##### Table of Contents



UNITED
    STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549Form 10-K
  þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2006   Commission file number
    000-32369
  
  AFC
    Enterprises, Inc.
  Minnesota(State or other
    jurisdiction of
    incorporation or organization)

58-2016606(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 registeredCommon stock, $0.01 par
    value per share

Nasdaq Global
    Market   o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K.  Yes þ o
   o þ o
  rule 12b-2).  Yes o þ
      Class

Outstanding at
    February 25, 2007Common stock, $0.01 par
    value per share

29,536,378 shares   Documents incorporated by reference:




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##### 



AFC
    ENTERPRISES, INC.
  INDEX TO
    FORM 10-K
  PART IItem 1.


Business


1Item 1A.


Risk
    Factors


8Item 1B.


Unresolved Staff
    Comments


14Item 2.


Properties


15Item 3.


Legal
    Proceedings


15Item 4.


Submission of
    Matters to a Vote of Security Holders


16Item 4A.


Executive
    Officers


16PART IIItem 5.


Market for
    Registrants Common Equity, Related Stockholder Matters and
    Issuer Purchases of Equity Securities


18Item 6.


Selected Financial
    Data


21Item 7.


Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


25Item 7A.


Quantitative and
    Qualitative Disclosures about Market Risk


44Item 8.


Financial
    Statements and Supplementary Data


44Item 9.


Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosure


44Item 9A.


Controls and
    Procedures


44Item 9B.


Other
    Information


46PART IIIItem 10.


Directors,
    Executive Officers and Corporate Governance


48Item 11.


Executive
    Compensation


48Item 12.


Security Ownership
    of Certain Beneficial Owners and Management and Related
    Stockholder Matters


48Item 13.


Certain
    Relationships and Related Transactions, and Director
    Independence


48Item 14.


Principal
    Accountant Fees and Services


48PART IVItem 15.


Exhibits and
    Financial Statement Schedules


49EX-10.54 POPEYES CHICKEN AND BISCUIT 2006 BONUS PLANEX-10.55 EMPLOYMENT AGREEMENT/ FREDERICK B. BEILSTEIN IIIEX-10.56 EMPLOYMENT AGREEMENT/ JAMES W. LYONSEX-10.57 EMPLOYMENT AGREEMENT/ ROBERT CALDERINEX-10.58 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT/ FRANK J. BELATTIEX-23.1 CONSENT OF GRANT THORNTON LLPEX-23.2 CONSENT OF KPMG LLPEX-31.1 SECTION 302 CERTIFICATION OF CEOEX-31.2 SECTION 302 CERTIFICATION OF CFOEX-32.1 SECTION 906 CERTIFICATION OF CEOEX-32.2 SECTION 906 CERTIFICATION OF CFO




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PART I.  Item 1.
    BUSINESS  ®
  ®
  Popeyes
    Profile
      
    Overall
    Business Strategy
   1




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
    Menu Development.  New product
    introductions and limited time offers promotional
    items play a major role in building sales and encouraging repeat
    customers. We constantly review our menu to find the optimal mix
    of products and promotions which address changing consumer
    preferences and which build on an integrated day-part strategy
    to increase transactions in our restaurants. Our menu strategies
    will not only continue to focus on growing our bone-in chicken
    market share, but will also focus on boneless chicken products
    and seafood. During 2007, we also expect to combine new product
    concepts with tested value offerings to provide quality and
    value to our guests.    
    Creative Brand Marketing and
    Advertising.  Our consumer messaging continues
    to emphasize our distinctive products, flavors and New Orleans
    heritage. Our media spending typically focuses on television,
    radio and print options (print advertisement, signage, and point
    of purchase materials) at the local market and restaurant level.
    We continually review our advertising strategies and mediums to
    maximize the effectiveness of the marketing funds generated from
    our Popeyes system and to offset the increasing cost of media
    spending. While we have not traditionally used national media,
    we began a test of national cable advertising in 2006 and
    continue to consider alternative mediums to supplement our
    typical spending strategies.
    Customer Service Focus.  We will sharpen
    our focus on the customer to improve both customer satisfaction
    and the consistency of the experience within our restaurants.
    Our operational efforts include speed of service initiatives,
    enhanced field-based training, training certification programs,
    and continued development and execution of restaurant management
    testing programs. In addition, we continue our focus on raising
    service standards throughout our organization and our franchise
    system.    
    Operations Management.  Together with
    our franchisees we are coordinating the implementation of new
    restaurant reporting technology which will provide improved
    information from Popeyes restaurants. We will use this data to
    help Popeyes restaurant managers improve restaurant
    performance by providing enhanced information regarding labor
    and food costs in addition to sales data. Additionally, we will
    continue to reinforce our ongoing effort to improve operations
    by hosting our second annual franchisee operations conference in
    the spring of 2007. We use this forum to provide training,
    re-enforce standards and share best practices among the
    attendees.
    Store Investment.  We stress our
    continued attention to controlling the costs associated with the
    construction of new Popeyes restaurants. We evaluate new
    construction materials, assist franchisees by recommending
    proven contractors, and test new equipment for use in the
    restaurants. Additionally, we 2




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design restaurants for new construction and conversion of
    existing buildings, which allows us to tailor a Popeyes
    restaurant design for virtually any site that provides our
    franchisees an attractive market.  
    New Restaurant Development and
    Growth.  We believe each of the preceding
    initiatives serve to improve restaurant unit economics as they
    are designed to minimize initial construction costs, increase
    the visit frequency of our current customers, and to give new
    customers reasons to try our restaurants. Improving restaurant
    profitability and return stimulates new restaurant development
    by the existing Popeyes franchisee community as well as new
    franchisees. Our restaurant development strategy promotes
    restaurant openings in both new and existing markets. Popeyes
    offers an array of facilities which provide franchisees with
    flexibility to appropriately tailor new restaurants for the
    markets they serve.      multi-unit
        Our
    Agreements with Popeyes Franchisees
    Domestic Development Agreements.
 3




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International Development
    Agreements. sub-franchising
  Domestic Franchise Agreements.
    International Franchise Agreements.
    Site
    Selection
      Suppliers
    and Purchasing Cooperative
  Suppliers.
  Purchasing Cooperative. not-for-profit
  Supply Agreements.
 4




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Marketing
    and Advertising
    Fiscal
    Year and Seasonality
      Employees
  multi-unit
    Intellectual
    Property and Other Proprietary Rights
   5




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Copeland Formula Agreement.
  King Features Agreements.
  International
    Operations
    Insurance
    Competition
    Government
    Regulation
       6




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Environmental
    Matters
  and/or
  Where You
    Can Find Additional Information
  Form 10-K, Form 10-Q, Form 8-K, 1-800-SEC-0330 (404) 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 safety and quality, could result
    in a loss of customers and reduce our revenues.
  multi-unit
  Instances
    of avian flu or 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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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.
      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.
   10




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If our
    franchisees are unable or unwilling to open 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.
    We
    have recently experienced a decline in the number of restaurants
    we have franchised in Korea.
  sub-franchisees
  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.
   11




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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;
    consumer concerns about food quality or food safety;
    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 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;
    franchising;
    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.   12




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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
    certain 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.
  and/or
  Item 1B.
    UNRESOLVED
    STAFF COMMENTS   14




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Item 2.
    PROPERTIES      Land and


Land and/orBuildings Owned


Buildings Leased


TotalGeorgia


3



20



23Louisiana


2



18



20Tennessee


1



8



9Mississippi


0



3



3Arkansas


0



1



1Total


6



50



56             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

PositionKenneth L. Keymer


58


President and Chief Executive
    OfficerH. Melville Hope, III


45


Senior Vice President and Chief
    Financial OfficerJames W. Lyons


52


Chief Operating OfficerRobert Calderin


49


Chief Marketing OfficerHarold M. Cohen


43


Senior Vice President, General
    Counsel and Corporate Secretary   Kenneth L. Keymer, ®
    H. Melville Hope, III,
 16




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James W. Lyons,
  Robert Calderin,
  Harold M. Cohen,
 17




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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     2006


2005(Dollars per share)

High


Low


High


LowFirst Quarter

$
16.89


$
12.54


$
26.99


$
22.46Second Quarter(1)

$
15.15


$
12.13


$
28.82


$
12.90Third Quarter

$
15.29


$
12.11


$
14.66


$
10.95Fourth Quarter

$
18.04


$
13.90


$
16.45


$
10.47   (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 ofShares Repurchased


Shares that May YetNumber of Shares


Average Price Paid


as Part of a Publicly


Be RepurchasedPeriod

Repurchased(1)(2)


Per Share


Announced Plan


Under the Plan(2)Period 1110/02/06 
    10/29/06





$







$
47,269,110Period 12 10/30/06 
    11/26/06





$







$
47,269,110Period 13 11/27/06 
    12/31/06





$







$
47,269,110Total





$







$
47,269,110   (1)
    
    As originally announced on July 22, 2002, and subsequently
    amended and expanded, the Companys board of directors has
    approved a share repurchase program. See Note 12 to our
    Consolidated Financial Statements.(2)
    
    From January 1, 2007 through February 25, 2007 (the
    end of the Companys second period for 2007), the Company
    repurchased and retired an additional 136,400 shares of
    common stock for approximately $2.4 million. As of
    February  25, 2007, the remaining value of shares that
    may be repurchased under the program was $44.8 million.
    Pursuant to the terms of the Companys 2005 Credit
    Facility, the Company is subject to a repurchase limit of
    approximately $7.3 million for the remainder of fiscal 2007.  Shareholders
    of Record
   18




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Dividend
    Policy
     19




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Stock
    Performance Graph
    
  Company Name/ Index


12/30/2001


12/29/2002


12/28/2003


12/26/2004


12/25/2005


12/31/2006AFC Enterprises, Inc.


