##### Table of Contents





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

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 28, 2008   Commission files number
    000-32369
  
  AFC
    Enterprises, Inc.
  Minnesota

58-2016606(State or other jurisdiction
    of
    incorporation or organization)

(I.R.S. Employer
    Identification No.)5555 Glenridge Connector, NE, Suite 300

30342Atlanta, Georgia

(Zip Code)(Address of principal executive
    offices)   Registrants telephone number, including area code:
 (404) 459-4450
  Securities registered pursuant to Section 12(b) 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   Securities registered pursuant to Section 12(g) of the
    Exchange Act: None
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K.  Yes þ o
  Rule 12b-2
 Large accelerated
    filer o

Accelerated
    filer þ

Non-accelerated
    filer o(Do not check if a smaller
    reporting company)

Smaller reporting
    company o   rule 12b-2).  Yes o þ
      Class

Outstanding at
    February 20, 2009Common stock, $0.01 par value per share

25,306,473 shares   Documents incorporated by reference:




---



##### 





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


Business


1Item 1A.


Risk Factors


8Item 1B.


Unresolved Staff Comments


13Item 2.


Properties


14Item 3.


Legal Proceedings


14Item 4.


Submission of Matters to a Vote of Security
    Holders


14Item 4A.


Executive Officers


15PART IIItem 5.


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


16Item 6.


Selected Financial Data


18Item 7.


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


22Item 7A.


Quantitative and Qualitative Disclosures about
    Market Risk


42Item 8.


Financial Statements and Supplementary Data


42Item 9.


Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


42Item 9A.


Controls and Procedures


42Item 9B.


Other Information


44PART IIIItem 10.


Directors, Executive Officers and Corporate
    Governance


45Item 11.


Executive Compensation


45Item 12.


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


45Item 13.


Certain Relationships and Related Transactions,
    and Director Independence


45Item 14.


Principal Accountant Fees and Services


45PART IVItem 15.


Exhibits and Financial Statement Schedules


46EX-10.57EX-23.1EX-31.1EX-31.2EX-32.1EX-32.2




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##### Table of Contents



PART I.  Item 1.
    BUSINESS  ® ®
  ®
  Popeyes
    Profile
      
   1




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##### Table of Contents



Our
    Business Strategy
      
    Build the Popeyes Brand offering a
    distinctive brand and menu with clear competitive advantages.  
    We launched our new menu boards featuring three new permanent
    menu platforms  Big Deals value sandwiches and wraps,
    Louisiana Travelers nuggets and tenders, and Big Easy chicken
    bowls and chicken sandwiches  adding greater
    flexibility to address value, portability, and lunch and snack
    dayparts.
    We also refreshed our logo design and created food-focused
    advertising that capitalizes on the superiority of our food, the
    strength of our flavorful signature menu and our culinary
    heritage.
    In connection with the launch of our new products, messaging and
    menu boards, the Company shifted the majority of Popeyes
    media advertising funds to national cable advertising during the
    third and fourth quarters of 2008. In further support of
    national cable advertising, the Company invested
    $2.0 million in additional advertising dollars and the
    majority of the Popeyes franchisees agreed to contribute
    an additional 1% of their restaurants sales to the Popeyes
    advertising fund during the same period. As a result, our
    television media weight more than doubled. In 2009, we will
    continue to support and invest in national advertising to expand
    media reach to bring guests into our restaurants.  
    Run Great Restaurants strengthening
    restaurant operations and improving the Popeyes guest experience
    by providing service as distinctive as our food.  
    We have partnered with our franchisees to implement a guest
    experience monitor (GEM) to gauge guest satisfaction and improve
    the guest experience at every restaurant in the Popeyes system.
    We designed and implemented a new restaurant operations
    scorecard supported with a restructuring of our field operations
    team to accomplish quarterly operations assessments of
    restaurants against Popeyes standards and procedures and to
    develop specific action plans to improve operations.
    We continue to use these new tools to make measurable operations
    improvements in 2009.  
    Strengthen Unit Economics identifying
    cost savings to improve food, labor and overhead efficiencies in
    the restaurants.  
    We remain focused on improving Popeyes restaurant unit economics
    to better position franchisees to build new units as the
    economic environment improves. Initiatives include new tools to
    enhance food cost management and labor scheduling, and the
    standardization of equipment and systems for improved
    productivity.
    We have invested in the development of new site modeling
    software utilizing consumer and real estate data which we
    believe provides an improved approach to selection of sites for
    future development.  
    Align People and Resources to Deliver Results making significant investments in brand
    building, operational tools and talent.  
    We will continue to partner with our franchisees and make
    investments in 2009 to strengthen brand building and menu
    innovation to drive guest traffic increases.
    Consistent with our strategic initiative to re-franchise
    company-operated restaurants, the Company completed the
    re-franchising and sale of 11 company-operated restaurants
    in Atlanta, Georgia for net 2




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##### Table of Contents



proceeds of $3.5 million from the sale of assets and new
    franchise and development agreements. On January 26, 2009,
    the Company completed the re-franchising and sale of three
    company-operated restaurants in Nashville, Tennessee for net
    proceeds of $1.1 million from the sale of assets and new
    franchise and development agreements. The Company continues to
    negotiate definitive agreements for the remaining
    14 company-operated restaurants in Atlanta, Georgia;
    however, at this time the Company is unable to predict the
    timing of when a sale will be completed.    Our
    Agreements with Popeyes Franchisees
    Domestic Development Agreements.
  International Development
    Agreements.
  Domestic Franchise Agreements.
    International Franchise Agreements.
   3




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##### Table of Contents



Site
    Selection
      Suppliers
    and Purchasing Cooperative
  Suppliers.
  Purchasing Cooperative.
  Supply Agreements.
      Marketing
    and Advertising
   4




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##### Table of Contents



Fiscal
    Year and Seasonality
      Employees
  multi-unit
    Intellectual
    Property and Other Proprietary Rights
    Copeland Formula Agreement.
  King Features Agreements.
  International
    Operations
   5




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##### Table of Contents



Insurance
    Competition
    Government
    Regulation
          Environmental
    Matters
  and/or
 6




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##### Table of Contents



Available
    Information
  Form 10-K, Form 10-Q, Form 8-K, 1-800-SEC-0330 http://www.sec.gov. (404) 459-4450.
 7




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##### Table of Contents



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.
    Disruptions
    in the financial markets may adversely affect the availability
    and cost of credit and the slower economy may impact consumer
    spending patterns.
    and/or
  Because
    our operating results are closely tied to the success of our
    franchisees, the failure or loss of one or more franchisees,
    operating a significant number of restaurants, could adversely
    affect our operating results.
   8




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##### Table of Contents



If our
    franchisees are unable or unwilling to open a sufficient number
    of restaurants, our growth strategy could be at
    risk.
      Our
    2005 Credit Facility may limit our ability to expand our
    business, and our ability to comply with the repayment
    requirements, covenants, tests and restrictions contained the
    2005 Credit Facility may be affected by events that are beyond
    our control.
      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.
   9




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##### Table of Contents



multi-unit
  If the
    cost of chicken increases, our cost of sales will increase and
    our operating results could be adversely affected.
    If we
    face labor shortages or increased labor costs, our growth and
    operating results could be adversely affected.
    Instances
    of food-borne illness or avian flu 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.
    Currency,
    economic, political and other risks associated with our
    international operations could adversely affect our operating
    results.
   10




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##### Table of Contents



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 closing of restaurants by us or our franchisees;
    volatility of gasoline prices;
    increases in labor costs;
    increases in the cost of commodities and paper 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.    Shortages
    or interruptions in the supply or delivery of fresh food
    products could adversely affect our operating
    results.
    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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##### Table of Contents



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.      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.
    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.
       12




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##### Table of Contents



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   13




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##### Table of Contents



Item 2.
    PROPERTIES      Land and


Land and/orBuildings Owned


Buildings Leased


TotalLouisiana


3



21



24Georgia


2



13



15Tennessee


2



10



12Mississippi


0



3



3Arkansas


0



1



1Total


7



48



55   and/or
              Item 3.
    LEGAL
    PROCEEDINGS    Item 4.
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS   14




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##### Table of Contents



Item 4A.
    EXECUTIVE
    OFFICERS    Name

Age

PositionCheryl A. Bachelder


52


President and Chief Executive OfficerH. Melville Hope, III


47


Senior Vice President and Chief Financial OfficerRichard H. Lynch


54


Chief Marketing OfficerHarold M. Cohen


45


Senior Vice President, General Counsel, Chief Administrative
    Officer and Corporate Secretary   Cheryl A. Bachelder,
  H. Melville Hope, III,
  Richard H. Lynch,
  Harold M. Cohen,
 15




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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     2008


2007(Dollars per share)

High


Low


High


LowFirst Quarter

$
11.35


$
7.07


$
20.18


$
15.10Second Quarter

$
10.68


$
7.79


$
21.10


$
17.04Third Quarter

$
9.56


$
6.43


$
17.88


$
13.11Fourth Quarter

$
6.45


$
2.85


$
15.66


$
10.41   Share
    Repurchases
        Shareholders
    of Record
    Dividend
    Policy
   16




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##### Table of Contents



Stock
    Performance Graph
    Comparison
    of Cumulative Five Year Total Return
  
  Company Name/Index


12/28/2003


12/26/2004


12/25/2005


12/31/2006


12/30/2007


12/28/2008AFC Enterprises, Inc.


