the Chief Technology Officer
of Yum China since March 2018. Ms. Zhang served as
Vice President, Information Technology from October
2016 to March 2018, a position she held at Yum! Restau-
rants China from 2014 to October 2016. Ms. Zhang joined
YUM in 1996, held various positions in the information
technology department, and began leading the department
in February 2017. Prior to joining YUM, Ms. Zhang was
an engineer with Inventec Electronics (Shanghai) from
1992 to 1996.

Joseph Chan has served as our Chief Legal Officer since
June 2019. Prior to joining Yum China, Mr. Chan was a
partner at Sidley Austin, a U.S. based international law
firm, in Shanghai, from November 2010 to May 2019,
where he managed and executed large complex multi-
jurisdictional legal matters with a focus on mergers and
acquisitions and corporate finance transactions across a
variety of industries. In addition, Mr. Chan spent over a

14 YUM CHINA – 2020 Form 10-K

law firm,

decade with Pillsbury Winthrop Shaw Pittman, a U.S.
based international
in San Francisco and
Shanghai, initially as an associate and then a partner. He
established the Shanghai office of Pillsbury Winthrop
Shaw Pittman in 2006 and served in various leadership
positions, including serving as its inaugural managing
partner. Mr. Chan is admitted to the bar in California and
Pennsylvania in the U.S. and British Columbia in Canada.
For many consecutive years he was ranked and recom-
mended by Chambers Asia, IFLR and Legal 500 as a
leading lawyer in Asia.

Aiken Yuen has served as the Chief People Officer of Yum
China since March 2018. Mr. Yuen served as Vice Presi-
dent, Human Resources of Yum China from October
2016 to February 2018, a position he held at Yum! Res-
taurants China from March 2012 to October 2016.
Mr. Yuen joined YUM in 2008 as the Talent Management
and Development Director. Prior to joining YUM,
Mr. Yuen served in senior HR management positions at
American International Group (“AIG”) in Hong Kong
from 1998 to 2008. His last position at AIG was Vice
President, Human Resources of AIA, AIG’s life insur-
ance business unit for South East Asia. He was responsi-
ble for overall human resources strategy formulation and
execution for AIA’s Head Office in Hong Kong and its
operations in six Asian countries. Before that, he was the
Senior Manager of Training and Development with Stan-
dard Chartered Bank from 1996 to 1998 and Manager of
Management Training with HSBC from 1994 to 1996.

Alice Wang has served as the Chief Public Affairs Officer
of Yum China since March 2018. Ms. Wang previously
served as the Senior Vice President, Public Affairs of
Yum China from March 2017 to February 2018 and as
Vice President, Public Affairs from October 2016 to
March 2017, a position she held at Yum! Restaurants
China since she joined YUM in March 2015. Prior to
joining YUM, Ms. Wang spent 22 years with Heinz
China, a food products company, where she served as
Vice President of Corporate Affairs, Greater China from
August 2011 to February 2015.

Xueling LuhasservedasControllerandPrincipalAccounting
Officer of Yum China since January 2018. Ms. Lu previously
served as Senior Director, Finance of Yum China, a position
she held since she joined the Company in November 2016.

Prior to joining the Company, Ms. Lu was the Asia Pacific
Controller of Lear Corporation from 2013 to 2016. Before
joining Lear Corporation, Ms. Lu spent 10 years in public
accounting with Ernst & Young, specializing in audits and
initial public offerings of companies listed in the U.S., SEC
reporting and Sarbanes-Oxley compliance. Ms. Lu is a certi-
fied public accountant in California and a member of the
AmericanInstituteofCertifiedPublicAccountants.

Our History

Yum China was incorporated in Delaware on April 1,
2016. The Company separated from YUM on
October 31, 2016 (the “separation”), becoming an inde-
pendent, publicly traded company as a result of a pro rata
distribution (the “distribution”) of all outstanding shares
of Yum China common stock to shareholders of YUM.
On October 31, 2016, YUM’s shareholders of record as of
5:00 p.m. Eastern Time on October 19, 2016 received one
share of Yum China common stock for every one share of
YUM common stock held as of the record date. Common
stock of Yum China began trading “regular way” under
the ticker symbol “YUMC” on the New York Stock
Exchange on November 1, 2016. On September 10, 2020,
the Company completed its secondary listing on the Main
Board of the Hong Kong Stock Exchange (“HKEX”)
under the stock code “9987”, in connection with a global
offering (the “Global Offering”) of shares of its common
stock.

Government Regulation

The Company is subject to various laws affecting its busi-
ness, including laws and regulations concerning informa-
tion security, labor, health, sanitation, environmental
protection and safety. In accordance with the relevant
laws and regulations in the PRC, we are required to obtain
various approvals, licenses, permits, registrations and fil-
ings to operate our restaurant business, including the rele-
vant food business license, environmental protection
assessment and inspection registration or approval, and
fire safety inspection acceptance approval or other alter-
natives. The Company has not historically been materially
and adversely affected by such requirements or by any
difficulty, delay or failure to obtain required approvals,

PART I

licenses, permits, registrations or filings. The Company is
also subject to tariffs and regulations on imported com-
modities and equipment and laws regulating foreign
investment, as well as anti-bribery and corruption laws.
Compliance with applicable laws and regulations has not
had a material effect on the Company’s capital expendi-
tures, earnings and competitive position. However, we
cannot predict the effect that the compliance with laws
and regulations may have on our capital expenditures,
earnings and competitive position in the future. See “Item
1A. Risk Factors” for a discussion of risks relating to
federal, state, provincial, local and international govern-
mental regulation of our business.

Regulations Relating to Dividend
Distribution

The Chinese laws, rules and regulations applicable to our
China subsidiaries permit payments of dividends only out
of their accumulated profits, if any, determined in accor-
dance with applicable accounting standards and regula-
tions. In addition, under Chinese law, an enterprise
incorporated in China is required to set aside at least 10%
of its after-tax profits each year, after making up previous
years’ accumulated losses, if any, to fund certain statutory
reserve funds, until the aggregate amount of such a fund
reaches 50% of its registered capital. As a result, our
China 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 their board of directors, as enterprises
incorporated in China, our China subsidiaries may allo-
cate a portion of their after-tax profits based on China
accounting standards to staff welfare and bonus funds.
These reserve funds and staff welfare and bonus funds are
not distributable as cash dividends.

Regulations Relating to Taxation

Enterprise Income Tax. Under the China Enterprise
Income Tax Law (the “EIT Law”) and its implementation
rules, a China resident enterprise is subject to Chinese
enterprise income tax in respect of its net taxable income
derived from sources inside and outside China. The term

YUM CHINA – 2020 Form 10-K 15

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PART I

“resident enterprise” refers to any enterprise established in
China and any enterprise established outside China with a
“de facto management body” within China.

Our China subsidiaries are regarded as China resident
enterprises by virtue of their incorporation in China, and
are generally subject to Chinese enterprise income tax on
their worldwide income at the current uniform rate of
25%, unless reduced under certain specific qualifying cri-
teria. Our China subsidiaries may deduct reasonable
expenses that are actually incurred and are related to the
generation of their income, including interest and other
borrowing expenses, amortization of land use rights and
depreciation of buildings and certain fixed assets, subject
to any restrictions that may be imposed under the EIT
Law, its implementation regulations and any applicable
tax notices and circulars issued by the Chinese govern-
ment or tax authorities.

Yum China and each subsidiary of Yum China that is
organized outside of China intends to conduct its man-
agement functions in a manner that does not cause it to be
a China resident enterprise, including by carrying on its
day-to-day management activities and maintaining its key
records, such as resolutions of its board of directors and
resolutions of stockholders, outside of China. As such, we
do not believe that Yum China or any of its non-Chinese
subsidiaries should be considered a China resident enter-
prise for purposes of the EIT Law, and should not be sub-
ject to Chinese enterprise income tax on that basis. See
“Item 1A. Risk Factors—Risks Related to Doing Busi-
ness in China—Under the EIT Law, if we are classified as
a China resident enterprise for Chinese enterprise income
tax purposes, such classification would likely result in
unfavorable tax consequences to us and our non-Chinese
stockholders.”

Value-Added Tax / Business Tax and Local Surcharges.
Effective on May 1, 2016, a 6% value-added tax (“VAT”)
on output replaced the 5% business tax (“BT”) that has
historically been applied to certain restaurant sales under
the China Provisional Regulations on Business Tax. Pur-
suant to Circular Caishui [2016] No. 36 jointly issued by
the Ministry of Finance and the Chinese State Taxation
Administration (“STA”), beginning May 1, 2016, any
entity engaged in the provision of catering services in
China is generally required to pay VAT at the rate of 6%

16 YUM CHINA – 2020 Form 10-K

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on revenues generated from the provision of such ser-
vices, less any creditable VAT already paid or borne by
such entity upon purchase of materials and services. 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, primarily construction,
transportation and leasing. However, the impact on our
operating results is not expected to be significant. Local
surcharges generally ranging from 7% to 13%, varying
with the location of the relevant China subsidiary, are
imposed on the amount of VAT payable.

Repatriation of Dividends from Our China Subsidiaries.
Dividends (if any) paid by our China subsidiaries to their
direct offshore parent company are subject to Chinese
withholding income tax at the rate of 10%, provided that
such dividends are not effectively connected with any
establishment or place of the offshore parent company in
China. The 10% withholding income tax rate may be
reduced or exempted pursuant to the provisions of any
applicable tax treaties or tax arrangements. Hong Kong has
a tax arrangement with mainland China that provides for a
5% withholding tax on dividends upon meeting certain
conditions and requirements, including, among others, that
the Hong Kong resident enterprise directly owns at least
25% equity interests of the Chinese enterprise and is a
“beneficial owner” of the dividends. We believe that our
Hong Kong subsidiary, which is the equity holder of our
Chinese subsidiaries, met the relevant requirements pursu-
ant to the tax arrangement between mainland China and
Hong Kong in 2018 and is expected to meet the require-
ments in subsequent years, thus, it is more likely than not
that our dividends declared or earnings expected to be
repatriated since 2018 are subject to the reduced withhold-
ing tax of 5%. However, if our Hong Kong subsidiary is not
considered to be the “beneficial owner” of the dividends by
the Chinese local tax authority, the withholding tax rate on
dividends paid to it by our Chinese subsidiaries would be
subject to a withholding tax rate of 10% with retrospective
effect, which would increase our tax liability and reduce the
amount of cash available to the Company. See “Item 1A.
Risk Factors—Risks Related to Doing Business in
China—We rely to a significant extent on dividends and
other distributions on equity paid by our principal operating
subsidiaries in China to fund offshore cash requirements.”

Gains on Direct Disposal of Equity Interests in Our China
Subsidiaries. Under the EIT Law and its implementation
rules, gains derived by non-resident enterprises from the
sale of equity interests in a China resident enterprise are
subject to Chinese withholding income tax at the rate of
10%. The 10% withholding income tax rate may be
reduced or exempted pursuant to applicable tax treaties or
tax arrangements. The gains are computed based on the
difference between the sales proceeds and the original
investment basis. Stamp duty is also payable upon a direct
transfer of equity interest in a China resident enterprise.
The stamp duty is calculated at 0.05% on the transfer
value, payable by each of the transferor and transferee.
We may be subject to these taxes in the event of any future
sale by us of a China resident enterprise.

Gains on Indirect Disposal of Equity Interests in Our
China Subsidiaries. In February 2015, the STA issued the
STA’s Bulletin on Several Issues of Enterprise Income
Tax on Income Arising from Indirect Transfers of Prop-
erty by Non-resident Enterprises (“Bulletin 7”). Pursuant
to Bulletin 7, an “indirect transfer” of Chinese taxable
assets, including equity interests in a China resident enter-
prise (“Chinese interests”), by a non-resident enterprise,
may be re-characterized and treated as a direct transfer of
Chinese taxable assets, if such arrangement does not have
reasonable commercial purpose and the transferor avoids
payment of Chinese enterprise income tax. Where a
non-resident enterprise conducts an “indirect transfer” of
Chinese interests by disposing of equity interests in an
offshore holding company, the transferor, transferee and/
or the China resident enterprise being indirectly trans-
ferred may report such indirect transfer to the relevant
Chinese tax authority, which may in turn report upward to
the STA. Using general anti-tax avoidance provisions, the
STA may treat such indirect transfer as a direct transfer of
Chinese interests if the transfer avoids Chinese tax by way
of an arrangement without reasonable commercial pur-
pose. As a result, gains derived from such indirect transfer
may be subject to Chinese enterprise income tax, and the
transferee or other person who is obligated to pay for the
transfer would be obligated to withhold the applicable
taxes, currently at a rate of up to 10% of the capital gain in
the case of an indirect transfer of equity interests in a
China resident enterprise. Both the transferor and the
party obligated to withhold the applicable taxes may be
subject to penalties under Chinese tax laws if the trans-

PART I

feror fails to pay the taxes and the party obligated to with-
hold the applicable taxes fails to withhold the taxes.

The above regulations do not apply if either (i) the selling
non-resident enterprise recognizes the relevant gain by
purchasing and selling equity of the same listed enterprise
in the open market (the “listed enterprise exception”); or
(ii) the selling non-resident enterprise would have been
exempted from enterprise income tax in China pursuant to
applicable tax treaties or tax arrangements, if it had directly
held and transferred such Chinese interests that were indi-
rectly transferred. The China indirect transfer rules do not
apply to gains recognized by individual stockholders.
However, in practice, there have been a few reported cases
of individuals being taxed on the indirect transfer of
Chinese interests and the law could be changed so as to
apply to individual stockholders, possibly with retroactive
effect. In addition, the PRC Individual Income Tax Law
and relevant
revised effective
January 1, 2019, impose general anti-avoidance tax rules
(“GAAR”) on transactions conducted by individuals. As a
result, if the China tax authority invokes the GAAR and
deems that indirect transfers made by individual stock-
holders lack reasonable commercial purposes, any gains
recognized on such transfers might be subject to individual
income tax in China at the standard rate of 20%.

regulations (“IITL”),

It is unclear whether Company stockholders that acquired
Yum China stock through the distribution or the Global
Offering (discussed under “—Our History”) will be treated
as acquiring Yum China stock in an open market purchase.
If such acquisition of Yum China stock is not treated as
acquired in an open market purchase, the listed transaction
exception will not be available for transfers of such stock.
We expect that transfers in open market transactions of our
stock by corporate or other non-individual stockholders
that have purchased our stock in open market transactions
will not be taxable under the China indirect transfer rules
due to the listed enterprise exception. Transfers, whether in
the open market or otherwise, of our stock by corporate and
other non-individual stockholders that acquired our stock in
the distribution or the Global Offering or in non-open mar-
ket transactions may be taxable under the China indirect
transfer rules and our China subsidiaries may have filing
obligations in respect of such transfers upon the request of
relevant Chinese tax authorities. Transfers of our stock in
non-open market transactions by corporate and other

YUM CHINA – 2020 Form 10-K 17

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PART I

non-individual stockholders may be taxable under the
China indirect transfer rules, whether or not such stock was
acquired in open market transactions, and our China sub-
sidiaries may have filing obligations in respect of such
transfers upon the request of relevant China tax authorities.
Corporate and other non-individual stockholders may be
exempt from taxation under the Chinese indirect transfer
rules with respect to transfers of our stock if they are tax
resident in a country or region that has a tax treaty or
arrangement with China that provides for a capital gains tax
exemption and they qualify for that exemption.

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

In December 2017, the U.S. Securities and Exchange
Commission (the “SEC”) staff issued Staff Accounting
Bulletin No. 118, Income Tax Accounting Implications of
the Tax Cuts and Jobs Act (SAB 118), which allows us to
record provisional amounts during a measurement period
not exceeding one year from the enactment date. The Tax
Act requires complex computations with significant esti-
mates to be performed, significant judgments to be made in
interpretation of the provisions, and the preparation and
analysis of information not previously relevant or regularly
produced. The U.S. Treasury Department, the U.S. Internal
Revenue Service (the “IRS”), SEC and other standard-
setting bodies could interpret or issue guidance on how
provisions of the Tax Act will be applied or otherwise
administered that is different from our current interpreta-

18 YUM CHINA – 2020 Form 10-K

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tion. We completed our analysis of the Tax Act in the
fourth quarter of 2018 according to guidance released by
the U.S. Treasury Department and the IRS as of December
2018 and made an adjustment to the provisional amount of
the transition tax accordingly.

The U.S. Treasury Department and the IRS released the
final transition tax regulations in the first quarter of 2019.
We completed the evaluation of the impact on our transi-
tion tax computation based on the final regulations released
in the first quarter of 2019 and recorded additional income
tax expense for the transition tax accordingly.

See “Item 1A. Risk Factors” for a discussion of risks
relating to federal, state, local and international regulation
relating to taxation of our business.

Available Information

For important news and information regarding Yum
China, including our filings with the U.S. Securities and
Exchange Commission (the “SEC”) and the HKEX, visit
Yum China’s Investor Relations website at http://
ir.yumchina.com. Yum China uses this website as a pri-
mary channel for disclosing key information to its inves-
tors, some of which may contain material and previously
non-public information.

The Company makes available through the Investor Rela-
tions website its annual report on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K and
amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act, as soon as rea-
sonably practicable after electronically filing such material
with the SEC. These reports may also be obtained by visit-
ing the SEC’s website at http://www.sec.gov.

The reference to the Company’s website address and the
SEC’s website address is for informational purposes only,
does not constitute incorporation by reference of the
information contained on the websites and should not be
considered part of this Form 10-K. These documents, as
well as our SEC filings, are available in print free of
charge to any stockholder who requests a copy from our
Investor Relations Department by contacting Yum China
at 7100 Corporate Drive, Plano, Texas 75024 United
States of America, Attention: Investor Relations.

PART I

ITEM 1A. Risk Factors.

You should carefully consider each of the following risks, as well as the information included elsewhere in this report,
before deciding to invest in our common stock or otherwise in connection with evaluating our business. Based on the
information currently known to us, we believe that the following information identifies the most material risk factors
affecting us in each of these categories of risk. However, additional risks and uncertainties not presently known to us or
that we currently believe to be immaterial may also adversely affect our business, financial condition or results of opera-
tions. In addition, past financial performance may not be a reliable indicator of future performance and historical trends
should not be used to anticipate results or trends in future periods. If any of the following risks and uncertainties develops
into actual events, these events could have a material adverse effect on our business, financial condition or results of
operations. In such case, the trading price of our common stock could decline.

Summary of Risk Factors

We are exposed to a variety of risks, which have been
separated into five general groups:

• Risks related to our business and industry, including
(a)
food safety and foodborne illness concerns,
(b) significant failure to maintain effective quality
assurance systems for our restaurants, (c) significant
liability claims, food contamination complaints from
our customers or reports of incidents of food tampering,
(d) health concerns arising from outbreaks of viruses or
other illnesses, including the COVID-19 pandemic,
(e) the fact that the operation of our restaurants is subject
to the terms of the master license agreement with YUM,
(f) the fact that substantially all of our revenue is derived
from our operations in China, (g) the fact that our suc-
cess is tied to the success of YUM’s brand strength,
marketing
innovation,
and
(h) shortages or interruptions in the availability and
delivery of
supplies,
(i) fluctuation of raw materials prices, (j) our inability to
attain our target development goals, the potential canni-
balization of existing sales by aggressive development
and the possibility that new restaurants will not be prof-
itable, (k) risks associated with leasing real estate,
(l) inability to obtain desirable restaurant locations on
commercially reasonable terms, (m) labor shortages or
increases in labor costs, (n) the fact that our success
depends substantially on our corporate reputation and
on the value and perception of our brands, (o) the
occurrence of security breaches and cyber-attacks,
(p) failure to protect the integrity and security of our

food products and other

campaigns

product

customer or employee personal, financial or other data
or our proprietary or confidential information that is
stored in our information systems or by third parties on
our behalf, (q) failures or interruptions of service or
security breaches in our information technology sys-
tems, (r) the fact that our business depends on the per-
formance of, and our long-term relationships with,
third-party mobile payment processors, internet infra-
internet service providers and
structure operators,
delivery aggregators, (s) failure to provide timely and
reliable delivery services by our restaurants, (t) our
growth strategy with respect to COFFii & JOY and
Lavazza may not be successful, (u) the anticipated ben-
efits of our acquisitions may not be realized in a timely
manner or at all, (v) challenges and risks related to our
e-commerce business, (w) our inability or failure to rec-
ognize, respond to and effectively manage the impact of
social media, (x) failure to comply with anti-bribery or
anti-corruption laws, (y) U.S. federal income taxes,
changes in tax rates, disagreements with tax authorities
and imposition of new taxes, (z) changes in consumer
discretionary spending and general economic condi-
tions, (aa) the fact that the restaurant industry in which
we operate is highly competitive, (bb) loss of or failure
to obtain or renew any or all of the approvals, licenses
and permits to operate our business, (cc) our inability to
adequately protect the intellectual property we own or
have the right to use, (dd) our licensor’s failure to pro-
tect its intellectual property, (ee) seasonality and certain
major events in China, (ff) our failure to detect, deter
and prevent all instances of fraud or other misconduct

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PART I

committed by our employees, customers or other third
parties, (gg) the fact that our success depends on the
continuing efforts of our key management and experi-
enced and capable personnel as well as our ability to
recruit new talent, (hh) our strategic investments or
acquisitions may be unsuccessful; (ii) our investment in
technology and innovation may not generate the
expected level of returns, (jj) fair value changes for our
investment in equity securities and lower yields of our
short-term investments may adversely affect our finan-
cial condition and results of operations, and (kk) our
operating results may be adversely affected by our
investment in unconsolidated affiliates;

• Risks related to doing business in China, including
(a) changes in Chinese political policies and economic
and social policies or conditions, (b) uncertainties with
respect to the interpretation and enforcement of Chinese
laws, rules and regulations, (c) changes in political,
business, economic and trade relations between the
United States and China, (d) our audit reports are pre-
pared by auditors who are not currently inspected by the
Public Company Accounting Oversight Board and, as
such, our stockholders are deprived of the benefits of
such inspection and our common stock is subject to the
risk of delisting from the New York Stock Exchange in
the future, (e) fluctuation in the value of the Chinese
Renminbi, (f) the fact that we face increasing focus on
environmental sustainability issues, (g) limitations on
our ability to utilize our cash balances effectively due to
governmental control of currency conversion and pay-
ments of foreign currency and the Chinese Renminbi
out of mainland China, (h) changes in the laws and reg-
ulations of China or noncompliance with applicable
laws and regulations, (i) reliance on dividends and other
distributions on equity paid by our principal subsidiar-
ies 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 evi-
dence, enforcing foreign judgments or bringing original
actions in China against us, (m) the Chinese govern-
ment may determine that the variable interest entity

20 YUM CHINA – 2020 Form 10-K

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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 acqui-
sitions, building closures or demolitions, (p) potential
fines and other legal or administrative sanctions for fail-
ure 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 deter-
mined 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 hold-
ing companies and governmental control of currency
conversion, and (s) difficulties in pursuing growth
through acquisitions due to regulations regarding
acquisitions;

• Risks related to the separation and related transactions,
including (a) incurring significant tax liabilities if the
distribution does not qualify as a transaction that is gen-
erally 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 indem-
nification 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 connec-
tion with the separation may be insufficient to insure us
against the full amount of such liabilities, (e) the possi-
bility that a court would require that we assume respon-
sibility for obligations allocated to YUM under the
separation and distribution agreement, and (f) potential
liabilities due to fraudulent transfer considerations;

• Risks related to our common stock, including (a) the
fact that we cannot guarantee the timing or amount of

PART I

dividends on, or repurchases of, our common stock,
(b) the impact on the trading prices of our common
stock due to different characteristics of the capital mar-
kets in Hong Kong and the U.S., (c) different interests
between Primavera and Ant Financial and other holders
of our common stock, and (d) the existence of anti-

takeover provisions that may discourage or delay
acquisition attempts that you might consider favorable;
and

• General risk factors.

Risks Related to Our Business and Industry

Food safety and foodborne illness
concerns may have an adverse effect on
our reputation and business.

Foodborne illnesses, such as E. coli, hepatitis A and sal-
monella, have occurred and may re-occur within our sys-
tem from time to time. In addition, food safety issues such
as food tampering, contamination and adulteration occur
or may occur within our system from time to time. Any
report or publicity linking us, our competitors, our restau-
rants, including restaurants operated by us or our franchi-
sees, to instances of foodborne illness or food safety
issues could adversely affect our restaurants’ brands and
reputations as well as our revenues and profits and possi-
bly lead to product liability claims, litigation and dam-
ages. If a customer of our restaurants becomes ill from
foodborne illnesses or as a result of food safety issues,
restaurants in our system may be temporarily closed,
which would decrease our revenues. In addition, instances
or allegations of foodborne illness or food safety issues,
real or perceived, involving our or YUM’s restaurants,
restaurants of competitors, or suppliers or distributors
(regardless of whether we use or have used those suppli-
ers or distributors), or otherwise involving the types of
food served at our restaurants, could result in negative
publicity that could adversely affect our sales. The occur-
rence of foodborne illnesses or food safety issues could
also adversely affect the price and availability of affected
ingredients, which could result in disruptions in our sup-
ply chain and/or lower margins for us and our franchisees.

In October 2019, China’s State Council amended the
Regulation for the Implementation of the Food Safety
Law (the “Regulation of Food Safety Law”), which
became effective on December 1, 2019. The Regulation
of Food Safety Law outlines detailed rules for food safety

assessment, food safety standards, food production and
food business, food inspection and other matters. Pursu-
ant to the Regulation of Food Safety Law, certain viola-
tions of the food safety law may result
in severe
administrative and criminal penalties imposed on the
Company, as well as its legal representatives, senior man-
agement members and other employees. If penalties are
imposed on our senior management members, they may
be prevented from performing their duties at the Com-
pany, which could in turn negatively affect our business
operations. Such penalties could also have a material
adverse impact on the Company’s reputation.

Any significant failure to maintain effective
quality assurance systems for our
restaurants could have a material adverse
effect on our business, reputation, results
of operations and financial condition.

The quality and safety of the food we serve is critical to
our success. Maintaining consistent food quality depends
significantly on the effectiveness of our and our franchi-
sees’ quality assurance systems, which in turn depends on
a number of factors, including the design of our quality
control systems and employee implementation and com-
pliance with those quality control policies and guidelines.
Our quality assurance systems include, but are not limited
to, supplier/food processing plant quality assurance,
logistics quality assurance, and restaurant quality assur-
ance. There can be no assurance that our and our franchi-
sees’ quality assurance systems will prove to be effective.
Any significant failure of or deviation from these quality
assurance systems could have a material adverse effect on
our business, reputation, results of operations and finan-
cial condition.

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PART I

Any significant liability claims, food
contamination complaints from our
customers or reports of incidents of food
tampering could adversely affect our
business, reputation, results of operations
and financial condition.

Being in the restaurant industry, we face an inherent risk
of food contamination and liability claims. Our food qual-
ity depends partly on the quality of the food ingredients
and raw materials provided by our suppliers, and we may
not be able to detect all defects in our supplies. Any food
contamination occurring in raw materials at our suppliers’
food processing plants or during the transportation from
food processing plants to our restaurants that we fail to
detect or prevent could adversely affect the quality of the
food served in our restaurants. Due to the scale of our and
our franchisees’ operations, we also face the risk that cer-
tain of our and our franchisees’ employees may not
adhere to our mandated quality procedures and require-
ments. Any failure to detect defective food supplies, or
observe proper hygiene, cleanliness and other quality
control requirements or standards in our operations could
adversely affect the quality of the food we offer at our res-
taurants, which could lead to liability claims, complaints
and related adverse publicity, reduced customer traffic at
our restaurants, the imposition of penalties against us or
our franchisees by relevant authorities and compensation
awards by courts. Our sales have been significantly
impacted by adverse publicity relating to supplier actions
over the past decade. For example, our sales and percep-
tion of our brands were significantly impacted following
adverse publicity relating to the failure of certain upstream
poultry suppliers to meet our standards in late 2012 as
well as adverse publicity relating to improper food han-
dling practices by another supplier in mid-2014. There
can be no assurance that similar incidents will not occur
again in the future or that we will not receive any food
contamination claims or defective products from our sup-
pliers in the future. Any such incidents could materially
harm our business, reputation, results of operations and
financial condition.

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Health concerns arising from outbreaks of
viruses or other illnesses may have a
material adverse effect on our business.
The COVID-19 pandemic has had, and may
continue to have, adverse effects on our
results of operations, cash flows and
financial condition.

Our business could be materially and adversely affected
by the outbreak of a widespread health epidemic, such as
the COVID-19, avian flu or African swine flu. Outbreaks
of contagious illness occur from time to time around the
world, including in China where virtually all of our res-
taurants are located. The occurrence of such an outbreak
or other adverse public health developments in China
could materially disrupt our business and operations,
including if government authorities impose mandatory
closures, seek voluntary closures or impose restrictions on
operations of restaurants. Furthermore, the risk of con-
tracting viruses or other illnesses that may be transmitted
through human contact could cause employees or guests
to avoid gathering in public places or interacting with
other people, which could materially and adversely affect
restaurant guest traffic or the ability to adequately staff
restaurants. An outbreak could also cause disruption in
our supply chain, increase our raw material costs, increase
operational complexity and adversely impact our ability
to provide safety measures to protect our employees and
customers, which could materially and adversely affect
our continuous operations. Our operating costs may also
increase as a result of taking precautionary measures to
protect the health and wellbeing of our customers and
employees during an outbreak. If an outbreak reaches
pandemic levels, there may also be long-term effects on
the economies of affected countries. Any of the foregoing
within China would severely disrupt our operations and
could have a material adverse effect on our business,
results of operations, cash flows and financial condition.

full-year 2020. At

For example, the COVID-19 pandemic has adversely
affected our results of operations, cash flows and financial
condition for
the
COVID-19 outbreak in China, we closed approximately
35% of our restaurants. For restaurants that remained
open, same-store sales declined due to shortened operat-
ing hours and reduced traffic, with a significant portion of

the peak of

the full

to predict

stores providing only delivery and takeaway services. We
expect that our operations will continue to be impacted by
the lingering effects of COVID-19, including resurgences
and the corresponding actions taken by governmental
authorities, such as measures restricting travel and large
gatherings, and recommendations against dining out. It
remains difficult
impact of the
COVID-19 pandemic on the broader economy and how
consumer behavior may change, and whether such
change is temporary or permanent. Social distancing,
telecommunicating and reductions in travel may become
the new normal. These conditions could fundamentally
impact the way we work and the services we provide, and
could have continuing adverse effects on our results of
operations, cash flows and financial condition beyond
2020. The extent to which our operations continue to be
impacted by the pandemic will depend largely on future
developments, which are highly uncertain and cannot be
accurately predicted, including the resurgences and fur-
ther spread of COVID-19, the actions by the government
authorities to contain the pandemic or treat its impact, the
effectiveness of those efforts, and the availability and
effectiveness of vaccines, among other things. Our insur-
ance policy does not cover any losses we incur as a result
of the pandemic. The COVID-19 pandemic also may
have the effect of heightening other risks disclosed in the
“Risk Factors” section of this report, such as, but not lim-
ited to, those related to supply chain management, labor
shortage and cost, cybersecurity threats, as well as con-
sumer perceptions of our brands.

Even if a virus or other illness does not spread signifi-
cantly, the perceived risk of infection or health risk may
affect our business. Our operations could also be dis-
rupted if any of our employees or employees of our busi-
ness partners were suspected of having a contagious
illness or susceptible to becoming infected with a conta-
gious illness, since this could require us or our business
partners to screen and/or quarantine some or all of such
employees or disinfect our restaurant facilities.

With respect to the avian flu, public concern over an out-
break may cause fear about the consumption of chicken,
eggs and other products derived from poultry, which
could cause customers to consume less poultry and related
products. This would likely result in lower revenues and
profits. Avian flu outbreaks could also adversely affect the

PART I

price and availability of poultry, which could negatively
impact our profit margins and revenues.

The operation of our restaurants is subject
to the terms of the master license
agreement which, if terminated or limited,
would materially adversely affect our
business, results of operations and
financial condition.

Under the master license agreement with YUM, we are
required to meet a Sales Growth Metric, which requires
the average annual Gross Revenue (as defined in the
master license agreement) for each of the KFC, Pizza Hut
and Taco Bell brands for each rolling five (5) calendar
year period throughout the term of the master license
agreement (“Measurement Period”), beginning January 1,
2017, to exceed the annual Gross Revenue of the calendar
year immediately preceding the corresponding Measure-
ment Period (“Benchmark Year”). To illustrate, the first
Measurement Period is January 1, 2017 through
December 31, 2021 (corresponding to the first Bench-
mark Year of January 1, 2016 through December 31,
2016) and the second Measurement Period is January 1,
2018 through December 31, 2022 (corresponding to the
second Benchmark Year of January 1, 2017 through
December 31, 2017).

The requirement regarding the Sales Growth Metric will
begin at the end of the first Measurement Period on
December 31, 2021. Within 60 days after the beginning of
each calendar year following December 31, 2021, and dur-
ing the term of the master license agreement, we are
required to provide to YUM a written statement with the
calculations of the Sales Growth Metric. If our calculations
indicate that any of these restaurant brands failed to meet
the Sales Growth Metric (an “SGM Breach”), there is a
mechanism under the master license agreement for us to
explain and remediate such breach in good faith. YUM has
the right to terminate the master license agreement in the
event of an SGM Breach. In the event of two consecutive
SGM Breaches for KFC, Pizza Hut or Taco Bell, YUM
shall be entitled to exercise its right to eliminate or modify
the exclusivity of the license granted to us and conduct and
further develop the relevant restaurant brand in our licensed
territory or license one or more third parties to do so.

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PART I

The master license agreement may also be terminated
upon the occurrence of certain events, such as our insol-
vency or bankruptcy. We have not experienced any mate-
rial breach of the master license agreement, and we
actively monitor our compliance with the terms of the
master license agreement on an on-going basis. Under the
master license agreement, we will have the right to cure
any breach of the agreement, except for the dissolution,
liquidation, insolvency or bankruptcy of the Company or
upon the occurrence of an unauthorized transfer or change
of control or other breach that YUM determines will not
or cannot be cured. Upon the occurrence of a non-curable
breach, YUM will have the right to terminate the master
license agreement (or our rights to a particular brand) on
delivery of written notice. Upon the occurrence of a cur-
able breach, YUM will provide a notice of breach that sets
forth a cure period that is reasonably tailored to the appli-
cable breach. If we do not cure the breach, YUM will have
the right to terminate the master license agreement (or our
rights to a particular brand). The master license agreement
also contemplates remedies other than termination that
YUM may use as appropriate. These remedies include:
actions for injunctive and/or declaratory relief (including
specific performance) and/or damages; limitations on our
future development rights or suspension of restaurant
operations pending a cure; modification or elimination of
our territorial exclusivity; and YUM’s right to repurchase
from us the business operated under an affected brand at
fair market value, less YUM’s damages. If the master
license agreement were terminated, or any of our license
rights were limited, our business, results of operations and
financial condition would be materially adversely
affected.

We derive substantially all of our revenue
from our operations in China and, as a
result, our business is highly exposed to
the risks of doing business in China.

Virtually all of our restaurants are located, and our reve-
nues and profits originate, in China. As a consequence,
our financial results are dependent on our results in China,
and our business is highly exposed to all of the risks of
doing business there. These risks are described further
under the section “Risks Related to Doing Business in
China.”

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Our success is tied to the success of
YUM’s brand strength, marketing
campaigns and product innovation.

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

Shortages or interruptions in the
availability and delivery of food products
and other supplies may increase costs or
reduce revenues.

The products used in the operation of our restaurants are
sourced from a wide variety of suppliers inside and out-
side of China. We are also dependent upon third parties to
make frequent deliveries of food products and other sup-
plies that meet our specifications at competitive prices.
Shortages or interruptions in the supply of food products
and other supplies to our restaurants could adversely
affect the availability, quality and cost of items we use and
the operations of our restaurants. Such shortages or dis-
ruptions could be caused by inclement weather, natural
disasters such as floods, drought and hurricanes, increased
demand, labor shortages, problems in production or dis-
tribution, restrictions on imports or exports, government
levies, political instability in the countries in which sup-
pliers and distributors are located, the financial instability
of suppliers and distributors, suppliers’ or distributors’
failure to meet our standards, product quality issues,

inflation, other factors relating to the suppliers and dis-
tributors and the countries in which they are located, food
safety warnings or advisories or the prospect of such pro-
nouncements or other conditions beyond our control.
Despite our efforts in developing multiple suppliers for
the same items where and when possible, a shortage or
interruption in the availability of certain food products or
supplies could still increase costs and limit the availability
of products critical to restaurant operations, which in turn
could lead to restaurant closures and/or a decrease in sales.
In addition, failure by a principal supplier or distributor
for us and/or our franchisees to meet its service require-
ments could lead to a disruption of service or supply until
a new supplier or distributor is engaged, and any disrup-
tion could have an adverse effect on our business.

In addition, we centrally purchase the vast majority of
food and paper products, then sell and deliver them to
most of our restaurants. We believe this central procure-
ment model allows us to maintain quality control and
achieve better prices and terms through volume pur-
chases. However, we may not be able to accurately esti-
mate the demand from franchisees and unconsolidated
affiliates, which may result in excessive inventory. We
may also not be able to timely collect payments from
franchisees and unconsolidated affiliates, which could
have a material adverse effect on our business, results of
operations and financial condition.

The prices of raw materials fluctuate, which
may adversely impact our profit margin.

Our restaurant business depends on reliable sources of large
quantities of raw materials such as protein (including poul-
try, pork, beef and seafood), cheese, oil, flour and vegeta-
bles (including potatoes and lettuce). Our raw materials are
subject to price volatility caused by any fluctuation in
aggregate supply and demand, or other external conditions,
such as changes in international trade policies and interna-
tional barriers to trade, the emergence of a trade war, cli-
mate and environmental conditions where weather
conditions or natural events or disasters may affect
expected harvests of such raw materials, as well as outbreak
of viruses and diseases. For example, in 2019, the price of
protein, including poultry, increased significantly in China
as a result of the African swine flu. We cannot assure you
that we will continue to purchase raw materials at reason-

PART I

able prices, or that our raw materials prices will remain sta-
ble in the future. In addition, because we and our franchi-
sees provide competitively priced food, our ability to pass
along commodity price increases to our customers is lim-
ited. If we are unable to manage the cost of our raw materi-
als or to increase the prices of our products, it may have an
adverse impact on our future profit margin.

We may not attain our target development
goals; aggressive development could
cannibalize existing sales; and new
restaurants may not be profitable.

Our growth strategy depends on our ability to build new
restaurants in China. The successful development of new
units depends in large part on our ability to open new res-
taurants and to operate these restaurants profitably. We
cannot guarantee that we, or our franchisees, will be able
to achieve our expansion goals or that new restaurants will
be operated profitably. Further, there is no assurance that
any new restaurant will produce operating results similar
to those of our existing restaurants. Other risks which
could impact our ability to increase the number of our res-
taurants include prevailing economic conditions and our
or our franchisees’ ability to obtain suitable restaurant
locations, negotiate acceptable lease or purchase terms for
the locations, obtain required permits and approvals in a
timely manner, hire and train qualified restaurant crews
and meet construction schedules.

In addition, the new restaurants could impact the sales of
our existing restaurants nearby. There can be no assurance
that sales cannibalization will not occur or become more
significant in the future as we increase our presence in
existing markets in China.

Our growth strategy includes expanding our ownership
and operation of restaurant units through organic growth
by developing new restaurants that meet our investment
objectives. We may not be able to achieve our growth
objectives, and these new restaurants may not be profit-
able. The opening and success of new restaurants depends
on various factors, including:

• our ability to obtain or self-fund adequate development

financing;

YUM CHINA – 2020 Form 10-K 25

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PART I

• competition in current and future markets;

• our degree of penetration in existing markets;

• the identification and availability of suitable and eco-

nomically viable locations;

• sales and margin levels at existing restaurants;

• the negotiation of acceptable lease or purchase terms for

new locations;

• regulatory compliance regarding restaurant opening

and operation;

• the ability to meet construction schedules;

• our ability to hire and retain qualified restaurant crews;

and

• general economic and business conditions.

We are subject to all of the risks
associated with leasing real estate, and
any adverse developments could harm our
business, results of operations and
financial condition.