$
100



$
76



$
70



$
82



$
101



$
117S&P 500 INDEX


$
100



$
76



$
98



$
110



$
117



$
134Peer Group


$
100



$
91



$
126



$
167



$
191



$
239    20




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##### Table of Contents



Item 6.
    SELECTED
    FINANCIAL DATA    (Dollars in millions, except per
    share data)

2006


2005


2004


2003


2002Summary of
    operations:Revenues(1)Sales by company-operated
    restaurants

$
65.2


$
60.3


$
85.8


$
85.4


$
85.2Franchise revenues(2)


82.6



77.5



72.8



70.8



67.1Other revenues


5.2



5.6



5.3



5.3



6.6Total revenues

$
153.0


$
143.4


$
163.9


$
161.5


$
158.9Operating profit (loss)(3)

$
45.3


$
(6.9
)

$
(19.4
)

$
(19.7
)

$
10.3Income (loss) before discontinued
    operations and accounting change(4)


22.2



(8.4
)


(14.3
)


(14.5
)


(6.4
)Net income (loss)(5)


22.4



149.6



24.6



(9.1
)


(11.7
)Earnings per common share,
    basic:(6)Income (loss) before discontinued
    operations and accounting change

$
0.75


$
(0.29
)

$
(0.51
)

$
(0.52
)

$
(0.21
)Net income (loss)


0.76



5.14



0.87



(0.33
)


(0.39
)Earnings per common share,
    diluted:(6)Income (loss) before discontinued
    operations and accounting change

$
0.74


$
(0.29
)

$
(0.51
)

$
(0.52
)

$
(0.21
)Net income (loss)


0.75



5.14



0.87



(0.33
)


(0.39
)Year-end balance sheet
    data:Total assets

$
163.1


$
212.7


$
361.9


$
359.5


$
487.3Total debt(7)


134.0



191.4



94.0



130.9



226.6Total shareholders equity
    (deficit)(8)


(31.2
)


(48.7
)


140.9



108.8



109.8      (a)
    The effects of restaurant openings, closings, unit conversions
    and same-store sales (see Summary of System-Wide
    Data later in this Item 6).  (b)
    During the third quarter of 2005, the company-operated
    restaurants in the City of New Orleans were adversely affected
    by Hurricane Katrina. There were 36 company-operated
    restaurants which were temporarily closed as a result of
    Hurricane Katrina. Additional information concerning the impact
    of these hurricane related restaurant closures on
    company-operated restaurant sales can be found under the title
    Sales by Company-Operated Restaurants in both the
    Comparisons of Fiscal Years 2006 and 2005 and the
    Comparison of Fiscal Years 2005 and 2004 sections in
    Item 7.  (c)
    The Companys fiscal year ends on the last Sunday in
    December. The 2006 fiscal year consisted of 53 weeks. The
    2005, 2004, 2003 and 2002 fiscal years consisted of
    52 weeks each. The 53rd week in 2006 increased sales
    by company-operated restaurants by approximately
    $1.2 million and increased franchise revenues by
    approximately $1.3 million.  (d)
    On May 1, 2006, the Company completed an acquisition of 13
    franchised restaurants from a Popeyes franchisee in the Memphis
    and Nashville, Tennessee markets. The results of operations of
    the acquired restaurants are included in the consolidated
    financial statements since that date. The acquired units
    increased 2006 revenues by approximately $10.0 million
    dollars (net of lost franchise revenues attributable to these
    restaurants). Additional information concerning this acquisition
    can be found at Note 25 to our Consolidated Financial
    Statements. 21




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(e)
    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 each of the franchisees has substantially changed, as
    described in the section entitled Principles of
    Consolidation in Note 2 to our Consolidated Financial
    Statements, and they are no longer VIEs. During 2006, 2005 and
    2004, the consolidation of these franchisees increased sales by
    company-operated restaurants by approximately $1.1 million,
    $2.7 million and $12.6 million, respectively.  (2)
    Franchise revenues are principally composed of royalty payments
    from franchisees that are determined based upon franchisee
    sales. While franchisee sales are not recorded as revenues by
    the Company, management believes they are important in
    understanding the Companys financial performance because
    these sales are indicative of the Companys financial
    health, given the Companys strategic focus on growing its
    overall business through franchising. Total franchisee sales
    were $1.661 billion in 2006, $1.552 billion in 2005,
    $1.452 billion in 2004, $1.386 billion in 2003 and
    $1.335 billion in 2002.(3)
    Additional factors that impact the comparability of operating
    profit (loss) for the years presented include:  (a)
    During 2005, general and administrative expenses included
    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.  (b)
    During 2006, 2005, 2004 and 2003, our expenses (income)
    associated with shareholder and other litigation and a special
    investigation by our Audit Committee were approximately
    $(0.3) million, $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 2006, 2005, 2004, 2003, and 2002, asset write-downs were
    approximately $0.1 million, $5.8 million,
    $4.8 million, $15.0 million, and $3.8 million,
    respectively. Of the 2005 impairments, $4.1 million were
    due to the adverse effects of Hurricane Katrina,
    $0.6 million of which were subsequently reversed due to
    adjustments to damage estimates in 2006. 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 2006 and 2005, we incurred approximately $1.7 and
    $3.1 million, respectively, of hurricane-related costs
    (other than impairments of long-lived assets) associated with
    Hurricane Katrina. During 2006 and 2005, the Company also
    accrued insurance proceeds of approximately $1.0 and
    $5.6 million, respectively, 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)
    Effective December 26, 2005, the Company adopted
    SFAS No. 123(R), Share-Based Payment
    (SFAS 123R), which requires the measurement and
    recognition of compensation cost at fair value for all
    share-based payments, including stock options and restricted
    stock awards. The Company adopted SFAS 123R using the
    modified prospective transition method and, as a result, did not
    retroactively adjust results from prior periods. For further
    discussion regarding SFAS 123R see the section entitled
    Stock-Based Employee Compensation in Note 2 to
    our Consolidated Financial Statements. The Company 22




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recorded $3.4 million, $2.9 million,
    $0.4 million, $0.2 million and $0.3 million in
    total stock compensation expense during 2006, 2005, 2004, 2003
    and 2002, respectively.  (4)
    During 2006, 2005, 2004, 2003 and 2002, loss before discontinued
    operations and accounting change includes interest
    expense, net of approximately $11.1 million,
    $6.8 million, $5.5 million, $5.3 million, and
    $21.1 million, respectively. Interest expense was
    substantially higher in 2002 due to substantially higher debt
    balances and substantially higher interests rates associated
    with such debt.(5)
    Net income (loss) includes discontinued operations which
    provided income (loss) of $0.2 million in 2006,
    $158.0 million in 2005, $39.1 million in 2004,
    $5.6 million in 2003, and $(5.3) million in 2002.
    Discontinued operations, in 2005, represent a
    $158.0 million gain on sale of Churchs, net of income
    taxes.(6)
    Weighted average common shares for the computation of basic
    earnings per common share were 29.5 million,
    29.1 million, 28.1 million, 27.8 million, and
    30.0 million for 2006, 2005, 2004, 2003, and 2002,
    respectively. Weighted average common shares for the computation
    of diluted earnings per common share were 29.8 million,
    29.1 million, 28.1 million, 27.8 million, and
    30.0 million for 2006, 2005, 2004, 2003, and 2002,
    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.  (7)
    
    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.(8)
    
    During 2006, we repurchased approximately 1.5 million
    shares of our common stock for approximately $20.3 million.
    During 2005, we repurchased approximately 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 approximately
    3.7 million shares of our common stock for approximately
    $77.9 million. 23




---



##### Table of Contents



Summary
    of System-Wide Data
    2006


2005


2004


2003


2002Global system-wide sales
    growth(1)


7.0
%


4.8
%


4.5
%


3.6
%


7.3
%Domestic same-store sales
    growth (decline) for company-operated
    restaurants(2)


9.0
%


6.5
%


0.9
%


(2.4
)%


1.1
%Domestic same-store sales
    growth (decline) for franchised
    restaurants(2)


1.3
%


3.2
%


1.4
%


(2.7
)%


0.6
%Total domestic same-store sales
    growth (decline) for company-operated and franchised
    restaurants


1.6
%


3.3
%


1.3
%


(2.6
)%


0.7
%International same-store sales
    growth (decline) for franchised
    restaurants(2)


(3.2
)%


(4.2
)%


(6.0
)%


(10.0
)%


(5.4
)%Company-operated restaurants
    (all domestic)Restaurants at beginning of year


32



56



80



96



96New restaurant openings


3



1







1



2Unit conversions, net(3)


12



2



(19
)






1Permanent closings


(3
)


(7
)


(4
)


(18
)


(2
)Temporary (closings)/ re-openings,
    net(4)


12



(20
)


(1
)


1



(1
)Restaurants at end of year


56



32



56



80



96Franchised restaurants
    (domestic and international)Restaurants at beginning of year


1,796



1,769



1,726



1,616



1,524New restaurant openings


139



122



109



176



167Unit conversions, net(3)


(12
)


(2
)


19







(1
)Permanent closings


(93
)


(95
)


(77
)


(68
)


(76
)Temporary (closings)/ re-openings,
    net(4)


(8
)


2



(8
)


2



2Restaurants at end of year


1,822



1,796



1,769



1,726



1,616Total system
    restaurants


1,878



1,828



1,825



1,806



1,712New franchised restaurant
    openingsDomestic


97



71



57



87



87International


42



51



52



89



80Total new franchised restaurant
    openings


139



122



109



176



167Franchised restaurants (end
    of year)Domestic


1,503



1,451



1,416



1,367



1,298International


319



345



353



359



318Restaurants at end of year


1,822



1,796



1,769



1,726



1,616   (1)
    