$
100



$
117



$
144



$
167



$
99



$
41S&P 500 INDEX


$
100



$
112



$
120



$
137



$
145



$
88Peer Group


$
100



$
133



$
151



$
189



$
214



$
171   9/29/08,
 17




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##### Table of Contents



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

2008


2007


2006


2005


2004Summary of operations:Revenues(1)Sales by company-operated restaurants

$
78.3


$
80.0


$
65.2


$
60.3


$
85.8Franchise revenues(2)


84.6



82.8



82.6



77.5



72.8Rent and other revenues


3.9



4.5



5.2



5.6



5.3Total revenues

$
166.8


$
167.3


$
153.0


$
143.4


$
163.9Operating profit (loss)(3)

$
40.3


$
45.6


$
45.3


$
(6.9
)

$
(19.4
)Income (loss) before discontinued operations(4)


19.4



23.1



22.2



(8.4
)


(14.3
)Net income(5)


19.4



23.1



22.4



149.6



24.6Earnings per common share, basic:(6)Income (loss) before discontinued operations

$
0.76


$
0.81


$
0.75


$
(0.29
)

$
(0.51
)Net income


0.76



0.81



0.76



5.14



0.87Earnings per common share, diluted:(6)Income (loss) before discontinued operations

$
0.76


$
0.80


$
0.74


$
(0.29
)

$
(0.51
)Net income


0.76



0.80



0.75



5.14



0.87Year-end balance sheet data:Total assets

$
132.0


$
155.0


$
163.1


$
212.7


$
361.9Total debt(7)


119.2



132.8



134.0



191.4



94.0Total shareholders equity (deficit)(8)


(39.3
)


(40.3
)


(31.2
)


(48.7
)


140.9      (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. The timing of restaurant closures and
    re-openings resulted in: a decrease in company-operated
    restaurant sales of approximately $8.7 million in 2005 as
    compared to 2004; a decrease in company-operated restaurant
    sales of approximately $9.9 million in 2006 as compared to
    2005; and an increase in company-operated restaurant sales of
    approximately $13.1 million in 2007 as compared to 2006.  (c)
    The Companys fiscal year ends on the last Sunday in
    December. The 2006 fiscal year consisted of 53 weeks. All
    other fiscal years presented 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 (net
    of lost franchise revenues attributable to these restaurants)
    and increased 2007 revenues by approximately $5.3 million
    as compared to 2006 (net of lost franchise revenues attributable
    to these restaurants). Additional information concerning this
    acquisition can be found at Note 24 to our Consolidated
    Financial Statements. 18




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##### Table of Contents



(e)
    On September 6, 2008, the Company completed the
    re-franchising and sale of 11 company-operated restaurants
    in its Atlanta, Georgia market resulting in a decrease in 2008
    revenues of approximately $4.0 million (net of franchise
    royalties earned) as compared to 2007.  (f)
    During 2004, the Company 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 qualified for consolidation under FIN 46R.
    These franchisees were not retroactively consolidated for years
    prior to 2004. Since adoption of FIN 46R, due to changes in
    the ownership structure of these franchisees, our relationship
    to each of the franchisees has substantially changed, and they
    are no longer VIEs. During 2006, 2005 and 2004, the
    consolidation of these franchisees increased sales by
    company-operated restaurants by approximately $1.2 million,
    $2.7 million, and $12.6 million, respectively.
    Additional information with respect to theses entities is
    discussed in Note 2 to our Consolidated Financial
    Statements.  (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 $1.663 billion in 2008, $1.651 billion in 2007,
    $1.661 billion in 2006, $1.552 billion in 2005, and
    $1.452 billion in 2004. Fiscal year 2006 included a
    53rd week which increased franchisee sales by approximately
    $27.9 million. All other fiscal years presented consisted
    of 52 weeks.(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.  (b)
    During 2008, 2007, 2006, 2005, and 2004, our expenses (income)
    associated with litigation related costs (proceeds) were
    approximately $(12.9) million, $(0.9) million,
    $(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. The
    substantially higher income in 2008 relates to recoveries from
    claims against certain director and officers liability insurance
    policies.  (c)
    During 2008, 2007, 2006, 2005, and 2004, impairments and
    disposals of fixed assets were approximately $9.5 million,
    $1.9 million, $0.1 million, $5.8 million, and
    $4.8 million, respectively. Of the 2008 impairments,
    $9.2 million was associated with the re-franchising of
    company-operated restaurants in Atlanta, Georgia and Nashville,
    Tennessee. See further discussion in Note 2 to our
    Consolidated Financial Statements. Of the 2005 impairments,
    $4.1 million was due to the adverse effects of Hurricane
    Katrina, $0.6 million of which were subsequently reversed
    due to adjustments to damage estimates in 2006.  (d)
    During 2006 and 2005, our expenses (income), net associated with
    hurricane related costs (other than impairments of long-lived
    assets) associated with Hurricane Katrina were approximately
    $0.7 million and $(2.5) million, respectively. During
    2007, the Company also recognized approximately
    $4.8 million of income from insurance proceeds related to
    property damage and business interruption claims.  (e)
    During 2004, the Company incurred approximately
    $9.0 million of net costs associated with the termination
    of the lease for our AFC corporate headquarters. 19




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##### Table of Contents



(f)
    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
    $2.5 million, $1.7 million, $3.4 million,
    $2.9 million, and $0.4 million, in total stock
    compensation expense during 2008, 2007, 2006, 2005, and 2004,
    respectively.  (4)
    During 2008, 2007, 2006, 2005, and 2004, income (loss) before
    discontinued operations and accounting change includes
    interest expense, net of approximately
    $8.1 million, $8.7 million, $11.1 million,
    $6.8 million, and $5.5 million, respectively.(5)
    Historically, the Company also developed, operated and
    franchised quick-service restaurants and bakeries under the
    trade names Churchs
    Chicken®

    (Churchs) (sold December 28,
    2004) and
    Cinnabon®

    (Cinnabon) (sold November 4, 2004). For a
    discussion of these divestitures, see Note 21 to our
    Consolidated Financial Statements. In our Consolidated Financial
    Statements, financial results relating to these divested
    operations are presented as discontinued operations. Net income
    includes discontinued operations which provided income of
    $0.2 million in 2006, $158.0 million in 2005, and
    $39.1 million in 2004. 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 25.6 million,
    28.6 million, 29.5 million, 29.1 million, and
    28.1 million for 2008, 2007, 2006, 2005, and 2004,
    respectively. Weighted average common shares for the computation
    of diluted earnings per common share were 25.7 million,
    28.8 million, 29.8 million, 29.1 million, and
    28.1 million, for 2008, 2007, 2006, 2005, and 2004,
    respectively. For fiscal years 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.(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 2008, we repurchased approximately 2.1 million
    shares of our common stock for approximately $19.0 million.
    During 2007, we repurchased approximately 2.5 million
    shares of our common stock for approximately $39.4 million.
    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 common stock for approximately $19.5 million and
    we paid a special cash dividend of approximately
    $352.9 million. No repurchases were made during 2004. 20




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##### Table of Contents



Summary
    of System-Wide Data
    2008


2007


2006


2005


2004Global system-wide sales increase(1)


0.6
%


0.3
%


7.0
%


4.8
%


4.5
%Domestic same-store sales increase (decrease) for
    company-operated restaurants(2)


(5.6
)%


(7.8
)%


9.0
%


6.5
%


0.9
%Domestic same-store sales increase (decrease) for franchised
    restaurants(2)


(2.1
)%


(2.1
)%


1.3
%


3.2
%


1.4
%Total domestic same-store sales increase (decrease) for
    company-operated and franchised restaurants


