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UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


Form 10-K


|  |  |                                                                                         
|- |  | ----------------------------------------------------------------------------------------
|þ |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
|  |  | For the fiscal year ended December 25, 2005                                             

Commission File Number 000-32369





AFC Enterprises, Inc.


|                                                                                                     |  |                                         
|---------------------------------------------------------------------------------------------------- |  | ----------------------------------------
|Minnesota                                                                                            |  | 58-2016606                              
|(State or other jurisdiction of
    incorporation or organization)                                   |  | (I.R.S. Employer
    Identification No.)
|5555 Glenridge Connector, NE, Suite 300
    Atlanta, Georgia(Address of principal executive offices) |  | 30342(Zip Code)                         

(404) 459-4450


Registrants telephone number, including area code:


Securities registered pursuant to Section 12(b) of the
Exchange Act: None


Securities registered pursuant to Section 12(g) of
the Exchange Act:


|                                        |  |                                          
|--------------------------------------- |  | -----------------------------------------
|Title of each class                     |  | Name of each exchange on which registered
|Common stock, $0.01 par value per share |  | Nasdaq National Market                   

o þ


o þ


þ o


S-K 10-K 10-K. þ o




o þ o


12b-2). o þ






|                                        |  |                                 
|--------------------------------------- |  | --------------------------------
|Class                                   |  | Outstanding at February 19, 2006
|                                        |  |                                 
|Common stock, $0.01 par value per share |  | 30,293,787 shares               

Documents incorporated by reference:










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##### 
















AFC ENTERPRISES, INC.


INDEX TO
FORM 10-K


|                                             |  |                                                                                                                      |  |  |    | 
|-------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------- |  |  | -- | 
|PART I                                      
|Item 1.                                      |  | Business                                                                                                             |  |  | 1  | 
|Item 1A.                                     |  | Risk Factors                                                                                                         |  |  | 8  | 
|Item 1B.                                     |  | Unresolved Staff Comments                                                                                            |  |  | 14 | 
|Item 2.                                      |  | Properties                                                                                                           |  |  | 15 | 
|Item 3.                                      |  | Legal Proceedings                                                                                                    |  |  | 15 | 
|Item 4.                                      |  | Submission of Matters to a Vote of Security
    Holders                                                              |  |  | 16 | 
|Item 4A.                                     |  | Executive Officers                                                                                                   |  |  | 16 | 
|PART II                                     
|Item 5.                                      |  | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities |  |  | 17 | 
|Item 6.                                      |  | Selected Financial Data                                                                                              |  |  | 19 | 
|Item 7.                                      |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                            |  |  | 22 | 
|Item 7A.                                     |  | Quantitative and Qualitative Disclosures
    about Market Risk                                                       |  |  | 41 | 
|Item 8.                                      |  | Consolidated Financial Statements and
    Supplementary Data                                                         |  |  | 41 | 
|Item 9.                                      |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure                             |  |  | 42 | 
|Item 9A.                                     |  | Controls and Procedures                                                                                              |  |  | 42 | 
|Item 9B.                                     |  | Other Information                                                                                                    |  |  | 44 | 
|PART III                                    
|Item 10.                                     |  | Directors and Executive Officers of the
    Registrant                                                               |  |  | 45 | 
|Item 11.                                     |  | Executive Compensation                                                                                               |  |  | 47 | 
|Item 12.                                     |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters                   |  |  | 52 | 
|Item 13.                                     |  | Certain Relationships and Related
    Transactions                                                                   |  |  | 56 | 
|Item 14.                                     |  | Principal Accountant Fees and Services                                                                               |  |  | 56 | 
|PART IV                                     
|Item 15.                                     |  | Exhibits and Financial Statement
    Schedules                                                                       |  |  | 57 | 
|EX-23.1 CONSENT OF GRANT THORNTON LLP       
|EX-23.2 CONSENT OF KPMG LLP                 
|EX-31.1 SECTION 302 CERTIFICATION OF THE CEO
|EX-31.2 SECTION 302 CERTIFICATION OF THE CFO
|EX-32.1 SECTION 906 CERTIFICATION OF THE CEO
|EX-32.2 SECTION 906 CERTIFICATION OF THE CFO











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PART I.







|        |         
|------- | --------
|Item 1. | BUSINESS

®


tm


Brand Profile


Popeyes®
Chicken & Biscuits.









1



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##### Table of Contents



AFCs Overall Business Strategy






| |    |                                                                                                                                                                                                                                                                                                         
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | Growing System Sales Through Franchised System
    Growth. Our business model is principally focused on our
    franchising activities. Approximately 98% of our Popeyes
    system-wide restaurants are franchised, and we intend to
    emphasize our franchising activities in 2006 and future years.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We believe that our focus on franchising provides us with higher
    profit margins and enhanced investment returns when compared to
    growth strategies that focus on building new company-operated
    restaurants. To facilitate growth in our franchising operations,
    during 2005, we began offering incentives to franchisees to
    accelerate planned restaurant openings through a temporary
    reduction in franchise fees per opening and temporary royalty
    abatements on those newly opened restaurants, and a comparable
    incentive to franchisees who achieve aggressive timelines for
    opening additional restaurants. By significantly accelerating
    the timing of a restaurants planned opening or through
    additional openings, we believe this program more than pays for
    itself. Our franchisees opened 26 new restaurants during 2005
    under this program. This program will continue into 2006.
|
| | Our new restaurant development activity will focus primarily on
    the extended penetration of existing markets, but will also
    include our entry into new markets. As for our international
    franchise system, we anticipate a substantial portion of our
    growth to be in Canada, Mexico and Latin America.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            



| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2. | Growing System Sales Through Improved Restaurant
    Operations. During 2006, we expect to improve system
    sales by improving our customers experience, both in the
    dining room and at the drive-thru window. We began to see the
    benefits of a reinvigoration of our system operations in 2005,
    and we will continue to aggressively pursue improvements in
    2006. Toward that end, we will continue our focused commitment
    to service standards throughout our organization and our
    franchise system. During 2006, we expect continued benefit from
    the new menu board panels which were installed throughout our
    domestic system and portions of our international system in the
    fourth quarter of 2005. Moreover, we have recently instituted a
    new knowledge and skills training system that we will use during
    2006 as a means to facilitate improved operations.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | One of the ways we seek to improve the operations of our
    franchise system is by setting benchmark standards for
    performance in our company-operated restaurants. Our
    company-operated restaurants are predominately located in two
    markets  New Orleans and Atlanta. These restaurants
    were among the first to adopt our Heritage image
    discussed below. In our company restaurants, we experiment with
    new product offerings and restaurant enhancements, such as our
    new menu board panels. We are considering the addition of a new
    company market in 2006, which may be accomplished through a
    strategic re-acquisition of an existing franchisees
    restaurants.



| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 3. | Growing System Sales Through Menu Development. We
    constantly review our Popeyes menu to find the optimal mix of
    products that drive our lunch, snack and dinner day-parts and
    help bring incremental transactions into our restaurants and the
    restaurants of our franchisees. Leveraging our distinctive
    New Orleans styled flavors, our current menu
    strategy focuses on growing our boneless chicken offerings
    (sandwiches and strips), wings and seafood offerings. Our
    Big Flava chicken sandwiches, introduced
    during 2005, have been successful, and we expect sandwiches to
    be more successful in 2006. During 2006, we plan to reintroduce
    successful limited-time-offer menu items from prior years
    (namely, our spicy buffalo tenders, spicy chicken wings,
    crawfish festival, and Cajun turkeys).
|
| | 4. | Growing System Sales Through Restaurant Development and
    Re-imaging. We and our franchisees are in the process of
    reimaging our Popeyes system from our previous
    Red-White-Blue restaurant image to our updated
    Heritage image, which incorporates distinctive
    elements of New Orleans architecture and colors. As of
    December 25, 2005, nearly 60% of our Popeyes system-wide
    restaurants had adopted the Heritage format. During 2006, we
    expect an additional 10% of our                                                                                                                                                                                                                                                                                                                                                        

2



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| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    | system will be re-imaged. We anticipate having the vast majority
    of our system converted to the Heritage format by the end of
    2008. We firmly believe that the cleanliness, freshness and
    appeal of our restaurants are significant to our customers
    overall dining experience. We believe our highly recognizable
    Heritage image adds to our customers dining experience and
    helps in the marketing of our restaurants.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| | 5. | Growing System Sales Through Creative Marketing.
    We are continuing to review our media and advertising strategies
    to maximize the effectiveness of the marketing funds generated
    from our Popeyes system. Our advertising continues to emphasize
    our distinctive food and flavors using tag lines and props that
    are catchy and memorable. Our media spending typically focuses
    on television, radio and print options (print advertisement,
    signage, and
    point-of-purchase
    materials) at the local market level because we have not
    traditionally had sufficient market coverage to make national
    advertising media effective. We are considering a test of
    national advertising to determine the impact on those markets
    which can not currently afford local television advertising. In
    2006, our advertising will celebrate the flavor and appealing
    taste of our menu items and feature strong promotional offers
    that are relevant to our target customers. We recently selected
    a new national creative advertising agency of record. The agency
    began working immediately to develop creative campaigns for
    Popeyes products slated to launch later in 2006.
|
| | 6. | Recovering from the Adverse Effects of Hurricane
    Katrina. As discussed in Note 17 to our
    Consolidated Financial Statements, during 2005, 36 of our
    company-operated restaurants in the New Orleans area were
    adversely impacted by Hurricane Katrina. Of these restaurants, 5
    have been permanently closed, 10 were re-opened during the third
    and fourth quarters of 2005, and we expect to re-open 8-12
    during 2006. The remaining 9-13 restaurants will be evaluated to
    determine which restaurants will be re-opened at their current
    site, relocated, or permanently closed. That evaluation will be
    significantly influenced by governmental plans for
    revitalization and re-settlement of New Orleans, which will
    become clearer over time. We maintain insurance coverage which
    provides for reimbursement from losses resulting from property
    damage, including flood, loss of product, and business
    interruption. We are working with our insurance carriers to
    resolve our insured claims.                                                                                                                                                                           



Franchise Development




Domestic Development Agreements.


International Development Agreements.


Domestic Franchise Agreements.


3



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International Franchise Agreements.




Site Selection






Suppliers and Purchasing Cooperative


Suppliers.


Purchasing Cooperative.


Supply Agreements.




4



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Marketing and Advertising


point-of






Seasonality




Employees


multi-unit




5



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Intellectual Property and Other Proprietary Rights




Copeland Formula Agreement.


King Features Agreements.


International Operations




Insurance




Competition




Government Regulation




6



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Environmental Matters




Where You Can Find Additional Information


10-K, 10-Q, 8-K, 1-800-SEC-0330 459-4450.


7



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Item 1A.     RISK FACTORS


Certain statements we make in this filing, and other written
or oral statements made by or on our behalf, may constitute
forward-looking statements within the meaning of the
federal securities laws. Words or phrases such as should
result, are expected to, we
anticipate, we estimate, we
project, we believe, or similar expressions
are intended to identify forward-looking statements. These
statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from our
historical experience and our present expectations or
projections. We believe that these forward-looking statements
are reasonable; however, you should not place undue reliance on
such statements. Such statements speak only as of the date they
are made, and we undertake no obligation to publicly update or
revise any forward-looking statement, whether as a result of
future events, new information or otherwise. The following risk
factors, and others that we may add from time to time, are some
of the factors that could cause our actual results to differ
materially from the expected results described in our
forward-looking statements.




| |                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are unable to compete successfully against other
    companies in the QSR industry or develop new products that
    appeal to consumer preferences, we could lose customers and our
    revenues may decline.





| |                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Because our operating results are closely tied to the
    success of our franchisees, the failure or loss of one or more
    of these franchisees could adversely affect our operating
    results.





| |                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------
| | If we face continuing labor shortages or increased labor
    costs, our growth and operating results could be adversely
    affected.



8



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| |                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------
| | If the cost of chicken increases, our cost of sales will
    increase and our operating results could be adversely
    affected.





| |                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------
| | Shortages or interruptions in the supply or delivery of
    fresh food products could adversely affect our operating
    results.





| |                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Changes in consumer preferences and demographic trends, as
    well as concerns about health or food quality, could result in a
    loss of customers and reduce our revenues.

multi-unit




| |                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Instances of avian flu or other food-borne illnesses could
    adversely affect the price and availability of poultry and other
    foods and create negative publicity which could result in a
    decline in our sales.



9



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| |                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are unable to maintain an adequate system of
    internal controls, our ability to report our financial results
    on a timely and accurate basis may continue to be adversely
    affected.





| |                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The effect of Hurricane Katrina and any failure to
    properly address the issues caused by Hurricane Katrina could
    adversely affect our operating results.









| |                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If any member of our senior management left us, our
    operating results could be adversely affected, and we may not be
    able to attract and retain additional qualified management
    personnel.



10



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| |                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our 2005 Credit Facility may limit our ability to expand
    our business, and our ability to comply with the covenants,
    tests and restrictions contained in this agreement may be
    affected by events that are beyond our control.





| |                                                                                                            
| | -----------------------------------------------------------------------------------------------------------
| | If we are unable to franchise a sufficient number of
    restaurants, our growth strategy could be at risk.







| |                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------
| | Currency, economic, political and other risks associated
    with our international operations could adversely affect our
    operating results.



11



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| |                                                                                                     
| | ----------------------------------------------------------------------------------------------------
| | We have recently experienced a decline in the number of
    restaurants we have franchised in Korea.





| |                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we and our franchisees fail to purchase chicken at
    quantities specified in SMSs poultry contracts, we may
    have to purchase the commitment short-fall and this could
    adversely affect our operating results.





| |                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our expansion into new markets may present additional
    risks that could adversely affect the success of our new
    restaurants, and the failure of a significant number of these
    restaurants could adversely affect our operating results.





| |                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our quarterly results and same-store sales may fluctuate
    significantly and could fall below the expectations of
    securities analysts and investors, which could cause the market
    price of our common stock to decline.







| |   |                                                                                                  
| | - | -------------------------------------------------------------------------------------------------
| |  | the opening of new restaurants by us or our franchisees;                                         
|
| |  | the re-opening of restaurants temporarily closed due to
    Hurricane Katrina;                   
|
| |  | the closing of restaurants by us or our franchisees;                                             
|
| |  | rising gasoline prices;                                                                          
|
| |  | increases in labor costs;                                                                        
|
| |  | increases in the cost of food products;                                                          
|
| |  | the ability of our franchisees to meet their future commitments
    under development agreements;

12



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| |   |                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------
| |  | consumer concerns about food quality;                                                                      
|
| |  | the level of competition from existing or new competitors in the
    QSR industry;                         
|
| |  | inclement weather patterns, and                                                                            
|
| |  | economic conditions generally, and in each of the markets in
    which we, or our franchisees, are located.





| |                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We are subject to extensive government regulation, and our
    failure to comply with existing regulations or increased
    regulations could adversely affect our business and operating
    results.





| |   |                                                         
| | - | --------------------------------------------------------
| |  | the preparation and sale of food;                       
|
| |  | building and zoning requirements;                       
|
| |  | environmental protection;                               
|
| |  | minimum wage, overtime and other labor requirements;    
|
| |  | compliance with the Americans with Disabilities Act; and
|
| |  | working and safety conditions.                          







| |                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------
| | The SEC investigation arising in connection with the
    restatement of our financial statements could adversely affect
    our financial condition.





| |                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may not be able to adequately protect our intellectual
    property, which could harm the value of our Popeyes brand and
    branded products and adversely affect our business.



13



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| |                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Because many of our current or former properties were used
    as retail gas stations in the past, we may incur substantial
    liabilities for remediation of environmental contamination at
    our properties.






Item 1B.     UNRESOLVED STAFF
COMMENTS




14



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|        |           
|------- | ----------
|Item 2. | PROPERTIES





|          |       |                 |   |   |                  |  |    |       |  |  |    |    | 
|--------- | ----- | --------------- | - | - | ---------------- |  | -- | ----- |  |  | -- | -- | 
|          |      
|          |       | Land and        |   |   | Land and/or      |  |    |      
|          |       | Buildings Owned |   |   | Buildings Leased |  |    | Total | 
|          |       |                 |   |   |                  |  |    |       | 
|Georgia   |       |                 | 3 |   |                  |  | 18 |       |  |  | 21 |   
|Louisiana |       |                 | 1 |   |                  |  | 9  |       |  |  | 10 |   
|Tennessee |       |                 | 1 |   |                  |  |   |       |  |  | 1  |   
|         
|          | Total |                 |   | 5 |                  |  |    | 27    |  |  |    | 32 | 
|         
















|        |                  
|------- | -----------------
|Item 3. | LEGAL PROCEEDINGS





15



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|        |                                                    
|------- | ---------------------------------------------------
|Item 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS








|         |                   
|-------- | ------------------
|Item 4A. | EXECUTIVE OFFICERS



|                      |  |     |    |  |          |                                                               
|--------------------- |  | --- | -- |  | -------- | --------------------------------------------------------------
|Name                  |  | Age |    |  | Position
|                      |  |     |    |  |         
|Kenneth L. Keymer     |  |     | 57 |  |          | Chief Executive Officer                                       
|H. Melville Hope, III |  |     | 44 |  |          | Chief Financial Officer                                       
|James W. Lyons        |  |     | 51 |  |          | Chief Development Officer                                     
|Robert Calderin       |  |     | 48 |  |          | Chief Marketing Officer                                       
|Harold M. Cohen       |  |     | 42 |  |          | Senior Vice President, General Counsel and Corporate Secretary

Kenneth L. Keymer, ®


H. Melville Hope, III,


James W. Lyons,


Robert Calderin,


Harold Cohen,


16



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##### Table of Contents






PART II.







|        |                                                                                                                 
|------- | ----------------------------------------------------------------------------------------------------------------
|Item 5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED
    STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES





|                    |  |      |       |  |      |   |       |      |  |   |       |  |  |   |       | 
|------------------- |  | ---- | ----- |  | ---- | - | ----- | ---- |  | - | ----- |  |  | - | ----- | 
|                    | 
|                    |  | 2005 |       |  | 2004 |  
|                    |  |      |       |  |      |  
|(Dollars per share) |  | High |       |  | Low  |   |       | High |  |   | Low   | 
|                    | 
|First Quarter       |  | $    | 26.99 |  |      | $ | 22.46 |      |  | $ | 24.50 |  |  | $ | 18.00 | 
|Second Quarter(1)   |  | $    | 28.82 |  |      | $ | 12.90 |      |  | $ | 23.00 |  |  | $ | 17.00 | 
|Third Quarter       |  | $    | 14.66 |  |      | $ | 10.95 |      |  | $ | 22.50 |  |  | $ | 17.00 | 
|Fourth Quarter      |  | $    | 16.45 |  |      | $ | 10.47 |      |  | $ | 25.70 |  |  | $ | 21.00 | 
|                   



| |     |                                                                                                                                                                                                                         | 
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| | (1) | As described below under Dividend Policy, on
    May 11, 2005 our Board of Directors declared a special cash
    dividend of $12.00 per common share. Our common stock began
    trading ex-dividend on June 6, 2005. | 

Share Repurchases




|                                  |  |                    |           |  |                     |   |       |                       |  |  |                   |  |  |   |            | 
|--------------------------------- |  | ------------------ | --------- |  | ------------------- | - | ----- | --------------------- |  |  | ----------------- |  |  | - | ---------- | 
|                                  | 
|                                  |  | Total Number of    |           |  | Maximum Value of    |  
|                                  |  | Shares Repurchased |           |  | Shares that May Yet |  
|                                  |  | Number of Shares   |           |  | Average Price Paid  |   |       | as Part of a Publicly |  |  | Be Repurchased    | 
|Period                            |  | Repurchased(1)(2)  |           |  | Per Share           |   |       | Announced Plan        |  |  | Under the Plan(2) | 
|                                  | 
|Period 11
    10/03/05  10/30/05 |  |                    | 856,070   |  |                     | $ | 11.94 |                       |  |  | 856,070           |  |  | $ | 10,000,065 | 
|Period 12
    10/31/05  11/27/05 |  |                    | 26,800    |  |                     | $ | 12.90 |                       |  |  | 26,800            |  |  | $ | 9,653,466  | 
|Period 13
    11/28/05  12/25/05 |  |                    | 506,802   |  |                     | $ | 13.79 |                       |  |  | 506,802           |  |  | $ | 2,648,675  | 
|                                 
|Total                             |  |                    | 1,389,672 |  |                     | $ | 12.63 |                       |  |  | 1,389,672         |  |  | $ | 2,648,675  | 
|                                 



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | As originally announced on July 22, 2002, amended on
    October 7, 2002, and re-affirmed on May 27, 2005, the
    Companys board of directors has approved a share
    repurchase program. This program authorizes us to repurchase up
    to $100.0 million of our outstanding common stock.                                                                                                                                                                                
|   
|(2) | From December 26, 2005 through February 19, 2006 (the
    end of the Companys second period for 2006), the Company
    repurchased and retired an additional 172,263 shares of
    common stock for approximately $2.6 million. On
    February 17, 2006, the Companys board of directors
    approved a $15.0 million increase to the program. As of
    February 19, 2006, the maximum value of shares that may yet
    be repurchased under the program was $15.0 million.

17



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Shareholders of Record




Dividend Policy






18



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|        |                        
|------- | -----------------------
|Item 6. | SELECTED FINANCIAL DATA



|                                                             |                                       |                |       |      |       |   |       |      |       |   |       |      |       |      |       |      |       |   |       |       |       | 
|------------------------------------------------------------ | ------------------------------------- | -------------- | ----- | ---- | ----- | - | ----- | ---- | ----- | - | ----- | ---- | ----- | ---- | ----- | ---- | ----- | - | ----- | ----- | ----- | 
|                                                             |                                      
|(Dollars in millions, except per share data)                 |                                       | 2005           |       |      | 2004  |   |       | 2003 |       |   | 2002  |      |       | 2001 |      
|                                                             |                                      
|Summary of operations:                                       |                                       |                |       |      |       |   |       |      |       |   |       |      |       |      |       |      |       |   |       |      
|Revenues(1)                                                  |                                       |                |       |      |       |   |       |      |       |   |       |      |       |      |       |      |       |   |       |      
|                                                             | Sales by company-operated restaurants |                | $     | 60.3 |       |   | $     | 85.8 |       |   | $     | 85.4 |       |      | $     | 85.2 |       |   | $     | 107.4 |      
|                                                             | Franchise revenues                    |                |       | 77.5 |       |   |       | 72.8 |       |   |       | 70.8 |       |      |       | 67.1 |       |   |       | 61.6  |      
|                                                             | Other revenues                        |                |       | 5.6  |       |   |       | 5.3  |       |   |       | 5.3  |       |      |       | 6.6  |       |   |       | 5.4   |      
|                                                             |                                       |               
|                                                             |                                       | Total revenues |       | $    | 143.4 |   |       | $    | 163.9 |   |       | $    | 161.5 |      |       | $    | 158.9 |   |       | $     | 174.4 | 
|Operating (loss) profit(2)                                   |                                       | $              | (6.9  | )    |       | $ | (19.4 | )    |       | $ | (19.7 | )    |       | $    | 10.3  |      |       | $ | 7.9   |      
|Loss before discontinued operations and accounting change(3) |                                       |                | (8.4  | )    |       |   | (14.3 | )    |       |   | (14.5 | )    |       |      | (6.4  | )    |       |   | (11.5 | )    
|Net income (loss)(4)                                         |                                       |                | 149.6 |      |       |   | 24.6  |      |       |   | (9.1  | )    |       |      | (11.7 | )    |       |   | 15.6  |      
|Basic earnings per common share:(5)                          |                                       |                |       |      |       |   |       |      |       |   |       |      |       |      |       |      |       |   |       |      
|(Loss) before discontinued operations and accounting change  |                                       | $              | (0.29 | )    |       | $ | (0.51 | )    |       | $ | (0.52 | )    |       | $    | (0.21 | )    |       | $ | (0.39 | )    
|Net income (loss)                                            |                                       |                | 5.14  |      |       |   | 0.87  |      |       |   | (0.33 | )    |       |      | (0.39 | )    |       |   | 0.53  |      
|Diluted earnings per common share:(5)                        |                                       |                |       |      |       |   |       |      |       |   |       |      |       |      |       |      |       |   |       |      
|(Loss) before discontinued operations and accounting change  |                                       | $              | (0.29 | )    |       | $ | (0.51 | )    |       | $ | (0.52 | )    |       | $    | (0.21 | )    |       | $ | (0.39 | )    
|Net income (loss)                                            |                                       |                | 5.14  |      |       |   | 0.87  |      |       |   | (0.33 | )    |       |      | (0.39 | )    |       |   | 0.53  |      
|Year-end balance sheet data:                                 |                                       |                |       |      |       |   |       |      |       |   |       |      |       |      |       |      |       |   |       |      
|Total assets                                                 |                                       | $              | 212.7 |      |       | $ | 361.9 |      |       | $ | 359.5 |      |       | $    | 487.3 |      |       | $ | 525.3 |      
|Total debt(6)                                                |                                       |                | 191.4 |      |       |   | 94.0  |      |       |   | 130.9 |      |       |      | 226.6 |      |       |   | 209.5 |      
|Total shareholders equity (deficit)(7)                      |                                       |                | (48.7 | )    |       |   | 140.9 |      |       |   | 108.8 |      |       |      | 109.8 |      |       |   | 187.3 |      
|                                                            






|    |                                                                                       
|--- | --------------------------------------------------------------------------------------
|(1) | Factors that impact the comparability of revenues for the years
    presented include:



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | The effects of restaurant openings, closings, unit conversions
    and same-store sales (see Summary of System-Wide
    Data later in this Item 6). During 2005, restaurant
    closings include the adverse effects resulting from Hurricanes
    Katrina and Rita. Based upon forecasted operations for the third
    and fourth quarters of 2005, we estimate that the adverse
    effects of these storms decreased sales by company-operated
    restaurants for 2005 by approximately $10.9 million and
    they decreased franchise revenues for 2005 by approximately
    $0.2 million. See Note 17 to our Consolidated
    Financial Statements.                                                                                                       
|
| | (b) | During 2004, we adopted Financial Accounting Standards Board
    Interpretation No. 46, Consolidation of Variable
    Interest Entities, an Interpretation of Accounting Research
    Bulletin No. 51, as revised in December 2003
    (FIN 46R) and began consolidating three
    franchisees that qualify for consolidation under FIN 46R.
    These franchisees were not retroactively consolidated for years
    prior to 2004. Since adoption of FIN 46R, our relationship
    to two of the franchisees has substantially changed and they are
    no longer VIEs. During 2005 and 2004, the consolidation of these
    franchisees increased sales by company-operated restaurants by
    approximately $2.7 million and $12.6 million,
    respectively.