    Fiscal year 2006 consisted of 53 weeks. Fiscal years 2005,
    2004, 2003 and 2002 each consisted of 52 weeks. The
    53rd week in 2006 contributed approximately 1.8% to global
    system-wide sales growth.(2)
    
    New restaurants are included in the computation of same-store
    sales after they have been open 15 months. Unit conversions
    are included immediately upon conversion.(3)
    
    Unit conversions include the sale or purchase of
    company-operated restaurants to/from a franchisee.(4)
    
    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 16 to our
    Consolidated Financial Statements for a discussion of the
    financial and operational impact of Hurricane Katrina.
    Re-openings of temporarily closed restaurants also include
    stores shown as re-opened and then transferred to the permanent
    closure category for purposes of the unit rollforward. 24




---



##### Table of Contents



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
  ®
  ® ® ®
  Management
    Overview of 2006 Operating Results
    
    reported diluted earnings per share of $0.75,
    increased system-wide sales by 7.0%,
    increased domestic same-store sales by 1.6%,
    increased our global restaurant system by 50 restaurants,
    repurchased approximately 1.5 million shares of our common
    stock,
    paid down $59.5 million of our 2005 Credit Facility,
    completed the acquisition of 13 previously franchised
    restaurants, and
    improved annualized average unit sales for new free-standing
    restaurants in our domestic system to approximately
    $1.3 million.  2006
    Same-Store Sales
     25




---



##### Table of Contents



2006 Unit
    Growth
      Factors
    Affecting Comparability of Consolidated Results of Operations:
    2006, 2005, and 2004
    
    The effects of restaurant openings, closings, unit conversions
    and same-store sales (see Summary of System-Wide
    Data later in this Item 6).
    During the third quarter of 2005, the company-operated
    restaurants in the New Orleans market were adversely affected by
    Hurricane Katrina. There were 36 company-operated
    restaurants which were at least temporarily closed as a result
    of Hurricane Katrina. Additional information concerning the
    impact of these hurricane related restaurant closures on
    company-operated restaurant sales can be found under the title
    Sales by Company-Operated Restaurants in both the
    Comparisons of Fiscal Years 2006 and 2005 and the
    Comparison of Fiscal Years 2005 and 2004 sections in
    this Item 7.
    The Companys fiscal year ends on the last Sunday in
    December. The 2006 fiscal year consisted of 53 weeks. The
    2005 and 2004, fiscal years consisted of 52 weeks each. The
    53rd week in 2006 increased sales by company-operated
    restaurants by approximately $1.2 million and increased
    franchise revenues by approximately $1.3 million.
    On May 1, 2006, \the Company completed the acquisition of
    13 franchised restaurants from a Popeyes franchisee in the
    Memphis and Nashville, Tennessee markets. The results of
    operations of the acquired restaurants are included in the
    consolidated financial statements since that date. The acquired
    units increased 2006 revenues by approximately
    $10.0 million dollars (net of lost franchise revenues).
    Additional information concerning this acquisition can be found
    at Note 25 to our Consolidated Financial statements.
    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 as
    variable interest entities (VIEs). These franchisees
    were not retroactively consolidated for years prior to 2004.
    Since adoption of FIN 46R, our relationship to each of the
    franchisees has substantially changed, as described in the
    section entitled Principles of Consolidation in
    Note 2 to our 26




---



##### Table of Contents



Consolidated Financial Statements, and they are no longer VIEs.
    During 2006, 2005 and 2004, the consolidation of these
    franchisees increased sales by company-operated restaurants by
    approximately $1.1 million, $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 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 2006, 2005, and 2004, our costs (income) associated with
    shareholder and other litigation and a special investigation by
    our Audit Committee were approximately $(0.3) million,
    $21.8 million, and $3.8 million, respectively. The
    substantially higher costs in 2005 relate to the settlement of
    certain shareholder litigation.
    During 2006, 2005, and 2004, asset write-downs were
    approximately $0.1 million, $5.8 million, and
    $4.8 million, respectively. Of the 2005 impairments,
    $4.1 million were due to the adverse effects of Hurricane
    Katrina, $0.6 million of which were subsequently reversed
    due to adjustments to damage estimates in 2006.
    During 2006 and 2005, we incurred approximately $1.7 and
    $3.1 million, respectively, of hurricane-related costs
    (other than impairments of long-lived assets) associated with
    Hurricane Katrina. During 2006 and 2005, the Company also
    accrued insurance proceeds of approximately $1.0 and
    $5.6 million, respectively, for property damage 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.
    Effective December 26, 2005, the Company adopted
    SFAS No. 123(R), Share-Based Payment
    (SFAS 123R), which requires the measurement and
    recognition of compensation cost at fair value for all
    share-based payments, including stock options and restricted
    stock awards. The Company adopted SFAS 123R using the
    modified prospective transition method and, as a result, did not
    retroactively adjust results from prior periods. For further
    discussion regarding SFAS 123R see the section entitled
    Stock-Based Employee Compensation in Note 2 to
    our Consolidated Financial Statements. The Company recorded
    $3.4 million, $2.9 million and $0.4 million in
    total stock compensation expense during 2006, 2005, and 2004,
    respectively.
    During 2006, 2005, and 2004, loss before discontinued operations
    and accounting change includes interest expense, net
    of approximately $11.1 million, $6.8 million, and
    $5.5 million, respectively.
    Discontinued operations, net of income taxes, provided income of
    $0.2 million in 2006, $158.0 million in 2005, and
    $39.1 million in 2004. Discontinued operations, in 2005,
    consist of a $158.0 million gain on sale of Churchs. 27




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##### Table of Contents



2006


2005


2004Revenues:Sales by company-operated
    restaurants


43
%


42
%


52
%Franchise revenues


54
%


54
%


45
%Other revenues


3
%


4
%


3
%Total revenues


100
%


100
%


100
%Expenses:Restaurant employee, occupancy and
    other expenses(1)


52
%


51
%


53
%Restaurant food, beverages and
    packaging(1)


33
%


34
%


34
%General and administrative expenses


31
%


48
%


50
%Depreciation and amortization


4
%


5
%


6
%Other expenses (income), net


(1
)%


16
%


10
%Total expenses


70
%


105
%


112
%Operating profit
    (loss)


30
%


(5
)%


(12
)%Interest expense, net


8
%


5
%


3
%Income (loss) before income
    taxes, minority interest, discontinued operations and accounting
    change


22
%


(10
)%


(15
)%Income tax expense (benefit)


7
%


(4
)%


(6
)%Minority Interest










Income(loss) before
    discontinued operations and accounting change


15
%


(6
)%


(9
)%Discontinued operations, net of
    income taxes






110
%


24
%Cumulative effect of accounting
    change, net of income taxes










Net income


15
%


104
%


15
%    (1)
    
    Expressed as a percentage of sales by company-operated
    restaurants. 28




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##### Table of Contents



Comparisons
    of Fiscal Years 2006 and 2005
  Sales by
    Company-Operated Restaurants
    
    $10.5 million increase due to the acquisition of 13
    restaurants in the Memphis and Nashville, Tennessee markets
    which were previously owned by a franchisee, and
    $5.3 million increase due to same-store sales growth in
    fiscal 2006 as compared to fiscal 2005, and
    $1.2 million increase attributable to a 53rd week in
    fiscal 2006 (Fiscal 2005 was composed of 52 weeks),    
    $9.9 million decrease due to the timing of permanent and
    temporary restaurant closures and related re-openings resulting
    from Hurricane Katrina, and
    $1.6 million decrease due to the termination of a VIE
    relationship in the second quarter of 2006 that was previously
    consolidated during fiscal 2005, and
    $1.0 million decrease due to the temporary closure of a
    restaurant which suffered fire damage during fiscal 2006.    Franchise
    Revenues
          
    the resumption of the 3% royalty from our Korean master
    franchisee (the entire 3% royalty due during the last two
    quarters of 2005 and one-third of the royalties due during the
    first two quarters of 2006 were abated as temporary royalty
    relief), and
    increases in royalties and development fees from net openings
    within our system,    
    negative same-store sales decrease of 3.2%, and
    the closure of poor performing restaurants, primarily in Korea,
    where 45 restaurants closed during 2006.  Other
    Revenues
   29




---



##### Table of Contents



Restaurant
    Employee, Occupancy and Other Expenses
    Restaurant
    Food, Beverages and Packaging
    General
    and Administrative Expenses
    
    $12.8 million of lower personnel and other costs resulting
    primarily from the transition of our corporate operations, and
    severances and stay bonuses paid to certain executives during
    2005,
    $5.8 million of lower professional fees (primarily legal,
    consulting and auditing),
    $3.2 million of lower outsourcing and contractor costs for
    information technology and accounting support services, and
    $0.4 million of lower bank service fees,    
    $0.7 million of higher marketing and advertising
    expense, and
    $0.3 million of registration costs associated with a
    shareholders sale of our common stock.    Depreciation
    and Amortization
    Other
    Expenses (Income), Net
      
    $22.1 million of net lower shareholder litigation costs
    associated with the settlement of outstanding legal actions,
    $5.7 million of lower charges for asset write-downs ($4.7
    of which related to hurricane damage), and
    $1.4 million of lower (non-impairment related) hurricane
    costs, and
    $0.9 million of higher net gains on sale of assets, 30




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##### Table of Contents




    $4.6 million reduction in income from estimates for
    insurance proceeds associated with asset impairments and other
    claims arising from hurricane damage, and
    $0.5 million of higher costs associated with restaurant
    closures and refurbishments.    Operating
    Profit (Loss)
    As a(Dollars in millions)

2006


2005


Fluctuation


PercentFranchise operations

$
44.6


$
42.4


$
2.2



5.2
%Company-operated restaurants


1.4



(1.8
)


3.2



n/aCorporate


(0.7
)


(47.5
)


46.8



n/aTotal

$
45.3


$
(6.9
)