(2.2
)%


(2.3
)%


1.6
%


3.3
%


1.3
%International same-store sales increase (decrease) for
    franchised restaurants(2)


4.1
%


1.1
%


(3.2
)%


(4.2
)%


(6.0
)%Total global same-store sales increase (decrease)


(1.7
)%


(2.0
)%


1.1
%


2.6
%


0.6
%Company-operated restaurants (all domestic)Restaurants at beginning of year


65



56



32



56



80New restaurant openings


1



5



3



1



Unit conversions, net(3)


(11
)


1



12



2



(19
)Permanent closings


(3
)


(3
)


(3
)


(7
)


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


3



6



12



(20
)


(1
)Restaurants at end of year


55



65



56



32



56Franchised restaurants (domestic and international)Restaurants at beginning of year


1,840



1,822



1,796



1,769



1,726New restaurant openings


139



119



139



122



109Unit conversions, net(3)


11



(1
)


(12
)


(2
)


19Permanent closings


(117
)


(106
)


(93
)


(95
)


(77
)Temporary (closings)/re-openings, net(4)


(6
)


6



(8
)


2



(8
)Restaurants at end of year


1,867



1,840



1,822



1,796



1,769Total system restaurants


1,922



1,905



1,878



1,828



1,825New franchised restaurant openingsDomestic


72



77



97



71



57International


67



42



42



51



52Total new franchised restaurant openings


139



119



139



122



109Franchised restaurants (end of year)Domestic


1,527



1,518



1,503



1,451



1,416International


340



322



319



345



353Restaurants at end of year


1,867



1,840



1,822



1,796



1,769   (1)
    
    Fiscal year 2006 consisted of 53 weeks. All other fiscal
    years presented consisted of 52 weeks each. The 53rd week
    in 2006 contributed approximately 1.8% to global system-wide
    sales growth. Excluding the impact of the 53rd week in 2006,
    global system-wide sales growth in 2007 was approximately 2.1%.(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. 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 roll forward. 21




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##### 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, our Consolidated
    Financial Statements and our Risk Factors 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 2008 Operating Results
    
    We reported net income of $19.4 million, or diluted
    earnings per share of $0.76 (approximately $0.65 without the
    impact of other expenses (income), net which includes insurance
    recovery benefits and asset impairments).
    Total system-wide sales grew by 0.6%.
    Total domestic same-store sales decreased by 2.2% and
    international same-store sales increased by 4.1%, resulting in a
    global same-store sales decrease of 1.7%.
    Our global restaurant system grew by 17 net restaurants.
    We repurchased approximately 2.1 million shares of our
    common stock.
    We repaid $13.4 million, net in debt under our 2005 credit
    facility.
    We received $12.9 million in proceeds related to certain
    directors and officers liability insurance policies.
    We completed the re-franchising of 11 restaurants in our Atlanta
    market for cash proceeds of $3.5 million.
    We recorded $9.2 million in impairment charges associated
    with the re-franchising of company-operated restaurants in
    Atlanta, Georgia and Nashville, Tennessee. See further
    discussion under the heading entitled Critical Accounting
    Policies and Significant Estimates within this Item 2 and
    in Note 2 to our Consolidated Financial Statements.
    We invested $2.0 million in Popeyes new national
    cable advertising strategy launched in support of new value,
    portability, and lunch and snack menu items. This investment
    resulted in the majority of our franchisees committing to
    contribute an additional 1.0% to the national ad fund. In 2009,
    we will continue to invest in national advertising to expand
    media reach.  2008
    Same-Store Sales
  Form 10-K.
 22




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##### Table of Contents



2008 Unit
    Growth
      Factors
    Affecting Comparability of Consolidated Results of Operations:
    2008, 2007, and 2006,
    
    During the third quarter of 2005, the company-operated
    restaurants in the City of New Orleans were adversely affected
    by Hurricane Katrina. The timing of restaurant closures and
    re-openings resulted in: a decrease in company-operated
    restaurant sales of approximately $8.7 million in 2005 as
    compared to 2004; a decrease in company-operated restaurant
    sales of approximately $9.9 million in 2006 as compared to
    2005; and an increase in company-operated restaurant sales of
    approximately $13.1 million in 2007 as compared to 2006.
    The Companys fiscal year ends on the last Sunday in
    December. The 2006 fiscal year consisted of 53 weeks.
    Fiscal years 2008 and 2007 both 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 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 (net
    of lost franchise revenues attributable to these restaurants)
    and increased 2007 revenues by approximately $5.3 million
    as compared to 2006 (net of lost franchise revenues attributable
    to these restaurants). Additional information concerning this
    acquisition can be found at Note 24 to our Consolidated
    Financial Statements.
    On September 6, 2008, the Company completed the
    re-franchising and sale of 11 company-operated restaurants
    in its Atlanta, Georgia market resulting in a decrease in 2008
    revenues of approximately $4.0 million as compared to 2007.
    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 qualified for consolidation under FIN 46R.
    Since adoption of FIN 46R, due to changes in the ownership
    structure of these franchisees, our relationship to each of the
    franchisees has substantially changed, and they are no longer
    VIEs. During 2006, the consolidation of these franchisees
    increased sales by company-operated restaurants by approximately
    $1.2 million. Additional information with respect to these
    entities is discussed in Note 2 to our Consolidated
    Financial Statements.
    During 2008, 2007, and 2006, our income associated with
    litigation related proceeds was approximately
    $12.9 million, $0.9 million, and $0.3 million,
    respectively. 23




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##### Table of Contents




    During 2008, 2007, and 2006, impairments and disposals of fixed
    assets were approximately $9.5 million, $1.9 million,
    and $0.1 million, respectively.
    During 2006, our expenses (income), net associated with
    hurricane-related costs (other than impairments of long-lived
    assets) associated with Hurricane Katrina were approximately
    $0.7 million. During 2007, the Company also recognized
    approximately $4.8 million of income from insurance
    proceeds related to property damage and business interruption
    claims.
    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
    $2.5 million, $1.7 million, and $3.4 million, in
    total stock compensation expense during 2008, 2007, and 2006,
    respectively.
    Net income includes discontinued operations which provided
    income of $0.2 million in 2006. 24




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##### Table of Contents



2008



2007



2006Revenues:Sales by company-operated restaurants


47

%


48

%


43

%Franchise revenues


51

%


49

%


54

%Rent and other revenues


2

%


3

%


3

%Total revenues


100

%


100

%


100

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


53

%


51

%


52

%Restaurant food, beverages and packaging(1)


35

%


34

%


33

%Rent and other occupancy expenses(2)


1

%


1

%


2

%General and administrative expenses


32

%


28

%


30

%Depreciation and amortization


4

%


4

%


4

%Other expenses (income), net


(3

)%


(2

)%


(1

)%Total expenses


76

%


73

%


70

%Operating profit


24

%


27

%


30

%Interest expense, net


5

%


5

%


8

%Income before income taxes and discontinued
    operations


19

%


22

%


22

%Income tax expense


7

%


8

%


7

%Income before discontinued operations


12

%


14

%


15

%Discontinued operations, net of income taxes












Net income


12

%


14

%


15

%   (1)
    
    Expressed as a percentage of sales by company-operated
    restaurants.(2)
    
    The Company reclassified rent and other occupancy expenses
    associated with properties leased or subleased to franchisees
    and other third parties from General and administrative
    expenses to Rent and other occupancy expenses
    in its Consolidated Statements of Operations. Previously
    reported results have been reclassified to conform to the
    current years presentation. 25




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##### Table of Contents



Comparisons
    of Fiscal Years 2008 and 2007
  Sales by
    Company-Operated Restaurants
    
    a $4.2 million decrease due to the re-franchising and sale
    on September 8, 2008 of 11 company-operated
    restaurants in our Atlanta, Georgia market, and
    a $4.0 million decrease due to a 5.6% decrease in
    same-store sales in fiscal 2008 as compared to fiscal 2007,    
    a $3.5 million increase due to the opening of new
    company-operated restaurants and the acquisition of one
    restaurant during the second quarter of 2007 which was
    previously owned by a franchisee, and
    a net $3.0 million increase due primarily to the timing and
    duration of temporary restaurant closures during both 2008 and
    2007.  Franchise
    Revenues
      Rent and
    Other Revenues
    Restaurant
    Employee, Occupancy and Other Expenses
    Restaurant
    Food, Beverages and Packaging
    Rent and
    Other Occupancy Expenses
   26