19



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|    |                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------
|(2) | Additional factors that impact the comparability of operating
    (loss) profit for the years presented include:



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | During 2005, general and administrative expenses include
    approximately $8.3 million relating to corporate
    restructuring charges as well as stay bonuses and severance
    costs paid to the Companys former Chief Executive Officer,
    former Chief Financial Officer and former General Counsel.
    During 2004, general and administrative expenses included
    approximately $10.8 million relating to corporate
    severances, initial costs for Sarbanes-Oxley controls
    documentation and compliance, implementation of a new
    information technology system and legal and other costs
    associated with the settlement of certain franchisee disputes.
    During 2003, general and administrative expenses included
    approximately $5.0 million relating to employee severance
    costs and consultant fees for a productivity initiative. During
    2001, general and administrative expenses included approximately
    $2.9 million relating to the retirement of a former officer.
|
| | (b) | During 2005, 2004 and 2003, our costs associated with
    shareholder litigation and a special investigation by our Audit
    Committee were approximately $21.8 million,
    $3.8 million, and $1.4 million, respectively. The
    substantially higher costs in 2005 relate to the settlement of
    certain shareholder litigation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| | (c) | During 2005, 2004, 2003, 2002, and 2001, asset write-downs were
    approximately $5.8 million, $4.8 million,
    $15.0 million, $3.8 million, and $1.1 million,
    respectively. Of the 2005 impairments, $4.1 million were
    due to the adverse effects of Hurricane Katrina. Of the 2003
    impairments, $7.0 million of charges related to the
    write-down of assets under contractual arrangements and
    $4.9 million related to the closing of
    18 company-operated restaurants.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | (d) | During 2005, we incurred approximately $3.1 million of
    hurricane-related costs (other than impairments of long-lived
    assets) associated with Hurricane Katrina. During 2005, the
    Company also accrued insurance proceeds of approximately
    $5.6 million for property damage (see item (c) above)
    and business interruption losses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| | (e) | During 2004, we incurred approximately $9.0 million of net
    costs associated with the termination of the lease for our AFC
    corporate headquarters.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| | (f) | During 2003, we incurred approximately $12.6 million of
    costs associated with the re-audit and restatement of previously
    issued financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| | (g) | During 2002, we adopted SFAS No. 142, Goodwill and
    Other Intangible Assets, and, at that time, discontinued our
    prior practice of amortizing goodwill and other indefinite-lived
    intangible assets. For 2001, amortization expense was
    approximately $3.3 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3) | During 2005, 2004, 2003, 2002 and 2001, loss before discontinued
    operations and accounting change includes interest
    expense, net of approximately $6.8 million,
    $5.5 million, $5.3 million, $21.1 million, and
    $24.3 million, respectively. Interest expense was
    substantially higher in 2002 and 2001 due to substantially
    higher debt balances and substantially higher interests rates
    associated with such debt.                                                                                                                                                                                                                                                                                                           
|   
|(4) | Net income (loss) includes discontinued operations which
    provided income (loss) of $158.0 million in 2005,
    $39.1 million in 2004, $5.6 million in 2003,
    $(5.3) million in 2002, and $27.0 million in 2001.
    Discontinued operations, in 2005, represent a
    $158.0 million gain on sale of Churchs, net of income
    taxes.                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|(5) | Weighted average common shares for the computation of basic
    earnings per common share were 29.1 million,
    28.1 million, 27.8 million, 30.0 million, and
    29.5 million for 2005, 2004, 2003, 2002, and 2001,
    respectively. Weighted average common shares for the computation
    of diluted earnings per common share were 29.1 million,
    28.1 million, 27.8 million, 30.0 million, and
    29.5 million for 2005, 2004, 2003, 2002, and 2001,
    respectively. For all five years presented, potentially dilutive
    employee stock options were excluded from the computation of
    dilutive earnings per share due to the anti-dilutive effect they
    would have on loss before discontinued operations and
    accounting change.
|   
|(6) | Total debt includes the long-term and current portions of our
    debt facilities, capital lease obligations, outstanding lines of
    credit, and other borrowings associated with both continuing and
    discontinued operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|(7) | During 2005, we repurchased 1.5 million shares of our
    common stock for approximately $19.5 million and we paid a
    special cash dividend of approximately $352.9 million.
    During 2002, we repurchased 3.7 million shares of our
    common stock for approximately $77.9 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

20



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##### Table of Contents



Summary of System-Wide Data




|                                                                                                         |                            |                                          |       |       |      |  |       |       |     |  |       |       |     |      |       |       |     |  |       |       |     |  |  | 
|-------------------------------------------------------------------------------------------------------- | -------------------------- | ---------------------------------------- | ----- | ----- | ---- |  | ----- | ----- | --- |  | ----- | ----- | --- | ---- | ----- | ----- | --- |  | ----- | ----- | --- |  |  | 
|                                                                                                        
|                                                                                                         |                            | 2005                                     |       |       | 2004 |  |       | 2003  |     |  | 2002  |       |     | 2001 |       |       |    
|                                                                                                        
|Increase in system-wide sales from the prior year                                                        |                            |                                          | 4.8   | %     |      |  | 4.5   | %     |     |  | 3.6   | %     |     |      | 7.3   | %     |     |  | 7.5   | %     |     | 
|Domestic same-store sales growth (decline) for
    company-operated restaurants(1)                       |                            |                                          | 6.5   | %     |      |  | 0.9   | %     |     |  | (2.4  | )%    |     |      | 1.1   | %     |     |  | 4.8   | %     |     | 
|Domestic same-store sales growth (decline) for
    franchised restaurants(1)                             |                            |                                          | 3.2   | %     |      |  | 1.4   | %     |     |  | (2.7  | )%    |     |      | 0.6   | %     |     |  | 4.1   | %     |     | 
|Domestic same-store sales growth (decline) 
    blended for company-operated and franchised restaurants |                            |                                          | 3.3   | %     |      |  | 1.3   | %     |     |  | (2.6  | )%    |     |      | 0.7   | %     |     |  | 4.2   | %     |     | 
|Company-operated restaurants (all domestic)                                                              |                            |                                          |       |       |      |  |       |       |     |  |       |       |     |      |       |       |     |  |       |       |     | 
|Restaurants at beginning of year                                                                         |                            |                                          | 56    |       |      |  | 80    |       |     |  | 96    |       |     |      | 96    |       |     |  | 130   |       |     | 
|New restaurant openings                                                                                  |                            |                                          | 1     |       |      |  |      |       |     |  | 1     |       |     |      | 2     |       |     |  | 3     |       |     | 
|Unit conversions, net(2)                                                                                 |                            |                                          | 2     |       |      |  | (19   | )     |     |  |      |       |     |      | 1     |       |     |  | (26   | )     |     | 
|Permanent closings                                                                                       |                            |                                          | (7    | )     |      |  | (4    | )     |     |  | (18   | )     |     |      | (2    | )     |     |  | (10   | )     |     | 
|Temporary closings, net(3)                                                                               |                            |                                          | (20   | )     |      |  | (1    | )     |     |  | 1     |       |     |      | (1    | )     |     |  | (1    | )     |     | 
|                                                                                                         |                            |                                         
|                                                                                                         | Restaurants at end of year |                                          |       | 32    |      |  |       | 56    |     |  |       | 80    |     |      |       | 96    |     |  |       | 96    |     |  | 
|                                                                                                         |                            |                                         
|Franchised restaurants (domestic and international)                                                      |                            |                                          |       |       |      |  |       |       |     |  |       |       |     |      |       |       |     |  |       |       |     | 
|Restaurants at beginning of year                                                                         |                            |                                          | 1,769 |       |      |  | 1,726 |       |     |  | 1,616 |       |     |      | 1,524 |       |     |  | 1,371 |       |     | 
|New restaurant openings                                                                                  |                            |                                          | 122   |       |      |  | 109   |       |     |  | 176   |       |     |      | 167   |       |     |  | 174   |       |     | 
|Unit conversions, net(2)                                                                                 |                            |                                          | (2    | )     |      |  | 19    |       |     |  |      |       |     |      | (1    | )     |     |  | 26    |       |     | 
|Permanent closings                                                                                       |                            |                                          | (95   | )     |      |  | (77   | )     |     |  | (68   | )     |     |      | (76   | )     |     |  | (41   | )     |     | 
|Temporary closings, net(3)                                                                               |                            |                                          | 2     |       |      |  | (8    | )     |     |  | 2     |       |     |      | 2     |       |     |  | (6    | )     |     | 
|                                                                                                         |                            |                                         
|                                                                                                         | Restaurants at end of year |                                          |       | 1,796 |      |  |       | 1,769 |     |  |       | 1,726 |     |      |       | 1,616 |     |  |       | 1,524 |     |  | 
|                                                                                                         |                            |                                         
|New franchised restaurant openings                                                                       |                            |                                          |       |       |      |  |       |       |     |  |       |       |     |      |       |       |     |  |       |       |     | 
|Domestic                                                                                                 |                            |                                          | 71    |       |      |  | 57    |       |     |  | 87    |       |     |      | 87    |       |     |  | 103   |       |     | 
|International                                                                                            |                            |                                          | 51    |       |      |  | 52    |       |     |  | 89    |       |     |      | 80    |       |     |  | 71    |       |     | 
|                                                                                                         |                            |                                         
|                                                                                                         |                            | Total new franchised restaurant openings |       |       | 122  |  |       |       | 109 |  |       |       | 176 |      |       |       | 167 |  |       |       | 174 |  |  | 
|                                                                                                         |                            |                                         
|Franchised restaurants (end of year)                                                                     |                            |                                          |       |       |      |  |       |       |     |  |       |       |     |      |       |       |     |  |       |       |     | 
|Domestic                                                                                                 |                            |                                          | 1,451 |       |      |  | 1,416 |       |     |  | 1,367 |       |     |      | 1,298 |       |     |  | 1,231 |       |     | 
|International                                                                                            |                            |                                          | 345   |       |      |  | 353   |       |     |  | 359   |       |     |      | 318   |       |     |  | 293   |       |     | 
|                                                                                                         |                            |                                         
|                                                                                                         | Restaurants at end of year |                                          |       | 1,796 |      |  |       | 1,769 |     |  |       | 1,726 |     |      |       | 1,616 |     |  |       | 1,524 |     |  | 
|                                                                                                        



|    |                                                                                                                                                                                                                                                                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Restaurants are included in the computation of same-store sales
    after they have been open 15 months.                                                                                                                                                                                                                                                                                 
|   
|(2) | Unit conversions include the sale or, in limited circumstances,
    the buy-back of company-operated restaurants to/from a
    franchisee.                                                                                                                                                                                                                                               
|   
|(3) | Temporary closings are presented net of re-openings. Most
    temporary closings arise due to the re-imaging or the rebuilding
    of older restaurants. In 2005, there were significant temporary
    closings related to Hurricane Katrina. See Note 17 to our
    Consolidated Financial Statements for a discussion of the
    financial and operational impact of Hurricane Katrina.

21



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|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
    CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in
conjunction with our Selected Financial Data and our
Consolidated Financial Statements that are included elsewhere in
this filing.


Our discussion contains forward-looking statements based upon
current expectations that involve risks and uncertainties, such
as our plans, objectives, expectations and intentions. Actual
results and the timing of events could differ materially from
those anticipated in these forward-looking statements, as a
result of a number of factors including those factors set forth
in Item 1A. of this Annual Report and other factors
presented throughout this filing.


Nature of Business


®


tm ® ®


Management Overview of 2005 Operating Results






| |   |                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------
| |  | sold our Churchs division,                                                                                                               
|
| |  | refinanced our debt facility,                                                                                                             
|
| |  | paid a special one-time dividend to our shareholders of
    $352.9 million,                                                               
|
| |  | repurchased over one million shares of our common stock,                                                                                  
|
| |  | settled our outstanding shareholder litigation,                                                                                           
|
| |  | grew our system-wide sales by 4.8%, through increased
    franchising and improved same-store sales,                                      
|
| |  | grew domestic same-store sales by 3.3%, which exceeded our
    expected range of 2.0%  3.0%,                                             
|
| |  | achieved approximately $1.2 million in annualized average
    unit sales for new free-standing restaurants in our domestic
    system, and
|
| |  | significantly reduced our forward run-rate for general and
    administrative expenses.                                                   



22



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|                                         |  |               |       |   |      |   |       |             |  |   |         |   |  |  |      |  
|---------------------------------------- |  | ------------- | ----- | - | ---- | - | ----- | ----------- |  | - | ------- | - |  |  | ---- | -
|                                         | 
|                                         |  | Favorable     |       |   |     
|                                         |  | (Unfavorable) |       |   | As a |  
|(Dollars in millions)                    |  | 2005          |       |   | 2004 |   |       | Fluctuation |  |   | Percent |  
|                                         | 
|Total revenues  continuing operations   |  | $             | 143.4 |   |      | $ | 163.9 |             |  | $ | (20.5   | ) |  |  | 12.5 | %
|Operating losses  continuing operations |  |               | (6.9  | ) |      |   | (19.4 | )           |  |   | 12.5    |   |  |  | n/a  |  
|Net income                               |  |               | 149.6 |   |      |   | 24.6  |             |  |   | 125.0   |   |  |  | n/a  |  
|                                        













23



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##### Table of Contents



Factors Affecting Comparability of Consolidated Results of
Operations: 2005, 2004, and 2003






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | During 2005, restaurant closings include the adverse effects
    resulting from Hurricanes Katrina and Rita. Based upon
    forecasted operations for the third and fourth quarters of 2005,
    the estimated impact of these storms decreased sales by
    company-operated restaurants for 2005 by $10.9 million and
    they decreased franchise revenues for 2005 by $0.2 million.
    See Note 17 to our Consolidated Financial Statements.                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | During 2004, we adopted FIN 46R and began consolidating
    three franchisees that qualify for consolidation under
    FIN 46R. These franchisees were not retroactively
    consolidated for years prior to 2004. Since adoption of
    FIN 46R, our relationship with two of the franchisees has
    substantially changed, and they are no longer VIEs. During 2005
    and 2004, the consolidation of these franchisees increased sales
    by company-operated restaurants by approximately
    $2.7 million and $12.6 million, respectively.                                                                                                                                                                                                                                                                                                                              
|
| |  | During 2005, general and administrative expenses include
    approximately $8.3 million relating to corporate
    restructuring charges as well as stay bonuses and severance
    costs paid to the Companys former Chief Executive Officer,
    former Chief Financial Officer and former General Counsel.
    During 2004, general and administrative expenses include
    approximately $10.8 million relating to corporate severance
    costs, initial costs for Sarbanes-Oxley controls documentation
    and compliance, implementation of a new information technology
    system, and legal and other costs associated with the settlement
    of certain franchisee disputes. During 2003, general and
    administrative expenses include approximately $5.0 million
    relating to employee severance costs and consultant fees for a
    productivity initiative.
|
| |  | During 2005, 2004 and 2003, our costs associated with
    shareholder litigation and a special investigation by our Audit
    Committee were approximately $21.8 million,
    $3.8 million, and $1.4 million, respectively. The
    substantially higher costs in 2005 relate to the settlement of
    certain shareholder litigation. That settlement is discussed in
    Note 16 to our Consolidated Financial Statements                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | During 2005, 2004, and 2003, our asset write-downs were
    approximately $5.8 million, $4.8 million, and
    $15.0 million, respectively. Of the 2005 impairments,
    $4.1 million were due to the adverse effects of Hurricane
    Katrina. Of the 2003 impairments incurred, $7.0 million of
    charges related to the write-down of assets under contractual
    arrangements and $4.9 million related to the closing of
    18 company-operated restaurants.                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | During 2005, we incurred approximately $3.1 million of
    hurricane-related costs (other than impairments of long-lived
    assets) associated with Hurricane Katrina. During 2005, the
    Company also accrued insurance proceeds of approximately
    $5.6 million for property damage (see prior bullet) and
    business interruption losses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | During 2004, we incurred $9.0 million of net costs
    associated with the termination of the lease for our AFC
    corporate headquarters.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | During 2003, we incurred approximately $12.6 million of
    costs associated with the re-audit and restatement of previously
    issued financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | Discontinued operations, net of income taxes, provided income of
    $158.0 million in 2005, $39.1 million in 2004, and
    $5.6 million in 2003. Discontinued operations, in 2005,
    consist of a $158.0 million gain on sale of Churchs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

24



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|                                                                            |                                                             |                |       |      |      |  |       |      |      |  |       |      |      | 
|--------------------------------------------------------------------------- | ----------------------------------------------------------- | -------------- | ----- | ---- | ---- |  | ----- | ---- | ---- |  | ----- | ---- | ---- | 
|                                                                            |                                                            
|                                                                            |                                                             | 2005           |       |      | 2004 |  |       | 2003 |     
|                                                                            |                                                             |                |      
|Revenues:                                                                   |                                                             |                |       |      |      |  |       |      |      |  |       |     
|Sales by company-operated restaurants                                       |                                                             |                | 42%   |      |      |  | 52%   |      |      |  | 53%   |     
|Franchise revenues                                                          |                                                             |                | 54%   |      |      |  | 45%   |      |      |  | 44%   |     
|Other revenues                                                              |                                                             |                | 4%    |      |      |  | 3%    |      |      |  | 3%    |     
|                                                                            |                                                             |               
|                                                                            |                                                             | Total revenues |       |      | 100% |  |       |      | 100% |  |       |      | 100% | 
|Expenses:                                                                   |                                                             |                |       |      |      |  |       |      |      |  |       |     
|                                                                            | Restaurant employee, occupancy and other expenses(1)        |                |       | 53%  |      |  |       | 55%  |      |  |       | 55%  |     
|                                                                            | Restaurant food, beverages and packaging(1)                 |                |       | 32%  |      |  |       | 32%  |      |  |       | 31%  |     
|                                                                            | General and administrative expenses                         |                |       | 48%  |      |  |       | 50%  |      |  |       | 41%  |     
|                                                                            | Depreciation and amortization                               |                |       | 5%   |      |  |       | 6%   |      |  |       | 7%   |     
|                                                                            | Shareholder litigation and other expenses, net              |                |       | 16%  |      |  |       | 10%  |      |  |       | 19%  |     
|                                                                            |                                                             |               
|                                                                            |                                                             | Total expenses |       |      | 105% |  |       |      | 112% |  |       |      | 112% | 
|Operating loss                                                              |                                                             |                | (5)%  |      |      |  | (12)% |      |      |  | (12)% |     
|                                                                            | Interest expense, net                                       |                |       | 5%   |      |  |       | 3%   |      |  |       | 3%   |     
|                                                                            |                                                             |               
|Loss before income taxes, discontinued operations and
    accounting change |                                                             |                | (10)% |      |      |  | (15)% |      |      |  | (15)% |     
|                                                                            | Income tax benefit                                          |                |       | (4)% |      |  |       | (6)% |      |  |       | (6)% |     
|                                                                            |                                                             |               
|Loss before discontinued operations and accounting
    change               |                                                             |                | (6)%  |      |      |  | (9)%  |      |      |  | (9)%  |     
|                                                                            | Discontinued operations, net of income taxes                |                |       | 110% |      |  |       | 24%  |      |  |       | 3%   |     
|                                                                            | Cumulative effect of accounting change, net of income taxes |                |       |     |      |  |       |     |      |  |       |     |     
|                                                                            |                                                             |               
|Net income (loss)                                                           |                                                             |                | 104%  |      |      |  | 15%   |      |      |  | (6)%  |     
|                                                                           






|    |                                                                        
|--- | -----------------------------------------------------------------------
|(1) | Expressed as a percentage of sales by company-operated
    restaurants.

25



---



##### Table of Contents



Comparisons of Fiscal Years 2005 and 2004


Sales by Company-Operated Restaurants






| |   |                                                                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | $10.7 million decrease due to the reduction in the number
    of company-operated restaurants resulting from the sale of
    company-operated restaurants to franchisees and the permanent
    closure of underperforming restaurants,
|
| |  | $9.9 million decrease due to the non-consolidation of a VIE
    relationship during 2005 that was consolidated during
    2004, and                                                                                                   
|
| |  | $8.7 million decrease due to temporary and permanent
    restaurant closures resulting from Hurricane Katrina,                                                                                                                        





| |   |                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | $1.8 million increase due to one newly constructed
    company-operated restaurant in 2005 and the acquisition of two
    restaurants that were previously franchised restaurants, and
|
| |  | $1.5 million increase due to an increase in same-store
    sales (a 6.5% improvement in 2005 compared to 2004).                                                                       



Franchise Revenues






Other Revenues




26



---



##### Table of Contents



Restaurant Employee, Occupancy and Other Expenses




Restaurant Food, Beverages and Packaging




General and Administrative Expenses






| |   |                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------
| |  | $8.0 million of lower outsourcing and contractor costs for
    information technology, accounting, audit and tax support
    services,
|
| |  | $4.3 million of lower professional fees,                                                                                              
|
| |  | $3.8 million of lower personnel costs associated with
    terminated positions at our AFC corporate office,                           
|
| |  | $2.0 million of lower costs for settlement of franchisee
    and landlord disputes,                                                   
|
| |  | $1.3 million of lower office rents, principally due to the
    closure of our AFC corporate office,                                   
|
| |  | $1.2 million of lower net provisions for accounts
    receivable bad debts, and                                                       
|
| |  | $0.7 million of lower insurance costs,                                                                                                





| |   |                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | $4.3 million of higher stay bonuses and severance costs,                                                                                                                                                 
|
| |  | $2.6 million of higher deferred compensation associated
    with stock-based awards, and                                                                                                                 
|
| |  | $1.2 million of higher salary costs related to senior
    positions at Popeyes that were vacant for portions of 2004 and
    additional field-based personnel who provide support to our
    franchisees.



Depreciation and Amortization




Shareholder Litigation and Other Expenses, Net




27



---



##### Table of Contents







| |   |                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------
| |  | $18.0 million of higher shareholder litigation costs
    associated with the settlement of outstanding legal actions,
|
| |  | $3.1 million of higher (non-impairment related) hurricane
    costs, and                                             
|
| |  | $1.0 million of higher charges for asset write-downs,                                                                





| |   |                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------
| |  | $9.0 million of lower costs associated with the termination
    of our corporate lease (zero in 2005 and $9.0 million in
    2004),     
|
| |  | $5.6 million of insurance proceeds accrued in 2005
    associated with claims arising from the adverse affects of
    Hurricane Katrina,
|
| |  | $0.9 million of higher net gains on sale of assets, and                                                                                 
|
| |  | $0.5 million of lower costs associated with restaurant
    closures and refurbishments.                                                 



Operating Profit (Loss)




|                             |       |               |       |      |      |   |       |             |   |   |         |      |  |  |      |     | 
|---------------------------- | ----- | ------------- | ----- | ---- | ---- | - | ----- | ----------- | - | - | ------- | ---- |  |  | ---- | --- | 
|                             |      
|                             |       | Favorable     |       |      |     
|                             |       | (Unfavorable) |       |      | As a |  
|(Dollars in millions)        |       | 2005          |       |      | 2004 |   |       | Fluctuation |   |   | Percent |     
|                             |      
|Franchise operations         |       | $             | 42.4  |      |      | $ | 43.7  |             |   | $ | (1.3    | )    |  |  | (3.0 | )% 
|Company-operated restaurants |       |               | (1.8  | )    |      |   |      |             |   |   | (1.8    | )    |  |  | n/a  |    
|Corporate                    |       |               | (47.5 | )    |      |   | (63.1 | )           |   |   | 15.6    |      |  |  | n/a  |    
|                            
|                             | Total |               | $     | (6.9 | )    |   | $     | (19.4       | ) |   | $       | 12.5 |  |  |      | n/a | 
|                            









28



---



##### Table of Contents



Interest Expense, Net






| |   |                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------
| |  | $5.0 million of higher interest on debt in 2005 as compared
    to 2004, due to higher debt balances, and
|
| |  | $1.3 million of higher amortization and write-offs of debt
    issuance costs,                           





| |   |                                                                              
| | - | -----------------------------------------------------------------------------
| |  | $4.6 million of higher interest income, and                                  
|
| |  | $0.4 million of lower debt amendment fees and other debt
    related charges.