$
52.2



n/a           Interest
    Expense, Net
    
    $4.0 million of lower interest income in 2006 as compared
    to 2005, and
    $1.9 million of higher interest on debt, due primarily to
    higher average outstanding debt balances for the year and higher
    average interest rates,    
    $1.4 million of lower amortization and write-offs of debt
    issuance costs, and
    $0.2 million of lower other debt related charges. 31




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##### Table of Contents



Income
    Tax Expense
    Discontinued
    Operations, Net of Income Taxes
      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
     32




---



##### Table of Contents



Other
    Revenues
    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
    Other
    Expenses (Income), Net
   33




---



##### 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


PercentFranchise operations

$
42.4


$
43.7


$
(1.3
)


(3.0
)%Company-operated restaurants


(1.8
)






(1.8
)


n/aCorporate


(47.5
)


(63.1
)


15.6



n/aTotal

$
(6.9
)

$
(19.4
)

$
12.5



n/a          34




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##### 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
 35




---



##### 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 indebtedness.        Operating
    and Financial Outlook for 2007
       36




---



##### Table of Contents



sub-franchisees
        Contractual
    Obligations
    There-(in millions)

2007


2008


2009


2010


2011


after


TotalLong-term debt, excluding capital
    leases(1)

$
1.1


$
1.4


$
1.5


$
32.5


$
94.3


$
2.4


$
133.2Interest on long-term debt,
    excluding capital leases(1)


6.7



8.9



9.7



9.6



3.5



1.1



39.5Leases(2)


6.8



6.6



5.9



5.2



4.8



81.1



110.4Copeland formula agreement(3)


3.1



3.1



3.1



3.1



3.1



52.2



67.7Information technology
    outsourcing  IBM(3)


1.8



1.8



















3.6King Features agreements(3)


1.0



1.0



1.0



0.5











3.5Total

$
20.5


$
22.8


$
21.2


$
50.9


$
105.7


$
136.8


$
357.9   (1)
    
    For variable rate debt, the Company estimated average
    outstanding balances for the respective periods and applied
    interest rates in effect at December 31, 2006. See
    Note 9 to our Consolidated Financial Statements for
    information concerning the terms of our 2005 Credit Facility and
    the 2005 interest rate swap agreements.(2)
    
    Of the $110.4 million of minimum lease payments,
    $108.8 million of those payments relate to operating leases
    and the remaining $1.6 million of payments relate to
    capital leases. See Note 10 to our Consolidated Financial
    Statements.(3)
    
    See Note 15 to our Consolidated Financial Statements.  Share
    Repurchase Program
  Share Repurchase Program.
    37




---



##### Table of Contents



Capital
    Expenditures
              Acquisition
    of Previously Franchised Restaurants
    Effects
    of Hurricane Katrina and Insurance Proceeds
     38




---



##### Table of Contents



Off-Balance
    Sheet Arrangements
  SMS Indemnity Agreement.
    AFC Loan Guarantee Programs.
      Long Term
    Debt
  005 Credit Facility.
     39




---



##### Table of Contents



005 Interest Rate Swap
    Agreements.
  Impact of
    Inflation
    Tax
    Matters
   40




---



##### Table of Contents



Market
    Risk
    Chicken Market Risk.
  not-for-profit
  Foreign Currency Exchange Rate Risk.
  Interest Rate Risk.
  Critical
    Accounting Policies
  and/or
  Accounting Related to Hurricane
    Katrina.
  01-10.
     41




---



##### Table of Contents



Consolidation of Variable Interest
    Entities.
  Impairment of Long-Lived Assets. site-by-site
  Impairment of Goodwill and
    Trademarks.
  Allowances for Accounts and Notes Receivable and
    Contingent Liabilities. note-by-note note-by-note
    Leases. Accounting for
    Leases
    Deferred Tax Assets and Tax
    Reserves.
 42




---



##### Table of Contents



Accounting
    Standards Adopted in 2006
  Share-Based Payment Accounting for
    Stock-Based Compensation
  No. 13-1, Accounting for Rental Costs Incurred during a
    Construction Period 13-1), 13-1.
  Considering the
    Effects of Prior Year Misstatements when Quantifying
    Misstatements in Current Year Financial Statements
  Accounting
    Standards That We Have Not Yet Adopted
   43




---



##### Table of Contents



Item 7A.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK    Item 8.
    FINANCIAL
    STATEMENTS AND SUPPLEMENTARY DATA  Page F-1
  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  Rule 13a-15
    (c)
    Managements
    Report on Internal Control Over Financial
    Reporting       44




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##### Table of Contents



Internal Control-Integrated Framework
    (d)
    Changes
    in Internal Control Over Financial Reporting    (e)
    Report
    of Independent Registered Public Accounting Firm on Internal
    Control over Financial Reporting     Form 10-K
         45




---



##### Table of Contents



Item 9B.
    OTHER
    INFORMATION  Employment
    Agreement with Frederick B. Beilstein III
  Form 10-K
  Employment
    Agreement with and Restricted Stock Grant to James W.
    Lyons
  Form 10-K
   46




---



##### Table of Contents



Employment
    Agreement with Robert Calderin
  Form 10-K
  Amendment
    to Employment Agreement with Frank J. Belatti
  Form 10-K
 47




---



##### Table of Contents



PART III.  Item 10.
    DIRECTORS,
    EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE  Form 10-K
  Form 8-K
  Item 11.
    EXECUTIVE
    COMPENSATION    Item 12.
    SECURITY
    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
    RELATED STOCKHOLDER MATTERS    Item 13.
    CERTAIN
    RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
    INDEPENDENCE    Item 14.
    PRINCIPAL
    ACCOUNTANT FEES AND SERVICES     48




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##### Table of Contents



PART IV.  Item 15.
    EXHIBITS AND
    FINANCIAL STATEMENT SCHEDULES  (a)
    Financial
    Statements  Page F-1
  PagesReports of Independent Registered
    Public Accounting Firms


F-1Consolidated Balance Sheets as of
    December 31, 2006 and December 25, 2005


F-3Consolidated Statements of
    Operations for Fiscal Years 2006, 2005 and 2004


F-4Consolidated Statements of Changes
    in Shareholders Equity (Deficit) for Fiscal Years 2006,
    2005 and 2004


F-5Consolidated Statements of Cash
    Flows for Fiscal Years 2006, 2005 and 2004


F-6Notes to the Consolidated
    Financial Statements


F-7     (b)
    Exhibits  ExhibitNumber

Description2
.1(h)

Stock Purchase Agreement between
    AFC Enterprises, Inc. and Starbucks Corporation, dated as of
    April 15, 2003.2
.2(n)

First Amendment to Stock Purchase
    Agreement between AFC Enterprises, Inc. and Starbucks
    Corporation, dated as of June 30, 2003.2
.3(n)

Second Amendment to Stock Purchase
    Agreement between AFC Enterprises, Inc. and Starbucks
    Corporation, dated as of July 11, 2003.2
.4(n)

Third Amendment to Stock Purchase
    Agreement between AFC Enterprises, Inc. and Starbucks
    Corporation, 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(e)

Form of Popeyes Development
    Agreement, as amended.10
.2(e)

Form of Popeyes Franchise
    Agreement.10
.3(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
.4(a)

Supply Agreement dated
    March 21, 1989 between New Orleans Spice Company, Inc. and
    Biscuit Investments, Inc.10
.5(a)

Recipe Royalty Agreement dated
    March 21, 1989 by and among Alvin C. Copeland, New Orleans
    Spice Company, Inc. and Biscuit Investments, Inc. 49




---



##### Table of Contents



ExhibitNumber

Description10
.6(a)

Licensing Agreement dated
    March 11, 1976 between King Features Syndicate Division of
    The Hearst Corporation and A. Copeland Enterprises, Inc.10
.7(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
.8(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
.9(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
.10(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
.11(n)

Amendment dated January 1,
    2002 by and between Hearst Holdings, Inc., King Features
    Syndicate Division and AFC Enterprises, Inc.10
.12(a)

1992 Stock Option Plan of AFC,
    effective as of November 5, 1992, as amended to date.*10
.13(a)

1996 Nonqualified Performance
    Stock Option Plan  Executive of AFC, effective as of
    April 11, 1996.*10
.14(a)

1996 Nonqualified Performance
    Stock Option Plan  General of AFC, effective as of
    April 11, 1996.*10
.15(a)

1996 Nonqualified Stock Option
    Plan of AFC, effective as of April 11, 1996.*10
.16(a)

Form of Nonqualified Stock Option
    Agreement  General between AFC and stock option
    participants.*10
.17(a)

Form of Nonqualified Stock Option
    Agreement  Executive between AFC and certain key
    executives.*10
.18(a)

1996 Employee Stock Bonus
    Plan  Executive of AFC effective as of April 11,
    1996.*10
.19(a)

1996 Employee Stock Bonus
    Plan  General of AFC effective as of April 11,
    1996.*10
.20(a)

Form of Stock Bonus
    Agreement  Executive between AFC and certain
    executive officers.*10
.21(a)

Form of Stock Bonus
    Agreement  General between AFC and certain executive
    officers.*10
.22(a)

Form of Secured Promissory Note
    issued by certain members of management.*10
.23(a)

Form of Stock Pledge Agreement
    between AFC and certain members of management.*10
.24(a)

Settlement Agreement between Alvin
    C. Copeland, Diversified Foods and Seasonings, Inc., Flavorite
    Laboratories, Inc. and AFC dated May 29, 1997.10
.25(a)

Indemnification Agreement dated
    April 11, 1996 by and between AFC and John M. Roth.*10
.26(a)

Indemnification Agreement dated
    May 1, 1996 by and between AFC and Kelvin J. Pennington.*10
.27(a)