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##### Table of Contents



General
    and Administrative Expenses
    
    a $2.4 million increase due to marketing and menu
    initiatives including national cable advertising, new menu board
    development, product research and other marketing related costs,
    a $1.5 million increase in international expenses including
    salary and personnel related costs, travel and other net general
    and administrative costs,
    a $1.0 million increase due to higher domestic salary,
    employee relocation and other personnel related costs,
    a $0.8 million increase in stock-based compensation
    expense, and
    a $1.0 million increase in travel, business conference
    expenses and other net general and administrative costs.    Depreciation
    and Amortization
    Other
    Expenses (Income), Net
          Operating
    Profit
      27




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##### Table of Contents



As a(Dollars in millions)

2008


2007


Fluctuation


PercentFranchise operations

$
38.9


$
45.1


$
(6.2
)


(13.7
)%Company-operated restaurants


3.1



4.7



(1.6
)


(34.0
)%Operating profit before unallocated expenses


42.0



49.8



(7.8
)


(15.7
)%Less unallocated expenses:Depreciation and amortization


6.3



6.9



0.6



4.3
%Other expenses (income), net


(4.6
)


(2.7
)


1.9



34.0
%Total

$
40.3


$
45.6


$
(5.3
)


(11.6
)%         Interest
    Expense, Net
    Income
    Tax Expense
    Comparisons
    of Fiscal Years 2007 and 2006
  Sales by
    Company-Operated Restaurants
    
    a $13.1 million increase due to the reopening of 14 of our
    New Orleans restaurants throughout 2006 and 2007 closed as a
    result of Hurricane Katrina,
    a $5.6 million increase due to the full years
    operations of 13 restaurants acquired on May 1, 2006, in
    the Memphis and Nashville, Tennessee markets which were
    previously owned by a franchisee, and
    a $3.9 million increase due to the opening of new
    company-operated restaurants,    
    a $5.2 million decrease in same-store sales in fiscal 2007
    as compared to fiscal 2006, 28




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##### Table of Contents




    a $1.2 million decrease attributable to a 53rd week in
    fiscal year 2006 (fiscal 2007 consisted of
    52 weeks), and
    a $1.2 million decrease due to the termination of a VIE
    relationship (as described in Note 2 to the Consolidated
    Financial Statements) in the second quarter of 2006.    Franchise
    Revenues
    Rent and
    Other Revenues
    Restaurant
    Employee, Occupancy and Other Expenses
    Restaurant
    Food, Beverages and Packaging
    Rent and
    Other Occupancy Expenses
    General
    and Administrative Expenses
    
    $1.9 million of higher salary and other personnel related
    costs, including severance payments in 2007,
    $0.9 million of higher professional costs (primarily for
    marketing related services partially offset by lower net legal
    (including settlements) and IT related costs), and
    $0.7 million of higher bad debt expense,    
    $1.7 million of lower stock-based employee compensation
    expense.   29




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##### Table of Contents



Depreciation
    and Amortization
    Other
    Expenses (Income), Net
    
    $4.8 million of higher income recognized from insurance
    proceeds related to property damage and business interruption
    claims,
    $0.7 million of lower (non-impairment related) hurricane
    related costs, and
    $0.6 million of higher net litigation related proceeds,    
    $2.0 million of lower net gains on sale of assets,
    $1.8 million of higher charges for impairments and
    disposals of fixed assets,
    $0.8 million of higher costs associated with restaurant
    closures, and
    $0.6 million of other expenses.    Operating
    Profit
      As a(Dollars in millions)

2007


2006


Fluctuation


PercentFranchise operations

$
45.1


$
45.4


$
(0.3
)


(0.1
)%Company-operated restaurants


4.7



4.5



0.2



4.4
%Operating profit before unallocated expenses


49.8



49.9



(0.1
)


(0.0
)%Less unallocated expenses:Depreciation and amortization


6.9



6.4



(0.5
)


(7.8
)%Other expenses (income), net


(2.7
)


(1.8
)


0.9



50.0
%Total

$
45.6


$
45.3


$
0.3



0.1
%    30




---



##### Table of Contents



Interest
    Expense, Net
    Income
    Tax Expense
    Liquidity
    and Capital Resources
    
    cash flows generated from our operating activities, and
    borrowings under our 2005 Credit Facility.          
    reinvestment in core business activities that promote the
    Companys strategic initiatives,
    reduction of long-term debt, and
    repurchase of shares of our common stock.     31




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##### Table of Contents



Total Leverage Ratio

Prepayment3
    3.00 to 1.0

50% of the Consolidated Excess Cash Flow< 3.00 to 1.0 but > 2.00 to 1.0

25% of the Consolidated Excess Cash Flow£
    2.00 to 1.0

No debt prepayment     £ £ £
  rd
      Operating
    and Financial Outlook for 2009
    90-110 140-160 30-70 net
 32




---



##### Table of Contents



Contractual
    Obligations
    There-(In millions)

2009


2010


2011


2012


2013


after


TotalLong-term debt, excluding capital leases(1)

$
4.7


$
28.3


$
82.3


$
0.2


$
0.2


$
1.9


$
117.6Interest on long-term debt, excluding capital leases(1)


6.8



6.7



2.6



0.2



0.2



0.8



17.3Leases(2)


6.3



5.8



5.4



4.4



4.1



80.7



106.7Copeland formula agreement(3)


3.1



3.1



3.1



3.1



3.1



46.2



61.7King Features agreements(3)


1.0



0.5



















1.5Information technology outsourcing  IBM(3)


2.4























2.4Business process services(3)


1.0



1.0



0.3















2.3Total(4)(5)

$
25.3


$
45.4


$
93.7


$
7.9


$
7.6


$
129.6


$
309.5   (1)
    
    For variable rate debt, the Company estimated average
    outstanding balances for the respective periods and applied
    interest rates in effect at December 28, 2008. 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 $106.7 million of minimum lease payments,
    $102.1 million of those payments relate to operating leases
    and the remaining $4.6 million of payments relate to
    capital leases. See Note 10 to our Consolidated Financial
    Statements.(3)
    
    See Note 15 to our Consolidated Financial Statements.(4)
    
    The above table excludes certain volume purchase commitments
    existing between SMS and certain chicken suppliers. AFC has
    agreed to indemnify SMS for any shortfall between actual
    purchases by the Popeyes system and the annual purchase
    commitments entered into by SMS on behalf of the Popeyes
    restaurant system. This indemnification agreement is discussed
    under the heading entitled Off-Balance Sheet Arrangements within
    this Item 7 and in Note 15 to our Consolidated
    Financial Statements.(5)
    
    We have not included in the contractual obligations table
    approximately $4.7 million for unrecognized tax benefits
    for various tax positions we have taken. These liabilities may
    increase or decrease over time as a result of tax examinations,
    and given the status of the examinations, we cannot reliably
    estimate the amount or period of cash settlement, if any, with
    the respective taxing authorities. These liabilities also
    include amounts that are temporary in nature and for which we
    anticipate that over time there will be no net cash outflow. 33




---



##### Table of Contents



Share
    Repurchase Program
      Capital
    Expenditures
              Acquisition
    of Previously Franchised Restaurants
   34




---



##### Table of Contents



Effects
    of Hurricane Katrina and Insurance Proceeds
        Off-Balance
    Sheet Arrangements
  SMS Indemnity Agreement.
    AFC Loan Guarantee Programs.
     35




---



##### Table of Contents



Long Term
    Debt
  005 Credit Facility.
            2005 Interest Rate Swap
    Agreements.
     36




---



##### Table of Contents



Impact of
    Inflation
    Tax
    Matters
    Market
    Risk
    Commodity Market Risk.
    Foreign Currency Exchange Rate Risk.
   37




---



##### Table of Contents



Interest Rate Risk.
  Critical
    Accounting Policies and Estimates
  and/or
  Assets Held for Sale.
      Impairment of Long-Lived Assets. site-by-site
  Impairment of Goodwill and
    Trademarks.
 38




---



##### Table of Contents



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.
   39




---



##### Table of Contents



Stock-Based Employee
    Compensation. Share-Based Payment Accounting for Stock-Based
    Compensation
  Accounting
    Standards Adopted in 2008
  Fair Value Measurements. Fair Value Measurements No. FAS 157-2, Effective Date of FASB Statement No. 157
 40




---



##### Table of Contents




    Level 1  inputs to the valuation methodology are
    quoted prices (unadjusted) for an identical asset or liability
    in an active market
    Level 2  inputs to the valuation methodology
    include quoted prices for a similar asset or liability in an
    active market or model-derived valuations in which all
    significant inputs are observable for substantially the full
    term of the asset or liability
    Level 3  inputs to the valuation methodology are
    unobservable and significant to the fair value measurement of
    the asset or liability    Fair Value Option for Financial Assets and Financial
    Liabilities. The Fair Value Option for
    Financial Assets and Financial Liabilities
  Accounting
    Standards That We Have Not Yet Adopted
    Forward-Looking
    Statements
  Form 10-K Form 10-K
 41