As a significant number of our restaurants are operating
on leased properties, we are exposed to the market condi-
tions of the retail rental market. As of year-end 2020, we
leased the land and/or building for over 8,100 restaurants
in China. For information regarding our leased properties,
please refer to Item 2. “Properties.” Accordingly, we are
subject to all of the risks generally associated with leasing
real estate, including changes in the investment climate
for real estate, demographic trends, trade zone shifts,
central business district relocations, and supply or demand
for the use of the restaurants, as well as potential liability
for environmental contamination.

We generally enter into lease agreements with initial
terms of 10 to 20 years. Approximately 8% of our existing
lease agreements expire before the end of 2021. Most of
our lease agreements contain an early termination clause
that permits us to terminate the lease agreement early if

26 YUM CHINA – 2020 Form 10-K

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the restaurant’s unit contribution is negative for a speci-
fied period of time. We generally do not have renewal
options for our leases and need to negotiate the terms of
renewal with the lessor, who may insist on a significant
modification to the terms and conditions of the lease
agreement.

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

Where we do not have an option to renew a lease agree-
ment, we must negotiate the terms of renewal with the les-
sor, who may insist on a significant modification to the
terms and conditions of the lease agreement. If a lease
agreement is renewed at a rate substantially higher than
the existing rate, or if any existing favorable terms granted
by the lessor are not extended, we must determine
whether it is desirable to renew on such modified terms. If
we are unable to renew leases for our restaurant sites on
acceptable terms or at all, we will have to close or relocate
the relevant restaurants, which would eliminate the sales
that those restaurants would have contributed to our reve-
nues during the period of closure, and could subject us to
construction, renovation and other costs and risks. In
addition, the revenue and any profit generated after relo-
cation may be less than the revenue and profit previously
generated before such relocation. As a result, any inability
to obtain leases for desirable restaurant locations or renew
existing leases on commercially reasonable terms could
have a material adverse effect on our business, results of
operations and financial condition.

PART I

We may not be able to obtain desirable
restaurant locations on commercially
reasonable terms.

We compete with other retailers and restaurants for suit-
able locations, and the market for retail premises is very
competitive in China. Our competitors may negotiate
more favorable lease terms than our lease terms, and some
landlords and developers may offer priority or grant
exclusivity to some of our competitors for desirable loca-
tions for various reasons beyond our control. We cannot
provide assurance that we will be able to enter into new
lease agreements for prime locations on commercially
reasonable terms, if at all. If we cannot obtain desirable
restaurant locations on commercially reasonable terms,
our business, results of operations and ability to imple-
ment our growth strategy may be materially and adversely
affected.

Labor shortages or increases in labor costs
could slow our growth and harm our
business and results of operations.

Restaurant operations are highly service-oriented, and our
success depends in part upon our ability to attract, retain
and motivate a sufficient number of qualified employees,
including restaurant managers, and other crew members.
The market for qualified employees in our industry is very
competitive. Any future inability to recruit and retain
qualified individuals may delay the planned openings of
new restaurants and could adversely impact our existing
increases in
restaurants. Any such delays, material
employee turnover rate in existing restaurants or wide-
spread employee dissatisfaction could have a material
adverse effect on our business and results of operations.
Competition for qualified employees could also compel
us to pay higher wages to attract or retain key crew mem-
bers, which could result in higher labor costs. In addition,
our delivery business requires a large number of riders.
Any shortage of riders could result in higher rider costs.

The Chinese Labor Contract Law that became effective on
January 1, 2008 and amended on December 28, 2012 for-
malizes workers’ rights concerning overtime hours, pensions,
layoffs, employment contracts and the role of trade unions,
and provides for specific standards and procedures for

employees’ protection. Moreover, minimum wage require-
ments in China have increased and could continue to increase
our labor costs in the future. The salary level of employees in
the restaurant industry in China has been increasing in the past
several years. We may not be able to increase our product
prices enough to pass these increased labor costs on to our
customers, in which case our business and results of opera-
tionswouldbemateriallyandadverselyaffected.

Our success depends substantially on our
corporate reputation and on the value and
perception of our brands.

One of our primary assets is the exclusive right to use the
KFC, Pizza Hut and Taco Bell trademarks in restaurants
in China. Our success depends in large part upon our abil-
ity and our franchisees’ ability to maintain and enhance
the value of these brands and our customers’ loyalty to
these brands in China. Brand value is based in part on
consumer perceptions on a variety of subjective qualities.
Business incidents, whether isolated or recurring, and
whether originating from us, our franchisees, competitors,
suppliers and distributors or YUM and its other licensees
or franchisees, competitors, suppliers and distributors
outside China can significantly reduce brand value and
consumer trust, particularly if the incidents receive con-
siderable publicity or result in litigation. For example, our
brands could be damaged by claims or perceptions about
the quality or safety of our products or the quality of our
suppliers and distributors, regardless of whether such
claims or perceptions are true. Any such incidents (even if
resulting from the actions of a competitor) could cause a
decline directly or indirectly in consumer confidence in,
or the perception of, our brands and/or our products and
reduce consumer demand for our products, which would
likely result in lower revenues and profits. Additionally,
our corporate reputation could suffer from a real or per-
ceived failure of corporate governance or misconduct by a
company officer, employee or representative.

The occurrence of security breaches and
cyber-attacks could negatively impact our
business.

Technology systems, including our mobile or online plat-
forms, mobile payment and ordering systems, loyalty

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PART I

programs and various other online processes and func-
tions, are critical to our business and operations. For
example, as of year-end 2020, KFC had over 275 million
loyalty program members and Pizza Hut had over
85 million. KFC member sales represented approximately
60% of KFC’s system sales and Pizza Hut member sales
represented approximately 53% of Pizza Hut’s system
sales in the fourth quarter of 2020. Digital orders
accounted for 80% of KFC and Pizza Hut Company sales
in 2020. As we continue to expand our digital initiatives,
the risks relating to security breaches and cyber-attacks
against our systems, both internal and those we have out-
sourced, may increase.

Because of our brand recognition in China, we are consis-
tently subject to attempts to compromise our security and
information systems, including denial of service attacks,
viruses, malicious software or ransomware, and exploita-
tions of system flaws or weaknesses. Error or malfeasance
or other irregularities may also result in the failure of our
or our third-party service providers’ cybersecurity mea-
sures and may give rise to a cyber incident. The tech-
niques used to conduct security breaches and cyber-
attacks, as well as the sources and targets of these attacks,
change frequently and may not be recognized until
launched against us or our third-party service providers.
We or our third-party service providers may not have the
resources or technical sophistication to anticipate or pre-
vent rapidly evolving types of cyber-attacks. We have in
the past and are likely again in the future to be subject to
these types of attacks, although to date no attack has
resulted in any material damages or remediation costs.
The primary risks that could directly result from the
occurrence of a cyber incident include operational inter-
ruption, misappropriation of company information or pri-
vate data, deletion or modification of user information,
damage to our relationships with customers, franchisees
and employees, and damage to our reputation. If we or our
third-party service providers are unable to avert security
breaches and cyber-attacks, we could incur significantly
higher costs, including remediation costs to repair damage
caused by the breach (including business incentives to
make amends with affected customers and franchisees),
costs to deploy additional personnel and network protec-
tion technologies, train employees and engage third-party
experts and consultants, as well as litigation costs result-
ing from the incident. These costs, which could be mate-

28 YUM CHINA – 2020 Form 10-K

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rial, could adversely impact our results of operations in the
period in which they are incurred and may not meaning-
fully limit the success of future attempts to breach our
information technology systems.

Unauthorized access to, or improper use,
disclosure, theft or destruction of, our
customer or employee personal, financial
or other data or our proprietary or
confidential information that is stored in
our information systems or by third parties
on our behalf could result in substantial
costs, expose us to litigation and damage
our reputation.

We have been using, and plan to continue to use, digital
technologies to improve the customer experience and
drive sales growth. We, directly or indirectly, receive and
maintain certain personal, financial and other information
about our customers in various information systems that
we maintain and in those maintained by third-party ser-
vice providers when, for example, receiving orders
through mobile or online platforms, accepting digital pay-
ments, operating loyalty programs and conducting digital
marketing programs. Our information technology sys-
tems, such as those we use for administrative functions,
including human resources, payroll, accounting and inter-
nal and external communications, can contain personal,
financial or other information of our over 400,000
employees. We also maintain important proprietary and
other confidential information related to our operations
and identifiable information about our franchisees. As a
result, we face risks inherent in handling and protecting
large volumes of information.

If our security and information systems or the security and
information systems of third-party service providers are
compromised for any reason, including as a result of data
corruption or loss, security breach, cyber-attack or other
external or internal methods, or if our employees, franchisees
or service providers fail to comply with laws, regulations and
practice standards, and this information is obtained by unau-
thorized persons, used or disclosed inappropriately or
destroyed, it could subject us to litigation and government
enforcement actions, cause us to incur substantial costs,
liabilities and penalties and/or result in a loss of customer

confidence, any and all of which could adversely affect our
business, reputation, ability to attract new customers, results
of operationsandfinancialcondition.

In addition, the use and handling of this information is
regulated by evolving and increasingly demanding laws
and regulations. The Chinese government has focused
increasingly on regulation in the areas of information
security and protection, including by implementing a new
cybersecurity law effective June 1, 2017, which imposes
tightened requirements on data privacy and cybersecurity
practices. There are uncertainties with respect to the
application of the cybersecurity law in certain circum-
stances. Compliance with the cybersecurity law, as well
as additional laws, regulations and standards regarding
data privacy, data collection and information security that
PRC regulatory bodies may enact in the future, may result
in additional expenses to us as we may be required to
upgrade our current information technology systems.
Furthermore, as a result of legislative and regulatory rules,
we may be required to notify the owners of personal
information of any breach, theft or loss of their personal
information, which could harm our reputation, as well as
subject us to litigation or actions by regulatory bodies and
adversely affect our financial results.

We expect that these areas will receive greater attention
and focus from regulators, as well as attract continued or
greater public scrutiny and attention going forward, which
could increase our compliance costs and subject us to
heightened risks and challenges associated with informa-
tion security and protection. If we are unable to manage
these risks, we could become subject to penalties, includ-
ing fines, suspension of business, shutdown of websites
and revocation of required licenses, and our reputation
and results of operations could be materially and
adversely affected.

Our operations are highly dependent upon
our information technology systems and any
failures or interruptions of service or security
breaches in our systems may interrupt our
operations and harm our business.

PART I

tion technology systems. We rely heavily on information
technology systems across our operations, including those
we use for finance and accounting functions, supply chain
management, point-of-sale processing, online and mobile
platforms, mobile payment processing, loyalty programs
and various other processes and functions, and many of
these systems are interdependent on one another for their
functionality. Additionally, the success of several of our
initiatives to drive growth, including our priority to
expand digital engagement with our customers, is highly
dependent on the reliability, availability, integrity, scal-
ability and capacity of our information technology sys-
tems. We also rely on third-party providers and platforms
for some of these information technology systems and
support.

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

• additional computer and information security and sys-

tems development costs;

• diversion of technical and other resources;

• loss of customers and sales;

• loss or theft of customer, employee or other data;

• negative publicity;

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Our operations are dependent upon the successful and
uninterrupted functioning of our computer and informa-

• harm to our business and reputation;

YUM CHINA – 2020 Form 10-K 29

PART I

• negative impact on the availability and the efficiency of

our restaurant operations; and

• exposure to litigation claims, government investiga-
tions and enforcement actions, fraud losses or other
liabilities.

We will continue to upgrade and improve our information
technology systems to support our business growth.
However, we cannot assure you that we will be successful
in executing these system upgrades and improvement
strategies and the foregoing risks could intensify while we
execute those upgrades and improvements. In particular,
our
systems may experience interruptions during
upgrades, and the new technologies or infrastructures may
not be fully integrated with the existing systems on a
timely basis, or at all. If we are unsuccessful in upgrading
and improving our systems, our ability to increase com-
parable store sales, improve operations, implement cost
controls and grow our business may be constrained.

Our business depends on the performance
of, and our long-term relationships with,
third-party mobile payment processors,
internet infrastructure operators, internet
service providers and delivery aggregators.

Digital payments, including mobile payments, accounted
for approximately 97% of Yum China Company sales in
2020. The ability to accept mobile payments is critical to
our business. We accept payments through third-party
mobile payment processors, such as WeChat Pay, Alipay
and Union Pay. We also developed and launched YUMC
Pay in the first quarter of 2019, in partnership with Union
Pay, which offers a convenient payment option for users
within a single App. If we fail to extend or renew the
agreements with these mobile payment processors on
acceptable terms or if these mobile payment processors
are unwilling or unable to provide us with payment pro-
cessing service or impose onerous requirements on us in
order to access their services, or if they increase the fees
they charge us for these services, our business and results
of operations could be harmed.

Our business depends on the performance and reliability
of the internet infrastructure in China. Almost all access to

the internet in China is maintained through state-owned
telecommunications operators under administrative con-
trol, and we obtain access to end-user networks operated
by such telecommunications operators and internet ser-
vice providers to give customers access to our websites.
The satisfactory performance, availability and reliability
of our websites, online platforms and Apps depends on
telecommunications operators and other third-party pro-
viders for communications and storage capacity, includ-
ing bandwidth and server storage, among other things. If
we are unable to enter into and renew agreements with
these providers on acceptable terms, if any of our existing
agreements with such providers are terminated as a result
of our breach or otherwise, or if these providers experi-
ence problems with the functionality and effectiveness of
their systems or platforms, our ability to provide our ser-
vices to our customers could be adversely affected. The
failure of telecommunications operators to provide us
with the requisite bandwidth could also interfere with the
speed and availability of our websites and Apps. Frequent
interruptions could frustrate customers and discourage
them from attempting to place orders, which could cause
us to lose customers and harm our operating results.

Furthermore, to the extent we rely on the systems of third
parties in areas such as mobile payment processing, online
and mobile delivery ordering, telecommunications and
wireless networks, any defects, failures and interruptions
in their systems could result in similar adverse effects on
our business. Sustained or repeated system defects, fail-
ures or interruptions could materially impact our opera-
tions and results of operations.

Additionally, we have no control over the costs of the ser-
vices provided by the telecommunications operators. If
the prices that we pay for telecommunications and
internet services rise significantly, our profit margins
could be adversely affected. In addition, if internet access
fees or other charges to internet users increase, our user
traffic may decrease, which in turn may significantly
decrease our revenues.

Our delivery business depends on the performance of, and
third-party delivery
our long-term relationships with,
aggregators. We allow our products to be listed on and
ordered through their mobile or online platforms. If we fail
to extend or renew the agreements with these aggregators

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on acceptable terms, or at all, our business and results of
operations may be materially and adversely affected. In
addition, any increase in the commission rate charged by
the aggregators could negatively impact our operating
results.

concept in China. As of December 31, 2020, there were
four Lavazza units in China. We plan to continue to scale
up the operations of COFFii & JOY and Lavazza in the
near future, which may require significant capital and
management attention.

Our restaurants offer delivery services. Any
failure to provide timely and reliable
delivery services by us may materially and
adversely affect our business and
reputation.

As of year-end 2020, over 7,600 KFC and Pizza Hut res-
taurants offer delivery services. Delivery contributed to
approximately 30% of KFC and Pizza Hut Company
sales for 2020. Customers may order delivery service
through KFC and Pizza Hut’s websites and Apps. KFC
and Pizza Hut have also partnered with third-party deliv-
ery aggregators, allowing our products to be listed on and
ordered through their mobile or online platforms.

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

Our growth strategy with respect to
COFFii & JOY and Lavazza may not be
successful.

As part of our strategy to tap into the growing China cof-
fee market, we started to develop COFFii & JOY as our
standalone specialty coffee concept
in 2018. As of
year-end 2020, we opened 42 COFFii & JOY coffee
stores in eight cities in China using different store formats.
In April 2020, we established a joint venture with Lavazza
Group to explore and develop the Lavazza coffee shop

The success of COFFii & JOY and Lavazza depends in
large part on our ability to secure optimal locations, intro-
duce new and unique store formats, and operate these
stores profitably. The effectiveness of our supply chain
management to assure reliable coffee supply at competi-
tive prices is one of the key factors to the success of COF-
Fii & JOY and Lavazza.

There is no assurance that our growth strategy with
respect to COFFii & JOY and Lavazza will be successful
or generate expected returns in the near term or at all. If
we fail to execute this growth strategy successfully, our
business, results of operations and financial condition
may be materially and adversely affected.

The anticipated benefits of our acquisitions
may not be realized in a timely manner or
at all.

In May 2017, we acquired a controlling interest in Daojia
with the expectation that the acquisition will further
enhance our digital and delivery capabilities, and acceler-
ate growth by building know-how and expertise in the
expanding delivery market. In the fourth quarter of 2018,
due to declining sales as a result of intensified competition
among delivery aggregators, we recorded an impairment
charge of $12 million on intangible assets acquired from
the Daojia business primarily attributable to the Daojia
platform. In the fourth quarter of 2019, due to continuing
declining sales and margin, we further wrote down the
Daojia reporting unit goodwill and intangible assets to
zero, and recorded an additional impairment charge of
$11 million. In April 2020, we completed the acquisition
of a 93.3% interest in Huang Ji Huang, a leading Chinese-
style casual dining franchise business, for cash considera-
tion of $185 million. As of December 31, 2020, the
carrying amounts of intangible assets and goodwill attrib-
utable to Huang Ji Huang reporting unit was $104 million
and $64 million, respectively. With this acquisition, we
aim to gain a stronger foothold and enhanced know-how

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in the Chinese dining space and create synergies. Achiev-
ing those anticipated benefits is subject to a number of
uncertainties.

The operation of the acquired businesses could also
involve further unanticipated costs and divert manage-
ment’s attention away from day-to-day business con-
cerns. We cannot assure you that we will be able to
achieve the anticipated benefits of any business acquisi-
tions.

Our e-commerce business may expose us
to new challenges and risks and may
adversely affect our business, results of
operations and financial condition.

In 2017, we started to test a mobile e-commerce platform,
V-Gold Mall, to allow consumers to search for products
and place orders on our Apps. We acquire a wide selec-
tion of products, including electronics, home and kitchen
accessories, and other general merchandise, from suppli-
ers and sell them directly to customers through our
e-commerce platform. We expect to continue to add
resources to the platform as we focus on expanding our
product offerings and may also decide to make it available
as a platform to third-party vendors to sell their products.

Our e-commerce business exposes us to new challenges
and risks associated with, for example, anticipating cus-
tomer demand and preferences, managing inventory and
handling more complex supply, product return and deliv-
ery service issues. We are relatively new to this business
and our lack of experience may make it more difficult for
us to keep pace with evolving customer demands and
preferences. We may misjudge customer demand, result-
ing in inventory buildup and possible inventory write-
downs and write-offs. We may also experience higher
return rates on new products, receive more customer
complaints about them and face costly product liability
claims as a result of selling them, which would harm our
brands and reputation as well as our financial perfor-
mance. In addition, we will have to invest in, and main-
tain, the necessary network infrastructure and security to
manage and process e-commerce volumes, and network
failures may also result in complaints and expose us to
liability. Furthermore, we rely on third-party delivery

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companies to deliver products sold on our e-commerce
platform and interruptions to, or failures in, delivery ser-
vices could prevent the timely or proper delivery of the
products. Risks related to delivery services are described
in further detail above under “—Our restaurants offer
delivery services. Any failure to provide timely and reli-
able delivery services by us may materially and adversely
affect our business and reputation.” If we do not success-
fully address new challenges specific to the e-commerce
business and compete effectively, our business, results of
operations and financial condition may be materially and
adversely affected.

Our inability or failure to recognize,
respond to and effectively manage the
impact of social media could materially
adversely impact our business and results
of operations.

As a customer-facing industry, the Company is heavily
reliant on its brand, the perception of which may be sig-
nificantly impacted by social media. In recent years, there
has been a marked increase in the use of social media plat-
forms, including weblogs (blogs), mini-blogs, WeChat
and other chat platforms, social media websites, and other
forms of internet-based communications, which allow
individual access to a broad audience of consumers and
other interested persons. Many social media platforms
immediately publish the content their subscribers and par-
ticipants’ post, often without filters or checks on accuracy
of the content posted. Information posted on such plat-
forms at any time may be adverse to our interests and/or
may be inaccurate. The online dissemination of negative
comments about our brands and business, including inac-
curate or irresponsible information, could harm our busi-
ness, reputation, prospects, results of operations and
financial condition. The damage may be immediate and
intense, without affording us an opportunity for redress or
correction, and we may not be able to recover from any
negative publicity in a timely manner or at all. If we fail to
recognize, respond to and effectively manage the acceler-
ated impact of social media, our reputation, business and
results of operation could be materially and adversely
affected.

Other risks associated with the use of social media include
improper disclosure of proprietary information, exposure
of personally identifiable information, fraud, hoaxes or
malicious exposure of false information. The inappropri-
ate use of social media by our customers or employees
could increase our costs, lead to litigation or result in neg-
ative publicity that could damage our reputation and
adversely affect our results of operations.

Failure to comply with anti-bribery or anti-
corruption laws could adversely affect our
business and results of operations.

The U.S. Foreign Corrupt Practices Act and similar
Chinese laws and other similar applicable laws prohibit-
ing bribery of government officials and other corrupt
practices are the subject of increasing emphasis and
enforcement around the world. Although we continue to
implement policies and procedures designed to duly com-
ply with these laws, there can be no assurance that our
employees, contractors, agents or other third parties will
not take actions in violation of our policies or applicable
law, particularly as we expand our operations through
organic growth and acquisitions. Any such violations or
suspected violations could subject us to civil or criminal
penalties,
including substantial fines and significant
investigation costs, and could also materially damage our
brands, as well as our reputation and prospects, business
and results of operations. Publicity relating to any non-
compliance or alleged noncompliance could also harm
our reputation and adversely affect our business and
results of operations.

As a U.S. company with operations
concentrated in China, we are subject to
both U.S. federal income tax and Chinese
enterprise income tax, which could result
in relatively higher taxes compared to
companies operating primarily in the U.S.

Yum China is a Delaware corporation that indirectly
owns the subsidiaries that conduct our business in China
and is subject to both U.S. federal income tax and Chinese
enterprise income tax. While U.S. tax law generally
exempts all of the foreign-source dividends paid to the
U.S. parent company, with operations primarily in China,

PART I

we continue to be subject to the Chinese enterprise
income tax at a rate of 25% and an additional 10% with-
holding tax on any earnings repatriated outside of China
levied by the Chinese tax authorities, subject to any
reduction or exemption set forth in relevant tax treaties or
tax arrangements. This may put Yum China at a relative
disadvantage compared to companies operating primarily
in the U.S., which are currently subject to a U.S. corporate
income tax rate of 21%.

In addition, U.S. tax law provides anti-deferral and anti-
base erosion provisions that may subject the U.S. parent
company to additional U.S. taxes under certain circum-
stances. If we are assessed with these taxes, it could cause
our effective tax rate to increase and affect the amount of
any distributions available to our stockholders.

Tax matters, including changes in tax
rates, disagreements with tax authorities
and imposition of new taxes could impact
our results of operations and financial
condition.

We are subject to income taxes as well as non-income
based taxes, such as VAT, customs duty, property tax,
stamp duty, environmental protection tax, withholding
taxes and obligations and local surcharges, in China and
income tax and other taxes in the U.S. and other jurisdic-
tions. We are also subject to reviews, examinations and
audits by Chinese tax authorities, the IRS and other tax
authorities with respect to income and non-income based
including transfer pricing. Our operations in
taxes,
respective jurisdictions generally remain subject
to
examination for tax years as far back as 2006, some of
which years are currently under audit by local tax author-
ities. If Chinese tax authorities, the IRS or other tax
authorities disagree with our tax positions, we could face
additional tax liabilities, including interest and penalties.
Payment of such additional amounts upon final settlement
or adjudication of any disputes could have a material
adverse impact on our results of operations and financial
condition.

In addition, we are directly and indirectly affected by new
tax legislation and regulation and the interpretation of tax
laws and regulations worldwide. For example, the U.S.

YUM CHINA – 2020 Form 10-K 33

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Tax Act implemented broad reforms to the U.S. corporate
income tax system and significantly altered how U.S.
multinational corporations are taxed on foreign earnings.
In addition, the new U.S. Presidential Administration has
indicated support for proposals to increase the U.S. cor-
porate income tax rate. Any increases in tax rates or
changes in tax laws or the interpretations thereof could
have a material adverse impact on our results of opera-
tions and financial condition.

Moreover, the tax regime in China is rapidly evolving and
there can be significant uncertainty for taxpayers in China
as Chinese tax laws may change significantly or be sub-
ject to uncertain interpretations. Since 2012, the Chinese
government launched a VAT pilot reform to replace BT
to make reform to its retail tax structure by ending the
co-existence of BT and VAT where BT would be gradu-
ally phased out and replaced by VAT. The retail tax struc-
ture reform is intended to be a progressive and positive
shift to more closely align with a more modern service-
based economy. Effective May 1, 2016, the retail tax
structure reform has been rolled out to cover all business
sectors nationwide where the BT has been completely
replaced by VAT. The interpretation and application of
the new VAT regime are not settled at some local govern-
mental levels. In addition, the timetable for enacting the
prevailing VAT regulations into national VAT law,
including ultimate enacted VAT rates,
is not clear.
Changes in legislation, regulation or interpretation of
existing laws and regulations in the U.S., China, and other
jurisdictions where we are subject to taxation could
increase our taxes and have an adverse effect on our
results of operations and financial condition.

Our results of operations may be adversely
impacted by changes in consumer
discretionary spending and general
economic conditions.

Purchases at our restaurants are discretionary for con-
sumers and, therefore, our results of operations are sus-
ceptible to economic slowdowns and recessions. Our
results of operations are dependent upon discretionary
spending by consumers, which may be affected by gen-
eral economic conditions in China. Some of the factors
that impact discretionary consumer spending include

unemployment rates, fluctuations in the level of dispos-
able income, the price of gasoline, stock market perfor-
mance and changes in the level of consumer confidence.
These and other macroeconomic factors could have an
adverse effect on our sales, profitability or development
plans, which could harm our results of operations and
financial condition.

The restaurant industry in which we
operate is highly competitive.

The restaurant industry in which we operate is highly com-
petitive with respect to price and quality of food products,
new product development, advertising levels and promo-
tional initiatives, customer service, reputation, restaurant
location, and attractiveness and maintenance of properties.
We cannot assure you that we will continue to develop new
products and maintain an attractive menu to suit changing
customer tastes, nutritional trends and general customer
demands in China. Our failure to anticipate, identify, inter-
pret and react to these changes could lead to reduced guest
traffic and demand for our restaurants. Even if we do cor-
rectly anticipate, identify, interpret and react to these
changes, there can be no assurance that our restaurants are
able to compete successfully with other restaurant outlets in
new and existing markets. As a result, our business could
be adversely affected. We also face growing competition as
a result of convergence in grocery, convenience, deli and
restaurant services, including the offering by the grocery
industry of convenient meals, including pizzas and entrees
with side dishes. Competition from food delivery aggrega-
tors, other food delivery services and shared kitchens in
China has also increased in recent years, all of which offer a
wide variety of cuisine types across different brands, par-
ticularly in urbanized areas. Increased competition could
have an adverse effect on our sales, profitability or devel-
opment plans, which could harm our results of operations
and financial condition.

increased awareness about nutrition and
In addition,
healthy lifestyles may cause consumers to demand more
healthy foods. If we are unable to respond to such changes
in consumer taste and preferences in a timely manner or at
all, or if our competitors are able to address these concerns
more effectively, our business, financial condition and
results of operations may be materially and adversely
affected.

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PART I

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

We require various approvals, licenses and
permits to operate our business and the
loss of or failure to obtain or renew any or
all of these approvals, licenses and permits
could adversely affect our business and
results of operations.

In accordance with the laws and regulations of China, we
are required to maintain various approvals, licenses, per-
mits, registrations and filings in order to operate our res-
taurant business. Each of our restaurants in China is
required to obtain (1) the relevant food business license;
(2) the environmental protection assessment and inspec-
tion registration or approval; and (3) the fire safety
inspection acceptance approval or other alternatives.
Some of our restaurants which sell alcoholic beverages
are required to make further registrations or obtain addi-
tional approvals. These licenses and registrations are
achieved upon satisfactory compliance with, among other
things, the applicable food safety, hygiene, environmental
protection, fire safety and alcohol laws and regulations.
Most of these licenses are subject to periodic examina-
tions or verifications by relevant authorities and are valid
only for a fixed period of time and subject to renewal and
accreditation. We did not obtain these licenses or approv-
als for a limited number of our restaurants in a timely
manner in the past and there is no assurance that we or our
franchisees will be able to obtain or maintain any of these
licenses in the future.

We may not be able to adequately protect
the intellectual property we own or have
the right to use, which could harm the
value of our brands and adversely affect
our business and operations.

We believe that our brands are essential to our success and
our competitive position. The fact that our trademarks are
duly registered may not be adequate to protect these intel-
lectual property rights. In addition, third parties may
infringe upon the intellectual property rights we own or
have the right to use or misappropriate the proprietary
knowledge we use in our business, primarily our proprie-
tary recipes, which could have a material adverse effect on
our business, results of operations or financial condition.
The laws of China may not offer the same protection for
intellectual property rights as the U.S. and other jurisdic-
tions with more robust intellectual property laws.

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

In addition, we may face claims of infringement that
could interfere with the use of the proprietary know-how,
concepts, recipes or trade secrets we use in our business.
Defending against such claims may be costly and, if we
are unsuccessful, we may be prohibited from continuing
to use such proprietary information in the future or be
forced to pay damages, royalties or other fees for using
such proprietary information, any of which could nega-
tively affect our sales, profitability and prospects.

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PART I

Our licensor may not be able to adequately
protect its intellectual property, which
could harm the value of the KFC, Pizza Hut
and Taco Bell brands and branded
products and adversely affect our
business, results of operations and
financial condition.

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

We are not aware of any assertions that the trademarks,
menu offerings or other intellectual property rights we
license from YUM infringe upon the proprietary rights of
third parties, but third parties may claim infringement by
us or YUM in the future. Any such claim, whether or not it
has merit, could be time-consuming, result in costly liti-
gation, cause delays in introducing new menu items in the
future or require us to enter into additional royalty or
licensing agreements with third parties. As a result, any
such claims could have a material adverse effect on our
business, results of operations and financial condition.

Our results of operations may fluctuate
due to seasonality and certain major
events in China.

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

36 YUM CHINA – 2020 Form 10-K

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We may be unable to detect, deter and
prevent all instances of fraud or other
misconduct committed by our employees,
customers or other third parties.

As we operate in the restaurant industry, we usually
receive and handle relatively large amounts of cash in our
daily operations. Instances of fraud, theft or other mis-
conduct with respect to cash can be difficult to detect,
deter and prevent, and could subject us to financial losses
and harm our reputation.

We may be unable to prevent, detect or deter all such
instances of misconduct. Any such misconduct commit-
ted against our interests, which may include past acts that
have gone undetected or future acts, may have a material
adverse effect on our business and results of operations.

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.

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

PART I

From time to time we may evaluate and
potentially consummate strategic
investments or acquisitions, which may be
unsuccessful and adversely affect our
operation and financial results.

Fair value changes for our investment in
equity securities and lower yields of our
short-term investments may adversely
affect our financial condition and results of
operations.

To complement our business and strengthen our market-
leading position, we may form strategic alliances or make
strategic investments and acquisitions from time to time.
Some of the risks and uncertainties that could cause actual
results to differ materially include, but are not limited to,
the fact that the integration of the target company may
require significant time, attention and resources, poten-
tially diverting management’s attention from the conduct
of our business, and the expected synergies from the
acquisition may not be realized. We may experience dif-
ficulties in integrating our operations with the newly
invested or acquired businesses, implementing our strat-
egies or achieving expected levels of net revenues, profit-
ability, productivity or other benefits. Therefore, we
cannot assure you that our investments or acquisitions will
benefit our business strategy, generate sufficient net reve-
nues to offset the associated investment or acquisition
costs, or otherwise result in the intended benefits.

Our investment in technology and
innovation may not generate the expected
level of returns.

We have invested and intend to continue to invest signifi-
cantly in technology systems and innovation to enhance
digitalization and the guest experience and improve the
efficiency of our operations. We cannot assure you that
our investments in technology and innovation will gener-
ate sufficient returns or have the expected effects on our
business operations, if at all. If our technology and inno-
vation investments do not meet expectations for the above
or other reasons, our prospects and share price may be
materially and adversely affected.

We may invest in equity securities and short-term invest-
ments, such as time deposits, from time to time. In
September 2018, we invested in the equity securities of
Meituan, the fair value of which is determined based on
the closing market price for the shares at the end of each
reporting period, with subsequent fair value changes
recorded in our consolidated statements of income. We
recorded related gains of $104 million and $63 million for
2020 and 2019, respectively. Our short-term investments
as of December 31, 2020 and December 31, 2019
amounted to $3,105 million and $611 million, respec-
tively. We cannot guarantee that our investment in equity
securities will not experience fair value losses, which may
adversely affect our period-to-period earnings, financial
condition and results of operations. In addition, our short-
term investments may earn yields lower than anticipated,
and any failure to realize the benefits we expected from
these investments may adversely affect our financial
results.

Our operating results may be adversely
affected by our investment in
unconsolidated affiliates.

As of December 31, 2020, approximately 6% of our res-
taurants were held by unconsolidated affiliates. These
unconsolidated affiliates are joint venture entities partially
owned by us. We apply the equity method to account for
the investments in unconsolidated affiliates over which
we have significant influence but do not control. Our
share of the earnings or losses of these unconsolidated
affiliates are included in other income in our consolidated
statements of income. Even if there is no cash flow from
unconsolidated affiliates until dividends are received, the
performance of unconsolidated affiliates may affect our
results of operations through our equity method account-
ing. In addition, we evaluate our investments in uncon-
solidated affiliates for impairment whenever events or
circumstances indicate that a decrease in the fair value of
an investment has occurred which is other than temporary

YUM CHINA – 2020 Form 10-K 37

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and when they have experienced two consecutive years of
operating losses. In addition, when we acquire additional
equity interest in the unconsolidated affiliates to obtain
control, it may result in gain or loss from re-measurement
of our previously held equity interest and thus have a sig-

nificant impact on our operating results. As a result of the
acquisition of Suzhou KFC, a former unconsolidated
affiliate, in the third quarter of 2020, we recognized a gain
of $239 million from the re-measurement of our previ-
ously held 47% equity interest at fair value.

Risks Related to Doing Business in China

Changes in Chinese political policies and
economic and social policies or conditions
may materially and adversely affect our
business, results of operations and
financial condition and may result in our
inability to sustain our growth and
expansion strategies.

Substantially all of our assets and business operations are
located in China. Accordingly, our business, results of
operations, financial condition and prospects may be
influenced to a significant degree by political, economic
and social conditions in China generally, by continued
economic growth in China as a whole, and by geopolitical
stability in the region. For example, our results of opera-
tions in the third quarter of 2016 were adversely impacted
by an international court ruling in July 2016 regarding
claims to sovereignty over the South China Sea, which
triggered a series of regional protests and boycotts in
China, intensified by social media, against a few interna-
tional companies with well-known western brands.

The Chinese economy, markets and levels of consumer
spending are influenced by many factors beyond our con-
trol, including current and future economic conditions,
political uncertainty, unemployment rates, inflation, fluc-
tuations in the level of disposable income, taxation, for-
eign exchange control, and changes in interest and
currency exchange rates. The Chinese economy differs
from the economies of most developed countries in many
respects, including the level of government involvement,
level of development, growth rate, foreign exchange con-
trol and fiscal measures and allocation of resources.
Although the Chinese government has implemented
measures since the late 1970s emphasizing the utilization
of market forces for economic reform, the restructuring of
state assets and state-owned enterprises, and the estab-
lishment of improved corporate governance in business

38 YUM CHINA – 2020 Form 10-K

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enterprises, a significant portion of productive assets in
China is still owned or controlled by the Chinese govern-
ment. The Chinese government also exercises significant
control or influence over Chinese economic growth
through allocating resources, controlling payment of for-
eign currency-denominated obligations, setting monetary
and fiscal policies, regulating financial services and insti-
tutions and providing preferential treatment to particular
industries or companies.

While the Chinese economy has experienced significant
growth in recent decades, growth has been uneven, both
geographically and among various sectors of the econ-
omy. The Chinese government has implemented various
measures to encourage economic growth and guide the
allocation of resources. Some of these measures benefit
the overall Chinese economy but may also have a nega-
tive effect on us. Our results of operations and financial
condition could be materially and adversely affected by
government control over capital investments or changes
in tax regulations that are applicable to us. In addition, the
Chinese government has implemented certain measures,
including interest rate increases, to control the pace of
economic growth. These measures may cause decreased
economic activity in China. Since 2012, Chinese eco-
nomic growth has slowed and any prolonged slowdown
in the Chinese economy may reduce the demand for our
products and adversely affect our business, results of
operations and financial condition. Restaurant dining, and
specifically casual dining, is discretionary for customers
and tends to be higher during periods in which favorable
economic conditions prevail. Customers’ tendency to
become more cost-conscious as a result of an economic
slowdown or decreases in disposable income may reduce
our customer traffic or average revenue per customer,
which may adversely affect our revenues.

Uncertainties with respect to the
interpretation and enforcement of Chinese
laws, rules and regulations could have a
material adverse effect on us.

Substantially all of our operations are conducted in China,
and are governed by Chinese laws, rules and regulations.
Our subsidiaries are subject to laws, rules and regulations
applicable to foreign investment in China. The Chinese
legal system is a civil law system based on written statutes.
Unlike common law systems, it is a system in which legal
cases may be cited for reference but have limited value as
precedents. In the late 1970s, the Chinese government
began to promulgate a comprehensive system of laws and
regulations governing economic matters in general. The
overall effect of legislation over the past four decades has
significantly increased the protections afforded to various
forms of foreign or private-sector investment in China.
However, since these laws and regulations are relatively
new and the Chinese legal system continues to rapidly
evolve, the interpretations of many laws, regulations and
rules are not always uniform and enforcement of these
laws, regulations and rules involve uncertainties.

From time to time, we may have to resort to administra-
tive and court proceedings to interpret and/or enforce our
legal rights. However, since Chinese administrative and
court authorities have significant discretion in interpreting
and implementing statutory and contractual terms, it may
be more difficult to evaluate the outcome of administra-
tive and court proceedings, and the level of legal protec-
tion we enjoy, than in more developed legal systems. Any
administrative and court proceedings in China may be
protracted, resulting in substantial costs and diversion of
resources and management attention. Furthermore, the
Chinese legal system is based in part on government poli-
cies and internal rules (some of which are not published in
a timely manner or at all) that may have retroactive effect.

As a result, we may not be aware of our violation of these
policies and rules until sometime after the violation. Such
uncertainties, including uncertainty over the scope and
effect of our contractual, property (including intellectual
property) and procedural rights, and any failure to respond
to changes in the regulatory environment in China could
materially and adversely affect our business and impede
our ability to continue our operations.

PART I

Changes in political, business, economic
and trade relations between the United
States and China may have adverse impact
on our business, results of operations and
financial condition.

We cannot predict the possible changes in policies and the
economic, regulatory, social and political conditions in
the United States and China, nor can we predict their
potential impact on political, business, economic and
trade relations between the United States and China and
on our business.
the United States
In 2019,
and China imposed new or higher tariffs on goods
imported from each other. If the United States or China
continues imposing such tariffs, or if additional tariffs
or trade restrictions are implemented by the United
States or by China, the resulting trade barriers could have
a significant adverse impact on our business. The adop-
tion and expansion of trade restrictions and tariffs, quotas
and embargoes, sanctions, the occurrence of a trade war,
or other governmental action related to tariffs or trade
agreements or policies, has the potential to adversely
impact costs, our suppliers and the world economy in
general, which in turn could have a material adverse effect
on our business, results of operations and financial condi-
tion.