Indemnification Agreement dated
    April 11, 1996 by and between AFC and Frank J. Belatti.*10
.28(e)

Substitute Nonqualified Stock
    Option Plan, effective March 17, 1998.*10
.29(f)

Indemnification Agreement dated
    May 16, 2001 by and between AFC and Victor Arias Jr.*10
.30(f)

Indemnification Agreement dated
    May 16, 2001 by and between AFC and Carolyn Hogan Byrd.*10
.31(f)

Indemnification Agreement dated
    August 9, 2001 by and between AFC and R. William
    Ide, III.*10
.32(g)

AFC Enterprises, Inc. Employee
    Stock Purchase Plan.*10
.33(g)

AFC Enterprises, Inc. 2002
    Incentive Stock Plan.*10
.34(g)

AFC Enterprises, Inc. Annual
    Executive Bonus Program.*10
.35(m)

Amended and Restated Employment
    Agreement dated as of June 28, 2004 between AFC
    Enterprises, Inc. and Allan J. Tanenbaum.*10
.36(p)

First Amendment to Amended and
    Restated Employment Agreement dated as of March 28, 2005
    between AFC Enterprises, Inc. and Allan J. Tanenbaum.*10
.37(n)

Employment Agreement effective as
    of December 29, 2003 between AFC Enterprises, Inc. and
    Frederick B. Beilstein.*10
.38(n)

Employment Agreement effective as
    of February 12, 2004 between AFC Enterprises, Inc. and
    Henry Hope, III.*10
.39(p)

First Amendment to Employment
    Agreement dated as of March 28, 2005 between AFC
    Enterprises, Inc. and Frederick B. Beilstein.* 50




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##### Table of Contents



ExhibitNumber

Description10
.40(p)

First Amendment to Employment
    Agreement dated as of March 28, 2005 between AFC
    Enterprises, Inc. and Henry Hope, III.*10
.41(p)

Indemnity Agreement dated
    October 14, 2004 by and between AFC Enterprises, Inc. and
    Supply Management Services, Inc.10
.42(p)

Indemnity Agreement dated
    February 5, 2004 by and between AFC Enterprises, Inc.,
    Cajun Operating Company and Supply Management Services, Inc.10
.43(d)

Second Amended and Restated Credit
    Agreement dated as of May 11, 2005 among
    AFC Enterprises, Inc., JPMorgan Chase and certain
    other lenders.10
.44(i)

Fourth Amendment to the 1992 Stock
    Option Plan of Americas Favorite Chicken Company.10
.45(i)

Fifth Amendment to the
    Americas Favorite Chicken Company 1996 Nonqualified
    Performance Stock Option Plan  General.10
.46(i)

Amendment No. 1 to the
    Americas Favorite Chicken Company 1996 Nonqualified Stock
    Option Plan.10
.47(i)

Second Amendment to the
    Americas Favorite Chicken Company 1996 Nonqualified
    Performance Stock Option Plan  Executive.10
.48(i)

Second Amendment to the AFC
    Enterprises, Inc. 2002 Incentive Stock Plan.10
.49(i)

Indemnification Agreement between
    AFC and Peter Starrett.10
.50(r)

Second Amendment to Employment
    Agreement dated June 7, 2005 between the Company and
    Frederick B. Beilstein.10
.51(r)

Second Amendment to the Amended
    and Restated Employment Agreement dated June 7, 2005
    between the Company and Allan J. Tanenbaum.10
.52(s)

Indemnification Agreement dated
    November 28, 2006 by and between AFC and John M.
    Cranor, III.*10
.53(s)

Indemnification Agreement dated
    November 28, 2006 by and between AFC and Cheryl A.
    Bachelder. *10
.54

Popeyes Chicken and Biscuits 2006
    Bonus Plan.*10
.55

Employment Agreement dated as of
    March 14, 2007 between AFC Enterprises, Inc. and Frederick
    B. Beilstein III.10
.56

Employment Agreement dated as of
    March 14, 2007 between AFC Enterprises, Inc. and James W.
    Lyons.10
.57

Employment Agreement dated as of
    March 14, 2007 between AFC Enterprises, Inc. and Robert
    Calderin.10
.58

First Amendment to Employment
    Agreement, dated March 14, 2007 between AFC Enterprises,
    Inc. and Frank J. Belatti dated August 31, 2005.11
.1**

Statement regarding computation of
    per share earnings.23
.1

Consent of Grant Thornton LLP23
.2

Consent of KPMG LLP31
.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 2002.32
.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. 51




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##### Table of Contents



(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.(r)
    
    Filed as an exhibit to the
    Form 8-K
    of AFC filed June 7, 2005 and incorporated herein by
    reference.(s)
    
    Filed as an exhibit to the
    Form 8-K
    of AFC filed November 29, 2006 and incorporated herein by
    reference. 52




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##### Table of Contents



SIGNATURES
      By:
    /s/  Kenneth
    L. Keymer   Chief Executive Officer
    Signature

Title(s)

Date/s/  Kenneth
    L. KeymerKenneth
    L. Keymer

Chief Executive Officer(Principal Executive Officer)

March 14, 2007/s/  H.
    Melville
    HopeH.
    Melville Hope

Chief Financial Officer(Principal Financial and
    Accounting Officer)

March 14, 2007/s/  Frank
    J. BelattiFrank
    J. Belatti

Director, Chairman of the Board

March 14, 2007/s/  Victor
    Arias, Jr.Victor
    Arias, Jr.

Director

March 14, 2007/s/  Carolyn
    H. ByrdCarolyn
    H. Byrd

Director

March 14, 2007/s/  R.
    William
    Ide, IIIR.
    William Ide, III

Director

March 14, 2007/s/  Kelvin
    J.
    PenningtonKelvin
    J. Pennington

Director

March 14, 2007/s/  John
    M. RothJohn
    M. Roth

Director

March 14, 2007/s/  John
    F. HoffnerJohn
    F. Hoffner

Director

March 14, 2007/s/  Cheryl
    A.
    BachelderCheryl
    A. Bachelder

Director

March 14, 2007/s/  John
    M. Cranor,
    IIIJohn
    M. Cranor

Director

March 14, 2007  53




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##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON CONSOLIDATED
    FINANCIAL STATEMENTS
               
    F-1




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
           Consolidation of Variable
    Interest Entities
  
    F-2




---



##### Table of Contents



AFC
    Enterprises, Inc.
  Consolidated
    Balance Sheets
    As of December 31, 2006 and December 25, 2005
    (In millions, except share data)
  2006


2005ASSETSCurrent assets:Cash and cash equivalents

$
6.7


$
8.2Short-term investments






30.8Accounts and current notes
    receivable, net


12.9



16.9Prepaid income taxes


7.4



31.4Other current assets


15.6



16.4Total current assets


42.6



103.7Long-term assets:Property and equipment, net


39.9



37.1Goodwill


11.7



9.6Trademarks and other intangible
    assets, net


52.4



43.9Other long-term assets, net


16.5



18.4Total long-term assets


120.5



109.0Total assets

$
163.1


$
212.7LIABILITIES AND
    SHAREHOLDERS DEFICITCurrent liabilities:Accounts payable

$
23.8


$
26.1Other current liabilities


10.9



22.4Current debt maturities


1.4



14.8Total current liabilities


36.1



63.3Long-term
    liabilities:Long-term debt


132.6



176.6Deferred credits and other
    long-term liabilities


25.6



21.5Total long-term liabilities


158.2



198.1Commitments and
    contingenciesShareholders
    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; 29,487,648 and
    30,001,877 shares issued and outstanding at the end of
    fiscal years 2006 and 2005, respectively)


0.3



0.3Capital in excess of par value


161.7



167.8Notes receivable from officers,
    including accrued interest






(1.1
)Accumulated deficit


(194.4
)


(216.8
)Accumulated other comprehensive
    income


1.2



1.1Total shareholders deficit


(31.2
)


(48.7
)Total liabilities and
    shareholders deficit

$
163.1


$
212.7    F-3




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##### Table of Contents



AFC
    Enterprises, Inc.
  Consolidated
    Statements of Operations
    For Fiscal Years 2006, 2005 and 2004
    (In millions, except per share data)
  2006


2005


2004Revenues:Sales by company-operated
    restaurants

$
65.2


$
60.3


$
85.8Franchise revenues


82.6



77.5



72.8Other revenues


5.2



5.6



5.3Total revenues


153.0



143.4



163.9Expenses:Restaurant employee, occupancy and
    other expenses


33.7



30.5



45.3Restaurant food, beverages and
    packaging


21.3



20.6



28.8General and administrative expenses


48.1



68.7



82.1Depreciation and amortization


6.4



7.3



10.0Other expenses (income), net


(1.8
)


23.2



17.1Total expenses


107.7



150.3



183.3Operating profit
    (loss)


45.3



(6.9
)


(19.4
)Interest expense, net


11.1



6.8



5.5Income (loss) before income
    taxes, minority interest, discontinued operations and accounting
    change


34.2



(13.7
)


(24.9
)Income tax expense (benefit)


12.0



(5.3
)


(10.7
)Minority interest










0.1Income (loss) before
    discontinued operations and accounting change


22.2



(8.4
)


(14.3
)Discontinued operations, net of
    income taxes


0.2



158.0



39.1Cumulative effect of accounting
    change, net of income taxes










(0.2
)Net income

$
22.4


$
149.6


$
24.6Earnings per common share,
    basic:Income (loss) before discontinued
    operations and accounting change

$
0.75


$
(0.29
)

$
(0.51
)Discontinued operations, net of
    income taxes


0.01



5.43



1.39Cumulative effect of accounting
    change, net of income taxes










(0.01
)Net income

$
0.76


$
5.14


$
0.87Earnings per common share,
    diluted:Income (loss) before discontinued
    operations and accounting change

$
0.74


$
(0.29
)