---



##### Table of Contents



Form 10-K
  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     42




---



##### 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  
         43




---



##### Table of Contents



Item 9B.
    OTHER
    INFORMATION   44




---



##### 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   45




---



##### Table of Contents



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


F- 1Consolidated Balance Sheets as of
    December 28, 2008 and December 30, 2007


F- 2Consolidated Statements of Operations for Fiscal
    Years 2008, 2007 and 2006


F- 3Consolidated Statements of Changes in
    Shareholders Deficit for Fiscal Years 2008, 2007 and
    2006


F- 4Consolidated Statements of Cash Flows for Fiscal
    Years 2008, 2007 and 2006


F- 5Notes to the Consolidated Financial Statements


F- 6     (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(y)

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. 46




---



##### Table of Contents



ExhibitNumber

Description10
.5(a)

Recipe Royalty Agreement dated March 21, 1989 by and among
    Alvin C. Copeland, New Orleans Spice Company, Inc. and Biscuit
    Investments, Inc.10
.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(n)

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

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

Indemnity Agreement dated February 5, 2004 by and between
    AFC Enterprises, Inc., Cajun Operating Company and Supply
    Management Services, Inc. 47




---



##### Table of Contents



ExhibitNumber

Description10
.38(d)

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

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

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

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

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

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

Indemnification Agreement between AFC and Peter Starrett.10
.45(s)

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

Indemnification Agreement dated November 28, 2006 by and
    between AFC and Cheryl A. Bachelder.*10
.47(t)

Popeyes Chicken and Biscuits 2006 Bonus Plan.*10
.48(t)

Employment Agreement dated as of March 14, 2007 between AFC
    Enterprises, Inc. and James W. Lyons.*10
.49(t)

Employment Agreement dated as of March 14, 2007 between AFC
    Enterprises, Inc. and Robert Calderin.*10
.50(u)

Second Amendment to Second Amended and Restated Credit Agreement
    dated as of April 25, 2007.10
.51(v)

Non-Qualified Stock Option Certificate for Cheryl Bachelder
    (time-based vesting).*10
.52(v)

Non-Qualified Stock Option Certificate for Cheryl Bachelder
    (performance-based vesting).*10
.53(w)

Employment Agreement dated as of October 9, 2007 between
    AFC Enterprises, Inc. and Cheryl A. Bachelder.10
.54(m)

Accelerated Stock Repurchase Agreement by and between AFC
    Enterprises, Inc. and J.P. Morgan Securities Inc., as agent
    for JPMorgan Chase Bank, National Association, London Branch
    dated March 12, 2008.10
.55(x)

Amended and Restated Employment Agreement dated as of
    November 12, 2008 between the Company and Harold M. Cohen
    (incorporated by reference to Exhibit 10.1 of the
    Companys Quarterly Report on
    Form 10-Q
    for the quarter ended October 5, 2008).10
.56(x)

Amended and Restated Employment Agreement dated as of
    November 12, 2008 between the Company and Henry
    Hope, III (incorporated by reference to Exhibit 10.2
    of the Companys Quarterly Report on
    Form 10-Q
    for the quarter ended October 5, 2008).10
.57

Employment Agreement effective as of February 4, 2008
    between the Company and Richard Lynch.11
.1**

Statement regarding computation of per share earnings.23
.1

Consent of Grant Thornton 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 19 to our Consolidated
    Financial Statements in this Annual Report. 48




---



##### Table of Contents



(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.(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 8-K
    of AFC filed on August 13, 2008 and incorporated herein by
    reference(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 8-K
    of AFC filed on August 21, 2007 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.(t)
    
    Filed as an exhibit to the
    Form 10-K
    of AFC for the fiscal year ended December 31, 2006 and
    incorporated herein by reference.(u)
    
    Filed as an exhibit to the
    Form 8-K
    of AFC filed April 30, 2007 and incorporated herein by
    reference.(v)
    
    Filed as an exhibit to the
    Form 8-K
    of AFC filed November 7, 2007 and incorporated herein by
    reference.(w)
    
    Filed as an exhibit to the
    Form 8-K
    of AFC filed October 12, 2007 and incorporated herein by
    reference.(x)
    
    Filed as an exhibit to the
    Form 10-Q
    of AFC for the quarter ended October 5, 2008 on
    November 12, 2008 and incorporated herein by reference.(y)
    
    Filed as an exhibit to the
    Form 8-K
    of AFC filed on April 16, 2008 and incorporated herein by
    reference. 49




---



##### Table of Contents



SIGNATURES
      By:
    /s/  Cheryl
    A. Bachelder   Chief Executive Officer
    Signature

Title(s)

Date/s/  Cheryl
    A. BachelderCheryl
    A. Bachelder

Chief Executive Officer (Principal Executive Officer)

March 11, 2009/s/  H.
    Melville HopeH.
    Melville Hope

Chief Financial Officer (Principal Financial and Accounting
    Officer)

March 11, 2009/s/  John
    M. Cranor, IIIJohn
    M. Cranor, III

Director, Chairman of the Board

March 11, 2009/s/  Victor
    Arias, Jr.Victor
    Arias, Jr.

Director

March 11, 2009/s/  Carolyn
    H. ByrdCarolyn
    H. Byrd

Director

March 11, 2009/s/  R.
    William Ide, IIIR.
    William Ide, III

Director

March 11, 2009/s/  Kelvin
    J. PenningtonKelvin
    J. Pennington

Director

March 11, 2009/s/  John
    F. HoffnerJohn
    F. Hoffner

Director

March 11, 2009  50




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##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                   F-1




---



##### Table of Contents



AFC
    Enterprises, Inc.



Consolidated
    Balance Sheets
    As of December 28, 2008 and December 30, 2007
    (In millions, except share data)  2008


2007ASSETSCurrent assets:Cash and cash equivalents

$
2.1


$
5.0Accounts and current notes receivable, net


13.6



13.1Assets held for sale


4.5



Other current assets


13.8



17.1Total current assets


34.0



35.2Long-term assets:Property and equipment, net


25.3



42.4Goodwill


11.1



11.7Trademarks and other intangible assets, net


48.2



51.6Other long-term assets, net


13.4



14.1Total long-term assets


98.0



119.8Total assets

$
132.0


$
155.0LIABILITIES AND SHAREHOLDERS DEFICITCurrent liabilities:Accounts payable

$
19.3


$
26.1Other current liabilities


13.6



14.9Current debt maturities


4.7



14.0Total current liabilities


37.6



55.0Long-term liabilities:Long-term debt


114.5



118.8Deferred credits and other long-term liabilities


19.2



21.5Total long-term liabilities


133.7



140.3Commitments 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; 25,294,973 and 27,356,105 shares issued and
    outstanding at the end of fiscal years 2008 and 2007,
    respectively)


0.3



0.3Capital in excess of par value


110.5



127.7Notes receivable from officers, including accrued interest






Accumulated deficit


(149.1
)


(168.5
)Accumulated other comprehensive income (loss)


(1.0
)


0.2Total shareholders deficit


(39.3
)


(40.3
)Total liabilities and shareholders deficit

$
132.0


$
155.0    F-2




---



##### Table of Contents



AFC
    Enterprises, Inc.
 Consolidated
    Statements of Operations
    For Fiscal Years 2008, 2007 and 2006
    (In millions, except per share data)  2008


2007


2006Revenues:Sales by company-operated restaurants

$
78.3


$
80.0


$
65.2Franchise revenues


84.6



82.8



82.6Rent and other revenues


3.9



4.5



5.2Total revenues


166.8



167.3



153.0Expenses:Restaurant employee, occupancy and other expenses


41.4



40.7



33.7Restaurant food, beverages and packaging


27.1



27.3



21.3Rent and other occupancy expenses


2.4



2.3



2.7General and administrative expenses


53.9



47.2



45.4Depreciation and amortization


6.3



6.9



6.4Other expenses (income), net


(4.6
)


(2.7
)