During 2020, political tensions between the United States
and China escalated, with a number of actions taken by
the U.S. government, such as the Clean Network program
announced on August 5, 2020 to protect U.S. telecom-
munication and technology infrastructure, and the two
executive orders issued by former President Trump on
August 6, 2020 to ban any person or property subject to
the jurisdiction of the United States from any transaction
with ByteDance and from any transaction related to
WeChat by any person or with respect to any property
subject to the jurisdiction of the United States, to the
extent that any such transaction is identified by the Secre-
tary of Commerce as being subject to the prohibitions
stated in the executive orders. The directives issued on
September 19, 2020 by the Secretary of Commerce to
implement the WeChat executive order only identified
prohibited transactions that are limited to the territory of
the United States. The Secretary of Commerce withdrew
the directive from publication on September 21, 2020
after a U.S. federal district court issued a preliminary

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injunction in a challenge to the directive, but even as
issued, the directive was not expected to have any impact
on our operations in China. On January 5, 2021, former
President Trump signed an executive order banning
transactions by any person, or with respect to any prop-
erty, subject to the jurisdiction of the U.S. with persons
that develop or control the following Chinese-connected
software applications or with their subsidiaries: Alipay,
CamScanner, QQ Wallet, SHAREit, Tencent QQ,
VMate, WeChat Pay, and WPS Office, some of which we
use in our business. On or after February 19, 2021, the
Secretary of Commerce is required to identify the trans-
actions and persons that develop or control the Chinese-
connected software applications. It is unclear whether the
Biden Administration will amend or reverse this execu-
tive order. The implementation of this executive order
could adversely affect our business in a material way. We
cannot foresee whether and how developments in similar
policy actions or any other policy actions taken by the
U.S. or Chinese government will impact our business and
financial performance. In addition, changes in political,
business, economic and trade relations between the
United States and China may trigger negative customer
sentiment towards western brands in China, potentially
resulting in a negative impact on our results of operations
and financial condition.

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The audit report included in this annual
report on Form 10-K is prepared by
auditors who are not currently inspected
by the Public Company Accounting
Oversight Board and, as such, our
stockholders are deprived of the benefits
of such inspection and our common stock
is subject to delisting from the New York
Stock Exchange in the future.

As an auditor of companies that are publicly traded in the
United States and a firm registered with the Public Com-
pany Accounting Oversight Board (“PCAOB”), our
independent registered public accounting firm is required
under the laws of the United States to undergo regular
inspections by the PCAOB. However, because we have
substantial operations within China, our independent reg-
istered public accounting firm’s audit documentation
related to their audit report included in this annual report

40 YUM CHINA – 2020 Form 10-K

on Form 10-K is located in China. The PCAOB is cur-
rently unable to conduct full inspections in China or
review audit documentation located within China without
the approval of Chinese authorities. Accordingly, the
PCAOB has not inspected our independent registered
public accounting firm or
reviewed documentation
related to the audit of our financial statements.

Inspections of other auditors conducted by the PCAOB
outside of China have at times identified deficiencies in
those auditors’ audit procedures and quality control pro-
cedures, which may be addressed as part of the inspection
process to improve future audit quality. The lack of
PCAOB inspections of audit work undertaken in China
prevents the PCAOB from regularly evaluating our audi-
tor’s audits and its quality control procedures. As a result,
stockholders may be deprived of the benefits of PCAOB
inspections, and may lose confidence in our reported
financial information and procedures and the quality of
our financial statements.

On December 18, 2020, the Holding Foreign Companies
Accountable Act (the “Act”) was signed into law. The Act
requires the SEC to prohibit the securities of any “covered
issuer,” including the Company, from being traded on any
of the U.S. securities exchanges, including the New York
Stock Exchange, or traded “over-the-counter,” if the
auditor of the covered issuer’s financial statements is not
subject to PCAOB inspection for three consecutive years,
beginning in 2021. In the event that the PCAOB is unable
to conduct full inspections in China or review audit docu-
mentation located within China for three consecutive
years, which is subject to a variety of factors outside our
control including the approval of Chinese authorities, our
common stock will be delisted from the New York Stock
Exchange, which will limit the liquidity of our common
stock and our access to U.S. capital markets. The Act, and
any additional rulemaking efforts to increase U.S. regula-
tory access to audit information in China, could cause
investor uncertainty for affected companies, including us,
and the market price of our common stock could be mate-
rially adversely affected.

PART I

Fluctuation in the value of RMB may result
in foreign currency exchange losses.

convert RMB into foreign currency. As a result, fluctua-
tions in exchange rates and restrictions on exchange may
have a material adverse effect on your investment.

The conversion of the Renminbi (“RMB”) into foreign
currencies, including U.S. dollars, is based on rates set by
the People’s Bank of China (“PBOC”). RMB appreciated
by more than 20% against the U.S. dollar between July
2005 and July 2008. Between July 2008 and June 2010,
the exchange rate between RMB and the U.S. dollar
remained within a narrow range and, after June 2010,
RMB appreciated slowly against the U.S. dollar again. On
August 11, 2015, however, RMB depreciated by approx-
imately 2% against the U.S. dollar, and exchange rate
change of RMB against the U.S. dollar occurred relatively
suddenly. In 2018 and 2019, RMB fell approximately 6%
and 1%, respectively, against the U.S. dollar, while in
2020, RMB appreciated 6% against the U.S. dollar. It is
difficult to predict how market forces or Chinese or U.S.
government policy may impact
the exchange rate
between RMB and the U.S. dollar in the future.

Substantially all of our revenues and costs are denomi-
nated in RMB. As a Delaware holding company, we may
rely on dividends and other fees paid to us by our subsidi-
aries in China. Any significant revaluation of RMB may
materially affect our cash flows, net revenues, earnings
and financial position, and the value of, and any dividends
payable on, our common stock in U.S. dollars. For exam-
ple, an appreciation of RMB against the U.S. dollar would
make any new RMB-denominated investments or expen-
ditures more costly to us, to the extent that we need to
convert U.S. dollars into RMB for such purposes. Con-
versely, a significant depreciation of RMB against the
U.S. dollar may significantly reduce the U.S. dollar
equivalent of our earnings, which in turn could adversely
affect the price of our common stock. If we decide to con-
vert RMB into U.S. dollars for the purpose of making
payments for dividends on our common stock, strategic
acquisitions or investments or other business purposes,
the appreciation of the U.S. dollar against RMB would
have a negative effect on U.S. dollar amounts available to
us.

Few hedging options are available in China to reduce our
exposure to exchange rate fluctuations. In addition, our
currency exchange loss may be magnified by Chinese
exchange control regulations that restrict our ability to

The increasing focus on environmental
sustainability issues may create
operational challenges for us and increase
our costs.

There has been increasing public focus by governmental
and non-governmental organizations on environmental
sustainability matters,
including climate change and
deforestation. In line with the national standards and local
requirements to reduce plastic waste in China, we have
launched a series of plastic reduction and environmentally
friendly packaging initiatives across our brands. We are
committed to gradually replacing existing plastic packag-
ing with paper straws, wooden cutleries, paper bags, and
biodegradable plastic bags, and working towards a 30%
reduction on non-degradable plastic packaging weight by
2025. We may face operational challenges in sourcing
suitable alternative packaging materials. In addition, we
may incur significant costs for using alternative packag-
ing materials, which in turn may have an adverse impact
on our profit margins. We also face related risks including
the increased pressure to make sustainability commit-
ments, set targets and take actions to meet them, which
could expose us to additional operational challenges, exe-
cution costs and reputational risks.

Governmental control of currency
conversion and payments of foreign
currency and RMB out of mainland China
may limit our ability to utilize our cash
balances effectively and affect the value of
your investment.

The Chinese government imposes controls on the con-
vertibility of RMB into foreign currencies and, in certain
cases, the remittance of both foreign currency and RMB
out of mainland China. Under our current corporate struc-
ture as a Delaware holding company, our income is pri-
marily derived from the earnings from our Chinese
subsidiaries. Substantially all revenues of our Chinese
subsidiaries are denominated in RMB. Shortages in the
availability of foreign currency and control on payments

YUM CHINA – 2020 Form 10-K 41

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PART I

out of mainland China may restrict the ability of our
Chinese subsidiaries to remit sufficient foreign currency
and/or RMB to pay dividends or to make other payments
to us, or otherwise to satisfy their obligations. Under
existing Chinese foreign exchange regulations, payments
of current account items, including profit distributions,
license fee payments and expenditures from trade-related
transactions, can be made in foreign currencies or RMB
without prior approval from China’s State Administration
of Foreign Exchange (“SAFE”) and the PBOC by com-
plying with certain procedural requirements. However,
for any Chinese company, dividends can be declared and
paid only out of the retained earnings of that company
under Chinese law. Furthermore, approval from SAFE or
its local branch may be required where RMB are to be
converted into foreign currencies, and approval from
SAFE and the PBOC or their branches may be required
where foreign currency and/or RMB are to be remitted out
of mainland China. Specifically, under the existing
restrictions, without a prior approval from SAFE and the
PBOC, cash generated from the operations of our subsid-
iaries in China may not be used to pay dividends to Yum
China, pay the license fee to YUM, pay employees who
are located outside mainland China, pay off debt owed by
our subsidiaries to entities outside mainland China, or
make capital expenditures outside mainland China.

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The Chinese government may also at its discretion restrict
access in the future to foreign currencies or further restrict
payments of foreign currency and RMB out of mainland
China. If the foreign exchange control system prevents us
from obtaining sufficient foreign currency to satisfy our
currency demands or restricts us from paying the license
fee to YUM, we may not be able to pay dividends to our
stockholders, fulfill our license fee payment obligation,
pay out service fees to vendors and repay our indebted-
ness when due.

Furthermore, because repatriation of funds and payment
of license fees require the prior approval of SAFE and
PBOC, such repatriation and payment could be delayed,
restricted or limited. There can be no assurance that the
rules and regulations pursuant to which SAFE and PBOC
grant or deny approvals will not change in a way that
adversely affects the ability of our Chinese subsidiaries to
repatriate funds out of mainland China or pay license fees.
Any such limitation could materially and adversely affect

42 YUM CHINA – 2020 Form 10-K

our ability to pay dividends or otherwise fund and conduct
our business.

Changes in the laws and regulations of
China or noncompliance with applicable
laws and regulations may have a
significant impact on our business, results
of operations and financial condition.

Our business and operations are subject to the laws and
regulations of China, which continue to evolve. For
example, on January 9, 2021, China’s Ministry of Com-
merce (“MOFCOM”) issued the Rules on Blocking
Improper Extraterritorial Application of Foreign Legisla-
tion and Other Measures (the “Blocking Rules”), which
established a blocking regime in China to counter the
impact of foreign sanctions on Chinese persons. The
Blocking Rules have become effective upon issuance, but
have only established a framework of implementation,
and the rules’ effects will remain unclear until the Chinese
government provides clarity on the specific types of
extraterritorial measures to which the rules will apply. At
this time, we do not know the extent to which the Block-
ing Rules will impact our operations. There is no assur-
ance that we will be able to comply fully with applicable
laws and regulations should there be any amendment to
the existing regulatory regime or implementation of any
new laws and regulations. In addition, the interpretations
of many laws and regulations are not always uniform and
enforcement of these laws and regulations involve uncer-
tainties.

The continuance of our operations depends upon compli-
ance with, among other things, applicable Chinese envi-
ronmental, health, safety, labor, social security, pension
and other laws and regulations. Failure to comply with
such laws and regulations could result in fines, penalties
or lawsuits.

Furthermore, our business and operations in China entail
the procurement of licenses and permits from the relevant
authorities. Rapidly evolving laws and regulations and
interpretations and enforcements thereof
inconsistent
could impede our ability to obtain or maintain the required
permits, licenses and certificates required to conduct our
businesses in China. Difficulties or failure in obtaining the

required permits, licenses and certificates could result in
our inability to continue our business in China in a manner
consistent with past practice. In such an event, our busi-
ness, results of operations and financial condition may be
adversely affected.

We rely to a significant extent on dividends
and other distributions on equity paid by
our principal operating subsidiaries in
China to fund offshore cash requirements.

We are a holding company and conduct all of our business
through our operating subsidiaries. We rely to a signifi-
cant extent on dividends and other distributions on equity
paid by our principal operating subsidiaries for our cash
requirements. As noted above, distributions to us from our
subsidiaries may result in incremental tax costs.

The laws, rules and regulations applicable to our Chinese
subsidiaries permit payments of dividends only out of
their accumulated profits, if any, determined in accor-
dance with applicable Chinese accounting standards and
regulations. In addition, under Chinese law, an enterprise
incorporated in China is required to set aside at least 10%
of its after-tax profits each year, after making up previous
years’ accumulated losses, if any, to fund certain statutory
reserve funds, until the aggregate amount of such a fund
reaches 50% of its registered capital. As a result, our
Chinese subsidiaries are restricted in their ability to trans-
fer a portion of their net assets to us in the form of divi-
dends. 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.
Any limitation on the ability of our Chinese subsidiaries to
pay dividends or make other distributions to us could limit
our ability to make investments or acquisitions outside of
China that could be beneficial to our business, pay divi-
dends, or otherwise fund and conduct our business.

In addition, the EIT Law and its implementation rules
provide that a withholding tax at a rate of 10% will be
applicable to dividends payable by Chinese companies to
companies that are not China resident enterprises unless

PART I

otherwise reduced according to treaties or arrangements
between the Chinese central government and the govern-
ments 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 directly owns at least 25% equity
interests of the Chinese enterprise and is a “beneficial
owner” of the dividends. We believe that our Hong Kong
subsidiary, which is the equity holder of our Chinese sub-
sidiaries, met the relevant requirements pursuant to the tax
arrangement between the mainland China and Hong
Kong in 2018 and is expected to meet the requirements in
subsequent years, thus, it is more likely than not that our
dividends declared or earnings expected to be repatriated
since 2018 are subject to the reduced withholding tax of
5%. However, if our Hong Kong subsidiary is not consid-
ered to be the “beneficial owner” of the dividends by the
Chinese local tax authority, any dividend paid to it by our
Chinese subsidiaries would be subject to a withholding
tax rate of 10% with retrospective effect, which would
increase our tax liability and reduce the amount of cash
available to our company.

Restrictive covenants in bank credit facilities, joint ven-
ture agreements or other arrangements that we or our sub-
sidiaries may enter into in the future may also restrict the
ability of our subsidiaries to pay dividends or make distri-
butions or remittances to us. These restrictions could
reduce the amount of dividends or other distributions we
receive from our subsidiaries, which in turn could restrict
our ability to return capital to our stockholders in the
future.

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Under the EIT Law, if we are classified as a
China resident enterprise for Chinese
enterprise income tax purposes, such
classification would likely result in
unfavorable tax consequences to us and
our non-Chinese stockholders.

Under the EIT Law and its implementation rules, an
enterprise established outside China with a “de facto
management body” within China is considered a China

YUM CHINA – 2020 Form 10-K 43

PART I

resident enterprise for Chinese enterprise income tax pur-
poses. A China resident enterprise is generally subject to
certain Chinese tax reporting obligations and a uniform
25% enterprise income tax rate on its worldwide income.
Furthermore, under the EIT Law, if we are a China resi-
dent enterprise (i) dividends paid by us to our
non-Chinese stockholders would be subject to a 10% div-
idend withholding tax or a 20% individual income tax if
the stockholder is an individual and (ii) such non-Chinese
stockholders may become subject to Chinese tax and fil-
ing obligations as well as withholding with respect to any
disposition of our stock, subject to certain treaty or other
exemptions or reductions.

Yum China and each subsidiary of Yum China that is
organized outside of China intends to conduct its man-
agement functions in a manner that does not cause it to be
a China resident enterprise, including by carrying on its
day-to-day management activities and maintaining its key
records, such as resolutions of its board of directors and
resolutions of stockholders, outside of China. As such, we
do not believe that Yum China or any of its non-Chinese
subsidiaries should be considered a China resident enter-
prise for purposes of the EIT Law. However, given the
uncertainty regarding the application of the EIT Law to us
and our future operations, there can be no assurance that
we or any of our non-Chinese subsidiaries will not be
treated as a China resident enterprise now or in the future
for Chinese tax law purposes.

We and our stockholders face uncertainty
with respect to indirect transfers of equity
interests in China resident enterprises
through transfer of non-Chinese-holding
companies. Enhanced scrutiny by the
Chinese tax authorities may have a
negative impact on potential acquisitions
and dispositions we may pursue in the
future.

In February 2015, the STA issued Bulletin 7, pursuant to
which an “indirect transfer” of Chinese taxable assets,
including equity interests in a Chinese resident enterprise,
by a non-resident enterprise may be re-characterized and
treated as a direct transfer of Chinese taxable assets, if
such arrangement does not have reasonable commercial

44 YUM CHINA – 2020 Form 10-K

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purpose and the transferor avoids payment of Chinese
enterprise income tax. Where a non-resident enterprise
conducts an “indirect transfer” of Chinese interests by
disposing of equity interests in an offshore holding com-
pany that directly or indirectly owns Chinese interests, the
transferor, transferee and/or the China resident enterprise
may report such indirect transfer to the relevant Chinese
tax authority, which may in turn report upward to the
STA. Using general anti-tax avoidance provisions, the
STA may treat such indirect transfer as a direct transfer of
Chinese interests if the transfer avoids Chinese tax by way
of an arrangement without reasonable commercial pur-
pose. As a result, gains derived from such indirect transfer
may be subject to Chinese enterprise income tax, and the
transferee or other person who is obligated to pay for the
transfer would be obligated to withhold the applicable
taxes, currently at a rate of up to 10% of the capital gain in
the case of an indirect transfer of equity interests in a
China resident enterprise. Both the transferor and the
party obligated to withhold the applicable taxes may be
subject to penalties under Chinese tax laws if the trans-
feror fails to pay the taxes and the party obligated to with-
hold the applicable taxes fails to withhold the taxes.
However, the above regulations do not apply if either
(i) the selling non-resident enterprise recognizes the rele-
vant gain by purchasing and selling equity of the same
listed enterprise in the open market (the “listed enterprise
exception”); or (ii) the selling non-resident enterprise
would have been exempted from enterprise income tax in
China pursuant to applicable tax treaties or tax arrange-
ments, if it had directly held and transferred such Chinese
interests that were indirectly transferred. The China indi-
rect transfer rules do not apply to gains recognized by
individual stockholders. However, in practice, there have
been a few reported cases of individuals being taxed on
the indirect transfer of Chinese interests and the law could
be changed so as to apply to individual stockholders, pos-
sibly with retroactive effect. In addition, the PRC Individ-
ual Income Tax Law and relevant regulations (“IITL”),
revised effective January 1, 2019, impose general anti-
avoidance tax rules (“GAAR”) on transactions conducted
by individuals. As a result, if the China tax authority
invokes the GAAR and deems that indirect transfers made
by individual stockholders lack reasonable commercial
purposes, any gains recognized on such transfers might be
subject to individual income tax in China at the standard
rate of 20%.

It is unclear whether stockholders that acquired our stock
through the distribution or the Global Offering will be
treated as acquiring such stock in an open market pur-
chase. If such stock is not treated as acquired in an open
market purchase, the listed transaction exception will not
be available for transfers of such stock. We expect that
transfers in open market transactions of our stock by cor-
porate or other non-individual stockholders that have pur-
chased our stock in open market transactions will not be
taxable under the China indirect transfer rules due to the
listed enterprise exception. Transfers, whether in the open
market or otherwise, of our stock by corporate and other
non-individual stockholders that acquired our stock in the
distribution or the Global Offering or in non-open market
transactions may be taxable under the China indirect
transfer rules and our China subsidiaries may have filing
obligations in respect of such transfers, upon the request
of relevant Chinese tax authorities. Transfers of our stock
in non-open market transactions by corporate and other
non-individual stockholders may be taxable under the
China indirect transfer rules, whether or not such stock
was acquired in open market transactions, and our China
subsidiaries may have filing obligations in respect of such
transfers upon the request of relevant Chinese tax author-
ities. Corporate and other non-individual stockholders
may be exempt from taxation under the China indirect
transfer rules with respect to transfers of our stock if they
are tax resident in a country or region that has a tax treaty
or arrangement with China that provides for a capital
gains tax exemption and they qualify for that exemption.

In addition, we may be subject to these indirect transfer
rules in the event of any future sale of a China resident
enterprise through the sale of a non-Chinese holding
company, or the purchase of a China resident enterprise
through the purchase of a non-Chinese holding company.
Our company and other non-resident enterprises in our
group may be subject to filing obligations or taxation if
our company and other non-resident enterprises in our
group are transferors in such transactions, and may be
subject to withholding obligations if our company and
other non-resident enterprises in our group are transferees
in such transactions.

PART I

There may be difficulties in effecting
service of legal process, conducting
investigations, collecting evidence,
enforcing foreign judgments or bringing
original actions in China based on United
States or other foreign laws against us and
our management.

We conduct substantially all of our operations in China
and substantially all of our assets are located in China.
Some of our directors and executive officers reside within
China. As a result, it may not be possible to effect service
of process within the United States or elsewhere outside
of China upon these persons, including with respect to
matters arising under applicable U.S. federal and state
securities laws. In addition, there are significant legal and
other obstacles in China to providing information needed
for regulatory investigations or litigation initiated by reg-
ulators outside China. Overseas regulators may have dif-
ficulties in conducting investigations or collecting
evidence within China. It may also be difficult for inves-
tors to bring an original lawsuit against us or our directors
or executive officers based on U.S. federal securities laws
in a Chinese court. Moreover, China does not have treaties
with the United States providing for the reciprocal recog-
nition and enforcement of judgments of courts. Therefore,
even if a judgment were obtained against us or our man-
agement for matters arising under U.S. federal or state
securities laws or other applicable U.S. federal or state
law, it may be difficult to enforce such a judgment.

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.

Through the acquisition of Daojia, we also acquired a var-
iable interest entity (“VIE”) and subsidiaries of the VIE in
China effectively controlled by Daojia.

Chinese laws and regulations restrict and impose condi-
tions on foreign investment in certain internet business,
such as internet content services. For example, foreign
investors are generally not permitted to own more than
50% of the equity interests in an internet content provider

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PART I

or other value-added telecommunication service provider.
Accordingly, a VIE structure has been adopted by many
China-based companies, including Daojia, to obtain nec-
essary licenses and permits in such industries that are cur-
rently subject to foreign investment restrictions in China.
Daojia operates these businesses in China through its con-
solidated affiliated entities. Daojia has entered into a
series of contractual arrangements with its consolidated
affiliated entities and the nominee shareholders of its con-
solidated affiliated entities. These contractual arrange-
ments allow Daojia to:

• receive substantially all of the economic benefits and
absorb all of the expected losses from its consolidated
affiliated entities;

• exercise effective control over its consolidated affiliated

entities; and

• hold an exclusive option to purchase all or part of the
equity interests in its consolidated affiliated entities
when and to the extent permitted by Chinese law.

However, the VIE structure and contractual arrangements
described above may not be as effective in providing con-
trol over Daojia’s consolidated affiliated entities as direct
ownership. The VIE structure may result in unauthorized
use of indicia of corporate power or authority, such as
chops and seals. Control over Daojia’s consolidated
affiliated entities may also be jeopardized if the share-
holders holding equity interest in the consolidated affili-
ated entities breach the terms of
the contractual
agreements.

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In addition, there are substantial uncertainties regarding
the interpretation and application of current Chinese laws,
rules and regulations related to VIE structure. It is also
uncertain whether any new Chinese laws, rules or regula-
tions relating to VIE structure will be adopted, or if
adopted, what their implications would be on Daojia. If
the VIE structure is found to be in violation of any existing
or future Chinese laws, rules or regulations, the relevant
PRC regulatory bodies would have broad discretion to
take action in dealing with these violations, including
revoking the business and operating licenses of Daojia’s
consolidated affiliated entities,
requiring Daojia to
restructure its operations or taking other regulatory or

46 YUM CHINA – 2020 Form 10-K

enforcement actions against Daojia. The contractual
arrangements may also be (i) disregarded by the PRC tax
authorities and result
in increased tax liabilities; or
(ii) found by Chinese government authorities, courts or
arbitral tribunals to be unenforceable. Any of the fore-
going could result in a material adverse effect on Daojia’s
business operations.

Certain defects caused by non-registration
of our lease agreements related to certain
properties occupied by us in China may
materially and adversely affect our ability
to use such properties.

As of December 31, 2020, we leased over 8,100 proper-
ties in China, and to our knowledge, the lessors of most
properties leased by us, most of which are used as prem-
ises for our restaurants, had not registered the lease agree-
ments with government authorities in China.

According to Chinese laws, a lease agreement is generally
required to be registered with the relevant land and real
estate administration bureau. However, the enforcement
of this legal requirement varies depending on the local
regulations and practices and, in cities where we operate a
significant number of restaurants, the local land and real
estate administration bureaus no longer require registra-
tion or no longer impose fines for failure to register the
lease agreements. In addition, our standard lease agree-
ments require the lessors to make such registration and,
although we have proactively requested that the applica-
ble lessors complete or cooperate with us to complete the
registration in a timely manner, we are unable to control
whether and when such lessors will do so.

A failure to register a lease agreement will not invalidate
the lease agreement but may subject the parties to a fine.
Depending on the local regulations, the lessor alone or
both the lessor and lessee are under the obligation to
register a lease agreement with the relevant land and real
estate administration bureau. In the event that a fine is
imposed on both the lessor and lessee, and if we are
unable to recover from the lessor any fine paid by us based
on the terms of the lease agreement, such fine will be
borne by us.

To date, the operation of our restaurants has not been
materially disrupted due to the non-registration of our
lease agreements. No fines, actions or claims have been
instituted against us or, to our knowledge, the lessors with
respect to the non-registration of our lease agreements.
However, we cannot assure you that our lease agreements
relating to, and our right to use and occupy, our premises
will not be challenged in the future.

Our restaurants are susceptible to risks in
relation to unexpected land acquisitions,
building closures or demolitions.

The Chinese government has the statutory power to
acquire any land use rights of land plots and the buildings
thereon in China in the public interest subject to certain
legal procedures. Under the Regulations for the Expro-
priation of and Compensation for Housing on State-
owned Land, issued by the State Council, which became
effective as of January 21, 2011, there is no legal provi-
sion that the tenant of an expropriated property is entitled
to compensation. Generally speaking, only the owner of
such property is entitled to compensation from the gov-
ernment. The claims of the tenant against the landlord will
be subject to the terms of the lease agreement. In the event
of any compulsory acquisition, closure or demolition of
any of the properties at which our restaurants or facilities
are situated, we may not receive any compensation from
the government or the landlord. In such event, we may be
forced to close the affected restaurant(s) or relocate to
other locations, which may have an adverse effect on our
business and results of operations.

Any failure to comply with Chinese
regulations regarding our employee equity
incentive plans may subject Chinese plan
participants or us to fines and other legal
or administrative sanctions.

Pursuant to SAFE Circular 37, China residents who par-
ticipate in share incentive plans in overseas non-publicly
listed companies may submit applications to SAFE or its
local branches for foreign exchange registration with
respect to offshore special purpose companies. We and
our directors, executive officers and other employees who
are Chinese citizens or who have resided in China for a

PART I

continuous period of not less than one year and who have
been granted restricted shares, restricted stock units
(“RSUs”), performance share units (“PSUs”), stock
appreciation rights (“SARs”), or stock options (collec-
tively, the “share-based awards”) are subject to the Notice
on Issues Concerning the Foreign Exchange Administra-
tion for Domestic Individuals Participating in Stock
Incentive Plan of Overseas Publicly Listed Company,
issued by SAFE in February 2012, according to which,
employees, directors, supervisors and other management
members participating in any stock incentive plan of an
overseas publicly-listed company who are Chinese citi-
zens or who are non-Chinese citizens residing in China for
a continuous period of not less than one year, subject to
limited exceptions, are required to register with SAFE
through a domestic qualified agent, which could be a
Chinese subsidiary of such overseas listed company, and
complete certain other procedures. Failure to complete
SAFE registrations may result in fines and legal sanctions
and may also limit our ability to make payments under our
equity incentive plans or receive dividends or sales pro-
ceeds related thereto, or our ability to contribute additional
capital into our wholly-foreign owned enterprises in
China and limit our wholly-foreign owned enterprises’
ability to distribute dividends to us. We also face regula-
tory uncertainties that could restrict our ability to adopt
additional equity incentive plans for our directors and
employees under Chinese law.

In addition, the STA has issued circulars concerning
employees’ share-based awards. Under these circulars,
employees working in China who exercise share options
and SARs, or whose restricted shares, RSUs or PSUs vest,
will be subject to Chinese individual income tax. The
Chinese subsidiaries of an overseas listed company have
obligations to file documents related to employees’ share-
based awards with relevant tax authorities and to withhold
individual income taxes of those employees related to
their share-based awards. Although we currently intend to
withhold income tax from our Chinese employees in con-
nection with their exercise of options and SARs and the
vesting of their restricted shares, RSUs and PSUs, if the
employees fail to pay, or our Chinese subsidiaries fail to
withhold, their income taxes according to relevant laws,
rules and regulations, our Chinese subsidiaries may face
sanctions imposed by the tax authorities or other Chinese
government authorities.

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PART I

Failure to make adequate contributions to
various employee benefit plans as required
by Chinese regulations may subject us to
penalties.

Companies operating in China are required to participate
in various government-sponsored employee benefit plans,
including certain social insurance, housing funds and
other welfare-oriented payment obligations, and contrib-
ute to the plans in amounts equal to certain percentages of
including bonuses and allowances, of their
salaries,
employees up to a maximum amount specified by the
local government from time to time at locations where
they operate their businesses. While we believe we com-
ply with all material aspects of relevant regulations, the
requirements governing employee benefit plans have not
been implemented consistently by the local governments
in China given the different levels of economic develop-
ment in different locations. If we are subject to late fees or
fines in relation to the underpaid employee benefits, our
results of operations and financial condition may be
adversely affected.

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.

the SEC commenced administrative
In late 2012,
proceedings under Rule 102(e) of its Rules of Practice and
also under the Sarbanes-Oxley Act of 2002 against the
Chinese member firms of the “big four” accounting firms,
including our independent registered public accounting
firm. The Rule 102(e) proceedings initiated by the SEC
relate to the failure of these firms to produce certain docu-
ments, including audit work papers, in response to a
request from the SEC pursuant to Section 106 of the
Sarbanes-Oxley Act of 2002. The auditors located in
China claim they are not in a position lawfully to produce
such documents directly to the SEC because of restric-
tions under Chinese law and specific directives issued by

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48 YUM CHINA – 2020 Form 10-K

the China Securities Regulatory Commission (“CSRC”).
The issues raised by the proceedings are not specific to
our auditor or to us, but potentially affect equally all
PCAOB-registered audit firms based in China and all
businesses based in China (or with substantial operations
in China) with securities listed in the United States. In
addition, auditors based outside of China are subject to
similar restrictions under Chinese law and CSRC direc-
tives in respect of audit work that is carried out in China
which supports the audit opinions issued on financial
statements of entities with substantial China operations.

In January 2014, the administrative judge reached an ini-
tial decision that the Chinese member firms of the “big
four” accounting firms should be barred from practicing
before the SEC for a period of six months. In February
2015, the Chinese member firms of the “big four”
accounting firms reached a settlement with the SEC. As
part of the settlement, each of the “big four” accounting
firms agreed to a censure and to pay a fine to the SEC to
settle the dispute with the SEC and stay the proceedings
for four years; under the terms of the settlement, the
proceedings were deemed dismissed with prejudice in
February 2019. It remains unclear whether the SEC will
commence new administrative proceedings against all
four firms.

If our independent registered public accounting firm were
denied, even temporarily, the ability to practice before the
SEC, and we are unable to timely find another indepen-
dent registered public accounting firm to audit and issue
an opinion on our financial statements, our financial state-
ments could be determined not to be in compliance with
the requirements of the Exchange Act. Such a determina-
tion could ultimately lead to delisting of our common
stock from the New York Stock Exchange. Moreover,
any negative news about the proceedings against these
audit firms may adversely affect investor confidence in
companies with substantial China-based operations listed
on securities exchanges in the United States. All of these
factors could materially and adversely affect the market
price of our common stock and our ability to access the
capital markets.

Chinese regulation of loans to, and direct
investment in, Chinese entities by offshore
holding companies and governmental
control of currency conversion may restrict
or prevent us from making loans or
additional capital contributions to our
Chinese subsidiaries, which may materially
and adversely affect our liquidity and our
ability to fund and expand our business.

We are a Delaware holding company conducting our
operations in China through our Chinese subsidiaries. We
may make loans to our Chinese subsidiaries, or we may
make additional capital contributions to our Chinese sub-
sidiaries, or we may establish new Chinese subsidiaries
and make capital contributions to these new Chinese sub-
sidiaries, or we may acquire offshore entities with busi-
ness operations in China in an offshore transaction.

Most of these uses are subject to Chinese regulations and
approvals. For example, loans by us to our wholly-owned
Chinese subsidiaries to finance their activities cannot
exceed statutory limits and must be registered with the
local counterparts of SAFE. If we decide to finance our
wholly-owned Chinese subsidiaries by means of capital
contributions, in practice, we might be still required to
obtain approval from the China Ministry of Commerce
(“MOFCOM”) or its local counterparts.

On August 29, 2008, SAFE promulgated the Circular on
the Relevant Operating Issues Concerning the Improve-
ment of the Administration of the Payment and Settle-
ment of Foreign Currency Capital of Foreign-Invested
Enterprises, or SAFE Circular 142, regulating the con-
version by a foreign-invested enterprise of foreign cur-
rency registered capital into RMB by restricting how the
converted RMB may be used. SAFE Circular 142 pro-
vides that RMB capital converted from foreign currency
registered capital of a foreign-invested enterprise may
only be used for purposes within the business scope
approved by the applicable governmental authority and
may not be used for equity investments within China with
limited exceptions (e.g., by holding companies, venture
capital or private equity firms). In addition, SAFE
strengthened its oversight of the flow and use of the RMB
capital converted from the foreign currency registered

PART I

capital of a foreign-invested company. The use of such
RMB capital may not be altered without SAFE approval,
and such RMB capital may not in any case be used to
repay RMB loans if the proceeds of such loans have not
been used. Such requirements are also known as the
“payment-based foreign currency settlement system”
established under SAFE Circular 142. Violations of
SAFE Circular 142 could result in monetary or other pen-
alties. Furthermore, SAFE promulgated a circular on
November 9, 2010, known as Circular 59, and another
supplemental circular on July 18, 2011, known as Circular
88, which both tightened the examination of the authen-
ticity of settlement of foreign currency capital or net pro-
ceeds from overseas listings. SAFE further promulgated
the Circular on Further Clarification and Regulation of the
Issues Concerning the Administration of Certain Capital
Account Foreign Exchange Businesses, or Circular 45, on
November 9, 2011, which expressly prohibited foreign-
invested enterprises from using registered capital settled
in RMB converted from foreign currencies to grant loans
through entrustment arrangements with a bank, repay
intercompany loans or repay bank loans that have been
transferred to a third party. Circular 142, Circular 59, Cir-
cular 88 and Circular 45 may significantly limit our ability
to make loans or capital contributions to our Chinese sub-
sidiaries and to convert such proceeds into RMB, which
may adversely affect our liquidity and our ability to fund
and expand our business in China.

Furthermore, on April 8, 2015, SAFE promulgated the
Circular on the Reform of the Administrative Method of
the Settlement of Foreign Currency Capital of Foreign-
Invested Enterprises, or Circular 19, which became effec-
tive as of June 1, 2015. This Circular 19 is to implement
the so-called “conversion-at-will” of foreign currency in
capital account, which was established under a circular
issued by SAFE on August 4, 2014, or Circular 36, and
was implemented in 16 designated industrial parks as a
reform pilot. The Circular 19 now implements the
conversion-at-will of foreign currency settlement system
nationally, and it abolishes the application of Circular 59
and Circular 45 on March 19, 2015 as well as Circular
142, Circular 88 and Circular 36 starting from June 1,
2015. Among other things, under Circular 19, foreign-
invested enterprises may either continue to follow the
payment-based foreign currency settlement system or
elect to follow the conversion-at-will of foreign currency

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settlement system. Where a foreign-invested enterprise
follows the conversion-at-will of foreign currency settle-
ment system, it may convert any or 100% of the amount
of the foreign currency in its capital account into RMB at
any time. The converted RMB will be kept in a designated
account known as “Settled but Pending Payment
Account,” and if the foreign-invested enterprise needs to
make further payment from such designated account, it
still needs to provide supporting documents and go
through the review process with its bank. If under special
circumstances the foreign-invested enterprise cannot pro-
vide supporting documents in time, Circular 19 grants the
banks the power to provide a grace period to the enterprise
and make the payment before receiving the supporting
documents. The foreign-invested enterprise will then
need to submit the supporting documents within 20 work-
ing days after payment. In addition, foreign-invested
enterprises are now allowed to use their converted RMB
to make equity investments in China under Circular 19.
However, foreign-invested enterprises are still required to
use the converted RMB in the designated account within
their approved business scope under the principle of
authenticity and self-use. It remains unclear whether a
common foreign-invested enterprise, other than such spe-
cial types of enterprises as holding companies, venture
capital or private equity firms, can use the converted
RMB in the designated account to make equity invest-
ments if equity investment or similar activities are not
within their approved business scope.

In light of the various requirements imposed by Chinese
regulations on loans to and direct investment in Chinese
entities by offshore holding companies as discussed
above, we cannot assure you that we will be able to com-
plete the necessary government registrations or obtain the
necessary government approvals on a timely basis, or at
all, with respect to future loans by us to our Chinese sub-
sidiaries or with respect to future capital contributions by
us to our Chinese subsidiaries. If we fail to complete such
registrations or obtain such approvals, our ability to capi-
talize or otherwise fund our Chinese operations may be
negatively affected, which could materially and adversely
affect our liquidity and our ability to fund and expand our
business.

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50 YUM CHINA – 2020 Form 10-K

Regulations regarding acquisitions may
impose significant regulatory approval and
review requirements, which could make it
more difficult for us to pursue growth
through acquisitions.

in China must notify the

Under the PRC Anti-monopoly Law, companies under-
taking certain investments and acquisitions relating to busi-
nesses
anti-monopoly
enforcement agency in advance of any transactions which
are deemed a concentration and where the parties’ revenues
in the China market exceed certain thresholds as stipulated
in the Provisions of the State Council on the Thresholds for
Declaring Concentration of Business Operators. In addi-
tion, on August 8, 2006, six PRC regulatory agencies,
including the MOFCOM, the State-Owned Assets Super-
vision and Administration Commission, the STA, the State
Administration for Industry and Commerce of the People’s
Republic of China, the CSRC and the SAFE, jointly
adopted the Provisions of the Ministry of Commerce on
M&A of a Domestic Enterprise by Foreign Investors
(“M&A Rules”), which came into effect on September 8,
2006 and was amended on June 22, 2009. Under the M&A
Rules, the approval of MOFCOM must be obtained in cir-
cumstances where overseas companies established or con-
trolled by PRC enterprises or residents acquire domestic
companies affiliated with PRC enterprises or residents.
Applicable PRC laws, rules and regulations also require
certain merger and acquisition transactions to be subject to
security review.

Due to the level of our revenues, our proposed acquisition
of control of, or decisive influence over, any company with
revenues within China of more than RMB400 million in
the year prior to any proposed acquisition would be subject
to the State Administration for Market Regulation
(“SAMR”) merger control review. As a result of our size,
many of the transactions we may undertake could be sub-
to SAMR merger review. Complying with the
ject
requirements of the relevant regulations to complete these
transactions could be time-consuming, and any required
approval processes, including approval from SAMR, may
be uncertain and could delay or inhibit our ability to com-
plete these transactions, which could affect our ability to
expand our business maintain our market share or other-
wise achieve the goals of our acquisition strategy.

Our ability to carry out our investment and acquisition
strategy may be materially and adversely affected by the
regulatory authorities’ current practice, which creates sig-
nificant uncertainty as to the timing of receipt of relevant
approvals and whether transactions that we may under-
take would subject us to fines or other administrative pen-
alties and negative publicity and whether we will be able
to complete investments and acquisitions in the future in a
timely manner or at all.

Risks Related to the Separation and
Related Transactions

If the distribution does not qualify as a
transaction that is generally tax-free for
U.S. federal income tax purposes, the
Company could be subject to significant
tax liabilities, and, in certain
circumstances, the Company could be
required to indemnify YUM for material
taxes and other related amounts pursuant
to indemnification obligations under the
tax matters agreement.

The distribution was conditioned on YUM’s receipt of
opinions of outside advisors regarding the tax-free treat-
ment of the distribution for U.S. federal income tax pur-
poses. The opinions relied on various assumptions and
representations as to factual matters made by YUM and us
which, if inaccurate or incomplete in any material respect,
would jeopardize the conclusions reached by such advisors
in their opinions. The opinions are not binding on the IRS
or the courts, and there can be no assurance that the IRS or
the courts will not challenge the conclusions stated in the
opinions or that any such challenge would not prevail.