$
(0.51
)Discontinued operations, net of
    income taxes


0.01



5.43



1.39Cumulative effect of accounting
    change, net of income taxes










(0.01
)Net income

$
0.75


$
5.14


$
0.87Weighted-average shares
    outstanding:Basic


29.5



29.1



28.1Diluted


29.8



29.1



28.1    F-4




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##### Table of Contents



AFC
    Enterprises, Inc.
    Consolidated Statements of Changes in Shareholders Equity
    (Deficit)
    For Fiscal Years 2006, 2005 and 2004
    (In millions, except share data)
  Capital in








AccumulatedCommon Stock


Excess of


Officer





OtherNumber of





Par


Notes





ComprehensiveShares


Amount


Value


Receivable


Deficit


Income


TotalBalance at December 28,
    2003


27,992,999


$
0.3


$
150.1


$
(3.4
)

$
(38.2
)

$



$
108.8Net income


















24.6







24.6Issuance of common stock


8,230







0.1















0.1Issuance of common stock under
    stock option plans, including income tax benefit of
    $1.1 million


274,924







4.8















4.8Cancellation of shares


(798
)






















Issuance of restricted stock
    awards, net of forfeitures


50,000























Notes and interest receivable
    payments














2.3











2.3Interest accrued














(0.1
)










(0.1
)Shared based payment expense










0.4















0.4Balance at December 26,
    2004


28,325,355



0.3



155.4



(1.2
)


(13.6
)






140.9Net income


















149.6







149.6Other comprehensive income: related
    to interest rate swap agreements, net of income taxes of
    $0.7 million (Note 9)






















1.1



1.1Total comprehensive income


























150.7Issuance of common stock under
    stock option plans, including income tax benefit of
    $11.2 million


3,093,251







29.0















29.0Repurchases and cancellation of
    shares (Note 12)


(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















0.1







0.1Notes and interest receivable
    payments














0.1











0.1Shared based payment expense










2.9















2.9Balance at December 25,
    2005


30,001,877



0.3



167.8



(1.1
)


(216.8
)


1.1



(48.7
)Net income


















22.4







22.4Other comprehensive income: related
    to interest rate swap agreements, net of income taxes of
    $0.0 million (Note 9)






















0.1



0.1Total comprehensive income


























22.5Issuance of common stock under
    stock option plans, including income tax benefit of
    $1.8 million


1,012,480







12.3















12.3Repurchases and cancellation of
    shares (Note 12)


(1,486,714
)






(20.3
)














(20.3
)Cancellation of shares


(21,839
)






(0.4
)














(0.4
)Issuance of restricted stock
    awards, net of forfeitures


55,896























Notes and interest receivable
    payments


(74,052
)






(1.1
)


1.1











Shared based payment expense










3.4















3.4Balance at December 31,
    2006


29,487,648


$
0.3


$
161.7


$



$
(194.4
)

$
1.2


$
(31.2
)    F-5




---



##### Table of Contents



AFC
    Enterprises, Inc.
    Consolidated Statements of Cash Flows
    For Fiscal Years 2006, 2005 and 2004
    (In millions)
  2006


2005


2004Cash flows provided by (used in)
    operating activities:Net income

$
22.4


$
149.6


$
24.6Adjustments to reconcile net income
    to net cash provided by (used in) operating activities:Discontinued operations


(0.2
)


(158.0
)


(39.1
)Depreciation and amortization


6.4



7.3



10.0Asset write-downs


0.1



5.8



4.8Net gain on sale of assets


(2.3
)


(1.4
)


(0.5
)Cumulative effect of accounting
    changes, pre-tax










0.2Deferred income taxes


2.2



9.3



3.2Non-cash interest, net


0.4



1.7



1.3Provision for credit losses


(0.3
)


(0.3
)


0.9Minority interest










0.1Excess tax benefits from
    stock-based compensation


(1.8
)






Stock-based compensation expense


3.4



2.9



0.4Change in operating assets and
    liabilities, exclusive of opening VIE balances:Accounts receivable


2.0



(2.9
)


(2.4
)Prepaid income taxes


25.8



(69.2
)


(5.5
)Other operating assets


(0.4
)


5.1



(6.5
)Accounts payable and other
    operating liabilities


(9.0
)


(15.2
)


16.9Net cash provided by (used in)
    operating activities of continuing operations


48.7



(65.3
)


8.4Net cash provided by (used in)
    operating activities of discontinued operations






(7.4
)


35.6Cash flows provided by (used in)
    investing activities:Capital expenditures of continuing
    operations


(7.0
)


(4.2
)


(8.5
)Capital expenditures of
    discontinued operations










(16.9
)Proceeds from dispositions of
    property and equipment


4.3



3.1



2.0Property insurance proceeds


3.5







Proceeds relating to the sale of
    discontinued operations, net






367.6



18.6Acquisition of franchised
    restaurants


(9.3
)


(2.2
)


Purchases of short-term investments


(5.9
)


(275.0
)


Sales and maturities of short-term
    investments


36.7



244.2



Proceeds from notes receivable


0.8



1.2



Issuances of notes receivable






(0.3
)


Other, net










2.0Net cash provided by (used in)
    investing activities


23.1



334.4



(2.8
)Cash flows provided by (used in)
    financing activities:Proceeds from 2005 Credit Facility






190.0



Principal payments  2005
    Credit Facility (term loans)


(59.5
)


(0.5
)


Principal payments  2002
    Credit Facility, net






(90.3
)


(39.0
)Principal payments 
    other notes (including VIEs)


(1.3
)


(0.1
)


(0.2
)Special cash dividend


(0.7
)


(350.8
)


Stock repurchases


(24.4
)


(15.4
)


Proceeds from exercise of employee
    stock options


10.7



17.5



3.8Excess tax benefits from
    stock-based compensation


1.8







Issuance of common stock, net










0.1Increase (decrease) in bank
    overdrafts, net






(6.4
)


4.3(Increase) decrease in restricted
    cash


0.7



(3.8
)


(1.4
)Debt issuance costs


(0.1
)


(3.7
)


Other, net


(0.5
)


(3.0
)


0.4Net cash (used in) financing
    activities


(73.3
)


(266.5
)


(32.0
)Net increase (decrease) in cash and
    cash equivalents


(1.5
)


(4.8
)


9.2Cash and cash equivalents at
    beginning of year


8.2



13.0



3.8Cash and cash equivalents at end of
    year

$
6.7


$
8.2


$
13.0Cash and cash equivalents of
    continuing operations

$
6.7


$
8.2


$
12.8Cash and cash equivalents of
    discontinued operations

$



$



$
0.2    F-6




---



##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 For
    Fiscal Years 2006, 2005 and 2004
  Note 
    1 Description of Business
  Continuing Operations. ®
  Discontinued Operations. ® ®
    Note 
    2 Summary of Significant Accounting Policies
  Principles of Consolidation. Consolidation of Variable Interest Entities, an
    Interpretation of Accounting Research
    Bulletin No. 51
          Accounting for Sales of Real Estate
   F-7




---



##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
 For Fiscal Years 2006, 2005 and 2004
     Use of Estimates.
  Reclassifications.
  Share-Based Payment
    Fiscal Year. 52/53-week
  Cash and Cash Equivalents.
  Supplemental
    Cash Flow Information.
  (in millions)

2006

2005

2004Interest paid, net of
    capitalized amounts

$
14.1


$
7.6


$
6.0Income taxes
    (refunded)/paid, net


(16.9
)


54.8



11.3   Short-Term Investments. available-for-sale
  Accounts Receivable, Net.
 F-8




---



##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
 For Fiscal Years 2006, 2005 and 2004
    (in millions)

2006

2005

2004Balance, beginning of
    year

$
1.7


$
3.7


$
2.7Provisions


(0.3
)


(0.3
)


0.9Write-offs


(0.2
)


(0.8
)


Fully reserved accounts receivable
    converted to notes receivable


(1.0
)






Other (principally associated with
    the advertising fund)


(0.1
)


(0.9
)


0.1Balance, end of year

$
0.1


$
1.7


$
3.7   Notes Receivable, Net.
  note-by-note
  Inventories. (first-in,
  Property and Equipment.
  7-35 years
  site-by-site
 F-9




---



##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
 For Fiscal Years 2006, 2005 and 2004
    Goodwill, Trademarks, and Other Intangible
    Assets.
      Debt Issuance Costs.
  Advertising Fund.
  Accounting for Franchise Fee
    Revenue
 F-10




---



##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
 For Fiscal Years 2006, 2005 and 2004
     (in millions)

2006

2005Accounts and notes receivable, net

$
3.7


$
3.7Other current assets


12.5



12.4$
16.2


$
16.1Accounts payable:Accounts payable

$
8.1


$
11.3Net fund balance


8.1



4.8$
16.2


$
16.1     Leases. Accounting for
    Leases
    Fair Value of Financial Instruments.
  Revenue Recognition  Sales by Company-Operated
    Restaurants.
  Revenue Recognition  Franchise
    Operations.
 F-11




---



##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
 For Fiscal Years 2006, 2005 and 2004
   Other Revenues.
  Gains and Losses Associated With Unit
    Conversions.
      Research and Development.
  Foreign Currency
    Transactions.
  Income Taxes.
  Stock-Based Employee
    Compensation. Share-Based Payment Accounting for Stock-Based
    Compensation
   F-12




---



##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
 For Fiscal Years 2006, 2005 and 2004
        (in millions)

2006General and administrative expenses

$
1.2Income (loss) before income taxes
    and discontinued operations


(1.2
)Income tax (benefit)


(0.5
)Income (loss) before discontinued
    operations


(0.7
)Discontinued operations, net of
    income taxes


Net income

$
(0.7
)       (in millions, except per share amounts)

2005

2004Net income as reported

$
149.6


$
24.6Total stock-based employee
    compensation expense determined under fair value method for all
    awards, net of related tax effects


