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Company's stock price rises to three times its original as Yum deploys cash on hand to pay down debt, repurchase shares
One billion dollars.
Most restaurant companies can only dream of approaching that sales milestone in a year. But in 2004, Yum! Brands Inc.'s system generated more than that amount in franchise and license fees alone.
Last year, Yum's total corporate revenue exceeded $9 billion, reflecting systemwide sales of almost $28 billion for its largely franchised chains' 33,600 restaurants.
Operating profit and operating cash flow also surpassed the $1 billion mark in 2004, as they have for the past three years. But even with those mounds of internally generated cash available to the company, Yum doesn't like to keep a lot of it laying around. As of the end of last year, cash and cash equivalents on the balance sheet were a mere $62 million.
"We don't try to have a lot of cash in hand," says Richard T. Carucci, Yum's chief financial officer, "When we have extra money, we prefer to pay down whatever revolving credit we have to eliminate and also to repurchase shares."
Indeed, Yum's biggest deployment of cash last year, after the $645 million used for capital spending which was bumped to $700 million for 2005 - was for the repurchase of $569 million worth of common stock.
Yum's next-largest use of cash was $371 million to pay down long-term debt. At year-end, Yum's total borrowings stood at $1.7 billion, which was 64 percent below the whopping $4.7 billion in debt encumbering the company in 1997, when it was spun off from PepsiCo Inc. as Tricon Global Restaurants Inc.
Last year, as a result of the company's debt reduction and improved operating performance, Yum's credit and debt ratings were raised to investment grade from speculative grade by the three major ratings services, Standard & Poor's, Moody's Investors Service and FitchRatings. Earlier this year, Yum's debt rating was boosted another notch by FitchRatings, and S&P upgraded its outlook for Yum's debt to "positive" from "stable."
However, according to Carucci, the elevations to...