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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 30, 2007
 Commission files number 000-32369
 
 AFC Enterprises, Inc.
 Minnesota
    
    58-2016606(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    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
 þ o
  o þ o o
 o þ
   Class
    
    Outstanding at February 22, 2008Common stock, $0.01 par value per share
    
    27,190,594 shares
 Documents incorporated by reference:




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##### 



AFC ENTERPRISES, INC.
 INDEX TO FORM 10-K
 PART IItem 1.
    
    Business
    
    
    
    1Item 1A.
    
    Risk Factors
    
    
    
    6Item 1B.
    
    Unresolved Staff Comments
    
    
    
    10Item 2.
    
    Properties
    
    
    
    11Item 3.
    
    Legal Proceedings
    
    
    
    11Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    
    12Item 4A.
    
    Executive Officers
    
    
    
    12PART IIItem 5.
    
    Market for
Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    
    13Item 6.
    
    Selected Financial Data
    
    
    
    15Item 7.
    
    Management's Discussion and Analysis of Financial Condition and Results of Operations
    
    
    
    19Item 7A.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    
    35Item 8.
    
    Financial Statements and Supplementary Data
    
    
    
    35Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    
    35Item 9A.
    
    Controls and Procedures
    
    
    
    35Item 9B.
    
    Other Information
    
    
    
    36PART IIIItem 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    
    37Item 11.
    
    Executive Compensation
    
    
    
    37Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    
    37Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    
    37Item 14.
    
    Principal Accountant Fees and Services
    
    
    
    37PART IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    
    38EX-23.1 CONSENT OF GRANT THORNTON LLPEX-31.1 SECTION 302, CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 906, CERTIFICATION OF THE CEOEX-32.2 SECTION 906, CERTIFICATION OF THE CFO




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PART I.
 
 Item 1. BUSINESS
 ®
 ®
 Popeyes Profile
   
  Domestic restaurants:Company-operated
    
    
    65Franchised
    
    
    1,518International restaurants:Franchised
    
    
    322Worldwide restaurants
    
    
    1,905
 
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Our Business Strategy
   
    
    Building the Popeyes Brand- by offering franchisees a distinctive brand and menu
with clear competitive advantages. Planned steps to exploit this advantage include:
 
    
    Launching new marketing messages to excite customers about the superiority of
Popeyes core bone-in chicken products; and
    
    Rolling-out fresh and relevant menu platforms focused on portable snacks,
quick lunch offerings, lighter alternatives and everyday value.
 
    
    Running Great Restaurants- by strengthening restaurant operations and improving the
Popeyes guest experience through:
 
    
    Implementing a guest experience monitor, (GEM), to gauge guest satisfaction at
every restaurant in the Popeyes system; and
    
    Restructuring the field operations team to accomplish quarterly operations
assessments of restaurants against Popeyes standards and procedures.
 
    
    Strengthening Unit Economics- by identifying cost savings to improve food, labor and
overhead efficiencies in the restaurants by:
 
    
    Assembling a task force to address the operating cost
structure of Popeyes restaurants and
to identify ways to improve restaurant operating profit. The team includes franchisees,
corporate operations, supplier partners and the Popeyes purchasing/distribution
cooperative; and
    
    Improving Popeyes restaurant unit economics to better position franchisees to
build new units as the economic environment improves.
 
    
    Aligning People and Resources to Deliver Results- by making significant investments in
brand building, operational tools and talent as evidenced by:
 
    
    Making non-recurring investments of $3.5 million in 2008 to strengthen brand building
and menu innovation to drive guest traffic increases; and
    
    Recruiting our new Popeyes chief operations officer and our new chief marketing officer. These two experienced executives, working with the
Companys existing talented team, complete the Popeyes leadership team.
  Our Agreements with Popeyes Franchisees
  Domestic Development Agreements.
 International Development Agreements.
 Domestic Franchise Agreements.
  International Franchise Agreements.
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Site Selection
   Suppliers and Purchasing Cooperative
 Suppliers.
 Purchasing Cooperative.
 Supply Agreements.
   Marketing and Advertising
  Fiscal Year and Seasonality
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Employees
   Intellectual Property and Other Proprietary Rights
  Copeland Formula Agreement.
 King Features Agreements.
 International Operations
  Insurance
  Competition
  Government Regulation
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Environmental Matters
  Available Information
  - 5 -




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Item 1A. RISK FACTORS
 Certain statements we make in this filing, and other written or oral statements made by or on
our behalf, may constitute forward-looking statements within the meaning of the federal
securities laws. Words or phrases such as should result, are expected to, we anticipate, we
estimate, we project, we believe, or similar expressions are intended to identify
forward-looking statements. These statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from our historical experience and our present
expectations or projections. We believe that these forward-looking statements are reasonable;
however, you should not place undue reliance on such statements. Such statements speak only as of
the date they are made, and we undertake no obligation to publicly update or revise any
forward-looking statement, whether as a result of future events, new information or otherwise. The
following risk factors, and others that we may add from time to time, are some of the factors that
could cause our actual results to differ materially from the expected results described in our
forward-looking statements.
 If we are unable to compete successfully against other companies in the QSR industry or develop new
products that appeal to consumer preferences, we could lose customers and our revenues may decline.
  Because our operating results are closely tied to the success of our franchisees, the failure or
loss of one or more franchisee, operating a significant number of restaurants, could adversely
affect our operating results.
  If the cost of chicken increases, our cost of sales will increase and our operating results could
be adversely affected.
  If we face continuing labor shortages or increased labor costs, our growth and operating results
could be adversely affected.
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Shortages or interruptions in the supply or delivery of fresh food products could adversely affect
our operating results.
  Changes in consumer preferences and demographic trends, as well as concerns about health or food
safety and quality, could result in a loss of customers and reduce our revenues.
  Instances of avian flu or food-borne illnesses could adversely affect the price and availability of
poultry and other foods and create negative publicity which could result in a decline in our sales.
  If any member of our senior management left us, our operating results could be adversely affected,
and we may not be able to attract and retain additional qualified management personnel.
  Our 2005 Credit Facility may limit our ability to expand our business, and our ability to comply
with the covenants, tests and restrictions contained in this agreement may be affected by events
that are beyond our control.
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If our franchisees are unable or unwilling to open a sufficient number of restaurants, our growth
strategy could be at risk.
   Currency, economic, political and other risks associated with our international operations could
adversely affect our operating results.
  We have experienced a decrease in the number of restaurants we have franchised in Korea.
  If we and our franchisees fail to purchase chicken at quantities specified in SMSs poultry
contracts, we may have to purchase the commitment short-fall and this could adversely affect our
operating results.
  Our quarterly results and same-store sales may fluctuate significantly and could fall below the
expectations of securities analysts and investors, which could cause the market price of our common
stock to decline.
   
    
    the opening of new restaurants by us or our franchisees;
    
    the re-opening of restaurants temporarily closed due to Hurricane Katrina;
    
    the closing of restaurants by us or our franchisees;
    
    rising gasoline prices;
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
    
    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.
  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.
   The SEC investigation arising in connection with the restatement of our financial statements could
adversely affect our financial condition.
  We may not be able to adequately protect our intellectual property, which could harm the value of
our Popeyes brand and branded products and adversely affect our business.
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Because certain of our current or former properties were used as retail gas stations in the past,
we may incur substantial liabilities for remediation of environmental contamination at our
properties.
  
 Item 1B. UNRESOLVED STAFF COMMENTS
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Item 2. PROPERTIES
   Land and
    
    Land and/orBuildings Owned
    
    Buildings Leased
    
    TotalGeorgia
    
    
    3
    
    
    
    23
    
    
    
    26Louisiana
    
    
    3
    
    
    
    20
    
    
    
    23Tennessee
    
    
    1
    
    
    
    11
    
    
    
    12Mississippi
    
    
    0
    
    
    
    3
    
    
    
    3Arkansas
    
    
    0
    
    
    
    1
    
    
    
    1Total
    
    
    7
    
    
    
    58
    
    
    
    65
       
 Item 3. LEGAL PROCEEDINGS
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Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 Item 4A. EXECUTIVE OFFICERS
  Name
    
    Age
    
    PositionCheryl A. Bachelder
    
    
    51
    
    
    President and Chief Executive OfficerH. Melville Hope, III
    
    
    46
    
    
    Senior Vice President and Chief
Financial OfficerRichard Lynch
    
    
    53
    
    
    Chief Marketing OfficerHarold M. Cohen
    
    
    44
    
    
    Senior Vice President, General
Counsel and Corporate Secretary
 Cheryl A. Bachelder ®
 H. Melville Hope, III,
 Richard H. Lynch
 Harold M. Cohen,
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PART II.
 
 Item 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
   2007
    
    
    2006(Dollars per share)
    
    High
    
    
    Low
    
    
    High
    
    
    LowFirst Quarter
    
    $
    20.18
    
    
    $
    15.10
    
    
    $
    16.89
    
    
    $
    12.54Second Quarter
    
    $
    21.10
    
    
    $
    17.04
    
    
    $
    15.15
    
    
    $
    12.13Third Quarter
    
    $
    17.88
    
    
    $
    13.11
    
    
    $
    15.29
    
    
    $
    12.11Fourth Quarter
    
    $
    15.66
    
    
    $
    10.41
    
    
    $
    18.04
    
    
    $
    13.90
 Share Repurchases
  Total Number of
    
    Maximum Value ofShares Repurchased
    
    Shares that May YetNumber of Shares
    
    Average Price Paid
    
    as Part of a Publicly
    
    Be RepurchasedPeriod
    
    Repurchased(1)(2)
    
    Per Share
    
    Announced Plan
    
    Under the Plan(2)Period 11
10/08/07   11/04/07
    
    
    253,900
    
    
    $
    14.41
    
    
    
    253,900
    
    
    $
    65,697,171Period 12
11/05/07   12/02/07
    
    
    379,699
    
    
    $
    10.88
    
    
    
    379,699
    
    
    $
    57,905,947Period 13
12/03/07   12/30/07
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    57,905,947Total
    
    
    633,599
    
    
    $
    12.30
    
    
    
    633,599
    
    
    $
    57,905,947
 
 (1)
    
    As originally announced on July 22, 2002, and subsequently amended and expanded, the Companys board of directors has approved a share
repurchase program. See Note 12 to our Consolidated Financial Statements.(2)
    
    From December 31, 2007 through February 22, 2008 (the last trading date in the Companys second period for 2008), the Company repurchased
and retired an additional 164,730 shares of common stock for approximately $1.6 million. As of February 22, 2008, the remaining value of
shares that may be repurchased under the program was $56.4 million. Pursuant to the terms of the Companys 2005 Credit Facility, the
Company is subject to a repurchase limit of approximately $36.5 million for the remainder of fiscal 2008. Shareholders of Record
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Dividend Policy
   Stock Performance Graph
  
 Company Name/ Index
    
    
    12/29/2002
    
    
    
    12/28/2003
    
    
    
    12/26/2004
    
    
    
    12/25/2005
    
    
    
    12/31/2006
    
 
    
    12/30/2007AFC Enterprises, Inc.
    