Income Tax Expense




Discontinued Operations, Net of Income Taxes








Cumulative Effect of an Accounting Change, Net of Income
Taxes


Consolidation of Variable
Interest Entities, an Interpretation of Accounting Research
Bulletin No. 51


29



---



##### Table of Contents



Comparisons of Fiscal Years 2004 and 2003


Sales by Company-Operated Restaurants






| |   |                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | $12.6 million was due to the consolidation of certain VIE
    relationships upon our adoption of FIN 46R during 2004,                                                            
|
| |  | $1.5 million was attributable to certain restaurants
    excluded from same-store sale computations due to the timing of
    their opening, and                                  
|
| |  | $0.6 million was attributable to an increase in same-store
    sales for 2004 compared to 2003 (a 0.9% increase in same-store
    sales at Popeyes company-operated restaurants),





| |   |                                                                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | $14.1 million associated with the permanent reduction in
    the number of company-operated restaurants. During 2004, we sold
    19 company-operated restaurants to franchisees (unit
    conversions) and permanently closed 4 other
    company-operated restaurants.



Franchise Revenues




Other Revenues




Restaurant Employee, Occupancy and Other Expenses






Restaurant Food, Beverages and Packaging






30



---



##### Table of Contents



General and Administrative Expenses






| |   |                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | $3.0 million was due to higher professional fees
    (principally related to Sarbanes-Oxley compliance and a
    stand-alone audit of Churchs),       
|
| |  | $2.7 million was due to higher information technology costs
    (principally related to the implementation of a new information
    technology system),
|
| |  | $2.4 million was due to higher severance costs,                                                                                                        
|
| |  | $2.3 million was due to higher legal and other costs
    associated with the settlement of certain franchisee disputes,                                
|
| |  | $2.2 million associated with higher personnel expenses at
    Popeyes,                                                                                 
|
| |  | $1.6 million was due to higher contract labor (principally
    related to Sarbanes-Oxley compliance),                                                  
|
| |  | $1.5 million was due to higher bonuses at our AFC corporate
    offices, and                                                                           
|
| |  | $1.1 million associated with higher franchisee support
    costs.                                                                                      



Depreciation and Amortization




Shareholder Litigation and Other Expenses, Net






| |   |                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------
| |  | $12.6 million of lower costs related to our restatement and
    re-audit of prior financial information (zero in 2004 and
    $12.6 million in 2003),
|
| |  | $10.2 million of lower charges for asset
    impairments, and                                                                                        
|
| |  | $2.6 million of lower costs associated with restaurant
    closures and refurbishments,                                                              





| |   |                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------
| |  | $9.0 million of higher costs associated with the
    termination of our corporate lease ($9.0 million in 2004
    and zero in 2003),
|
| |  | $2.4 million of higher costs associated with the
    independent investigation and subsequent shareholder litigation,
    and       
|
| |  | $0.2 million of lower gains on sale of assets.                                                                                      



31



---



##### Table of Contents



Operating Profit (Loss)




| |  |                              |  |      |       |   |      |   |       |             |  |   |         |   |  |  |       |    |  | 
| |  | ---------------------------- |  | ---- | ----- | - | ---- | - | ----- | ----------- |  | - | ------- | - |  |  | ----- | -- |  | 
|
| |  | Favorable                    |  |      |      
| |  | (Unfavorable)                |  |      | As a  |   |      |  
| |  | (dollars in millions)        |  | 2004 |       |   | 2003 |   |       | Fluctuation |  |   | Percent |   |  | 
|
| |  | Franchise operations         |  | $    | 43.7  |   |      | $ | 45.9  |             |  | $ | (2.2    | ) |  |  | (4.8  | )% |  | 
| |  | Company-operated restaurants |  |      |      |   |      |   | (9.4  | )           |  |   | 9.4     |   |  |  | n/a   |    |  | 
| |  | Corporate                    |  |      | (63.1 | ) |      |   | (56.2 | )           |  |   | (6.9    | ) |  |  | (12.3 | )% |  | 
|
| |  | Total                        |  | $    | (19.4 | ) |      | $ | (19.7 | )           |  | $ | 0.3     |   |  |  | n/a   |    |  | 
|











Interest Expense, Net






| |   |                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------
| |  | $0.8 million of lower interest income, and                                                             
|
| |  | $0.5 million of higher costs associated with the
    amortization and write-off of debt issuance costs,





| |   |                                                                                                   
| | - | --------------------------------------------------------------------------------------------------
| |  | $1.1 million of lower interest on debt in 2004 as compared
    to 2003 due to lower debt balances.



32



---



##### Table of Contents



Income Tax Expense




Discontinued Operations, Net of Income Taxes








Cumulative Effect of an Accounting Change, Net of Income
Taxes


Consolidation of Variable
Interest Entities, an Interpretation of Accounting Research
Bulletin No. 51


Accounting for
Asset Retirement Obligations


33



---



##### Table of Contents



Liquidity and Capital Resources






| |   |                                                        
| | - | -------------------------------------------------------
| |  | cash flows generated from our operating activities, and
|
| |  | borrowings under our 2005 Credit Facility.             







| |   |                                              
| | - | ---------------------------------------------
| |  | reinvestment in our core business activities,
|
| |  | repurchase of shares, and                    
|
| |  | pay down of excess indebtedness.             



Operating and Financial Outlook for 2006












34



---



##### Table of Contents









Contractual Obligations




|                                            |       |        |      |      |      |   |     |      |  |   |      |      |  |      |     |      |       |   |      |       |  |   |       |       |  |   |       |       | 
|------------------------------------------- | ----- | ------ | ---- | ---- | ---- | - | --- | ---- |  | - | ---- | ---- |  | ---- | --- | ---- | ----- | - | ---- | ----- |  | - | ----- | ----- |  | - | ----- | ----- | 
|                                            |      
|                                            |       | There- |      |      |     
|(in millions)                               |       | 2006   |      |      | 2007 |   |     | 2008 |  |   | 2009 |      |  | 2010 |     |      | after |   |      | Total | 
|                                            |      
|Long-term debt, excluding capital leases(1) |       | $      | 14.7 |      |      | $ | 1.5 |      |  | $ | 1.9  |      |  | $    | 1.9 |      |       | $ | 43.7 |       |  | $ | 127.1 |       |  | $ | 190.8 |      
|Leases(2)                                   |       |        | 5.8  |      |      |   | 5.5 |      |  |   | 5.5  |      |  |      | 4.6 |      |       |   | 3.9  |       |  |   | 41.7  |       |  |   | 67.0  |      
|Copeland formula agreement(3)               |       |        | 3.1  |      |      |   | 3.1 |      |  |   | 3.1  |      |  |      | 3.1 |      |       |   | 3.1  |       |  |   | 55.3  |       |  |   | 70.8  |      
|Information technology outsourcing  IBM(3) |       |        | 2.2  |      |      |   | 1.8 |      |  |   | 1.8  |      |  |      |    |      |       |   |     |       |  |   |      |       |  |   | 5.8   |      
|King Features agreements(3)                 |       |        | 1.0  |      |      |   | 1.0 |      |  |   | 1.0  |      |  |      | 1.0 |      |       |   | 0.5  |       |  |   |      |       |  |   | 4.5   |      
|                                           
|                                            | Total |        | $    | 26.8 |      |   | $   | 12.9 |  |   | $    | 13.3 |  |      | $   | 10.6 |       |   | $    | 51.2  |  |   | $     | 224.1 |  |   | $     | 338.9 | 
|                                           






|    |                                                                                                                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | See Note 9 to our Consolidated Financial Statements.                                                                                                                                                                                                 
|   
|(2) | Of the $67.0 million of minimum lease payments,
    $66.0 million of those payments relate to operating leases
    and the remaining $1.0 million of payments relate to
    capital leases. See Note 10 to our Consolidated Financial
    Statements.
|   
|(3) | See Note 16 to our Consolidated Financial Statements.                                                                                                                                                                                                

Share Repurchase Program






Capital Expenditures




35



---



##### Table of Contents















time-to


Effects of Hurricane Katrina and Insurance Proceeds






36



---



##### Table of Contents



Off-Balance Sheet Arrangements


SMS Indemnity Agreement.




AFC Loan Guarantee Programs.






Long Term Debt


2005 Credit Facility.






37



---



##### Table of Contents











2005 Interest Rate Swap Agreements.


2002 Credit Facility.






38



---



##### Table of Contents



Impact of Inflation




Tax Matters




Market Risk




Chicken Market Risk.




Foreign Currency Exchange Rate Risk.


Interest Rate Risk.


Critical Accounting Policies




Hurricane Katrina.


39



---



##### Table of Contents





01-10.






Consolidation of Variable Interest Entities.


Impairment of Long-Lived Assets.


Impairment of Goodwill and Trademarks.


Allowances for Accounts and Notes Receivable and
Contingent Liabilities.


40



---



##### Table of Contents









Leases. Accounting for
Leases




Income Tax Valuation Allowances and Tax Reserves.




Accounting Standards Adopted in 2005




Accounting Standards That We Have Not Yet Adopted









|         |                                                           
|-------- | ----------------------------------------------------------
|Item 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK








|        |                                                         
|------- | --------------------------------------------------------
|Item 8. | CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



41



---



##### Table of Contents








|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
    AND FINANCIAL DISCLOSURE








|         |                        
|-------- | -----------------------
|Item 9A. | CONTROLS AND PROCEDURES



|    |                                   
|--- | ----------------------------------
|(a) | Disclosure Controls and Procedures





|    |                                                               
|--- | --------------------------------------------------------------
|(b) | Our Evaluation of AFCs Disclosure Controls and
    Procedures

13a-15






|    |                                                                     
|--- | --------------------------------------------------------------------
|(c) | Managements Report on Internal Control Over
    Financial Reporting





Internal Control-Integrated
Framework.




42



---



##### Table of Contents





|    |                                                         
|--- | --------------------------------------------------------
|(c) | Changes in Internal Control Over Financial
    Reporting





|    |                                                            
|--- | -----------------------------------------------------------
|(e) | Report of Independent Registered Public Accounting
    Firm















43



---



##### Table of Contents







| |                       
| | ----------------------
| | /s/ GRANT THORNTON LLP








|         |                  
|-------- | -----------------
|Item 9B. | OTHER INFORMATION



44



---



##### Table of Contents






PART III.







|         |                                                   
|-------- | --------------------------------------------------
|Item 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Executive Officer and Director Biographies




Frank J. Belatti


Victor Arias, Jr


Carolyn Hogan Byrd


R. William Ide, III


Kelvin Pennington


John Roth


45



---



##### Table of Contents





Peter Starrett






Audit Committee and Audit Committee Financial Expert




Section 16(a) Beneficial Ownership Reporting
Compliance




Code of Ethics


www.afce.com


46



---



##### Table of Contents








|         |                       
|-------- | ----------------------
|Item 11. | EXECUTIVE COMPENSATION



Summary Compensation Table


|                      |                   |      |      |              |        |   |              |                        |            |       |                 |            |            |           |           |              |               |   |         |           |  |  |        |         |  |   |           |        | 
|--------------------- | ----------------- | ---- | ---- | ------------ | ------ | - | ------------ | ---------------------- | ---------- | ----- | --------------- | ---------- | ---------- | --------- | --------- | ------------ | ------------- | - | ------- | --------- |  |  | ------ | ------- |  | - | --------- | ------ | 
|                      |                   |      |      |              |        |   |              | Long-Term Compensation |            |       |                
|                      |                   |      |      | Annual       |        |   |              |                        | Restricted |       |                 | Securities |            |           | All Other |             
|Name and Principal    |                   |      |      | Compensation |        |   | Other Annual |                        |            | Stock |                 |            | Underlying |           |           | Compensation |              
|Position              |                   | Year |      |              | Salary |   |              | Bonus(1)               |            |       | Compensation(2) |            |            | Awards(3) |           |              | Options(#)(4) |   |         | (5)       | 
|                      |                  
|Frank J. Belatti      |                   |      | 2005 |              |        | $ | 439,096      |                        |            | $     | 605,250         |            |            | $         | 15,874    |              |               | $ |        |           |  |  |       |         |  | $ | 1,435,345 |       
|                      | Chairman of the   |      |      | 2004         |        |   |              | 575,000                |            |       |                 |           |            |           |           | 21,980       |               |   |         |          |  |  |        |        |  |   |           | 7,924  | 
|                      | Board             |      |      | 2003         |        |   |              | 574,999                |            |       |                 |           |            |           |           | 21,908       |               |   |         |          |  |  |        |        |  |   |           | 4,279  | 
|Kenneth L. Keymer     |                   |      | 2005 |              |        |   | 465,768      |                        |            |       | 450,000         |            |            |           | 23,766    |              |               |   |        |           |  |  | 50,000 |         |  |   | 21,135    |       
|                      | Chief Executive   |      |      | 2004         |        |   |              | 242,307                |            |       |                 | 145,385    |            |           |           | 2,903        |               |   |         | 1,047,500 |  |  |        | 100,000 |  |   |           | 46,715 | 
|                      | Officer           |      |      | 2003         |        |   |              |                       |            |       |                 |           |            |           |           |             |               |   |         |          |  |  |        |        |  |   |           |       | 
|H. Melville Hope, III |                   |      | 2005 |              |        |   | 244,415      |                        |            |       | 521,475         |            |            |           | 15,000    |              |               |   | 310,320 |           |  |  |       |         |  |   | 5,156     |       
|                      | Chief Financial   |      |      | 2004         |        |   |              | 229,366                |            |       |                 | 76,200     |            |           |           | 14,365       |               |   |         |          |  |  |        | 25,000  |  |   |           | 5,056  | 
|                      | Officer           |      |      | 2003         |        |   |              | 135,692                |            |       |                 | 20,750     |            |           |           | 7,711        |               |   |         |          |  |  |        |        |  |   |           | 2,461  | 
|James W. Lyons        |                   |      | 2005 |              |        |   | 234,000      |                        |            |       | 84,240          |            |            |           | 10,000    |              |               |   | 247,700 |           |  |  |       |         |  |   | 4,200     |       
|                      | Chief Development |      |      | 2004         |        |   |              | 103,846                |            |       |                 | 60,200     |            |           |           | 4,615        |               |   |         |          |  |  |        |        |  |   |           | 29,889 | 
|                      | Officer           |      |      | 2003         |        |   |              |                       |            |       |                 |           |            |           |           |             |               |   |         |          |  |  |        |        |  |   |           |       | 
|Robert Calderin       |                   |      | 2005 |              |        |   | 275,000      |                        |            |       | 136,375         |            |            |           | 10,634    |              |               |   | 247,700 |           |  |  |       |         |  |   | 60,124    |       
|                      | Chief Marketing   |      |      | 2004         |        |   |              |                       |            |       |                 |           |            |           |           |             |               |   |         |          |  |  |        |        |  |   |           |       | 
|                      | Officer           |      |      | 2003         |        |   |              |                       |            |       |                 |           |            |           |           |             |               |   |         |          |  |  |        |        |  |   |           |       | 
|Harold M. Cohen       |                   |      | 2005 |              |        |   | 220,000      |                        |            |       | 429,000         |            |            |           | 12,288    |              |               |   | 272,470 |           |  |  |       |         |  |   | 4,200     |       
|                      | General Counsel   |      |      | 2004         |        |   |              | 186,480                |            |       |                 | 90,866     |            |           |           | 10,000       |               |   |         |          |  |  |        | 25,000  |  |   |           | 4,100  | 
|                      |                   |      |      | 2003         |        |   |              | 180,002                |            |       |                 | 8,250      |            |           |           | 9,077        |               |   |         |          |  |  |        |        |  |   |           | 3,797  | 



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes retention bonuses in 2005 in the amount of $395,250 for
    Mr. Hope and $330,000 for Mr. Cohen under the terms of
    their respective agreements with the Company. Includes bonuses
    under the Companys Short-Term Incentive Plan in 2005 in
    the amount of $605,250 for Mr. Belatti, $450,000 for
    Mr. Keymer; $126,225 for Mr. Hope; $99,000 for
    Mr. Cohen; $84,240 for Mr. Lyons; and $111,375 for
    Mr. Calderin. Includes bonuses under the Companys
    Revised Adjusted Short Term Incentive Plan in 2004 for
    Mr. Keymer in the amount of $145,385, for Mr. Hope in
    the amount of $76,200, for Mr. Cohen in the amount of
    $90,866 and for Mr. Lyons in the amount of $35,200.
    Includes bonuses under the Companys Short Term Incentive
    Plan in 2003 for Mr. Hope in the amount of $20,750 and for
    Mr. Cohen in the amount of $8,250. Includes a $25,000
    signing bonus for Mr. Lyons in 2004 and $25,000 for
    Mr. Calderin in 2005.
|   
|(2) | Includes amounts under our flexible perk allowance program,
    costs of an annual physical and certain club dues.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|(3) | During 2005, Messrs. Hope, Cohen, Lyons, and Calderin were
    granted 12,000, 11,000, 10,000 and 10,000 shares of
    restricted stock, respectively. The restricted stock awards vest
    over three years at a rate of 33.3% per year on the
    anniversary date of the grant. During 2004, Mr. Keymer was
    granted 50,000 shares of restricted stock. As modified,
    Mr. Keymers restricted stock award vests at a rate of
    10% during 2005 and the remainder over three years at a rate of
    one third of the remainder per year on each January 26,
    beginning January 26, 2006. In the event that any dividends
    are paid with respect to our common stock in the future,
    dividends will be paid on the shares of restricted stock at the
    same rate. The value of restricted stock awards shown in the
    table is as of the respective dates of grant.                                                                                                            
|   
|    | As of December 25, 2005, the total number of unvested
    restricted stock awards outstanding and the fair market values
    of the stock were as follows: Mr. Keymer 
    45,000 shares ($687,600); Mr. Hope 
    12,000 shares ($183,360); Mr. Cohen 
    11,000 shares ($168,080); Mr. Lyons 
    10,000 shares ($152,800); and Mr Calderin 
    10,000 shares ($152,800).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(4) | During 2005, in connection with the declaration of the special
    cash dividend discussed at Note 13 to our Consolidated
    Financial Statements, our Board of Directors approved
    adjustments to outstanding options under the Companys
    employee stock option plans. The modifications adjusted the
    exercise price and the number of shares associated with each
    employees outstanding stock options to preserve the
    intrinsic value of the options after the special cash dividend.
    Grants shown in the table are the actual grants offered.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|(5) | Includes a payment in the amount of $1,427,421 to
    Mr. Belatti in 2005 (equal to the present value of the
    deferred compensation benefits that Mr. Belatti was
    entitled to receive under the Companys Supplemental
    Benefit Plan which was terminated as of February 15, 2005).
    Includes insurance premiums we paid for term life insurance
    policies for Mr. Belatti in the amount of $7,924 in 2005
    and 2004 and $4,279 in 2003, for Mr. Keymer in the amount
    of $3,251 in 2005 and $1,083 in 2004 and for Mr. Hope in
    the amount of $956 in 2005 and 2004. Includes matching
    contributions that we made pursuant to our 401(k) Savings Plan
    for Mr. Hope in the amount of $4,200 in 2005, $4,100 in
    2004 and $2,461 in 2003, for Mr. Cohen in the amount of
    $4,200 in 2005, $4,100 in 2004 and $3,797 in 2003, and for
    Mr. Lyons in the amount of $4,200 in 2005 and $1,085 in
    2004. Includes moving expenses for Mr. Keymer in the amount
    of $17,884 in 2005 and $45,632 in 2004, for Mr. Lyons in
    the amount of $28,804 in 2004 and for Mr. Calderin in the
    amount of $60,124 in 2005.
|   
|(6) | This table does not include $8,169 in 2005 and $13,548 in 2004
    for Mr. Cohen and $26,240 in 2005 for Mr. Lyons as
    payouts of deferred compensation under the Companys
    Deferred Compensation Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

Option Grants During 2005




|                      |  |            |        |            |              |  |     |          |  |                      |                  |                        |                |       |          |  |        |   |         |  |  |   |           | 
|--------------------- |  | ---------- | ------ | ---------- | ------------ |  | --- | -------- |  | -------------------- | ---------------- | ---------------------- | -------------- | ----- | -------- |  | ------ | - | ------- |  |  | - | --------- | 
|                      |  |            |        |            |              |  |     |          |  | Potential Realizable |                 
|                      |  |            |        | Percent of |              |  |     |          |  |                      | Value at Assumed |                       
|                      |  | Number of  |        |            | Total        |  |     |          |  |                      |                  | Annual Rates of Stock  |               
|                      |  | Securities |        |            | Options      |  |     |          |  |                      |                  | Price Appreciation for |               
|                      |  | Underlying |        |            | Granted to   |  |     | Exercise |  |                      |                  |                        | Option Term(1) |      
|                      |  | Options    |        |            | Employees in |  |     | or Base  |  |                      | Expiration       |                        |                |       |         
|Name                  |  | Granted(2) |        |            | Fiscal Year  |  |     | Price    |  |                      | Date             |                        |                | 5%($) |          |  | 10%($) |  
|                      | 
|Frank J. Belatti      |  |            |       |            |              |  |    |          |  |                      |                 |                        |                |       |         |  |        |   |        |  |  |   |          | 
|Kenneth L. Keymer     |  |            | 50,000 |            |              |  | 100 | %        |  | $                    | 13.26            |                        |                |       | 9/1/2012 |  |        | $ | 269,907 |  |  | $ | 1,291,999 | 
|H. Melville Hope, III |  |            |       |            |              |  |    |          |  |                      |                 |                        |                |       |         |  |        |   |        |  |  |   |          | 
|James W. Lyons        |  |            |       |            |              |  |    |          |  |                      |                 |                        |                |       |         |  |        |   |        |  |  |   |          | 
|Robert Calderin       |  |            |       |            |              |  |    |          |  |                      |                 |                        |                |       |         |  |        |   |        |  |  |   |          | 
|Harold M. Cohen       |  |            |       |            |              |  |    |          |  |                      |                 |                        |                |       |         |  |        |   |        |  |  |   |          | 



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The amounts shown only represent assumed rates of appreciation.
    They are not intended to forecast future appreciation. Actual
    gains, if any, on stock option exercises will depend upon future
    performance of our stock. There can be no assurance that the
    amounts reflected in these columns will be achieved or, if
    achieved, will exist at the time of any option exercise. In
    addition, these amounts do not take into consideration certain
    terms of the options, such as nontransferability, vesting
    requirements or termination following a termination of
    employment.
|   
|(2) | Option grants were made under the 2002 Incentive Stock Plan and
    vest 25% each year for four years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

48



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##### Table of Contents



Aggregated Option Exercises During 2005 and Fiscal Year-End
Option Values




|                      |  |             |           |  |                |                        |                            |             |                              |          |               |  |  |             |         |  |               |   |           |  |  |   |         | 
|--------------------- |  | ----------- | --------- |  | -------------- | ---------------------- | -------------------------- | ----------- | ---------------------------- | -------- | ------------- |  |  | ----------- | ------- |  | ------------- | - | --------- |  |  | - | ------- | 
|                      |  |             |           |  |                | Number of Securities   |                            |             | Value of Unexercised In-the- |         
|                      |  |             |           |  |                | Underlying Unexercised |                            |             | Money Options at Fiscal      |         
|                      |  | Shares      |           |  |                |                        | Options at Fiscal Year-End |             |                              | Year-End |              
|                      |  | Acquired or |           |  |                |                        |                            |             |                              |          |              
|Name                  |  | Exercised   |           |  | Value Realized |                        |                            | Exercisable |                              |          | Unexercisable |  |  | Exercisable |         |  | Unexercisable |  
|                      | 
|Frank J. Belatti      |  |             | 2,917,437 |  |                | $                      | 19,511,341                 |             |                              |          | 357,844       |  |  |             | 57,735  |  |               | $ | 1,580,395 |  |  | $ | 42,147  | 
|Kenneth L. Keymer     |  |             |          |  |                |                        |                           |             |                              |          | 48,112        |  |  |             | 194,338 |  |               | $ | 197,740   |  |  | $ | 694,229 | 
|H. Melville Hope, III |  |             |          |  |                |                        |                           |             |                              |          | 12,028        |  |  |             | 36,085  |  |               | $ | 49,435    |  |  | $ | 148,309 | 
|James W. Lyons        |  |             |          |  |                |                        |                           |             |                              |          |              |  |  |             |        |  |               |   |          |  |  |   |        | 
|Robert Calderin       |  |             |          |  |                |                        |                           |             |                              |          |              |  |  |             |        |  |               |   |          |  |  |   |        | 
|Harold M. Cohen       |  |             | 24,663    |  |                | $                      | 118,886                    |             |                              |          | 12,630        |  |  |             | 40,295  |  |               | $ | 9,220     |  |  | $ | 151,383 | 

Employment Agreements


Frank J. Belatti.


Kenneth L. Keymer.


49



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##### Table of Contents





H. Melville Hope, III.


Harold M. Cohen.