(1.2
)


(2.8
)Pro forma net income

$
148.4


$
21.8Basic earnings per
    shareAs reported

$
5.14


$
0.87Pro forma


5.10



0.77Diluted earnings per
    share(a)As reported

$
5.14


$
0.87Pro forma


5.10



0.77   (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 per share computation. F-13




---



##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
 For Fiscal Years 2006, 2005 and 2004
     2006

2005

2004Approximate risk-free interest
    rate percentage






3.8
%


2.8
%Expected dividend yield percentage






0.0
%


0.0
%Expected lives (in years)






4.0



4.0Expected volatility percentage






61.4
%


52.7
%     Quantification of Misstatements. Considering the Effects
    of Prior Year Misstatements when Quantifying Misstatements in
    Current Year Financial Statements
  Note 
    3 Recent Accounting Pronouncements That The Company Has Not Yet
    Adopted
  ,
    Accounting for Uncertainty in Income Taxes
    Note 
    4 Other Current Assets
  (in millions)

2006

2005Restricted cash

$
10.5


$
11.2Other current assets of the
    advertising fund


2.2



1.4Prepaid insurance


1.1



0.9Prepaid expenses and other current
    assets


1.8



2.9$
15.6


$
16.4  F-14




---



##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
 For Fiscal Years 2006, 2005 and 2004
    Note 
    5 Property and Equipment, Net
  (in millions)

2006

2005Land

$
4.6


$
5.2Buildings and improvements


32.5



28.3Equipment


27.0



48.6Properties held for sale and other


0.1



0.364.2



82.4Less accumulated depreciation and
    amortization


(24.3
)


(45.3
)$
39.9


$
37.1     Note 
    6 Trademarks and Other Intangible Assets, Net
  (in millions)

2006

2005Non-amortizable
    intangible assets:Trademarks

$
42.0


$
42.0Other


0.6



0.642.6



42.6Amortizable intangible assets:Re-acquired franchise rights


10.7



1.7Accumulated amortization


(0.9
)


(0.4
)9.8



1.3$
52.4


$
43.9     Note 
    7 Other Long-Term Assets, Net
  (in millions)

2006

2005Non-current notes receivable, net

$
12.0


$
12.1Debt issuance costs, net


2.1



3.3Interest rate swap agreements


1.6



1.7Other


0.8



1.3$
16.5


$
18.4  F-15




---



##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
 For Fiscal Years 2006, 2005 and 2004
  Note 
    8 Other Current Liabilities
  (in millions)

2006


2005Accrued wages, bonuses and
    severances

$
2.3


$
9.7Accrued income taxes reserves


4.5



3.6Accrued interest


0.1



3.0Accrued legal


0.6



1.3Accrued employee benefits


0.9



0.8Accrued lease obligations


0.7



0.8Accrued property taxes


0.5



0.8Current deferred tax liabilities






1.2Other


1.3



1.2$
10.9


$
22.4   Note 
    9 Long-Term Debt and Other Borrowings
  (in millions)

2006


20052005 Credit Facility:Revolving credit facility

$



$
Term loan


130.0



189.5Capital lease obligations


0.8



0.6Other notes ($1.2 at
    12/25/05
    related to a VIE)


3.2



1.3134.0



191.4Less current portion


(1.4
)


(14.8
)$
132.6


$
176.6   2005 Credit Facility.
       F-16




---



##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
 For Fiscal Years 2006, 2005 and 2004
          005 Interest Rate Swap
    Agreements.
  Future Debt Maturities.
  (in millions)2007

$
1.12008


1.42009


1.52010


32.52011


94.3Thereafter


2.4$
133.2   Note 
    10 Leases
   F-17




---



##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
 For Fiscal Years 2006, 2005 and 2004
     Capital


Operating(in millions)

Leases


Leases2007

$
0.1


$
6.72008


0.1



6.52009


0.1



5.82010


0.1



5.12011


0.1



4.7Thereafter


1.1



80.0Future minimum lease payments


1.6


$
108.8Less amounts representing interest
    on continuing operations


(0.8
)$
0.8       Note 
    11 Deferred Credits and Other Long-Term Liabilities
  (in millions)

2006


2005Deferred franchise revenues

$
6.1


$
6.5Deferred income taxes


5.7



3.3Deferred gains on unit conversions


3.5



4.0Deferred rentals


3.8



3.7Above-market rent obligations


3.2



0.4Liability insurance reserves


1.7



1.4Special cash dividends payable


0.7



1.4Other


0.9



0.8$
25.6


$
21.5   above-market
  Note 
    12 Common Stock
  Share Repurchase Program.
 F-18




---



##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
 For Fiscal Years 2006, 2005 and 2004
      Dividends.
  Note 
    13 Stock Option Plans
  The 1992 Stock Option Plan.
  The 1996 Nonqualified Performance Stock Option
    Plan.
  The 1996 Nonqualified Stock Option
    Plan.
  The 2002 Incentive Stock Plan.
 F-19




---



##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
 For Fiscal Years 2006, 2005 and 2004
   The 2006 Incentive Stock Plan.
  Modifications to outstanding
    awards.
  A Summary of Stock Option Plan
    Activity.
  2006WeightedAverageRemaining

AggregateWeighted

Contractual

IntrinsicAverage

Term

Value(shares in thousands)

Shares

Exercise Price

(years)

(millions)Stock options:Outstanding at beginning of year


1,840


$
10.80Granted options






Exercised options


(1,012
)


10.52Modification to awards






Cancelled options


(31
)


10.66Outstanding at end of year


797


$
11.16



3.2


$
5.2Exercisable at end of year


500


$
10.92



2.9


$
3.4Shares available for future grants
    under the plans at end of year


3,273        F-20




---



##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
 For Fiscal Years 2006, 2005 and 2004
    WeightedAverageGrant Date(shares in thousands)

Shares


ValueNon-vested stock options
    outstanding at beginning of period


553


$
5.57Granted






Vested


(239
)


5.57Forfeited


(17
)


5.99Non-vested stock options
    outstanding at end of period


297


$
5.55   Restricted
    Share Awards
    2006


2005


2004Weighted





Weighted





WeightedAverage





Average





AverageGrant





Grant





GrantDate Fair





Date Fair





Date Fair(share awards in thousands)

Shares


Value


Shares


Value


Shares


ValueNon-vested restricted share awards:Outstanding beginning of year


173


$
24.84



50


$
20.95






$
Granted


56



13.45



138



24.61



50



20.95Vested


(61
)


24.91



(5
)


20.95







Cancelled










(10
)


24.53







Outstanding end of year


168


$
21.00



173


$
24.84



50


$
20.95     Restricted
    Share Units
  th th
 F-21




---



##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
 For Fiscal Years 2006, 2005 and 2004
     Note 
    14 Other Employee Benefit Plans
  01(k) Savings Plan.
  Executive Retirement and Benefit
    Plan.
    (in millions)

2006


2005Benefit obligation at beginning of
    year

$



$
2.6Service cost






Interest cost






Loss due to curtailments






0.1Loss due to settlements






0.2Change in cumulative actuarial
    (gain)/loss






Settlement payments






(2.9
)Benefits paid






Benefit obligation at end of year

$



$
     (in millions)

2006


2005


2004Service costs

$



$



$
0.2Interest costs










0.1Plan expense

$



$



$
0.3      F-22




---



##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
 For Fiscal Years 2006, 2005 and 2004
      (in millions)

2006


2005Benefit obligation at beginning of
    year

$



$
0.6Service cost






Interest cost






Curtailments






Change in cumulative actuarial
    (gain)/loss






(0.2
)Settlement payments






(0.4
)Benefits paid






Benefit obligation at end of year

$



$
   Employee Stock Purchase Program.
  Note 
    15 Commitments and Contingencies
  Supply Contracts. not-for-profit
     F-23




---



##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
 For Fiscal Years 2006, 2005 and 2004
        Formula and Supply Agreements with Former
    Owner.
  King Features Agreements.
    Business Process Services.
  Information Technology
    Outsourcing.
  Employment Agreements.
 F-24




---



##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
 For Fiscal Years 2006, 2005 and 2004
      AFC Loan Guarantee Programs.
      Litigation.
   F-25




---



##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
 For Fiscal Years 2006, 2005 and 2004
      Insurance Programs.
  and/or
  Environmental Matters. and/or
  Foreign Operations.
  Significant Franchisee.
  Geographic Concentrations.
   F-26




---



##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
 For Fiscal Years 2006, 2005 and 2004
    Note 
    16 Adverse Effects of Hurricane
  Hurricane Katrina.
  Outlook for Temporarily Closed
    Restaurants.
  Accounting Estimates.
     F-27




---



##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
 For Fiscal Years 2006, 2005 and 2004
   Note 
    17 Other Expenses (Income), Net
  (in millions)

2006


2005


2004Shareholder litigation, special
    investigation, and other

$
(0.3
)

$
21.8


$
3.8Asset write-downs


0.1



5.8



4.8Hurricane-related costs (other
    than impairments)


1.7



3.1



Estimated insurance proceeds for
    hurricane and other property damage


(1.0
)


(5.6
)


Net gain on sale of assets


(2.3
)


(1.4
)


(0.5
)Restaurant closures and
    refurbishments






(0.5
)


Corporate lease termination










9.0Restatement costs










$
(1.8
)

$
23.2


$
17.1     clean-up
      Note 
    18 Interest Expense, Net
  (in millions)

2006


2005


2004Interest on debt, less capitalized
    amounts

$
11.1


$
9.2


$
4.2Amortization and write-offs of
    debt issuance costs


1.3



2.7



1.4Other debt related charges


0.3



0.5



0.9Interest income


(1.6
)


(5.6
)