    
    $
    100
    
    
    
    $
    92
    
    
    
    $
    108
    
    
    
    $
    132
    
    
    
    $
    153
    
    
    
    $
    91S&P 500 INDEX
    
    
    $
    100
    
    
    
    $
    127
    
    
    
    $
    143
    
    
    
    $
    153
    
    
    
    $
    174
    
    
    
    $
    185Peer Group
    
    
    $
    100
    
    
    
    $
    139
    
    
    
    $
    184
    
    
    
    $
    209
    
    
    
    $
    262
    
    
    
    $
    297
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Item 6. SELECTED FINANCIAL DATA
  (Dollars in millions, except per share data)
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Summary of operations:Revenues(1)Sales by company-operated restaurants
    
    $
    80.0
    
    
    $
    65.2
    
    
    $
    60.3
    
    
    $
    85.8
    
    
    $
    85.4Franchise revenues(2)
    
    
    82.8
    
    
    
    82.6
    
    
    
    77.5
    
    
    
    72.8
    
    
    
    70.8Other revenues
    
    
    4.5
    
    
    
    5.2
    
    
    
    5.6
    
    
    
    5.3
    
    
    
    5.3Total revenues
    
    $
    167.3
    
    
    $
    153.0
    
    
    $
    143.4
    
    
    $
    163.9
    
    
    $
    161.5Operating profit (loss)(3)
    
    $
    45.6
    
    
    $
    45.3
    
    
    $
    (6.9
    )
    
    $
    (19.4
    )
    
    $
    (19.7
    )Income (loss) before discontinued operations(4)
    
    
    23.1
    
    
    
    22.2
    
    
    
    (8.4
    )
    
    
    (14.3
    )
    
    
    (14.5
    )Net income (loss)(5)
    
    
    23.1
    
    
    
    22.4
    
    
    
    149.6
    
    
    
    24.6
    
    
    
    (9.1
    )Earnings per common share, basic:(6)Income (loss) before discontinued operations
    
    $
    0.81
    
    
    $
    0.75
    
    
    $
    (0.29
    )
    
    $
    (0.51
    )
    
    $
    (0.52
    )Net income (loss)
    
    
    0.81
    
    
    
    0.76
    
    
    
    5.14
    
    
    
    0.87
    
    
    
    (0.33
    )Earnings per common share, diluted:(6)Income (loss) before discontinued operations
    
    $
    0.80
    
    
    $
    0.74
    
    
    $
    (0.29
    )
    
    $
    (0.51
    )
    
    $
    (0.52
    )Net income (loss)
    
    
    0.80
    
    
    
    0.75
    
    
    
    5.14
    
    
    
    0.87
    
    
    
    (0.33
    )Year-end balance sheet data:Total assets
    
    $
    155.0
    
    
    $
    163.1
    
    
    $
    212.7
    
    
    $
    361.9
    
    
    $
    359.5Total debt(7)
    
    
    132.8
    
    
    
    134.0
    
    
    
    191.4
    
    
    
    94.0
    
    
    
    130.9Total shareholders equity (deficit)(8)
    
    
    (40.3
    )
    
    
    (31.2
    )
    
    
    (48.7
    )
    
    
    140.9
    
    
    
    108.8
 (1)
    
    Factors that impact the comparability of revenues for the years presented include:
 (a)
    
    The effects of restaurant openings, closings, unit conversions and
same-store sales (see Summary of System-Wide Data later in this
Item 6).(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 by approximately $8.7
million in 2005 as compared to 2004; a decrease in company-operated
sales of approximately 9.9 million in 2006 as compared to 2005; and
an increase in company-operated 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 dollars (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.
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(e)
    
    During 2004, we adopted Financial Accounting Standards Board
Interpretation No. 46, Consolidation of Variable Interest Entities,
an Interpretation of Accounting Research Bulletin No. 51, as revised
in December 2003 (FIN 46R) and began consolidating three
franchisees that 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 $1.651 billion in 2007, $1.661 billion in
2006, $1.552 billion in 2005, $1.452 billion in 2004 and
$1.386 billion in 2003. 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. During 2003, general and
administrative expenses included approximately $5.0 million relating
to employee severance costs and consultant fees for a productivity
initiative.(b)
    
    During 2007, 2006, 2005, 2004 and 2003, our expenses (income)
associated with litigation related costs (proceeds) were
approximately $(0.9) million, $(0.3) million, $21.8 million,
$3.8 million, and $1.4 million, respectively. The substantially
higher costs in 2005 relate to the settlement of certain shareholder
litigation.(c)
    
    During 2007, 2006, 2005, 2004, and 2003, asset write-downs were
approximately $1.9 million, $0.1 million, $5.8 million, $4.8 million,
and $15.0 million, respectively. Of the 2005 impairments,
$4.1 million were due to the adverse effects of Hurricane Katrina,
$0.6 million of which were subsequently reversed due to adjustments
to damage estimates in 2006. Of the 2003 impairments, $7.0 million of
charges related to the write-down of assets under contractual
arrangements and $4.9 million related to the closing of
18 company-operated restaurants.(d)
    
    During 2006 and 2005, 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, we incurred approximately $9.0 million of net costs
associated with the termination of the lease for our AFC corporate
headquarters.(f)
    
    During 2003, we incurred approximately $12.6 million of costs
associated with the re-audit and restatement of previously issued
financial statements.(g)
    
    Effective December 26, 2005, the Company adopted SFAS No. 123(R),
Share-Based Payment(SFAS 123R), which requires the measurement and
recognition of compensation cost at fair value for all share-based
payments, including stock options and restricted stock awards. The
Company adopted SFAS 123R using the modified prospective transition
method and, as a result, did not retroactively adjust results from
prior periods. For further discussion regarding SFAS 123R see the
section entitled Stock-Based Employee Compensation in Note 2 to our
Consolidated Financial Statements. The Company recorded $1.7 million,
$3.4 million, $2.9 million, $0.4 million, and $0.2 million in total
stock compensation expense during 2007, 2006, 2005, 2004 and 2003,
respectively.
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(4)
    
    During 2007, 2006, 2005, 2004 and 2003, loss before discontinued
operations and accounting change includes interest expense, net of
approximately $8.7 million, $11.1 million, $6.8 million,
$5.5 million, and $5.3 million, respectively.(5)
    
    Net income (loss) includes discontinued operations which provided
income (loss) of $0.2 million in 2006, $158.0 million in 2005,
$39.1 million in 2004, and $5.6 million in 2003. 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 28.6 million, 29.5 million, 29.1 million,
28.1 million, and 27.8 million for 2007, 2006, 2005, 2004, and 2003,
respectively. Weighted average common shares for the computation of
diluted earnings per common share were 28.8 million, 29.8 million,
29.1 million, 28.1 million, and 27.8 million 2007, 2006, 2005, 2004,
and 2003, respectively. For all five years presented, potentially
dilutive employee stock options were excluded from the computation
of dilutive earnings per share due to the anti-dilutive effect they
would have on loss before discontinued operations and accounting
change.(7)
    
    Total debt includes the long-term and current portions of our debt
facilities, capital lease obligations, outstanding lines of credit,
and other borrowings associated with both continuing and discontinued
operations.(8)
    
    During 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 our 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 and 2003.
 - 17 -




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##### Table of Contents



Summary of System-Wide Data
  2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Global system-wide sales increase(1)
    
    
    0.3
    %
    
    
    7.0
    %
    
    
    4.8
    %
    
    
    4.5
    %
    
    
    3.6
    %Domestic
same-store sales increase (decrease) for
company-operated restaurants(2)
    
    
    (7.8
    )%
    
    
    9.0
    %
    
    
    6.5
    %
    
    
    0.9
    %
    
    
    (2.4
    )%Domestic
same-store sales increase (decrease) for
franchised restaurants(2)
    
    
    (2.1
    )%
    
    
    1.3
    %
    
    
    3.2
    %
    
    
    1.4
    %
    
    
    (2.7
    )%Total
domestic same-store sales increase (decrease) for
company-operated and franchised restaurants
    
    
    (2.3
    )%
    
    
    1.6
    %
    
    
    3.3
    %
    
    
    1.3
    %
    
    
    (2.6
    )%International same-store sales increase (decrease) for
franchised restaurants(2)
    
    
    1.1
    %
    
    
    (3.2
    )%
    
    
    (4.2
    )%
    
    
    (6.0
    )%
    
    
    (10.0
    )%Total global same-store sales increase (decrease)
    
    
    (2.0
    )%
    
    
    1.1
    %
    
    
    2.6
    %
    
    
    0.6
    %
    
    
    (3.3
    )%Company-operated restaurants (all domestic)Restaurants at beginning of year
    
    
    56
    
    
    
    32
    
    
    
    56
    
    
    
    80
    
    
    
    96New restaurant openings
    
    
    5
    
    
    
    3
    
    
    
    1
    
    
    
    
    
    
    
    1Unit
conversions, net (3)
    
    
    1
    
    
    
    12
    
    
    
    2
    
    
    
    (19
    )
    
    
    Permanent closings
    
    
    (3
    )
    
    
    (3
    )
    
    
    (7
    )
    
    
    (4
    )
    
    
    (18
    )Temporary
(closings)/ re-openings, net (4)
    
    
    6
    
    
    
    12
    
    
    
    (20
    )
    
    
    (1
    )
    
    
    1Restaurants at end of year
    
    
    65
    
    
    
    56
    
    
    
    32
    
    
    
    56
    
    
    
    80Franchised restaurants (domestic and international)Restaurants at beginning of year
    
    
    1,822
    
    
    
    1,796
    
    
    
    1,769
    
    
    
    1,726
    
    
    
    1,616New restaurant openings
    
    
    119
    
    
    
    139
    
    
    
    122
    
    
    
    109
    
    
    
    176Unit
conversions, net (3)
    
    
    (1
    )
    
    
    (12
    )
    
    
    (2
    )
    
    
    19
    
    
    
    Permanent closings
    
    
    (106
    )
    
    
    (93
    )
    
    
    (95
    )
    
    
    (77
    )
    
    
    (68
    )Temporary
(closings)/ re-openings, net (4)
    
    
    6
    
    
    
    (8
    )
    
    
    2
    
    
    
    (8
    )
    
    
    2Restaurants at end of year
    
    
    1,840
    
    
    
    1,822
    
    
    
    1,796
    
    
    
    1,769
    
    
    
    1,726Total system restaurants
    
    
    1,905
    
    
    
    1,878
    
    
    
    1,828
    
    
    
    1,825
    
    
    
    1,806New franchised restaurant openingsDomestic
    
    
    77
    
    
    
    97
    
    
    
    71
    
    
    
    57
    
    
    
    87International
    
    
    42
    
    
    
    42
    
    
    
    51
    
    
    
    52
    
    
    
    89Total new franchised restaurant openings
    
    
    119
    
    
    
    139
    
    
    
    122
    
    
    
    109
    
    
    
    176Franchised restaurants (end of year)Domestic
    
    
    1,518
    
    
    
    1,503
    
    
    
    1,451
    
    
    
    1,416
    
    
    
    1,367International
    
    
    322
    
    
    
    319
    
    
    
    345
    
    
    
    353
    
    
    
    359Restaurants at end of year
    
    
    1,840
    
    
    
    1,822
    
    
    
    1,796
    
    
    
    1,769
    
    
    
    1,726
 (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.
 - 18 -




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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 and our Consolidated Financial Statements that are included elsewhere in this
filing.
 Our discussion contains forward-looking statements based upon current expectations that
involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual
results and the timing of events could differ materially from those anticipated in these
forward-looking statements, as a result of a number of factors including those factors set forth in
Item 1A. of this Annual Report and other factors presented throughout this filing.
 Nature of Business
 ®
 ® ® ®
 Management Overview of 2007 Operating Results
  
    
    We reported net income of
23.1 million, or diluted earnings per share of $0.80
(approximately $0.74 net of insurance recovery benefits and other
expenses (income), net).
    