Compensation Committee Interlocks and Insider
Participation




50



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##### Table of Contents



Director Compensation




Stock Performance Graph









|                      |  |  |          |     |  |            |  |   |            |  |  |            |   |     |            |  |  |            |     |  |  |  |   |     |  |  |  |   |     |  | 
|--------------------- |  |  | -------- | --- |  | ---------- |  | - | ---------- |  |  | ---------- | - | --- | ---------- |  |  | ---------- | --- |  |  |  | - | --- |  |  |  | - | --- |  | 
|                      |  |  |          |     |  |            |  |   |            |  |  |            |   |     |            |  |  |            |     |  |  |  |   |     | 
|Company Name/ Index   |  |  | 3/2/2001 |     |  | 12/30/2001 |  |   | 12/29/2002 |  |  | 12/28/2003 |   |     | 12/26/2004 |  |  | 12/25/2005 |    
|                      |  |  |          |     |  |            |  |   |            |  |  |            |   |     |            |  |  |            |     |  |  |  |   |     | 
|AFC Enterprises, Inc. |  |  | $        | 100 |  |            |  | $ | 168        |  |  |            | $ | 128 |            |  |  | $          | 117 |  |  |  | $ | 138 |  |  |  | $ | 169 |  | 
|                      |  |  |          |     |  |            |  |   |            |  |  |            |   |     |            |  |  |            |     |  |  |  |   |     | 
|S&P 500 INDEX         |  |  | $        | 100 |  |            |  | $ | 95         |  |  |            | $ | 73  |            |  |  | $          | 93  |  |  |  | $ | 104 |  |  |  | $ | 111 |  | 
|                      |  |  |          |     |  |            |  |   |            |  |  |            |   |     |            |  |  |            |     |  |  |  |   |     | 
|Peer Group            |  |  | $        | 100 |  |            |  | $ | 125        |  |  |            | $ | 114 |            |  |  | $          | 158 |  |  |  | $ | 210 |  |  |  | $ | 239 |  | 
|                      |  |  |          |     |  |            |  |   |            |  |  |            |   |     |            |  |  |            |     |  |  |  |   |     | 



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|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|Item 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
    MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Stock Ownership






| |   |                                                                                       
| | - | --------------------------------------------------------------------------------------
| |  | each shareholder known by us to own beneficially more than 5% of
    our common stock;
|
| |  | each of our directors;                                                                
|
| |  | each of our named executive officers; and                                             
|
| |  | all of our directors and executive officers as a group.                               



52



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|                                                                 |  |              |           |  |            |  |      |  
|---------------------------------------------------------------- |  | ------------ | --------- |  | ---------- |  | ---- | -
|                                                                 | 
|                                                                 |  | Shares       |           |  |           
|                                                                 |  | Beneficially |           |  | Percentage | 
|Name                                                             |  | Owned        |           |  | of Class   | 
|                                                                 | 
|Directors and Executive Officers:                                |  |              |           |  |            |  |      |  
|Kenneth L. Keymer(1)                                             |  |              | 139,500   |  |            |  | *    |  
|H. Melville Hope, III(2)                                         |  |              | 29,851    |  |            |  | *    |  
|James W. Lyons                                                   |  |              | 9,785     |  |            |  | *    |  
|Robert Calderin                                                  |  |              | 8,798     |  |            |  | *    |  
|Harold M. Cohen(3)                                               |  |              | 32,496    |  |            |  | *    |  
|Victor Arias, Jr.(4)                                             |  |              | 22,454    |  |            |  | *    |  
|Frank J. Belatti(5)                                              |  |              | 780,794   |  |            |  | 2.5  | %
|Carolyn Hogan Byrd(6)                                            |  |              | 26,454    |  |            |  | *    |  
|R. William Ide, III(7)                                           |  |              | 24,454    |  |            |  | *    |  
|Kelvin J. Pennington(8)                                          |  |              | 3,208     |  |            |  | *    |  
|John M. Roth(9)                                                  |  |              | 3,267,615 |  |            |  | 10.8 | %
|Peter Starrett(10)                                               |  |              | 17,542    |  |            |  | *    |  
|All directors and executive officers as a group (12 persons)(11) |  |              | 4,362,951 |  |            |  | 14.1 | %
|                                                                
|Five Percent Shareholders:                                       |  |              |           |  |            |  |      |  
|Baron Capital Group, Inc.(12)                                    |  |              | 2,250,000 |  |            |  | 7.4  | %
|Cardinal Capital Management, LLC(13)                             |  |              | 1,729,830 |  |            |  | 5.7  | %
|Chilton Investment Company, LLC(14)                              |  |              | 4,255,382 |  |            |  | 14.0 | %
|Columbia Wanger Asset Management(15)                             |  |              | 1,718,000 |  |            |  | 5.7  | %
|Delta Partners LLC(16)                                           |  |              | 1,810,700 |  |            |  | 6.0  | %
|Freeman Spogli & Co.(17)                                         |  |              | 3,267,615 |  |            |  | 10.8 | %
|Morgan Stanley(18)                                               |  |              | 4,637,171 |  |            |  | 15.3 | %
|Morgan Stanley Investment Management, Inc.(19)                   |  |              | 3,131,740 |  |            |  | 10.3 | %
|Skylands Capital, LLC(20)                                        |  |              | 1,540,298 |  |            |  | 5.1  | %
|                                                                



| |     |                                                                                                                                                                                                                                                                                                                                                                           
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | *   | Less than 1% of the outstanding shares of common stock.                                                                                                                                                                                                                                                                                                                   
|
| | (1) | Includes 96,225 shares of common stock issuable with
    respect to options exercisable within 60 days of
    February 9, 2006.                                                                                                                                                                                                                                           
|
| | (2) | Includes 19,245 shares of common stock issuable with
    respect to options exercisable within 60 days of
    February 9, 2006.                                                                                                                                                                                                                                           
|
| | (3) | Includes 22,613 shares of common stock issuable with
    respect to options exercisable within 60 days of
    February 9, 2006.                                                                                                                                                                                                                                           
|
| | (4) | Consists of 22,454 shares of common stock issuable with
    respect to options exercisable within 60 days of
    February 9, 2006. Mr. Arias business address is
    Heidrick & Struggles, 5950 Sherry Lane, Suite 400,
    Dallas, Texas 75225.                                                                                                                         
|
| | (5) | Includes 415,579 shares of common stock issuable with
    respect to options exercisable within 60 days of
    February 9, 2006. Also includes 194,476 shares of
    common stock held by four irrevocable trusts established by
    Mr. Belatti. Mr. Belattis business address is
    Equicorp Partners LLC, 3475 Piedmont Road, Suite 1660,
    Atlanta, Georgia 30305.
|
| | (6) | Includes 22,454 shares of common stock issuable with
    respect to options exercisable within 60 days of
    February 9, 2006. Ms. Byrds business address is
    GlobalTech Financial, LLC, 2839 Paces Ferry Road,
    Suite 810, Atlanta, Georgia 30339.                                                                                                               

53



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| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (7) | Includes 22,454 shares of common stock issuable with
    respect to options exercisable within 60 days of
    February 9, 2006. Mr. Ides business address is
    McKenna Long, 303 Peachtree Street NE, Suite 5300, Atlanta,
    Georgia 30308.                                                                                                                                                                                                                                                                                                                   
|
| | (8) | Consists of 3,208 shares of common stock issuable with
    respect to options exercisable within 60 days of
    February 9, 2006. Mr. Penningtons business
    address is PENMAN Partners, 30 North LaSalle Street,
    Suite 1402, Chicago, Illinois 60602.                                                                                                                                                                                                                                                                                                      
|
| | (9) | Mr. Roth is an officer, director and/or manager of entities
    that are general or limited partners of FS Equity
    Partners III, L.P., FS Equity Partners International, L.P.,
    and FS Equity Partners IV, L.P., and may be deemed to be the
    beneficial owner of the 3,267,615 shares of common stock
    held by FS Equity Partners III, L.P., FS Equity Partners
    International, L.P., and FS Equity Partners IV, L.P. Mr.
    Roths business address is c/o Freeman Spogli &
    Company, Inc., 299 Park Ave., 20th Floor,
    New York, NY 10171.



|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Consists of 3,208 shares of common stock issuable with
    respect to options exercisable within 60 days of
    February 9, 2006. Also includes 14,334 shares of
    common stock held by an irrevocable trust established by
    Mr. Starrett. Mr. Starretts business address is
    c/o Freeman Spogli & Company, Inc., 11100 Santa Monica
    Boulevard, Suite 1900, Los Angeles, CA 90025.                                                                                                                                                                                                                                                                                                                                                                                         
|    
|(11) | Includes 3,267,615 shares of common stock beneficially
    owned by Mr. Roth who is an affiliate of Freeman
    Spogli & Co., and 627,440 shares of common stock
    issuable with respect to options exercisable within 60 days
    of February 9, 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    
|(12) | Represents shares of common stock beneficially owned by Baron
    Capital Group, Inc. (Baron), BAMCO,
    Inc.(BAMCO), Baron Small Cap Fund (BSC)
    and Ronald Baron. Baron has shared dispositive and voting power
    with respect to 2,250,000 shares. BAMCO has shared
    dispositive and voting power with respect to
    2,250,000 shares. BSC has shared dispositive and voting
    power with respect to 2,250,000 shares. Mr. Baron has
    shared dispositive and voting power with respect to
    2,250,000 shares. This information is included in reliance
    upon a Schedule 13G filed by Baron, BAMCO, BSC and
    Mr. Baron with the SEC on February 10, 2006. The
    address of Baron, BAMCO, BSC and Mr. Baron is 767 Fifth
    Avenue, New York, NY 10153.
|    
|(13) | Represents shares of common stock beneficially owned by Cardinal
    Capital Management LLC (Cardinal). Cardinal has sole
    voting power with respect to 804,000 shares, and sole
    dispositive power with respect to 1,729,830 shares. This
    information is included in reliance upon a Schedule 13G
    filed by Cardinal with the SEC on February 10, 2006. The
    address of Cardinal is One Fawcett Place, Greenwich, CT 06830.                                                                                                                                                                                                                                                                                                                                          
|    
|(14) | Represents shares of common stock beneficially owned by Chilton
    Investment Company, LLC (CIC). CIC has sole
    dispositive and voting power with respect to
    4,255,382 shares. This information is included in reliance
    upon a Schedule 13G filed by CIC with the SEC on
    February 14, 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    
|(15) | Represents shares of common stock beneficially owned by Columbia
    Wanger Asset Management, L.P. (CW), a registered
    investment adviser, and WAM Acquisition GP, Inc.
    (WAM) with whom CW is deemed to form a
    group for Schedule 13G reporting purposes. CW
    has sole dispositive and voting power with respect to
    1,718,000 shares. WAM has shared dispositive and voting
    power with respect to 1,718,000 shares. This information is
    included in reliance upon a Schedule 13G filed by CW and
    WAM with the SEC on February 14, 2006. The address of CW
    and WAM is 227 West Monroe Street, Suite 3000,
    Chicago, Illinois 60606.                                                                                                           
|    
|(16) | Represents shares of common stock beneficially owned by Delta
    Partners LLC (Delta), and Charles Jobson of which
    Delta and Mr. Jobson have shared dispositive and voting
    power. This information is included in reliance upon a
    Schedule 13G filed by Delta and Mr. Jobson with the
    SEC on February 13, 2006. The address of Delta and
    Mr. Jobson is One International Place, Suite 2401,
    Boston MA, 02110.                                                                                                                                                                                                                                                                                                                                                
|    
|(17) | Includes 2,812,736 shares held of record by FS Equity
    Partners III, L.P., 341,875 shares of record held by
    FS Equity Partners IV, L.P., and 113,004 shares of record
    held by FS Equity Partners International, L.P. John M. Roth is
    an officer, director and manager of entities that are general or
    limited partners of FS Equity Partners III, L.P., FS Equity
    Partners International, L.P., and FS Equity Partners IV, L.P.,                                                                                                                                                                                                                                                                                                                                 

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|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | and may be deemed to be the beneficial owner of the
    3,267,615 shares of common stock held by FS Equity
    Partners III, FS Equity Partners International and FS
    Equity Partners IV. Mr. Roth is a member of our board of
    directors. The business address of Freeman Spogli &
    Co., FS Equity Partners III, L.P., FS Equity Partners IV,
    L.P., is c/o Freeman Spogli & Co., 11100 Santa
    Monica Boulevard, Suite 1900, Los Angeles, California
    90025. The business address of FS Equity Partners International,
    L.P., is c/o Paget-Brown & Company, Ltd., West
    Wind Building, P.O. Box 1111, Grand Cayman, Cayman Islands,
    British West Indies.                                    
|    
|(18) | Represents shares of common stock beneficially owned by Morgan
    Stanley (MS). MS is the parent company of, and
    indirect beneficial owner of securities held by its business
    units. MS has sole voting and sole dispositive power with
    respect to 4,368,579 shares and shared voting and shared
    dispositive power with respect to 2,142 shares. This
    information is included in reliance upon a joint
    Schedule 13G filed by MS, Morgan Stanley Investment
    Advisors Inc. (MSIA) and Morgan Stanley Investment
    Management Inc. (MSIM) with the SEC on
    February 15, 2006. The address of each of MS, MSIA and MSIM
    is 1221 Avenue of the Americas, New York, New York 10020.
|    
|(19) | Represents shares of common stock beneficially owned by MSIM.
    MSIM is a registered investment advisor and has sole voting and
    dispositive power with respect to 2,981,560 shares. This
    information is included in reliance upon a joint
    Schedule 13G filed by MS, MSIA and MSIM with the SEC on
    February 15, 2006. The address of each of MS, MSIA and MSIM
    is 1221 Avenue of the Americas, New York, New York 10020.                                                                                                                                                                                                                                                                            
|    
|(20) | Represents shares of common stock beneficially owned Skylands
    Capital, LLC (Skylands). Skylands has sole
    dispositive and voting power with respect to
    1,540,298 shares. This information is included in reliance
    upon a Schedule 13G filed by Skylands with the SEC on
    February 2, 2006. The address of Skylands is 1200 North
    Mayfair Road, Suite 250, Milwaukee, WI 53226.                                                                                                                                                                                                                                                                                                                   

Equity Compensation Plan Information




|                                                           |                                                                 |                      |           |         |                   |   |       |                         |  |  |           |           |    
|---------------------------------------------------------- | --------------------------------------------------------------- | -------------------- | --------- | ------- | ----------------- | - | ----- | ----------------------- |  |  | --------- | --------- | ---
|                                                           |                                                                 | Number of Securities |           |         | Weighted-average  |   |       | Number of Securities    | 
|                                                           |                                                                 | to be Issued Upon    |           |         | Exercise Price of |   |       | Remaining Available for | 
|                                                           |                                                                 | Exercise of          |           |         | Outstanding       |   |       | Future Issuance Under   | 
|                                                           |                                                                 | Outstanding Options, |           |         | Options, Warrants |   |       | Equity Compensation     | 
|Plan Category                                              |                                                                 | Warrants and Rights  |           |         | and Rights(1)     |   |       | Plan                    | 
|                                                           |                                                                
|Equity compensation plans approved by security holders:    |                                                                 |                      |           |         |                   |   |       |                         |  |  |           |          
|                                                           | 1992 Stock Option Plan                                          |                      |           | 0       |                   |   |       | N/A                     |  |  |           | 0         | (2)
|                                                           | 1996 Nonqualified Stock Option Plan                             |                      |           | 886,421 |                   |   | $     | 11.35                   |  |  |           | 0         | (2)
|                                                           | 1996 Nonqualified Performance Stock Option Plan 
    Executive |                      |           | 208,279 |                   |   | $     | 6.04                    |  |  |           | 0         | (2)
|                                                           | 1996 Nonqualified Performance Stock Option Plan 
    General   |                      |           | 7,531   |                   |   | $     | 3.09                    |  |  |           | 0         | (2)
|                                                           | 2002 Incentive Stock Plan                                       |                      |           | 737,800 | (3)               |   | $     | 11.57                   |  |  |           | 3,355,357 |    
|Equity compensation plans not approved by security holders |                                                                 |                      | 0         |         |                   |   | N/A   |                         |  |  |           |          
|                                                          
|Total                                                      |                                                                 |                      | 1,840,031 |         |                   | $ | 10.80 |                         |  |  | 3,355,357 |          
|                                                          



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | During 2005, in connection with the declaration of the special
    cash dividend discussed at Note 13 to our Consolidated
    Financial Statements, the Companys Board of Directors
    approved adjustments to outstanding options under the
    Companys employee stock option plans. The modifications
    adjusted the exercise price and the number of shares associated
    with each employees outstanding stock options to

55



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##### Table of Contents



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | preserve the value of the options after the special cash
    dividend. The Company did not recognize a charge as a result of
    the modifications because the intrinsic value of the awards and
    the ratio of the exercise price to the market value per share
    for each award did not change.                                                                                                                                                                                                                                                                         
|   
|(2) | On November 13, 2002, the Board of Directors approved a
    resolution to prohibit future grants of options under the 1992
    Stock Option Plan, the 1996 Nonqualified Stock Option Plan, the
    1996 Nonqualified Performance Stock Option Plan-Executive, the
    1996 Nonqualified Performance Stock Option Plan-General and the
    1998 Substitute Nonqualified Stock Option Plan. Since that time,
    all option grants have been granted pursuant to the 2002
    Incentive Stock Plan.                                                                             
|   
|(2) | In addition to the options discussed in the table above, during
    2004, the Company also granted 50,000 restricted shares pursuant
    to this plan. As initially structured, the restricted shares
    vested at a variable rate from 10% to 60% per year over
    four years. During 2005, the vesting schedule for these shares
    was modified so that the remaining shares vest equally on each
    January 1 through January 1, 2008. During 2005, the Company
    granted an additional 138,000 restricted shares. The new grants
    vest equally over three years.






|         |                                               
|-------- | ----------------------------------------------
|Item 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS








Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
[OPEN]


Audit Fees.




Audit-Related Fees.


Tax Fees.


All Other Fees.




56



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##### Table of Contents






PART IV.







|         |                                           
|-------- | ------------------------------------------
|Item 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Financial Statements




|                                                                                                                  |  |       |     | 
|----------------------------------------------------------------------------------------------------------------- |  | ----- | --- | 
|                                                                                                                  |  | Pages |    
|                                                                                                                  |  |       |    
|Reports of Independent Registered Public
    Accounting Firms                                                     |  |       | F-1 | 
|Consolidated Balance Sheets as of
    December 25, 2005 and December 26, 2004                                     |  |       | F-3 | 
|Consolidated Statements of Operations for
    Fiscal Years 2005, 2004 and 2003                                    |  |       | F-4 | 
|Consolidated Statements of Changes in
    Shareholders Equity (Deficit) for Fiscal Years 2005, 2004
    and 2003 |  |       | F-5 | 
|Consolidated Statements of Cash Flows for
    Fiscal Years 2005, 2004 and 2003                                    |  |       | F-6 | 
|Notes to the Consolidated Financial
    Statements                                                                |  |       | F-7 | 



(b) Exhibits


|        |         |  |             |                                                                                                                                                                                                                                                                                                                                                                                                                                              
|------- | ------- |  | ----------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |  |            
|Number  |         |  | Description
|        |         |  |            
|        | 2.1(h)  |  |             | Stock Purchase Agreement between AFC Enterprises, Inc. and
    Starbucks, dated as of April 15, 2003.                                                                                                                                                                                                                                                                                                                                        
|        | 2.2(n)  |  |             | First Amendment to Stock Purchase Agreement between AFC
    Enterprises, Inc. and Starbucks, dated as of June 30, 2003.                                                                                                                                                                                                                                                                                                                      
|        | 2.3(n)  |  |             | Second Amendment to Stock Purchase Agreement between AFC
    Enterprises, Inc. and Starbucks, dated as of July 11, 2003.                                                                                                                                                                                                                                                                                                                     
|        | 2.4(n)  |  |             | Third Amendment to Stock Purchase Agreement between AFC
    Enterprises, Inc. and Starbucks, dated as of November 19,
    2003.                                                                                                                                                                                                                                                                                                              
|        | 2.5(j)  |  |             | Stock Purchase Agreement by and between AFC Enterprises, Inc.
    and Focus Brands Inc. dated as of September 3, 2004.                                                                                                                                                                                                                                                                                                                       
|        | 2.6(j)  |  |             | First Amendment to Stock Purchase Agreement by and between AFC
    Enterprises, Inc. and Focus Brands Inc. dated as of
    November 1, 2004.                                                                                                                                                                                                                                                                                                 
|        | 2.7(j)  |  |             | Second Amendment to Stock Purchase Agreement by and between AFC
    Enterprises, Inc. and Focus Brands Inc. dated as of
    November 4, 2004.                                                                                                                                                                                                                                                                                                
|        | 2.8(k)  |  |             | Asset Purchase Agreement by and among AFC Enterprises, Inc. and
    Cajun Holding Company dated as of October 30, 2004.                                                                                                                                                                                                                                                                                                                      
|        | 2.9(l)  |  |             | First Amendment to Asset Purchase Agreement by and between AFC
    Enterprises, Inc. and Cajun Holding Company dated as of
    December 28, 2004.                                                                                                                                                                                                                                                                                            
|        | 3.1(c)  |  |             | Articles of Incorporation of AFC Enterprises, Inc., as amended,
    dated June 24, 2002.                                                                                                                                                                                                                                                                                                                                                     
|        | 3.2(p)  |  |             | Amended and Restated Bylaws of AFC Enterprises, Inc.                                                                                                                                                                                                                                                                                                                                                                                         
|        | 4.1(o)  |  |             | Form of registrants common stock certificate.                                                                                                                                                                                                                                                                                                                                                                                               
|        | 10.1(a) |  |             | Stockholders Agreement dated April 11, 1996 (the 1996
    Stockholders Agreement) among FS Equity Partners III,
    L.P. and FS Equity Partners International, L.P., CIBC, Pilgrim
    Prime Rate Trust, Van Kampen American Capital Prime Rate Income
    Trust, Senior Debt Portfolio, ML IBK Positions, Inc., Frank J.
    Belatti, Dick R. Holbrook, Samuel N. Frankel (collectively, the
    Shareholders) and AFC Enterprises, Inc.
|        | 10.2(a) |  |             | Amendment No. 1 to the 1996 Stockholders Agreement
    dated as of May 1, 1996 by and among the Shareholders and
    PENMAN Private Equity and Mezzanine Fund, L.P.                                                                                                                                                                                                                                                                         
|        | 10.3(e) |  |             | Form of Popeyes Development Agreement, as amended.                                                                                                                                                                                                                                                                                                                                                                                           

57



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|        |          |  |             |                                                                                                                                                                                                                                                 
|------- | -------- |  | ----------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |          |  |            
|Number  |          |  | Description
|        |          |  |            
|        | 10.4(e)  |  |             | Form of Popeyes Franchise Agreement.                                                                                                                                                                                                            
|        | 10.5(a)  |  |             | Formula Agreement dated July 2, 1979 among Alvin C.
    Copeland, Gilbert E. Copeland, Mary L. Copeland, Catherine
    Copeland, Russell J. Jones, A. Copeland Enterprises, Inc. and
    Popeyes Famous Fried Chicken, Inc., as amended to date.
|        | 10.6(a)  |  |             | Supply Agreement dated March 21, 1989 between New Orleans
    Spice Company, Inc. and Biscuit Investments, Inc.                                                                                                                                 
|        | 10.7(a)  |  |             | Recipe Royalty Agreement dated March 21, 1989 by and among
    Alvin C. Copeland, New Orleans Spice Company, Inc. and Biscuit
    Investments, Inc.                                                                                             
|        | 10.8(a)  |  |             | Licensing Agreement dated March 11, 1976 between King
    Features Syndicate Division of The Hearst Corporation and A.
    Copeland Enterprises, Inc.                                                                                           
|        | 10.9(a)  |  |             | Assignment and Amendment dated January 1, 1981 between A.
    Copeland Enterprises, Inc., Popeyes Famous Fried Chicken, Inc.
    and King Features Syndicate Division of The Hearst Corporation.                                                
|        | 10.10(a) |  |             | Letter Agreement dated September 17, 1981 between King
    Features Syndicate Division of The Hearst Corporation, A.
    Copeland Enterprises, Inc. and Popeyes Famous Fried Chicken, Inc.                                                      
|        | 10.11(a) |  |             | License Agreement dated December 19, 1985 by and between
    King Features Syndicate, Inc., The Hearst Corporation, Popeyes,
    Inc. and A. Copeland Enterprises, Inc.                                                                         
|        | 10.12(a) |  |             | Letter Agreement dated July 20, 1987 by and between King
    Features Syndicate, Division of The Hearst Corporation, Popeyes,
    Inc. and A. Copeland Enterprises, Inc.                                                                        
|        | 10.13(n) |  |             | Amendment dated January 1, 2002 by and between Hearst
    Holdings, Inc., King Features Syndicate Division and AFC
    Enterprises, Inc.                                                                                                        
|        | 10.14(a) |  |             | 1992 Stock Option Plan of AFC, effective as of November 5,
    1992, as amended to date.*                                                                                                                                                       
|        | 10.15(a) |  |             | 1996 Nonqualified Performance Stock Option Plan 
    Executive of AFC, effective as of April 11, 1996.*                                                                                                                                        
|        | 10.16(a) |  |             | 1996 Nonqualified Performance Stock Option Plan 
    General of AFC, effective as of April 11, 1996.*                                                                                                                                          
|        | 10.17(a) |  |             | 1996 Nonqualified Stock Option Plan of AFC, effective as of
    April 11, 1996.*                                                                                                                                                                
|        | 10.18(a) |  |             | Form of Nonqualified Stock Option Agreement  General
    between AFC and stock option participants.*                                                                                                                                           
|        | 10.19(a) |  |             | Form of Nonqualified Stock Option Agreement 
    Executive between AFC and certain key executives.*                                                                                                                                            
|        | 10.20(a) |  |             | 1996 Employee Stock Bonus Plan  Executive of AFC
    effective as of April 11, 1996.*                                                                                                                                                          
|        | 10.21(a) |  |             | 1996 Employee Stock Bonus Plan  General of AFC
    effective as of April 11, 1996.*                                                                                                                                                            
|        | 10.22(a) |  |             | Form of Stock Bonus Agreement  Executive between AFC
    and certain executive officers.*                                                                                                                                                      
|        | 10.23(a) |  |             | Form of Stock Bonus Agreement  General between AFC
    and certain executive officers.*                                                                                                                                                        
|        | 10.24(a) |  |             | Form of Secured Promissory Note issued by certain members of
    management.*                                                                                                                                                                   
|        | 10.25(a) |  |             | Form of Stock Pledge Agreement between AFC and certain members
    of management.*                                                                                                                                                              
|        | 10.26(a) |  |             | Settlement Agreement between Alvin C. Copeland, Diversified
    Foods and Seasonings, Inc., Flavorite Laboratories, Inc. and AFC
    dated May 29, 1997.                                                                                        
|        | 10.27(b) |  |             | Stockholder Agreement by and among AFC Franchise Acquisition
    Corp. and other signatories dated as of August 13, 1998.                                                                                                                       
|        | 10.28(e) |  |             | Stockholders Agreement dated as of March 18, 1998 among FS
    Equity Partners III, L.P., FS Equity Partners
    International, L.P., the new shareholders identified therein and
    AFC.                                                      
|        | 10.29(a) |  |             | Indemnification Agreement dated April 11, 1996 by and
    between AFC and John M. Roth.*                                                                                                                                                        
|        | 10.30(a) |  |             | Indemnification Agreement dated May 1, 1996 by and between
    AFC and Kelvin J. Pennington.*                                                                                                                                                   
|        | 10.31(a) |  |             | Indemnification Agreement dated April 11, 1996 by and
    between AFC and Frank J. Belatti.*                                                                                                                                                    
|        | 10.32(q) |  |             | Amendment No. 3 to the 1996 Stockholders Agreement dated as
    of February 8, 2001 by and among AFC and the other
    signatories thereto.                                                                                                     