(1.8
)Total expenses


126.5



121.7



107.7Operating profit


40.3



45.6



45.3Interest expense, net


8.1



8.7



11.1Income before income taxes and discontinued operations


32.2



36.9



34.2Income tax expense


12.8



13.8



12.0Income before discontinued operations


19.4



23.1



22.2Discontinued operations, net of income taxes










0.2Net income

$
19.4


$
23.1


$
22.4Earnings per common share, basic:Income before discontinued operations

$
0.76


$
0.81


$
0.75Discontinued operations, net of income taxes










0.01Net income

$
0.76


$
0.81


$
0.76Earnings per common share, diluted:Income before discontinued operations

$
0.76


$
0.80


$
0.74Discontinued operations, net of income taxes










0.01Net income

$
0.76


$
0.80


$
0.75Weighted-average shares outstanding:Basic


25.6



28.6



29.5Diluted


25.7



28.8



29.8    F-3




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##### Table of Contents



AFC
    Enterprises, Inc.
    Consolidated Statements of Changes in Shareholders
    Deficit
    For Fiscal Years 2008, 2007 and 2006
    (In millions, except share data)  Capital in








AccumulatedCommon Stock


Excess of


Officer





OtherNumber of





Par


Notes


Accumulated


ComprehensiveShares


Amount


Value


Receivable


Deficit


Income (Loss)


TotalBalance at December 25, 2005


30,001,877


$
0.3


$
167.8


$
(1.1
)

$
(216.8
)

$
1.1


$
(48.7
)Net income


















22.4







22.4Net change in fair value of cash flow hedge, net of tax






















0.1



0.1Total comprehensive income


























22.5Issuance of common stock under stock option plans


1,012,480







10.5















10.5Excess tax benefits from stock-based compensation










1.8















1.8Repurchases and retirement of shares


(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











Stock-based payment expense










3.4















3.4Balance at December 31, 2006


29,487,648



0.3



161.7







(194.4
)


1.2



(31.2
)Cumulative effect of adjustment from adoption of FIN 48
    (Note 2)


















2.6







2.6Net income


















23.1







23.1Other comprehensive income:Net change in fair value of cash flow hedge, net of tax






















(0.8
)


(0.8
)Derivative loss realized in earnings during the period






















(0.2
)


(0.2
)Total comprehensive income


























22.1Issuance of common stock under stock option plans


333,933







3.3















3.3Repurchases and retirement of shares


(2,496,030
)






(39.4
)














(39.4
)Excess tax benefits from stock-based compensation










0.9















0.9Special cash dividend forfeited


















0.2







0.2Cancellation of shares


(33,916
)






(0.5
)














(0.5
)Issuance of restricted stock awards, net of forfeitures


64,470























Stock-based payment expense










1.7















1.7Balance at December 30, 2007


27,356,105



0.3



127.7







(168.5
)


0.2



(40.3
)Net income


















19.4







19.4Other comprehensive income:Net change in fair value of cash flow hedge, net of tax






















(1.3
)


(1.3
)Derivative loss realized in earnings during the period






















0.1



0.1Total comprehensive income


























18.2Repurchases and retirement of shares


(2,120,401
)






(19.0
)














(19.0
)Excess tax liabilities from stock-based compensation










(0.5
)














(0.5
)Cancellation of shares


(31,031
)






(0.2
)














(0.2
)Issuance of restricted stock awards, net of forfeitures


90,300























Stock-based payment expense










2.5















2.5Balance at December 28, 2008


25,294,973


$
0.3


$
110.5


$



$
(149.1
)

$
(1.0
)

$
(39.3
)    F-4




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##### Table of Contents



AFC
    Enterprises, Inc.
 Consolidated
    Statements of Cash Flows
    For Fiscal Years 2008, 2007 and 2006
    (In millions)  2008


2007


2006Cash flows provided by (used in) operating activities:Net income

$
19.4


$
23.1


$
22.4Adjustments to reconcile net income to net cash provided by
    (used in) operating activities:Discontinued operations










(0.2
)Depreciation and amortization


6.3



6.9



6.4Asset write-downs


9.5



1.9



0.1Net gain on sale of assets


(0.9
)


(0.3
)


(2.3
)Gain on insurance recoveries related to asset damages, net


(0.5
)


(3.2
)


Deferred income taxes






(0.5
)


2.2Non-cash interest, net


(0.1
)


(0.3
)


0.4Provision for credit losses


0.1



0.4



(0.3
)Excess tax benefits from stock-based compensation






(0.9
)


(1.8
)Stock-based compensation expense


2.5



1.7



3.4Change in operating assets and liabilities:Accounts receivable


(0.6
)


(0.6
)


2.0Prepaid income taxes


(0.4
)


7.8



25.8Other operating assets


1.1



0.4



(0.4
)Accounts payable and other operating liabilities


(9.3
)


4.0



(9.0
)Net cash provided by operating activities of continuing
    operations


27.1



40.4



48.7Cash flows provided by (used in) investing activities:Capital expenditures


(2.7
)


(10.0
)


(7.0
)Proceeds from dispositions of property and equipment


3.8



0.3



4.3Property insurance proceeds






4.5



3.5Acquisition of franchised restaurants






(0.4
)


(9.3
)Purchases of short-term investments










(5.9
)Sales and maturities of short-term investments










36.7Proceeds from notes receivable


0.8



0.8



0.8Net cash provided by (used in) investing activities


1.9



(4.8
)


23.1Cash flows provided by (used in) financing activities:Principal payments  2005 credit facility (term loan)


(8.9
)


(6.9
)


(59.5
)Borrowings under 2005 revolving credit facility


20.0



9.5



Principal payments  2005 revolving credit facility


(24.5
)


(4.5
)


Principal payments  other notes (including VIEs)


(0.2
)


(0.1
)


(1.3
)Special cash dividend


(0.5
)


(0.7
)


(0.7
)Share repurchases


(19.0
)


(39.4
)


(24.4
)Proceeds from exercise of employee stock options






3.3



10.7Excess tax benefits from stock-based compensation






0.9



1.8Decrease in restricted cash


2.6



1.1



0.7Debt issuance costs






(0.2
)


(0.1
)Other, net


(1.4
)


(0.3
)


(0.5
)Net cash (used in) financing activities


(31.9
)


(37.3
)


(73.3
)Net (decrease) in cash and cash equivalents


(2.9
)


(1.7
)


(1.5
)Cash and cash equivalents at beginning of year


5.0



6.7



8.2Cash and cash equivalents at end of year

$
2.1


$
5.0


$
6.7    F-5




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##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 For
    Fiscal Years 2008, 2007 and 2006
  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
      Use of Estimates.
  Reclassifications.
 F-6




---



##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 For
    Fiscal Years 2008, 2007 and
    2006  (Continued)
    Fiscal Year.
  Cash and Cash Equivalents.
  Supplemental
    Cash Flow Information.
  (in millions)

2008


2007


2006Interest paid, net of capitalized amounts

$
8.9


$
7.1


$
14.1Income taxes (refunded)/paid, net


13.2



5.8



(16.9
)Property acquired under capital lease obligations






0.9



0.2   Accounts Receivable, Net.
  (in millions)

2008


2007


2006Balance, beginning of year

$
0.6


$
0.1


$
1.7Provisions for loss


0.1



0.4



(0.3
)Write-offs


(0.1
)






(0.2
)Fully reserved accounts receivable converted to notes receivable










(1.0
)Other (principally associated with the advertising fund)


0.1



0.1



(0.1
)Balance, end of year

$
0.7


$
0.6


$
0.1   Notes Receivable, Net.
     F-7




---



##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 For
    Fiscal Years 2008, 2007 and
    2006  (Continued)
  note-by-note
  Inventories. (first-in,
  Assets Held for Sale.
    Property and Equipment.
    site-by-site
 F-8




---



##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 For
    Fiscal Years 2008, 2007 and
    2006  (Continued)
  Goodwill, Trademarks, and Other Intangible
    Assets.
          Debt Issuance Costs.
  Advertising Fund.
  Accounting for Franchise Fee
    Revenue
 F-9




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##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 For
    Fiscal Years 2008, 2007 and
    2006  (Continued)
      (in millions)

2008


2007Accounts and notes receivable, net

$
4.2


$
3.7Other current assets


8.6



11.4$
12.8


$
15.1Accounts payable

$
10.0


$
9.3Net fund balance


2.8



5.8$
12.8


$
15.1     Leases. Accounting for
    Leases
    Accumulated Other Comprehensive Income
    (Loss).
  Revenue Recognition  Sales by Company-Operated
    Restaurants.
  Revenue Recognition  Franchise
    Operations.
 F-10




---



##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 For
    Fiscal Years 2008, 2007 and
    2006  (Continued)
  Rent and Other Revenues.
  Cash Consideration from Vendors. 02-16, Accounting by a Customer (Including a Reseller) for
    Certain Consideration Received from a Vendor,
  Gains and Losses Associated With Unit
    Conversions.
      Research and Development.
  Foreign Currency
    Transactions.
  Income Taxes. Accounting for Income Taxes
    (SFAS 109).
  Accounting for Uncertainty
    in Income Taxes (FIN 48), an
    interpretation of SFAS 109.
 F-11




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##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 For
    Fiscal Years 2008, 2007 and
    2006  (Continued)
        Stock-Based Employee
    Compensation. Share-Based Payment Accounting for Stock-Based
    Compensation
    Fair Value Measurements.
    