    Total system-wide sales grew by 0.3%. Excluding the increase in system-wide
sales in 2006 attributable to the 53rd week in that fiscal year,
total system wide sales grew by 2.1% in 2007.
    
    Total domestic same-store sales decreased by 2.3% and international same-store
sales increased by 1.1%, resulting in a global same-store sales decrease of
2.0%.
    
    Our global restaurant system grew by 27 net restaurants.
    
    We repurchased approximately 2.5 million shares of our common stock.
    
    We and our insurance carriers reached final settlement of all claims resulting
from Hurricane Katrina. As a result, the Company recognized approximately $2.9 million
in net gains on insurance recoveries related to asset damages and
approximately $1.6 million in income from business
interruption recoveries during 2007.
 2007 Same-Store Sales.
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##### Table of Contents



2007 Unit Growth
   Factors Affecting Comparability of Consolidated Results of Operations: 2007, 2006, and 2005
  
    
    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 by approximately $8.7
million in 2005 as compared to 2004; a decrease in company-operated
sales of approximately 9.9 million in 2006 as compared to 2005; and an
increase in company-operated 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 2007and 2005 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 dollars (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.
    
    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. 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.
    
    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 2007, 2006, and 2005, our expenses (income) associated with
litigation related costs (proceeds) were approximately $(0.9) million,
$(0.3) million, and $21.8 million, respectively. The substantially
higher costs in 2005 relate to the settlement of certain shareholder
litigation.
    
    During 2007, 2006, and 2005, asset write-downs were approximately $1.9
million, $0.1 million, and $5.8 million, respectively. Of the 2005
impairments, $4.1 million were due to the adverse effects of Hurricane
Katrina, $0.6 million of which were subsequently reversed due to
adjustments to damage estimates in 2006.
    
    During 2006 and 2005, 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.
 - 20 -




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##### Table of Contents




    
    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 $1.7 million,
$3.4 million, and $2.9 million, in total stock compensation expense
during 2007, 2006, and 2005, respectively.
    
    Net income (loss) includes discontinued operations which provided
income (loss) of $0.2 million in 2006 and $158.0 million in 2005.
Discontinued operations, in 2005, represent a $158.0 million gain on
sale of Churchs, net of income taxes.
  2007
    
    
    2006
    
    
    2005Revenues:Sales by company-operated restaurants
    
    
    48
    %
    
    
    43
    %
    
    
    42
    %Franchise revenues
    
    
    49
    %
    
    
    54
    %
    
    
    54
    %Other revenues
    
    
    3
    %
    
    
    3
    %
    
    
    4
    %Total revenues
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %Expenses:Restaurant employee, occupancy and other expenses(1)
    
    
    51
    %
    
    
    52
    %
    
    
    51
    %Restaurant food, beverages and packaging(1)
    
    
    34
    %
    
    
    33
    %
    
    
    34
    %General and administrative expenses
    
    
    30
    %
    
    
    31
    %
    
    
    48
    %Depreciation and amortization
    
    
    4
    %
    
    
    4
    %
    
    
    5
    %Other expenses (income), net
    
    
    (2
    )%
    
    
    (1
    )%
    
    
    16
    %Total expenses
    
    
    73
    %
    
    
    70
    %
    
    
    105
    %Operating profit (loss)
    
    
    27
    %
    
    
    30
    %
    
    
    (5
    )%Interest expense, net
    
    
    5
    %
    
    
    8
    %
    
    
    5
    %Income (loss) before income taxes and discontinued operations
    
    
    22
    %
    
    
    22
    %
    
    
    (10
    )%Income tax expense (benefit)
    
    
    8
    %
    
    
    7
    %
    
    
    (4
    )%Income(loss) before discontinued operations
    
    
    14
    %
    
    
    15
    %
    
    
    (6
    )%Discontinued operations, net of income taxes
    
    
    
    
    
    
    
    
    
    
    110
    %Net income
    
    
    14
    %
    
    
    15
    %
    
    
    104
    %
 (1)
    
    Expressed as a percentage of sales by company-operated restaurants.
 - 21 -




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##### Table of Contents



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, and
    
    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, and
    
    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
   Other Revenues
  Restaurant Employee, Occupancy and Other Expenses
  Restaurant Food, Beverages and Packaging
  - 22 -




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##### Table of Contents



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, and
    
    $0.4 million of lower rent expense.
  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 asset impairments and disposals,
    
    $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
    
    $
    41.4
    
    
    $
    44.6
    
    
    $
    (3.2
    )
    
    
    (7.2
    )%Company-operated restaurants
    
    
    3.6
    
    
    
    1.4
    
    
    
    2.2
    
    
    
    157.1
    %Corporate
    
    
    0.6
    
    
    
    (0.7
    )
    
    
    1.3
    
    
    
    n/aTotal
    
    $
    45.6
    
    
    $
    45.3
    
    
    $
    0.3
    
    
    
    0.7
    %
    - 23 -




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##### Table of Contents



Interest Expense, Net
  Income Tax Expense
  Comparisons of Fiscal Years 2006 and 2005
 Sales by Company-Operated Restaurants
  
    
    a $10.5 million increase due to the acquisition of 13 restaurants in
the Memphis and Nashville, Tennessee markets which were previously
owned by a franchisee, and
    
    a $5.3 million increase due to same-store sales growth in fiscal 2006
as compared to fiscal 2005, and
    
    a $1.2 million increase attributable to a 53rd week in fiscal 2006
(Fiscal 2005 was composed of 52 weeks),
  
    
    a $9.9 million decrease due to the timing of permanent and temporary
restaurant closures and related re-openings resulting from Hurricane
Katrina, and
    
    a $1.6 million decrease due to the termination of a VIE relationship
in the second quarter of 2006 that was previously consolidated during
fiscal 2005, and
    
    a $1.0 million decrease due to the temporary closure of a restaurant
which suffered fire damage during fiscal 2006.
  Franchise Revenues
    
    
    the resumption of the 3% royalty from our Korean master franchisee (the entire
3% royalty due during the last two quarters of 2005 and one-third of the
royalties due during the first two quarters of 2006 were abated as temporary
royalty relief), and
    
    increases in royalties and development fees from net openings within our system,
 - 24 -




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##### Table of Contents




    
    negative same-store sales decrease of 3.2%, and
    
    the closure of poor performing restaurants, primarily in Korea, where
45 restaurants closed during 2006.
 Other Revenues
  Restaurant Employee, Occupancy and Other Expenses
  Restaurant Food, Beverages and Packaging
  General and Administrative Expenses
  
    
    $12.8 million of lower personnel and other costs resulting primarily from the
transition of our corporate operations, and severances and stay bonuses paid to
certain executives during 2005,
    
    $5.8 million of lower professional fees (primarily legal, consulting and auditing),
    
    $3.2 million of lower outsourcing and contractor costs for information technology
and accounting support services, and
    
    $0.4 million of lower bank service fees,
  
    
    $0.7 million of higher marketing and advertising expense, and
    
    $0.3 million of registration costs associated with a shareholders sale of our common stock.
  Depreciation and Amortization
  Other Expenses (Income), Net
  
    
    $22.1 million of net lower shareholder litigation costs associated
with the settlement of outstanding legal actions,
    
    $5.7 million of lower charges for asset write-downs ($4.7 of which
related to hurricane damage), and
    
    $1.4 million of lower (non-impairment related) hurricane costs, and
    
    $0.9 million of higher net gains on sale of assets,
  - 25 -




---



##### Table of Contents




    
    $4.6 million reduction in income from estimates for insurance proceeds
associated with asset impairments and other claims arising from
hurricane damage, and
    
    $0.5 million of higher costs associated with restaurant closures.
  Operating Profit (Loss)
  As a(Dollars in millions)
    
    2006
    
    
    2005
    
    
    Fluctuation
    
    
    PercentFranchise operations
    
    $
    44.6
    
    
    $
    42.4
    
    
    $
    2.2
    
    
    
    5.2
    %Company-operated restaurants
    
    
    1.4
    
    
    
    (1.8
    )
    
    
    3.2
    
    
    
    n/aCorporate
    
    
    (0.7
    )
    
    
    (47.5
    )
    
    
    46.8
    
    
    
    n/aTotal
    
    $
    45.3
    
    
    $
    (6.9
    )
    
    $
    52.2
    
    
    
    n/a
     Interest Expense, Net
  
    
    $4.0 million of lower interest income in 2006 as compared to 2005, and
    
    $1.9 million of higher interest on debt, due primarily to higher
average outstanding debt balances for the year and higher average
interest rates,
  
    
    $1.4 million of lower amortization and write-offs of debt issuance costs, and
    
    $0.2 million of lower other debt related charges.
 Income Tax Expense
  Discontinued Operations, Net of Income Taxes
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##### Table of Contents



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,
    
    repurchase of shares of our common stock, and
    
    reduction of long-term debt.
    Total Leverage Ratio
    
    Prepayment3
3.0 to 1.0
    
    50% of the Consolidated Excess Cash Flow< 3.0 to 1.0 but > 2.0 to 1.0
    
    25% of the Consolidated Excess Cash Flow£ 2.0 to 1.0
    
    No debt prepayment
    Operating and Financial Outlook for 2008
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##### Table of Contents



Contractual Obligations
  There-(in millions)
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    after
    
    
    TotalLong-term debt, excluding
capital leases(1)
    
    $
    14.0
    
    
    $
    1.4
    
    
    $
    29.1
    
    
    $
    84.3
    
    
    $
    0.2
    
    
    $
    2.2
    
    
    $
    131.2Interest on long-term
debt, excluding capital
leases(1)
    
    
    8.1
    
    
    
    8.4
    
    
    
    8.3
    
    
    
    3.1
    
    
    
    0.2
    
    
    
    0.9
    
    
    
    29.0Leases(2)
    
    
    6.6
    
    
    
    6.2
    
    
    
    5.5
    
    
    
    5.2
    
    
    
    4.3
    
    
    
    89.4
    
    
    
    117.2Copeland formula
agreement(3)
    
    
    3.1
    
    
    
    3.1
    
    
    
    3.1
    
    
    
    3.1
    
    
    
    3.1
    
    
    
    49.2
    
    
    
    64.7King
Features
agreements(3)
    
    
    1.0
    
    
    
    1.0
    
    
    
    0.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.5Information technology
outsourcing  IBM(3)
    
    
    1.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.8Business
process services
(3)
    
    
    1.3
    
    
    
    0.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.7Total (4)(5)
    
    $
    35.9
    
    
    $
    20.5
    
    
    $
    46.5
    
    
    $
    95.7
    
    
    $
    7.8
    
    
    $
    141.7
    
    
    $
    348.1
 (1)
    