58



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##### Table of Contents



|        |          |  |             |                                                                                                                                                       
|------- | -------- |  | ----------- | ------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |          |  |            
|Number  |          |  | Description
|        |          |  |            
|        | 10.33(e) |  |             | Substitute Nonqualified Stock Option Plan, effective
    March 17, 1998.*                                                                             
|        | 10.34(p) |  |             | 2005 Short Term Incentive Plan.*                                                                                                                      
|        | 10.35(f) |  |             | Indemnification Agreement dated May 16, 2001 by and between
    AFC and Victor Arias Jr.*                                                             
|        | 10.36(f) |  |             | Indemnification Agreement dated May 16, 2001 by and between
    AFC and Carolyn Hogan Byrd.*                                                          
|        | 10.37(f) |  |             | Indemnification Agreement dated August 9, 2001 by and
    between AFC and R. William Ide, III.*                                                       
|        | 10.38(g) |  |             | AFC Enterprises, Inc. Employee Stock Purchase Plan.*                                                                                                  
|        | 10.39(g) |  |             | AFC Enterprises, Inc. 2002 Incentive Stock Plan.*                                                                                                     
|        | 10.40(g) |  |             | AFC Enterprises, Inc. Annual Executive Bonus Program.*                                                                                                
|        | 10.41(m) |  |             | Amended and Restated Employment Agreement dated as of
    June 28, 2004 between AFC Enterprises, Inc. and Allan J.
    Tanenbaum.*                    
|        | 10.42(p) |  |             | First Amendment to Amended and Restated Employment Agreement
    dated as of March 28, 2005 between AFC Enterprises, Inc.
    and Allan J. Tanenbaum.*
|        | 10.43(n) |  |             | Employment Agreement effective as of December 29, 2003
    between AFC Enterprises, Inc. and Frederick B. Beilstein.*                                 
|        | 10.44(n) |  |             | Employment Agreement effective as of February 12, 2004
    between AFC Enterprises, Inc. and Henry Hope, III.*                                        
|        | 10.45(p) |  |             | First Amendment to Employment Agreement dated as of
    March 28, 2005 between AFC Enterprises, Inc. and Frederick
    B. Beilstein.*                 
|        | 10.46(p) |  |             | First Amendment to Employment Agreement dated as of
    March 28, 2005 between AFC Enterprises, Inc. and Henry
    Hope, III.*                        
|        | 10.47(p) |  |             | Indemnity Agreement dated October 14, 2004 by and between
    AFC Enterprises, Inc. and Supply Management Services, Inc.                              
|        | 10.48(p) |  |             | Indemnity Agreement dated February 5, 2004 by and between
    AFC Enterprises, Inc., Cajun Operating Company and Supply
    Management Services, Inc. 
|        | 10.49(d) |  |             | Second Amended and Restated Credit Agreement dated as of
    May 11, 2005 among AFC Enterprises, Inc., JPMorgan Chase
    and certain other lenders.  
|        | 10.50(i) |  |             | Fourth Amendment to the 1992 Stock Option Plan of Americas
    Favorite Chicken Company.                                                             
|        | 10.51(i) |  |             | Fifth Amendment to the Americas Favorite Chicken Company
    1996 Nonqualified Performance Stock Option Plan 
    General.                          
|        | 10.52(i) |  |             | Amendment No. 1 to the Americas Favorite Chicken
    Company 1996 Nonqualified Stock Option Plan.                                                    
|        | 10.53(i) |  |             | Second Amendment to the Americas Favorite Chicken Company
    1996 Nonqualified Performance Stock Option Plan 
    Executive.                       
|        | 10.54(i) |  |             | Second Amendment to the AFC Enterprises, Inc. 2002 Incentive
    Stock Plan.                                                                          
|        | 10.55(i) |  |             | Indemnification Agreement between AFC and Peter Starrett.                                                                                             
|        | 10.56(r) |  |             | Second Amendment to Employment Agreement dated June 7, 2005
    between the Company and Frederick B. Beilstein.                                       
|        | 10.57(r) |  |             | Second Amendment to the Amended and Restated Employment
    Agreement dated June 7, 2005 between the Company and Allan
    J. Tanenbaum.              
|        | 11.1**   |  |             | Statement regarding computation of per share earnings.                                                                                                
|        | 23.1     |  |             | Consent of Grant Thornton LLP                                                                                                                         
|        | 23.2     |  |             | Consent of KPMG LLP                                                                                                                                   
|        | 31.1     |  |             | Certification Pursuant to Rule 13a-14(a), as Adopted
    Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                   
|        | 31.2     |  |             | Certification Pursuant to Rule 13a-14(a), as Adopted
    Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                   

59



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##### Table of Contents



|        |      |  |             |                                                                                                                                                           
|------- | ---- |  | ----------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |  |            
|Number  |      |  | Description
|        |      |  |            
|        | 32.1 |  |             | Certification of Chief Executive Officer, pursuant to 18 U.S.C
    Section 1350, as adopted pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002.
|        | 32.2 |  |             | Certification of Chief Financial Officer, pursuant to 18 U.S.C
    Section 1350, as adopted pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002.






|  |                                                                               
|- | ------------------------------------------------------------------------------
| | Certain portions of this exhibit have been granted confidential
    treatment.



|   |                                                                                                                                                  
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------
|*  | Management contract, compensatory plan or arrangement required
    to be filed as an exhibit.                                                    
|  
|** | Data required by SFAS No. 128, Earnings per
    Share, is provided in Note 21 to our Consolidated
    Financial Statements in this Annual Report.



|    |                                                                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Filed as an exhibit to the Registration Statement of AFC on
    Form S-4/ A
    (Registration
    No. 333-29731) on
    July 2, 1997 and incorporated by reference herein.     
|   
|(b) | Filed as an exhibit to the
    Form 8-K of AFC
    filed on October 29, 1998 and incorporated by reference
    herein.                                                         
|   
|(c) | Filed as an exhibit to the
    Form 10-Q of AFC
    for the quarter ended July 14, 2002, on August 14,
    2002 and incorporated by reference herein.                          
|   
|(d) | Filed as an exhibit to the
    Form 8-K of AFC
    filed May 16, 2005 and incorporated by reference herein.                                                                    
|   
|(e) | Filed as an exhibit to the Registration Statement of AFC on
    Form S-1/ A
    (Registration
    No. 333-52608) on
    January 22, 2001 and incorporated by reference herein. 
|   
|(f) | Filed as an exhibit to the Registration Statement of AFC on
    Form S-1
    (Registration
    No. 333-73182) on
    November 13, 2001 and incorporated by reference herein.   
|   
|(g) | Filed as an exhibit to the Proxy Statement and Notice of 2002
    Annual Shareholders Meeting of AFC on April 12, 2002 and
    incorporated by reference herein.               
|   
|(h) | Filed as an exhibit to the
    Form 8-K of AFC
    filed April 16, 2003 and incorporated by reference herein.                                                                  
|   
|(i) | Filed as an exhibit to the
    Form 10-Q of AFC
    for the quarter ended April 17, 2005, on May 27, 2005,
    and incorporated by reference herein.                           
|   
|(j) | Filed as an exhibit to the
    Form 8-K of AFC
    filed November 5, 2004 and incorporated herein by reference.                                                                
|   
|(k) | Filed as an exhibit to the
    Form 8-K of AFC
    filed November 2, 2004 and incorporated herein by reference.                                                                
|   
|(l) | Filed as an exhibit to the
    Form 8-K of AFC
    filed January 5, 2005 and incorporated herein by reference.                                                                 
|   
|(m) | Filed as an exhibit to the
    Form 10-Q of AFC
    for the quarter ended July 11, 2004 on August 20, 2004
    and incorporated by reference herein.                           
|   
|(n) | Filed as an exhibit to the
    Form 10-K of AFC
    for the fiscal year ended December 28, 2003 on
    March 29, 2004 and incorporated by reference herein.                    
|   
|(o) | Filed as an exhibit to the Registration Statement of AFC on
    Form S-1/ A
    (Registration
    No. 333-52608) on
    February 28, 2001 and incorporated by reference herein.
|   
|(p) | Filed as an exhibit to the
    Form 10-K of AFC
    for the fiscal year ended December 26, 2004, on
    April 25, 2005.                                                        
|   
|(q) | Filed as an exhibit to the Registration Statement of AFC on
    Form S-1/A (Registration No. 333-52608) on
    February 9, 2001 and incorporated by reference herein.          



|    |                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------
|(r) | Filed as an exhibit to the
    Form 8-K of AFC
    filed June 7, 2005 and incorporated herein by reference.

60



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##### Table of Contents



SIGNATURES






| |                      
| | ---------------------
| | AFC ENTERPRISES, INC.



| |     |                      
| | --- | ---------------------
| | By: | /s/ Kenneth L. Keymer

| |                        
| | -----------------------
| |                        
| | Kenneth L. Keymer      
| | Chief Executive Officer



|                                                 |  |                                                                          |  |              
|------------------------------------------------ |  | ------------------------------------------------------------------------ |  | -------------
|Signature                                        |  | Title(s)                                                                 |  | Date         
|                                                 |  |                                                                          |  |              
|                                                
|/s/ Kenneth L. KeymerKenneth L. Keymer           |  | Chief Executive Officer(Principal Executive Officer)                     |  | March 8, 2006
|                                                
|/s/ H. Melville HopeH. Melville Hope             |  | Chief Financial Officer(Principal Financial and
     Accounting Officer) |  | March 8, 2006
|                                                
|/s/ Frank J. BelattiFrank J. Belatti             |  | Director, Chairman of the Board                                          |  | March 8, 2006
|                                                
|/s/ Victor
    Arias, Jr.Victor Arias, Jr.       |  | Director                                                                 |  | March 8, 2006
|                                                
|/s/ Carolyn H. ByrdCarolyn H. Byrd               |  | Director                                                                 |  | March 8, 2006
|                                                
|/s/ R. William
    Ide, IIIR. William Ide, III   |  | Director                                                                 |  | March 8, 2006
|                                                
|/s/ Kelvin J.
    PenningtonKelvin J. Pennington |  | Director                                                                 |  | March 8, 2006
|                                                
|/s/ John M. RothJohn M. Roth                     |  | Director                                                                 |  | March 8, 2006
|                                                
|/s/ Peter StarrettPeter Starrett                 |  | Director                                                                 |  | March 8, 2006

61



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##### Table of Contents






REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




















F-1



---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




















F-2



---



##### Table of Contents



AFC Enterprises, Inc.





Consolidated Balance Sheets


As of December 25, 2005 and December 26, 2004


(In millions, except share data)


|                                     |                                                                                                                                                                                          |                                                      |   |        |       |   |   |       |       | 
|------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------- | - | ------ | ----- | - | - | ----- | ----- | 
|                                     |                                                                                                                                                                                          | 2005                                                 |   |        | 2004  |  
|                                     |                                                                                                                                                                                          |                                                      |   |        |       |  
|ASSETS                              
|Current assets:                      |                                                                                                                                                                                          |                                                      |   |        |       |   |   |      
|                                     | Cash and cash equivalents                                                                                                                                                                |                                                      | $ | 8.2    |       |   | $ | 12.8  |      
|                                     | Short-term investments                                                                                                                                                                   |                                                      |   | 30.8   |       |   |   |      |      
|                                     | Accounts and current notes receivable, net                                                                                                                                               |                                                      |   | 16.9   |       |   |   | 13.3  |      
|                                     | Prepaid income taxes                                                                                                                                                                     |                                                      |   | 31.4   |       |   |   | 25.9  |      
|                                     | Other current assets                                                                                                                                                                     |                                                      |   | 16.4   |       |   |   | 40.6  |      
|                                     | Assets of discontinued operations                                                                                                                                                        |                                                      |   |       |       |   |   | 153.3 |      
|                                     |                                                                                                                                                                                          |                                                      |   |        |       |  
|                                     |                                                                                                                                                                                          | Total current assets                                 |   |        | 103.7 |   |   |       | 245.9 | 
|                                     |                                                                                                                                                                                          |                                                      |   |        |       |  
|Long-term assets:                    |                                                                                                                                                                                          |                                                      |   |        |       |   |   |      
|                                     | Property and equipment, net                                                                                                                                                              |                                                      |   | 37.1   |       |   |   | 47.2  |      
|                                     | Goodwill                                                                                                                                                                                 |                                                      |   | 9.6    |       |   |   | 9.6   |      
|                                     | Trademarks and other intangible assets, net                                                                                                                                              |                                                      |   | 43.9   |       |   |   | 42.8  |      
|                                     | Other long-term assets, net                                                                                                                                                              |                                                      |   | 18.4   |       |   |   | 16.4  |      
|                                     |                                                                                                                                                                                          |                                                      |   |        |       |  
|                                     |                                                                                                                                                                                          | Total long-term assets                               |   |        | 109.0 |   |   |       | 116.0 | 
|                                     |                                                                                                                                                                                          |                                                      |   |        |       |  
|                                     |                                                                                                                                                                                          | Total assets                                         |   | $      | 212.7 |   |   | $     | 361.9 | 
|                                     |                                                                                                                                                                                          |                                                      |   |        |       |  
|                                    
|LIABILITIES AND SHAREHOLDERS EQUITY
|Current liabilities:                 |                                                                                                                                                                                          |                                                      |   |        |       |   |   |      
|                                     | Accounts payable                                                                                                                                                                         |                                                      | $ | 26.1   |       |   | $ | 37.7  |      
|                                     | Other current liabilities                                                                                                                                                                |                                                      |   | 22.4   |       |   |   | 24.7  |      
|                                     | Current debt maturities                                                                                                                                                                  |                                                      |   | 14.8   |       |   |   | 4.9   |      
|                                     | Liabilities of discontinued operations                                                                                                                                                   |                                                      |   |       |       |   |   | 41.5  |      
|                                     |                                                                                                                                                                                          |                                                      |   |        |       |  
|                                     |                                                                                                                                                                                          | Total current liabilities                            |   |        | 63.3  |   |   |       | 108.8 | 
|                                     |                                                                                                                                                                                          |                                                      |   |        |       |  
|Long-term liabilities:               |                                                                                                                                                                                          |                                                      |   |        |       |   |   |      
|                                     | Long-term debt                                                                                                                                                                           |                                                      |   | 176.6  |       |   |   | 87.5  |      
|                                     | Deferred credits and other long-term liabilities                                                                                                                                         |                                                      |   | 21.5   |       |   |   | 24.7  |      
|                                     |                                                                                                                                                                                          |                                                      |   |        |       |  
|                                     |                                                                                                                                                                                          | Total long-term liabilities                          |   |        | 198.1 |   |   |       | 112.2 | 
|                                     |                                                                                                                                                                                          |                                                      |   |        |       |  
|Commitments and contingencies        |                                                                                                                                                                                          |                                                      |   |        |       |   |   |      
|Shareholders equity (deficit):      |                                                                                                                                                                                          |                                                      |   |        |       |   |   |      
|                                     | Preferred stock ($.01 par value; 2,500,000 shares
    authorized; 0 issued and outstanding)                                                                                              |                                                      |   |       |       |   |   |      |      
|                                     | Common stock ($.01 par value; 150,000,000 shares
    authorized; 30,001,877 and 28,325,355 shares issued and
    outstanding at the end of fiscal years 2005 and 2004,
    respectively) |                                                      |   | 0.3    |       |   |   | 0.3   |      
|                                     | Capital in excess of par value                                                                                                                                                           |                                                      |   | 169.6  |       |   |   | 156.2 |      
|                                     | Notes receivable from officers, including accrued interest                                                                                                                               |                                                      |   | (1.1   | )     |   |   | (1.2  | )    
|                                     | Accumulated deficit                                                                                                                                                                      |                                                      |   | (216.8 | )     |   |   | (13.6 | )    
|                                     | Unearned compensation                                                                                                                                                                    |                                                      |   | (1.8   | )     |   |   | (0.8  | )    
|                                     | Accumulated other comprehensive income                                                                                                                                                   |                                                      |   | 1.1    |       |   |   |      |      
|                                     |                                                                                                                                                                                          |                                                      |   |        |       |  
|                                     |                                                                                                                                                                                          | Total shareholders equity (deficit)                 |   |        | (48.7 | ) |   |       | 140.9 | 
|                                     |                                                                                                                                                                                          |                                                      |   |        |       |  
|                                     |                                                                                                                                                                                          | Total liabilities and shareholders equity (deficit) |   | $      | 212.7 |   |   | $     | 361.9 | 
|                                     |                                                                                                                                                                                          |                                                      |   |        |       |  



F-3



---



##### Table of Contents



AFC Enterprises, Inc.





Consolidated Statements of Operations


For Fiscal Years 2005, 2004 and 2003


(In millions, except per share data)


|                                                                                               |                                                             |                |       |       |       |   |       |       |       |   |       |       |       | 
|---------------------------------------------------------------------------------------------- | ----------------------------------------------------------- | -------------- | ----- | ----- | ----- | - | ----- | ----- | ----- | - | ----- | ----- | ----- | 
|                                                                                               |                                                             | 2005           |       |       | 2004  |   |       | 2003  |      
|                                                                                               |                                                             |                |       |       |       |   |       |       |      
|Revenues:                                                                                      |                                                             |                |       |       |       |   |       |       |       |   |       |      
|                                                                                               | Sales by company-operated restaurants                       |                | $     | 60.3  |       |   | $     | 85.8  |       |   | $     | 85.4  |      
|                                                                                               | Franchise revenues                                          |                |       | 77.5  |       |   |       | 72.8  |       |   |       | 70.8  |      
|                                                                                               | Other revenues                                              |                |       | 5.6   |       |   |       | 5.3   |       |   |       | 5.3   |      
|                                                                                               |                                                             |                |       |       |       |   |       |       |      
|                                                                                               |                                                             | Total revenues |       |       | 143.4 |   |       |       | 163.9 |   |       |       | 161.5 | 
|                                                                                               |                                                             |                |       |       |       |   |       |       |      
|Expenses:                                                                                      |                                                             |                |       |       |       |   |       |       |       |   |       |      
|                                                                                               | Restaurant employee, occupancy and other expenses           |                |       | 31.7  |       |   |       | 46.9  |       |   |       | 46.9  |      
|                                                                                               | Restaurant food, beverages and packaging                    |                |       | 19.4  |       |   |       | 27.2  |       |   |       | 26.7  |      
|                                                                                               | General and administrative expenses                         |                |       | 68.7  |       |   |       | 82.1  |       |   |       | 66.0  |      
|                                                                                               | Depreciation and amortization                               |                |       | 7.3   |       |   |       | 10.0  |       |   |       | 10.7  |      
|                                                                                               | Shareholder litigation and other expenses, net              |                |       | 23.2  |       |   |       | 17.1  |       |   |       | 30.9  |      
|                                                                                               |                                                             |                |       |       |       |   |       |       |      
|                                                                                               |                                                             | Total expenses |       |       | 150.3 |   |       |       | 183.3 |   |       |       | 181.2 | 
|                                                                                               |                                                             |                |       |       |       |   |       |       |      
|Operating loss                                                                                 |                                                             |                | (6.9  | )     |       |   | (19.4 | )     |       |   | (19.7 | )    
|                                                                                               | Interest expense, net                                       |                |       | 6.8   |       |   |       | 5.5   |       |   |       | 5.3   |      
|                                                                                               |                                                             |                |       |       |       |   |       |       |      
|Loss before income taxes, minority interest, discontinued
    operations and accounting change |                                                             |                | (13.7 | )     |       |   | (24.9 | )     |       |   | (25.0 | )    
|                                                                                               | Income tax benefit                                          |                |       | (5.3  | )     |   |       | (10.7 | )     |   |       | (10.5 | )    
|                                                                                               | Minority interest                                           |                |       |      |       |   |       | 0.1   |       |   |       |      |      
|                                                                                               |                                                             |                |       |       |       |   |       |       |      
|Loss before discontinued operations and accounting change                                      |                                                             |                | (8.4  | )     |       |   | (14.3 | )     |       |   | (14.5 | )    
|                                                                                               | Discontinued operations, net of income taxes                |                |       | 158.0 |       |   |       | 39.1  |       |   |       | 5.6   |      
|                                                                                               | Cumulative effect of accounting change, net of income taxes |                |       |      |       |   |       | (0.2  | )     |   |       | (0.2  | )    
|                                                                                               |                                                             |                |       |       |       |   |       |       |      
|Net income (loss)                                                                              |                                                             | $              | 149.6 |       |       | $ | 24.6  |       |       | $ | (9.1  | )    
|                                                                                               |                                                             |                |       |       |       |   |       |       |      
|Basic loss per common share:                                                                   |                                                             |                |       |       |       |   |       |       |       |   |       |      
|                                                                                               | Loss before discontinued operations and accounting change   |                | $     | (0.29 | )     |   | $     | (0.51 | )     |   | $     | (0.52 | )    
|                                                                                               | Discontinued operations, net of income taxes                |                |       | 5.43  |       |   |       | 1.39  |       |   |       | 0.20  |      
|                                                                                               | Cumulative effect of accounting change, net of income taxes |                |       |      |       |   |       | (0.01 | )     |   |       | (0.01 | )    
|                                                                                               |                                                             |                |       |       |       |   |       |       |      
|                                                                                               | Net income (loss)                                           |                | $     | 5.14  |       |   | $     | 0.87  |       |   | $     | (0.33 | )    
|                                                                                               |                                                             |                |       |       |       |   |       |       |      
|Diluted loss per common share:                                                                 |                                                             |                |       |       |       |   |       |       |       |   |       |      
|                                                                                               | Loss before discontinued operations and accounting change   |                | $     | (0.29 | )     |   | $     | (0.51 | )     |   | $     | (0.52 | )    
|                                                                                               | Discontinued operations, net of income taxes                |                |       | 5.43  |       |   |       | 1.39  |       |   |       | 0.20  |      
|                                                                                               | Cumulative effect of accounting change, net of income taxes |                |       |      |       |   |       | (0.01 | )     |   |       | (0.01 | )    
|                                                                                               |                                                             |                |       |       |       |   |       |       |      
|                                                                                               | Net income (loss)                                           |                | $     | 5.14  |       |   | $     | 0.87  |       |   | $     | (0.33 | )    
|                                                                                               |                                                             |                |       |       |       |   |       |       |      
|Weighted-average shares outstanding:                                                           |                                                             |                |       |       |       |   |       |       |       |   |       |      
|                                                                                               | Basic                                                       |                |       | 29.1  |       |   |       | 28.1  |       |   |       | 27.8  |      
|                                                                                               | Diluted                                                     |                |       | 29.1  |       |   |       | 28.1  |       |   |       | 27.8  |      



F-4



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##### Table of Contents



AFC Enterprises, Inc.