    Level 1  inputs to the valuation methodology are
    quoted prices (unadjusted) for an identical asset or liability
    in an active market
    Level 2  inputs to the valuation methodology
    include quoted prices for a similar asset or liability in an
    active market or model-derived valuations in which all
    significant inputs are observable for substantially the full
    term of the asset or liability F-12




---



##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 For
    Fiscal Years 2008, 2007 and
    2006  (Continued)
   
    Level 3  inputs to the valuation methodology are
    unobservable and significant to the fair value measurement of
    the asset or liability  No. 157-2, No. 157-2),
    Fair Value Measurement Using


Carrying(in millions)

Level 1


Level 2


Level 3


ValueFinancial AssetsCash equivalents

$
2.2


$



$



$
2.2Total assets at fair value

$
2.2


$



$



$
2.2Financial LiabilitiesInterest rate swap agreement (Note 9)

$



$
0.5


$



$
0.5Total liabilities at fair value

$



$
0.5


$



$
0.5     Fair Value Option for Financial Assets and Financial
    Liabilities. The Fair Value Option for
    Financial Assets and Financial Liabilities
  Note 
    3 Recent Accounting Pronouncements That the Company Has Not Yet
    Adopted
   F-13




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##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 For
    Fiscal Years 2008, 2007 and
    2006  (Continued)
    Note 
    4 Other Current Assets
  (in millions)

2008


2007Restricted cash

$
6.7


$
9.3Other current assets of the advertising fund


1.9



2.1Prepaid insurance


0.5



1.7Deferred tax assets


1.6



1.9Prepaid income taxes


0.9



0.5Prepaid expenses and other current assets


2.2



1.6$
13.8


$
17.1     Note 
    5 Property and Equipment, Net
  (in millions)

2008


2007Land

$
4.0


$
4.5Buildings and improvements


23.2



36.9Equipment


22.6



28.7Properties held for sale and other


0.1



0.149.9



70.2Less accumulated depreciation and amortization


(24.6
)


(27.8
)$
25.3


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

2008


2007Non-amortizable
    intangible assets:Trademarks

$
42.0


$
42.0Other


0.6



0.642.6



42.6Amortizable intangible assets:Re-acquired franchise rights


7.1



10.7Accumulated amortization


(1.5
)


(1.7
)5.6



9.0$
48.2


$
51.6  F-14




---



##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 For
    Fiscal Years 2008, 2007 and
    2006  (Continued)
      Note 
    7 Other Long-Term Assets, Net
  (in millions)

2008


2007Noncurrent notes receivable, net

$
11.6


$
11.6Debt issuance costs, net


1.1



1.7Interest rate swap agreements






0.2Other


0.7



0.6$
13.4


$
14.1   Note 
    8 Other Current Liabilities
  (in millions)

2008


2007Accrued wages, bonuses and severances

$
3.1


$
1.9Accrued income taxes payable and income tax reserves


5.8



6.2Accrued interest


1.7



2.2Other


3.0



4.6$
13.6


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

2008


20072005 Credit Facility:Revolving credit facility

$
0.5


$
5.0Term B loan


114.2



123.1Capital lease obligations


1.6



1.6Other notes


2.9



3.1119.2



132.8Less current portion


(4.7
)


(14.0
)$
114.5


$
118.8   2005 Credit Facility.
   F-15




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##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 For
    Fiscal Years 2008, 2007 and
    2006  (Continued)
          2005 Interest Rate Swap
    Agreements.
     F-16




---



##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 For
    Fiscal Years 2008, 2007 and
    2006  (Continued)
  Future Debt Maturities.
  (in millions)2009

$
4.72010


28.32011


82.32012


0.22013


0.2Thereafter


1.9$
117.6   Note 
    10 Leases
      Capital


Operating(in millions)

Leases


Leases2009

$
0.2


$
6.12010


0.2



5.62011


0.2



5.22012


0.2



4.22013


0.2



3.9Thereafter


3.6



77.1Future minimum lease payments


4.6



102.1Less amounts representing interest


(3.0
)


$
1.6


$
102.1      F-17




---



##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 For
    Fiscal Years 2008, 2007 and
    2006  (Continued)
  Note 
    11 Deferred Credits and Other Long-Term Liabilities
  (in millions)

2008


2007Deferred franchise revenues

$
3.9


$
5.5Deferred gains on unit conversions


2.7



3.2Deferred rentals


4.7



4.4Above-market rent obligations


2.9



2.9Deferred income taxes


1.9



2.9Other


3.1



2.6$
19.2


$
21.5   Note 
    12 Common Stock
  Share Repurchase Program.
    Dividends.
  Note 
    13 Stock Option Plans
  The 1996 Nonqualified Performance Stock Option
    Plan.
  The 1996 Nonqualified Stock Option
    Plan.
  The 2002 Incentive Stock Plan.
 F-18




---



##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 For
    Fiscal Years 2008, 2007 and
    2006  (Continued)
  The 2006 Incentive Stock Plan.
    A Summary of Stock Option Plan
    Activity.
  WeightedAverageRemaining


AggregateWeighted


Contractual


IntrinsicAverage


Term


Value(shares in thousands)

Shares


Exercise Price


(years)


(millions)Stock options:Outstanding at beginning of year


764


$
12.62Granted options


105



8.50Exercised options






Cancelled and expired options


(46
)


11.40Outstanding at end of year


823


$
12.16



6.1


$
Exercisable at end of year


418


$
12.62



3.4


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


2,558      F-19




---



##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 For
    Fiscal Years 2008, 2007 and
    2006  (Continued)
      2008


2007


2007Black-


Monte


Black-Scholes


Carlo


ScholesRisk-free interest rate


2.9
%


4.2
%


4.2
%Expected dividend yield


0.0
%


0.0
%


0.0
%Expected term (in years)


6.25



6.25



7.00Expected volatility


41.9
%


42.0
%


41.9
%       WeightedAverageGrant Date(shares in thousands)

Shares


ValueUnvested stock options outstanding at beginning of period


474


$
5.84Granted


105



3.86Vested


(174
)


5.68Forfeited






Unvested stock options outstanding at end of period


405


$
5.41   Restricted
    Share Awards
   F-20




---



##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 For
    Fiscal Years 2008, 2007 and
    2006  (Continued)
    WeightedAverageGrantDate Fair(share awards in thousands)

Shares


ValueUnvested restricted share awards:Outstanding beginning of year


114


$
17.52Granted


90



8.77Vested


(95
)


17.65Cancelled


(19
)


16.70Outstanding end of year


90


$
8.76       Restricted
    Share Units
      WeightedAverageGrantDate Fair(share awards in thousands)

Units


ValueUnvested restricted stock units:Outstanding beginning of year


37


$
17.49Granted


37



8.02Vested






Outstanding end of year


74


$
12.70    F-21




---



##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 For
    Fiscal Years 2008, 2007 and
    2006  (Continued)
  Note 
    14 401(k) Savings Plan
    Note 
    15 Commitments and Contingencies
  Supply Contracts.
          Formula and Supply Agreements with Former
    Owner.
 F-22




---



##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 For
    Fiscal Years 2008, 2007 and
    2006  (Continued)
    King Features Agreements.
    Business Process Services.
  Information Technology
    Outsourcing.
  Employment Agreements.
  AFC Loan Guarantee Programs.
 F-23




---



##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 For
    Fiscal Years 2008, 2007 and
    2006  (Continued)
      Litigation.
  Insurance Programs.
  and/or
  Environmental Matters. and/or
  Foreign Operations.
  Significant Franchisee.
 F-24




---



##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 For
    Fiscal Years 2008, 2007 and
    2006  (Continued)
  Geographic Concentrations.
  Note 
    16 Other Expenses (Income), Net
  (in millions)

2008


2007


2006Net recoveries of directors and officers liability insurance
    claims and shareholder litigation

$
(12.9
)

$
(0.9
)

$
(0.3
)Impairments and disposals of fixed assets


9.5



1.9



0.1Gain on insurance recoveries related to asset damages, net


(0.5
)