    For variable rate debt, the Company estimated average outstanding balances for the respective periods and applied
interest rates in effect at December 30, 2007. 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 $117.2 million of minimum lease payments, $112.4 million of those payments relate to operating leases and the
remaining $4.8 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
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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
$4.5 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.
 Share Repurchase Program
    Capital Expenditures
       Acquisition of Previously Franchised Restaurants
  - 29 -




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##### Table of Contents



Effects of Hurricane Katrina and Insurance Proceeds
    Off-Balance Sheet Arrangements
 SMS Indemnity Agreement.
  AFC Loan Guarantee Programs.
   Long Term Debt
 005 Credit Facility.
 - 30 -




---



##### Table of Contents



2005 Interest Rate Swap Agreements.
 Impact of Inflation
  Tax Matters
  Market Risk
  - 31 -




---



##### Table of Contents



Chicken Market Risk.
  Foreign Currency Exchange Rate Risk.
 Interest Rate Risk.
 Critical Accounting Policies and Estimates
  Consolidation of Variable Interest Entities.
 Impairment of Long-Lived Assets.
 Impairment of Goodwill and Trademarks.
 Allowances for Accounts and Notes Receivable and Contingent Liabilities.
 - 32 -




---



##### Table of Contents



Leases. Accounting for
Leases
  Deferred Tax Assets and Tax Reserves.
    Stock-Based Employee Compensation. Share-Based Payment Accounting for Stock-Based Compensation
 Accounting Standards Adopted in 2007
 Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109.
 - 33 -




---



##### Table of Contents



Accounting Standards That We Have Not Yet Adopted
  - 34 -




---



##### Table of Contents



Item 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
 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
   ( c ) Managements Report on Internal Control Over Financial Reporting
   Internal Control-Integrated Framework
 - 35 -




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##### Table of Contents



( d ) Changes in Internal Control Over Financial Reporting
  (e)
    
    Report of Independent Registered Public Accounting Firm on Internal
Control over Financial Reporting
 
 Internal
ControlIntegrated Framework
    Internal
ControlIntegrated Framework
   
 
 Item 9B.  OTHER INFORMATION
  - 36 -




---



##### Table of Contents



PART III.
 
 Item 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
   
 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
  - 37 -




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##### Table of Contents



PART IV.
 
 Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 (a) Financial Statements
  PagesReport of Independent Registered Public Accounting Firms
    
    F-1Consolidated Balance Sheets as of December 30, 2007 and December 31, 2006
    
    F-2Consolidated Statements of Operations for Fiscal Years 2007, 2006 and 2005
    
    F-3Consolidated Statements of Changes in Shareholders Equity (Deficit) for
Fiscal Years 2007, 2006 and 2005
    
    F-4Consolidated Statements of Cash Flows for Fiscal Years 2007, 2006 and 2005
    
    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
    (p)
    
    
    
    

    

    Amended and Restated Bylaws of AFC Enterprises, Inc.4
    
    .1
    (o)
    
    
    

    
    
    Form of registrants common stock certificate.10
    
    .1
    (e)
    
    
    
    

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

    
    Form of Popeyes Franchise Agreement.10
    
    .3
    (a)
    
    
    
    
    
    Formula Agreement dated July 2, 1979 among Alvin C. Copeland, Gilbert E. Copeland,
Mary L. Copeland, Catherine Copeland, Russell J. Jones, A. Copeland Enterprises,
Inc. and Popeyes Famous Fried Chicken, Inc., as amended to date.10
    
    .4
    (a)
    
    
    
    

    
    Supply Agreement dated March 21, 1989 between New Orleans Spice Company, Inc. and
Biscuit Investments, Inc.10
    
    .5
    (a)
    
    
    
    
    
    Recipe Royalty Agreement dated March 21, 1989 by and among Alvin C. Copeland, New
Orleans Spice Company, Inc. and Biscuit Investments, Inc.
 - 38 -




---



##### Table of Contents



ExhibitNumber
    
    Description10
    
    .6
    (a)
    

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


    
    Assignment and Amendment dated January 1, 1981 between A. Copeland Enterprises, Inc.,
Popeyes Famous Fried Chicken, Inc. and King Features Syndicate Division of The Hearst
Corporation.10
    
    .8
    (a)
    
    


    
    Letter Agreement dated September 17, 1981 between King Features Syndicate Division of The
Hearst Corporation, A. Copeland Enterprises, Inc. and Popeyes Famous Fried Chicken, Inc.10
    
    .9
    (a)
    
    

    
    License Agreement dated December 19, 1985 by and between King Features Syndicate, Inc.,
The Hearst Corporation, Popeyes, Inc. and A. Copeland Enterprises, Inc.10
    
    .10
    (a)
    
    

    
    Letter Agreement dated July 20, 1987 by and between King Features Syndicate, Division of
The Hearst Corporation, Popeyes, Inc. and A. Copeland Enterprises, Inc.10
    
    .11
    (n)
    
    

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    AFC Enterprises, Inc. 2002 Incentive Stock Plan.*
 - 39 -




---



##### Table of Contents



ExhibitNumber
    
    Description10.34
    (g)

    
    

    
    AFC Enterprises, Inc. Annual Executive Bonus Program.*10.35
    (m)
    
    

    
    Amended and Restated Employment Agreement dated as of
June 28, 2004 between AFC Enterprises, Inc. and Allan
J. Tanenbaum.*10.36
    (p)
    
    
    

    First Amendment to Amended and Restated Employment
Agreement dated as of March 28, 2005 between AFC
Enterprises, Inc. and Allan J. Tanenbaum.*10.37
    (n)
    
    

    
    Employment Agreement effective as of December 29,
2003 between AFC Enterprises, Inc. and Frederick B.
Beilstein.*10.38
    (n)
    
    
    

    Employment Agreement effective as of February 12,
2004 between AFC Enterprises, Inc. and Henry Hope,
III.*10.39
    (p)
    
    

    
    First Amendment to Employment Agreement dated as of
March 28, 2005 between AFC Enterprises, Inc. and
Frederick B. Beilstein.*10.40
    (p)
    
    

    
    First Amendment to Employment Agreement dated as of March 28, 2005 between AFC Enterprises, Inc. and
Henry Hope, III.*10.41
    (p)
    
    
    

    Indemnity Agreement dated October 14, 2004 by and between AFC Enterprises, Inc. and Supply Management
Services, Inc.10.42
    (p)
    
    
    

    Indemnity Agreement dated February 5, 2004 by and between AFC Enterprises, Inc., Cajun Operating Company
and Supply Management Services, Inc.10.43
    (d)
    
    
    

    Second Amended and Restated Credit Agreement dated as of May 11, 2005 among AFC Enterprises, Inc.,
JPMorgan Chase and certain other lenders.10.44
    (i)
    
    
    

    Fourth Amendment to the 1992 Stock Option Plan of Americas Favorite Chicken Company.10.45
    (i)
    
    
    

    Fifth Amendment to the Americas Favorite Chicken Company 1996 Nonqualified Performance Stock Option Plan
 General.*10.46
    (i)
    
    
    

    Amendment No. 1 to the Americas Favorite Chicken Company 1996 Nonqualified Stock Option Plan.10.47
    (i)
    

    
    

    Second Amendment to the Americas Favorite Chicken Company 1996 Nonqualified Performance Stock Option
Plan  Executive.*10.48
    (i)
    
    
    

    Second Amendment to the AFC Enterprises, Inc. 2002 Incentive Stock Plan.*10.49
    (i)
    
    
    

    Indemnification Agreement between AFC and Peter Starrett.10.50
    (r)
    
    
    

    Second Amendment to Employment Agreement dated June 7, 2005 between the Company and Frederick B.
Beilstein.*10.51
    (r)
    
    
    

    Second Amendment to the Amended and Restated Employment Agreement dated June 7, 2005 between the Company
and Allan J. Tanenbaum.*10.52
    (s)
    
    
    

    Indemnification Agreement dated November 28, 2006 by and between AFC and John M. Cranor, III.*10.53
    (s)
    
    
    

    Indemnification Agreement dated November 28, 2006 by and between AFC and Cheryl A. Bachelder. *10.54
    (t)
    
    
    

    Popeyes Chicken and Biscuits 2006 Bonus Plan.*10.55
    (t)
    
    
    

    Employment Agreement dated as of March 14, 2007 between AFC Enterprises, Inc. and Frederick B. Beilstein
III.*10.56
    (t)
    
    
    

    Employment Agreement dated as of March 14, 2007 between AFC Enterprises, Inc. and James W. Lyons.*10.57
    (t)
    
    
    

    Employment Agreement dated as of March 14, 2007 between AFC Enterprises, Inc. and Robert Calderin.*10.58
    (t)
    
    
    

    First Amendment to Employment Agreement, dated March 14, 2007 between AFC Enterprises, Inc. and Frank J.
Belatti dated August 31, 2005.*10.59
    (u)
    
    
    

    Second Amendment to Second Amended and Restated Credit Agreement dated as of April 25, 2007.10.60
    (v)
    
    
    

    Non-Qualified Stock Option Certificate for Cheryl Bachelder (time-based vesting).*10.61
    (v)
    
    
    

    Non-Qualified Stock Option Certificate for Cheryl Bachelder (performance-based vesting).*10.62
    (w)
    
    
    

    Employment Agreement dated as of October 9, 2007 between AFC Enterprises, Inc. and Cheryl A. Bachelder.11.1
    **
    
    
    

    Statement regarding computation of per share earnings.23.1
    
    
    
    

    Consent of Grant Thornton LLP
 - 40 -




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##### Table of Contents



ExhibitNumber
    
    Description31
    .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.(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 10-Q of AFC for the quarter ended July 11, 2004 on August 20, 2004 and incorporated by reference herein.(n)
    
    Filed as an exhibit to the Form 10-K of AFC for the fiscal year ended December 28, 2003 on March 29, 2004 and incorporated by reference herein.(o)
    
    Filed as an exhibit to the Registration Statement of AFC on Form S-1/ A (Registration No. 333-52608) on February 28, 2001 and incorporated by
reference herein.(p)
    
    Filed as an exhibit to the Form 8-K of AFC filed on August 21, 2007 and incorporated herein by reference.(r)
    
    Filed as an exhibit to the Form 8-K of AFC filed June 7, 2005 and incorporated herein by reference.(s)
    
    Filed as an exhibit to the Form 8-K of AFC filed November 29, 2006 and incorporated herein by reference.(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.
 - 41 -




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##### Table of Contents



SIGNATURES
  AFC ENTERPRISES, INC.By:
    
    /s/ Cheryl A. BachelderCheryl A. BachelderChief Executive Officer
  Signature
    
    Title(s)
    
    Date/s/ Cheryl A. Bachelder
    
    Chief Executive Officer
    
    March 12, 2008Cheryl A. Bachelder
    
    (Principal Executive Officer)/s/ H. Melville Hope
    
    Chief Financial Officer
    
    March 12, 2008H. Melville Hope
    
    (Principal Financial
and Accounting
Officer)/s/ John M. Cranor, III

John M. Cranor, III
    
    Director, Chairman of the Board
    
    March 12, 2008/s/ Victor Arias, Jr.

Victor Arias, Jr.
    