(1.0
)$
11.1


$
6.8


$
5.5  F-28




---



##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
 For Fiscal Years 2006, 2005 and 2004
  Note 
    19 Income Taxes
    (in millions)

2006


2005


2004Income tax expense (benefit):From continuing operations

$
12.0


$
(5.3
)

$
(10.7
)From discontinued operations






94.1



(11.9
)Income taxes in the statements of
    operations, net


12.0



88.8



(22.6
)Income taxes charged (credited) to
    statements of shareholders equity (deficit):Compensation expense for tax
    purposes in excess of amounts recognized for financial reporting
    purposes


(1.8
)


(11.2
)


(1.1
)Other comprehensive income






0.7



Total

$
10.2


$
78.3


$
(23.7
)     (in millions)

2006


2005


2004United States

$
29.8


$
(17.7
)

$
(29.1
)Foreign


4.4



4.0



4.2Total

$
34.2


$
(13.7
)

$
(24.9
)     (in millions)

2006


2005


2004Current income tax expense:Federal

$
7.7


$
(13.7
)

$
(14.5
)Foreign


0.6



0.7



2.1State


1.5



(1.6
)


(1.5
)9.8



(14.6
)


(13.9
)Deferred income tax expense
    (benefit):Federal


2.1



7.3



3.2State


0.1



2.0



2.2



9.3



3.2$
12.0


$
(5.3
)

$
(10.7
)    F-29




---



##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
 For Fiscal Years 2006, 2005 and 2004
     2006


2005


2004Federal income tax rate


35.0
%


(35.0
)%


(35.0
)%State taxes, net of federal benefit


1.1



(10.9
)


(4.0
)Valuation allowance


4.4



13.9



Non-deductible meals


0.2



0.4



0.2Benefit of job tax credits


(0.3
)


(0.4
)


(1.1
)Adjustments to estimated tax
    reserves


0.3



(0.7
)


(3.2
)State deferred tax rate change






(0.5
)


Tax free interest income


(0.2
)


(7.5
)


Provision to return adjustments


(5.8
)


2.8



Other items, net


0.4



(0.8
)


0.1Effective income tax benefit rate


35.1
%


(38.7
)%


(43.0
)%      F-30




---



##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
 For Fiscal Years 2006, 2005 and 2004
    (in millions)

2006


2005Deferred tax assets:Deferred franchise fee revenue

$
3.7


$
4.1State net operating loss
    carryforwards


3.4



1.9Deferred rentals


2.9



1.9Deferred compensation


1.6



1.0Allowance for doubtful accounts


0.4



0.8Insurance accruals


0.6



0.6Other accruals


0.6



0.6Property, plant and equipment






0.2Reorganization costs


2.2



2.2Total gross deferred tax assets

$
15.4


$
13.3Deferred tax liabilities:Franchise value and trademarks

$
(13.9
)

$
(13.2
)Insurance proceeds


(1.0
)


(2.1
)Property, plant and equipment


(2.1
)


Other


(0.7
)


(0.6
)Total gross deferred liabilities


(17.7
)


(15.9
)Valuation allowance


(3.4
)


(1.9
)Net deferred tax liability

$
(5.7
)

$
(4.5
)          F-31




---



##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
 For Fiscal Years 2006, 2005 and 2004
   Note 
    20 Components of Earnings Per Share Computation
  (in millions)

2006


2005


2004Numerators for income (loss) per
    share computation:Loss before discontinued
    operations and accounting change

$
22.2


$
(8.4
)

$
(14.3
)Discontinued operations, net of
    income taxes


0.2



158.0



39.1Cumulative effect of accounting
    change, net of income taxes










(0.2
)Net income (loss)

$
22.4


$
149.6


$
24.6Denominator for basic earnings per
    share  weighted average shares


29.5



29.1



28.1Dilutive employee stock options(a)


0.3







Denominator for diluted earnings
    per share


29.8



29.1



28.1    (a)
    In 2005 and 2004, 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 and 1.0 million shares in 2004.  Note 
    21 Related Party Transactions
        Note 
    22 Discontinued Operations
  Churchs Chicken.
 F-32




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##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
 For Fiscal Years 2006, 2005 and 2004
     Cinnabon.
  Seattle Coffee. ® ®
      (in millions)

2006


2005


2004Total revenues:Churchs

$



$



$
261.3Cinnabon










37.1Total revenues

$



$



$
298.4Income (loss) from operations:Churchs

$
(0.1
)

$



$
40.9Cinnabon


0.3







(7.8
)Income tax benefit (expense)










(14.4
)Income from operations, net

$
0.2


$



$
18.7Income (loss) from sale of
    businesses:Churchs

$



$
252.1


$
Cinnabon










(5.1
)Seattle Coffee










(0.8
)Income tax benefit (expense)






(94.1
)


26.3Income from sale of businesses, net






158.0



20.4Discontinued operations, net of
    income taxes

$
0.2


$
158.0


$
39.1    F-33




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##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
 For Fiscal Years 2006, 2005 and 2004
   Note 
    23 Restructuring of Corporate Operations and Other
  Restructuring of Corporate
    Operations.
  Incurred(in millions)

2006


2005


2004


to dateContract terminations and other

$
1.0


$
2.1


$
9.0


$
12.1Employee termination benefits






0.4



3.4



3.8Total restructuring charges

$
1.0


$
2.5


$
12.4


$
15.9     Other.
  Note 
    24 Segment Information (Continuing Operations)
      sub-leasing
  F-34




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##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
 For Fiscal Years 2006, 2005 and 2004
  Company -Franchise


Operated(in millions)

Operations


Restaurants


Corporate


Total2006Total revenues

$
87.8


$
65.2


$



$
153.0Operating profit (loss) before
    allocations


74.2



5.2



(34.1
)


45.3Corporate overhead allocations(a)


(29.6
)


(3.8
)


33.4



Operating profit(b)


44.6



1.4



(0.7
)


45.3Depreciation and amortization


2.1



4.3







6.4Capital expenditures


0.7



6.3







7.0Goodwill  year end


8.9



2.8







11.7Total assets  year end


85.9



47.9



29.3



163.12005Total revenues

$
82.9


$
60.3


$
0.2


$
143.4Operating 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



7.3Capital expenditures


0.5



3.7







4.2Goodwill  year end


8.9



0.7







9.6Total assets  year end


90.6



32.5



89.6



212.72004Total revenues

$
77.5


$
85.8


$
0.6


$
163.9Operating 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



10.0Capital expenditures






3.7



4.8



8.5Goodwill  year end


8.9



0.7







9.6Total assets  year
    end(c)


77.5



33.3



251.1



361.9   (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 2006, the
    Companys corporate operating profit represents a
    settlement of legal matters associated with shareholder
    litigation. In 2005, the Companys corporate operating loss
    includes $21.8 million associated with the settlement of
    shareholder litigation.  (c)
    For the year ended 2004, corporate assets include the assets of
    discontinued operations of approximately $153.3 million. F-35




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##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
 For Fiscal Years 2006, 2005 and 2004
   Note 
    25 Acquisition
      (in millions)

2006Cash

$
9.3Long-term debt assumed


3.3Above-market rent obligations


2.9Transaction costs


0.3Total purchase price

$
15.8Assets acquiredProperty and equipment

$
3.7Goodwill


2.0Reacquired franchise rights


9.0Deferred tax asset


1.1Total assets acquired

$
15.8    F-36




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##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
 For Fiscal Years 2006, 2005 and 2004
     (in millions, except per share data)

2006


2005Total revenues

$
158.1


$
159.0Operating (loss) profit


45.7



(5.1
)Income (loss) before discontinued
    operations


22.2



(7.7
)Net income

$
22.4


$
150.3Basic earnings per common shareIncome (loss) before discontinued
    operations

$
0.75


$
(0.27
)Discontinued operations, net of
    income taxes


0.1



5.43Net income

$
0.76


$
5.16Diluted earnings per common shareIncome (loss) before discontinued
    operations

$
0.74


$
(0.27
)Discontinued operations, net of
    income taxes


0.1



5.43Net income

$
0.75


$
5.16  F-37




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##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
 For Fiscal Years 2006, 2005 and 2004
  Note 
    26 Quarterly Financial Data (Unaudited)
  2006First(a)


Second


Third


Fourth(b)(in millions, except per share data)

Quarter


Quarter


Quarter


QuarterResults of OperationsTotal revenues

$
42.6


$
34.4


$
36.0


$
40.0Operating profit


12.7



10.6



11.9



10.1Income before discontinued
    operations and accounting change


5.7



5.0



5.9



5.6Net income


5.8



5.1



5.9



5.6Basic earnings per common shareIncome before discontinued
    operations and accounting change

$
0.19


$
0.17


$
0.20


$
0.19Net income


0.19



0.18



0.20



0.19Diluted earnings per common shareIncome before discontinued
    operations and accounting change

$
0.19


$
0.16


$
0.20


$
0.19Net income


0.19



0.17



0.20



0.19   2005First(a)


Second


Third


Fourth(b)Quarter


Quarter


Quarter


QuarterResults of OperationsTotal revenues

$
46.3


$
35.4


$
31.2


$
30.5Operating profit (loss)


(17.7
)


7.7



4.3



(1.2
)Income (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
    shareIncome (loss) before discontinued
    operations and accounting change

$
(0.37
)

$
0.18






$
(0.10
)Net income (loss)


5.04



0.17







0.05Diluted earnings (loss) per common
    shareIncome (loss) before discontinued
    operations and accounting change

$
(0.37
)

$
0.17






$
(0.10
)Net income (loss)


5.04



0.16







0.05   (a)
    The Companys first quarters for 2006 and 2005 contained
    sixteen weeks. The remaining quarters of 2006 and 2005 contained
    twelve weeks each, with the exception of the fourth quarter of
    2006, which contained 13 weeks.  (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. F-38