If, notwithstanding receipt of the opinions, the distribution
were determined to be a taxable transaction, YUM would
be treated as having sold shares of the Company in a tax-
able transaction, likely resulting in a significant taxable
gain. Pursuant to the tax matters agreement, the Company
and YCCL agreed to indemnify YUM for any taxes and
related losses resulting from any breach of covenants
regarding the preservation of the tax-free status of the dis-
tribution, certain acquisitions of our equity securities or

PART I

assets, or those of certain of our affiliates or subsidiaries,
and any breach by us or any member of our group of cer-
tain representations in the documents delivered by us in
connection with the distribution. Therefore, if the distri-
bution fails to qualify as a transaction that is generally
tax-free as a result of one of these actions or events, we
may be required to make material payments to YUM
under this indemnity.

YUM may be subject to Chinese indirect
transfer tax with respect to the distribution,
in which event we could be required to
indemnify YUM for material taxes and
related amounts pursuant to
indemnification obligations under the tax
matters agreement.

As noted above, Bulletin 7 provides that in certain cir-
cumstances a non-resident enterprise may be subject to
Chinese enterprise income tax on an “indirect transfer” of
Chinese interests. YUM concluded, and we concurred,
that it believes that the distribution had a reasonable com-
mercial purpose and that it is more likely than not that
YUM will not be subject to this tax with respect to the dis-
tribution. However, there are uncertainties regarding the
circumstances in which the tax will apply, and there can
be no assurances that the Chinese tax authorities will not
seek to impose this tax on YUM.

Pursuant to the tax matters agreement, the Company and
YCCL have agreed to indemnify YUM for a portion (tied
to the relative market capitalization of YUM and the
Company during the 30 trading days after the distribution)
of any taxes and related losses resulting from the applica-
tion of Bulletin 7 to the distribution. Alternatively, if Bul-
letin 7 applies to the distribution as a result of a breach by
the Company or Company group members of certain rep-
resentations or covenants, or due to certain actions of the
Company or Company group members following the dis-
tribution, the Company and YCCL generally will indem-
nify YUM for all such taxes and related losses. Therefore,
if YUM is subject to such Chinese tax with respect to the
distribution, we may be required to make material pay-
ments to YUM under this indemnity. Such payments
could have a material adverse effect on our financial con-
dition.

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PART I

Potential indemnification liabilities owing
to YUM pursuant to the separation and
distribution agreement could materially
and adversely affect our business, results
of operations and financial condition.

We separated from YUM on October 31, 2016, becoming
an independent, publicly traded company under the ticker
symbol “YUMC” on the New York Stock Exchange on
November 1, 2016. As part of the separation and distribu-
tion agreement, we agreed to indemnify YUM for claims
against YUM relating to Yum China’s business prior to
the spin-off in 2016 as well as other liabilities. These
liabilities include, among others, (i) our failure to pay,
perform or otherwise promptly discharge any liabilities or
contracts relating to the Company business, in accordance
with their respective terms, whether prior to, at or after the
distribution; (ii) any guarantee, indemnification obliga-
tion, surety bond or other credit support agreement,
arrangement, commitment or understanding by YUM for
our benefit, unless related to liabilities primarily associ-
ated with the YUM business; (iii) certain tax liabilities
related to Bulletin 7 under PRC tax laws, which provides
that in certain circumstances a non-resident enterprise
may be subject to Chinese enterprise income tax on an
“indirect transfer” of Chinese interests; (iv) any breach by
us of the separation and distribution agreement or any of
the ancillary agreements or any action by us in contraven-
tion of our amended and restated certificate of incorpora-
tion or amended and restated bylaws; and (v) any untrue
statement or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact
required to be stated therein or necessary to make the
statements therein not misleading, with respect to all
information contained in the information statement relat-
ing to the distribution or any other disclosure document
that describes the separation or the distribution or the
Company and its subsidiaries or primarily relates to the
transactions contemplated by the separation and distribu-
tion agreement, subject to certain exceptions. If we are
required to indemnify YUM under the circumstances set
forth in the separation and distribution agreement, we may
be subject to substantial liabilities.

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In connection with the separation, YUM
has agreed to indemnify us for certain
liabilities. However, there can be no
assurance that the indemnity will be
sufficient to insure us against the full
amount of such liabilities, or that YUM’s
ability to satisfy its indemnification
obligation will not be impaired in the
future.

Pursuant to the separation and distribution agreement and
certain other agreements we entered into with YUM,
YUM has agreed to indemnify us for certain liabilities set
forth in the separation and distribution agreement. How-
ever, third parties could also seek to hold us responsible
for any of the liabilities that YUM has agreed to retain,
and there can be no assurance that the indemnity from
YUM will be sufficient to protect us against the full
amount of such liabilities, or that YUM will be able to
fully satisfy its indemnification obligations. In addition,
YUM’s insurers may attempt to deny us coverage for
liabilities associated with certain occurrences of indemni-
fied liabilities prior to the separation. Moreover, even if
we ultimately succeed in recovering from YUM or such
insurance providers any amounts for which we are held
liable, we may be temporarily required to bear these
losses. Each of these risks could negatively affect our
business, results of operations, financial condition and
cash flows.

A court could require that we assume
responsibility for obligations allocated to
YUM under the separation and distribution
agreement.

Under the separation and distribution agreement and
related ancillary agreements, from and after the separa-
tion, each of YUM and the Company will be generally
responsible for the debts, liabilities and other obligations
related to the business or businesses which they own and
operate following the consummation of the separation.
Although we do not expect to be liable for any obligations
that are not allocated to us under the separation and distri-
bution agreement, a court could disregard the allocation
agreed to between the parties, and require that we assume
responsibility for obligations allocated to YUM (for

example, tax and/or environmental liabilities), particu-
larly if YUM were to refuse or were unable to pay or per-
form the allocated obligations.

Risks Related to Our Common
Stock

PART I

Potential liabilities may arise due to
fraudulent transfer considerations, which
would adversely affect our results of
operations and financial condition.

In connection with the separation and distribution, YUM
completed several corporate reorganization transactions
involving its subsidiaries which, along with the separation
and distribution, may be subject to federal and state fraud-
ulent conveyance and transfer laws. If, under these laws, a
court were to determine that, at the time of the separation
and distribution, any entity involved in these reorganiza-
tion transactions or the separation and distribution:

• was insolvent;

• was rendered insolvent by reason of the separation and

distribution or a related transaction;

• had remaining assets constituting unreasonably small

capital; or

• intended to incur, or believed it would incur, debts
beyond its ability to pay these debts as they matured,

then the court could void the separation and distribution,
in whole or in part, as a fraudulent conveyance or transfer.
The court could then require our stockholders to return to
YUM some or all of the shares of Company common
stock issued in the distribution, or require YUM or the
Company, as the case may be, to fund liabilities of the
other company for the benefit of creditors. The measure of
insolvency will vary depending upon the jurisdiction
whose law is being applied. Generally, however, an entity
would be considered insolvent if the fair value of its assets
was less than the amount of its liabilities, or if it was
unable to pay its liabilities as they mature.

The Company cannot guarantee the timing
or amount of dividends on, or repurchases
of, its common stock.

We intend to retain a significant portion of our earnings to
finance the operation, development and growth of our
business. Our board of directors commenced a quarterly
cash dividend in October 2017, which was temporarily
suspended during part of 2020 due to the impacts of the
COVID-19 pandemic. Any future determination to
declare and pay cash dividends will be at the discretion of
our board of directors and will depend on, among other
things, our financial condition, results of operations,
actual or anticipated cash requirements, tax considera-
tions, contractual or regulatory restrictions and such other
factors as our board of directors deems relevant. Our
board of directors has also authorized a $1.4 billion share
repurchase program. Starting in the second quarter of
2020, our share repurchases have been suspended due to
the impacts of the COVID-19 pandemic. Any future
repurchases under the program will be at the discretion of
management and we cannot guarantee the timing or
amount of any share repurchases. For more information,
see Item 5. “Market for Registrant’s Common Equity,
Related Stockholder Matters and Issuer Purchases of
Equity Securities.”

The different characteristics of the capital
markets in Hong Kong and the U.S. may
negatively affect the trading prices of our
shares.

We are subject to both New York Stock Exchange and
Hong Kong Stock Exchange listing and regulatory
requirements concurrently. The Hong Kong Stock
Exchange and the New York Stock Exchange have dif-
ferent trading hours, trading characteristics (including
trading volume and liquidity), trading and listing rules,
and investor bases (including different levels of retail and
institutional participation). As a result of these differ-
ences, the trading prices of shares of our common stock
may not be the same on the two exchanges, even allowing
for currency differences. Certain events having significant

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PART I

negative impact specifically on the U.S. capital markets
may result in a decline in the trading price of our shares on
the Hong Kong Stock Exchange notwithstanding that
such event may not impact the trading prices of securities
listed in Hong Kong generally or to the same extent, or
vice versa. Because of the different characteristics of the
U.S. and Hong Kong capital markets, the historical mar-
ket prices of our shares may not be indicative of the trad-
ing performance of the shares in the future.

As a company with a secondary listing on the Hong Kong
Stock Exchange under Chapter 19C of the Rules Govern-
ing the Listing of Securities on The Stock Exchange of
Hong Kong Limited (the “Hong Kong Listing Rules”),
we adopt different practices as to certain matters as com-
pared with many other companies listed on the Hong
Kong Stock Exchange. If 55% or more of the total world-
wide trading volume, by dollar value, of our shares over
our most recent fiscal year takes place on the Hong Kong
Stock Exchange, the Hong Kong Stock Exchange will
regard us as having a dual primary listing in Hong Kong
and we will no longer enjoy certain exemptions or waiv-
ers from strict compliance with the requirements under
the Hong Kong Listing Rules, the Companies (Winding
Up and Miscellaneous Provisions) Ordinance, the Codes
on Takeovers and Mergers and Share Buy-backs and the
Securities and Futures Ordinance, which could result in
our incurring of incremental compliance costs.

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The interests of the Investors may differ
from the interests of other holders of
Company common stock, and the
ownership percentage of other holders of
Company common stock will be diluted as
a result of any exercise of the warrants
issued to the Investors.

In connection with the separation and distribution, Pollos
Investment L.P., an affiliate of Primavera Capital Group
(“Primavera”), and API (Hong Kong) Investment Lim-
ited, an affiliate of Zhejiang Ant Small and Micro Finan-
cial Services Group Co., Ltd. (“Ant Financial” and
together with Primavera, the “Investors”) received shares
of common stock, representing approximately 4.4% of
the outstanding shares of Company common stock as of
December 31, 2020. In addition, the Investors were issued

54 YUM CHINA – 2020 Form 10-K

warrants to purchase approximately 4% of the then out-
standing shares of Company common stock in January
2017. Each of Primavera and Ant Financial has entered
into pre-paid forward sale transactions with respect to all
of their warrants with several financial institutions, pursu-
ant to which Primavera and Ant Financial are obligated to
deliver their respective warrants on the applicable settle-
ment date. Any shares issued as a result of the exercise of
the warrants will have a dilutive effect on the Company’s
basic earnings per share, which could adversely affect the
market price of Company common stock. In addition, the
Investors have the ability to acquire additional shares of
Company common stock in the open market (subject to an
aggregate beneficial ownership interest limit of 19.9%).

The interests of the Investors may differ from those of
other holders of Company common stock in material
respects. For example, the Investors may have an interest
in pursuing acquisitions, divestitures, financings or other
transactions that could enhance their respective equity
portfolios, even though such transactions might involve
risks to holders of Company common stock. The Inves-
tors may, from time to time in the future, acquire interests
in businesses that directly or indirectly compete with cer-
tain portions of the Company’s business or are suppliers
or customers of the Company. Additionally, the Investors
may determine that the disposition of some or all of their
interests in the Company would be beneficial to the
Investors at a time when such disposition could be detri-
mental to the other holders of Company common stock.

Anti-takeover provisions in our
organizational documents and Delaware
law might discourage or delay acquisition
attempts for us that you might consider
favorable.

Our amended and restated certificate of incorporation and
amended and restated bylaws contain provisions, sum-
marized below, that could make it more difficult to
acquire control of the Company by means of a tender
offer, a proxy contest or otherwise, or to remove incum-
bent officers and directors. Further, as a Delaware corpo-
ration, we are subject to provisions of Delaware law,
which may impair a takeover attempt that our stockhold-
ers may find beneficial. These provisions might discour-
age certain types of coercive takeover practices and

takeover bids that our board of directors may consider
inadequate or delay acquisition attempts for us that hold-
ers of Company common stock might consider favorable.

• Our amended and restated bylaws provide that such
bylaws may be amended by our board of directors or by
the affirmative vote of a majority of our stockholders
entitled to vote.

• Our amended and restated certificate of incorporation
provides that only our board of directors (or the chairman
of our board of directors, our CEO or our secretary with
the concurrence of a majority of our board of directors)
may call special meetings of our stockholders.

• Our amended and restated certificate of incorporation
expressly eliminates the right of our stockholders to act
by written consent. Accordingly, stockholder action
must take place at the annual or a special meeting of our
stockholders.

• Our amended and restated bylaws establish advance
notice procedures with respect to stockholder proposals
and nomination of candidates for election as directors
other than nominations made by or at the direction of
our board of directors or a committee of our board of
directors.

• Our amended and restated certificate of incorporation
does not provide for cumulative voting, which means
that stockholders are denied the right to cumulate votes
in the election of directors.

• Our board of directors has the authority to issue pre-
ferred stock, which could potentially be used to dis-
courage attempts by third parties to obtain control of our
company through a merger, tender offer, proxy contest
or otherwise by making such attempts more difficult or
more costly.

PART I

General Risk Factors

We could be party to litigation that could
adversely affect us by increasing our
expenses, diverting management attention
or subjecting us to significant monetary
damages and other remedies.

We are involved in legal proceedings from time to time.
These proceedings do or could include consumer,
employment, real estate-related, tort, intellectual property,
breach of contract and other litigation. As a public com-
pany, we may in the future also be involved in legal
proceedings alleging violation of securities laws or deriv-
ative litigation. Plaintiffs in these types of lawsuits often
seek recovery of very large or indeterminate amounts, and
the magnitude of the potential loss relating to such law-
suits may not be accurately estimated. Regardless of
whether any claims against us are valid, or whether we are
ultimately held liable, such litigation may be expensive to
defend and may divert resources and management atten-
tion away from our operations and negatively impact
reported earnings. With respect to insured claims, a judg-
ment for monetary damages in excess of any insurance
coverage could adversely affect our financial condition or
results of operations. Any adverse publicity resulting
from these allegations may also adversely affect our repu-
tation, which in turn could adversely affect our results of
operations.

In addition, the restaurant industry around the world has
been subject to claims that relate to the nutritional content
of food products, as well as claims that the menus and
practices of restaurant chains have led to customer health
issues, including weight gain and other adverse effects.
We may also be subject to these types of claims in the
future and, even if we are not, publicity about these mat-
ters (particularly directed at the quick-service and fast-
casual segments of the restaurant industry) may harm our
reputation and adversely affect our business, results of
operations and financial condition.

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YUM CHINA – 2020 Form 10-K 55

PART I

Changes in accounting standards and
subjective assumptions, estimates and
judgments by management related to
complex accounting matters could
significantly affect our results of operations
and financial condition.

Generally accepted accounting principles and related
accounting pronouncements, implementation guidelines
and interpretations with regard to a wide range of matters
that are relevant to our business, including revenue recog-
nition, long-lived asset impairment, impairment of good-
will and other intangible assets, lease accounting, share-
based compensation and recoverability of deferred tax
assets are highly complex and involve many subjective
assumptions, estimates and judgments. Changes in these
rules or their interpretation or changes in underlying
assumptions, estimates or judgments could significantly
change our reported or expected financial performance or
financial condition. New accounting guidance may
require systems and other changes that could increase our
operating costs and/or change our financial statements.
For example, implementing the new lease standard issued
by Financial Accounting Standards Board requires us to
make significant changes to our lease management sys-
tem and other accounting systems, and results in changes
to our financial statements. The adoption of the new
accounting standard for leases may result in a higher
loss on newly recognized
amount of
right-of-use assets and negatively impact our results of
operations. Upon adoption of Accounting Standards
Update (“ASU”) No. 2016-02, Leases (Topic 842)
(“ASC 842”) on January 1, 2019, an impairment charge
of $60 million (net of related impact on deferred taxes and
noncontrolling interests) on right-of-use assets arising
from existing operating leases as of January 1, 2019 was
recorded as an adjustment to retained earnings, as the
additional impairment charge would have been recorded
before adoption had the operating lease right-of-use assets
been recognized at the time of impairment. See Note 12
for details on the impairment charge recorded upon adop-
tion of ASC 842 as well as subsequent impairment
charges.

impairment

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56 YUM CHINA – 2020 Form 10-K

Our insurance policies may not provide
adequate coverage for all claims
associated with our business operations.

We have obtained insurance policies that we believe are
customary and appropriate for businesses of our size and
type and at least in line with the standard commercial
practice in China. However, there are types of losses we
may incur that cannot be insured against or that we believe
are not cost effective to insure, such as loss of reputation.
If we were held liable for uninsured losses or amounts or
claims for insured losses exceeding the limits of our
insurance coverage, our business and results of operations
may be materially and adversely affected.

Unforeseeable business interruptions
could adversely affect our business.

Our operations are vulnerable to interruption by natural
disasters, such as fires, floods and earthquakes, war, ter-
rorism, power failures and power shortages, hardware and
software failures, computer viruses and other events
beyond our control. In particular, our business is depen-
dent on prompt delivery and reliable transportation of our
food products by our logistics partners. Unforeseeable
events, such as adverse weather conditions, natural disas-
ters, severe traffic accidents and delays, non-cooperation
of our logistics partners, and labor strikes, could lead to
delay or lost deliveries to our restaurants, which may
result in the loss of revenue or in customer claims. There
may also be instances where the conditions of fresh,
chilled or frozen food products, being perishable goods,
deteriorate due to delivery delays, malfunctioning of
refrigeration facilities or poor handling during transpor-
tation by our logistics partners. This may result in a failure
by us to provide quality food and services to customers,
thereby affecting our business and potentially damaging
our reputation. Any such events experienced by us could
disrupt our operations. In addition, insurance may not be
available to cover losses due to business interruptions
resulting from public health issues.

Failure by us to maintain effective
disclosure controls and procedures and
internal control over financial reporting in
accordance with the rules of the SEC
could harm our business and results of
operations and/or result in a loss of
investor confidence in our financial
reports, which could have a material
adverse effect on our business.

We are required to maintain effective disclosure controls
and procedures and effective internal control over finan-
cial reporting in connection with our filing of periodic
reports with the SEC under the Exchange Act.

We may fail to maintain effective disclosure controls and
procedures and internal control over financial reporting,
and our management and our independent registered pub-
lic accounting firm may not be able to conclude that we
have effective internal control over financial reporting at a
reasonable assurance level. This may in turn cause inves-
tors to lose confidence in our financial statements and
negatively impact the trading price of our common stock.
Furthermore, we have incurred substantial costs, and may
need to incur additional costs and use additional manage-
ment and other resources, to comply with these require-
ments going forward.

If we fail to remedy any material weakness, our financial
statements may be inaccurate and we may face restricted
access to the capital markets, which could adversely affect
our business, results of operations and financial condition.

The Company’s stock price may fluctuate
significantly.

The trading price of shares of our common stock can be
volatile and could fluctuate widely in response to a variety
of factors, many of which are beyond our control. In addi-
tion, the performance and fluctuation of the market prices
of other companies with business operations located
mainly in China that have listed their securities in Hong
Kong and/or the United States may affect the volatility in
the prices of and trading volumes for our shares. Some of
these companies have experienced significant volatility.
The trading performances of these companies’ securities

PART I

at the time of or after their offerings may affect the overall
investor sentiment towards other companies with busi-
ness operations located mainly in China and listed in
Hong Kong and/or the United States and consequently
may impact the trading performance of our shares. In
addition to market and industry factors, the prices and
trading volumes for our shares may be highly volatile for
specific business reasons, including:

• actual or anticipated fluctuations in the our results of

operations;

• significant liability claims, health concerns, food con-
tamination complaints from our customers, shortages or
interruptions in the availability of food or other sup-
plies, or reports of incidents of food tampering;

• foreign exchange issues;

• geopolitical instability, conflict, or social unrest in the
markets in which we operate, in Hong Kong, the United
States or worldwide;

• changes in the regulatory, legal and political environ-
ment in which we operate, in Hong Kong, the United
States and or worldwide; or

• the domestic and worldwide economies as a whole;

Any of these factors may result in large and sudden
changes in the volume and trading price of our shares.

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Substantial future sales or perceived
potential sales of our shares in the public
market could cause the price of our shares
to decline significantly.

Sales of shares of our common stock in the public market,
or the perception that these sales could occur, could cause
the market price of our shares to decline significantly.
Divesture in the future of our shares by stockholders, the
announcement of any plan to divest our shares, or hedging
activity by third-party financial institutions in connection
with similar derivative or other financing arrangements
entered into by stockholders, could cause the price of our
shares to decline.

YUM CHINA – 2020 Form 10-K 57

PART I

Your percentage of ownership in the
Company may be diluted in the future.

In the future, your percentage ownership in the Company
may be diluted because of equity awards that we grant to
our directors, officers and employees or otherwise as a
result of equity issuances for acquisitions or capital mar-
ket transactions. The Company’s and certain of YUM’s
employees have equity awards with respect to Company
common stock as a result of conversion of their YUM
equity awards (in whole or in part) to Company equity
awards in connection with the distribution. From time to
time, the Company will issue additional stock-based
awards to its employees under the Company’s employee
benefit plans. Such awards will have a dilutive effect on
the Company’s earnings per share, which could adversely
affect the market price of Company common stock.

In addition, our amended and restated certificate of incor-
poration authorizes us to issue, without the approval of the
Company’s stockholders, one or more classes or series of
preferred stock that have such designation, powers, pref-
erences and relative, participating, optional and other spe-
cial rights, including preferences over Company common
stock respecting dividends and distributions, as our board
of directors generally may determine. The terms of one or
more classes or series of preferred stock could dilute the
voting power or reduce the value of Company common
stock. Similarly, the repurchase or redemption rights or
liquidation preferences we could assign to holders of pre-
ferred stock could affect the residual value of the common
stock.

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58 YUM CHINA – 2020 Form 10-K

PART I

ITEM 1B. Unresolved Staff Comments.

Not applicable.

ITEM 2. Properties.

As of year-end 2020, we leased land, building or both for over 8,100 units in China, which unit count includes land use
rights for over 40 properties. We believe that our properties are generally in good operating condition and are suitable for
the purposes for which they are being used. The Company-owned units are further detailed as follows:

• KFC leased land, building or both (including land use rights) for approximately 5,872 units.

• Pizza Hut leased land, building or both (including land use rights) for approximately 2,230 units.

• in addition to KFC and Pizza Hut, we also leased land, building or both (including land use rights) for approximately

88 units for our other restaurant concepts.

Company-owned restaurants in China are generally leased for initial terms of 10 to 20 years and generally do not have
renewal options. We also lease our corporate headquarters in Shanghai and Dallas, Texas in the U.S., and regional offices
and an innovation center in China, and own land use rights for nine non-store properties of Little Sheep, Huang Ji Huang
and logistic centers. We sublease around 170 properties to franchisees and other third parties. Additional information
about the Company’s properties is included in Note 11 to the Consolidated Financial Statements in Part II, Item 8.

ITEM 3. Legal Proceedings.

We are subject to various lawsuits covering a variety of allegations from time to time. We believe that the ultimate liabil-
ity, 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. Mat-
ters faced by the Company from time to time include, but are not limited to, claims from landlords, employees, guests
and others related to operational, contractual or employment issues. We are not involved in any material legal
proceedings as of December 31, 2020.

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ITEM 4. Mine Safety Disclosures.

Not applicable.

YUM CHINA – 2020 Form 10-K 59

PART II

ITEM 5. Market
for Registrant’s Common Equity,
Related Stockholder Matters and Issuer Purchases of
Equity Securities.

Market for Yum China Common Stock

Yum China common stock trades on the New York Stock Exchange (“NYSE”) under the symbol YUMC. Yum China
common stock commenced trading on the NYSE on a “when-issued” basis on October 17, 2016 and began “regular
way” trading on November 1, 2016. On September 10, 2020, the Company completed a secondary listing of its common
stock on the Main Board of the HKEX under the stock code “9987”. The shares listed on the HKEX are fully fungible
with the shares listed on the NYSE.

As of February 22, 2021, there were 42,116 holders of record of Yum China’s common stock. The number of registered
holders does not include holders who are beneficial owners, but whose shares are held in street name by brokers and
other nominees.

Dividends and Share Repurchases

We intend to retain a significant portion of our earnings to finance the operation, development and growth of our busi-
ness. Since declaring an initial dividend of $0.10 per share in the fourth quarter of 2017, we have paid a quarterly cash
dividend on Yum China common stock. In the fourth quarter of 2018, each quarter of 2019, and the first and fourth quar-
ter of 2020, we paid a quarterly cash dividend of $0.12 per share. Due to the unprecedented effects of the COVID-19
pandemic, the Company suspended its dividend payments in the second and third quarter of 2020. Cash dividends total-
ing $95 million were paid to shareholders in 2020. Any determination to declare and pay future cash dividends will be at
the discretion of our board of directors and will depend on, among other things, our financial condition, results of opera-
tions, actual or anticipated cash requirements, contractual or regulatory restrictions, tax considerations and such other
factors as our board of directors deems relevant.

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In addition, our ability to declare and pay any dividends on our stock may be restricted by earnings available for distribu-
tion under applicable Chinese laws. The laws, rules and regulations applicable to our Chinese subsidiaries permit pay-
ments of dividends only out of their accumulated profits, if any, determined in accordance with applicable Chinese
accounting standards and regulations. Under Chinese law, an enterprise incorporated in China is required to set aside at
least 10% of its after-tax profits each year, after making up previous years’ accumulated losses, if any, to fund certain
statutory reserve funds, until the aggregate amount of such a fund reaches 50% of its registered capital. As a result, our
Chinese subsidiaries are restricted in their ability to transfer a portion of their net assets to us in the form of dividends. At
the discretion of the board of directors, as an enterprise incorporated in China, each of our Chinese subsidiaries may allo-
cate 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.

Our board of directors has authorized an aggregate of $1.4 billion for our share repurchase program, including its most
recent increase in authorization on October 31, 2018. Yum China may repurchase shares under this program from time to

60 YUM CHINA – 2020 Form 10-K

PART II

time in open market or privately negotiated transactions, including block trades, accelerated share repurchase transac-
tions and the use of Rule 10b5-1 trading plans. As a result of the COVID-19 pandemic impact, we have taken, and are
continuing to take, certain actions to provide additional liquidity and flexibility, which include suspending our share
repurchase. No shares were repurchased during the quarter ended December 31, 2020. As of December 31, 2020,
$692 million remained available for future share repurchases under the authorization.

Stock Performance Graph

This graph compares the cumulative total return of our common stock from October 17, 2016, which is the date “when-
issued” trading in our common stock commenced, through December 31, 2020, with the comparable cumulative total
return of the S&P China BMI, MSCI Asia APEX 50, and MSCI China Index. The graph assumes that the value of the
investment in our common stock and each index was $100 on October 17, 2016 and that all dividends were reinvested.
We selected the S&P China BMI and MSCI Asia APEX 50 for comparison, as YUMC is an index member of both of
these indices. We also selected MSCI China Index, as our relative total shareholder return against this index is one of the
measures to determine the payout of certain PSU awards.

YUMC

S&P China BMI

MSCI Asia APEX 50

MSCI China

$240

$220

$200

$180

$160

$140

$120

$100

$80

12/13/2016
10/17/2016

06/30/2017

12/31/2017

06/30/2018

12/31/2018

06/30/2019

12/31/2019

06/30/2020

12/31/2020

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10/17/2016

12/31/2016

06/30/2017

12/31/2017

06/30/2018

12/31/2018

06/30/2019

12/31/2019

06/30/2020

12/31/2020

YUMC
S&P China BMI
MSCI Asia APEX 50
MSCI China

$
$
$
$

100
100
100
100

$
$
$
$

102
95
96
94

$
$
$
$

154
115
120
117

$
$
$
$

156
141
139
143

$
$
$
$

150
139
132
140

$
$
$
$

131
114
113
114

$
$
$
$

180
129
126
127

$
$
$
$

187
139
139
137

$
$
$
$

187
145
138
140

$
$
$
$

223
181
183
173

YUM CHINA – 2020 Form 10-K 61

PART II

ITEM 6. Selected Financial Data.

The following table presents our selected historical consolidated and combined financial data. We derived the Consoli-
dated Statements of Income data and the Consolidated Cash Flows data for the years ended December 31, 2020, 2019
and 2018, and the Consolidated Balance Sheets data as of December 31, 2020 and 2019, as set forth below, from our
audited Consolidated Financial Statements, which are included elsewhere in this Form 10-K. We derived the Consoli-
dated Statements of Income data and Consolidated Cash Flows data for the year ended December 31, 2017, Consoli-
dated and Combined Statements of Income data and the Consolidated and Combined Cash Flows data for the year ended
December 31, 2016, Consolidated Balance Sheets data as of December 31, 2018, 2017 and 2016, as set forth below,
from our audited Consolidated and Combined Financial Statements that are not included in this Form 10-K.

Our combined financial information for periods prior to the separation may not necessarily reflect our financial position,
results of operations or cash flows as if we had operated as an independent public company during the periods prior to
October 31, 2016, including changes that occurred in our operations and capitalization as a result of the separation from
YUM and the distribution. Accordingly, our historical combined results should not be relied upon as an indicator of our
future performance.

The Company adopted Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) (“ASC 842”) on
January 1, 2019, using a modified retrospective method. Accordingly, financial data for the years ended December 31,
2018, 2017 and 2016 were not recast, which impacts the year-to-year comparability. See Note 2 of the Consolidated
Financial Statements for more detailed information regarding adoption of the new lease standard.

The Company adopted ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASC 606”) on
January 1, 2018, and applied the full retrospective approach. Accordingly, financial data for the years ended
December 31, 2017 and 2016 has been recast.

The following tables should be read together with, and are qualified in their entirety by reference to, the historical Con-
solidated and Combined Financial Statements and the related notes included elsewhere in this Form 10-K. Among other
things, the historical Consolidated and Combined Financial Statements include more detailed information regarding the
basis of presentation for the information in the following table. The tables should also be read together with the sections
entitled “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 8.
Financial Statements and Supplementary Data.”

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62 YUM CHINA – 2020 Form 10-K

Selected Financial Data
Yum China Holdings, Inc.
(in US$ millions, except per share and unit amounts)

Consolidated and Combined Statements of Income Data:

Revenues

Company sales
Franchise fees and income
Revenues from transactions with franchisees and unconsolidated

affiliates

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 and unconsolidated affiliates
Other operating costs and expenses
Closures and impairment expenses, net
Other income, net

Total costs and expenses, net

Operating Profit
Interest income, net
Investment gain (loss)
Changes in fair value of financial instruments

Income Before Income Taxes
Income tax provision

Net income—including noncontrolling interests
Net income—noncontrolling interests

Net Income—Yum China Holdings, Inc.

Basic Earnings Per Common Share
Diluted Earnings Per Common Share
Cash Dividends Declared Per Common Share

Consolidated and Combined Cash Flow Data:
Net cash provided by operating activities
Capital spending

Consolidated Balance Sheet Data:
Total assets
Property, plant and equipment, net
Operating lease right-of-use assets
Total Yum China Holdings, Inc. Stockholders’ Equity

Other Data:
Adjusted Diluted Earnings Per Common Share(a)
Number of stores at year-end

Company
Unconsolidated Affiliates
Franchisees

Total

Total Company system sales (decline) growth(b)

Reported
Local currency(c)

KFC system sales (decline) growth(b)

Reported
Local currency(c)

Pizza Hut system sales (decline) growth(b)

Reported
Local currency(c)

PART II

2016

For the Years Ended December 31,
2018

2017

2019

2020

$

7,396 $
148

7,925 $
148

7,633 $
141

6,993 $
141

6,622
129

647
72

8,263

2,342
1,730
2,226

6,298
479
65
633
57
55
(285)

7,302

961
43
104
—

1,108
(295)

813
29

784

2.01
1.95
0.24

654
49

8,776

2,479
1,807
2,373

6,659
487
71
645
37
36
(60)

7,875

901
39
63
—

1,003
(260)

743
30

713

1.89
1.84
0.48

603
38

8,415

2,326
1,714
2,394

6,434
456
71
595
29
41
(152)

7,474

941
36
(27)
—

950
(214)

736
28

708

1.84
1.79
0.42

599
36

299
25

7,769

7,075

2,034
1,543
2,245

5,822
495
71
592
28
47
(64)

6,991

778
25
—
—

803
(379)

424
26

398

1.03
1.00
0.10

1,921
1,432
2,259

5,612
429
72
295
15
78
(60)

6,441

634
11
—
21

666
(156)

510
12

498

1.35
1.35
—

866
436

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$

$

$

1,114 $
419

1,185 $
435

1,333 $
470

884 $
415

10,875 $
1,765
2,164
6,206

6,950 $
1,594
1,985
3,077

4,610 $
1,615
—
2,873

4,287 $
1,691
—
2,765

3,750
1,647
—
2,367

1.53 $

1.88 $

1.53 $

1.40 $

1.27

8,190
681
1,635

10,506

7,355
896
949

9,200

6,832
811
841

8,484

6,307
891
785

7,983

6,008
836
718

7,562

(5)%
(5)%

(5)%
(5)%

(15)%
(15)%

4%
9%

6%
11%

(2)%
3%

7%
5%

10%
7%

1%
(1)%

6%
8%

7%
9%

5%
7%

(1)%
5%

—%
6%

(2)%
4%

YUM CHINA – 2020 Form 10-K 63

PART II

(a)

(b)

In addition to the results provided in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”)
throughout this Form 10-K, the Company provides non-GAAP measures which present certain operating results
on a basis before Special Items. The Company excludes impact from Special Items for the purpose of evaluating
performance internally and Special Items are not included in any of our segment results. The adjusted measures
are not intended to replace the presentation of our financial results in accordance with GAAP. Rather, the Com-
pany believes that the presentation of measures adjusted for Special Items provides additional information to
investors to facilitate the comparison of past and present results, excluding items that the Company does not
believe are indicative of our ongoing operations due to their nature. The 2020, 2019 and 2018 Special Items are
described in further detail within our Management’s Discussion and Analysis of Financial Condition and Results
of Operations. Special Items in 2017 negatively impacted net income by $161 million, or $0.40 per share, due to
the impact from the Tax Act of $164 million, offset by income from the reversal of contingent consideration of
$3 million. Special Items in 2016 negatively impacted operating profit by $15 million, or $0.08 per share, primar-
ily due to the incremental restaurant-level impairment upon separation.

System sales growth reflects the results of all restaurants regardless of ownership, including Company-owned,
franchise and unconsolidated affiliate restaurants that operate our concepts, except for sales from non-Company-
owned restaurants, for which we do not receive a sales-based royalty. Sales of franchise and unconsolidated affili-
ate restaurants typically generate ongoing franchise fees for the Company at a rate of approximately 6% of system
sales. Franchise and unconsolidated affiliate restaurants sales are not included in Company sales in the Consoli-
dated and Combined 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 busi-
ness as it incorporates all of our revenue drivers, Company and franchise same-store sales as well as net unit
growth.

(c)

Local currency represents the percentage change excluding the impact of foreign currency translation. These
amounts are derived by translating current year results at prior year average exchange rates. We believe the elimi-
nation of the foreign currency translation impact provides better year-to-year comparability without distorting of
foreign currency fluctuations.

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64 YUM CHINA – 2020 Form 10-K

PART II

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 oth-
erwise 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 indi-
cates otherwise.

Overview

Yum China Holdings, Inc. is the largest restaurant company in China in terms of system sales, with $8.3 billion of reve-
nues in 2020 and over 10,500 restaurants as of year-end 2020. Our growing restaurant network consists of our flagship
KFC and Pizza Hut brands, as well as emerging brands such as Little Sheep, Huang Ji Huang, COFFii & JOY, East
Dawning, Taco Bell and Lavazza. 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, Huang Ji Huang, COFFii & JOY and East Dawning concepts out-
right. We also established a joint venture with Lavazza Group, the world-renowned family-owned Italian coffee com-
pany, to explore and develop the Lavazza coffee shop concept in China. KFC was the first major global restaurant brand
to enter China as early as 1987. With more than 30 years of operations, we have developed extensive operating experi-
ence in the China market. We have since grown to become the largest restaurant company in China in terms of 2020 Sys-
tem sales, with 10,506 restaurants covering over 1,500 cities primarily in China as of December 31, 2020. We believe
that there are significant opportunities to expand within China, and we intend to focus our efforts on increasing our geo-
graphic 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, 2020, KFC operated over 7,100 restaurants in more than 1,500 cities across China. KFC primarily com-
petes with western QSR brands in China, such as McDonald’s, Dicos and Burger King, among which we believe KFC
had an approximate two-to-one lead over its nearest competitor in terms of store count as of the end of 2020. During the
quarter ended March 31, 2018, the Company completed the acquisition of an additional 36% interest in an unconsoli-
dated affiliate that operates KFC stores in and around Wuxi, China (“Wuxi KFC”), increasing our equity interest to 83%
and allowing the Company to consolidate the entity. During the quarter ended September 30, 2020, the Company com-
pleted the acquisition of an additional 25% interest in an unconsolidated affiliate that operates KFC stores in and around
Suzhou, China (“Suzhou KFC”), increasing our equity interest to 72% and allowing the Company to consolidate the
entity.

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, 2020, Pizza Hut operated over 2,300 restaurants in over 500 cities. Measured
by number of restaurants, we believe Pizza Hut has an approximate six-to-one lead over its nearest western CDR com-
petitor in China as of the end of 2020.

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PART II

We have two reportable segments: KFC and Pizza Hut. Our remaining non-reportable operating segments, including the
operations of Little Sheep, Huang Ji Huang, COFFii & JOY, East Dawning, Taco Bell, Lavazza, Daojia and our
e-commerce business, are combined and referred to as All Other Segments, as these operating segments are insignificant
both individually and in the aggregate. Starting from the first quarter of 2019, our COFFii & JOY concept and
e-commerce business became operating segments, as their financial results started being regularly reviewed by the Com-
pany’s chief operating decision maker. Segment financial information for prior years has been recast to align with this
change in segment reporting. There was no impact to the consolidated financial statements of the Company as a result of
this change. Additional details on our reportable operating segments are included in Note 17.

We intend for this MD&A to provide the reader with information that will assist in understanding our results of opera-
tions, including metrics that management uses to assess the Company’s performance. Throughout this MD&A, we dis-
cuss the following performance metrics:

• The Company provides certain percentage changes excluding the impact of foreign currency translation (“F/X”).
These amounts are derived by translating current year results at prior year average exchange rates. We believe the
elimination of the F/X impact provides better year-to-year comparability without the distortion of foreign currency
fluctuations.

• System sales growth reflects the results of all restaurants regardless of ownership, including Company-owned, fran-
chise and unconsolidated affiliate restaurants that operate our concepts, except for sales from non-Company-owned
restaurants, for which we do not receive a sales-based royalty. Sales of franchise and unconsolidated affiliate restau-
rants typically generate ongoing franchise fees for the Company at a rate of approximately 6% of system sales. Fran-
chise and unconsolidated affiliate restaurant sales are not included in Company sales in the Consolidated Statements of
Income; however, the franchise fees are included in the Company’s revenues. We believe system sales growth is use-
ful to investors as a significant indicator of the overall strength of our business as it incorporates all of our revenue driv-
ers, Company and franchise same-store sales as well as net unit growth.

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• 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 res-
taurants 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 manage-
ment measures performance internally and focuses on trends of a more stable base of stores. Prior years have been
adjusted accordingly.

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

66 YUM CHINA – 2020 Form 10-K

PART II

Results of Operations

Summary

All comparisons within this summary are versus the same period a year ago. All system sales growth, same-store sales
growth, operating profit and net income comparisons exclude the impact of foreign currency. Refer to Item 1. Business
for a discussion on the seasonality of our operations.

The COVID-19 pandemic has adversely affected, and will continue to adversely affect, our operations and financial
results for the foreseeable future.