Consolidated Statements of Changes in Shareholders
Equity (Deficit)


For Fiscal Years 2005, 2004 and 2003


(In millions, except share data)


|                             |                                                                                                                            |              |            |            |            |   |     |         |  |       |            |       |             |             |       |          |              |   |               |        |   |   |       |      |   |   |     |     |  |   |       |        |  
|---------------------------- | -------------------------------------------------------------------------------------------------------------------------- | ------------ | ---------- | ---------- | ---------- | - | --- | ------- |  | ----- | ---------- | ----- | ----------- | ----------- | ----- | -------- | ------------ | - | ------------- | ------ | - | - | ----- | ---- | - | - | --- | --- |  | - | ----- | ------ | -
|                             |                                                                                                                            | Common Stock |            |            | Capital in |   |     |         |  |       |            |       |             | Accumulated |       |          |             
|                             |                                                                                                                            |              |            |            | Excess of  |   |     | Officer |  |       |            |       |             |             | Other |          |              |  
|                             |                                                                                                                            | Number of    |            |            |            |   | Par |         |  | Notes |            |       | Accumulated |             |       | Unearned |              |   | Comprehensive |        |   |  
|                             |                                                                                                                            | Shares       |            |            | Amount     |   |     | Value   |  |       | Receivable |       |             | Deficit     |       |          | Compensation |   |               | Income |   |   | Total |     
|                             |                                                                                                                            |              |            |            |            |   |     |         |  |       |            |       |             |             |       |          |              |   |               |        |   |   |       |     
|Balance at December 29, 2002 |                                                                                                                            |              | 27,478,744 |            |            | $ | 0.3 |         |  | $     | 144.7      |       |             | $           | (6.1  | )        |              | $ | (29.1         | )      |   | $ |      |      |   | $ |    |     |  | $ | 109.8 |       
|                             | Net loss                                                                                                                   |              |            |           |            |   |     |        |  |       |            |      |             |             |       |         |              |   |               | (9.1   | ) |   |       |     |   |   |     |    |  |   |       | (9.1   | )
|                             | Issuance of common stock                                                                                                   |              |            | 25,889     |            |   |     |        |  |       |            | 0.4   |             |             |       |         |              |   |               |       |   |   |       |     |   |   |     |    |  |   |       | 0.4    |  
|                             | Issuance of common stock under stock option plans, including
    income tax benefit of $1.5 million                        |              |            | 488,366    |            |   |     |        |  |       |            | 5.0   |             |             |       |         |              |   |               |       |   |   |       |     |   |   |     |    |  |   |       | 5.0    |  
|                             | Notes and interest receivable payments                                                                                     |              |            |           |            |   |     |        |  |       |            |      |             |             |       | 3.1      |              |   |               |       |   |   |       |     |   |   |     |    |  |   |       | 3.1    |  
|                             | Interest accrued                                                                                                           |              |            |           |            |   |     |        |  |       |            |      |             |             |       | (0.3     | )            |   |               |       |   |   |       |     |   |   |     |    |  |   |       | (0.3   | )
|                             | Amortization of discount                                                                                                   |              |            |           |            |   |     |        |  |       |            |      |             |             |       | (0.1     | )            |   |               |       |   |   |       |     |   |   |     |    |  |   |       | (0.1   | )
|                             |                                                                                                                            |              |            |            |            |   |     |         |  |       |            |       |             |             |       |          |              |   |               |        |   |   |       |     
|Balance at December 28, 2003 |                                                                                                                            |              | 27,992,999 |            |            |   | 0.3 |         |  |       | 150.1      |       |             |             | (3.4  | )        |              |   | (38.2         | )      |   |   |      |      |   |   |    |     |  |   | 108.8 |       
|                             | Net income                                                                                                                 |              |            |           |            |   |     |        |  |       |            |      |             |             |       |         |              |   |               | 24.6   |   |   |       |     |   |   |     |    |  |   |       | 24.6   |  
|                             | Issuance of common stock                                                                                                   |              |            | 8,230      |            |   |     |        |  |       |            | 0.1   |             |             |       |         |              |   |               |       |   |   |       |     |   |   |     |    |  |   |       | 0.1    |  
|                             | Issuance of common stock under stock option plans, including
    income tax benefit of $1.1 million                        |              |            | 274,924    |            |   |     |        |  |       |            | 4.9   |             |             |       |         |              |   |               |       |   |   |       |     |   |   |     |    |  |   |       | 4.9    |  
|                             | Cancellation of shares                                                                                                     |              |            | (798       | )          |   |     |        |  |       |            |      |             |             |       |         |              |   |               |       |   |   |       |     |   |   |     |    |  |   |       |       |  
|                             | Issuance of restricted stock awards, net of forfeitures                                                                    |              |            | 50,000     |            |   |     |        |  |       |            | 1.1   |             |             |       |         |              |   |               |       |   |   |       | (1.1 | ) |   |     |    |  |   |       |       |  
|                             | Notes and interest receivable payments                                                                                     |              |            |           |            |   |     |        |  |       |            |      |             |             |       | 2.3      |              |   |               |       |   |   |       |     |   |   |     |    |  |   |       | 2.3    |  
|                             | Interest accrued                                                                                                           |              |            |           |            |   |     |        |  |       |            |      |             |             |       | (0.1     | )            |   |               |       |   |   |       |     |   |   |     |    |  |   |       | (0.1   | )
|                             | Amortization of unearned compensation                                                                                      |              |            |           |            |   |     |        |  |       |            |      |             |             |       |         |              |   |               |       |   |   |       | 0.3  |   |   |     |    |  |   |       | 0.3    |  
|                             |                                                                                                                            |              |            |            |            |   |     |         |  |       |            |       |             |             |       |          |              |   |               |        |   |   |       |     
|Balance at December 26, 2004 |                                                                                                                            |              | 28,325,355 |            |            |   | 0.3 |         |  |       | 156.2      |       |             |             | (1.2  | )        |              |   | (13.6         | )      |   |   | (0.8  | )    |   |   |    |     |  |   | 140.9 |       
|                             | Net income                                                                                                                 |              |            |           |            |   |     |        |  |       |            |      |             |             |       |         |              |   |               | 149.6  |   |   |       |     |   |   |     |    |  |   |       | 149.6  |  
|                             | Other comprehensive income: related to interest rate swap
    agreements, net of income taxes of $0.6 million
    (Note 9) |              |            |           |            |   |     |        |  |       |            |      |             |             |       |         |              |   |               |       |   |   |       |     |   |   |     | 1.1 |  |   |       | 1.1    |  
|                             |                                                                                                                            |              |            |            |            |   |     |         |  |       |            |       |             |             |       |          |              |   |               |        |   |   |       |     
|                             | Total comprehensive income                                                                                                 |              |            |            |            |   |     |         |  |       |            |       |             |             |       |          |              |   |               |        |   |   |       |      |   |   |     |     |  |   |       | 150.7  |  
|                             | Issuance of common stock under stock option plans, including
    income tax benefit of $11.2 million                       |              |            | 3,093,251  |            |   |     |        |  |       |            | 29.5  |             |             |       |         |              |   |               |       |   |   |       |     |   |   |     |    |  |   |       | 29.5   |  
|                             | Repurchases and cancellation of shares (Note 13)                                                                           |              |            | (1,542,872 | )          |   |     |        |  |       |            | (19.5 | )           |             |       |         |              |   |               |       |   |   |       |     |   |   |     |    |  |   |       | (19.5  | )
|                             | Special cash dividend (Note 13)                                                                                            |              |            |           |            |   |     |        |  |       |            |      |             |             |       |         |              |   |               | (352.9 | ) |   |       |     |   |   |     |    |  |   |       | (352.9 | )
|                             | Cancellation of shares                                                                                                     |              |            | (1,857     | )          |   |     |        |  |       |            |      |             |             |       |         |              |   |               |       |   |   |       |     |   |   |     |    |  |   |       |       |  
|                             | Issuance of restricted stock awards, net of forfeitures                                                                    |              |            | 128,000    |            |   |     |        |  |       |            | 3.4   |             |             |       |         |              |   |               | 0.1    |   |   |       | (3.4 | ) |   |     |    |  |   |       | 0.1    |  
|                             | Notes and interest receivable payments                                                                                     |              |            |           |            |   |     |        |  |       |            |      |             |             |       | 0.1      |              |   |               |       |   |   |       |     |   |   |     |    |  |   |       | 0.1    |  
|                             | Amortization of unearned compensation                                                                                      |              |            |           |            |   |     |        |  |       |            |      |             |             |       |         |              |   |               |       |   |   |       | 2.4  |   |   |     |    |  |   |       | 2.4    |  
|                             |                                                                                                                            |              |            |            |            |   |     |         |  |       |            |       |             |             |       |          |              |   |               |        |   |   |       |     
|Balance at December 25, 2005 |                                                                                                                            |              | 30,001,877 |            |            | $ | 0.3 |         |  | $     | 169.6      |       |             | $           | (1.1  | )        |              | $ | (216.8        | )      |   | $ | (1.8  | )    |   | $ | 1.1 |     |  | $ | (48.7 | )     
|                             |                                                                                                                            |              |            |            |            |   |     |         |  |       |            |       |             |             |       |          |              |   |               |        |   |   |       |     



F-5



---



##### Table of Contents



AFC Enterprises, Inc.





Consolidated Statements of Cash Flows


For Fiscal Years 2005, 2004 and 2003


(In millions)


|                                                                                                       |                                                                                    |                                                  |                                                                                    |        |       |        |       |       |      |       |       |      |      |       |  
|------------------------------------------------------------------------------------------------------ | ---------------------------------------------------------------------------------- | ------------------------------------------------ | ---------------------------------------------------------------------------------- | ------ | ----- | ------ | ----- | ----- | ---- | ----- | ----- | ---- | ---- | ----- | -
|                                                                                                       |                                                                                    | 2005                                             |                                                                                    |        | 2004  |        |       | 2003  |     
|                                                                                                       |                                                                                    |                                                  |                                                                                    |        |       |        |       |       |     
|Cash flows provided by (used in) operating activities:                                                 |                                                                                    |                                                  |                                                                                    |        |       |        |       |       |      |       |       |     
|Net income (loss)                                                                                      |                                                                                    | $                                                | 149.6                                                                              |        |       | $      | 24.6  |       |      | $     | (9.1  | )   
|Adjustments to reconcile net income (loss) to net cash provided
    by (used in) operating activities: |                                                                                    |                                                  |                                                                                    |        |       |        |       |       |      |       |       |     
|                                                                                                       | Discontinued operations                                                            |                                                  |                                                                                    | (158.0 | )     |        |       | (39.1 | )    |       |       | (5.6 | )   
|                                                                                                       | Depreciation and amortization                                                      |                                                  |                                                                                    | 7.3    |       |        |       | 10.0  |      |       |       | 10.7 |     
|                                                                                                       | Asset write-downs                                                                  |                                                  |                                                                                    | 5.8    |       |        |       | 4.8   |      |       |       | 15.0 |     
|                                                                                                       | Net gain on sale of assets                                                         |                                                  |                                                                                    | (1.4   | )     |        |       | (0.5  | )    |       |       | (0.7 | )   
|                                                                                                       | Cumulative effect of accounting changes, pre-tax                                   |                                                  |                                                                                    |       |       |        |       | 0.2   |      |       |       | 0.3  |     
|                                                                                                       | Deferred income taxes                                                              |                                                  |                                                                                    | 9.3    |       |        |       | 3.2   |      |       |       | (2.9 | )   
|                                                                                                       | Non-cash interest, net                                                             |                                                  |                                                                                    | 2.7    |       |        |       | 1.3   |      |       |       | 0.5  |     
|                                                                                                       | Provision for credit losses                                                        |                                                  |                                                                                    | (0.3   | )     |        |       | 0.9   |      |       |       | 1.8  |     
|                                                                                                       | Minority interest                                                                  |                                                  |                                                                                    |       |       |        |       | 0.1   |      |       |       |     |     
|                                                                                                       | Stock-based compensation expense                                                   |                                                  |                                                                                    | 2.9    |       |        |       | 0.4   |      |       |       | 0.2  |     
|                                                                                                       | Change in operating assets and liabilities, exclusive of opening
    VIE balances: |                                                  |                                                                                    |        |       |        |       |       |      |       |       |      |     
|                                                                                                       |                                                                                    | Accounts receivable                              |                                                                                    |        | (3.9  | )      |       |       | (2.4 | )     |       |      | (2.2 | )    
|                                                                                                       |                                                                                    | Prepaid income taxes                             |                                                                                    |        | (69.2 | )      |       |       | (5.5 | )     |       |      | (1.3 | )    
|                                                                                                       |                                                                                    | Other operating assets                           |                                                                                    |        | 5.1   |        |       |       | (6.5 | )     |       |      | 4.0  |      
|                                                                                                       |                                                                                    | Accounts payable and other operating liabilities |                                                                                    |        | (15.2 | )      |       |       | 16.9 |       |       |      | (0.3 | )    
|                                                                                                       |                                                                                    |                                                  |                                                                                    |        |       |        |       |       |     
|                                                                                                       |                                                                                    |                                                  | Net cash provided by (used in) operating activities of
    continuing operations   |        |       | (65.3  | )     |       |      | 8.4   |       |      |      | 10.4  |  
|                                                                                                       |                                                                                    |                                                  |                                                                                    |        |       |        |       |       |     
|                                                                                                       |                                                                                    |                                                  | Net cash provided by (used in) operating activities of
    discontinued operations |        |       | (7.4   | )     |       |      | 35.6  |       |      |      | 35.7  |  
|                                                                                                       |                                                                                    |                                                  |                                                                                    |        |       |        |       |       |     
|Cash flows provided by (used in) investing activities:                                                 |                                                                                    |                                                  |                                                                                    |        |       |        |       |       |      |       |       |     
|Capital expenditures of continuing operations                                                          |                                                                                    |                                                  | (4.2                                                                               | )      |       |        | (8.5  | )     |      |       | (15.1 | )   
|Capital expenditures of discontinued operations                                                        |                                                                                    |                                                  |                                                                                   |        |       |        | (16.9 | )     |      |       | (10.4 | )   
|Proceeds from dispositions of property and equipment                                                   |                                                                                    |                                                  | 3.1                                                                                |        |       |        | 2.0   |       |      |       | 1.8   |     
|Proceeds relating to the sale of discontinued operations, net                                          |                                                                                    |                                                  | 367.6                                                                              |        |       |        | 18.6  |       |      |       | 62.1  |     
|Acquisition of franchised restaurants                                                                  |                                                                                    |                                                  | (2.2                                                                               | )      |       |        |      |       |      |       |      |     
|Purchases of short-term investments                                                                    |                                                                                    |                                                  | (275.0                                                                             | )      |       |        |      |       |      |       |      |     
|Sales and maturities of short-term investments                                                         |                                                                                    |                                                  | 244.2                                                                              |        |       |        |      |       |      |       |      |     
|Proceeds from notes receivable                                                                         |                                                                                    |                                                  | 1.2                                                                                |        |       |        |      |       |      |       | 2.3   |     
|Issuances of notes receivable                                                                          |                                                                                    |                                                  | (0.3                                                                               | )      |       |        |      |       |      |       | (1.2  | )   
|Other, net                                                                                             |                                                                                    |                                                  |                                                                                   |        |       |        | 2.0   |       |      |       |      |     
|                                                                                                       |                                                                                    |                                                  |                                                                                    |        |       |        |       |       |     
|                                                                                                       |                                                                                    |                                                  | Net cash provided by (used in) investing activities                                |        |       | 334.4  |       |       |      | (2.8  | )     |      |      | 39.5  |  
|                                                                                                       |                                                                                    |                                                  |                                                                                    |        |       |        |       |       |     
|Cash flows provided by (used in) financing activities:                                                 |                                                                                    |                                                  |                                                                                    |        |       |        |       |       |      |       |       |     
|Proceeds from 2005 Credit Facility                                                                     |                                                                                    |                                                  | 190.0                                                                              |        |       |        |      |       |      |       |      |     
|Principal payments  2005 Credit Facility (term loans)                                                 |                                                                                    |                                                  | (0.5                                                                               | )      |       |        |      |       |      |       |      |     
|Principal payments  2002 Credit Facility, net                                                         |                                                                                    |                                                  | (90.3                                                                              | )      |       |        | (39.0 | )     |      |       | (93.6 | )   
|Principal payments  other notes (including VIEs in
    2004 and 2005)                                 |                                                                                    |                                                  | (0.1                                                                               | )      |       |        | (0.2  | )     |      |       | (2.0  | )   
|Special dividend                                                                                       |                                                                                    |                                                  | (350.8                                                                             | )      |       |        |      |       |      |       |      |     
|Stock repurchases                                                                                      |                                                                                    |                                                  | (15.4                                                                              | )      |       |        |      |       |      |       |      |     
|Proceeds from exercise of employee stock options                                                       |                                                                                    |                                                  | 17.5                                                                               |        |       |        | 3.8   |       |      |       | 3.2   |     
|Issuance of common stock, net                                                                          |                                                                                    |                                                  |                                                                                   |        |       |        | 0.1   |       |      |       | 0.4   |     
|Increase (decrease) in bank overdrafts, net                                                            |                                                                                    |                                                  | (6.4                                                                               | )      |       |        | 4.3   |       |      |       | (1.0  | )   
|Increase in restricted cash                                                                            |                                                                                    |                                                  | (3.8                                                                               | )      |       |        | (1.4  | )     |      |       | (0.3  | )   
|Debt issuance costs                                                                                    |                                                                                    |                                                  | (3.7                                                                               | )      |       |        |      |       |      |       | (0.2  | )   
|Other, net                                                                                             |                                                                                    |                                                  | (3.0                                                                               | )      |       |        | 0.4   |       |      |       | 2.1   |     
|                                                                                                       |                                                                                    |                                                  |                                                                                    |        |       |        |       |       |     
|                                                                                                       |                                                                                    |                                                  | Net cash (used in) financing activities                                            |        |       | (266.5 | )     |       |      | (32.0 | )     |      |      | (91.4 | )
|                                                                                                       |                                                                                    |                                                  |                                                                                    |        |       |        |       |       |     
|Net increase (decrease) in cash and cash equivalents                                                   |                                                                                    |                                                  | (4.8                                                                               | )      |       |        | 9.2   |       |      |       | (5.8  | )   
|Cash and cash equivalents at beginning of year                                                         |                                                                                    |                                                  | 13.0                                                                               |        |       |        | 3.8   |       |      |       | 9.6   |     
|                                                                                                       |                                                                                    |                                                  |                                                                                    |        |       |        |       |       |     
|Cash and cash equivalents at end of year                                                               |                                                                                    | $                                                | 8.2                                                                                |        |       | $      | 13.0  |       |      | $     | 3.8   |     
|                                                                                                       |                                                                                    |                                                  |                                                                                    |        |       |        |       |       |     
|Cash and cash equivalents of continuing operations                                                     |                                                                                    | $                                                | 8.2                                                                                |        |       | $      | 12.8  |       |      | $     | 3.6   |     
|Cash and cash equivalents of discontinued operations                                                   |                                                                                    | $                                                |                                                                                   |        |       | $      | 0.2   |       |      | $     | 0.2   |     



F-6



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##### Table of Contents



AFC ENTERPRISES, INC.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


For Fiscal Years 2005, 2004 and 2003


Note  1 Description of Business


Continuing Operations. ®


Discontinued Operations. tm ®




Note  2 Summary of Significant Accounting
Policies


Principles of Consolidation. Consolidation of
Variable Interest Entities, an Interpretation of Accounting
Research Bulletin No. 51












F-7



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##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2005, 2004 and 2003






Use of Estimates.


Reclassifications.


Fiscal Year.


Cash and Cash Equivalents.




| |                                    
| | -----------------------------------
| | Supplemental Cash Flow Information.

| |  |                                           |  |      |      |  |      |   |      |      |  |   |      |  |  | 
| |  | ----------------------------------------- |  | ---- | ---- |  | ---- | - | ---- | ---- |  | - | ---- |  |  | 
|
| |  | (in millions)                             |  | 2005 |      |  | 2004 |   |      | 2003 |  |   |     
|
| |  | Interest paid, net of capitalized amounts |  | $    | 7.6  |  |      | $ | 6.0  |      |  | $ | 7.6  |  |  | 
| |  | Income taxes paid, net of refunds         |  |      | 54.8 |  |      |   | 11.3 |      |  |   | 14.6 |  |  | 
|

Short-Term Investments.


Accounts Receivable, Net.


F-8



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##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2005, 2004 and 2003




| |  |                                                          |  |      |      |   |      |   |     |      |  |   |      |   |  | 
| |  | -------------------------------------------------------- |  | ---- | ---- | - | ---- | - | --- | ---- |  | - | ---- | - |  | 
|
| |  | (in millions)                                            |  | 2005 |      |   | 2004 |   |     | 2003 |  |   |     
|
| |  | Balance, beginning of year                               |  | $    | 3.7  |   |      | $ | 2.7 |      |  | $ | 1.1  |   |  | 
| |  | Provisions                                               |  |      | (0.3 | ) |      |   | 0.9 |      |  |   | 1.8  |   |  | 
| |  | Write-offs                                               |  |      | (0.8 | ) |      |   |    |      |  |   | (0.1 | ) |  | 
| |  | Other (principally associated with the advertising fund) |  |      | (0.9 | ) |      |   | 0.1 |      |  |   | (0.1 | ) |  | 
|
| |  | Balance, end of year                                     |  | $    | 1.7  |   |      | $ | 3.7 |      |  | $ | 2.7  |   |  | 
|

Notes Receivable, Net.




Inventories. (first-in,


Property and Equipment.






F-9



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##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2005, 2004 and 2003


Goodwill, Trademarks, and Other Intangible Assets.






Debt Issuance Costs.


Advertising Fund.


Accounting for Franchise Fee
Revenue


F-10



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##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2005, 2004 and 2003




| |  |                                          |  |      |      |  |      |   |      |  |  | 
| |  | ---------------------------------------- |  | ---- | ---- |  | ---- | - | ---- |  |  | 
|
| |  | (in millions)                            |  | 2005 |      |  | 2004 |   |      | 
|
| |  | Assets:                                  |  |      |      |  |      |   |      |  |  | 
| |  | Accounts receivable, net                 |  | $    | 3.7  |  |      | $ | 3.3  |  |  | 
| |  | Restricted cash and other current assets |  |      | 12.4 |  |      |   | 7.9  |  |  | 
|
| |  |                                          |  | $    | 16.1 |  |      | $ | 11.2 |  |  | 
|
| |  | Liabilities:                             |  |      |      |  |      |   |      |  |  | 
| |  | Accounts payable and accrued liabilities |  | $    | 11.3 |  |      | $ | 6.2  |  |  | 
|
| |  |                                          |  | $    | 4.8  |  |      | $ | 5.0  |  |  | 
|



Leases. Accounting for
Leases




Fair Value of Financial Instruments.


Revenue Recognition  Sales by Company-Operated
Restaurants.


Revenue Recognition  Franchise
Operations.


F-11



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##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2005, 2004 and 2003




Other Revenues.


Gains and Losses Associated With Unit Conversions.






Research and Development.


Foreign Currency Transactions.


Income Taxes.


Restricted stock awards.


Stock-Based Employee Compensation.


F-12



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##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2005, 2004 and 2003




| |  |                                                                                                                                   |  |      |       |   |      |   |      |      |  |   |       |   |  | 
| |  | --------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----- | - | ---- | - | ---- | ---- |  | - | ----- | - |  | 
|
| |  | (in millions, except per share amounts)                                                                                           |  | 2005 |       |   | 2004 |   |      | 2003 |  |   |      
|
| |  | Net income (loss) as reported                                                                                                     |  | $    | 149.6 |   |      | $ | 24.6 |      |  | $ | (9.1  | ) |  | 
| |  | Total stock-based employee compensation expense determined under
    fair value method for all awards, net of related tax effects |  |      | (1.2  | ) |      |   | (2.8 | )    |  |   | (2.2  | ) |  | 
| |  |                                                                                                                                   |  |      |       |  
| |  | Pro forma net income (loss)                                                                                                       |  | $    | 148.4 |   |      | $ | 21.8 |      |  | $ | (11.3 | ) |  | 
| |  |                                                                                                                                   |  |      |       |  
| |  | Basic earnings (loss) per share                                                                                                   |  |      |       |   |      |   |      |      |  |   |       |   |  | 
| |  | As reported                                                                                                                       |  | $    | 5.14  |   |      | $ | 0.87 |      |  | $ | (0.33 | ) |  | 
| |  | Pro forma                                                                                                                         |  |      | 5.10  |   |      |   | 0.77 |      |  |   | (0.41 | ) |  | 
| |  | Diluted earnings (loss) per share(a)                                                                                              |  |      |       |   |      |   |      |      |  |   |       |   |  | 
| |  | As reported                                                                                                                       |  | $    | 5.14  |   |      | $ | 0.87 |      |  | $ | (0.33 | ) |  | 
| |  | Pro forma                                                                                                                         |  |      | 5.10  |   |      |   | 0.77 |      |  |   | (0.41 | ) |  | 
|



| |     |                                                                                                                                                                                                                                                             
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | Due to the Companys loss before discontinued operations
    and accounting change for all years presented, the dilutive
    effect of stock options were excluded from the denominator for
    the Companys diluted earnings (loss) per share computation.



| |  |                                                |  |      |      |   |      |  |      |         |  |  |     |  |  | 
| |  | ---------------------------------------------- |  | ---- | ---- | - | ---- |  | ---- | ------- |  |  | --- |  |  | 
|
| |  |                                                |  | 2005 |      |   | 2004 |  |      | 2003(a) |  |  |    
|
| |  | Approximate risk-free interest rate percentage |  |      | 3.8  | % |      |  | 2.8  | %       |  |  | n/a |  |  | 
| |  | Expected dividend yield percentage             |  |      | 0.0  | % |      |  | 0.0  | %       |  |  | n/a |  |  | 
| |  | Expected lives (in years)                      |  |      | 4.0  |   |      |  | 4.0  |         |  |  | n/a |  |  | 
| |  | Expected volatility percentage                 |  |      | 61.4 | % |      |  | 52.7 | %       |  |  | n/a |  |  | 
|



| |     |                                            
| | --- | -------------------------------------------
| | (a) | During 2003, there were no options granted.