(3.2
)


Income from business interruption insurance recoveries






(1.6
)


Costs related to restaurant closures






0.8



Net gain on sale of assets


(0.9
)


(0.3
)


(2.3
)Other


0.2



0.6



0.7$
(4.6
)

$
(2.7
)

$
(1.8
)       clean-up
   F-25




---



##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 For
    Fiscal Years 2008, 2007 and
    2006  (Continued)
  Note 
    17 Interest Expense, Net
  (in millions)

2008


2007


2006Interest on debt, less capitalized amounts

$
8.1


$
9.0


$
11.1Amortization and write-offs of debt issuance costs


0.6



0.6



1.3Other debt related charges


0.6



0.4



0.3Interest income


(1.2
)


(1.3
)


(1.6
)$
8.1


$
8.7


$
11.1   Note 
    18 Income Taxes
    (in millions)

2008


2007


2006Income taxes in the statements of operations, net

$
12.8


$
13.8


$
12.0Income taxes charged (credited) to statements of
    shareholders equity (deficit):Compensation expense for tax purposes less than (in excess of)
    amounts recognized for financial reporting purposes


0.5



(0.9
)


(1.8
)Other comprehensive income


(0.7
)


(0.6
)


Total

$
12.6


$
12.3


$
10.2     (in millions)

2008


2007


2006United States

$
26.6


$
31.8


$
29.8Foreign


5.6



5.1



4.4Total

$
32.2


$
36.9


$
34.2     (in millions)

2008


2007


2006Current income tax expense:Federal

$
10.5


$
11.9


$
7.7Foreign


0.9



0.8



0.6State


1.4



1.6



1.512.8



14.3



9.8Deferred income tax expense (benefit):Federal






(0.5
)


2.1State










0.1



(0.5
)


2.2$
12.8


$
13.8


$
12.0    F-26




---



##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 For
    Fiscal Years 2008, 2007 and
    2006  (Continued)
    2008


2007


2006Federal income tax rate


35.0
%


35.0
%


35.0
%State taxes, net of federal benefit


1.5



1.7



1.1Valuation allowance


0.8



0.9



4.4Tax free interest income










(0.2
)Provision to return adjustments


0.2



(0.1
)


(5.8
)Adjustments to estimated tax reserves


1.4



(0.5
)


0.3Non-deductible goodwill impairment


0.7







Other items, net


0.2



0.4



0.3Effective income tax benefit rate


39.8
%


37.4
%


35.1
%       (in millions)

2008


2007Deferred tax assets:Deferred franchise fee revenue

$
2.6


$
3.4State net operating loss carry forwards


4.0



3.7Deferred rentals


3.1



3.1Deferred compensation


1.4



1.2Property, plant and equipment


1.5



Allowance for doubtful accounts


0.5



0.6Insurance accruals


0.4



0.5Other accruals


1.7



1.4Reorganization costs


4.0



4.0Total gross deferred tax assets


19.2



17.9Deferred tax liabilities:Franchise value and trademarks


(15.5
)


(14.7
)Property, plant and equipment






(0.4
)Other






(0.1
)Total gross deferred liabilities


(15.5
)


(15.2
)Valuation allowance


(4.0
)


(3.7
)Net deferred tax liability

$
(0.3
)

$
(1.0
)    F-27




---



##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 For
    Fiscal Years 2008, 2007 and
    2006  (Continued)
          (in millions)Balance as of December 30, 2007

$
4.5Gross additions related to current year


0.2Expirations of statutes of limitation


Balance as of December 28, 2008

$
4.7       Note 
    19 Components of Earnings Per Share Computation
  (in millions)

2008


2007


2006Numerators for income per share computation:Income before discontinued operations

$
19.4


$
23.1


$
22.2Discontinued operations, net of income taxes










0.2Net income

$
19.4


$
23.1


$
22.4Denominator for basic earnings per share  weighted
    average shares


25.6



28.6



29.5Dilutive employee stock options


0.1



0.2



0.3Denominator for diluted earnings per share


25.7



28.8



29.8  F-28




---



##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 For
    Fiscal Years 2008, 2007 and
    2006  (Continued)
  Note 
    20 Related Party Transactions
      Note 
    21 Discontinued Operations
  Churchs Chicken.
    Cinnabon.
    (in millions)

2008


2007


2006Income (loss) from operations:Churchs

$



$



$
(0.1
)Cinnabon










0.3Income tax benefit (expense)










Income from operations, net

$



$



$
0.2Discontinued operations, net of income taxes

$



$



$
0.2   Note 
    22 Restructuring of Corporate Operations
   F-29




---



##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 For
    Fiscal Years 2008, 2007 and
    2006  (Continued)
    Note 
    23 Segment Information
  Disclosures about Segments
    of an Enterprise and Related Information
    (FAS 131)
      F-30




---



##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 For
    Fiscal Years 2008, 2007 and
    2006  (Continued)
  2008


2007


2006RevenuesFranchise operations(a)

$
88.5


$
87.3


$
87.8Company-operated restaurants


78.3



80.0



65.2$
166.8


$
167.3


$
153.0Operating profit before unallocated expensesFranchise operations

$
38.9


$
45.1


$
45.4Company-operated restaurants


3.1



4.7



4.542.0



49.8



49.9Less unallocated expensesDepreciation and amortization


6.3



6.9



6.4Other expenses (income), net


(4.6
)


(2.7
)


(1.8
)Operating profit

$
40.3


$
45.6


$
45.3Capital expendituresFranchise operations

$
0.2


$
0.6


$
0.7Company-operated restaurants


2.5



9.4



6.3$
2.7


$
10.0


$
7.0Goodwill  year endFranchise operations

$
8.9


$
8.9


$
8.9Company-operated restaurants


2.2



2.8



2.8$
11.1


$
11.7


$
11.7Total assets  year endFranchise operations

$
98.6


$
106.6


$
115.2Company-operated restaurants


33.4



48.4



47.9$
132.0


$
155.0


$
163.1   (a)
    
    Franchise operations revenues excludes 5% inter-segment royalties  Note 
    24 Acquisition
   F-31




---



##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 For
    Fiscal Years 2008, 2007 and
    2006  (Continued)
    May 1,(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       (in millions, except per share data)

2006Total revenues

$
158.1Operating (loss) profit


45.7Income (loss) before discontinued operations


22.2Net income

$
22.4Basic earnings per common shareIncome (loss) before discontinued operations

$
0.75Discontinued operations, net of income taxes


0.1Net income

$
0.76Diluted earnings per common shareIncome (loss) before discontinued operations

$
0.74Discontinued operations, net of income taxes


0.1Net income

$
0.75  F-32




---



##### Table of Contents



AFC
    ENTERPRISES, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 For
    Fiscal Years 2008, 2007 and
    2006  (Continued)
  Note 
    25 Quarterly Financial Data (Unaudited)
  2008First(a)


Second


Third


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

Quarter


Quarter


Quarter


QuarterResults of OperationsTotal revenues

$
53.3


$
39.3


$
38.3


$
35.9Operating profit


13.3



12.9



8.1



6.0Net income


6.4



6.6



4.0



2.4Basic earnings per common share


0.24



0.26



0.16



0.10Diluted earnings per common share


0.24



0.26



0.16



0.10   2007First(a)


Second


Third


Fourth(c)Quarter


Quarter


Quarter


QuarterResults of OperationsTotal revenues

$
51.0


$
38.3


$
38.9


$
39.1Operating profit


13.0



12.7



11.9



8.0Net income


6.4



6.6



6.5



3.6Basic earnings per common share


0.22



0.22



0.23



0.14Diluted earnings per common share


0.22



0.22



0.23



0.13   (a)
    
    The Companys first quarters for 2008 and 2007 contained
    sixteen weeks. The remaining quarters of 2008 and 2007 contained
    twelve weeks each.(b)
    
    Significant fourth quarter adjustments and unusual or
    infrequently incurred items recognized in 2008 include:
    $1.1 million in asset impairments of company-operated
    restaurants and $0.8 million of income recognized from
    insurance proceeds related to property damage and business
    interruption claims.(c)
    
    Significant fourth quarter adjustments and unusual or
    infrequently incurred items recognized in 2007 include:
    (i) $1.0 million in asset impairments of
    company-operated restaurants, (ii) severances of
    $0.6 million, (iii) $0.5 million for future lease
    obligations on closed facilities, (iv) $1.0 million of
    shareholder litigation proceeds, and (v) $1.7 million
    of income recognized from insurance proceeds related to property
    damage and business interruption claims. F-33