.

The new company had $4.7 billion in debt and a far-flung business with little cohesion and lackluster sales.

"There was huge anxiety in our company," said David C. Novak, current chairman and chief executive officer at Louisville-based Yum Brands Inc.

Ten years later, Yum has cut its debt in half, added two more brands, opened thousands more restaurants worldwide and become the dominant U.S. fast-food player in China.

Not everything has gone smoothly, though. U.S. sales are sluggish, and the company has suffered public relations black eyes - from an E. coli outbreak at some East Coast restaurants to a rat infestation in a franchise KFC/Taco Bell store in New York City. It reported Monday its third-quarter profit rose 17 percent thanks to fast growth in its international and China divisions that offset sluggishness in U.S. sales.

Overall, Yum has gained a reputation since the spinoff as an innovative, aggressive company that bounces back from problems to perform well consistently, said Bear Stearns restaurant industry analyst Joe Buckley.

"I think management has done a terrific job taking kind of a messy, loosely confederated company at the origin and making it a much more cohesive, well-functioning company," he said.

The three restaurant chains were largely autonomous and sometimes competitors at the outset, said Novak, who was second in command of what was called then Tricon Global Restaurants. For instance, the chains might eye the same piece of property for development, bidding against one another, he said.

Against that backdrop, Novak viewed the spinoff as a chance for "a giant do-over."

Now, corporate cohesion covers everything from buying property to purchasing ingredients.

Yum property planners decide which chain best fits a parcel of land, based on local population, traffic and competition. A food-purchasing cooperative leverages the company's size in seeking the best prices for ingredients used by all its brands. All restaurants benefit, franchisee-owned and company-owned alike.

At PepsiCo, the spinoff is seen as mutually beneficial, allowing each company to concentrate on core businesses, said spokeswoman Jenny Schiavone. The proof has been the growth in stock value for both, she said.

Yum's stock price has quadrupled in value since the spinoff, with a couple of stock splits during that time. In 2002, it acquired two more brands - Long John Silver's and A&W All-American Food Restaurants - and changed the Tricon name to Yum Brands.

Entering its second decade, more challenges await the 35,000-restaurant company that sees itself going toe-to-toe with McDonald's Corp. for global fast-food supremacy.

Yum's top goal is to boost U.S. sales, which lag far behind overseas growth, led by its China operation, where it opens on average one restaurant daily.

A few hundred restaurants in China produced just under $20 million in profit at the spinoff. Those numbers ballooned to 2,600 restaurants, mostly KFCs, and $292 million in profit by the end of 2006. Yum boasts double-digit operating profit growth in its China and separate international divisions.

A decade ago, 80 percent of Yum's profits came from the United States. Now, half the profits pour in from its overall international business in more than 100 countries.

"The sky's the limit now internationally," Novak said.

In contrast, Yum's U.S. performance has been sluggish, averaging 2 percent profit growth in the past five years, well below its goal of 5 percent yearly growth.

Buckley said he doesn't expect Yum to supplant McDonald's as the U.S. fast-food leader.

"I think the focus is to run the U.S. [operations] smarter and better, and that they can do," he said.

Yum's best U.S. performer, Taco Bell, was hurt by an E. coli outbreak late last year that caused more than 70 customers to become sick. In another highly publicized incident this year, a TV news camera showed rats running through a New York City KFC/Taco Bell restaurant.

Taco Bell's recovery has been going slowly but surely, said Novak, who predicted same-store sales growth for the chain in the coming fourth quarter.

To boost domestic sales, Yum wants to get more out of its restaurants. "Our biggest asset that we have in the U.S. is that we have 20,000 underleveraged assets," Novak said.

Taco Bell is testing a breakfast menu that Novak hopes spreads across the chain within a couple of years.

KFC is testing grilled chicken items, and is looking to bolster its lunch business and extend store hours to pull in late-night snackers. Pizza Hut is diversifying by combining more of its restaurants with Yum's chicken wing subsidiary, called WingStreet, created in 2003. Yum currently has 1,038 WingStreet/Pizza Hut restaurants in the United States, Australia and Canada.

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