    Director
    
    March 12, 2008/s/ Carolyn H. Byrd

Carolyn H. Byrd
    
    Director
    
    March 12, 2008/s/ R. William Ide, III

R. William Ide, III
    
    Director
    
    March 12, 2008/s/ Kelvin J. Pennington

Kelvin J. Pennington
    
    Director
    
    March 12, 2008/s/ John F. Hoffner

John F. Hoffner
    
    Director
    
    March 12, 2008
 - 42 -




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     Internal Control Integrated Framework
  
 F-1




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##### Table of Contents



AFC Enterprises, Inc.
 
 Consolidated Balance Sheets
 As of December 30, 2007 and December 31, 2006
 (In millions, except share data)
 2007
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    5.0
    
    
    $
    6.7Accounts and current notes receivable, net
    
    
    13.1
    
    
    
    12.9Prepaid income taxes
    
    
    0.5
    
    
    
    7.4Other current assets
    
    
    16.6
    
    
    
    15.6Total current assets
    
    
    35.2
    
    
    
    42.6Long-term assets:Property and equipment, net
    
    
    42.4
    
    
    
    39.9Goodwill
    
    
    11.7
    
    
    
    11.7Trademarks and other intangible assets, net
    
    
    51.6
    
    
    
    52.4Other long-term assets, net
    
    
    14.1
    
    
    
    16.5Total long-term assets
    
    
    119.8
    
    
    
    120.5Total assets
    
    $
    155.0
    
    
    $
    163.1LIABILITIES AND SHAREHOLDERS DEFICITCurrent liabilities:Accounts payable
    
    $
    26.1
    
    
    $
    23.8Other current liabilities
    
    
    14.9
    
    
    
    10.9Current debt maturities
    
    
    14.0
    
    
    
    1.4Total current liabilities
    
    
    55.0
    
    
    
    36.1Long-term liabilities:Long-term debt
    
    
    118.8
    
    
    
    132.6Deferred credits and other long-term liabilities
    
    
    21.5
    
    
    
    25.6Total long-term liabilities
    
    
    140.3
    
    
    
    158.2Commitments 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; 27,356,105 and 29,487,648 shares issued and
outstanding at the end of fiscal years 2007 and 2006,
respectively)
    
    
    0.3
    
    
    
    0.3Capital in excess of par value
    
    
    127.7
    
    
    
    161.7Notes receivable from officers, including accrued interest
    
    
    
    
    
    
    Accumulated deficit
    
    
    (168.5
    )
    
    
    (194.4
    )Accumulated other comprehensive income
    
    
    0.2
    
    
    
    1.2Total shareholders deficit
    
    
    (40.3
    )
    
    
    (31.2
    )Total liabilities and shareholders deficit
    
    $
    155.0
    
    
    $
    163.1
  F-2




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##### Table of Contents



AFC Enterprises, Inc.
 
 Consolidated Statements of Operations
 For Fiscal Years 2007, 2006 and 2005
 (In millions, except per share data)
 2007
    
    
    2006
    
    
    2005Revenues:Sales by company-operated restaurants
    
    $
    80.0
    
    
    $
    65.2
    
    
    $
    60.3Franchise revenues
    
    
    82.8
    
    
    
    82.6
    
    
    
    77.5Other revenues
    
    
    4.5
    
    
    
    5.2
    
    
    
    5.6Total revenues
    
    
    167.3
    
    
    
    153.0
    
    
    
    143.4Expenses:Restaurant employee, occupancy and other expenses
    
    
    40.7
    
    
    
    33.7
    
    
    
    30.5Restaurant food, beverages and packaging
    
    
    27.3
    
    
    
    21.3
    
    
    
    20.6General and administrative expenses
    
    
    49.5
    
    
    
    48.1
    
    
    
    68.7Depreciation and amortization
    
    
    6.9
    
    
    
    6.4
    
    
    
    7.3Other expenses (income), net
    
    
    (2.7
    )
    
    
    (1.8
    )
    
    
    23.2Total expenses
    
    
    121.7
    
    
    
    107.7
    
    
    
    150.3Operating profit (loss)
    
    
    45.6
    
    
    
    45.3
    
    
    
    (6.9
    )Interest expense, net
    
    
    8.7
    
    
    
    11.1
    
    
    
    6.8Income (loss) before income taxes and discontinued
operations
    
    
    36.9
    
    
    
    34.2
    
    
    
    (13.7
    )Income tax expense (benefit)
    
    
    13.8
    
    
    
    12.0
    
    
    
    (5.3
    )Income (loss) before discontinued operations
    
    
    23.1
    
    
    
    22.2
    
    
    
    (8.4
    )Discontinued operations, net of income taxes
    
    
    
    
    
    
    0.2
    
    
    
    158.0Net income
    
    $
    23.1
    
    
    $
    22.4
    
    
    $
    149.6Earnings per common share, basic:Income (loss) before discontinued operations
    
    $
    0.81
    
    
    $
    0.75
    
    
    $
    (0.29
    )Discontinued operations, net of income taxes
    
    
    
    
    
    
    0.01
    
    
    
    5.43Net income
    
    $
    0.81
    
    
    $
    0.76
    
    
    $
    5.14Earnings per common share, diluted:Income (loss) before discontinued operations
    
    $
    0.80
    
    
    $
    0.74
    
    
    $
    (0.29
    )Discontinued operations, net of income taxes
    
    
    
    
    
    
    0.01
    
    
    
    5.43Net income
    
    $
    0.80
    
    
    $
    0.75
    
    
    $
    5.14Weighted-average shares outstanding:Basic
    
    
    28.6
    
    
    
    29.5
    
    
    
    29.1Diluted
    
    
    28.8
    
    
    
    29.8
    
    
    
    29.1
  F-3




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##### Table of Contents



AFC Enterprises, Inc.
 
 Consolidated Statements of Changes in Shareholders Equity (Deficit)
 For Fiscal Years 2007, 2006 and 2005
 (In millions, except share data)
 Capital in
    
    
    
    
    
    
    
    
    
    
    AccumulatedCommon Stock
    
    
    Excess of
    
    
    Officer
    
    
    
    
    
    
    OtherNumber of
    
    
    
    
    
    
    Par
    
    
    Notes
    
    
    Accumulated
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Value
    
    
    Receivable
    
    
    Deficit
    
    
    Income
    
    
    TotalBalance at December 26, 2004
    
    
    28,325,355
    
    
    $
    0.3
    
    
    $
    155.4
    
    
    $
    (1.2
    )
    
    $
    (13.6
    )
    
    $
    
    
    
    $
    140.9Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    149.6
    
    
    
    
    
    
    
    149.6Other
comprehensive income:
related to interest rate swap
agreements, net of income
taxes of $0.7 million (Note 9)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.1
    
    
    
    1.1Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    150.7Issuance of common stock under
stock option plans, including
income tax benefit of $11.2
million
    
    
    3,093,251
    
    
    
    
    
    
    
    29.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29.0Repurchases and cancellation
of shares (Note 12)
    
    
    (1,542,872
    )
    
    
    
    
    
    
    (19.5
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19.5
    )Special cash dividend (Note 12)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (352.9
    )
    
    
    
    
    
    
    (352.9
    )Cancellation of shares
    
    
    (1,857
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of restricted stock
awards, net of forfeitures
    
    
    128,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    0.1Notes and
interest receivable payments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    0.1Stock based payment expense
    
    
    
    
    
    
    
    
    
    
    2.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.9Balance at December 25, 2005
    
    
    30,001,877
    
    
    
    0.3
    
    
    
    167.8
    
    
    
    (1.1
    )
    
    
    (216.8
    )
    
    
    1.1
    
    
    
    (48.7
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22.4
    
    
    
    
    
    
    
    22.4Other
comprehensive income:
related to interest rate swap
agreements, net of income tax
benefit of $0.6 million (Note
9)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    0.1Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22.5Issuance of common stock under
stock option plans, including
income tax benefit of $1.8
million
    
    
    1,012,480
    
    
    
    
    
    
    
    12.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12.3Repurchases and cancellation
of shares (Note 12)
    
    
    (1,486,714
    )
    
    
    
    
    
    
    (20.3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20.3
    )Cancellation of shares
    
    
    (21,839
    )
    
    
    
    
    
    
    (0.4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.4
    )Issuance of restricted stock
awards, net of forfeitures
    
    
    55,896
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Notes and interest receivable
payments
    
    
    (74,052
    )
    
    
    
    
    
    
    (1.1
    )
    
    
    1.1
    
    
    
    
    
    
    
    
    
    
    
    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 18)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    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 gains 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
    )
  F-4




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##### Table of Contents



AFC Enterprises, Inc.
 
 Consolidated Statements of Cash Flows
 For Fiscal Years 2007, 2006 and 2005
 (In millions)
 2007
    
    
    2006
    
    
    2005Cash flows provided by (used in) operating activities:Net income
    
    $
    23.1
    
    
    $
    22.4
    
    
    $
    149.6Adjustments to reconcile net income to net cash provided by (used in)
operating activities:Discontinued operations
    
    
    
    
    
    
    (0.2
    )
    
    
    (158.0
    )Depreciation and amortization
    
    
    6.9
    
    
    
    6.4
    
    
    
    7.3Asset write-downs
    
    
    1.9
    
    
    
    0.1
    
    
    
    5.8Net gain on sale of assets
    
    
    (0.3
    )
    
    
    (2.3
    )
    
    
    (1.4
    )Gain on insurance recoveries related to asset damages, net
    
    
    (3.2
    )
    
    
    
    
    
    
    Deferred income taxes
    
    
    (0.5
    )
    
    
    2.2
    
    
    
    9.3Non-cash interest, net
    
    
    (0.3
    )
    
    
    0.4
    
    
    
    1.7Provision for credit losses
    
    
    0.4
    
    
    
    (0.3
    )
    
    
    (0.3
    )Excess tax benefits from stock-based compensation
    
    
    (0.9
    )
    
    
    (1.8
    )
    
    
    Stock-based compensation expense
    
    
    1.7
    
    
    
    3.4
    
    
    
    2.9Change in operating assets and liabilities:Accounts receivable
    
    
    (0.6
    )
    
    
    2.0
    
    
    
    (2.9
    )Prepaid income taxes
    
    
    7.8
    
    
    
    25.8
    
    
    
    (69.2
    )Other operating assets
    
    
    0.4
    
    
    
    (0.4
    )
    
    
    5.1Accounts payable and other operating liabilities
    
    
    4.0
    
    
    
    (9.0
    )
    
    
    (15.2
    )Net cash provided by (used in) operating activities of continuing
operations
    
    
    40.4
    
    
    
    48.7
    
    
    
    (65.3
    )Net cash (used in) operating activities of discontinued operations
    
    
    
    
    
    
    
    
    
    
    (7.4
    )Cash flows provided by (used in) investing activities:Capital expenditures of continuing operations
    
    
    (10.0
    )
    
    
    (7.0
    )
    
    
    (4.2
    )Proceeds from dispositions of property and equipment
    
    
    0.3
    
    
    
    4.3
    
    
    
    3.1Property insurance proceeds
    
    
    4.5
    
    
    
    3.5
    
    
    
    Proceeds relating to the sale of discontinued operations, net
    
    
    
    
    
    
    