Note  3 Recent Accounting Pronouncements That
The Company Has Not Yet Adopted


Share-Based Payment Accounting for Stock-Based
Compensation


13-1, Accounting for Rental Costs Incurred during a
Construction Period 13-1), 13-1


F-13



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##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2005, 2004 and 2003


13-1.


Note  4 Other Current Assets


| |  |                                           |  |      |      |      |  |   |      |  |  | 
| |  | ----------------------------------------- |  | ---- | ---- | ---- |  | - | ---- |  |  | 
|
| |  | (in millions)                             |  | 2005 |      | 2004 |  |  
|
| |  | Restricted cash                           |  | $    | 11.2 |      |  | $ | 7.4  |  |  | 
| |  | Deferred income taxes                     |  |      |     |      |  |   | 25.2 |  |  | 
| |  | Deferred transaction costs                |  |      |     |      |  |   | 5.9  |  |  | 
| |  | Prepaid expenses and other current assets |  |      | 5.2  |      |  |   | 2.1  |  |  | 
|
| |  |                                           |  | $    | 16.4 |      |  | $ | 40.6 |  |  | 
|



Note  5 Property and Equipment, Net


| |  |                                                |  |      |       |      |  |   |       |   |  | 
| |  | ---------------------------------------------- |  | ---- | ----- | ---- |  | - | ----- | - |  | 
|
| |  | (in millions)                                  |  | 2005 |       | 2004 |  |  
|
| |  | Land                                           |  | $    | 5.2   |      |  | $ | 5.9   |   |  | 
| |  | Buildings and improvements                     |  |      | 28.3  |      |  |   | 33.1  |   |  | 
| |  | Equipment                                      |  |      | 48.6  |      |  |   | 51.4  |   |  | 
| |  | Properties held for sale and other             |  |      | 0.3   |      |  |   | 0.3   |   |  | 
| |  |                                                |  |     
| |  |                                                |  |      | 82.4  |      |  |   | 90.7  |   |  | 
| |  | Less accumulated depreciation and amortization |  |      | (45.3 | )    |  |   | (43.5 | ) |  | 
|
| |  |                                                |  | $    | 37.1  |      |  | $ | 47.2  |   |  | 
|



F-14



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##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2005, 2004 and 2003


Note  6 Trademarks and Other Intangible
Assets, Net


| |  |                                    |  |      |      |   |      |   |      |   |  | 
| |  | ---------------------------------- |  | ---- | ---- | - | ---- | - | ---- | - |  | 
|
| |  | (in millions)                      |  | 2005 |      |   | 2004 |   |      |  
|
| |  | Non-amortizable intangible assets: |  |      |      |   |      |   |      |   |  | 
| |  | Trademarks                         |  | $    | 42.0 |   |      | $ | 42.0 |   |  | 
| |  | Other                              |  |      | 0.6  |   |      |   | 0.6  |   |  | 
| |  |                                    |  |     
| |  |                                    |  |      | 42.6 |   |      |   | 42.6 |   |  | 
| |  | Amortizable intangible assets:     |  |      |      |   |      |   |      |   |  | 
| |  | Gross book value                   |  |      | 1.7  |   |      |   | 0.5  |   |  | 
| |  | Accumulated amortization           |  |      | (0.4 | ) |      |   | (0.3 | ) |  | 
| |  |                                    |  |     
| |  |                                    |  |      | 1.3  |   |      |   | 0.2  |   |  | 
|
| |  |                                    |  | $    | 43.9 |   |      | $ | 42.8 |   |  | 
|



Note  7 Other Long-Term Assets, Net


| |  |                                   |  |      |      |  |      |   |      |  |  | 
| |  | --------------------------------- |  | ---- | ---- |  | ---- | - | ---- |  |  | 
|
| |  | (in millions)                     |  | 2005 |      |  | 2004 |   |      | 
|
| |  | Non-current notes receivable, net |  | $    | 12.1 |  |      | $ | 5.2  |  |  | 
| |  | Deferred income taxes             |  |      |     |  |      |   | 5.0  |  |  | 
| |  | Debt issuance costs, net          |  |      | 3.3  |  |      |   | 2.3  |  |  | 
| |  | Other                             |  |      | 3.0  |  |      |   | 3.9  |  |  | 
|
| |  |                                   |  | $    | 18.4 |  |      | $ | 16.4 |  |  | 
|

Note  8 Other Current Liabilities


| |  |                                       |  |      |      |  |      |   |      |  |  | 
| |  | ------------------------------------- |  | ---- | ---- |  | ---- | - | ---- |  |  | 
|
| |  | (in millions)                         |  | 2005 |      |  | 2004 |   |      | 
|
| |  | Accrued wages, bonuses and severances |  | $    | 9.7  |  |      | $ | 6.7  |  |  | 
| |  | Accrued income taxes reserves         |  |      | 3.6  |  |      |   | 3.9  |  |  | 
| |  | Accrued interest                      |  |      | 3.0  |  |      |   | 0.8  |  |  | 
| |  | Accrued legal                         |  |      | 1.3  |  |      |   | 3.4  |  |  | 
| |  | Accrued employee benefits             |  |      | 0.8  |  |      |   | 2.9  |  |  | 
| |  | Accrued lease obligations             |  |      | 0.4  |  |      |   | 2.6  |  |  | 
| |  | Current deferred tax liabilities      |  |      | 1.2  |  |      |   |     |  |  | 
| |  | Other                                 |  |      | 2.4  |  |      |   | 4.4  |  |  | 
|
| |  |                                       |  | $    | 22.4 |  |      | $ | 24.7 |  |  | 
|

F-15



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##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2005, 2004 and 2003


Note  9 Long-Term Debt and Other Borrowings


| |  |                                                                          |  |      |       |   |      |   |      |   |  | 
| |  | ------------------------------------------------------------------------ |  | ---- | ----- | - | ---- | - | ---- | - |  | 
|
| |  | (in millions)                                                            |  | 2005 |       |   | 2004 |   |      |  
|
| |  | 2005 Credit Facility:                                                    |  |      |       |   |      |   |      |   |  | 
| |  | Revolving credit facility                                                |  | $    |      |   |      | $ |     |   |  | 
| |  | Term loan                                                                |  |      | 189.5 |   |      |   |     |   |  | 
| |  | 2002 Credit Facility:                                                    |  |      |       |   |      |   |      |   |  | 
| |  | Revolving credit facility                                                |  |      |      |   |      |   | 34.6 |   |  | 
| |  | Term loans                                                               |  |      |      |   |      |   | 55.7 |   |  | 
| |  | Capital lease obligations                                                |  |      | 0.6   |   |      |   | 0.6  |   |  | 
| |  | Other notes ($1.2 at 12/25/05 and $1.4 at 12/26/04 related to a
    VIE) |  |      | 1.3   |   |      |   | 1.5  |   |  | 
| |  |                                                                          |  |      |       |  
| |  |                                                                          |  |      | 191.4 |   |      |   | 92.4 |   |  | 
| |  | Less current portion                                                     |  |      | (14.8 | ) |      |   | (4.9 | ) |  | 
|
| |  |                                                                          |  | $    | 176.6 |   |      | $ | 87.5 |   |  | 
|

2005 Credit Facility.










F-16



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##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2005, 2004 and 2003






2005 Interest Rate Swap Agreements.


2002 Credit Facility.


Future Debt Maturities.


| |  |               |  |   |       |  |  | 
| |  | ------------- |  | - | ----- |  |  | 
|
| |  | (in millions) |  |   |       | 
|
| |  | 2006          |  | $ | 14.7  |  |  | 
| |  | 2007          |  |   | 1.5   |  |  | 
| |  | 2008          |  |   | 1.9   |  |  | 
| |  | 2009          |  |   | 1.9   |  |  | 
| |  | 2010          |  |   | 43.7  |  |  | 
| |  | Thereafter    |  |   | 127.1 |  |  | 
|
| |  |               |  | $ | 190.8 |  |  | 
|

Note  10 Leases




F-17



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##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2005, 2004 and 2003




| |  |                                                             |  |        |           |   |        |   |      |  |  | 
| |  | ----------------------------------------------------------- |  | ------ | --------- | - | ------ | - | ---- |  |  | 
|
| |  | Capital                                                     |  |        | Operating |   |        |  
| |  | (in millions)                                               |  | Leases |           |   | Leases |   |      | 
|
| |  | 2006                                                        |  | $      | 0.1       |   |        | $ | 5.7  |  |  | 
| |  | 2007                                                        |  |        | 0.1       |   |        |   | 5.4  |  |  | 
| |  | 2008                                                        |  |        | 0.1       |   |        |   | 5.4  |  |  | 
| |  | 2009                                                        |  |        | 0.1       |   |        |   | 4.5  |  |  | 
| |  | 2010                                                        |  |        | 0.1       |   |        |   | 3.8  |  |  | 
| |  | Thereafter                                                  |  |        | 0.5       |   |        |   | 41.2 |  |  | 
| |  |                                                             |  |       
| |  | Future minimum lease payments                               |  |        | 1.0       |   |        | $ | 66.0 |  |  | 
| |  |                                                             |  |        |           |   |       
| |  | Less amounts representing interest on continuing operations |  |        | (0.4      | ) |        |   |      |  |  | 
| |  |                                                             |  |        |          
| |  |                                                             |  | $      | 0.6       |   |        |   |      |  |  | 
|





Note  11 Deferred Credits and Other Long-Term
Liabilities


| |  |                                   |  |      |      |  |      |   |      |  |  | 
| |  | --------------------------------- |  | ---- | ---- |  | ---- | - | ---- |  |  | 
|
| |  | (in millions)                     |  | 2005 |      |  | 2004 |   |      | 
|
| |  | Deferred franchise revenues       |  | $    | 6.5  |  |      | $ | 6.8  |  |  | 
| |  | Deferred income taxes             |  |      | 3.3  |  |      |   |     |  |  | 
| |  | Deferred gain on unit conversions |  |      | 4.0  |  |      |   | 4.3  |  |  | 
| |  | Deferred rentals                  |  |      | 3.7  |  |      |   | 2.5  |  |  | 
| |  | Executive retirement arrangements |  |      |     |  |      |   | 4.4  |  |  | 
| |  | Other                             |  |      | 4.0  |  |      |   | 6.7  |  |  | 
|
| |  |                                   |  | $    | 21.5 |  |      | $ | 24.7 |  |  | 
|

Note  12 Asset Retirement Obligations


Accounting for Asset Retirement
Obligations


F-18



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##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2005, 2004 and 2003




| |  |                            |  |      |      |   |      |   |     |  |  | 
| |  | -------------------------- |  | ---- | ---- | - | ---- | - | --- |  |  | 
|
| |  | (in millions)              |  | 2005 |      |   | 2004 |   |     | 
|
| |  | Balance, beginning of year |  | $    | 0.5  |   |      | $ | 0.4 |  |  | 
| |  | Accretion expense          |  |      |     |   |      |   | 0.1 |  |  | 
| |  | Adjustments and other      |  |      | (0.2 | ) |      |   |    |  |  | 
|
| |  | Balance, end of year       |  | $    | 0.3  |   |      | $ | 0.5 |  |  | 
|

Note  13 Common Stock


Share Repurchase Program.




Dividends.


Note  14 Stock Option Plans


The 1992 Stock Option Plan.


The 1996 Nonqualified Performance Stock Option
Plan.


F-19



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##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2005, 2004 and 2003




The 1996 Nonqualified Stock Option Plan.




The 1998 Substitute Nonqualified Stock Option
Plan.


The 2002 Incentive Stock Option Plan.




F-20



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##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2005, 2004 and 2003


Modifications to outstanding awards.


A Summary of Plan Activity.


| |  |                                                                |  |                            |          |   |  |        |       |  |          |  |       |        |  |   |          |  |  |  |       |   |  |   |       |  |  | 
| |  | -------------------------------------------------------------- |  | -------------------------- | -------- | - |  | ------ | ----- |  | -------- |  | ----- | ------ |  | - | -------- |  |  |  | ----- | - |  | - | ----- |  |  | 
|
| |  | (shares in thousands)                                          |  | 2005 Avg 2004 Avg 2003 Avg
| |  | Shares                                                         |  |                            | Ex.Price |   |  | Shares |       |  | Ex.Price |  |       | Shares |  |   | Ex.Price
| |  |                                                                |  |                            |          |   |  |        |       |  |          |  |       |        |  |   |         
| |  |                                                                |  |                            |          |   |  |        |       |  |          |  |       |        |  |   |          |  |  | 
| |  | Stock options:                                                 |  |                            |          |   |  |        |       |  |          |  |       |        |  |   |          |  |  |  |       |   |  |   |       |  |  | 
| |  | Outstanding at beginning of year                               |  |                            | 3,383    |   |  | $      | 13.68 |  |          |  | 3,213 |        |  | $ | 12.89    |  |  |  | 4,136 |   |  | $ | 13.27 |  |  | 
| |  | Granted options                                                |  |                            | 75       |   |  |        | 17.72 |  |          |  | 851   |        |  |   | 21.54    |  |  |  |      |   |  |   |      |  |  | 
| |  | Exercised options                                              |  |                            | (3,093   | ) |  |        | 5.61  |  |          |  | (275  | )      |  |   | 13.74    |  |  |  | (488  | ) |  |   | 6.65  |  |  | 
| |  | Modification to awards                                         |  |                            | 3,990    |   |  |        | 6.57  |  |          |  |      |        |  |   |         |  |  |  |      |   |  |   |      |  |  | 
| |  | Cancelled options                                              |  |                            | (2,515   | ) |  |        | 14.54 |  |          |  | (406  | )      |  |   | 23.87    |  |  |  | (435  | ) |  |   | 23.54 |  |  | 
| |  |                                                                |  |                            |          |   |  |        |       |  |          |  |       |        |  |   |          |  |  |  |       |  
| |  | Outstanding at end of year                                     |  |                            | 1,840    |   |  |        | 10.80 |  |          |  | 3,383 |        |  |   | 13.68    |  |  |  | 3,213 |   |  |   | 12.89 |  |  | 
| |  |                                                                |  |                            |          |   |  |        |       |  |          |  |       |        |  |   |          |  |  |  |       |  
| |  | Exercisable at end of year                                     |  |                            | 1,287    |   |  |        |       |  |          |  | 2,550 |        |  | $ | 10.75    |  |  |  | 2,486 |   |  | $ | 9.75  |  |  | 
| |  | Weighted average fair value of options granted during the year |  |                            |          |   |  | $      | 17.72 |  |          |  |       |        |  | $ | 9.81     |  |  |  |       |   |  | $ |      |  |  | 
| |  | Unvested restricted share awards:                              |  |                            |          |   |  |        |       |  |          |  |       |        |  |   |          |  |  |  |       |   |  |   |       |  |  | 
| |  | Outstanding at beginning of year                               |  |                            | 50       |   |  |        |       |  |          |  |      |        |  |   |          |  |  |  |      |   |  |   |       |  |  | 
| |  | Granted shares                                                 |  |                            | 138      |   |  |        |       |  |          |  | 50    |        |  |   |          |  |  |  |      |   |  |   |       |  |  | 
| |  | Vested shares                                                  |  |                            | (5       | ) |  |        |       |  |          |  |      |        |  |   |          |  |  |  |      |   |  |   |       |  |  | 
| |  | Cancelled shares                                               |  |                            | (10      | ) |  |        |       |  |          |  |      |        |  |   |          |  |  |  |      |   |  |   |       |  |  | 
| |  |                                                                |  |                            |          |   |  |        |       |  |          |  |       |        |  |   |          |  |  |  |       |  
| |  | Outstanding at end of year                                     |  |                            | 173      |   |  |        |       |  |          |  | 50    |        |  |   |          |  |  |  |      |   |  |   |       |  |  | 
|

Note  15 Other Employee Benefit Plans


401(k) Savings Plan.


Deferred Compensation Plan.


F-21



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##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2005, 2004 and 2003






Executive Retirement and Benefit Plan.




| |  |                                            |  |      |      |   |      |   |      |   |  | 
| |  | ------------------------------------------ |  | ---- | ---- | - | ---- | - | ---- | - |  | 
|
| |  | (in millions)                              |  | 2005 |      |   | 2004 |   |      |  
|
| |  | Benefit obligation at beginning of year    |  | $    | 2.6  |   |      | $ | 2.0  |   |  | 
| |  | Service cost                               |  |      |     |   |      |   | 0.2  |   |  | 
| |  | Interest cost                              |  |      |     |   |      |   | 0.1  |   |  | 
| |  | Loss due to curtailments                   |  |      | 0.1  |   |      |   | (0.2 | ) |  | 
| |  | Loss due to settlements                    |  |      | 0.2  |   |      |   |     |   |  | 
| |  | Change in cumulative actuarial (gain)/loss |  |      |     |   |      |   | 0.6  |   |  | 
| |  | Settlement payments                        |  |      | (2.9 | ) |      |   |     |   |  | 
| |  | Benefits paid                              |  |      |     |   |      |   | (0.1 | ) |  | 
|
| |  | Benefit obligation at end of year          |  | $    |     |   |      | $ | 2.6  |   |  | 
|



| |  |                |  |      |   |      |  |   |      |  |  |   |     |  |  | 
| |  | -------------- |  | ---- | - | ---- |  | - | ---- |  |  | - | --- |  |  | 
|
| |  | (in millions)  |  | 2005 |   | 2004 |  |   | 2003 |  |  |  
|
| |  | Service costs  |  | $    |  |      |  | $ | 0.2  |  |  | $ | 0.1 |  |  | 
| |  | Interest costs |  |      |  |      |  |   | 0.1  |  |  |   | 0.1 |  |  | 
|
| |  | Plan expense   |  | $    |  |      |  | $ | 0.3  |  |  | $ | 0.2 |  |  | 
|





F-22



---



##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2005, 2004 and 2003




| |  |                                            |  |      |      |   |      |   |      |   |  | 
| |  | ------------------------------------------ |  | ---- | ---- | - | ---- | - | ---- | - |  | 
|
| |  | (in millions)                              |  | 2005 |      |   | 2004 |   |      |  
|
| |  | Benefit obligation at beginning of year    |  | $    | 0.6  |   |      | $ | 0.5  |   |  | 
| |  | Service cost                               |  |      |     |   |      |   |     |   |  | 
| |  | Interest cost                              |  |      |     |   |      |   |     |   |  | 
| |  | Curtailments                               |  |      |     |   |      |   | (0.1 | ) |  | 
| |  | Change in cumulative actuarial (gain)/loss |  |      | (0.2 | ) |      |   | 0.2  |   |  | 
| |  | Settlement payments                        |  |      | (0.4 | ) |      |   |     |   |  | 
| |  | Benefits paid                              |  |      |     |   |      |   |     |   |  | 
|
| |  | Benefit obligation at end of year          |  | $    |     |   |      | $ | 0.6  |   |  | 
|

Employee Stock Purchase Program.


Note  16 Commitments and Contingencies


Supply Contracts.






F-23



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##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2005, 2004 and 2003






Formula and Supply Agreements with Former Owner.


King Features Agreements.




Business Process Services.




Information Technology Outsourcing.


F-24



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##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2005, 2004 and 2003






Employment Agreements.


AFC Loan Guarantee Programs.


re-imaging




Litigation.




F-25



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##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2005, 2004 and 2003










Insurance Programs.




Environmental Matters.


Foreign Operations.


F-26



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##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2005, 2004 and 2003




Significant Franchisee.


Geographic Concentrations.




Note  17 Adverse Effects of Hurricanes


Hurricanes Katrina and Rita.






Outlook for Closed Restaurants.


Financial Effects. $ clean-up


F-27



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##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2005, 2004 and 2003










Note  18 Shareholder Litigation and Other
Expenses, Net


| |  |                                                          |  |      |      |   |      |   |      |      |  |   |      |   |  | 
| |  | -------------------------------------------------------- |  | ---- | ---- | - | ---- | - | ---- | ---- |  | - | ---- | - |  | 
|
| |  | (in millions)                                            |  | 2005 |      |   | 2004 |   |      | 2003 |  |   |     
|
| |  | Shareholder litigation, special investigation, and other |  | $    | 21.8 |   |      | $ | 3.8  |      |  | $ | 1.4  |   |  | 
| |  | Asset write-downs                                        |  |      | 5.8  |   |      |   | 4.8  |      |  |   | 15.0 |   |  | 
| |  | Hurricane-related costs (other than impairments)         |  |      | 3.1  |   |      |   |     |      |  |   |     |   |  | 
| |  | Estimated insurance proceeds for hurricane damages       |  |      | (5.6 | ) |      |   |     |      |  |   |     |   |  | 
| |  | Net gain on sale of assets                               |  |      | (1.4 | ) |      |   | (0.5 | )    |  |   | (0.7 | ) |  | 
| |  | Restaurant closures and refurbishments                   |  |      | (0.5 | ) |      |   |     |      |  |   | 2.6  |   |  | 
| |  | Corporate lease termination                              |  |      |     |   |      |   | 9.0  |      |  |   |     |   |  | 
| |  | Restatement costs                                        |  |      |     |   |      |   |     |      |  |   | 12.6 |   |  | 
|
| |  |                                                          |  | $    | 23.2 |   |      | $ | 17.1 |      |  | $ | 30.9 |   |  | 
|





F-28



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##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2005, 2004 and 2003








Note  19 Interest Expense, Net


| |  |                                                    |  |      |      |   |      |   |      |      |  |   |      |   |  | 
| |  | -------------------------------------------------- |  | ---- | ---- | - | ---- | - | ---- | ---- |  | - | ---- | - |  | 
|
| |  | (in millions)                                      |  | 2005 |      |   | 2004 |   |      | 2003 |  |   |     
|
| |  | Interest on debt, less capitalized amounts         |  | $    | 9.2  |   |      | $ | 4.2  |      |  | $ | 5.3  |   |  | 
| |  | Amortization and write-offs of debt issuance costs |  |      | 2.7  |   |      |   | 1.4  |      |  |   | 0.9  |   |  | 
| |  | Other debt related charges                         |  |      | 0.5  |   |      |   | 0.9  |      |  |   | 0.9  |   |  | 
| |  | Interest income                                    |  |      | (5.6 | ) |      |   | (1.0 | )    |  |   | (1.8 | ) |  | 
|
| |  |                                                    |  | $    | 6.8  |   |      | $ | 5.5  |      |  | $ | 5.3  |   |  | 
|

Note  20 Income Taxes




| |  |                                                                                                            |  |      |       |   |      |   |       |      |  |   |       |   |  | 
| |  | ---------------------------------------------------------------------------------------------------------- |  | ---- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | - |  | 
|
| |  | (in millions)                                                                                              |  | 2005 |       |   | 2004 |   |       | 2003 |  |   |      
|
| |  | Income tax expense (benefit):                                                                              |  |      |       |   |      |   |       |      |  |   |       |   |  | 
| |  | From continuing operations                                                                                 |  | $    | (5.3  | ) |      | $ | (10.7 | )    |  | $ | (10.5 | ) |  | 
| |  | From discontinued operations                                                                               |  |      | 94.1  |   |      |   | (11.9 | )    |  |   | 11.5  |   |  | 
| |  | From change in accounting principle                                                                        |  |      |      |   |      |   |      |      |  |   | (0.1  | ) |  | 
| |  |                                                                                                            |  |     
| |  | Income taxes in the statements of operations, net                                                          |  |      | 88.8  |   |      |   | (22.6 | )    |  |   | 0.9   |   |  | 
| |  | Income taxes charged (credited) to statements of
    shareholders equity (deficit):                       |  |      |       |   |      |   |       |      |  |   |       |   |  | 
| |  | Compensation expense for tax purposes in excess of amounts
    recognized for financial reporting purposes |  |      | (11.2 | ) |      |   | (1.1  | )    |  |   | (1.5  | ) |  | 
| |  | Other comprehensive income                                                                                 |  |      | 0.7   |   |      |   |      |      |  |   |      |   |  | 
|
| |  | Total                                                                                                      |  | $    | 78.3  |   |      | $ | (23.7 | )    |  | $ | (0.6  | ) |  | 
|