In 2020, the Company’s total revenues decreased 6%, both including and excluding the impact of F/X, mainly attribut-
able to same-store sales decline of 8% and 14% at KFC and Pizza Hut, respectively, and temporary store closures due to
the impact of the COVID-19 pandemic, partially offset by new-unit openings of 1,165 and the acquisition of Suzhou
KFC and Huang Ji Huang, bringing total store count to 10,506 in more than 1,500 cities. The increase in operating profit,
excluding the impact of F/X, was primarily driven by a gain recognized from re-measurement of our previously held
equity interest in Suzhou KFC at fair value upon acquisition in the third quarter of 2020 and lower G&A expenses, par-
tially offset by the decline in restaurant profit and higher closure and store impairment expenses due to the impact of the
COVID-19 pandemic. Net income for 2020 increased 10%, both including and excluding F/X, mainly due to the
increase in operating profit and investment gain, partially offset by higher income tax expenses, while Adjusted Net
Income, excluding F/X, decreased 15%.

In 2019, the Company’s total revenues increased 4%, or 9% excluding the impact of F/X, attributable to solid sales per-
formance at KFC with same-store sales growth of 4% and 1% same-store sales growth at Pizza Hut. The increase was
also attributable to new-unit openings of 1,006 or 8% net unit growth, bringing total store count to 9,200 in more than
1,300 cities. The increase in operating profit, excluding the impact of F/X, was primarily driven by strong sales and mar-
gin expansion, partially offset by the negative impact from lapping a gain recognized from re-measurement of our previ-
ously held equity interest in Wuxi KFC at fair value upon acquisition in 2018, and higher G&A expenses in 2019. Net
income for 2019 increased 1% or 6%, excluding F/X, mainly due to investment gain and the increase in operating profit,
partially offset by the impact from the Tax Act, while Adjusted Net Income, excluding F/X, increased 26%.

2020 financial highlights are below:

Year to date highlights:

KFC
Pizza Hut
All Other Segments(b)
Total

% Change

Same-Store
Sales(a)

Net New
Units

(8)
(14)
(20)
(9)

+10
+3
NM
+14

System
Sales(a)
(5)
(15)
NM
(5)

Operating
Profit
(Reported)
(16)
(45)
+49
+7

Operating
Profit
(Ex F/X)

(16)
(45)
+45
+7

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

(a)

System Sales and Same-Store Sales percentages as shown in 2020 financial highlights exclude the impact of F/X.
Effective January 1, 2018, temporary store closures are normalized in the same-store sales calculation by exclud-
ing the period during which stores are temporarily closed.

YUM CHINA – 2020 Form 10-K 67

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(b)

Sales from non-Company-owned restaurants, for which we do not receive a sales-based royalty, are excluded
from system sales and same-store sales.

The Consolidated Results of Operations for the years ended December 31, 2020, 2019 and 2018 and other data are
presented below:

Company sales
Franchise fees and income
Revenues from transactions with franchisees

and unconsolidated affiliates

Other revenues

Total revenues

Restaurant profit

Restaurant margin %

Operating Profit
Interest income, net
Investment gain (loss)
Income tax provision

Net income—including noncontrolling

interests

Net income—noncontrolling interests

Net Income—Yum China Holdings, Inc.

Diluted Earnings Per Common Share

Effective tax rate

Adjusted Operating Profit

Adjusted Net Income

Adjusted Diluted Earnings Per Common

Share

% B/(W)(a)

2020

2019

2020

2019

2018

Reported

Ex F/X

Reported

Ex F/X

$ 7,396
148

$ 7,925
148

$ 7,633
141

647
72

654
49

603
38

$ 8,263

$ 8,776

$ 8,415

$ 1,098

$ 1,266

$ 1,199

(7)
—

(1)
45

(6)

(13)

(7)
—

(2)
42

(6)

(13)

4
5

9
31

4

6

9
9

13
34

9

11

14.9% 16.0% 15.7%

(1.1) ppts.

(1.1) ppts.

0.3 ppts.

0.3 ppts.

7
11
65
(13)

9
3

10

6

7
11
65
(13)

10
4

10

7

(4)
7
NM
(21)

1
(6)

1

3

1
12
NM
(26)

6
(11)

6

8

$

$

$

$

$

$

961
43
104
(295)

813
29

784

1.95

$

$

$

901
39
63
(260)

743
30

713

1.84

$

$

$

941
36
(27)
(214)

736
28

708

1.79

26.6% 25.9% 22.6%

732

615

1.53

$

$

$

912

729

1.88

$

$

$

855

606

1.53

Adjusted Effective Tax Rate

26.8% 24.9% 26.5%

Adjusted EBITDA

$ 1,248

$ 1,378

$ 1,340

(a)

Represents year-over-year change in percentage.

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Performance Metrics

System Sales (Decline) Growth
System Sales (Decline) Growth, excluding F/X
Same-store Sales (Decline) Growth

2020

2019

(5)%
(5)%
(9)%

4%
9%
3%

% Increase (Decrease)

Unit Count

2020(a)

2019

2018

2020

2019

Company-owned
Unconsolidated affiliates
Franchisees

8,190
681
1,635

10,506

7,355
896
949

9,200

6,832
811
841

8,484

11
(24)
72

14

8
10
13

8

(a) As a result of the acquisition of Suzhou KFC as disclosed in Note 1, the units of Suzhou KFC were transferred

from unconsolidated affiliates to Company-owned.

68 YUM CHINA – 2020 Form 10-K

PART II

Non-GAAP Measures

In addition to the results provided in accordance with GAAP throughout this MD&A, the Company provides
non-GAAP 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, which we define
as net income including noncontrolling interests adjusted for income tax, interest income, net, investment gain or loss,
certain non-cash expenses, consisting of depreciation and amortization as well as store impairment charges, and Special
Items.

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

Non-GAAP Reconciliations

2020

2019

2018

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 16)
Impact on effective tax rate as a result of Special Items

Adjusted effective tax rate

$

$

$

$

$

$

$

$

961
229

732

784
169

615

2.01
0.43

1.58

1.95
0.42

1.53

$

$

$

$

$

$

$

$

901
(11)

912

713
(16)

729

1.89
(0.04)

1.93

1.84
(0.04)

1.88

$

$

$

$

$

$

$

$

941
86

855

708
102

606

1.84
0.26

1.58

1.79
0.26

1.53

26.6%
(0.2)%

26.8%

25.9%
1.0%

24.9%

22.6%
(3.9)%

26.5%

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

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Reconciliation of Net Income to Adjusted EBITDA
Net Income—Yum China Holdings, Inc.
Net income—noncontrolling interests
Income tax provision
Interest income, net
Investment (gain) loss

Operating Profit
Special Items, Operating Profit

Adjusted Operating Profit
Depreciation and amortization
Store impairment charges

Adjusted EBITDA

2020

2019

2018

$

784 $
29
295
(43)
(104)

961
(229)

732
450
66

713 $
30
260
(39)
(63)

901
11

912
428
38

708
28
214
(36)
27

941
(86)

855
445
40

$

1,248 $

1,378 $

1,340

YUM CHINA – 2020 Form 10-K 69

PART II

Details of Special Items are presented below:

Details of Special Items

Gain from re-measurement of equity interest upon acquisition(a)
Share-based compensation expense for Partner PSU Awards(b)
Derecognition of indemnification assets related to Daojia(c)
Daojia impairment(d)

Special Items, Operating Profit
Tax effect on Special Items(e)
Impact from the U.S. Tax Act(f)

Special Items, net income—including noncontrolling interests
Special Items, net income—noncontrolling interests

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

Weighted-Average Diluted Shares Outstanding (in millions)
Special Items, Diluted Earnings Per Common Share

2020

2019

2018

$

$

$

239
(7)
(3)
—

229
(60)
—

169
—

169

402
0.42

$

$

$

— $
—
—
(11)

(11)
1
(8)

(18)
(2)

(16)

388
(0.04)

$

$

98
—
—
(12)

86
(21)
36

101
(1)

102

395
0.26

(a) As a result of the acquisition of Wuxi KFC and Suzhou KFC in the first quarter of 2018 and the third quarter of
2020, the Company recognized a gain of $98 million and $239 million, respectively, from the re-measurement of
our previously held 47% equity interest at fair value, which was not allocated to any segment for performance
reporting purposes. (See Note 5 for additional information.)

(b)

In February 2020, the Company granted Partner PSU Awards to select employees who were deemed critical to the
Company’s execution of its strategic operating plan. These PSU awards will only vest 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 subject to the PSU awards. Partner PSU Awards were granted to address increased competition
for executive talent, motivate transformational performance and encourage management retention. Given the
unique nature of these grants, the Compensation Committee does not intend to grant similar, special grants to the
same employees during the performance period. The impact from these special awards is excluded from metrics
that management uses to assess the Company’s performance. The Company recognized share-based compensa-
tion cost of $7 million associated with the Partner PSU Awards for the year ended December 31, 2020.

(c)

In the quarter ended June 30, 2020, the Company derecognized a $3 million indemnification asset previously
recorded for the Daojia acquisition as the indemnification right expired pursuant to the purchase agreement. The
amount was included in Other income, net, but was not allocated to any segment for performance reporting purposes.

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(d) During the years ended December 31, 2019 and 2018, we recorded impairment charges of $11 million and
$12 million, respectively, on intangible assets and goodwill attributable to the Daojia business. The amount was
included in Closures and impairment expenses in our Consolidated Statements of Income, but was not allocated to
any segment for performance reporting purposes. For the years ended December 31, 2019 and 2018, we recorded
tax benefits of $1 million and $3 million, respectively, associated with the Daojia impairment, and allocated
$2 million and $1 million of the after-tax impairment charges to noncontrolling interests, respectively. (See Note 5
for additional information.)

(e)

Tax effect was determined based upon the nature, as well as the jurisdiction, of each Special Item at applicable tax rate.

(f)

In the fourth quarter of 2018, we recognized a tax benefit of $36 million as a result of adjusting the provisional
amount of the transition tax previously recorded. We completed the evaluation of the impact on our transition tax
computation based on the final regulations that were released by the U.S. Treasury Department and the U.S. Inter-
nal Revenue Service and became effective in the first quarter of 2019, and recorded an additional tax expense of
$8 million for the transition tax accordingly.

70 YUM CHINA – 2020 Form 10-K

PART II

The Company excludes impact from Special Items for the purpose of evaluating performance internally. Special Items
are not included in any of our segment results. In addition, the Company provides Adjusted EBITDA because we believe
that investors and analysts may find it useful in measuring operating performance without regard to items such as income
tax, interest income, net, investment gain or loss, depreciation and amortization, 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 when-
ever 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 analyst may find it useful in measuring operating perfor-
mance without regard to such non-cash item.

These adjusted measures are not intended to replace the presentation of our financial results in accordance with GAAP.
Rather, the Company believes that the presentation of these adjusted measures provides additional information to inves-
tors to facilitate the comparison of past and present results, excluding those items that the Company does not believe are
indicative of our ongoing operations due to their nature.

Segment Results

KFC

KFC delivered a resilient performance in 2020 by accelerating store expansion with attractive returns and maintaining
solid profitability. KFC continued focus on innovative products, creating abundant value to our customers as well as
upgrading ingredients to meet Chinese consumers’ needs. KFC also continued with its digital and delivery initiatives to
enhance the customer experience. KFC’s loyalty program members exceeded 275 million at year-end 2020 and contrib-
uted approximately 62% of system sales at KFC in 2020. Delivery sales accounted for approximately 28% of Company
sales at KFC in 2020 with store and city coverage of 85% and 97%, respectively, at the end of 2020.

2020

2019

2018

Reported

Ex F/X

Reported

Ex F/X

% B/(W)

2020

2019

Company sales
Franchise fees and income
Revenues from transactions with franchisees

and unconsolidated affiliates

Other revenues

Total revenues

$ 5,633
125

$ 5,839
136

$ 5,495
132

61
2

$

64
1

$

61
—

$

$ 5,821

$ 6,040

$ 5,688

(4)
(8)

(4)
52

(4)

Restaurant profit
Restaurant margin %
G&A expenses
Franchise expenses
Expenses for transactions with franchisees and

unconsolidated affiliates

Closure and impairment expenses, net
Other income, net
Operating Profit

$

$
$

$
$
$
$

$

984

$ 1,042

920
16.3% 17.8% 17.9% (1.5) ppts.
200
62

193
69

207
69

3
10

(12)

$
$

$
$

$
61
25
$
(42) $
$
801

$
64
9
$
(56) $
$
949

60
10
(50)
895

4
NM
(25)
(16)

(4)
(8)

(4)
49

(4)

(12)
(1.5) ppts.

4
10

4
NM
(24)
(16)

6
2

6
NM

6

6

11
7

10
NM

11

11

(0.1) ppts.

(7)
—

(5)
15
10
6

(0.1) ppts.
(12)
(5)

(8)
13
15
11

YUM CHINA – 2020 Form 10-K 71

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System Sales (Decline) Growth
System Sales (Decline) Growth, excluding F/X
Same-store Sales (Decline) Growth

2020

2019

(5)%
(5)%
(8)%

6%
11%
4%

% Increase (Decrease)

Unit Count

2020(a)

2019

2018

2020

2019

Company-owned
Unconsolidated affiliates
Franchisees

5,872
677
617

7,166

5,083
896
555

6,534

4,597
811
502

5,910

16
(24)
11

10

11
10
11

11

2019

New Builds

Acquired(a)

Closures

Refranchised

2020

Company-owned
Unconsolidated affiliates
Franchisees

Total

5,083
896
555

6,534

651
119
70

840

318
(316)
(2)

—

(171)
(22)
(15)

(208)

(9)
—
9

—

5,872
677
617

7,166

Company-owned
Unconsolidated affiliates
Franchisees

Total

2018

New Builds

Closures Refranchised

2019

4,597
811
502

5,910

586
106
50

742

(83)
(21)
(14)

(118)

(17)
—
17

—

5,083
896
555

6,534

(a) As a result of the acquisition of Suzhou KFC as disclosed in Note 1, the units of Suzhou KFC were transferred

from unconsolidated affiliates to Company-owned.

Company Sales and Restaurant Profit

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

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Income (Expense)

Company sales
Cost of sales
Cost of labor
Occupancy and other operating expenses

Restaurant profit

Income (Expense)

Company sales
Cost of sales
Cost of labor
Occupancy and other operating expenses

Restaurant profit

2020 vs. 2019

2019

Store Portfolio
Actions

Other

F/X

5,839 $
(1,835)
(1,245)
(1,717)

1,042 $

265 $
(94)
(87)
(109)

(25) $

(487) $
133
90
166

(98) $

16 $
(5)
(5)
(5)

1 $

2019 vs. 2018

2018

Store Portfolio
Actions

Other

F/X

5,495 $
(1,679)
(1,167)
(1,665)

984 $

414 $
(136)
(89)
(125)

64 $

194 $
(102)
(45)
(5)

42 $

(264) $
82
56
78

(48) $

$

$

$

$

2020

5,633
(1,801)
(1,247)
(1,665)

920

2019

5,839
(1,835)
(1,245)
(1,717)

1,042

In 2020, the decrease in Company sales, excluding the impact of F/X, was primarily driven by the same-store sales
decline and temporary store closures due to the impact of the COVID-19 pandemic, partially offset by net unit growth

72 YUM CHINA – 2020 Form 10-K

PART II

including the impact from the acquisition of Suzhou KFC. The decrease in Restaurant profit, excluding the impact of F/
X, was primarily driven by the decrease in Company sales, increased rider cost associated with the rise in delivery vol-
ume, higher promotion costs and wage inflation of 3%, partially offset by labor efficiency, utility savings, one-time
reductions in social security contributions and lease concessions.

In 2019, the increase in Company sales and Restaurant profit, excluding the impact of F/X, was mainly driven by same-
store sales growth, net unit growth, labor efficiency and a decrease in utilities expenses and other restaurant operating
costs, partially offset by commodity inflation of 4%, wage inflation of 5% and higher promotion cost.

Franchise Fees and Income

In 2020, the decrease in Franchise fees and income, excluding the impact of F/X, was primarily driven by the impact
from the acquisition of Suzhou KFC and same-store sales decline of restaurants operated by unconsolidated affiliates and
franchisees due to the impact of the COVID-19 pandemic, partially offset by the net unit growth of restaurants operated
by unconsolidated affiliates and franchisees.

In 2019, the increase in Franchise fees and income, excluding the impact of F/X, was primarily driven by same-store
sales growth and net unit growth for the unconsolidated affiliates and franchisees, partially offset by the impact from the
acquisition of Wuxi KFC in 2018.

G&A Expenses

In 2020, the decrease in G&A expenses, excluding the impact of F/X, was primarily driven by realignment of cost struc-
ture, one-time reductions in social security contributions, higher government incentives received and a decrease in
performance-based compensation, partially offset by merit increases.

In 2019, the increase in G&A expenses, excluding the impact of F/X, was primarily driven by higher compensation costs
mainly due to merit increases and higher performance-based compensation associated with strong operating results of KFC.

Operating Profit

In 2020, the decrease in Operating profit, excluding the impact of F/X, was primarily driven by the decrease in Restau-
rant profit and higher Closure and store impairment expenses.

In 2019, 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.

Pizza Hut

During 2020, we continued to focus on strengthening the fundamentals, including investments in products, strengthen-
ing our digital capabilities, developing delivery and other channels and enhancing asset portfolio to drive growth. Pizza
Hut’s loyalty program members exceeded 85 million at year-end 2020 and contributed approximately 52% of system
sales at Pizza Hut in 2020. Delivery sales accounted for approximately 36% of Company sales at Pizza Hut in 2020 with
store and city coverage of 92% and 99%, respectively, at the end of 2020.

YUM CHINA – 2020 Form 10-K 73

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PART II

2020

2019

2018

Reported

Ex F/X

Reported

Ex F/X

% B/(W)

2020

2019

Company sales
Franchise fees and income
Revenues from transactions with franchisees

and unconsolidated affiliates

Other revenues

Total revenues

$ 1,721
5

$ 2,045
4

$ 2,106
3

4
— $

$

4
1

$

2
—

$ 1,730

$ 2,054

$ 2,111

(16)
18

4
(30)

(16)

Restaurant profit
Restaurant margin %
G&A expenses
Franchise expenses
Expenses for transactions with franchisees and

unconsolidated affiliates

Closure and impairment expenses, net
Other income, net
Operating Profit

$

$
$

$
$
$
$

System Sales Decline
System Sales (Decline) Growth, excluding F/X
Same-Store Sales (Decline) Growth

$

181
10.5% 11.1% 10.3% (0.6) ppts.

227

215

(20)

$

96
3

$
$

101
2

$
$

102
2

$
4
25
$
— $
$
62

$
4
14
$
— $
$

114

2
19
(2)
97

5
(14)

(12)
(83)
NM
(45)

(16)
17

3
(30)

(16)

(20)
(0.6) ppts.

5
(14)

(12)
(81)
NM
(45)

(3)
71

NM
NM

(3)

5

0.8 ppts.

1
(32)

NM
27
NM
17

2
79

NM
NM

2

10
0.8 ppts.

(4)
(38)

NM
24
NM
22

2020

2019

(15)%
(15)%
(14)%

(2)%
3%
1%

% Increase

Unit Count

Company-owned
Franchisees

Company-owned
Franchisees

Total

K
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1
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F

Company-owned
Franchisees

Total

2020

2019

2018

2020

2019

2,230
125

2,355

2,178
103

2,281

2,188
52

2,240

2
21

3

—
98

2

2019

New Builds

Closures Refranchised

2020

2,178
103

2,281

141
11

152

(77)
(1)

(78)

(12)
12

—

2,230
125

2,355

2018

New Builds

Closures Refranchised

2019

2,188
52

2,240

117
15

132

(90)
(1)

(91)

(37)
37

—

2,178
103

2,281

Company Sales and Restaurant Profit

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

Income (Expense)

Company sales
Cost of sales
Cost of labor
Occupancy and other operating expenses

Restaurant profit

2019

Store Portfolio
Actions

Other

F/X

2020

2020 vs. 2019

$

$

2,045 $
(633)
(549)
(636)

227 $

(71) $
22
16
16

(17) $

(256) $
83
63
82

(28) $

3 $
(1)
(1)
(2)

(1) $

1,721
(529)
(471)
(540)

181

74 YUM CHINA – 2020 Form 10-K

PART II

Income (Expense)

Company sales
Cost of sales
Cost of labor
Occupancy and other operating expenses

Restaurant profit

2018

Store Portfolio
Actions

Other

F/X

2019

2019 vs. 2018

$

$

2,106 $
(637)
(538)
(716)

215 $

9 $
(4)
(1)
5

9 $

22 $
(21)
(35)
46

12 $

(92) $
29
25
29

(9) $

2,045
(633)
(549)
(636)

227

In 2020, the decrease in Company sales and Restaurant profit, excluding the impact of F/X, was primarily driven by
same-store sales decline and temporary store closures due to the impact of the COVID-19 pandemic, increased rider cost
associated with the rise in delivery volume, and commodity and wage inflation of 3% each, partially offset by labor effi-
ciency, lower promotion costs, one-time reductions in social security contributions, and savings in utilities and other res-
taurant operating costs including lease concessions.

In 2019, the increase in Company sales and Restaurant profit, excluding the impact of F/X, was primarily driven by
same-store sales growth, store portfolio actions, labor efficiency, commodity deflation of 2%, and savings in utilities and
other restaurant operating costs, partially offset by higher promotion costs and wage inflation of 5%.

G&A Expenses

In 2020, the decrease in G&A expenses, excluding the impact of F/X, was primarily driven by the realignment of cost
structure and one-time reductions in social security contributions.

In 2019, the increase in G&A expenses, excluding the impact of F/X, was primarily driven by higher compensation costs
due to higher performance-based compensation and merit increases, and lower government incentives received, partially
offset by lower shared cost allocation associated with store development activities.

Operating Profit

In 2020, the decrease in Operating profit, excluding the impact of F/X, was primarily driven by the decrease in Restau-
rant profit and higher Closure and store impairment expenses, partially offset by lower G&A expenses.

In 2019, the increase in Operating profit, excluding the impact of F/X, was primarily driven by the increase in Restaurant
profit and lower Closure and store impairment expenses, partially offset by higher G&A expenses.

All Other Segments

All Other Segments reflects the results of Little Sheep, Huang Ji Huang, COFFii & JOY, East Dawning, Taco Bell, Lav-
azza, Daojia and our e-commerce business.

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YUM CHINA – 2020 Form 10-K 75

PART II

Company sales
Franchise fees and income
Revenues from transactions with franchisees

and unconsolidated affiliates

Other revenues

Total revenues

Restaurant loss
Restaurant margin %
G&A expenses
Expenses for transactions with franchisees and

unconsolidated affiliates

Other operating costs and expenses
Closure and impairment expenses, net
Other (income) loss, net
Operating Loss

$

$

$

$

$
$
$
$
$

Total Revenues

2020

2019

2018

Reported

Ex F/X

Reported

Ex F/X

% B/(W)

2020

2019

$

42
18

49
96

$

41
8

28
81

32
6

26
51

205

$

158

$

115

—
NM

76
18

29

$

(3)

$ —
(6.3)% (7.3)% (2.8)% 1.0 ppts.

13

(3)

39

$

34

$

33

37
84
5
2
(7)

23
$
69
$
$
2
$ — $
$
(14)
$

21
$
$
43
$ —
(2)
(12)

(15)

(61)
(22)
NM
NM
49

(1)
NM

74
16

28

11
1.0 ppts.
(15)

(59)
(21)
NM
NM
45

27
22

8
59

37

NM
(4.5)
(1)

(12)
(62)
NM
NM
(13)

32
27

12
63

41

ppts.

NM
(4.5) ppts.

(4)

(15)
(66)
NM
NM
(17)

In 2020, the increase in Total revenues, excluding the impact of F/X, was primarily driven by the consolidation of Huang
Ji Huang and the increase in demand of online orders of certain product categories (mainly fresh grocery products) from
our e-commerce business, partially offset by the same-store sales decline due to the impact of the COVID-19 pandemic.

In 2019, the increase in Total revenues, excluding the impact of F/X, was primarily driven by inter-segment revenue
transactions generated from our e-commerce business and Daojia, and the launch of the COFFii & JOY concept.

G&A Expenses

K
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In 2020, the increase in G&A expenses, excluding the impact of F/X, was primarily driven by the consolidation of Huang
Ji Huang, partially offset by a decrease in G&A expenses incurred by Little Sheep.

In 2019, the increase in G&A expenses, excluding the impact of F/X, was mainly due to an increase in G&A expenses
incurred by Little Sheep, partially offset by a decrease in G&A expenses incurred by Daojia.

Operating Loss

In 2020, the decrease in Operating loss, excluding the impact of F/X, was primarily driven by the consolidation of oper-
ating profit generated by Huang Ji Huang, partially offset by higher Closure and store impairment expenses.

In 2019, the increase in Operating loss, excluding the impact of F/X, was primarily due to the operating loss incurred
by Little Sheep and COFFii & JOY, partially offset by the improvement in operating results of our other operating
segments.

76 YUM CHINA – 2020 Form 10-K

Corporate & Unallocated

Revenues from transactions with franchisees

and unconsolidated affiliates(a)

Other revenues
Expenses for transactions with franchisees and

unconsolidated affiliates(a)

Other operating costs and expenses
Corporate G&A expenses
Unallocated closures and impairments
Other unallocated income
Interest income, net
Investment gain (loss)
Income tax provision (See Note 16)
Effective tax rate (See Note 16)

PART II

2020

2019

2018

Reported

Ex F/X

Reported

Ex F/X

% B/(W)

2020

2019

533
32

558
4

514
3

(5)
NM

(5)
NM

8
56

13
61

531
30
144
—
245
43
104
(295)
26.6% 25.9% 22.6% (0.7) ppts

512
2
128
12
98
36
(27)
(214)

554
4
145
11
4
39
63
(260)

4
NM
—
100
NM
11
65
(13)

4
NM
1
100
NM
11
65
(13)
(0.7) ppts

(8)
(68)
(13)
1
(95)
7
NM
(21)
(3.3) ppts

(13)
(75)
(17)
1
(95)
12
NM
(26)
(3.3) ppts

(a)

Primarily includes revenues and associated expenses of transactions with franchisees and unconsolidated affili-
ates derived from the Company’s central procurement model whereby food and paper products are centrally pur-
chased and then mainly sold to KFC and Pizza Hut franchisees and unconsolidated affiliates. Amounts have not
been allocated to any segment for purposes of making operating decisions or assessing financial performance as
the transactions are corporate revenues and expenses in nature.

Revenues from Transactions with Franchisees and Unconsolidated Affiliates

In 2020, the decrease in Revenues from transactions with franchisees and unconsolidated affiliates, excluding the impact
of F/X, was mainly driven by the impact from the acquisition of Suzhou KFC.

In 2019, the increase in Revenues from transactions with franchisees and unconsolidated affiliates, excluding the impact
of F/X, was mainly driven by system sales growth of franchisees and unconsolidated affiliates and an increase in the sell-
ing prices of food and paper products due to commodity inflation, partially offset by the impact from the acquisition of
Wuxi KFC.

Other Revenues/Operating Costs and Expenses

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In 2020, the increase in Other revenues/operating costs and expenses was mainly driven by revenues and costs associated
with services provided to KFC and Pizza Hut segments by our centralized delivery team.

In 2019 and 2018, the Other revenues/operating costs and expenses primarily represent revenues and costs associated
with logistics services provided to third parties.

Corporate G&A Expenses

In 2020, the decrease in Corporate G&A expenses, excluding the impact of F/X, was primarily driven by lower
performance-based compensation, the realignment of cost structure and one-time reductions in social security contribu-
tions, partially offset by merit increases and lower government incentives received.

In 2019, the increase in Corporate G&A expenses, excluding the impact of F/X, was mainly driven by higher compensa-
tion costs and lower government incentives received.

YUM CHINA – 2020 Form 10-K 77

PART II

Unallocated Closures and Impairments

In 2019 and 2018, Unallocated closures and impairments represent the impairment charges of $11 million and
$12 million on goodwill and intangible assets acquired from Daojia, respectively. See Note 5 for additional information.

Other Unallocated Income

In 2020, Other unallocated income primarily includes a gain of $239 million recognized from the re-measurement of our
previously held equity interest in Suzhou KFC at fair value upon acquisition. See Note 5 for additional information.

In 2019, Other unallocated income primarily includes refranchising gain.

In 2018, Other unallocated income primarily includes a gain of $98 million recognized from the re-measurement of our
previously held equity interest in Wuxi KFC at fair value upon acquisition. See Note 5 for additional information.

Interest Income, Net

The increases in interest income, net for both 2020 and 2019 were driven by returns on larger balances of short-term
investments and cash equivalents which mainly include time deposits.

Investment Gain (Loss)

The investment gain or loss relates to our investment in equity securities of Meituan Dianping (“Meituan”). See Note 5
for additional information.

Income Tax Provision

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F

Our income tax provision includes tax on our earnings at the Chinese statutory tax rate of 25%, withholding tax on
planned or actual repatriation of earnings outside of China, and U.S. corporate income tax, if any. Our effective tax rate
was 26.6%, 25.9% and 22.6% in 2020, 2019 and 2018, respectively. The higher effective tax rate in 2020 compared with
that in 2019 was due to the U.S. tax related to gain recognized on our investment in equity securities of Meituan during
the year of 2020 and prior year, partially offset by additional tax expense of $8 million on transition tax pursuant to the
Tax Act recorded in the first quarter of 2019. The higher effective tax rate in 2019 compared with that in 2018 was due to
the tax benefit of $36 million recorded in 2018.

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

Impact of COVID-19 Pandemic

Starting in late January 2020, the COVID-19 pandemic has significantly impacted the Company’s operations and finan-
cial results. While operating results improved sequentially in the last three quarters of 2020, the pace of recovery has been
uneven with recent sales and traffic still below pre-outbreak levels. Our sales continued to be impacted by reduced traffic
at transportation and tourist locations, regional resurgences and the other lingering effects of the COVID-19 pandemic.
We expect these factors to continue to impact our operations in 2021, as clusters of outbreaks, mostly in northern and

78 YUM CHINA – 2020 Form 10-K

PART II

northeastern China, continue to occur, resulting in the implementation of tighter public health measures across China,
including measures restricting travel and large gatherings, and recommendations against dining out.

Management at this time cannot ascertain the extent to which our operations will continue to be impacted by the
COVID-19 pandemic, which depends largely on future developments that are highly uncertain and cannot be accurately
predicted, including resurgences and further spread of COVID-19 and the actions by government authorities to contain
or treat its impact, the economic recovery within China and globally, the impact on consumer behavior and other related
factors. The Company expects that further developments related to the COVID-19 pandemic may continue to have a
material and extended adverse impact on the Company’s results of operations, as well as the Company’s cash flows and
financial condition. For further information on the risks associated with the COVID-19 pandemic, see “Item 1A. Risk
Factors—Risks Related to Our Business and Industry—Health concerns arising from outbreaks of viruses or other ill-
nesses may have a material adverse effect on our business. The COVID-19 pandemic has had, and may continue to have,
adverse effects on our results of operations, cash flows and financial condition.”

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. How-
ever, if the STA prevails in the assessment of additional tax due based on its ruling, the assessed tax, interest and penal-
ties, if any, could have a material adverse impact on our financial position, results of operations and cash flows.

PRC Value-Added Tax

Effective May 1, 2016, a 6% output VAT replaced the 5% business tax (“BT”) previously applied to certain restaurant
sales. Input VAT would be creditable to the aforementioned 6% output VAT. The latest VAT rates imposed on our pur-
chase 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 construc-
tion, transportation and leasing. However, the impact on our operating results is not expected to be significant.

Entities that are VAT general taxpayers are permitted to offset qualified input VAT paid to suppliers against their output
VAT upon receipt of appropriate supplier VAT invoices on an entity-by-entity basis. When the output VAT exceeds the
input VAT, the difference is remitted to tax authorities, usually on a monthly basis; whereas when the input VAT
exceeds the output VAT, the difference is treated as an input VAT credit asset which can be carried forward indefinitely
to offset future net VAT payables. VAT related to purchases and sales which have not been settled at the balance sheet
date is disclosed separately as an asset and liability, respectively, on the Consolidated Balance Sheets. At each balance
sheet date, the Company reviews the outstanding balance of any input VAT credit asset for recoverability, giving con-
sideration to the indefinite life of the input VAT credit assets as well as its forecasted operating results and capital spend-
ing, which inherently includes significant assumptions that are subject to change.

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YUM CHINA – 2020 Form 10-K 79

PART II

As of December 31, 2020, an input VAT credit asset of $270 million and payable of $6 million were recorded in Other
assets and Accounts payable and other current liabilities, respectively, on the Consolidated Balance Sheets. The Com-
pany has not made an allowance for the recoverability of the input VAT credit asset, as the balance is expected to be uti-
lized to offset against VAT payables more than one year from December 31, 2020. Any input VAT credit asset would be
classified as Prepaid expenses and other current assets if the credit expected to be used within one year can be reasonably
determined.

We have been benefiting from the retail tax structure reform since it was implemented on May 1, 2016. However, the
amount of our expected benefit from this VAT regime depends on a number of factors, some of which are outside of our
control. The interpretation and application of the new VAT regime are not settled at some local governmental levels. In
addition, the timetable for enacting the prevailing VAT regulations into national VAT law, including ultimate enacted
VAT rates, is not clear. As a result, for the foreseeable future, the benefit of this significant and complex VAT reform has
the potential to fluctuate from quarter to quarter.

Foreign Currency Exchange Rate

The reporting currency of the Company is the US$. Most of the revenues, costs, assets and liabilities of the Company are
denominated in RMB. Any significant change in the exchange rate between US$ and RMB may materially affect the Com-
pany’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 a further discussion.

Consolidated Cash Flows

Net cash provided by operating activities was $1,114 million in 2020 as compared to $1,185 million in 2019. The
decrease was primarily driven by the decrease in net income, excluding a non-cash gain of $239 million recognized from
the re-measurement of our previously held equity interest in Suzhou KFC at fair value upon acquisition, along with
working capital changes.

In 2019, net cash provided by operating activities was $1,185 million as compared to $1,333 million in 2018. The
decrease was primarily driven by timing of payments for inventory along with other working capital changes.

K
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Net cash used in investing activities was $3,109 million in 2020 as compared to $910 million in 2019. The increase is
mainly due to the net impact on cash flow resulting from purchases and maturities of short-term investments and long-
term time deposits, and cash consideration paid for the acquisition of Huang Ji Huang and Suzhou KFC, partially offset
by cash proceeds from the partial disposal of our investment in equity securities of Meituan.

In 2019, net cash used in investing activities was $910 million as compared to $552 million in 2018. The increase was pri-
marily driven by the net impact on cash flow resulting from purchases and maturities of short-term investments and long-
term time deposits, partially offset by lapping the impact from the acquisition of Wuxi KFC and investment in Meituan’s
ordinary shares in 2018.

Net cash provided by financing activities was $2,058 million in 2020 as compared to net cash used in financing activities
of $480 million in 2019. The change was primarily attributable to the proceeds of $2.2 billion (net of issuance costs paid)
raised from issuance of common stock in connection with our global offering and secondary listing on the Main Board of
the HKEX, a decrease in the number of shares repurchased due to the suspension of our share repurchase and a decrease in
the amount of dividends paid due to our temporary suspension of dividends in the second and third quarter of 2020.

80 YUM CHINA – 2020 Form 10-K

PART II

In 2019, Net cash used in financing activities was $480 million as compared to $518 million in 2018. The decrease was
primarily driven by a decrease in the number of shares repurchased, partially offset by an increase in cash dividends paid
to stockholders.

Liquidity and Capital Resources

Historically we have funded our operations through cash generated from the operation of our Company-owned stores
and from our franchise operations and dividend payments from our unconsolidated affiliates. Our 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, step up investments in digitalization, auto-
mation and logistics infrastructure, provide returns to our stockholders, as well as explore opportunities for acquisitions
or investments that build and support our ecosystem. We believe that our future cash from operations, together with our
funds on hand and access to capital markets, will provide adequate resources to fund these uses of cash and that our exist-
ing cash, net cash from operations and credit facilities will be sufficient to fund our operations and anticipated capital
expenditures for the next 12 months.

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

• our financial performance;

• our credit ratings;

• the liquidity of the overall 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.

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Generally, our income is subject to the Chinese statutory tax rate of 25%. However, to the extent our cash flows from opera-
tions 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.

Dividends and Share Repurchases

Our Board of Directors has authorized an aggregate of $1.4 billion for our share repurchase program. Yum China may
repurchase shares under this program from time to time in open market or privately negotiated transactions, including
block trades, accelerated share repurchase transactions and the use of Rule 10b5-1 trading plans. During the years ended
December 31, 2020, 2019 and 2018, the Company repurchased $7 million or 0.2 million shares, $261 million or
6.2 million shares and $312 million or 9.0 million shares of common stock, respectively, under the repurchase program.

YUM CHINA – 2020 Form 10-K 81

PART II

The Company paid a cash dividend of $0.10 per share for each of the first three quarters of 2018 and $0.12 per share for
the fourth quarter of 2018, each quarter of 2019, and the first and fourth quarter of 2020. Total cash dividends of
$95 million, $181 million and $161 million were paid to shareholders in 2020, 2019 and 2018, respectively.

Due to the unprecedented effects of the COVID-19 pandemic, starting in the second quarter of 2020, the Company sus-
pended its share repurchases and, in the second and third quarters of 2020, dividend payments.

On February 3, 2021, the board of directors declared a cash dividend of $0.12 per share, payable on March 25, 2021, to
stockholders of record as of the close of business on March 3, 2021.

Our ability to declare and pay any dividends on our stock may be restricted by earnings available for distribution under
applicable Chinese laws. The laws, rules and regulations applicable to our Chinese subsidiaries permit payments of divi-
dends only out of their accumulated profits, if any, determined in accordance with applicable Chinese accounting stan-
dards and regulations. Under Chinese law, an enterprise incorporated in China is required to set aside at least 10% of its
after-tax profits each year, after making up previous years’ accumulated losses, if any, to fund certain statutory reserve
funds, until the aggregate amount of such a fund reaches 50% of its registered capital. As a result, our Chinese subsidiar-
ies 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 December 31, 2020, the Company had credit facilities of RMB 3,305 million (approximately $506 million), com-
prised of onshore credit facilities of RMB2,000 million (approximately $306 million) in the aggregate and offshore
credit facilities of $200 million in the aggregate.

The credit facilities had remaining terms ranging from less than one year to two years as of December 31, 2020. Each
credit facility bears interest based on the prevailing rate stipulated by the People’s Bank of China, Loan Prime Rate
(“LPR”) published by the National Interbank Funding Centre of the PRC or London Interbank Offered Rate (“LIBOR”)
administered by the ICE Benchmark Administration. Each credit facility contains a cross-default provision whereby our
failure to make any payment on a principal amount from any credit facility will constitute a default on other credit facili-
ties. Some of the credit facilities contain covenants limiting, among other things, certain additional indebtedness and
liens, and certain other transactions specified in the respective agreement. Some of the onshore credit facilities contain
sub-limits for overdrafts, non-financial bonding, standby letters of credit and guarantees. As of December 31, 2020, we
had outstanding bank guarantees of RMB 114 million (approximately $18 million) mainly to secure our lease payments
to landlords for certain Company-owned restaurants. The credit facilities were therefore reduced by the same amount,
while there were no borrowings outstanding as of December 31, 2020.

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Contractual Obligations

Our significant contractual and other long-term obligations and payments as of December 31, 2020 included:

Finance Leases(a)
Operating Leases(a)
Purchase Obligations(b)
Transition Tax(c)

Total Contractual Obligations

$

$

Less than
1 Year

1-3
Years

3-5
Years

More than
5 Years

Total

41 $

2,892
181
47

4 $

568
35
7

8 $

884
56
14

8 $

622
36
26

3,161 $

614 $

962 $

692 $

21
818
54
—

893

(a)

These obligations, which are shown on a nominal basis, relate primarily to more than 8,100 Company-owned res-
taurants. See Note 11 for additional information.

82 YUM CHINA – 2020 Form 10-K

PART II

(b)

(c)

Purchase obligations relate primarily to 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.

This amount represents transition tax payable on the deemed repatriation of accumulated undistributed foreign
earnings after utilizing existing qualified foreign tax credits, which is to be paid over a maximum of eight years
beginning in 2018.

We have not included in the contractual obligations table approximately $26 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.

Off-Balance Sheet Arrangements

See the Guarantees for Franchisees and Unconsolidated Affiliates sections of Note 18 for discussion of our off-balance
sheet arrangements.

New Accounting Pronouncements

Recently Adopted Accounting Pronouncements

See Note 2 for details of recently adopted accounting pronouncements.