    
    
    
    367.6Acquisition of franchised restaurants
    
    
    (0.4
    )
    
    
    (9.3
    )
    
    
    (2.2
    )Purchases of short-term investments
    
    
    
    
    
    
    (5.9
    )
    
    
    (275.0
    )Sales and maturities of short-term investments
    
    
    
    
    
    
    36.7
    
    
    
    244.2Proceeds from notes receivable
    
    
    0.8
    
    
    
    0.8
    
    
    
    1.2Issuances of notes receivable
    
    
    
    
    
    
    
    
    
    
    (0.3
    )Net cash provided by (used in) investing activities
    
    
    (4.8
    )
    
    
    23.1
    
    
    
    334.4Cash flows provided by (used in) financing activities:Proceeds from 2005 credit facility
    
    
    
    
    
    
    
    
    
    
    190.0Principal payments  2005 credit facility (term loans)
    
    
    (6.9
    )
    
    
    (59.5
    )
    
    
    (0.5
    )Net borrowings under 2005 revolving credit facility
    
    
    5.0
    
    
    
    
    
    
    
    Principal payments  2002 credit facility, net
    
    
    
    
    
    
    
    
    
    
    (90.3
    )Principal payments  other notes (including VIEs)
    
    
    (0.1
    )
    
    
    (1.3
    )
    
    
    (0.1
    )Special cash dividend
    
    
    (0.7
    )
    
    
    (0.7
    )
    
    
    (350.8
    )Stock repurchases
    
    
    (39.4
    )
    
    
    (24.4
    )
    
    
    (15.4)Proceeds from exercise of employee stock options
    
    
    3.3
    
    
    
    10.7
    
    
    
    17.5Excess tax benefits from stock-based compensation
    
    
    0.9
    
    
    
    1.8
    
    
    
    Decrease in bank overdrafts, net
    
    
    
    
    
    
    
    
    
    
    (6.4
    )(Increase) decrease in restricted cash
    
    
    1.1
    
    
    
    0.7
    
    
    
    (3.8
    )Debt issuance costs
    
    
    (0.2
    )
    
    
    (0.1
    )
    
    
    (3.7
    )Other, net
    
    
    (0.3
    )
    
    
    (0.5
    )
    
    
    (3.0
    )Net cash (used in) financing activities
    
    
    (37.3
    )
    
    
    (73.3
    )
    
    
    (266.5
    )Net (decrease) in cash and cash equivalents
    
    
    (1.7
    )
    
    
    (1.5
    )
    
    
    (4.8
    )Cash and cash equivalents at beginning of year
    
    
    6.7
    
    
    
    8.2
    
    
    
    13.0Cash and cash equivalents at end of year
    
    $
    5.0
    
    
    $
    6.7
    
    
    $
    8.2
  F-5




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##### Table of Contents



AFC ENTERPRISES, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 For Fiscal Years 2007, 2006 and 2005
 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.
 Fiscal Year.
 Cash and Cash Equivalents.
 F-6




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##### Table of Contents



AFC ENTERPRISES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 For Fiscal Years 2007, 2006 and 2005
 Supplemental Cash Flow Information.
 (in millions)
    
    2007
    
    
    2006
    
    
    2005Interest paid, net of capitalized amounts
    
    $
    7.1
    
    
    $
    14.1
    
    
    $
    7.6Income taxes (refunded)/paid, net
    
    
    5.8
    
    
    
    (16.9
    )
    
    
    54.8Property acquired under capital lease obligations
    
    
    0.9
    
    
    
    0.2
    
    
    
    
 Accounts Receivable, Net.
 (in millions)
    
    2007
    
    
    2006
    
    
    2005Balance, beginning of year
    
    $
    0.1
    
    
    $
    1.7
    
    
    $
    3.7Provisions for loss
    
    
    0.4
    
    
    
    (0.3
    )
    
    
    (0.3
    )Write-offs
    
    
    
    
    
    
    (0.2
    )
    
    
    (0.8
    )Fully reserved accounts receivable converted to notes
receivable
    
    
    
    
    
    
    (1.0
    )
    
    
    Other (principally associated with the advertising fund)
    
    
    0.1
    
    
    
    (0.1
    )
    
    
    (0.9
    )Balance, end of year
    
    $
    0.6
    
    
    $
    0.1
    
    
    $
    1.7
 Notes Receivable, Net.
   Inventories.
 Property and Equipment.
   F-7




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##### Table of Contents



AFC ENTERPRISES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 For Fiscal Years 2007, 2006 and 2005
  Goodwill, Trademarks, and Other Intangible Assets.
   Debt Issuance Costs.
 Advertising Fund.
 Accounting for Franchise Fee Revenue
 F-8




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##### Table of Contents



AFC ENTERPRISES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 For Fiscal Years 2007, 2006 and 2005
   (in millions)
    
    2007
    
    
    2006Accounts and notes receivable, net
    
    $
    3.7
    
    
    $
    3.7Other current assets
    
    
    11.4
    
    
    
    12.5$
    15.1
    
    
    $
    16.2Accounts payable
    
    $
    9.3
    
    
    $
    8.1Net fund balance
    
    
    5.8
    
    
    
    8.1$
    15.1
    
    
    $
    16.2
  Leases. Accounting for
Leases
  Fair Value of Financial Instruments.
 Revenue Recognition  Sales by Company-Operated Restaurants.
 Revenue Recognition  Franchise Operations.
 Other Revenues.
 Cash
Consideration from Vendors. Accounting by a Customer (Including
a Reseller) for Certain Consideration Received from a Vendor,
 Gains and Losses Associated With Unit Conversions.
  F-9




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##### Table of Contents



AFC ENTERPRISES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 For Fiscal Years 2007, 2006 and 2005
   Research and Development.
 Foreign Currency Transactions.
 Income Taxes. Accounting for Income Taxes (SFAS 109).
    Stock-Based Employee Compensation. Share-Based Payment Accounting for Stock-Based Compensation
 F-10




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##### Table of Contents



AFC ENTERPRISES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 For Fiscal Years 2007, 2006 and 2005
     (in millions, except per share amounts)
    

2005Net income as reported
    
    $
    149.6Total stock-based employee compensation expense determined
under fair value method for all awards, net of related tax
effects
    
    
    (1.2
    )Pro forma net income
    
    $
    148.4Basic earnings per shareAs reported
    
    $
    5.14Pro forma
    
    
    5.10Diluted earnings per share(a)As reported
    
    $
    5.14Pro forma
    
    
    5.10
 (a)
    
    Due to the Companys loss before discontinued operations and
accounting change in 2005, the dilutive effect of stock options were
excluded from the denominator for the Companys diluted earnings per
share computation.
 Quantification of Misstatements. Considering the Effects of Prior
Year Misstatements when Quantifying Misstatements in Current Year Financial Statements
 Note  3 Recent Accounting Pronouncements That the Company Has Not Yet Adopted
 Fair Value
Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities
 F-11




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##### Table of Contents



AFC ENTERPRISES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 For Fiscal Years 2007, 2006 and 2005
 Note  4 Other Current Assets
 (in millions)
    
    2007
    
    
    2006Restricted cash
    
    $
    9.3
    
    
    $
    10.5Other current assets of the advertising fund
    
    
    2.1
    
    
    
    2.2Prepaid insurance
    
    
    1.7
    
    
    
    1.1Deferred tax assets
    
    
    1.9
    
    
    
    Prepaid expenses and other current assets
    
    
    1.6
    
    
    
    1.8$
    16.6
    
    
    $
    15.6
  Note  5 Property and Equipment, Net
 (in millions)
    
    2007
    
    
    2006Land
    
    $
    4.5
    
    
    $
    4.6Buildings and improvements
    
    
    36.9
    
    
    
    32.5Equipment
    
    
    28.7
    
    
    
    27.0Properties held for sale and other
    
    
    0.1
    
    
    
    0.170.2
    
    
    
    64.2Less accumulated depreciation and amortization
    
    
    (27.8
    )
    
    
    (24.3
    )$
    42.4
    
    
    $
    39.9
  Note  6 Trademarks and Other Intangible Assets, Net
 (in millions)
    
    2007
    
    
    2006Non-amortizable intangible assets:Trademarks
    
    $
    42.0
    
    
    $
    42.0Other
    
    
    0.6
    
    
    
    0.642.6
    
    
    
    42.6Amortizable intangible assets:Re-acquired franchise rights
    
    
    10.7
    
    
    
    10.7Accumulated amortization
    
    
    (1.7
    )
    
    
    (0.9
    )9.0
    
    
    
    9.8$
    51.6
    
    
    $
    52.4
 F-12




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##### Table of Contents



AFC ENTERPRISES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 For Fiscal Years 2007, 2006 and 2005
 Note  7 Other Long-Term Assets, Net
 (in millions)
    
    2007
    
    
    2006Non-current notes receivable, net
    
    $
    11.6
    
    
    $
    12.0Debt issuance costs, net
    
    
    1.7
    
    
    
    2.1Interest rate swap agreements
    
    
    0.2
    
    
    
    1.6Other
    
    
    0.6
    
    
    
    0.8$
    14.1
    
    
    $
    16.5
 Note  8 Other Current Liabilities
 (in millions)
    
    2007
    
    
    2006Accrued wages, bonuses and severances
    
    $
    1.9
    
    
    $
    2.3Accrued income taxes payable and income tax reserves
    
    
    6.2
    
    
    
    4.5Accrued interest
    
    
    2.2
    
    
    
    0.1Other
    
    
    4.6
    
    
    
    4.0$
    14.9
    
    
    $
    10.9
 Note  9 Long-Term Debt and Other Borrowings
 (in millions)
    
    2007
    
    
    20062005 Credit Facility:Revolving credit facility
    
    $
    5.0
    
    
    $
    Term loan
    
    
    123.1
    
    
    
    130.0Capital lease obligations
    
    
    1.6
    
    
    
    0.8Other notes
    
    
    3.1
    
    
    
    3.2132.8
    
    
    
    134.0Less current portion
    
    
    (14.0
    )
    
    
    (1.4
    )$
    118.8
    
    
    $
    132.6
 2005 Credit Facility.
    F-13




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##### Table of Contents



AFC ENTERPRISES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 For Fiscal Years 2007, 2006 and 2005
    2005 Interest Rate Swap Agreements.
 Future Debt Maturities.
 (in millions)2008
    
    $
    14.02009
    
    
    1.42010
    
    
    29.12011
    
    
    84.32012
    
    
    0.2Thereafter
    
    
    2.2$
    131.2
 Note  10 Leases
  F-14




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##### Table of Contents



AFC ENTERPRISES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 For Fiscal Years 2007, 2006 and 2005
  Capital
    
    
    Operating(in millions)
    
    Leases
    
    
    Leases2008
    
    $
    0.2
    
    
    $
    6.42009
    
    
    0.2
    
    
    
    6.02010
    
    
    0.2
    
    
    
    5.32011
    
    
    0.2
    
    
    
    5.02012
    
    
    0.2
    
    
    
    4.1Thereafter
    
    
    3.8
    
    
    
    85.6Future minimum lease payments
    
    
    4.8
    
    
    $
    112.4Less amounts representing interest on continuing operations
    
    
    (3.2
    )$
    1.6
   Note  11 Deferred Credits and Other Long-Term Liabilities
 (in millions)
    
