Yum China Holdings, Inc. Stock Compensation Disclosure

Note 12 – Share-Based Compensation

Overview

Upon the separation, holders of outstanding YUM equity awards generally received both adjusted YUM awards and Yum China awards, or adjusted awards of either YUM or Yum China in their entirety, to maintain the pre-separation intrinsic value of the awards. Share issuances for Yum China awards held by YUM’s employees will be satisfied by Yum China. Share issuances for YUM awards held by the Company’s employees will be satisfied by YUM. As a result, Yum China may issue shares of common stock to YUM’s employees upon exercise or vesting of various types of awards, including stock options, SARs, RSUs, and awards from the executive income deferral plan.

Effective October 31, 2016, the Company adopted the Yum China Holdings, Inc. Long Term Incentive Plan (the “2016 Plan”). The Company has reserved for issuance under the 2016 Plan of 45,000,000 shares of our common stock. Under this plan, the exercise price of stock options and SARs granted must be equal to or greater than the fair market value of the Company’s stock on the date of grant.

In connection with the Primary Conversion, the Company’s stockholders approved the Yum China Holdings, Inc. 2022 Long Term Incentive Plan (the “2022 Plan”), with 31,000,000 shares of Company common stock authorized for grants. The 2022 Plan replaced the 2016 Plan and became effective on October 24, 2022. The 2016 Plan continued to govern awards granted prior to the effectiveness of the 2022 Plan. Under the 2022 Plan, the exercise price of stock options and SARs granted must be the higher of 1) the fair market value of the Company’s stock on the date of grant and (ii) the average fair market value for the five trading days immediately preceding the date of grant. The 2022 Plan is largely based on the 2016 Plan, but with updates to conform to the requirements of the HKEX, to delete provisions relating to our spin-off that are no longer applicable and to make certain other administrative changes.

Similar to the 2016 Plan, potential awards to employees and non-employee directors under the 2022 Plan include stock options, incentive options, SARs, common stock, restricted stock, RSUs, performance shares, PSUs, and cash incentive awards. Awards under the 2016 and 2022 Plan have varying vesting provisions and exercise periods. Stock options and SARs expire 10 years after grant.

The Company recognizes all share-based payments to employees and non-employee directors in the Consolidated Financial Statements as compensation cost on a straight-line basis over the service period based on their fair value on the date of grant, for awards that actually vest and when performance conditions are probable of being achieved, if applicable. If no substantive service condition exists, the grant-date fair value is fully recognized as expense upon grant.

Award Valuation

SARs

SAR awards granted to employees typically have a graded vesting schedule of 25% per year over four years and expire 10 years after grant. The Company uses a single weighted-average term for awards that have a graded vesting schedule and determined average terms of exercise based on analysis of the historical exercise and post-vesting termination behavior. Forfeitures were estimated based on historical experience. Historical data used to estimate the expected term and forfeiture rate include data associated with the Company’s employees who were granted share-based awards by YUM prior to the separation.

For those awards granted by the Company after the separation, the Company considered the historical volatility of the Company’s common stock. The dividend yield was estimated based on the Company’s dividend policy at the time of the grant.

RSUs

RSU awards generally vest over three to four years, with either cliff vesting or graded vesting on anniversary dates. The fair values of RSU awards are based on the closing price of the Company’s stock on the date of grant.

PSUs

The Company grants PSUs that cliff vest only if threshold performance goals are achieved over a performance period, with the payout ranging from 0% to 200% of the target number of shares. These PSU awards are based on the achievement of one or more performance goals, including stock price, relative total shareholder return against selected indices or the constituents of the indices, sales growth, profitability, and strategic imperative.

In February 2020, the Company’s Board of Directors granted a special award of PSUs (“Partner PSU Awards”) to select employees who were deemed critical to the Company’s execution of its strategic operating plan under the 2016 Plan. These Partner PSU Awards are subject to market and performance conditions, and will cliff vest only if threshold performance goals are achieved over a four-year performance period, with the payout ranging from 0% to 200% of the target number of shares. These awards vested as of December 31, 2023 with a payout in the first quarter of 2024.

Compensation costs associated with PSU awards are recognized on a straight-line basis over the performance period when performance conditions are probable of being achieved, adjusted for estimated forfeiture rate.

Others

Commencing from November 11, 2016, Yum China also granted annual awards of common stock to non-employee directors for their service on Yum China’s Board of Directors. The fair value of these awards is based on the closing price of the Company’s common stock on the date of grant. The shares were issued outright to the directors on the date of grant, with no conditions attached. Therefore, the fair value of the awards was fully recognized as expenses upon grant. For the years ended December 31, 2025, 2024 and 2023, the Company recognized in full the grant-date fair value of $3.3 million, $3.2 million and $2.7 million, respectively, in the Consolidated Statements of Income and issued a total of 74,885, 86,972 and 45,843 shares of Yum China common stock, respectively.

Award Activity

SARs

The weighted-average grant-date fair value of SARs granted in 2025, 2024 and 2023 was $17.65, $14.55 and $24.67, respectively. The total intrinsic value of SARs exercised by the Company’s employees during the years ended December 31, 2025, 2024 and 2023 was $25 million, $17 million and $25 million, respectively.

As of December 31, 2025, $7 million of unrecognized compensation cost related to unvested SARs, which will be reduced by any forfeitures that occur, is expected to be recognized over a remaining weighted-average vesting period of approximately 1.53 years. The total fair value at grant date of awards held by the Company’s employees that vested during 2025, 2024 and 2023 was $10 million, $13 million and $15 million, respectively.

The weighted-average grant-date fair value of RSUs granted in 2025, 2024 and 2023 was $47.72, $40.47 and $61.17, respectively. As of December 31, 2025, $33 million of unrecognized compensation cost related to 1,258,233 unvested RSUs, which will be reduced by any forfeiture that occurs, is expected to be recognized over a remaining weighted-average vesting period of approximately 1.58 years. The total fair value at grant date of awards that vested during 2025, 2024 and 2023 was $22 million, $32 million and $8 million, respectively.

The weighted-average grant-date fair value of PSUs granted in 2025, 2024 and 2023 was $54.37, $44.52 and $71.01, respectively. As of December 31, 2025, $10 million of unrecognized compensation cost related to 370,662 unvested PSUs, which will be reduced by any forfeiture that occurs and adjusted based on the Company’s achievement of performance goals, is expected to be recognized over a remaining weighted-average vesting period of approximately 1.78 years. The total fair value at grant date of awards that vested during 2025, 2024 and 2023 was $8 million, $4 million and $41 million, respectively.

Impact on Net Income

Share-based compensation expense was $42 million, $41 million and $64 million for 2025, 2024 and 2023, respectively. Deferred tax benefits and tax benefits realized on our tax returns from tax deductions associated with share-based compensation were immaterial in each of 2025, 2024 and 2023.