New Accounting Pronouncements Not Yet Adopted

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In December 2019, the FASB issued ASU 2019-12, Income Tax (Topic 740), Simplifying the Accounting for Income
Taxes (“ASU 2019-12”), which simplifies the accounting for income taxes by eliminating certain exceptions to the guid-
ance in Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in
an interim period and the recognition of deferred tax liabilities for outside basis differences. The guidance also simplifies
the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions
that result in a step-up in the tax basis of goodwill. We will adopt the standard in the first quarter of 2021, and do not
expect the adoption of this standard to have a material impact on our financial statements.

In January 2020, the FASB issued ASU 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity
Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) (“ASU 2020-01”), which clarifies the
interaction between equity securities under Topic 321 and investments accounted for under the equity method in Topic
323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815. We will
adopt the standard in the first quarter of 2021, and do not expect the adoption of this standard to have a material impact on
our financial statements.

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PART II

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20)
and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”), which elimi-
nates two of the three models in ASC 470-20 that require separate accounting for embedded conversion features and
eliminates some of the conditions for equity classification in ASC 815-40 for contracts in an entity’s own equity. The
guidance amends ASC 260 on the computation of earnings per share for convertible instruments and contracts on an
entity’s own equity. ASU 2020-06 is effective for the Company from January 1, 2022, with early adoption permitted. We
are currently evaluating the impact the adoption of this standard will have on our financial statements.

In October 2020, the FASB issued ASU 2020-08, Codification Improvements to Subtopic 310-20, Receivables—
Nonrefundable Fees and Other Costs (“ASU 2020-08”), which clarifies that an entity should reevaluate for each report-
ing period whether a callable debt security is within the scope of certain guidance in ASC 310-20 that was issued in ASU
2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased
Callable Debt Securities. We will adopt the standard in the first quarter of 2021, and do not expect the adoption of this
standard to have a material impact on our financial statements.

Critical Accounting Policies and Estimates

Our reported results are impacted by the application of certain accounting policies that require us to make subjective or
complex judgments. 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.

Loyalty Programs

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Each of the Company’s KFC and Pizza Hut reportable segments operates a loyalty program that allows registered mem-
bers 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 sit-
uations 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 remit-
ting 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.

84 YUM CHINA – 2020 Form 10-K

PART II

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 equip-
ment (“PP&E”)) semi-annually for impairment, or whenever events or changes in circumstances indicate that the carry-
ing 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 con-
sider 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 gener-
ating after-tax cashflows that would be used by a franchisee in the determination of a purchase price for the restaurant,
and market rental assumption for estimating the price market participants would pay to sub-lease the operating lease
right-of-use assets. 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. The dis-
count rate incorporates rates of returns for historical refranchising market transactions and is commensurate with the
risks and uncertainty inherent in the forecasted cash flows.

We evaluate indefinite-lived intangible assets for impairment on an annual basis or more often if an event occurs or cir-
cumstances 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 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 con-
ditions. Our indefinite-lived intangible assets had a book value of $138 million and $52 million as of December 31, 2020
and 2019, respectively, representing two material indefinite-lived intangible assets, which are our Little Sheep trademark
and the newly-acquired Huang Ji Huang trademark. Upon acquisition of Huang Ji Huang in April 2020, we recognized
and measured its trademark at fair value.

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PART II

In the years ended December 31, 2020, 2019 and 2018, 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 macro-
economic conditions, industry and market conditions and financial performance. Based on our qualitative assessment, it
was more likely than not that the carrying value of the Little Sheep and Huang Ji Huang trademarks were not impaired
and therefore the quantitative assessment was not required.

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 a undiscounted basis is written down to its estimated fair value, which
is our estimate of the price a willing buyer would pay for the intangible asset based on discounted expected future
after-tax cash flows. 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.

In 2019 and 2018, we recorded impairment charges of $2 million and $12 million on finite-lived intangible assets of the
Daojia business, respectively, primarily attributable to the platforms of the Daojia business. The fair value of platforms
was determined using a relief-from-royalty valuation approach that was based on unobservable inputs, including esti-
mated future sales, royalty rates as well as the selection of an appropriate discount rate based on weighted-average cost of
capital and company-specific risk premium, which are considered Level 3 inputs.

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 impair-
ment, 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 quanti-
tative 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 busi-
ness operation of the reporting unit.

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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 dis-
counted 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 esti-
mates 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 $832 million as of December 31, 2020 was related to the KFC, Pizza Hut and recently acquired Huang Ji
Huang reporting units. We performed a qualitative impairment assessment for each of our individual reporting units of
KFC, Pizza Hut and Huang Ji Huang in 2020. 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 of KFC, Pizza Hut and Huang Ji Huang exceeds their carrying amount and there-
fore no quantitative assessment was required. No impairment charge on goodwill related to KFC, Pizza Hut and Huang
Ji Huang was recorded in 2020, 2019 and 2018.

86 YUM CHINA – 2020 Form 10-K

PART II

As a result of our annual goodwill impairment review as of the beginning of our fourth quarter of 2019, goodwill related
to the Daojia reporting unit was fully impaired, resulting in an impairment charge of $9 million. The fair value of the
Daojia reporting unit was based on the estimated price a willing buyer would pay, and was determined using an income
approach with future cash flow estimates supported by estimated future sales, margin, as well as the selection of an
appropriate discount rate based on weighted-average cost of capital and company-specific risk premium.

If we record goodwill upon acquisition of a restaurant(s) from a franchisee and such restaurant(s) is then sold within two
years of acquisition, the goodwill associated with the acquired restaurant(s) is written off in its entirety. If the restaurant is
refranchised two years or more subsequent to its acquisition, we include goodwill in the carrying amount of the restau-
rants disposed of based on the relative fair values of the portion of the reporting unit disposed of in the refranchising and
the portion of the reporting unit that will be retained.

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 stock options and SARs at the grant date using the Black-Scholes option-pricing model
(“the BS model”). It should be noted that the option-pricing model requires 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. PSUs have performance and/or market conditions that are based on the closing price of Yum Chi-
na’s stock, shareholder return performance relative to peer group in the MSCI International China Index, or relative
shareholder return against the MSCI China Index measured over the performance period. The fair values of PSUs have
been determined based on the outcome of a Monte-Carlo Simulation model (the “MCS model”) and the closing price of
the Company’s stock on the date of the grant.

Under the BS and MCS models, we made a number of assumptions regarding the fair value of the share-based awards,
including:

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

YUM CHINA – 2020 Form 10-K 87

PART II

PRC Value-Added Tax

As of December 31, 2020, an input VAT credit asset of $270 million and payable of $6 million were recorded in Other
assets and Accounts payable and other current liabilities, respectively, on the Consolidated Balance Sheets. At each bal-
ance sheet date, the Company reviews the outstanding balance of any VAT credit asset for recoverability, giving consid-
eration to the indefinite life of the input VAT credit assets as well as its forecasted operating results and capital spending,
which inherently include significant assumptions subject to change. Key assumptions include the following:

• Estimated growth rate for revenues;

• Estimated restaurant expenses and other costs;

• Estimated new-unit development and asset upgrades.

We also consider qualitative factors including the fact that such assets can be carried forward indefinitely to offset future
VAT payables, our ability to manage the accumulation of the input VAT credits and potential changes in VAT rates. We
did not make an allowance for the recoverability of the input VAT credit asset as of December 31, 2020 and 2019.
Changes in any of the assumptions could materially impact the amount of VAT asset and its recoverability and, as a
result, our operating income and net income.

Income Taxes

The Tax Act

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On December 22, 2017, the Tax Act was signed into law effective for tax years beginning after December 31, 2017. The
Tax Act requires complex computations with significant estimates to be performed, significant judgments to be made in
interpretation of the provisions, and the preparation and analysis of information not previously relevant or regularly pro-
duced. The U.S. Treasury Department, the IRS, the SEC and other standard-setting bodies could interpret or issue guid-
ance on how provisions of the Tax Act will be applied or otherwise administered that is different from our current
interpretation. We completed our analysis of the Tax Act in the fourth quarter of 2018 according to guidance released by
the U.S. Treasury Department and the IRS as of December 2018 and made an adjustment of $36 million to reduce the
provisional amount of the transition tax recorded in 2017 accordingly. The U.S. Treasury Department and the IRS
released the final transition tax regulations in the first quarter of 2019. We completed the evaluation of the impact on our
transition tax computation based on the final regulations released in the first quarter of 2019 and recorded an additional
income tax expense of $8 million for the transition tax accordingly.

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 real-
ized upon settlement. At December 31, 2020 and 2019, we had $21 million and $19 million, respectively, of unrecog-
nized tax benefits related to the uncertainty with regard to the deductibility of certain business expenses incurred. We
evaluate unrecognized tax benefits, including interest thereon, on a quarterly basis to ensure that they have been appro-
priately adjusted for events, including audit settlements, which may impact our ultimate payment for such exposures.

88 YUM CHINA – 2020 Form 10-K

PART II

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 addi-
tional 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.

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 tem-
porary difference for which we have not provided foreign withholding taxes is approximately $2 billion at December 31,
2020. The foreign withholding tax rate on this amount is 5% or 10% depending on the manner of repatriation and the
applicable tax treaties or tax arrangements.

See Note 16 of the Consolidated Financial Statements for a further discussion of our income taxes.

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PART II

ITEM 7A. Quantitative and Qualitative 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 earn-
ings, cash flows and net investments in foreign operations, virtually all of which are denominated in RMB. While sub-
stantially all of our supply purchases are denominated in RMB, from time to time, we enter into agreements at
predetermined exchange rates with third parties to purchase certain amount of goods and services sourced overseas and
make payments in local currencies when practical, to minimize the related foreign currency exposure with immaterial
impact on our financial statements.

As substantially all of the Company’s assets are located in China, the Company is exposed to movements in the RMB
foreign currency exchange rate. For the year ended December 31, 2020, the Company’s operating profit would have
decreased approximately $93 million if 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

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In September 2018, we invested $74 million in 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. The equity investment is
recorded at fair value, which is measured on a recurring basis and is subject to market price volatility. See Note 5 of the
Consolidated Financial Statements for a further discussion on our investment in Meituan.

90 YUM CHINA – 2020 Form 10-K

PART II

ITEM 8. Financial Statements and Supplementary Data.

INDEX TO FINANCIAL INFORMATION

Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

Consolidated Statements of Income for the years ended December 31, 2020, 2019 and 2018

Consolidated Statements of Comprehensive Income for the years ended December 31, 2020,
2019 and 2018

Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018

Consolidated Balance Sheets as of December 31, 2020 and 2019

Consolidated Statements of Equity for the years ended December 31, 2020, 2019 and 2018

Notes to Consolidated Financial Statements

Page
Reference

92

96

97

98

99

100

101

Financial Statement Schedules

No schedules are required because either the required information is not present or not present in amounts sufficient to
require submission of the schedule, or because the information required is included in the above-listed financial state-
ments or notes thereto.

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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, 2020 and 2019, 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, 2020, and the related notes (col-
lectively, the “consolidated financial statements”). We also have audited the Company’s internal control over financial
reporting as of December 31, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each
of the years in the three-year period ended December 31, 2020, 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, 2020, based on criteria established in Internal Control—Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

The Company acquired Suzhou KFC Co., Ltd. (“Suzhou KFC”) and Huang Ji Huang group (“Huang Ji Huang”) during
2020, and management excluded from its assessment of the effectiveness of the Company’s internal control over finan-
cial reporting as of December 31, 2020, the internal control over financial reporting of Suzhou KFC and Huang Ji Huang.
Suzhou KFC’s total assets represented 1.4% of the Company’s total consolidated assets, excluding goodwill and net
intangible assets which were included within the scope of assessment and total revenues of 2.1% of total consolidated
revenues of the Company, as of and for the year ended December 31, 2020. Huang Ji Huang’s total assets represented
1.0% of the Company’s total consolidated assets, excluding goodwill and intangible assets which were included within
the scope of assessment, and total revenues of less than 1.0% of total consolidated revenues of the Company, as of and for
the year ended December 31, 2020. Our audit of internal control over financial reporting of the Company also excluded
an evaluation of the internal control over financial reporting of Suzhou KFC and Huang Ji Huang.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for
leases in 2019 due to the adoption of Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) (“ASC
842”), as amended.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective inter-
nal 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 Com-
pany in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.

92 YUM CHINA – 2020 Form 10-K

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We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and per-
form 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 main-
tained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material mis-
statement 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 finan-
cial 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 detec-
tion of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.

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 chal-
lenging, 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, 7 and 11 to the consolidated financial statements, property, plant and equipment, net and operat-
ing lease right-of-use assets were US$1,765 million and US$2,164 million, respectively, as of December 31, 2020,
which included the long-lived assets of the Company’s restaurants. For restaurant assets with indicators that the carrying

YUM CHINA – 2020 Form 10-K 93

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PART II

value may not be recoverable, the Company evaluates recoverability of these assets by comparing the forecasted undis-
counted cash flows of the restaurant’s operations 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 res-
taurant’s operations 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 required 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 mar-
ket rentals. To evaluate the sales growth rates, we compared the sales growth rates of a sample of restaurants to the his-
torical sales growth rates and the Company’s operation plans for the respective restaurants. We performed sensitivity
analyses over the sales growth rates for a sample of restaurants to assess their impact on the restaurants’ forecasted undis-
counted 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.

Evaluation of uncertain tax position

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As discussed in Notes 2 and 16 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”) 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. Specifically, 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:

• Reading the correspondence received by the Company from the tax authorities in connection with the transfer pricing

audit by the STA, as well as responses and information the Company submitted to the tax authorities;

94 YUM CHINA – 2020 Form 10-K

PART II

• Evaluating the Company’s identification and consideration of information that could significantly affect the recogni-

tion, measurement or disclosure 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 potential impact from the uncertain tax position.

/s/ KPMG Huazhen LLP

We have served as the Company’s auditor since 2016.

Shanghai, China
February 26, 2021

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YUM CHINA – 2020 Form 10-K 95

PART II

Consolidated Statements of Income
Yum China Holdings, Inc.
Years ended December 31, 2020, 2019 and 2018

(in US$ millions, except per share data)

Revenues
Company sales
Franchise fees and income
Revenues from transactions with franchisees and unconsolidated affiliates
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 and unconsolidated affiliates
Other operating costs and expenses
Closures and impairment expenses, net
Other income, net

Total costs and expenses, net

Operating Profit
Interest income, net
Investment gain (loss)

Income Before Income Taxes
Income tax provision

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

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Diluted Earnings Per Common Share

See accompanying Notes to Consolidated Financial Statements.

2020

2019

2018

$

$

$

$

7,396
148
647
72

8,263

2,342
1,730
2,226

6,298
479
65

633
57
55
(285)

7,302

961
43
104

1,108
(295)

813
29

784

390
402

2.01

1.95

$

$

$

$

7,925
148
654
49

8,776

2,479
1,807
2,373

6,659
487
71

645
37
36
(60)

7,875

901
39
63

1,003
(260)

743
30

713

377
388

1.89

1.84

$

$

$

$

7,633
141
603
38

8,415

2,326
1,714
2,394

6,434
456
71

595
29
41
(152)

7,474

941
36
(27)

950
(214)

736
28

708

384
395

1.84

1.79

96 YUM CHINA – 2020 Form 10-K

PART II

Consolidated Statements of Comprehensive Income
Yum China Holdings, Inc.
Years ended December 31, 2020, 2019 and 2018

(in US$ millions)

2020

2019

2018

Net income—including noncontrolling interests
Other comprehensive income (loss), net of tax of nil

Foreign currency gain (loss) arising during the year

Comprehensive income—including noncontrolling interests
Comprehensive income—noncontrolling interests

$

813

$

743

$

230

1,043
43

(32)

711
30

681

$

Comprehensive Income—Yum China Holdings, Inc.

$

1,000

$

See accompanying Notes to Consolidated Financial Statements.

736

(160)

576
22

554

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YUM CHINA – 2020 Form 10-K 97

PART II

Consolidated Statements of Cash Flows
Yum China Holdings, Inc.
Years ended December 31, 2020, 2019 and 2018

(in US$ millions)

Cash Flows—Operating Activities
Net income—including noncontrolling interests
Depreciation and amortization
Non-cash operating lease cost
Closures and impairment expenses
Gain from re-measurement of equity interest upon acquisition
Investment (gain) loss
Equity income from investments in unconsolidated affiliates
Distributions of income received from unconsolidated affiliates
Deferred income taxes
Share-based compensation expense
Changes in accounts receivable
Changes in inventories
Changes in prepaid expenses and other current 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
Purchase of long-term time deposits
Maturities of short-term investments
Contribution to unconsolidated affiliates
Acquisition of business, net of cash acquired
Disposal of (investment in) equity securities
Other, net

Net Cash Used in Investing Activities

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Cash Flows—Financing Activities
Common stock issuance proceeds, net of issuance costs
Repurchase of shares of common stock
Cash dividends paid on common stock
Dividends paid to noncontrolling interests
Other, net

Net Cash Provided by (Used in) Financing Activities

Effect of Exchange Rates on Cash, Cash Equivalents and Restricted Cash

Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash

Cash, Cash Equivalents and Restricted Cash—Beginning of Year

$

2020

2019

2018

$

813
450
368
55
(239)
(104)
(62)
55
111
36
(15)
17
(15)
65
17
(394)
(44)

$

743
428
339
36
—
(63)
(69)
73
16
26
(9)
(77)
(3)
171
(8)
(381)
(37)

736
445
—
41
(98)
27
(65)
63
33
24
(13)
(23)
(22)
254
17
—
(86)

1,114

1,185

1,333

(419)
(4,499)
(57)
2,061
(17)
(288)
54
56

(3,109)

2,195
(8)
(95)
(33)
(1)

2,058

40

103

1,055

(435)
(1,024)
—
534
—
—
—
15

(910)

—
(265)
(181)
(32)
(2)

(480)

(6)

(211)

1,266

(470)
(604)
—
680
—
(91)
(74)
7

(552)

—
(307)
(161)
(36)
(14)

(518)

(56)

207

1,059

1,266

Cash, Cash Equivalents and Restricted Cash—End of Year

$

1,158

$

1,055

$

Supplemental Cash Flow Data
Cash paid for income tax

170

255

208

Non-cash Investing and Financing Activities

Capital expenditures included in accounts payables and other current

liabilities

203

150

137

See accompanying Notes to Consolidated Financial Statements.

98 YUM CHINA – 2020 Form 10-K

Consolidated Balance Sheets
Yum China Holdings, Inc.
December 31, 2020 and 2019

(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
Deferred income taxes
Investments in unconsolidated affiliates
Other assets

Total Assets

LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND EQUITY

Current Liabilities
Accounts payable and other current liabilities
Income taxes payable

Total Current Liabilities

Non-current operating lease liabilities
Non-current finance lease obligations
Other liabilities

Total Liabilities

Redeemable Noncontrolling Interest

Equity
Common stock, $0.01 par value; 1,000 million shares authorized; 440 million shares and 395 million
shares issued at December 31, 2020 and 2019, respectively; 420 million shares and 376 million
shares outstanding at December 31, 2020 and 2019, respectively

Treasury stock
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)

Total Yum China Holdings, Inc. Stockholders’ Equity

Noncontrolling interests

Total Equity

Total Liabilities, Redeemable Noncontrolling Interest and Equity

$

10,875

$

See accompanying Notes to Consolidated Financial Statements.

PART II

2020

2019

$

$

$

$

$

$

1,158
3,105
99
398
176

4,936
1,765
2,164
832
246
98
85
749

10,875

$

$

1,995
72

2,067
1,915
28
394

4,404

12

4

(728)
4,658
2,105
167

6,206
253

6,459

1,046
611
88
380
134

2,259
1,594
1,985
254
94
95
89
580

6,950

1,691
45

1,736
1,803
26
210

3,775

—

4

(721)
2,427
1,416
(49)

3,077
98

3,175

6,950

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YUM CHINA – 2020 Form 10-K 99

PART II

Consolidated Statements of Equity
Yum China Holdings, Inc.
Years ended December 31, 2020, 2019 and 2018

(in US$ millions)

Common Stock

Shares

Amount

Additional
Paid-in
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss)

Treasury Stock

Shares*

Amount

Noncontrolling
Interests

Total
Equity

Redeemable
Noncontrolling
Interest

Yum China Holdings, Inc.

Balance at December 31, 2017

389

$

4

$

2,375

$

Net Income (loss)
Foreign currency translation

adjustment

Comprehensive income (loss)
Dividends declared
Cash dividends declared ($0.42

per common share)
Acquisition of business
Repurchase of shares of common

stock

Exercise and vesting of share-

based awards

Share-based compensation
Revaluation of redeemable
noncontrolling interest

3

—

—
24

3

Balance at December 31, 2018

392

$

4

$

2,402

$

Net Income (loss)
Foreign currency translation

adjustment

Comprehensive income (loss)
Dividends declared
Cash dividends declared ($0.48

per common share)

Repurchase of shares of common

stock

Exercise and vesting of share-

based awards

Share-based compensation
Revaluation of redeemable
noncontrolling interest

Cumulative effect of accounting

change

3

—

—
26

(1)

$

397

708

(161)

$

944

713

(181)

(60)

137

(4)

$

(148)

$

(154)

(9)

(312)

77

29

$ 2,842

$

737

(6)

(160)

(33)

36

577
(33)

(161)
36

(312)

—
24

3

(17)

(13)

$

(460)

$

103

$ 2,976

$

(32)

(6)

(261)

Balance at December 31, 2019

395

$

4

$

2,427

$

1,416

$

(49)

(19)

$

(721)

$

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Net Income
Foreign currency translation

adjustment

Comprehensive income
Dividends declared
Cash dividends declared ($0.24

per common share)
Acquisition of business
Issuance of common stock, net of

issuance costs

Repurchase of shares of common

stock

Exercise and vesting of share-

based awards

Share-based compensation

784

(95)

216

42

3

—

—

2,193

2
36

—

(7)

Balance at December 31, 2020

440

$

4

$

4,658

$

2,105

$

167

(20)

$

(728)

$

253

$ 6,459

$

12

*:

Shares may not add due to rounding.

See accompanying Notes to Consolidated Financial Statements.

100 YUM CHINA – 2020 Form 10-K

32

—

(34)

745

(32)

713
(34)

(181)

(261)

—
26

(1)

(3)

(63)

98

29

14

(32)

144

$ 3,175

$

813

230

1,043
(32)

(95)
144

2,193

(7)

2
36

5

(1)

—

(1)

(3)

1

(2)

—

(2)

1

—

—

—

—

12

PART II

Notes to Consolidated Financial Statements

(Tabular amounts in US$ millions, except for number of shares and per share data)

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 owns, franchises or has ownership in entities that own and operate restaurants (also referred to as “stores”
or “units”) under the KFC, Pizza Hut, Little Sheep, Huang Ji Huang, COFFii & JOY, East Dawning and Taco Bell, and
Lavazza concepts (collectively, the “concepts”). In connection with the separation of the Company in 2016 from its for-
mer parent company, Yum! Brands, Inc. (“YUM”), a 50-year master license agreement was entered into 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,
with automatic renewals for additional consecutive renewal terms of 50 years each, subject only to YCCL being in “good
standing” and unless YCCL gives notice of its intent not to renew, for the exclusive right to use and sublicense the use of
intellectual property owned by YUM and its subsidiaries for the development and operation of the KFC, Pizza Hut and,
subject to achieving certain agreed-upon milestones, Taco Bell brands and their related marks and other intellectual
property rights for restaurant services in the People’s Republic of China (the “PRC” or “China”), excluding Hong Kong,
Macau and Taiwan. In exchange, we pay a license fee to YUM equal to 3% of net system sales from both our Company
and franchise restaurants. We own the intellectual property of Little Sheep, Huang Ji Huang, COFFii & JOY and East
Dawning, and pay no license fee related to these concepts.

In 1987, KFC was the first quick-service restaurant brand to enter China. As of December 31, 2020, there are over 7,000
KFC stores in China. We maintain a 58% and 70% controlling interest in the entities that own and operate the KFCs in
Shanghai and Beijing, respectively. During the first quarter of 2018, the Company completed the acquisition of an addi-
tional 36% equity interest in an unconsolidated affiliate that operates KFC stores in and around Wuxi, China (“Wuxi
KFC”), for cash consideration of approximately $98 million, increasing the Company’s equity interest to 83%, allowing
the Company to consolidate the entity. During the third quarter of 2020, the Company completed the acquisition of an
additional 25% equity interest in an unconsolidated affiliate that operates KFC stores in and around Suzhou, China
(“Suzhou KFC”), for cash consideration of $149 million. Upon closing of the acquisition, the Company increased its
equity interest to 72%, allowing the Company to consolidate Suzhou KFC. These acquisitions were considered immate-
rial. We began consolidating Wuxi KFC and Suzhou KFC upon the completion of acquisition. We have a 47% noncon-
trolling ownership in our unconsolidated affiliate that owns and operates KFCs in and around Hangzhou.

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The first Pizza Hut in China opened in 1990. As of December 31, 2020, there are over 2,300 Pizza Hut restaurants in
China.

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

On April 8, 2020, the Company completed the acquisition of a 93.3% interest in the Huang Ji Huang group (“Huang Ji
Huang”), a leading Chinese-style casual dining franchise business, for cash consideration of $185 million. Huang Ji
Huang became an operating segment of the Company. The acquisition was considered immaterial. Following the acqui-
sition, we established a Chinese dining business unit comprising our three Chinese dining brands, namely Little Sheep,
Huang Ji Huang and East Dawning.

YUM CHINA – 2020 Form 10-K 101

PART II

In the quarter ended June 30, 2020, the Company partnered with Lavazza Group, the world renowned family-owned
Italian coffee company, and entered into a joint venture to explore and develop the Lavazza coffee shop concept in
China.

The Company has two reportable segments: KFC and Pizza Hut. Our remaining operating segments, including the oper-
ations of Little Sheep, Huang Ji Huang, COFFii & JOY, East Dawning, Taco Bell, Lavazza and Daojia, are combined
and referred to as All Other Segments, as those operating segments are insignificant both individually and in the aggre-
gate. Starting from the first quarter of 2019, our COFFii & JOY concept and e-commerce business became operating
segments, as their financial results started being regularly reviewed by the Company’s chief operating decision maker.
Segment financial information for prior years has been recast to align with this change in segment reporting. There was
no impact to the consolidated financial statements of the Company as a result of this change. Additional details on our
segment reporting are included in Note 17.

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 at the public offering price of HK$412.00 per share, or US$53.16 per share. The shares listed
on the HKEX are fully fungible with the shares listed on the NYSE. Net proceeds raised by the Company from the global
offering after deducting underwriting fees and the offering expenses amounted to US$2.2 billion.

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.

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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 pri-
mary 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 lease arrangements with them to which we are a party. At
December 31, 2020, the Company had future lease payments due from franchisees, on a nominal basis, of approximately
$41 million. As our franchise arrangements provide our franchisee entities the power to direct the activities that most sig-
nificantly impact their economic performance, we do not consider ourselves the primary beneficiary of any such entity
that might otherwise be considered a VIE.

102 YUM CHINA – 2020 Form 10-K

PART II

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 agree-
ments 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 Dao-
jia’s operations have been included in the Company’s Consolidated Financial Statements since the acquisition date.

We consolidate the entities that operate KFCs in Shanghai, Beijing, Wuxi and Suzhou where we have controlling inter-
ests of 58%, 70%, 83% and 72%, respectively.

We have a noncontrolling 47% interest in the entity that operates the KFCs in and around Hangzhou. This entity is not a
VIE and our lack of majority voting rights precludes us from controlling this affiliate. Thus, we do not consolidate this
affiliate. Instead, we account for it under the equity method. Our share of the net income or loss of the unconsolidated
affiliate is included in Other income, net in our Consolidated Statements of Income.

The results of Huang Ji Huang and Suzhou KFC’s operations have been included in the Company’s Consolidated Finan-
cial Statements since the acquisition dates of April 8, 2020 and August 3, 2020, respectively.

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 adjust-
ments are recorded in the Accumulated other comprehensive income (loss) 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 Other income, net in our Consolidated Statements of Income.

Franchise Operations. We execute agreements which set out the terms of our arrangement with franchisees. Our fran-
chise agreements typically require the franchisee to pay an initial, non-refundable fee 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.

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The 3% license fees we pay to YUM for the right to sublicense the KFC, Pizza Hut and Taco Bell intellectual property to
franchisees and unconsolidated affiliates are recorded in Franchise expenses. License fees due to YUM for our
Company-owned stores are included within restaurant margin in Occupancy and other operating expenses. Total license
fees paid to YUM were $256 million, $273 million and $263 million during the years ended December 31, 2020, 2019
and 2018, respectively.

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.

YUM CHINA – 2020 Form 10-K 103

PART II

We also have certain transactions with franchisees and unconsolidated affiliates, which consist primarily of sales of food
and paper products, advertising services and other services provided to franchisees and unconsolidated affiliates. Related
expenses are included in Expenses for transactions with franchisees and unconsolidated affiliates.

Revenue Recognition. In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Stan-
dards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASC 606”), to provide
principles within a single framework for revenue recognition of transactions involving contracts with customers across
all industries. The standard allows for either a full retrospective or modified retrospective transition method. Additional
amendments were subsequently issued by the FASB to clarify the implementation guidance. The Company adopted
these standards on January 1, 2018, and applied the full retrospective approach. Therefore, revenue for all three years in
the accompanying Consolidated Financial Statements was consistently accounted for in accordance with ASC 606.

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

Company Sales

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Revenues from Company-owned restaurants are recognized when a customer takes possession of the food and tenders
payment, which is when our obligation to perform is satisfied. The Company presents sales net of sales-related taxes. We
also offer our customers delivery through both our own mobile applications and third-party aggregators’ platforms. For
delivery orders placed through our mobile applications, we use our dedicated riders, while for orders placed through
third-party aggregators’ platforms, we either used our dedicated riders or third-party aggregators’ delivery staff in the
past. With respect to delivery orders delivered by our dedicated riders, we control and determine the price for the delivery
service and generally recognize revenue, including delivery fees, when a customer takes possession of the food. When
orders are fulfilled by the delivery staff of third-party aggregators, who control and determine the price for the delivery
service, we recognize revenue, excluding delivery fees, when control of the food is transferred to the third-party aggre-
gators’ delivery staff. The payment terms with respect to these sales are short-term in nature. Starting in 2019, we used
our own dedicated riders to deliver orders placed through aggregators’ platforms to customers of KFC and Pizza Hut
stores.

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 prod-
uct 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 dis-
counts on certain products. For certain KFC and Pizza Hut 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 the KFC and Pizza Hut family privilege membership program offer-
ing members a mix of distinct benefits, including a welcome gift and assorted discount coupons with pre-defined quanti-
ties, 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

104 YUM CHINA – 2020 Form 10-K

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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 upfront franchise fees, such as initial fees and renewal 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 in accordance with ASC 606. The franchise agreement term is generally 10
years for KFC and Pizza Hut, five or 10 years for Little Sheep, and three or 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 and Unconsolidated Affiliates

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

The Company centrally purchases substantially all food and paper products from suppliers for substantially all of our
restaurants, including franchisees and unconsolidated affiliates, and then sells and delivers them to the restaurants. In
addition, the Company owns seasoning facilities for its Chinese dining business unit, which manufacture and sell sea-
soning products to Huang Ji Huang and Little Sheep franchisees. The performance obligation arising from such transac-
tions is considered distinct from the franchise agreement as it is not highly dependent on the franchise agreement and the
customer can benefit from the procurement service on its own. We consider ourselves the principal in this arrangement as
we have the ability to control a promised good or service before transferring that good or service to the franchisees and
unconsolidated affiliates. Revenue is recognized upon transfer of control over ordered items, generally upon delivery to
the franchisees and unconsolidated affiliates.

For advertising services, the Company often engages third parties to provide services and acts as a principal in the trans-
action 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 adver-
tising contributions, which are generally based on certain percentage of sales from substantially all of our restaurants,
including franchisees and unconsolidated affiliates. Other services provided to franchisees and unconsolidated affiliates
consist primarily of customer 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.

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Loyalty Programs

Each of the Company’s KFC and Pizza Hut reportable segments operates a loyalty program that allows registered mem-
bers 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.

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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 $307 million, $344 million and $341 million
in 2020, 2019 and 2018, respectively, and were included in Occupancy and other operating expenses. In addition, the
direct marketing costs incurred for franchisees and unconsolidated affiliates were $60 million, $65 million and
$62 million in 2020, 2019 and 2018, respectively, and were recorded in Expenses for transactions with franchisees and
unconsolidated affiliates.

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 $3 million, $4 million and $4 million in 2020, 2019 and 2018, respectively.

Share-Based Compensation. Prior to the separation, all employee equity awards were granted by YUM. Upon the sep-
aration, 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. The modified equity awards have the same terms and conditions as the awards held immediately before
the separation, except the number of shares and the price were adjusted. The incremental compensation cost, measured as
the excess of the fair value of the award immediately after the modification over the fair value of the award immediately
before the modification, based on Black-Scholes option-pricing model was immaterial, and YUM and the Company
continue to recognize the unamortized fair value of the awards over the remaining requisite service period as their
respective employees continue to provide services. All awards granted following the separation were granted under the
Company’s Long Term Incentive Plan (the “2016 Plan”). We recognize all share-based payments to employees and
directors, including grants of stock options, restricted stock units (“RSUs”), stock appreciation rights (“SARs”) and per-
formance 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 compen-
sation 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 Property, plant and equipment (“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 less than the undiscounted cash flows we expect to generate from such assets. If the assets are not deemed to be recov-
erable, 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 when-
ever 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

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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 esti-
mated 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 dis-
counted 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. The discount rate incorporates
rates of returns for historical refranchising market transactions and is commensurate with the risks and uncertainty inher-
ent in the forecasted cash flows. 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 sit-
uations 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 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 restau-
rant 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. To the extent ongoing agreements to be
entered into with the franchisee simultaneous with the refranchising are expected to contain terms, such as royalty rates,
not at prevailing market rates, we consider the off-market terms in our impairment evaluation. We recognize any such
impairment charges in Refranchising gain. Refranchising gain includes the gains or losses from the sales of our restau-
rants to new and existing franchisees, including any impairment charges discussed above. We recognize gains on restau-
rant refranchising when the sale transaction closes, the franchisee has a minimum amount of the purchase price in at-risk
equity and we are satisfied that the franchisee can meet its financial obligations.

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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 restau-
rant, we reassess whether it is reasonably certain that we will exercise the termination option, and remeasure lease liabil-
ity 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.

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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. There are no defined rules and regulations to govern the criteria necessary for companies to receive
such benefits, and the amount of financial subsidy is 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.

Income Taxes. We record deferred tax assets and liabilities for the future tax consequences attributable to temporary dif-
ferences 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.

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On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law effective for tax years beginning
after December 31, 2017. The Tax Act requires complex computations with significant estimates to be performed, sig-
nificant judgments to be made in interpretation of the provisions, and the preparation and analysis of information not pre-
viously relevant or regularly produced. The U.S. Treasury Department, the IRS, the SEC and other standard-setting
bodies could interpret or issue guidance on how provisions of the Tax Act will be applied or otherwise administered that
is different from our current interpretation. We completed our analysis of the Tax Act in the fourth quarter of 2018
according to guidance released by the U.S. Treasury Department and the IRS as of December 2018 and made an adjust-
ment of $36 million to reduce the provisional amount for transition tax recorded in 2017 accordingly. The U.S. Treasury
Department and the IRS released the final transition tax regulations in the first quarter of 2019. We completed the evalu-
ation of the impact on our transition tax computation based on the final regulations released in the first quarter of 2019
and recorded an additional income tax expense of $8 million for the transition tax accordingly.

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 real-
ized 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 audit settlements, which may impact our ultimate
payment for such exposures.

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

108 YUM CHINA – 2020 Form 10-K

PART II

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.

Pursuant to the China Enterprise Income Tax Law (“EIT Law”), a 10% PRC withholding tax is generally levied on divi-
dends 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 Hong Kong subsidi-
ary, which is the equity holder of our Chinese subsidiaries, met the relevant requirements pursuant to the tax arrangement
between mainland China and Hong Kong in 2018 and is expected to meet the requirements in the subsequent years; thus,
it is more likely than not that our dividends declared or earnings expected to be repatriated since 2018 are subject to the
reduced withholding tax of 5%.

See Note 16 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.

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Level 3

Inputs that are unobservable for the asset.

Cash and Cash Equivalents. Cash equivalents represent highly liquid investments with original maturities not exceed-
ing three months and are primarily comprised of time deposits. Cash and overdraft balances that meet the criteria for right
to offset are presented net on our Consolidated Balance Sheets.

Short-term Investments. Short-term investments primarily represent time deposits with original maturities of over
three months but less than one year when purchased.

Accounts Receivable. Accounts Receivable consist of trade receivables and royalties from franchisees and unconsoli-
dated affiliates, and are generally due within 30 days of the period in which the corresponding sales occur and are

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classified as Accounts receivable on the Consolidated Balance Sheets. Prior to the adoption of ASC 326, our provision
for uncollectible receivable balances was based upon pre-defined aging criteria or upon the occurrence of other events
that indicated that we may not collect the balance due. Additionally, we monitor the financial condition of our franchisees
and record provisions for estimated losses on receivables when we believe it is probable that our franchisees will be
unable to make their required payments. Upon adoption of ASC 326 starting from January 1, 2020, 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, includ-
ing historical credit loss experience, adjusted for relevant factors impacting collectability and forward-looking informa-
tion 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 receivables that are ultimately deemed to be uncollectible, and for which collection
efforts have been exhausted, are written off against the allowance for doubtful accounts. As of December 31, 2020 and
2019, the ending balances of provision for accounts receivable were $1 million and $1 million, respectively, and amounts
of accounts receivable past due were immaterial. Receivables due from unconsolidated affiliates including accounts
receivables and dividend receivables were $50 million and $58 million as of December 31, 2020 and 2019, respectively.

Receivables from Payment Processors or Aggregators. Receivables from payment processors such as WeChat and
Alipay or aggregators 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 by
the Company. The Company considers and monitors the credit worthiness of the third-party payment processors and
aggregators used. Prior to the adoption of ASC 326, an allowance for doubtful accounts is recorded in the period in which
a loss is determined to be probable. Upon adoption of ASC 326 starting from January 1, 2020, 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, 2020 and 2019, no allowance for
doubtful accounts was provided for such receivables.

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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: 20 to 50
years for buildings, the lesser of estimated useful lives (5 to 10 years) and remaining lease term for leasehold improve-
ments, 3 to 10 years for restaurant machinery and equipment and 3 to 5 years for capitalized software costs. We suspend
depreciation and amortization on assets related to restaurants that are held for sale.

Leases. The Company adopted Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) (“ASC 842”)
and subsequent amendments issued by FASB on January 1, 2019, using a modified retrospective method for leases that
exist at, or are entered into after, January 1, 2019, and has not recast the comparative periods presented in the Consoli-
dated Financial Statements.

Prior to the adoption of ASC 842, operating leases were not recognized on the balance sheet of the Company, but rent
expenses with fixed escalating payments and/or rent holidays were recognized on a straight-line basis over the lease
term. Contingent rentals are generally based on sales levels, and thus are included in rent expense when attainment of the
contingency is considered probable (e.g., when Company sales occur).

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Upon adoption of ASC 842, 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 Compa-
ny’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.
This is consistent with the historical recognition of finance leases, which was unchanged upon adoption of ASC 842. 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.

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 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 right-of-use assets if they meet the definition of lease.

See Note 11 for further discussions on our leases.

Internal Development Costs and Abandoned Site Costs. 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.

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Goodwill and Intangible Assets. From time to time, the Company acquires restaurants from our existing franchisees or
acquires another business, including restaurants business of unconsolidated affiliates. 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 car-
rying value. Fair value is the price a willing buyer would pay for a reporting unit, and is generally estimated using dis-
counted expected future after-tax cash flows from the business operation of the reporting unit. The discount rate is our

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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.

If we record goodwill upon acquisition of a restaurant(s) from a franchisee and such restaurant(s) is then sold within two
years of acquisition, the goodwill associated with the acquired restaurant(s) is written off in its entirety. If the restaurant is
refranchised two years or more subsequent to its acquisition, we include goodwill in the carrying amount of the restau-
rants disposed of based on the relative fair values of the portion of the reporting unit disposed of in the refranchising and
the portion of the reporting unit that will be retained.

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 extend-
ing 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 cir-
cumstances 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 con-
sider 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
Huang Ji Huang franchise related assets
Daojia platform
Customer-related assets
Others

2 to 10 years
19 years
8 years
2 to 15 years
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.