    2007
    
    
    2006Deferred franchise revenues
    
    $
    5.5
    
    
    $
    6.1Deferred income taxes
    
    
    2.9
    
    
    
    5.7Deferred gains on unit conversions
    
    
    3.2
    
    
    
    3.5Deferred rentals
    
    
    4.4
    
    
    
    3.8Above-market rent obligations
    
    
    2.9
    
    
    
    3.2Liability insurance reserves
    
    
    1.5
    
    
    
    1.7Other
    
    
    1.1
    
    
    
    1.6$
    21.5
    
    
    $
    25.6
 Note  12 Common Stock
 Share Repurchase Program.
  F-15




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##### Table of Contents



AFC ENTERPRISES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 For Fiscal Years 2007, 2006 and 2005
   Dividends.
 Note  13 Stock Option Plans
 The 1996 Nonqualified Performance Stock Option Plan.
 The 1996 Nonqualified Stock Option Plan.
 The 2002 Incentive Stock Plan.
 The 2006 Incentive Stock Plan.
  Modifications to outstanding awards.
 F-16




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##### Table of Contents



AFC ENTERPRISES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 For Fiscal Years 2007, 2006 and 2005
  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
    
    
    797
    
    
    $
    11.16Granted options
    
    
    400
    
    
    
    12.81Exercised options
    
    
    (340
    )
    
    
    9.62Modification to awards
    
    
    
    
    
    
    Cancelled options
    
    
    (93
    )
    
    
    11.85Outstanding at end of year
    
    
    764
    
    
    $
    12.62
    
    
    
    6.3
    
    
    $
    Exercisable at end of year
    
    
    290
    
    
    $
    12.65
    
    
    
    2.3
    
    
    $
    Shares available for future grants
under the plans at end of year
    
    
    2,772
     2007
    
    
    2007
    
    
    2005Monte
    
    
    Black-
    
    
    Black-Carlo
    
    
    Scholes
    
    
    ScholesApproximate risk-free interest rate percentage
    
    
    4.2
    %
    
    
    4.2
    %
    
    
    3.8
    %Expected dividend yield percentage
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Expected lives (in years)
    
    
    6.      25
    
    
    
    7.      0
    
    
    
    4.      0Expected volatility percentage
    
    
    42.0
    %
    
    
    41.9
    %
    
    
    61.4
    %
  F-17




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##### Table of Contents



AFC ENTERPRISES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 For Fiscal Years 2007, 2006 and 2005
  WeightedAverageGrant Date(shares in thousands)
    
    Shares
    
    
    ValueNon-vested stock options outstanding at beginning of period
    
    
    297
    
    
    $
    5.55Granted
    
    
    400
    
    
    
    5.96Vested
    
    
    (134
    )
    
    
    5.41Forfeited
    
    
    (89
    )
    
    
    6.06Non-vested stock options outstanding at end of period
    
    
    474
    
    
    $
    5.84
 Restricted Share Awards
  WeightedAverageGrantDate Fair(share awards in thousands)
    
    Shares
    
    
    ValueNon-vested restricted share awards:Outstanding beginning of year
    
    
    168
    
    
    $
    21.00Granted
    
    
    100
    
    
    
    15.54Vested
    
    
    (118
    )
    
    
    19.28Cancelled
    
    
    (36
    )
    
    
    21.04Outstanding end of year
    
    
    114
    
    
    $
    17.52
   Restricted Share Units
  F-18




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##### Table of Contents



AFC ENTERPRISES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 For Fiscal Years 2007, 2006 and 2005
 WeightedAverageGrantDate Fair(share awards in thousands)
    
    Units
    
    
    ValueNon-vested restricted stock units:Outstanding beginning of year
    
    
    26
    
    
    $
    15.25Granted
    
    
    20
    
    
    
    19.79Vested
    
    
    (8
    )
    
    
    15.77Cancelled
    
    
    (1
    )
    
    
    19.79Outstanding end of year
    
    
    37
    
    
    $
    17.49
  Note  14 401(k) Savings Plan
  Note  15 Commitments and Contingencies
 Supply Contracts.
    F-19




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##### Table of Contents



AFC ENTERPRISES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 For Fiscal Years 2007, 2006 and 2005
   Formula and Supply Agreements with Former Owner.
 King Features Agreements.
  Business Process Services.
 Information Technology Outsourcing.
 Employment Agreements.
 AFC Loan Guarantee Programs.
 F-20




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##### Table of Contents



AFC ENTERPRISES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 For Fiscal Years 2007, 2006 and 2005
    Litigation.
    Insurance Programs.
  Environmental Matters.
 F-21




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##### Table of Contents



AFC ENTERPRISES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 For Fiscal Years 2007, 2006 and 2005
  Foreign Operations.
 Significant Franchisee.
 Geographic Concentrations.
  Note  16 Other Expenses (Income), Net
 (in millions)
    
    2007
    
    
    2006
    
    
    2005Litigation related costs (proceeds)
    
    $
    (0.9
    )
    
    $
    (0.3
    )
    
    $
    21.8Impairments and disposals of fixed assets
    
    
    1.9
    
    
    
    0.1
    
    
    
    5.8Gain on insurance recoveries related to asset damages, net
    
    
    (3.2
    )
    
    
    
    
    
    
    Income from business interruption insurance recoveries
    
    
    (1.6
    )
    
    
    
    
    
    
    Other hurricane costs and related insurance recoveries,
net
    
    
    
    
    
    
    0.7
    
    
    
    (2.5
    )Costs related to restaurant closures
    
    
    0.8
    
    
    
    
    
    
    
    (0.5
    )Net gain on sale of assets
    
    
    (0.3
    )
    
    
    (2.3
    )
    
    
    (1.4
    )Other
    
    
    0.6
    
    
    
    
    
    
    
    $
    (2.7
    )
    
    $
    (1.8
    )
    
    $
    23.2
     F-22




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##### Table of Contents



AFC ENTERPRISES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 For Fiscal Years 2007, 2006 and 2005
  Note  17 Interest Expense, Net
 (in millions)
    
    2007
    
    
    2006
    
    
    2005Interest on debt, less capitalized amounts
    
    $
    9.0
    
    
    $
    11.1
    
    
    $
    9.2Amortization and write-offs of debt issuance costs
    
    
    0.6
    
    
    
    1.3
    
    
    
    2.7Other debt related charges
    
    
    0.4
    
    
    
    0.3
    
    
    
    0.5Interest income
    
    
    (1.3
    )
    
    
    (1.6
    )
    
    
    (5.6
    )$
    8.7
    
    
    $
    11.1
    
    
    $
    6.8
 Note  18 Income Taxes
  (in millions)
    
    2007
    
    
    2006
    
    
    2005Income tax expense (benefit):From continuing operations
    
    $
    13.8
    
    
    $
    12.0
    
    
    $
    (5.3
    )From discontinued operations
    
    
    
    
    
    
    
    
    
    
    94.1Income taxes in the statements of operations, net
    
    
    13.8
    
    
    
    12.0
    
    
    
    88.8Income taxes charged (credited) to statements of
shareholders equity (deficit):Compensation expense for tax purposes in excess
of amounts recognized for financial reporting
purposes
    
    
    (0.9
    )
    
    
    (1.8
    )
    
    
    (11.2
    )Other comprehensive income
    
    
    (0.6
    )
    
    
    
    
    
    
    0.7Total
    
    $
    12.3
    
    
    $
    10.2
    
    
    $
    78.3
  (in millions)
    
    2007
    
    
    2006
    
    
    2005United States
    
    $
    31.8
    
    
    $
    29.8
    
    
    $
    (17.7
    )Foreign
    
    
    5.1
    
    
    
    4.4
    
    
    
    4.0Total
    
    $
    36.9
    
    
    $
    34.2
    
    
    $
    (13.7
    )
 F-23




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##### Table of Contents



AFC ENTERPRISES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 For Fiscal Years 2007, 2006 and 2005
  (in millions)
    
    2007
    
    
    2006
    
    
    2005Current income tax expense:Federal
    
    $
    11.9
    
    
    $
    7.7
    
    
    $
    (13.7
    )Foreign
    
    
    0.8
    
    
    
    0.6
    
    
    
    0.7State
    
    
    1.6
    
    
    
    1.5
    
    
    
    (1.6
    )14.3
    
    
    
    9.8
    
    
    
    (14.6
    )Deferred income tax expense (benefit):Federal
    
    
    (0.5
    )
    
    
    2.1
    
    
    
    7.3State
    
    
    
    
    
    
    0.1
    
    
    
    2.0(0.5
    )
    
    
    2.2
    
    
    
    9.3$
    13.8
    
    
    $
    12.0
    
    
    $
    (5.3
    )
   2007
    
    
    2006
    
    
    2005Federal income tax rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    (35.0)
    %State taxes, net of federal benefit
    
    
    1.7
    
    
    
    1.1
    
    
    
    (10.9
    )Valuation allowance
    
    
    0.9
    
    
    
    4.4
    
    
    
    13.9Tax free interest income
    
    
    
    
    
    
    (0.2
    )
    
    
    (7.5
    )Provision to return adjustments
    
    
    (0.1
    )
    
    
    (5.8
    )
    
    
    2.8Other items, net
    
    
    (0.1
    )
    
    
    0.6
    
    
    
    (2.0
    )Effective income tax benefit rate
    
    
    37.4
    %
    
    
    35.1
    %
    
    
    (38.7)
    %
  F-24




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##### Table of Contents



AFC ENTERPRISES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 For Fiscal Years 2007, 2006 and 2005
  (in millions)
    
    2007
    
    
    2006Deferred tax assets:Deferred franchise fee revenue
    
    $
    3.4
    
    
    $
    3.7State net operating loss carryforwards
    
    
    3.7
    
    
    
    3.4Deferred rentals
    
    
    3.1
    
    
    
    2.9Deferred compensation
    
    
    1.2
    
    
    
    1.6Allowance for doubtful accounts
    
    
    0.6
    
    
    
    0.4Insurance accruals
    
    
    0.5
    
    
    
    0.6Other accruals
    
    
    1.4
    
    
    
    0.6Reorganization costs
    
    
    4.0
    
    
    
    2.2Total gross deferred tax assets
    
    $
    17.9
    
    
    $
    15.4Deferred tax liabilities:Franchise value and trademarks
    
    $
    (14.8
    )
    
    $
    (13.9
    )Insurance proceeds
    
    
    
    
    
    
    (1.0
    )Property, plant and equipment
    
    
    (0.4
    )
    
    
    (2.1
    )Other
    
    
    (0.1
    )
    
    
    (0.7
    )Total gross deferred liabilities
    
    
    (15.3
    )
    
    
    (17.7
    )Valuation allowance
    
    
    (3.7
    )
    
    
    (3.4
    )Net deferred tax liability
    
    $
    (1.1
    )
    
    $
    (5.7
    )
     Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109
 F-25




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##### Table of Contents



AFC ENTERPRISES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 For Fiscal Years 2007, 2006 and 2005
  (in millions)Balance upon adoption of FIN 48 as of January 1, 2007
    