F-29



---



##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2005, 2004 and 2003




| |  |               |  |      |       |   |      |   |       |      |  |   |       |   |  | 
| |  | ------------- |  | ---- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | - |  | 
|
| |  | (in millions) |  | 2005 |       |   | 2004 |   |       | 2003 |  |   |      
|
| |  | United States |  | $    | (17.7 | ) |      | $ | (29.1 | )    |  | $ | (29.6 | ) |  | 
| |  | Foreign       |  |      | 4.0   |   |      |   | 4.2   |      |  |   | 4.6   |   |  | 
|
| |  | Total         |  | $    | (13.7 | ) |      | $ | (24.9 | )    |  | $ | (25.0 | ) |  | 
|



| |  |                                        |  |      |       |   |      |   |       |      |  |   |       |   |  | 
| |  | -------------------------------------- |  | ---- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | - |  | 
|
| |  | (in millions)                          |  | 2005 |       |   | 2004 |   |       | 2003 |  |   |      
|
| |  | Current income tax expense:            |  |      |       |   |      |   |       |      |  |   |       |   |  | 
| |  | Federal                                |  | $    | (13.7 | ) |      | $ | (14.5 | )    |  | $ | (9.6  | ) |  | 
| |  | Foreign                                |  |      | 0.7   |   |      |   | 2.1   |      |  |   | 2.4   |   |  | 
| |  | State                                  |  |      | (1.6  | ) |      |   | (1.5  | )    |  |   | (0.4  | ) |  | 
| |  |                                        |  |     
| |  |                                        |  |      | (14.6 | ) |      |   | (13.9 | )    |  |   | (7.6  | ) |  | 
| |  | Deferred income tax expense (benefit): |  |      |       |   |      |   |       |      |  |   |       |   |  | 
| |  | Federal                                |  |      | 7.3   |   |      |   | 3.2   |      |  |   | (2.3  | ) |  | 
| |  | State                                  |  |      | 2.0   |   |      |   |      |      |  |   | (0.6  | ) |  | 
| |  |                                        |  |     
| |  |                                        |  |      | 9.3   |   |      |   | 3.2   |      |  |   | (2.9  | ) |  | 
|
| |  |                                        |  | $    | (5.3  | ) |      | $ | (10.7 | )    |  | $ | (10.5 | ) |  | 
|





| |  |                                       |  |      |       |    |      |  |       |      |  |  |       |    |  | 
| |  | ------------------------------------- |  | ---- | ----- | -- | ---- |  | ----- | ---- |  |  | ----- | -- |  | 
|
| |  |                                       |  | 2005 |       |    | 2004 |  |       | 2003 |  |  |      
|
| |  | Federal income tax rate               |  |      | (35.0 | )% |      |  | (35.0 | )%   |  |  | (35.0 | )% |  | 
| |  | State taxes, net of federal benefit   |  |      | (10.9 | )  |      |  | (4.0  | )    |  |  | (2.7  | )  |  | 
| |  | Valuation allowance                   |  |      | 13.9  |    |      |  |      |      |  |  |      |    |  | 
| |  | Non-deductible meals                  |  |      | 0.4   |    |      |  | 0.2   |      |  |  | 0.2   |    |  | 
| |  | Benefit of job tax credits            |  |      | (0.4  | )  |      |  | (1.1  | )    |  |  | (1.6  | )  |  | 
| |  | Adjustment to prior year tax accruals |  |      | (0.7  | )  |      |  | (3.2  | )    |  |  | (4.0  | )  |  | 
| |  | State deferred tax rate change        |  |      | (0.5  | )  |      |  |      |      |  |  |      |    |  | 
| |  | Tax free interest income              |  |      | (7.5  | )  |      |  |      |      |  |  |      |    |  | 
| |  | Prior year provision return items     |  |      | 2.8   |    |      |  |      |      |  |  |      |    |  | 
| |  | Other items, net                      |  |      | (0.8  | )  |      |  | 0.1   |      |  |  | 1.1   |    |  | 
|
| |  | Effective income tax benefit rate     |  |      | (38.7 | )% |      |  | (43.0 | )%   |  |  | (42.0 | )% |  | 
|

F-30



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##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2005, 2004 and 2003




| |  |                                        |  |      |       |   |      |   |       |   |  | 
| |  | -------------------------------------- |  | ---- | ----- | - | ---- | - | ----- | - |  | 
|
| |  | (in millions)                          |  | 2005 |       |   | 2004 |   |       |  
|
| |  | Deferred tax assets:                   |  |      |       |   |      |   |       |   |  | 
| |  | Capital loss carryforward              |  | $    |      |   |      | $ | 22.6  |   |  | 
| |  | Deferred franchise fee revenue         |  |      | 4.1   |   |      |   | 4.4   |   |  | 
| |  | State net operating loss carryforwards |  |      | 1.9   |   |      |   | 0.6   |   |  | 
| |  | Deferred rentals                       |  |      | 1.9   |   |      |   | 3.1   |   |  | 
| |  | Deferred compensation                  |  |      | 1.0   |   |      |   | 4.7   |   |  | 
| |  | Allowance for doubtful accounts        |  |      | 0.8   |   |      |   | 1.2   |   |  | 
| |  | Insurance accruals                     |  |      | 0.6   |   |      |   | 1.2   |   |  | 
| |  | Other accruals                         |  |      | 0.6   |   |      |   | 2.0   |   |  | 
| |  | Property, plant and equipment          |  |      | 0.2   |   |      |   |      |   |  | 
| |  | Reorganization costs                   |  |      | 2.2   |   |      |   | 4.4   |   |  | 
| |  |                                        |  |     
| |  | Total gross deferred tax assets        |  | $    | 13.3  |   |      | $ | 44.2  |   |  | 
| |  |                                        |  |     
| |  | Deferred tax liabilities:              |  |      |       |   |      |   |       |   |  | 
| |  | Franchise value and trademarks         |  | $    | (13.2 | ) |      | $ | (12.6 | ) |  | 
| |  | Insurance proceeds                     |  |      | (2.1  | ) |      |   |      |   |  | 
| |  | Property, plant and equipment          |  |      |      |   |      |   | (1.4  | ) |  | 
| |  | Other                                  |  |      | (0.6  | ) |      |   |      |   |  | 
| |  |                                        |  |     
| |  | Total gross deferred liabilities       |  |      | (15.9 | ) |      |   | (14.0 | ) |  | 
| |  | Valuation allowance                    |  |      | (1.9  | ) |      |   |      |   |  | 
|
| |  | Net deferred tax asset (liability)     |  | $    | (4.5  | ) |      | $ | 30.2  |   |  | 
|







F-31



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##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2005, 2004 and 2003


Note  21 Components of Earnings Per Share
Computation


| |  |                                                                        |  |      |       |   |      |   |       |      |  |   |       |   |  | 
| |  | ---------------------------------------------------------------------- |  | ---- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | - |  | 
|
| |  | (in millions)                                                          |  | 2005 |       |   | 2004 |   |       | 2003 |  |   |      
|
| |  | Numerators for income (loss) per share computation:                    |  |      |       |   |      |   |       |      |  |   |       |   |  | 
| |  | Loss before discontinued operations and accounting change              |  | $    | (8.4  | ) |      | $ | (14.3 | )    |  | $ | (14.5 | ) |  | 
| |  | Discontinued operations, net of income taxes                           |  |      | 158.0 |   |      |   | 39.1  |      |  |   | 5.6   |   |  | 
| |  | Cumulative effect of accounting change, net of income taxes            |  |      |      |   |      |   | (0.2  | )    |  |   | (0.2  | ) |  | 
|
| |  | Net income (loss)                                                      |  | $    | 149.6 |   |      | $ | 24.6  |      |  | $ | (9.1  | ) |  | 
|
| |  | Denominator for basic earnings per share  weighted
    average shares |  |      | 29.1  |   |      |   | 28.1  |      |  |   | 27.8  |   |  | 
| |  | Dilutive employee stock options(a)                                     |  |      |      |   |      |   |      |      |  |   |      |   |  | 
|
| |  | Denominator for diluted earnings per share                             |  |      | 29.1  |   |      |   | 28.1  |      |  |   | 27.8  |   |  | 
|



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) In 2005, 2004 and 2003, potentially dilutive employee
    stock options were excluded from the computation of dilutive
    earnings per share due to the anti-dilutive effect they would
    have on loss before discontinued operations and accounting
    change. The number of additional shares that otherwise
    would have been included in the denominator for the dilutive
    earnings per share computation were 0.8 million shares in
    2005, 1.0 million shares in 2004, and 0.9 million
    shares in 2003.

Note  22 Related Party Transactions








F-32



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##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2005, 2004 and 2003


Note  23 Discontinued Operations


Churchs.




Cinnabon.


Seattle Coffee. ® ®




F-33



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##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2005, 2004 and 2003




| |  |                                              |  |      |       |   |      |   |       |      |  |   |       |   |  | 
| |  | -------------------------------------------- |  | ---- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | - |  | 
|
| |  | (in millions)                                |  | 2005 |       |   | 2004 |   |       | 2003 |  |   |      
|
| |  | Total revenues:                              |  |      |       |   |      |   |       |      |  |   |       |   |  | 
| |  | Churchs                                     |  | $    |      |   |      | $ | 261.3 |      |  | $ | 249.1 |   |  | 
| |  | Cinnabon                                     |  |      |      |   |      |   | 37.1  |      |  |   | 48.7  |   |  | 
| |  | Seattle Coffee                               |  |      |      |   |      |   |      |      |  |   | 49.5  |   |  | 
|
| |  | Total revenues                               |  | $    |      |   |      | $ | 298.4 |      |  | $ | 347.3 |   |  | 
|
| |  | Income (loss) from operations:               |  |      |       |   |      |   |       |      |  |   |       |   |  | 
| |  | Churchs                                     |  | $    |      |   |      | $ | 40.9  |      |  | $ | 46.4  |   |  | 
| |  | Cinnabon                                     |  |      |      |   |      |   | (7.8  | )    |  |   | (27.7 | ) |  | 
| |  | Seattle Coffee                               |  |      |      |   |      |   |      |      |  |   | (1.4  | ) |  | 
| |  | Income tax benefit (expense)                 |  |      |      |   |      |   | (14.4 | )    |  |   | (9.6  | ) |  | 
|
| |  | Income (loss) from operations, net           |  | $    |      |   |      | $ | 18.7  |      |  | $ | 7.7   |   |  | 
|
| |  | Income (loss) from sale of businesses:       |  |      |       |   |      |   |       |      |  |   |       |   |  | 
| |  | Churchs                                     |  | $    | 252.1 |   |      | $ |      |      |  | $ |      |   |  | 
| |  | Cinnabon                                     |  |      |      |   |      |   | (5.1  | )    |  |   |      |   |  | 
| |  | Seattle Coffee                               |  |      |      |   |      |   | (0.8  | )    |  |   | (0.2  | ) |  | 
| |  | Income tax benefit (expense)                 |  |      | (94.1 | ) |      |   | 26.3  |      |  |   | (1.9  | ) |  | 
|
| |  | Income (loss) from sale of businesses, net   |  |      | 158.0 |   |      |   | 20.4  |      |  |   | (2.1  | ) |  | 
|
| |  | Discontinued operations, net of income taxes |  | $    | 158.0 |   |      | $ | 39.1  |      |  | $ | 5.6   |   |  | 
|





| |  |                                                  |  |          |       |  |  | 
| |  | ------------------------------------------------ |  | -------- | ----- |  |  | 
|
| |  | (in millions)                                    |  | Churchs |       |  | 
|
| |  | Assets:                                          |  |          |       |  |  | 
| |  | Cash and cash equivalents                        |  | $        | 0.2   |  |  | 
| |  | Accounts receivable, net                         |  |          | 7.9   |  |  | 
| |  | Property and equipment, net                      |  |          | 119.8 |  |  | 
| |  | Goodwill and other intangible assets             |  |          | 19.3  |  |  | 
| |  | Other assets                                     |  |          | 6.1   |  |  | 
|
| |  |                                                  |  | $        | 153.3 |  |  | 
|
| |  | Liabilities:                                     |  |          |       |  |  | 
| |  | Accounts payable and accrued liabilities         |  | $        | 23.0  |  |  | 
| |  | Deferred credits and other long-term liabilities |  |          | 18.5  |  |  | 
|
| |  |                                                  |  | $        | 41.5  |  |  | 
|

F-34



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##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2005, 2004 and 2003


Note  24 Restructuring of Corporate Operations and
Other


Restructuring of Corporate Operations.


| |  |                                 |  |      |     |  |      |   |      |         |  |   |      |  |  | 
| |  | ------------------------------- |  | ---- | --- |  | ---- | - | ---- | ------- |  | - | ---- |  |  | 
|
| |  | Incurred                        |  |      |    
| |  | (in millions)                   |  | 2005 |     |  | 2004 |   |      | to date |  |   |     
|
| |  | Contract terminations and other |  | $    | 2.1 |  |      | $ | 9.0  |         |  | $ | 11.1 |  |  | 
| |  | Employee termination benefits   |  |      | 0.4 |  |      |   | 3.4  |         |  |   | 3.8  |  |  | 
|
| |  | Total restructuring charges     |  | $    | 2.5 |  |      | $ | 12.4 |         |  | $ | 14.9 |  |  | 
|





Other.


Note  25 Segment Information (Continuing
Operations)






F-35



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##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2005, 2004 and 2003




|     |  |                                            |  |            |          |   |             |   |      |           |  |   |       |   |  |   |       |   |  | 
|---- |  | ------------------------------------------ |  | ---------- | -------- | - | ----------- | - | ---- | --------- |  | - | ----- | - |  | - | ----- | - |  | 
|     |  |                                            | 
|     |  | Company -                                  |  |            |          |   |            
|     |  | Franchise                                  |  |            | Operated |   |             |   |      |          
|     |  | (in millions)                              |  | Operations |          |   | Restaurants |   |      | Corporate |  |   | Total |   |  |  
|     |  |                                            | 
|2005 |  |                                            |  |            |          |   |             |   |      |           |  |   |       |   |  |   |       |  
|     |  |                                            |  |            |          |   |             |   |      |           |  |   |       |  
|     |  | Total revenues                             |  | $          | 82.9     |   |             | $ | 60.3 |           |  | $ | 0.2   |   |  | $ | 143.4 |   |  | 
|     |  | Operating profit (loss) before allocations |  |            | 67.3     |   |             |   | 1.0  |           |  |   | (75.2 | ) |  |   | (6.9  | ) |  | 
|     |  | Corporate overhead allocations(a)          |  |            | (24.9    | ) |             |   | (2.8 | )         |  |   | 27.7  |   |  |   |      |   |  | 
|     |  |                                            |  |           
|     |  | Operating profit (loss)(b)                 |  |            | 42.4     |   |             |   | (1.8 | )         |  |   | (47.5 | ) |  |   | (6.9  | ) |  | 
|     |  | Depreciation and amortization              |  |            | 2.3      |   |             |   | 3.6  |           |  |   | 1.4   |   |  |   | 7.3   |   |  | 
|     |  | Capital expenditures                       |  |            | 0.5      |   |             |   | 3.7  |           |  |   |      |   |  |   | 4.2   |   |  | 
|     |  | Goodwill  year end                        |  |            | 8.9      |   |             |   | 0.7  |           |  |   |      |   |  |   | 9.6   |   |  | 
|     |  | Total assets  year end                    |  |            | 90.6     |   |             |   | 32.5 |           |  |   | 89.6  |   |  |   | 212.7 |   |  | 
|2004 |  |                                            |  |            |          |   |             |   |      |           |  |   |       |   |  |   |       |  
|     |  |                                            |  |            |          |   |             |   |      |           |  |   |       |  
|     |  | Total revenues                             |  | $          | 77.5     |   |             | $ | 85.8 |           |  | $ | 0.6   |   |  | $ | 163.9 |   |  | 
|     |  | Operating profit (loss) before allocations |  |            | 65.9     |   |             |   | 3.0  |           |  |   | (88.3 | ) |  |   | (19.4 | ) |  | 
|     |  | Corporate overhead allocations(a)          |  |            | (22.2    | ) |             |   | (3.0 | )         |  |   | 25.2  |   |  |   |      |   |  | 
|     |  |                                            |  |           
|     |  | Operating profit (loss)(b)                 |  |            | 43.7     |   |             |   |     |           |  |   | (63.1 | ) |  |   | (19.4 | ) |  | 
|     |  | Depreciation and amortization              |  |            | 1.8      |   |             |   | 3.7  |           |  |   | 4.5   |   |  |   | 10.0  |   |  | 
|     |  | Capital expenditures                       |  |            |         |   |             |   | 3.7  |           |  |   | 4.8   |   |  |   | 8.5   |   |  | 
|     |  | Goodwill  year end                        |  |            | 8.9      |   |             |   | 0.7  |           |  |   |      |   |  |   | 9.6   |   |  | 
|     |  | Total assets  year end(c)                 |  |            | 77.5     |   |             |   | 33.3 |           |  |   | 251.1 |   |  |   | 361.9 |   |  | 
|2003 |  |                                            |  |            |          |   |             |   |      |           |  |   |       |   |  |   |       |  
|     |  |                                            |  |            |          |   |             |   |      |           |  |   |       |  
|     |  | Total revenues                             |  | $          | 75.4     |   |             | $ | 85.4 |           |  | $ | 0.7   |   |  | $ | 161.5 |   |  | 
|     |  | Operating profit (loss) before allocations |  |            | 60.0     |   |             |   | (7.4 | )         |  |   | (72.3 | ) |  |   | (19.7 | ) |  | 
|     |  | Corporate overhead allocations(a)          |  |            | (14.1    | ) |             |   | (2.0 | )         |  |   | 16.1  |   |  |   |      |   |  | 
|     |  |                                            |  |           
|     |  | Operating profit (loss)(b)                 |  |            | 45.9     |   |             |   | (9.4 | )         |  |   | (56.2 | ) |  |   | (19.7 | ) |  | 
|     |  | Depreciation and amortization              |  |            | 1.5      |   |             |   | 2.9  |           |  |   | 6.3   |   |  |   | 10.7  |   |  | 
|     |  | Capital expenditures                       |  |            |         |   |             |   | 4.3  |           |  |   | 10.8  |   |  |   | 15.1  |   |  | 
|     |  | Goodwill  year end                        |  |            | 8.9      |   |             |   | 0.7  |           |  |   |      |   |  |   | 9.6   |   |  | 
|     |  | Total assets  year end(c)                 |  |            | 74.1     |   |             |   | 32.9 |           |  |   | 252.5 |   |  |   | 359.5 |   |  | 
|     |  |                                           



| |     |                                                                                                                                                                                                              
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | Corporate overhead allocations include costs directly related to
    the operation of each segment and estimated charges based upon
    each segments relative contribution to the Companys
    operations.



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (b) | For all years presented, corporate operating loss, after
    allocations, relates principally to the AFC corporate offices
    which were closed during 2005. Costs associated with the Popeyes
    corporate function and certain AFC costs directly related to our
    operating segments are allocated to the Companys franchise
    operations and
    company-operated
    restaurants. In 2005, the Companys corporate operating
    loss includes $21.8 million associated with the settlement
    of shareholder litigation.



| |     |                                                                                                                                                                     
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (c) | For year end 2004 and 2003, corporate assets include the assets
    of discontinued operations of approximately $153.3 million
    and $185.2 million, respectively.

F-36



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##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2005, 2004 and 2003


Note  26 Quarterly Financial Data (Unaudited)


|                                         |  |                                                           |  |   |         |   |  |         |      |  |           |   |      |  |  |   |       |   |  | 
|---------------------------------------- |  | --------------------------------------------------------- |  | - | ------- | - |  | ------- | ---- |  | --------- | - | ---- |  |  | - | ----- | - |  | 
|                                        
|                                         |  | 2005                                                     
|                                         |  |                                                          
|                                         |  | First(a)                                                  |  |   | Second  |   |  | Third   |      |  | Fourth(b) |   |      | 
|                                         |  | Quarter                                                   |  |   | Quarter |   |  | Quarter |      |  | Quarter   |   |      | 
|                                         |  | (in millions, except per share data)                      |  |   |         |   |  |         |      |  |           |   |      |  |  |  
|Results of Operations                    |  |                                                           |  |   |         |   |  |         |      |  |           |   |      |  |  |   |       |  
|                                         |  |                                                           |  |   |         |   |  |         |      |  |           |   |      | 
|                                         |  | Total revenues                                            |  | $ | 46.3    |   |  | $       | 35.4 |  |           | $ | 31.2 |  |  | $ | 30.5  |   |  | 
|                                         |  | Operating profit (loss)                                   |  |   | (17.7   | ) |  |         | 7.7  |  |           |   | 4.3  |  |  |   | (1.2  | ) |  | 
|                                         |  | Loss before discontinued operations and accounting change |  |   | (10.8   | ) |  |         | 5.2  |  |           |   | 0.2  |  |  |   | (3.0  | ) |  | 
|                                         |  | Net income (loss)                                         |  |   | 146.1   |   |  |         | 4.9  |  |           |   | 0.1  |  |  |   | (1.5  | ) |  | 
|Basic earnings (loss) per common share   |  |                                                           |  |   |         |   |  |         |      |  |           |   |      |  |  |   |       |  
|                                         |  |                                                           |  |   |         |   |  |         |      |  |           |   |      | 
|                                         |  | Loss before discontinued operations and accounting change |  | $ | (0.37   | ) |  | $       | 0.18 |  |           |   |     |  |  | $ | (0.10 | ) |  | 
|                                         |  | Net income (loss)                                         |  |   | 5.04    |   |  |         | 0.17 |  |           |   |     |  |  |   | 0.05  |   |  | 
|Diluted earnings (loss) per common share |  |                                                           |  |   |         |   |  |         |      |  |           |   |      |  |  |   |       |  
|                                         |  |                                                           |  |   |         |   |  |         |      |  |           |   |      | 
|                                         |  | Loss before discontinued operations and accounting change |  | $ | (0.37   | ) |  | $       | 0.17 |  |           |   |     |  |  | $ | (0.10 | ) |  | 
|                                         |  | Net income (loss)                                         |  |   | 5.04    |   |  |         | 0.16 |  |           |   |     |  |  |   | 0.05  |   |  | 

|                                         |  |                                                           |  |          |       |   |         |   |       |         |  |   |           |   |  |   |       |   |  | 
|---------------------------------------- |  | --------------------------------------------------------- |  | -------- | ----- | - | ------- | - | ----- | ------- |  | - | --------- | - |  | - | ----- | - |  | 
|                                         |  |                                                           |  | 2004    
|                                         |  |                                                           |  |         
|                                         |  |                                                           |  | First(a) |       |   | Second  |   |       | Third   |  |   | Fourth(b) |   |  |  
|                                         |  |                                                           |  | Quarter  |       |   | Quarter |   |       | Quarter |  |   | Quarter   |   |  |  
|                                         |  |                                                           |  |          |       |   |         |   |       |         |  |   |           |   |  |  
|Results of Operations                    |  |                                                           |  |          |       |   |         |   |       |         |  |   |           |   |  |   |       |  
|                                         |  |                                                           |  |          |       |   |         |   |       |         |  |   |           |  
|                                         |  | Total revenues                                            |  | $        | 52.9  |   |         | $ | 38.8  |         |  | $ | 38.1      |   |  | $ | 34.1  |   |  | 
|                                         |  | Operating profit (loss)                                   |  |          | 1.3   |   |         |   | 0.9   |         |  |   | (4.4      | ) |  |   | (17.2 | ) |  | 
|                                         |  | Loss before discontinued operations and accounting change |  |          | (0.3  | ) |         |   | (0.1  | )       |  |   | (2.3      | ) |  |   | (11.6 | ) |  | 
|                                         |  | Net income (loss)                                         |  |          | 7.8   |   |         |   | 6.1   |         |  |   | (1.9      | ) |  |   | 12.6  |   |  | 
|Basic earnings (loss) per common share   |  |                                                           |  |          |       |   |         |   |       |         |  |   |           |   |  |   |       |  
|                                         |  |                                                           |  |          |       |   |         |   |       |         |  |   |           |  
|                                         |  | Loss before discontinued operations and accounting change |  | $        | (0.01 | ) |         | $ | (0.00 | )       |  | $ | (0.08     | ) |  | $ | (0.41 | ) |  | 
|                                         |  | Net income (loss)                                         |  |          | 0.28  |   |         |   | 0.22  |         |  |   | (0.07     | ) |  |   | 0.45  |   |  | 
|Diluted earnings (loss) per common share |  |                                                           |  |          |       |   |         |   |       |         |  |   |           |   |  |   |       |  
|                                         |  |                                                           |  |          |       |   |         |   |       |         |  |   |           |  
|                                         |  | Loss before discontinued operations and accounting change |  | $        | (0.01 | ) |         | $ | (0.00 | )       |  | $ | (0.08     | ) |  | $ | (0.41 | ) |  | 
|                                         |  | Net income (loss)                                         |  |          | 0.28  |   |         |   | 0.22  |         |  |   | (0.07     | ) |  |   | 0.45  |   |  | 
|                                        



| |     |                                                                                                                                                                                                                                                                                                                                                        
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | The Companys first quarters for 2005 and 2004 contained
    sixteen weeks. The remaining quarters of 2005 and 2004 contained
    twelve weeks each.                                                                                                                                                                                                   
|
| | (b) | Significant fourth quarter adjustments recognized in 2005
    include: (1) severances of $2.0 million, and
    (2) outsourcing contract termination costs of
    $2.1 million. Significant fourth quarter adjustments
    recognized in 2004 include: (1) corporate lease termination
    costs of $9.0 million and (2) severances of
    $4.1 million.

F-37