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.

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112 YUM CHINA – 2020 Form 10-K

PART II

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 dis-
counted 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.

During the year ended December 31, 2019 and 2018, we recorded an impairment charge of $11 million and $12 million,
respectively, on intangible assets and goodwill attributable to the Daojia business. See Note 5 for additional details.

Equity Investments. The Company’s equity investments include investments in unconsolidated affiliates and invest-
ments in equity securities with readily determinable fair value.

The Company applies the equity method to account for the investments in unconsolidated affiliates over which it has sig-
nificant influence but does not control. Equity method investments are included as Investments in unconsolidated affili-
ates on our Consolidated Balance Sheets. 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 an unconsolidated affiliate whenever events or
circumstances indicate that a decrease in the fair value of an investment has occurred which is other than temporary. In
addition, we evaluate our investments in unconsolidated affiliates for impairment when they have experienced two
consecutive years of operating losses.

For our investments in equity securities with readily determinable fair value, over which the Company has neither signif-
icant influence nor control, they are measured at fair value with subsequent changes recognized in net income.

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 sub-
sequently adjusted to the fair value at each reporting date. Changes in the fair value of financial instruments are recog-
nized 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.

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When the noncontrolling interest is redeemable at the option of the noncontrolling shareholder, or contingently redeem-
able 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, a redeemable
noncontrolling interest was initially recognized at fair value and classified outside of permanent equity on our Consoli-
dated Balance Sheets due to redemption rights being held by the noncontrolling shareholder. Subsequent changes in the
redemption value of the redeemable noncontrolling interest are immediately recognized as they occur and adjusted to the
carrying amount of the redeemable noncontrolling interest.

Guarantees. We account for guarantees in accordance with ASC 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

YUM CHINA – 2020 Form 10-K 113

PART II

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 losses suffered 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 prob-
able 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. Certain of the Company’s employees participate in noncontributory defined benefit plans and post-
retirement medical plans sponsored by YUM prior to October 31, 2016. Subsequent to the separation, employees partic-
ipating in YUM’s plans were enrolled in the Yum China Holdings, Inc. Leadership Retirement Plan (“YCHLRP”), an
unfunded, unsecured account-based retirement plan which allocates a percentage of pay to an account payable to the
executive following the executive’s separation of employment from the Company or attainment of age 55.

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The Company also offers other defined contribution plans to employees. The total contribution for such employee bene-
fits was expensed as incurred. The Company has no additional legal obligation or liabilities for the benefits beyond the
paid and accrued amounts. See Note 13 for additional information.

PRC Value-Added Tax. 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 an input VAT credit asset which can be carried forward indefinitely
to offset future net VAT payables. VAT related to purchases and sales which have not been settled at the balance sheet
date is disclosed separately as an asset and liability, respectively, on the Consolidated Balance Sheets. At each balance
sheet date, the Company reviews the outstanding balance of any input VAT credit asset for recoverability, giving con-
sideration to the indefinite life of the input VAT credit assets as well as its forecasted operating results and capital spend-
ing, which inherently includes significant assumptions that are subject to change.

As of December 31, 2020 and 2019, an input VAT credit asset of $270 million and $243 million, were recorded in Other
assets, respectively, and payable of $6 million and $5 million, were recorded in Accounts payable and other current
liabilities, respectively, on the Consolidated Balance Sheets. The Company has not made an allowance for the recover-
ability of the input VAT credit asset, as the balance is expected to be utilized to offset against VAT payables more than
one year from December 31, 2020. Any input VAT credit asset would be classified as Prepaid expenses and other current
assets if the credit expected to be used within one year can be reasonably determined.

114 YUM CHINA – 2020 Form 10-K

PART II

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 4 for further information.

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 privately negotiated transactions, including 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. See Note 15 for further information.

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments (“ASU 2016-13”), which requires measurement and recognition of expected
versus incurred credit losses for financial assets held. The FASB subsequently issued amendments to clarify the imple-
mentation guidance. We adopted the standard on January 1, 2020 using the modified retrospective method. The adoption
of this standard resulted in a change of our provision policy primarily for accounts receivable, but such adoption did not
have a material impact on our financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—
changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which amends the fair value
measurement guidance by modifying disclosure requirements. We adopted the standard on January 1, 2020 and such
adoption did not have a material impact on our financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other-Internal-Use Software: Customer’s
Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU
2018-15”), which aligns the requirements for capitalizing implementation costs in a cloud computing arrangement ser-
vice contract with those for an internal-use software license. We adopted this standard on January 1, 2020, and such
adoption did not have a material impact on our financial statements.

In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808), Clarifying the Interac-
tion between Topic 808 and Topic 606 (“ASU 2018-18”), which clarifies that transactions in a collaborative arrangement
should be accounted for under ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASC 606”) when
the counterparty is a customer for a distinct good or service. The amendment also precludes an entity from presenting
consideration from a transaction in a collaborative arrangement as revenue if the counterparty is not a customer for that
transaction. We adopted the standard on January 1, 2020, and such adoption did not have a material impact on our
financial statements.

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YUM CHINA – 2020 Form 10-K 115

PART II

Note 3—Revenue

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

KFC Pizza Hut

All Other
Segments

Revenues
Company sales
Franchise fees and income
Revenues from transactions with

franchisees and unconsolidated
affiliates

Other revenues

Total revenues

$ 5,633 $
125

1,721 $
5

61
2

4
—

42 $
18

49
96

$ 5,821 $

1,730 $

205 $

2020

Corporate
and

Unallocated Combined Elimination Consolidated

— $
—

7,396 $
148

647
130

$

8,321 $

533
32

565

2019

— $
—

—
(58)

(58) $

7,396
148

647
72

8,263

KFC Pizza Hut

All Other
Segments

Corporate
and

Unallocated Combined Elimination Consolidated

Revenues
Company sales
Franchise fees and income
Revenues from transactions with

franchisees and unconsolidated
affiliates

Other revenues

Total revenues

$ 5,839 $
136

2,045 $
4

64
1

4
1

41 $
8

28
81

$ 6,040 $

2,054 $

158 $

— $
—

7,925 $
148

654
87

$

8,814 $

558
4

562

2018

— $
—

—
(38)

(38) $

7,925
148

654
49

8,776

KFC Pizza Hut

All Other
Segments

Corporate
and

Unallocated(a) Combined Elimination Consolidated

Revenues
Company sales
Franchise fees and income
Revenues from transactions with

franchisees and unconsolidated
affiliates

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Other revenues

Total revenues

$ 5,495 $
132

2,106 $
3

61
—

2
—

32 $
6

26

51

— $
—

7,633 $
141

514
3

603
54

$ 5,688 $

2,111 $

115 $

517 $

8,431 $

— $
—

—
(16)

(16) $

7,633
141

603
38

8,415

(a) As COFFii & JOY and our e-commerce business became operating segments starting from the first quarter of
2019, revenue by segment information for 2018 has been recast to align with the change in segment reporting.
Additional details on our reportable segments are included in Note 17.

Franchise Fees and Income

Initial fees, including renewal fees
Continuing fees and rental income

Franchise fees and income

116 YUM CHINA – 2020 Form 10-K

2020

2019

2018

$

$

8 $

140

148 $

8 $

140

148 $

7
134

141

PART II

Costs to Obtain Contracts

Costs to obtain contracts consist of upfront franchise fees that we paid to YUM prior to the separation in relation to initial
fees or renewal fees we received from franchisees and unconsolidated affiliates, as well as license fees that are payable to
YUM in relation to our deferred revenue of prepaid stored-value products, privilege membership programs and customer
loyalty programs. They meet the requirements to be capitalized as they are incremental costs of obtaining contracts with
customers and the Company expects to generate future economic benefits from such costs incurred. Such costs to obtain
contracts are included in Other assets 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 separa-
tion, we are no longer required to pay YUM initial or renewal fees that we receive from franchisees and unconsolidated
affiliates. The Company did not incur any impairment losses related to costs to obtain contracts during any of the periods
presented. Costs to obtain contracts were $9 million at both December 31, 2020 and 2019.

Contract Liabilities

Contract liabilities at December 31, 2020 and 2019 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
—Others

Total

2020

2019

$

$

117 $
38
23
27
1

206 $

86
39
24
16
3

168

Contract liabilities primarily consist of deferred revenue related to prepaid stored-value products, privilege membership
programs, customer loyalty programs and upfront franchise fees. Deferred revenue related to prepaid stored-value prod-
ucts, 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 recog-
nize as revenue in the next 12 months is included in Accounts payable and other current liabilities, and the remaining bal-
ance 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 $95 million and $68 million in 2020 and 2019, respec-
tively. 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.

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

YUM CHINA – 2020 Form 10-K 117

PART II

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

The following table summarizes the components of basic and diluted earnings per share (in millions, except for 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)
Effect of dilutive warrants(b)

Weighted-average common and dilutive potential common shares outstanding (for diluted

calculation)

Basic Earnings Per Share

Diluted Earnings Per Share

Share-based awards and warrants excluded from the diluted EPS computation(c)

2020

2019

2018

$

784 $

713 $

390
7
5

402

2.01 $

1.95 $

3

377
8
3

388

1.89 $

1.84 $

2

$

$

708

384
9
2

395

1.84

1.79

6

(a) As a result of the separation, shares of Yum China common stock were distributed to YUM’s shareholders of
record as of October 19, 2016 and included in the calculated weighted-average common shares outstanding.
Holders of outstanding YUM equity awards generally received both adjusted YUM awards and Yum China
awards, or adjusted awards 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 com-
mon shares outstanding. The incremental shares arising from outstanding equity awards are included in the com-
putation of diluted EPS, if there is dilutive effect. See Note 14 for a further discussion of share-based
compensation. In September 2020, 41,910,700 common shares were issued as a result of the Company’s global
offering and secondary listing on the HKEX and they were included in the calculated weighted-average common
shares outstanding.

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(b)

(c)

Pursuant to the investment agreements dated September 1, 2016 (Note 10), Yum China issued to strategic inves-
tors two tranches of warrants on January 9, 2017, with each tranche initially providing the right to purchase
8,200,405 shares of Yum China common stock, at an initial exercise price of $31.40 and $39.25 per share, respec-
tively, subject to customary anti-dilution adjustments. The warrants may be exercised at any time through
October 31, 2021. The incremental shares arising from outstanding warrants are included in the computation of
diluted EPS, if there is dilutive effect when the average market price of Yum China common stock for the year
exceeds the applicable exercise price of the warrants.

These outstanding employee stock appreciation rights, RSUs, PSUs and warrants were excluded from the com-
putation 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, 2020.

118 YUM CHINA – 2020 Form 10-K

PART II

Note 5—Items Affecting Comparability of Net Income

Impact of COVID-19 pandemic

The COVID-19 pandemic has significantly impacted the Company’s operations in 2020. The Company’s operations
improved sequentially since the first quarter, although still impacted by the lingering effects of the COVID-19 pandemic.
Operating profit for the years ended December 31, 2020 and 2019 was $961 million and $901 million, respectively.
Excluding the impact of a $239 million gain from the re-measurement of our previously held equity interest in Suzhou
KFC upon the acquisition as further described below, the decrease in Operating profit for the year ended December 31,
2020 was mainly driven by same-store sales declines and temporary store closures due to the COVID-19 pandemic, par-
tially offset by one-time lease concession totaling $36 million from landlords and a one-time government relief of
$59 million.

Consolidation of former unconsolidated affiliates

In the third quarter of 2020, the Company completed the acquisition of an additional 25% equity interest in Suzhou KFC
for cash consideration of $149 million, increasing our equity interest to 72%, and thus we began to consolidate Suzhou
KFC since the acquisition date.

In the first quarter of 2018, the Company completed the acquisition of an additional 36% equity interest in Wuxi KFC for
cash consideration of $98 million, increasing our equity interest to 83%, and thus we began to consolidate Wuxi KFC
since the acquisition date.

As a result of the acquisitions of Suzhou KFC and Wuxi KFC, the Company also recognized a gain of $239 million and
$98 million, respectively, from the re-measurement of our previously held 47% equity interest at fair value using a dis-
counted cash flow valuation approach and incorporating assumptions and estimates that are Level 3 inputs. Key assump-
tions used in estimating future cash flows included projected revenue growth and costs and expenses, which were based
on internal projections, historical performance of stores, and the business environment, as well as the selection of an
appropriate discount rate based on weighted-average cost of capital and company-specific risk premium. The gain was
recorded in Other income, net and not allocated to any segment for performance reporting purposes.

Additionally, as a result of the acquisition of Suzhou KFC and Wuxi KFC, $61 million and $61 million of the purchase
price was allocated to intangible assets related to reacquired franchise rights, respectively, which are being amortized
over the remaining franchise contract period of 2.4 years and 5 years, respectively.

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Meituan Dianping (“Meituan”) investment

In the third quarter of 2018, the Company subscribed for 8.4 million, or less than 1%, of the ordinary shares of Meituan,
an e-commerce platform for services in China, for a total consideration of approximately $74 million, when it launched
its initial public offering on the Hong Kong Stock Exchange in September 2018. In the second quarter of 2020, the Com-
pany sold 4.2 million of the ordinary shares of Meituan for proceeds of approximately $54 million, and realized a
$17 million pre-tax gain which was recognized during the holding period. The Company recorded $29 million of U.S.
tax in the year ended December 31, 2020 related to the gains on our investment in equity securities of Meituan, which
were recognized during the year ended December 31, 2020 and prior year.

The Company accounted for the equity securities at fair value with subsequent fair value changes recorded in our Con-
solidated Statements of Income. The fair value of the investment in Meituan is determined based on the closing market

YUM CHINA – 2020 Form 10-K 119

PART II

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 of pre-tax gains or losses in investment in equity securities recognized, which was included in Investment
gain or loss in our Consolidated Statements of Income is as follows:

Unrealized gains (losses) recorded on equity securities still held as of the end of the year
Losses recorded on equity securities sold during the year

Gains (losses) recorded on equity securities

2020

2019

2018

$

$

105 $
(1)

104 $

63 $
—

63 $

(27)
—

(27)

Store Impairment Charges

We recorded store impairment charges of $66 million, $38 million and $40 million for the years ended December 31,
2020, 2019 and 2018, respectively. The increase in store impairment charges in 2020 mainly resulted from the adverse
effects of the COVID-19 pandemic. See Note 12 for additional information.

Daojia impairment

During the years ended December 31, 2019 and 2018, we recorded impairment charges of $2 million and $12 million,
respectively, on the intangible assets acquired from the Daojia business primarily attributable to its platform.

Additionally, during the year ended December 31, 2019, goodwill related to Daojia reporting unit was fully impaired,
resulting in an impairment charge of $9 million.

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The fair values of Daojia intangible assets and reporting unit were based on the estimated price a willing buyer would
pay, using unobservable inputs (level 3). The fair values of intangible assets were determined using a relief-from-royalty
valuation approach, with estimated future sales and royalty rates as significant inputs. The fair value of the reporting unit
was determined using an income approach with future cash flow estimates supported by estimated future sales and mar-
gin. Both valuation approaches incorporated a selection of an appropriate discount rate based on weighted-average cost
of capital and company-specific risk premium.

For the years ended December 31, 2019 and 2018, these non-cash impairment charges totaling $11 million and
$12 million, respectively, were included in Closures and impairment expenses in our Consolidated Statements of
Income, but were not allocated to any segment for performance reporting purposes. We recorded tax benefit of
$1 million and $3 million associated with the impairment, respectively, and allocated $2 million and $1 million of the
after-tax impairment charge to Net Income—noncontrolling interests, respectively, which resulted in a net impairment
charge of $8 million and $8 million allocated to Net Income – Yum China Holdings, Inc., respectively, for the years
ended December 31, 2019 and 2018.

Partner PSU Awards

In February 2020, the Company’s board of directors approved new grants of SARs, RSUs and PSUs to employees under
the Yum China Holdings, Inc. Long Term Incentive Plan (the “2016 Plan”). The awards will be earned based on their
respective vesting terms, with PSUs subject to market conditions or performance conditions. A special award of PSUs
(“Partner PSU Awards”) was granted to select employees who were deemed critical to the Company’s execution of its
strategic operating plan. These Partner PSU Awards will only vest if threshold performance goals are achieved over a

120 YUM CHINA – 2020 Form 10-K

PART II

four-year performance period, with the payout ranging from 0% to 200% of the target number of shares. Partner PSU
Awards were granted to address increased competition for executive talent, motivate transformational performance and
encourage management retention. Given the unique nature of these grants, the Compensation Committee of the Board
does not intend to grant similar, special grants to the same employees during the performance period. The impact from
these special awards is excluded from metrics that management uses to assess the Company’s performance. The Com-
pany recognized a share-based compensation cost of $7 million associated with the Partner PSU Awards for year ended
December 31, 2020.

Transition Tax

We completed our analysis of the Tax Act in the fourth quarter of 2018 according to guidance released by the U.S. Trea-
sury Department and IRS as of December 2018 and made an adjustment of $36 million to reduce the provisional amount
for transition tax recorded in 2017 accordingly. The U.S. Treasury Department and the IRS released the final transition
tax regulations in the first quarter of 2019. We completed the evaluation of the impact on our transition tax computation
based on the final regulations released in the first quarter of 2019 and recorded an additional income tax expense of
$8 million for the transition tax accordingly.

Note 6—Other Income, net

Gain from re-measurement of equity interest upon acquisition(a)
Equity income from investments in unconsolidated affiliates
Derecognition of indemnification asset(b)
Foreign exchanges and other

Other income, net

2020

2019

2018

$

$

239 $
62
(3)
(13)

285 $

— $
69
—
(9)

60 $

98
65
—
(11)

152

(a) As a result of the acquisition of Suzhou KFC and Wuxi KFC, as disclosed in Note 5, the Company recognized a
gain of $239 million and $98 million in 2020 and 2018, respectively, from the re-measurement of our previously
held 47% equity interest at fair value, which was not allocated to any segment for performance reporting purposes.

(b)

In the second quarter of 2020, the Company derecognized a $3 million indemnification asset previously recorded
for the Daojia acquisition as the indemnification right pursuant to the purchase agreement expired. The expense
was included in Other income, net, but was not allocated to any segment for performance reporting purposes.

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YUM CHINA – 2020 Form 10-K 121

PART II

Note 7—Supplemental Balance Sheet Information

Accounts Receivables, net

Accounts receivables, gross
Allowance for doubtful accounts

Accounts receivables, net

Prepaid Expenses and Other Current Assets

Receivables from payment processors and aggregators
Dividends receivable from unconsolidated affiliates
Other prepaid expenses and current assets

Prepaid expenses and other current assets

Property, Plant and Equipment

Buildings and improvements
Finance leases, primarily buildings
Machinery and equipment and construction in progress

Property, plant and equipment, gross
Accumulated depreciation

Property, plant and equipment, net

$

$

$

$

$

2020

2019

100 $
(1)

99 $

89
(1)

88

2020

2019

47 $
10
119

176 $

2020

2,367 $
36
1,490

3,893
(2,128)

39
8
87

134

2019

2,159
30
1,282

3,471
(1,877)

1,594

$

1,765 $

Depreciation and amortization expense related to property, plant and equipment was $421 million, $408 million and
$414 million in 2020, 2019 and 2018, respectively.

Other Assets

VAT assets
Investment in equity securities
Land use right(a)
Long-term deposits
Investment in long-term time deposits(b)
Costs to obtain contracts
Restricted cash
Others

Other Assets

2020

2019

270 $
160
140
83
61
9
—
26

749 $

243
110
133
71
—
9
9
5

580

$

$

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(a) Amortization expense related to land use right was $5 million, $4 million and $5 million in 2020, 2019 and 2018,

respectively.

(b) As of December 31, 2020, the Company had $61 million invested in long-term time deposits, bearing a fixed
interest rate with original maturity of three years. The asset is restricted for use in order to secure the balance of
prepaid stored-value cards issued by the Company pursuant to regulatory requirements.

Accounts Payable and Other Current Liabilities

Accounts payable
Operating leases liabilities
Accrued compensation and benefits
Accrued capital expenditures
Contract liabilities
Accrued marketing expenses
Other current liabilities

$

2020

2019

708 $
448
238
203
175
73
150

623
382
223
150
135
64
114

Accounts payable and other current liabilities

$

1,995 $

1,691

122 YUM CHINA – 2020 Form 10-K

Other Liabilities

Deferred income tax liabilities(c)
Accrued income tax payable
Contract liabilities
Other noncurrent liabilities

Other liabilities

PART II

2020

2019

227 $
66
31
70

394 $

67
69
33
41

210

$

$

(c)

Increase in deferred income tax liabilities balances in 2020 primarily resulted from Suzhou KFC and Huang Ji
Huang acquisitions.

Reconciliation of Cash, Cash equivalents, and Restricted Cash for Consolidated Statements of Cash Flows

Cash and cash equivalents as presented in Consolidated Balance Sheets
Restricted cash included in Other assets(d)

Cash, Cash Equivalents and Restricted Cash as presented in Consolidated Statements of Cash Flows

2020

1,158 $
—

1,158 $

2019

1,046
9

1,055

$

$

(d) As of December 31, 2019, the $9 million of restricted cash represents amounts deposited into an escrow account
pursuant to a definitive agreement entered into in August 2019 to acquire a controlling interest in the Huang Ji
Huang group. The Huang Ji Huang acquisition was completed on April 8, 2020.

Note 8—Goodwill and Intangible Assets

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

Balance as of December 31, 2018

Goodwill, gross
Accumulated impairment losses(a)

Goodwill, net
Goodwill impairment(b)
Effect of currency translation adjustment and other

Balance as of December 31, 2019

Goodwill, gross
Accumulated impairment losses

Goodwill, net
Goodwill acquired(c)
Effect of currency translation adjustment and other

Balance as of December 31, 2020

Goodwill, gross
Accumulated impairment losses

Goodwill, net

Total
Company

KFC

Pizza Hut

All Other
Segments

$

648 $
(382)

266
(9)
(3)

645
(391)

254
524
54

1,223
(391)

238 $
—

238
—
(3)

235
—

235
465
48

748
—

19 $
—

19
—
—

19
—

19

1

20
—

$

832 $

748 $

20 $

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391
(382)

9
(9)
—

391
(391)

—
59
5

455
(391)

64

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

(b)

In 2019, we recorded an impairment charge of $9 million on goodwill attributable to the Daojia reporting unit
(Note 5).

(c) Goodwill acquired resulted from the acquisition of Suzhou KFC and Huang Ji Huang. (Note 1).

YUM CHINA – 2020 Form 10-K 123

PART II

Intangible assets, net as of December 31, 2020 and 2019 are as follows:

2020

2019

Gross
Carrying
Amount(a)

Accumulated
Amortization

Accumulated
Impairment
Losses(b)

Net
Carrying
Amount

Gross
Carrying
Amount

Accumulated
Amortization

Accumulated
Impairment
Losses(b)

Net
Carrying
Amount

Finite-lived intangible

assets

Reacquired franchise

rights(c)

$

223 $

(144) $

— $

79 $

148 $

(113) $

— $

35

Huang Ji Huang

franchise related
assets(d)

Daojia platform
Customer-related

assets

Other

Indefinite-lived intangible

assets

Little Sheep
trademark
Huang Ji Huang
trademark(d)

Total intangible assets

$

$

$

$

23
16

12
9

(1)
(4)

(8)
(4)

—
(12)

(2)
—

22
—

2
5

—
16

12
9

—
(4)

(8)
(4)

—
(12)

(2)
—

283 $

(161) $

(14) $

108 $

185 $

(129) $

(14) $

56 $

82

138 $

421 $

— $

—

— $

(161) $

— $

56 $

52 $

—

— $

(14) $

82

138 $

246 $

—

52 $

237 $

— $

—

— $

(129) $

— $

—

— $

(14) $

—
—

2
5

42

52

—

52

94

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

(b) Accumulated impairment losses represent impairment charges on intangible assets acquired from Daojia primarily

attributable to the Daojia platform.

(c) Increase in gross carrying amount of reacquired franchise rights during the year ended December 31, 2020 primarily

resulted from the acquisition of Suzhou KFC (Note 5).

(d) Increase in gross carrying amount of finite-lived and indefinite-lived intangible assets primarily resulted from the

acquisition of Huang Ji Huang group (Note 1).

Amortization expense for finite-lived intangible assets was $24 million in 2020, $16 million in 2019 and $26 million in
2018. Amortization expense for finite-lived intangible assets is expected to approximate $40 million in 2021, $40 million
in 2022, $5 million in 2023, $2 million in 2024 and $2 million in 2025.

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Note 9—Credit Facilities

As of December 31, 2020, the Company had credit facilities of RMB3,305 million (approximately $506 million), com-
prised of onshore credit facilities of RMB2,000 million (approximately $306 million) in the aggregate and offshore
credit facilities of $200 million in the aggregate.

The credit facilities had remaining terms ranging from less than one year to two years as of December 31, 2020. Each
credit facility bears interest based on the prevailing rate stipulated by the People’s Bank of China, Loan Prime Rate
(“LPR”) published by the National Interbank Funding Centre of the PRC or London Interbank Offered Rate (“LIBOR”)
administered by the ICE Benchmark Administration. Each credit facility contains a cross-default provision whereby our
failure to make any payment on a principal amount from any credit facility will constitute a default on other credit facili-

124 YUM CHINA – 2020 Form 10-K

PART II

ties. Some of the credit facilities contain covenants limiting, among other things, certain additional indebtedness and
liens, and certain other transactions specified in the respective agreement. Interest on any outstanding borrowings is due
at least monthly. Some of the onshore credit facilities contain sub-limits for overdrafts, non-financial bonding, standby
letters of credit and guarantees. As of December 31, 2020, we had outstanding bank guarantees of RMB 114 million
(approximately $18 million) to secure our lease payment to landlords for certain Company-owned restaurants. The credit
facilities were therefore reduced by the same amount, while there were no borrowings outstanding as of December 31,
2020.

Note 10—Investment Agreements with Strategic Investors

On September 1, 2016, YUM and the Company entered into investment agreements (the “Investment Agreements”)
with each of Pollos Investment L.P., an affiliate of Primavera Capital Group (“Primavera”), and API (Hong Kong)
Investment Limited, an affiliate of Zhejiang Ant Small and Micro Financial Services Group Co., Ltd. (“Ant Financial”
and, together with Primavera, the “Investors”). Pursuant to the Investment Agreements, on November 1, 2016 (“Closing
Date”), Primavera and Ant Financial invested $410 million and $50 million, respectively, for a collective $460 million
investment (the “Investment”) in the Company in exchange for: (i) shares of Yum China common stock representing in
the aggregate 5% of Yum China common stock issued and outstanding immediately following the separation subject to
Post-Closing Adjustment for a final aggregate ownership of between 4.3% and 5.9% in Yum China and (ii) two tranches
of warrants (the “Warrants”), exercisable for an approximate additional 4% ownership, in the aggregate, of Yum China
common stock issued and outstanding after the separation, taking into account the shares previously issued to the Inves-
tors. Immediately before the closing of the Investment, Yum China had 363,758,219 shares of common stock issued and
outstanding, with a par value $0.01 per share. Pursuant to the Investment Agreements, on November 1, 2016, Yum
China issued 17,064,172.74 and 2,080,996.68 shares of common stock (the “Closing Shares”) at $24.03 per share
(“Closing Price”) to Primavera and Ant Financial, respectively, subject to adjustment as described below.

Pursuant to the Investment Agreements, the Investors and the Company determined the volume weighted-average trad-
ing price (“VWAP”) per share of Company common stock over the trading days occurring over the period from
December 1, 2016 to December 30, 2016 (the “Measurement Period”), and discounted such VWAP by 8% (the
“Adjusted VWAP Price Per Share”).

Since the Adjusted VWAP Price Per Share of $25.05 exceeded the Closing Price of $24.03 paid by the Investors at the
Closing Date, on January 9, 2017, the Company repurchased from Primavera and Ant Financial 699,394.74 and
85,291.68 shares of common stock, respectively, at par value of $0.01 per share, based on the Adjusted VWAP Price Per
Share as determined on December 30, 2016. The repurchased shares were included in Treasury Stock as of
December 31, 2016 in the Consolidated Financial Statements.

In addition, pursuant to the terms of the Investment Agreements, on January 9, 2017, Yum China issued to each of the
Investors two tranches of Warrants. Upon exercise, the first tranche of Warrants initially provided Primavera and Ant
Financial with the right to purchase 7,309,057 and 891,348 shares of Yum China common stock, respectively, at an ini-
tial exercise price of $31.40 per share. The second tranche of Warrants initially provided Primavera and Ant Financial
with the right to purchase the same number of shares of Yum China common stock purchasable by Primavera and Ant
Financial under the first tranche of Warrants, at an initial exercise price of $39.25 per share. The initial exercise price for
the Warrants was based on $12 billion and $15 billion for the first tranche and second tranche, respectively, divided by
the number of shares of common stock, including the Closing Shares after the Post-Closing Adjustment, issued and out-
standing as of the Closing Date. The Warrants may be exercised at any time through October 31, 2021 and contain cus-
tomary anti-dilution protections.

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YUM CHINA – 2020 Form 10-K 125

PART II

As a result of the issuance of the Closing Shares and the Post-Closing Adjustment (excluding shares issuable upon exer-
cise of the Warrants), Primavera and Ant Financial collectively beneficially owned approximately 4.8% of the outstand-
ing shares of Yum China common stock as of January 9, 2017, or approximately 8.7% of the outstanding shares of Yum
China common stock as of January 9, 2017 assuming the full exercise of both tranches of Warrants by each of the Inves-
tors.

Total cash proceeds of $460 million from the closing of the Investment were first allocated to the Post-Closing Adjust-
ment and Warrants based on their fair value on November 1, 2016, with the residual value of $364 million allocated to
the shares of common stock issued.

As of December 31, 2020, Primavera and Ant Financial had separately entered into pre-paid forward sale transactions
with respect to all of their Warrants with several financial institutions, pursuant to which Primavera and Ant Financial are
obligated to deliver their respective Warrants on the applicable settlement date.

Note 11—Leases

As of December 31, 2020, we operated over 8,100 company-owned restaurants, leasing the underlying land and/or
building. 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’s unit
contribution is negative for a specified period of time. We generally do not have renewal options for our leases. Such
options are accounted for only when it is reasonably certain that we will exercise the options. The rent under the majority
of our current restaurant lease agreements is generally payable in one of three ways: (i) fixed rent; (ii) the higher of a fixed
base rent or a percentage of the restaurant’s sales; 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 agree-
ments with other third parties are included in Franchise fees and income and Other revenue, respectively, within our
Consolidated Statements of Income. The impact of ASC 842 on our accounting as a lessor was not significant.

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Supplemental Balance Sheet

2020/12/31

2019/12/31

Account Classification

Assets
Operating lease right-of-use assets(a)
Finance lease right-of-use assets

Total leased assets

Liabilities
Current

Operating lease liabilities(a)
Finance lease liabilities

Non-current

Operating lease liabilities(a)
Finance lease liabilities

Total lease liabilities

$

$

$

$

2,164 $
20

2,184 $

448 $
2

1,915
28

1,985 Operating lease right-of-use assets
18 Property, plant and equipment, net

2,003

382 Accounts payable and other current liabilities
2 Accounts payable and other current liabilities

1,803 Non-current operating lease liabilities
26 Non-current finance lease liabilities

2,393 $

2,213

(a)

Increase in balances of operating lease right-of-use assets and liabilities mainly resulted from the acquisition of
Suzhou KFC.

126 YUM CHINA – 2020 Form 10-K

PART II

Summary of Lease Cost

2020

2019

Account Classification

Operating lease cost

$

496 $

472 Occupancy and other operating expenses, G&A or

Franchise expenses

Finance lease cost

Amortization of leased assets
Interest on lease liabilities

Variable lease cost(b)

Short-term lease cost
Sublease income

Total lease cost

2
2
262

10
(24)

1 Occupancy and other operating expenses
2

Interest expense, net

325 Occupancy and other operating expenses or Franchise

expenses

10 Occupancy and other operating expenses or G&A
(27) Franchise fees and income or Other revenues

$

748 $

783

(b)

The Company was granted $36 million in lease concessions from landlords related to the effects of the COVID-19
pandemic for the year ended December 31, 2020. The lease concessions were primarily in the form of rent reduc-
tion over the period of time when the Company’s restaurant business was adversely impacted. The Company
applied the interpretive guidance in a FASB staff Q&A 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.

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 new lease liabilities(c):

Operating leases
Finance leases

2020

2019

$

$

493 $
2
2

337 $
2

481
1
2

346
4

(c)

This supplemental non-cash disclosure for ROU obtained in exchange for new lease liabilities also includes non-
cash transactions resulting in adjustments to the lease liability or ROU asset due to modification or other reassess-
ment events.

Lease Term and Discount Rate

Weighted-average remaining lease term (years)

Operating leases
Finance leases

Weighted-average discount rate

Operating leases
Finance leases

2020

2019

7.0
10.9

5.8%
5.8%

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7.1
11.5

6.1%
5.9%

YUM CHINA – 2020 Form 10-K 127

PART II

Summary of Future Lease Payments and Lease Liabilities

Maturities of lease liabilities as of December 31, 2020 were as follows:

2021
2022
2023
2024
2025
Thereafter

Total undiscounted lease payment
Less: imputed interest(d)

Present value of lease liabilities

Amount of
Operating Leases

Amount of
Finance Leases

Total

$

$

568
474
410
343
279
818

2,892
529

2,363

$

$

4
4
4
4
4
21

41
11

30

$

$

572
478
414
347
283
839

2,933
540

2,393

(d) 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, 2020, we have additional lease agreements that have been signed but not yet commenced, with total
undiscounted minimum lease payments of $141 million. These leases will commence between 2021 and 2023 with lease
terms of 1 year to 20 years.

Note 12—Fair Value Measurements and Disclosures

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

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The Company accounts for its investment in the equity securities of Meituan at fair value, which is determined based on
the closing market price for the shares at the end of each reporting period, with subsequent fair value changes recorded in
our Consolidated Statements of Income.

128 YUM CHINA – 2020 Form 10-K

PART II

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 time deposits, and investment in equity securities within Level 1 or Level 2 in the fair value
hierarchy because it uses quoted market prices or alternative pricing sources and models utilizing market observable
inputs to determine their fair value, respectively. No transfers among the levels within the fair value hierarchy occurred in
2020 and 2019.

Cash equivalents:
Time deposits
Fixed income debt securities(a)

Total cash equivalents

Short-term investments:
Time deposits
Fixed income debt securities(a)
Variable return investments

Total short-term investments

Other assets:

Equity securities
Time deposits

Total

Balance at
December 31,
2020

Fair Value Measurement or Disclosure
at December 31, 2020

Level 1

Level 2

Level 3

$

601
207

808

2,165
784
156

3,105

160
61

$

207

207

104
156

260

160

601

601

2,165
680

2,845

61

$

4,134

$

627

$

3,507

$

(a)

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

Balance at
December 31,
2019

Fair Value Measurement or Disclosure
at December 31, 2019

Level 1

Level 2

Level 3

Cash equivalents:
Time deposits
Money market funds

Total cash equivalents

Short-term investments:
Time deposits

Total short-term investments

Other assets:

Investment in equity securities

Total

$

407
331

738

611

611

110

$

1,459

$

Non-recurring fair value measurements

$

331

331

407

407

611

611

110

441

$

1,018

$

—

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In addition, certain of the Company’s restaurant-level assets (including operating lease ROU assets, property, plant and
equipment), 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 December 31, 2020, the fair value of restaurant-level assets, if
determined to be impaired, are primarily represented by the price market participant would pay to sub-lease the operating
lease ROU assets and acquire remaining restaurants assets, which reflects the highest and best use of the assets. Signifi-
cant 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 sub-lease of each of these 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 the difference in factors such as location and property size.

YUM CHINA – 2020 Form 10-K 129

—

—

—

—

PART II

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, 2020, 2019 and 2018. These amounts exclude fair value measure-
ments made for restaurants that were subsequently closed or refranchised prior to those respective year-end dates.

2020

2019

2018

Account Classification

Restaurant-level impairment(a)
ROU impairment prior to the adoption of

ASC 842(b)

Daojia impairment(c)

52

—
—

28

82
11

27 Closure and impairment expenses, net

— Retained Earnings
12 Closure and impairment expenses, net

Total

(a)

$

52 $

121 $

39

Restaurant-level impairment charges are recorded in Closures and impairment expenses, net and resulted primar-
ily 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. We performed an additional
impairment evaluation in the first quarter of 2020, considering the adverse effects of the COVID-19 pandemic as
an impairment indicator. A trend of continuing operating losses for certain restaurants due to the COVID-19 pan-
demic resulted in higher impairment during 2020. We also performed an additional impairment evaluation upon
adoption of ASC 842 in the first quarter of 2019. The remaining net book value of assets measured at fair value as
of each relevant measurement date, after considering the impairment charges recorded during the years ended
December 31, 2020 was $157 million. The remaining net book value of assets measured at fair value as of each
relevant measurement date, after considering the impairment charges recorded during the years ended
December 31, 2019 and December 2018, was insignificant.

(b)

ROU impairment prior to the adoption of ASC 842 represents an impairment charge on operating lease ROU
assets arising from existing operating leases as of January 1, 2019. After netting with the related impact on
deferred taxes of $19 million and the impact on noncontrolling interests of $3 million, we recorded a cumulative
adjustment of $60 million to retained earnings in accordance with the transition guidance for the new lease stan-
dard. For those restaurants under operating leases with full impairment on their long-lived assets (primarily prop-
erty, plant and equipment) before January 1, 2019, an additional impairment charge would have been recorded
before January 1, 2019 had the operating lease ROU assets been recognized at the time of impairment.

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(c)

See Note 5 for further discussion.

Note 13—Retirement Plans

For executives who were hired or re-hired after September 30, 2001, YUM has implemented the YUM LRP. This is an
unfunded, unsecured account-based retirement plan which allocates a percentage of pay to an account payable to the
executive following the executive’s separation of employment from YUM or attainment of age 55. The Company
adopted the YCHLRP upon separation while the assets and liabilities associated with these employees under YUM LRP
were transferred to YCHLRP. YCHLRP will continue to be in effect until terminated by the Company’s board of direc-
tors. The terms of the YCHLRP are substantially similar to the terms of the YUM LRP. Under the YCHLRP, certain
executives who are at least age 21, who are classified as salary level 12, who are not eligible to participate in a
tax-qualified defined benefit plan, and who satisfy certain additional requirements as to work location and assignment,
are eligible to participate in the YCHLRP if selected for participation by the Company. The YCHLRP is an unfunded,
unsecured account-based retirement plan that allocates a percentage of pay to an account payable to an executive follow-
ing the later to occur of the executive’s separation of employment from the Company or attainment of age 55. Under the
YCHLRP, participants aged 55 or older are entitled to a lump sum distribution of their account balance on the last day of

130 YUM CHINA – 2020 Form 10-K

PART II

the calendar quarter that occurs on or follows their separation of employment. The liabilities of $0.2 million and
$4.8 million attributable to our employees under the YCHLRP as of December 31, 2020 and 2019, respectively, are
included in our Consolidated Balance Sheets.

YUM offers certain of the Company’s executives working in China retirement benefits under the Bai Sheng Restaurants
China Holdings Limited Retirement Scheme (previously known as the Bai Sheng Restaurants (Hong Kong) Ltd. Retire-
ment Scheme). Under this defined contribution plan, YUM provides a company funded contribution ranging from 5% to
10% of an executive’s base salary. Upon termination, participants will receive a lump sum equal to a percentage of the
Company’s contributions inclusive of investment return. This percentage is 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 adopted the same plan after
the separation and the contribution amount to the plan for the years ended December 31, 2020, 2019 and 2018 was insig-
nificant.

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 12% 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 Con-
solidated 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. In 2020, the Company also received one-time government subsidy
related to COVID-19 in the form of a reduction in social security contributions, which was recognized as reduction to the
related expenses when it was granted. The Company contributed $167 million, $160 million and $174 million to the
government-sponsored plan for 2020, 2019 and 2018, respectively.

Note 14—Share-Based Compensation

Overview

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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. Depending on the tax laws of the country of employment, awards were modified using
either the shareholder method or the employer method. Share issuances for Yum China awards held by YUM’s employ-
ees will be satisfied by Yum China. Share issuances for YUM awards held by the Company’s employees will be satisfied
by YUM. The shareholder method was based on the premise that employees holding YUM awards prior to the separa-
tion should receive an equal number of awards of both YUM and Yum China. Under the employer method, employees
holding YUM awards prior to the separation had their awards converted into awards of the company that they worked for
subsequent to the separation. 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.

