Acquisition of Ownership of the Pizza Hut Brand in Mainland China (the “Pizza Hut Acquisition”)

In August 2026, the Company completed the acquisition of ownership of the Pizza Hut brand in Mainland China from YUM for a cash consideration of $1.2 billion. Upon closing, the Company was no longer subject to the license fees previously payable to YUM for the Pizza Hut brand.

The transaction was accounted for as an asset acquisition. The acquired trademarks, other intellectual property and related rights associated with the Pizza Hut brand in Mainland China represent a group of complementary intangible assets (collectively, the “brand name”). The Company determined that the brand name has an indefinite useful life since we intend to use it indefinitely and there are no foreseeable legal, regulatory, or contractual provisions that limit its useful life.

Total purchase consideration, including directly attributable transaction costs, was allocated to assets acquired and liabilities assumed. The carrying amount then assigned to the Pizza Hut brand name was $1,264 million on the acquisition date, after recording the related deferred tax liability impact of $45 million.

In the fourth quarter of 2021, the Company completed its investment in a 28% equity interest in Hangzhou Catering, an entity holding a 45% equity interest in Hangzhou KFC, of which the Company previously held a 47% equity interest. Upon completion of the transaction, the Company directly and indirectly holds an approximately 60% equity interest in Hangzhou KFC and has majority representation on the board, and thus obtained control over Hangzhou KFC and started to consolidate its results from the acquisition date. In addition to its equity interest in Hangzhou KFC, Hangzhou Catering operates Chinese dining restaurants under four time-honored brands and a food processing business. The Company applies the equity method of accounting to the 28% equity interest in Hangzhou Catering excluding the Hangzhou KFC business and recorded this investment in Equity investments based on its then fair value. The Company elected to report its share of Hangzhou Catering’s financial results with a one-quarter lag because its results are not available in time for the Company to record them in the concurrent period. The Company’s equity earnings (losses) from Hangzhou Catering, net of taxes, were immaterial for both quarters and years to date ended September 30, 2026 and 2025, and included in Equity in net earnings (losses) from equity method investments in our Condensed Consolidated Statements of Income. As of September 30, 2026 and December 31, 2025, the carrying amount of the Company’s equity method investment in Hangzhou Catering was $58 million and $54 million, respectively, exceeding the Company’s interest in Hangzhou Catering’s underlying net assets by $21 million and $22 million, respectively. Substantially all of this difference was attributable to its self-owned properties and impact of related deferred tax liabilities determined upon acquisition, which is being depreciated over a weighted-average remaining useful life of 20 years.

The purchase amount from Hangzhou Catering was immaterial for both quarters and years to date ended September 30, 2026 and 2025. The Company’s accounts payable and other current liabilities due to Hangzhou Catering were immaterial as of both September 30, 2026 and December 31, 2025.

In the first quarter of 2021, the Company acquired a 5% equity interest in Sunner, a Shenzhen Stock Exchange-listed company. Sunner is China’s largest white-feathered chicken producer and the Company’s largest poultry supplier.

In May 2021, the Company obtained one seat on Sunner’s board of directors upon Sunner’s shareholder approval. The representation on the board, along with the Company being one of Sunner’s significant shareholders, provides the Company with the ability to exercise significant influence over the operating and financial policies of Sunner. As a result, the Company started to apply the equity method of accounting to the investment in May 2021 based on its then fair value. The Company elected to report its share of Sunner’s financial results with a one-quarter lag because Sunner’s results are not available in time for the Company to record them in the concurrent period. The Company’s equity earnings from Sunner, net of taxes, was $2 million and $5 million for the quarters ended September 30, 2026 and 2025, respectively, and was $5 million and $8 million for the years to date ended September 30, 2026 and 2025, respectively, which were included in Equity in net earnings (losses) from equity method investments in our Condensed Consolidated Statements of Income.

The Company purchased inventories of $119 million and $97 million from Sunner for the quarters ended September 30, 2026 and 2025, respectively, and $320 million and $272 million for the years to date ended September 30, 2026 and 2025, respectively. The Company’s accounts payable and other current liabilities due to Sunner were $44 million and $34 million as of September 30, 2026 and December 31, 2025, respectively.

As of September 30, 2026 and December 31, 2025, the carrying amount of the Company’s investment in Sunner was $244 million and $231 million, respectively, exceeding the Company’s interest in Sunner’s underlying net assets by $158 million and $153 million, respectively. As of September 30, 2026 and December 31, 2025, $14 million and $15 million of these basis differences were related to finite-lived intangible assets determined upon acquisition, respectively, which are being amortized over the estimated useful life of 20 years. The remaining differences were related to goodwill and indefinite-lived intangible assets, which are not subject to amortization, as well as deferred tax liabilities impact. As of September 30, 2026 and December 31, 2025, the market value of the Company’s investment in Sunner was $141 million and $147 million based on its quoted closing price, respectively.

In the third quarter of 2018, the Company subscribed for 8.4 million, or less than 1%, of the ordinary shares of Meituan, a delivery aggregator in China, for a total consideration of approximately $74 million, when it launched its initial public offering on the HKEX in September 2018. In the second quarter of 2020, the Company sold 4.2 million of the ordinary shares of Meituan.

The Company accounts for the equity securities at fair value with subsequent fair value changes recorded in our Condensed Consolidated Statements of Income. The fair value of the investment in Meituan is determined based on the closing market price for the shares at the end of each reporting period. The fair value change, to the extent the closing market price of shares of Meituan as of the end of reporting period is higher than our cost, is subject to U.S. tax.

A summary of pre-tax gains or losses on investment in equity securities of Meituan recognized, which were included in Investment gain (loss) in our Condensed Consolidated Statements of Income, is as follows:


	Quarter Ended					Year to Date Ended
	9/30/2026		9/30/2025			9/30/2026			9/30/2025
Unrealized gain (loss) recorded on equity securities held as of the end of the period	$	1	$	(11	)	$	(18	)	$	(26	)

In addition, the Company has strategic equity investments in its eco-system partners, including food and information technology service suppliers. For investments over which the Company has significant influence but does not control, the Company applies equity method to account for such investments. These investments were immaterial both individually and in aggregate, totaling $34 million and $30 million as of September 30, 2026 and December 31, 2025, respectively. The Company purchased inventories or services from these investees and the purchase amounts were immaterial for both quarters and years to date ended September 30, 2026 and 2025.

In the first quarter of 2025, the Company completed a strategic investment in SnowValley Agricultural Group, one of the Company’s key suppliers for potato and a private company, for a total consideration of $14 million. The investment contains certain preferential rights, including the right to redeem shares at the Company’s option upon contingent events, and is therefore accounted for as available-for-sale debt securities measured at the estimated fair value. The unrealized gains or losses, arising from the change in fair value, net of tax, is recognized in Other comprehensive income (loss) in the Condensed Consolidated Statements of Comprehensive Income. As of both September 30, 2026 and December 31, 2025, the carrying amount of the investment was $15 million and fair value change was nil for both quarters and years to date ended September 30, 2026 and 2025.