    $
    4.9Gross additions related to current year
    
    
    0.1Expirations of statutes of limitation
    
    
    (0.5
    )Balance as of December 30, 2007
    
    $
    4.5
    Note  19 Components of Earnings Per Share Computation
 (in millions)
    
    2007
    
    
    2006
    
    
    2005Numerators for income (loss) per share computation:Income (loss) before discontinued operations
    
    $
    23.1
    
    
    $
    22.2
    
    
    $
    (8.4
    )Discontinued operations, net of income taxes
    
    
    
    
    
    
    0.2
    
    
    
    158.0Net income
    
    $
    23.1
    
    
    $
    22.4
    
    
    $
    149.6Denominator for basic earnings per share 
weighted average shares
    
    
    28.6
    
    
    
    29.5
    
    
    
    29.1Dilutive employee stock options(a)
    
    
    0.2
    
    
    
    0.3
    
    
    
    Denominator for diluted earnings per share
    
    
    28.8
    
    
    
    29.8
    
    
    
    29.1
 (a)
    
    In 2005 potentially dilutive employee stock options were excluded from
the computation of dilutive earnings per share due to the
anti-dilutive effect they would have on loss before discontinued
operations and accounting change. The number of additional shares
that otherwise would have been included in the denominator for the
dilutive earnings per share computation were 0.8 million shares in
2005.
 Note  20 Related Party Transactions
   F-26




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##### Table of Contents



AFC ENTERPRISES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 For Fiscal Years 2007, 2006 and 2005
  Note  21 Discontinued Operations
 Churchs Chicken.
  Cinnabon.
 Seattle Coffee. ® ®
  (in millions)
    
    2007
    
    
    2006
    
    
    2005Total revenues:Churchs
    
    $
    
    
    
    $
    
    
    
    $
    Cinnabon
    
    
    
    
    
    
    
    
    
    
    Total revenues
    
    $
    
    
    
    $
    
    
    
    $
    Income (loss) from operations:Churchs
    
    $
    
    
    
    $
    (0.1
    )
    
    $
    Cinnabon
    
    
    
    
    
    
    0.3
    
    
    
    Income tax benefit (expense)
    
    
    
    
    
    
    
    
    
    
    Income from operations, net
    
    $
    
    
    
    $
    0.2
    
    
    $
    Income (loss) from sale of businesses:Churchs
    
    $
    
    
    
    $
    
    
    
    $
    252.1Cinnabon
    
    
    
    
    
    
    
    
    
    
    Seattle Coffee
    
    
    
    
    
    
    
    
    
    
    Income tax benefit (expense)
    
    
    
    
    
    
    
    
    
    
    (94.1
    )Income from sale of businesses, net
    
    
    
    
    
    
    
    
    
    
    158.0Discontinued operations, net of income taxes
    
    $
    
    
    
    $
    0.2
    
    
    $
    158.0
 F-27




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##### Table of Contents



AFC ENTERPRISES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 For Fiscal Years 2007, 2006 and 2005
 Note  22 Restructuring of Corporate Operations and Other
 Restructuring of Corporate Operations.
 Incurred(in millions)
    
    2007
    
    
    2006
    
    
    2005
    
    
    to dateContract terminations and other
    
    $
    
    
    
    $
    1.0
    
    
    $
    2.1
    
    
    $
    12.1Employee termination benefits
    
    
    
    
    
    
    
    
    
    
    0.4
    
    
    
    3.8Total restructuring charges
    
    $
    
    
    
    $
    1.0
    
    
    $
    2.5
    
    
    $
    15.9
 Other.
 F-28




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##### Table of Contents



AFC ENTERPRISES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 For Fiscal Years 2007, 2006 and 2005
 Note  23 Segment Information (Continuing Operations)
   Company -Franchise
    
    
    Operated(in millions)
    
    Operations
    
    
    Restaurants
    
    
    Corporate
    
    
    Total2007Total revenues
    
    $
    87.3
    
    
    $
    80.0
    
    
    $
    
    
    
    $
    167.3Operating profit (loss) before allocations
    
    
    70.4
    
    
    
    7.5
    
    
    
    (32.3
    )
    
    
    45.6Corporate overhead allocations(a)
    
    
    (29.0
    )
    
    
    (3.9
    )
    
    
    32.9
    
    
    
    Operating profit(b)
    
    
    41.4
    
    
    
    3.6
    
    
    
    0.6
    
    
    
    45.6Depreciation and amortization
    
    
    1.9
    
    
    
    5.0
    
    
    
    
    
    
    
    6.9Capital expenditures
    
    
    0.6
    
    
    
    9.4
    
    
    
    
    
    
    
    10.0Goodwill  year end
    
    
    8.9
    
    
    
    2.8
    
    
    
    
    
    
    
    11.7Total assets  year end
    
    
    90.8
    
    
    
    48.4
    
    
    
    15.8
    
    
    
    155.02006Total revenues
    
    $
    87.8
    
    
    $
    65.2
    
    
    $
    
    
    
    $
    153.0Operating profit (loss) before allocations
    
    
    74.2
    
    
    
    5.2
    
    
    
    (34.1
    )
    
    
    45.3Corporate overhead allocations(a)
    
    
    (29.6
    )
    
    
    (3.8
    )
    
    
    33.4
    
    
    
    Operating profit (loss)(b)
    
    
    44.6
    
    
    
    1.4
    
    
    
    (0.7
    )
    
    
    45.3Depreciation and amortization
    
    
    2.1
    
    
    
    4.3
    
    
    
    
    
    
    
    6.4Capital expenditures
    
    
    0.7
    
    
    
    6.3
    
    
    
    
    
    
    
    7.0Goodwill  year end
    
    
    8.9
    
    
    
    2.8
    
    
    
    
    
    
    
    11.7Total assets  year end
    
    
    85.9
    
    
    
    47.9
    
    
    
    29.3
    
    
    
    163.12005Total revenues
    
    $
    82.9
    
    
    $
    60.3
    
    
    $
    0.2
    
    
    $
    143.4Operating profit (loss) before allocations
    
    
    67.3
    
    
    
    1.0
    
    
    
    (75.2
    )
    
    
    (6.9
    )Corporate overhead allocations(a)
    
    
    (24.9
    )
    
    
    (2.8
    )
    
    
    27.7
    
    
    
    Operating profit (loss)(b)
    
    
    42.4
    
    
    
    (1.8
    )
    
    
    (47.5
    )
    
    
    (6.9
    )Depreciation and amortization
    
    
    2.3
    
    
    
    3.6
    
    
    
    1.4
    
    
    
    7.3Capital expenditures
    
    
    0.5
    
    
    
    3.7
    
    
    
    
    
    
    
    4.2Goodwill  year end
    
    
    8.9
    
    
    
    0.7
    
    
    
    
    
    
    
    9.6Total assets  year end
    
    
    90.6
    
    
    
    32.5
    
    
    
    89.6
    
    
    
    212.7
 (a)
    
    Corporate overhead allocations include costs directly related to the operation of each segment and estimated
charges based upon each segments relative contribution to the Companys operations.(b)
    
    For all years presented, corporate operating profit (loss), after
allocations, relates principally to the AFC corporate offices which
were closed during 2005 and AFC corporate litigation costs, net. Costs
associated with the Popeyes corporate function and certain AFC costs
directly related to our operating segments are allocated to the
Companys franchise operations and company-operated restaurants. In
2006, the Companys corporate operating profit represents a settlement
of legal matters associated with shareholder litigation. In 2005, the
Companys corporate operating loss includes $21.8 million associated
with the settlement of shareholder litigation.
 F-29




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##### Table of Contents



AFC ENTERPRISES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 For Fiscal Years 2007, 2006 and 2005
 Note  24 Acquisition
   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)
    
    2006
    
    
    2005Total revenues
    
    $
    158.1
    
    
    $
    159.0Operating (loss) profit
    
    
    45.7
    
    
    
    (5.1
    )Income (loss) before discontinued operations
    
    
    22.2
    
    
    
    (7.7
    )Net income
    
    $
    22.4
    
    
    $
    150.3Basic earnings per common shareIncome (loss) before discontinued operations
    
    $
    0.75
    
    
    $
    (0.27
    )Discontinued operations, net of income taxes
    
    
    0.1
    
    
    
    5.43Net income
    
    $
    0.76
    
    
    $
    5.16Diluted earnings per common shareIncome (loss) before discontinued operations
    
    $
    0.74
    
    
    $
    (0.27
    )Discontinued operations, net of income taxes
    
    
    0.1
    
    
    
    5.43Net income
    
    $
    0.75
    
    
    $
    5.16
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##### Table of Contents



AFC ENTERPRISES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 For Fiscal Years 2007, 2006 and 2005
 Note  25 Quarterly Financial Data (Unaudited)
 2007First(a)
    
    
    Second
    
    
    Third
    
    
    Fourth(b)(in millions, except per share data)
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    QuarterResults of OperationsTotal revenues
    
    $
    51.0
    
    
    $
    38.3
    
    
    $
    38.9
    
    
    $
    39.1Operating profit
    
    
    13.0
    
    
    
    12.7
    
    
    
    11.9
    
    
    
    8.0Income before discontinued operations
    
    
    6.4
    
    
    
    6.6
    
    
    
    6.5
    
    
    
    3.6Net income
    
    
    6.4
    
    
    
    6.6
    
    
    
    6.5
    
    
    
    3.6Basic earnings per common shareIncome before discontinued operations
    
    $
    0.22
    
    
    $
    0.22
    
    
    $
    0.23
    
    
    $
    0.14Net income
    
    
    0.22
    
    
    
    0.22
    
    
    
    0.23
    
    
    
    0.14Diluted earnings per common shareIncome before discontinued operations
    
    $
    0.22
    
    
    $
    0.22
    
    
    $
    0.23
    
    
    $
    0.13Net income
    
    
    0.22
    
    
    
    0.22
    
    
    
    0.23
    
    
    
    0.13
 2006First(a)
    
    
    Second
    
    
    Third
    
    
    FourthQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    QuarterResults of OperationsTotal revenues
    
    $
    42.6
    
    
    $
    34.4
    
    
    $
    36.0
    
    
    $
    40.0Operating profit
    
    
    12.7
    
    
    
    10.6
    
    
    
    11.9
    
    
    
    10.1Income before discontinued operations
    
    
    5.7
    
    
    
    5.0
    
    
    
    5.9
    
    
    
    5.6Net income
    
    
    5.8
    
    
    
    5.1
    
    
    
    5.9
    
    
    
    5.6Basic earnings per common shareIncome before discontinued operations
    
    $
    0.19
    
    
    $
    0.17
    
    
    $
    0.20
    
    
    $
    0.19Net income
    
    
    0.19
    
    
    
    0.18
    
    
    
    0.20
    
    
    
    0.19Diluted earnings per common shareIncome before discontinued operations
    
    $
    0.19
    
    
    $
    0.16
    
    
    $
    0.20
    
    
    $
    0.19Net income
    
    
    0.19
    
    
    
    0.17
    
    
    
    0.20
    
    
    
    0.19
 (a)
    
    The Companys first quarters for 2007and 2006 contained sixteen weeks.
The remaining quarters of 2007 and 2006 contained twelve weeks each,
with the exception of the fourth quarter of 2006, which contained 13
weeks.(b)
    
    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 and (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-31