The modified equity awards have the same terms and conditions as the awards held immediately before the separation,
except that the number of shares and the price were adjusted. In accordance with ASC 718, the Company compared the
fair value of the awards immediately prior to the separation to the fair value immediately after the separation to measure
the incremental compensation cost, using the Black-Scholes option-pricing model (the “BS model”). The incremental
compensation cost was insignificant, and YUM and the Company continue to recognize the unamortized original grant-

YUM CHINA – 2020 Form 10-K 131

PART II

date fair value of the modified awards over the remaining requisite service period as their respective employees continue
to provide services. Share-based compensation for the Company’s employees is based on both YUM awards and Yum
China awards held by those employees.

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.

Potential awards to employees and non-employee directors under the 2016 Plan include stock options, incentive options,
SARs, restricted stock, stock units, RSUs, performance shares, performance units, and cash incentive awards. We have
issued only stock options, SARs, RSUs and PSUs under the 2016 Plan. While awards under the 2016 Plan can have
varying vesting provisions and exercise periods, outstanding awards under the 2016 Plan vest in periods ranging from
three to five years. Stock options and SARs expire ten 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 applica-
ble. If no substantive service condition exists, the grant-date fair value is fully recognized as expense upon grant. Certain
awards are subject to specific retirement conditions, which allow the awards to fully vest as long as the employee is
actively employed for at least one year following the grant date, provides at least six months notification of intention to
retire, and signs non-solicitation and non-compete agreements. Under such circumstances, the grant-date fair value of the
award is recognized as expense on a straight-line basis over the one-year service period from the grant date.

Award Valuation

Stock Options and SARs

The Company estimated the fair value of each stock option and SAR award granted to the Company’s employees as of
the date of grant, using the BS model with the following assumptions:

K
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1
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F

Risk-free interest rate
Expected term (years)
Expected volatility
Expected dividend yield

2020

1.5%

6.50
33.2%
1.1%

2019

2.5%

6.50
32.0%
1.2%

2018

2.5%

6.50
33.0%
1.0%

Share option and 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. Based on analysis of the historical exercise and post-vesting termination behavior, the Company deter-
mined that employees exercised the awards on average after 6.5 years. Forfeitures were estimated based on historical
experience. Historical data used to estimate the expected term and forfeiture rate were based on 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 volatility of common shares
of comparable companies in the same business as the Company, as well as the historical volatility of the Company stock.
The dividend yield was estimated based on the Company’s dividend policy at the time of the grant.

132 YUM CHINA – 2020 Form 10-K

PART II

RSUs and PSUs

RSU awards generally vest over a three-year period with a majority of the awards cliff vesting at 100% on the third grant
anniversary. The fair values of RSU awards are based on the closing price of the Company’s stock on the date of grant.

During 2019 and 2018, the Company granted PSUs that are subject to market conditions and service conditions, cliff
vesting at the end of the performance period. The number of shares to be distributed is based on the Company’s perfor-
mance on its total shareholder return relative to its peer group in the MSCI International China Index, measured over a
three-year performance period. The fair value of PSU awards was valued based on the outcome of the Monte-Carlo Sim-
ulation model (the “MCS model”) and amortized on a straight-line basis over the three-year period. The total amount of
fair value for the PSUs granted in 2019 and 2018 is immaterial.

In February 2020, the Company’s board of directors approved new grants of 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. The fair value of Partner PSU Awards was determined based on the outcome of the
MCS model and closing price of the Company’s stock on the date of the grant. The assumptions used in determining the
grant date fair value of Partner PSU Awards include the risk-free interest rate of 1.4%, expected dividend yield of 1.1%,
and expected volatility of 33.4%.

The annual PSU awards granted in February 2020 are cliff vested based only on the Company’s achievement of perfor-
mance goals with a relative total shareholder return payout modifier against the MSCI China Index, measured over a
three-year period. The fair value of annual PSU awards was determined based on the outcome of the MCS model. The
assumptions used in determining the grant date fair value of annual PSU awards include the risk-free interest rate of 1.4%
and expected volatility of 33.4%.

Compensation costs associated with annual and Partner PSU Awards are recognized on a straight-line basis over the per-
formance 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
per share 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, 2020 and 2019, a total of 54,757 and 60,419 shares of Yum China common
stock, respectively, were granted to non-employee directors and the grant-date fair value of $2.6 million and
$2.4 million, respectively, was immediately recognized in full in the Consolidated Statements of Income.

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YUM CHINA – 2020 Form 10-K 133

PART II

Award Activity

Stock Options and SARs

Shares
(in thousands)

Weighted-Average
Exercise
Price

Weighted-Average
Remaining
Contractual Term
(years)

Aggregate Intrinsic
Value (in millions)

Outstanding at the beginning of 2020
Granted
Exercised
Forfeited or expired

Outstanding at the end of 2020

Exercisable at the end of 2020

14,373
1,314
(3,585)
(252)

11,850(a)

8,841

24.22
42.71
19.19
38.22

27.49

23.32

5.12

4.11

351

299

(a) Outstanding awards include 348,407 stock options and 11,501,517 SARs with weighted-average exercise prices
of $19.91 and $27.72, respectively. Outstanding awards represent Yum China awards held by employees of both
the Company and YUM.

The weighted-average grant-date fair value of SARs granted in 2020, 2019 and 2018 was $13.36, $13.43 and $13.52,
respectively. The total intrinsic value of stock options and SARs exercised by the Company’s employees during the years
ended December 31, 2020, 2019 and 2018 was $75 million, $39 million and $31 million, respectively.

As of December 31, 2020, $25 million of unrecognized compensation cost related to unvested stock options and SARs,
which will be reduced by any forfeitures that occur, is expected to be recognized over a remaining weighted-average
vesting period of approximately 1.69 years. This reflects unrecognized cost for both Yum China awards and YUM
awards held by the Company’s employees. The total fair value at grant date or modification date of awards held by the
Company’s employees that vested during 2020, 2019 and 2018 was $15 million, $14 million and $14 million, respec-
tively.

RSUs and PSUs

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Unvested at the beginning of 2020
Granted
Vested
Forfeited or expired

Unvested at the end of 2020

Shares
(in thousands)

Weighted-Average
Grant Date Fair Value

971
1,214
(448)
(37)

1,700

36.08
40.49
30.76
41.25

40.52

The weighted-average grant-date fair value of RSUs and PSUs granted in 2020, 2019 and 2018 was $40.49, $44.75 and
$39.50, respectively. As of December 31, 2020, $10 million of unrecognized compensation cost related to 551,642
unvested RSUs and $29 million of unrecognized compensation cost related to 1,148,042 PSUs, which will be reduced by
any forfeiture that occurs, are expected to be recognized over a remaining weighted-average vesting period of approxi-
mately 1.50 and 2.82 years, respectively. The total fair value at grant date of awards that vested during 2020, 2019 and
2018 was $14 million, $4 million and $4 million, respectively.

134 YUM CHINA – 2020 Form 10-K

PART II

Impact on Net Income

Share-based compensation expense was $36 million, $26 million and $24 million for 2020, 2019 and 2018, respectively.
Deferred tax benefits of $1 million, $1 million, $1 million was recognized in 2020, 2019 and 2018, respectively.

Note 15—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, 2020, 440 million shares of Yum China common stock were issued and 420 million
shares were outstanding.

Share Repurchase Program

The Company repurchased 0.2 million, 6.2 million and 9.0 million shares of common stock at a total cost of $7 million,
$261 million and $312 million for the years ended December 31, 2020, 2019 and 2018, respectively. As of December 31,
2020, $692 million remained available for repurchase under the current authorization. The Company suspended the
share repurchase in the second, third and fourth quarter of 2020.

Cash Dividend

On October 4, 2017, the board of directors approved a regular quarterly cash dividend program, and declared an initial
cash dividend of $0.10 per share on Yum China’s common stock. Total cash dividends of $38 million were paid to
shareholders in December 2017. The Company paid a cash dividend of $0.10 per share for each of the first three quarters
of 2018 and $0.12 per share for the fourth quarter of 2018, each quarter of 2019 and the first quarter and fourth quarter of
2020. The Company suspended the share repurchase in the second and third quarter of 2020. Total cash dividends of
$95 million, $181 million and $161 million were paid to shareholders in 2020, 2019 and 2018, respectively.

Accumulated Other Comprehensive Income (“AOCI”)

The Company’s other comprehensive income (loss) for the years ended December 31, 2020, 2019, and 2018 and AOCI
balances as of December 31, 2020 and 2019 were comprised solely of foreign currency translation adjustments. Other
comprehensive income was $230 million for the year ended December 31, 2020 and other comprehensive loss was
$32 million and $160 million for the years ended December 31, 2019 and 2018, respectively. The accumulated balances
reported in AOCI in the Consolidated Balance Sheets for currency translation adjustments were net income of
$167 million as of December 31, 2020 and net loss of $49 million as of December 31, 2019. There was no tax effect
related to the components of other comprehensive income for all years presented.

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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 subsid-
iaries only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regula-
tions. 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.

YUM CHINA – 2020 Form 10-K 135

PART II

In accordance with the PRC Regulations on Enterprises with Foreign Investment and the articles of association of the
Company’s PRC subsidiaries, a foreign-invested enterprise established in the PRC is required to provide certain statu-
tory reserves, namely general reserve fund, the enterprise expansion fund and staff welfare and bonus fund which are
appropriated from net profit as reported in the enterprise’s PRC statutory accounts. A foreign-invested enterprise is
required to allocate at least 10% of its annual after-tax profit to the general reserve until such reserve has reached 50% of
its respective registered capital based on the enterprise’s PRC statutory accounts. Appropriations to the enterprise expan-
sion fund and staff welfare and bonus fund are at the discretion of the board of directors for all foreign-invested enter-
prises. The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends.

As a result of these PRC 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 general reserve fund, the Company’s PRC sub-
sidiaries are restricted in their ability to transfer a portion of their net assets to the Company in the form of dividend pay-
ments, loans or advances. The restricted net assets of the PRC subsidiaries is approximately $855 million as of
December 31, 2020.

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 other-
wise satisfy their foreign currency-denominated obligations.

Note 16—Income Taxes

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

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Based on the information available, we made a reasonable estimate of the effects and recorded the provisional amount of
$164 million as an additional income tax expense in the fourth quarter of 2017. This amount included an estimated
one-time transition tax of $130 million on the deemed repatriation of accumulated undistributed foreign earnings,
$4 million primarily related to the re-measurement of certain deferred tax assets based on the rates at which they are
expected to reverse in the future, and the valuation allowance of $30 million for certain deferred tax assets. After utilizing
existing qualified foreign tax credits, the total payable of the estimated one-time transition tax was $83 million as of
December 31, 2017.

We completed our analysis of the Tax Act in the fourth quarter of 2018 according to guidance released by the U.S. Trea-
sury Department and the IRS as of December 2018 and made a reversal to provisional amount in the amount of
$36 million for the transition tax recorded in 2017 accordingly. The U.S. Treasury Department and the IRS released the
final transition tax regulations in the first quarter of 2019. We completed the evaluation of the impact on our transition tax
computation based on the final regulations released in the first quarter of 2019 and recorded an additional income tax
expense of $8 million for the transition tax accordingly.

136 YUM CHINA – 2020 Form 10-K

PART II

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.

U.S. and foreign income (loss) before taxes are set forth below:

U.S.
Mainland China
Other Foreign

The details of our income tax provision (benefit) are set forth below:

Current:

Deferred:

Federal
Foreign

Federal
Foreign

2020

2019

2018

(10) $

1,014
104

(7) $

941
69

1,108 $

1,003 $

2020

2019

2018

1 $

183

184 $

26 $
85

111 $

295 $

16 $

228

244 $

(1) $
17

16 $

260 $

(3)
979
(26)

950

(33)
214

181

—
33

33

214

$

$

$

$

$

$

$

$

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
Impact from the Tax Act
Statutory rate differential attributable to foreign operations
Adjustments to reserves and prior years
Change in valuation allowances
Impact from investment (gain) loss
Other, net

Effective income tax rate

2020

2019

2018

$

$

233
—
63
(6)
1
7
(3)

295

21.0% $
—
5.7
(0.6)
0.1
0.7
(0.3)

26.6% $

211
8
53
(2)
2
(10)
(2)

260

21.0% $

0.8
5.3
(0.2)
0.2
(1.0)
(0.2)

25.9% $

199
(36)
56
(4)
(4)
4
(1)

214

21.0%
(3.8)
5.8
(0.4)
(0.4)
0.5
(0.1)

22.6%

Statutory rate differential attributable to foreign operations. This item includes local taxes, withholding taxes, and
shareholder-level taxes, net of foreign tax credits. A majority of our income is earned in China, which is generally subject
to a 25% tax rate. The negative impact in 2020, 2019 and 2018 is primarily due to the U.S. federal statutory rate of 21%,
which is lower than China’s statutory income tax rate.

Adjustments to reserves and prior years. This item includes: (1) changes in tax reserves, including interest thereon,
established for potential exposure we may incur if a taxing authority takes a position on a matter contrary to our position;
and (2) the effects of reconciling income tax amounts recorded in our Consolidated Statements of Income to amounts
reflected on our tax returns, including any adjustments to the Consolidated Balance Sheets. The impact of certain effects
or changes may offset items reflected in the ‘Statutory rate differential attributable to foreign operations’ line.

Change in valuation allowances. This item relates to changes for deferred tax assets generated or utilized during the cur-
rent year and changes in our judgment regarding the likelihood of using deferred tax assets that existed at the beginning
of the year. The impact of certain changes may offset items reflected in ‘Statutory rate differential attributable to foreign
operations’.

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YUM CHINA – 2020 Form 10-K 137

PART II

Impact from investment (gain) loss. This item relates to the gain or loss on investment in equity securities of Meituan. The
Company recorded $29 million of U.S. tax in 2020, including $22 million and $7 million related to gains on investment
in equity securities of Meituan recognized during the year of 2020 and prior year, respectively.

Others. This item primarily includes the impact of permanent differences related to current year earnings, as well as U.S.
tax credits and deductions.

The details of 2020 and 2019 deferred tax assets (liabilities) are set forth below:

2020

2019

Operating losses and tax credit carryforwards
Tax benefit from Little Sheep restructuring
Employee benefits
Share-based compensation
Lease
Other liabilities
Deferred income and other

Gross deferred tax assets

Deferred tax asset valuation allowances

Net deferred tax assets

Intangible assets
Property, plant and equipment
Gain from re-measurement of equity interest upon acquisition
Unrealized gains from equity securities
Withholding tax on distributable earnings

Gross deferred tax liabilities

Net deferred tax assets (liabilities)

Reported in Consolidated Balance Sheets as:

Deferred income taxes
Other liabilities

$

$

$

$

$

24 $
17
3
5
62
13
75

199
(42)

157 $

(61)
(85)
(87)
(26)
(27)

(286) $

(129) $

98
(227)

(129) $

25
18
4
5
61
13
58

184
(47)

137

(23)
(59)
(22)
—
(5)

(109)

28

95
(67)

28

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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 tem-
porary difference for which we have not provided foreign withholding taxes is approximately $2 billion at December 31,
2020. The foreign withholding tax rate on this amount is 5% or 10% depending on the manner of repatriation and the
applicable tax treaties or tax arrangements.

At December 31, 2020, the Company had operating loss carryforwards of $111 million, primarily related to our Little
Sheep and Daojia business as well as certain underperforming entities, most of which will expire by 2025. These losses
are being carried forward in jurisdictions where we are permitted to use tax losses from prior periods to reduce future tax-
able income.

138 YUM CHINA – 2020 Form 10-K

PART II

Cash payments for tax liabilities on income tax returns filed were $170 million, $255 million and $208 million in 2020,
2019 and 2018, respectively.

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

2020

2019

$

$

19 $
8
(6)

21 $

22
4
(7)

19

In 2020 and 2019, our unrecognized tax benefits were increased by $8 million and $4 million, respectively. The unrec-
ognized tax benefits balance of $21 million as of December 31, 2020 related to the uncertainty with regard to the deduct-
ibility of certain business expenses incurred, all of which, if recognized upon audit settlement or statute expiration, would
affect the effective tax rate. The Company believes it is reasonably possible its unrecognized tax benefits of $21 million
as of December 31, 2020, which is included in Other liabilities on the Consolidated Balance Sheet, may decrease by
approximately $6 million in the next 12 months, which if recognized, would affect the 2021 effective tax rate. The
accrued interest and penalties related to income taxes at December 31, 2020 and 2019 are set forth below:

Accrued interest and penalties

2020

2019

$

5 $

5

During 2020, 2019 and 2018, a net benefit of nil, $1 million and $1 million 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 jurisdic-
tions 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.

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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 focuses 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. How-
ever, if the STA prevails in the assessment of additional tax due based on its ruling, the assessed tax, interest and penal-
ties, if any, could have a material adverse impact on our financial position, results of operations and cash flows.

YUM CHINA – 2020 Form 10-K 139

PART II

Note 17—Segment Reporting

The Company has two reportable segments: KFC and Pizza Hut. Starting from the first quarter of 2019, our COFFii &
JOY concept and e-commerce business became operating segments, as their financial results started being regularly
reviewed by the Company’s chief operating decision maker. Our remaining operating segments, including the opera-
tions of Little Sheep, Huang Ji Huang, COFFii & JOY, East Dawning, Taco Bell, Lavazza and Daojia, are combined and
referred to as All Other Segments, as these operating segments are insignificant both individually and in the aggregate.
Segment financial information for prior years has been recast due to alignment with this change in segment reporting.
There was no impact on the Consolidated Financial Statements of the Company as a result of this change. See Note 1.

Revenues
Revenue from external

customers

Inter-segment revenue

Total

Revenues
Revenue from external

customers

Inter-segment revenue

Total

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Revenues
Revenue from external

customers

Inter-segment revenue

Total

KFC

Pizza Hut

All Other
Segments

2020
Corporate
and

Unallocated(a) Combined Elimination Consolidated

5,821 $
—

5,821 $

1,730 $
—

1,730 $

173 $
32

205 $

539 $
26

565 $

8,263 $
58

8,321 $

— $
(58)

(58) $

8,263
—

8,263

KFC

Pizza Hut

All Other
Segments

2019
Corporate
and

Unallocated(a) Combined Elimination Consolidated

6,039 $
1

6,040 $

2,054 $
—

2,054 $

121 $
37

158 $

562 $
—

562 $

8,776 $
38

8,814 $

— $
(38)

(38) $

8,776
—

8,776

KFC

Pizza Hut

All Other
Segments

2018
Corporate
and

Unallocated(a) Combined Elimination Consolidated

5,688 $
—

5,688 $

2,111 $
—

2,111 $

99 $
16

115 $

517 $
—

517 $

8,415 $
16

8,431 $

— $
(16)

(16) $

8,415
—

8,415

$

$

$

$

$

$

140 YUM CHINA – 2020 Form 10-K

Operating Profit

2020

2019

2018

PART II

KFC(b)
Pizza Hut
All Other Segments
Unallocated revenues from transactions with franchisees and unconsolidated

affiliates(c)

Unallocated Other revenues
Unallocated expenses for transactions with franchisees and unconsolidated affiliates(c)
Unallocated Other operating costs and expenses
Unallocated and corporate G&A expenses
Unallocated Closures and impairment expense(d)
Unallocated Other income(e)

Operating Profit
Interest income, net(a)
Investment gain (loss)(a)

Income Before Income Taxes

KFC
Pizza Hut
All Other Segments
Corporate and Unallocated

KFC(f)
Pizza Hut(f)
All Other Segments(f)
Corporate and Unallocated(d)

KFC
Pizza Hut
All Other Segments
Corporate and Unallocated

KFC(g)
Pizza Hut
All Other Segments
Corporate and Unallocated(h)

$

$

$

$

$

$

$

$

$

801
62
(7)

533
32
(531)
(30)
(144)
—
245

961
43
104

$

949
114
(14)

558
4
(554)
(4)
(145)
(11)
4

901
39
63

1,108

$

1,003

$

895
97
(12)

514
3
(512)
(2)
(128)
(12)
98

941
36
(27)

950

Depreciation and Amortization
2020

2019

2018

315
113
8
14

450

$

$

290
120
5
13

428

$

$

296
129
8
12

445

Impairment Charges

2020

2019

2018

32
29
5
—

66

$

$

16
20
2
11

49

Capital Spending

2020

2019

$

$

$

$

14
26
—
12

52

2018

292
77
6
95

470

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264
71
10
90

435

257
61
5
96

419

$

$

$

$

Total Assets

2020

2019

$

4,084
906
378
5,507

10,875

$

3,160
950
166
2,674

6,950

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

(b)

Includes equity income from investments in unconsolidated affiliates of $63 million, $69 million and $65 million
in 2020, 2019 and 2018, respectively.

YUM CHINA – 2020 Form 10-K 141

PART II

(c)

(d)

(e)

(f)

Primarily includes revenues and associated expenses of transactions with franchisees and unconsolidated affili-
ates derived from the Company’s central procurement model whereby the Company centrally purchases substan-
tially all food and paper products from suppliers then sells and delivers to KFC and Pizza Hut restaurants,
including franchisees and unconsolidated affiliates. Amounts have not been allocated to any segment for purposes
of making operating decisions or assessing financial performance as the transactions are deemed corporate reve-
nues and expenses in nature.

Includes impairment charges on intangible assets and goodwill attributable to the Daojia business in 2019 and
2018, respectively. See Note 5.

In 2020 and 2018, the unallocated other income primarily includes gain from re-measurement of previously held
equity interest in connection with the acquisition of Suzhou KFC and Wuxi KFC, respectively. See Note 5.

Primarily includes store closure impairment charges, restaurant-level impairment charges resulting from our
semi-annual impairment evaluation as well as our additional impairment evaluation performed in the first quarter
of 2020 in response to adverse impact from the COVID-19 pandemic, and incremental restaurant-level impair-
ment charges in the first quarter of 2019 as a result of adopting ASC 842. (See Note 12).

(g)

Includes investments in unconsolidated affiliates.

(h)

Primarily includes cash and cash equivalents, short-term investments, investment in equity securities, long-term
time deposits and inventories that are centrally managed.

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.

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Note 18—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 (“Chinese interests”), 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, given how recently Bulletin 7 was promulgated, 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

142 YUM CHINA – 2020 Form 10-K

PART II

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 pro-
vided to YUM, the fair value of the non-contingent obligation to stand ready to perform was insignificant and the liability
for the contingent obligation to make payment was not probable or estimable.

Guarantees for Franchisees and Unconsolidated Affiliates

From time to time we have guaranteed certain lines of credit and loans of franchisees and unconsolidated affiliates. As of
December 31, 2020, guarantees on behalf of franchisees were immaterial and no guarantees were outstanding for uncon-
solidated affiliates.

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 offi-
cer of the Company or while serving at the Company’s request as a director or officer or another position at another cor-
poration 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, 2020.

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 condi-
tion 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 19—Selected Quarterly Financial Data (unaudited; in millions, except
per share amounts)

First
Quarter

Second
Quarter

2020
Third
Quarter

Fourth
Quarter

Total

Revenues:

Company sales
Franchise fees and income
Revenues from transactions with franchisees and

$

unconsolidated affiliates

Other revenues

Total revenues

Restaurant profit

Operating Profit

Net Income—Yum China Holdings, Inc.

Basic earnings per common share

Diluted earnings per common share

$

$

1,548
35

161
10

1,754

165

97

62

0.16

0.16

$

$

$

1,692
37

157
16

1,902

231

128

132

0.35

0.34

$

$

$

2,118
40

170
20

2,348

394

556

439

1.13

1.10

$

$

$

2,038
36

159
26

2,259

308

180

151

0.36

0.35

$

$

$

7,396
148

647
72

8,263

1,098

961

784

2.01

1.95

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YUM CHINA – 2020 Form 10-K 143

PART II

First
Quarter

Second
Quarter

2019
Third
Quarter

Fourth
Quarter

Total

Revenues:

Company sales
Franchise fees and income
Revenues from transactions with franchisees and

$

unconsolidated affiliates

Other revenues

Total revenues

Restaurant profit

Operating Profit

Net Income—Yum China Holdings, Inc.

Basic earnings per common share

Diluted earnings per common share

$

$

2,089
39

170
6

2,304

386

303

222

0.59

0.57

$

$

$

1,926
36

154
8

2,124

283

204

178

0.47

0.46

$

$

$

2,097
38

172
12

2,319

372

300

223

0.59

0.58

$

$

$

1,813
35

158
23

2,029

225

94

90

0.24

0.23

$

$

$

7,925
148

654
49

8,776

1,266

901

713

1.89

1.84

Note 20—Subsequent Events

Cash Dividend

On February 3, 2021, the Company announced that the board of directors declared a cash dividend of $0.12 per share on
Yum China’s common stock, payable as of the close of business on March 25, 2021, to stockholders of record as of the
close of business on March 3, 2021. Total estimated cash dividend payable is approximately $50 million.

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144 YUM CHINA – 2020 Form 10-K

ITEM 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.

PART II

None.

ITEM 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

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

Management’s Report on Internal Controls Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as
such term is defined in Rules 13a-15(f) under the Securities Exchange Act of 1934. Under the supervision and with the
participation of our management, including the CEO and CFO, we conducted an evaluation of the effectiveness of our
internal control over financial reporting based on the framework in Internal Control—Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. As permitted, our manage-
ment excluded Suzhou KFC and Huang Ji Huang, both acquired during 2020, from the scope of its assessment of the
effectiveness of internal control over financial reporting as of December 31, 2020. Suzhou KFC’s total assets, excluding
goodwill and net intangible assets which were included within the scope of assessment, and total revenues represented
1.4% and 2.1% of the Company’s total consolidated assets and total consolidated revenues, respectively, as of and for the
year ended December 31, 2020. Huang Ji Huang’s total assets, excluding goodwill and intangible assets which were
included within the scope of assessment, and total revenues represented 1.0% and less than 1.0% of the Company’s total
consolidated assets and total consolidated revenues, respectively, as of and for the year ended December 31, 2020.

Based on our evaluation under the framework in Internal Control—Integrated Framework (2013), our management
concluded that our internal control over financial reporting was effective as of December 31, 2020.

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KPMG Huazhen LLP, an independent registered public accounting firm, has audited the Consolidated Financial State-
ments included in this Annual Report on Form 10-K and the effectiveness of our internal control over financial reporting
as of December 31, 2020 and has issued their report, included herein.

Changes in Internal Control over Financial Reporting

There were no changes with respect to the Company’s internal control over financial reporting or in other factors that
materially affected, or are reasonably likely to materially affect, internal control over financial reporting during the quar-
ter ended December 31, 2020.

ITEM 9B. Other Information.

None.

YUM CHINA – 2020 Form 10-K 145

PART III

PART III

ITEM 10. Directors, Executive Officers and Corporate
Governance.

Information regarding the Company’s Audit Committee and the Audit Committee financial expert, the Company’s code
of conduct and background of the directors appearing under the captions “Governance of the Company” and “Election of
Directors” is incorporated herein by reference to the 2021 Proxy Statement.

Information regarding executive officers of the Company is incorporated by reference from Part I of this Form 10-K.

ITEM 11. Executive Compensation.

Information regarding executive and director compensation and the Company’s Compensation Committee appearing
under the captions “Executive Compensation”, “2020 Director Compensation” and “Governance of the Company” is
incorporated herein by reference to the 2021 Proxy Statement.

ITEM 12. Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters.

Information regarding equity compensation plans and security ownership of certain beneficial owners and management
appearing under the captions “Executive Compensation” and “Stock Ownership Information” is incorporated herein by
reference to the 2021 Proxy Statement.

ITEM 13. Certain Relationships and Related Transactions,
and Director Independence.

Information regarding certain relationships and related transactions and information regarding director independence
appearing under the caption “Governance of the Company” is incorporated herein by reference to the 2021 Proxy State-
ment.

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ITEM 14. Principal Accountant Fees and Services.

Information regarding principal accountant fees and services and audit committee pre-approval policies and procedures
appearing under the caption “Ratification of Independent Auditor” is incorporated herein by reference to the 2021 Proxy
Statement.

146 YUM CHINA – 2020 Form 10-K

PART IV

PART IV

ITEM 15. Exhibits and Financial Statement Schedules.

(a) (1)

Financial Statements: Consolidated Financial Statements filed as part of this report are listed under Part II,
Item 8 of this Form 10-K.

(2)

(3)

Financial Statement Schedules: No schedules are required because either the required information is not
present or not present in amounts sufficient to require submission of the schedule, or because the informa-
tion required is included in the Consolidated Financial Statements thereto filed as a part of this Form 10-K.

Exhibits: The exhibits listed in the accompanying Exhibit Index are filed as part of this Form 10-K. The
Index to Exhibits specifically identifies each management contract or compensatory plan required to be
filed as an exhibit to this Form 10-K.

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YUM CHINA – 2020 Form 10-K 147

PART IV

Exhibit
Number

2.1**

3.1

3.2

4.1

4.2

4.3

10.1

10.2

10.3

10.4

10.5

10.6

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Yum China Holdings, Inc.
Exhibit Index
(Item 15)

Description of Exhibits

Separation and Distribution Agreement, dated as of October 31, 2016, by and among Yum! Brands, Inc.,
Yum Restaurants Consulting (Shanghai) Company Limited and Yum China Holdings, Inc. (incorporated by
reference to Exhibit 2.1 to Yum China Holdings, Inc.’s Current Report on Form 8-K filed on November 1,
2016).

Amended and Restated Certificate of Incorporation of Yum China Holdings, Inc. (incorporated by reference
to Exhibit 3.1 to Yum China Holdings, Inc.’s Current Report on Form 8-K filed on November 1, 2016).

Amended and Restated Bylaws of Yum China Holdings, Inc. (incorporated by reference to Exhibit 3.2 to
Yum China Holdings, Inc.’s Current Report on Form 8-K filed on November 1, 2016).

Form of Replacement Warrant issued to Pollos Upside L.P. (as transferee of Warrant No.1 and No. 2 issued
to Pollos Investment L.P. on January 9, 2017) (incorporated by reference to Exhibit 4.4 to Yum China
Holdings, Inc.’s Annual Report on Form 10-K filed on February 27, 2020).

Form of Replacement Warrant issued to API (Hong Kong) Investment Limited.*

to Section 12 of the Securities Exchange Act of 1934
Description of Securities Registered Pursuant
(incorporated by reference to Exhibit 4.5 of Yum China Holdings, Inc.’s Annual Report on Form 10-K filed
February 27, 2020).

Master License Agreement, dated as of October 31, 2016, by and between Yum! Restaurants Asia Pte. Ltd.
and Yum Restaurants Consulting (Shanghai) Company Limited (incorporated by reference to Exhibit 10.1 to
Yum China Holdings, Inc.’s Current Report on Form 8-K filed on November 1, 2016).

Tax Matters Agreement, dated as of October 31, 2016, by and among Yum! Brands, Inc., Yum China
Holdings, Inc. and Yum Restaurants Consulting (Shanghai) Company Limited (incorporated by reference to
Exhibit 10.2 to Yum China Holdings, Inc.’s Current Report on Form 8-K filed on November 1, 2016).

Employee Matters Agreement, dated as of October 31, 2016, by and between Yum! Brands, Inc. and Yum
China Holdings, Inc. (incorporated by reference to Exhibit 10.3 to Yum China Holdings, Inc.’s Current
Report on Form 8-K filed on November 1, 2016).

Name License Agreement, dated as of October 31, 2016, by and between Yum! Brands, Inc. and Yum China
Holdings, Inc. (incorporated by reference to Exhibit 10.5 to Yum China Holdings, Inc.’s Current Report on
Form 8-K filed on November 1, 2016).

Guaranty of Master License Agreement, dated as of October 31, 2016, by Yum China Holdings, Inc.
(incorporated by reference to Exhibit 10.6 to Yum China Holdings, Inc.’s Current Report on Form 8-K filed
on November 1, 2016).

Investment Agreement, dated as of September 1, 2016, by and among Yum! Brands, Inc., Yum China
Holdings, Inc. and Pollos Investment L.P. (incorporated by reference to Exhibit 10.11 to Amendment No. 5
to Yum China Holdings, Inc.’s Registration Statement on Form 10, filed on September 16, 2016).

148 YUM CHINA – 2020 Form 10-K

Exhibit
Number

10.7

10.8

10.9

10.10

10.11

10.12

10.13

10.14

10.15

10.16

10.17

10.18

10.19

10.20

PART IV

Description of Exhibits

Investment Agreement, dated as of September 1, 2016, by and among Yum! Brands, Inc., Yum China
Holdings, Inc. and API (Hong Kong) Investment Limited (incorporated by reference to Exhibit 10.12 to
Amendment No. 5 to Yum China Holdings, Inc.’s Registration Statement on Form 10, filed on September 16,
2016).

Letter Agreement, dated as of October 7, 2016, by and among Yum! Brands, Inc., Yum China Holdings, Inc.,
API (Hong Kong) Investment Limited and Pollos Investment L.P. (incorporated by reference to Exhibit 10.9
to Yum China Holdings, Inc.’s Annual Report on Form 10-K filed on March 8, 2017).

Shareholders Agreement, dated as of November 1, 2016, by and among Yum China Holdings, Inc., Pollos
Investment L.P. and API (Hong Kong) Investment Limited (incorporated by reference to Exhibit 10.7 to Yum
China Holdings, Inc.’s Current Report on Form 8-K filed on November 1, 2016).

Form of Yum China Holdings, Inc. Indemnification Agreement (incorporated by reference to Exhibit 10.10
to Yum China Holdings, Inc.’s Current Report on Form 8-K filed on November 1, 2016).

Yum China Holdings, Inc. Long Term Incentive Plan (incorporated by reference to Exhibit 10.7 to
Amendment No. 5 to Yum China Holdings, Inc.’s Registration Statement on Form 10, filed on September 16,
2016). †

Yum China Holdings, Inc. Leadership Retirement Plan (incorporated by reference to Exhibit 10.8 to
Amendment No. 5 to Yum China Holdings, Inc.’s Registration Statement on Form 10, filed on September 16,
2016). †

Form of Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.10 to Amendment No. 5
to Yum China Holdings, Inc.’s Registration Statement on Form 10, filed on September 16, 2016). †

Form of Stock Appreciation Right Agreement (incorporated by reference to Exhibit 10.9 to Amendment
No. 5 to Yum China Holdings, Inc.’s Registration Statement on Form 10, filed on September 16, 2016). †

Letter of Understanding issued by Yum China Holdings, Inc. to Johnson Huang, dated as of February 6, 2017
(incorporated by reference to Exhibit 10.21 to Yum China Holdings, Inc.’s Annual Report on Form 10-K
filed on March 8, 2017). †

Transition Agreement, dated as of September 29, 2017, by and between Yum China Holdings, Inc. and
Micky Pant (incorporated by reference to Exhibit 10.1 to Yum China Holdings, Inc.’s Current Report on
Form 8-K filed on October 5, 2017). †

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Letter of Understanding, dated as of September 29, 2017, by and between Yum China Holdings, Inc. and
Joey Wat (incorporated by reference to Exhibit 10.2 to Yum China Holdings, Inc.’s Current Report on
Form 8-K filed on October 5, 2017). †

Yum China Holdings, Inc. Performance Share Unit Plan (incorporated by reference to Exhibit 10.1 to Yum
China Holdings, Inc.’s Quarterly Report on Form 10-Q filed on May 4, 2018). †

Performance Share Unit Award Notice issued by Yum China Holdings, Inc. to Joey Wat, dated as of
March 2, 2018 (incorporated by reference to Exhibit 10.2 to Yum China Holdings, Inc.’s Quarterly Report on
Form 10-Q filed on May 4, 2018). †

Term Employment Agreement, dated as of March 22, 2019, by and between Yum China Holdings, Inc. and
Shella Ng (incorporated by reference to Exhibit 10.1 to Yum China Holdings, Inc.’s Current Report on
Form 8-K filed on March 22, 2019). †

YUM CHINA – 2020 Form 10-K 149

PART IV

Exhibit
Number

10.21

10.22

10.23

10.24

10.25

10.26

10.27

10.28

21.1

23.1

31.1

31.2

32.1

32.2

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Description of Exhibits

Post-Termination Agreement, effective October 16, 2019, by and between Yum China Holdings, Inc. and
Jacky Lo (incorporated by reference to Exhibit 10.1 to Yum China Holdings, Inc.’s Current Report on
Form 8-K filed on September 6, 2019). †

Employment Letter, effective September 16, 2019, by and between Yum China Holdings, Inc. and Andy
Yeung (incorporated by reference to Exhibit 10.2 to Yum China Holdings, Inc.’s Current Report on Form
8-K filed on September 6, 2019). †

Yum China Holdings, Inc. Change in Control Severance Plan (incorporated by reference to Exhibit 10.1 to
Yum China Holdings, Inc.’s Current Report on Form 8-K filed on October 2, 2019). †

Confirmatory License Agreement, dated January 1, 2020, by and between by and between Yum Restaurants
Consulting (Shanghai) Company Limited and YRI China Franchising LLC. *

Form of Yum China Holdings, Inc. Long Term Incentive Plan Performance Share Units Agreement (Annual
PSU Grants) (incorporated by reference to Exhibit 10.1 to Yum China Holding, Inc.’s Quarterly Report on
Form 10-Q filed on May 8, 2020). †

Form of Yum China Holdings, Inc. Long Term Incentive Plan Performance Share Units Agreement (Partner
PSU Awards) (incorporated by reference to Exhibit 10.2 to Yum China Holding, Inc.’s Quarterly Report on
Form 10-Q filed on May 8, 2020). †

Form of Yum China Holdings, Inc. Long Term Incentive Plan Restricted Stock Units Agreement
(incorporated by reference to Exhibit 10.3 to Yum China Holding, Inc.’s Quarterly Report on Form 10-Q
filed on May 8, 2020). †

Form of Yum China Holdings, Inc. Stock Appreciation Rights Agreement (incorporated by reference to
Exhibit 10.4 to Yum China Holding, Inc.’s Quarterly Report on Form 10-Q filed on May 8, 2020). †

Subsidiaries of Yum China Holdings, Inc.*

Consent of Independent Registered Public Accounting Firm.*

Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of Securities Exchange Act of 1934,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of Securities Exchange Act of 1934,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.*

Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.*

101.INS

XBRL Instance Document - the instance document does not appear in the Interactive Data File because its
XBRL tags are embedded within the Inline XBRL document *

101.SCH

Inline XBRL Taxonomy Extension Schema Document *

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document *

150 YUM CHINA – 2020 Form 10-K

PART IV

Exhibit
Number

Description of Exhibits

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document *

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document *

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document *

104

Cover Page Interactive Data File—the cover page XBRL tags are embedded within the Inline XBRL
document *

*

Filed or furnished herewith.

**

Certain schedules and exhibits to this agreement have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy
of any omitted schedules and/or exhibits will be furnished to the Securities and Exchange Commission upon request.

†

Indicates a management contract or compensatory plan.

ITEM 16. Form 10-K Summary.

Not applicable.

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YUM CHINA – 2020 Form 10-K 151

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

YUM CHINA HOLDINGS, INC.

By:

/s/ Joey Wat

Joey Wat
Chief Executive Officer

Date: February 26, 2021

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152 YUM CHINA – 2020 Form 10-K

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature

/s/ Joey Wat

Joey Wat

/s/ Andy Yeung

Andy Yeung

/s/ Xueling Lu

Xueling Lu

/s/ Peter A. Bassi

Peter A. Bassi

/s/ Christian L. Campbell

Christian L. Campbell

/s/ Ed Yiu-Cheong Chan

Ed Yiu-Cheong Chan

/s/ Edouard Ettedgui

Edouard Ettedgui

/s/ Cyril Han

Cyril Han

/s/ Louis T. Hsieh

Louis T. Hsieh

/s/ Fred Hu

Fred Hu

/s/ Ruby Lu

Ruby Lu

/s/ Zili Shao

Zili Shao

/s/ William Wang

William Wang

Title

Chief Executive Officer and Director
(principal executive officer)

Chief Financial Officer
(principal financial officer)

Controller
(controller and principal accounting officer)

Director

Director

Director

Director

Director

Director

Director

Director

Director

Director

Date

February 26, 2021

February 26, 2021

February 26, 2021

February 26, 2021

February 26, 2021

February 26, 2021

February 26, 2021

February 26, 2021

February 26, 2021

February 26, 2021

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February 26, 2021

February 26, 2021

February 26, 2021

YUM CHINA – 2020 Form 10-K 153

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