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UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


Form 10-K


|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
|          
|           |  | For the fiscal year ended December 26, 2004                                                 
|          
|or        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934

Commission File Number 000-32369





(Exact name of registrant as specified in its charter)


|                                                                                               |  |                                         
|---------------------------------------------------------------------------------------------- |  | ----------------------------------------
|Minnesota                                                                                      |  | 58-2016606                              
|(State or other jurisdiction of
    incorporation or organization)                             |  | (I.R.S. Employer
    Identification No.)
|                                                                                              
|Six Concourse Parkway, Suite 1700
    Atlanta, Georgia(Address of principal executive offices) |  | 30328-5352(Zip Code)                    

(770) 391-9500


(Registrants telephone number, including area code)


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


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


Title of each class


Common stock, $0.01 par value per share


þ o


þ o


þ o




Documents incorporated by reference:










---
















AFC ENTERPRISES, INC.


INDEX TO FORM 10-K


|                                                                      |  |                                                                                                                      |  |  |    | 
|--------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------- |  |  | -- | 
|PART I                                                               
|Item 1.                                                               |  | Business                                                                                                             |  |  | 1  | 
|Item 2.                                                               |  | Properties                                                                                                           |  |  | 9  | 
|Item 3.                                                               |  | Legal Proceedings                                                                                                    |  |  | 10 | 
|Item 4.                                                               |  | Submission of Matters to a Vote of Security
    Holders                                                              |  |  | 12 | 
|Item 4A.                                                              |  | Executive Officers                                                                                                   |  |  | 12 | 
|PART II                                                              
|Item 5.                                                               |  | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities |  |  | 14 | 
|Item 6.                                                               |  | Selected Financial Data                                                                                              |  |  | 15 | 
|Item 7.                                                               |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                            |  |  | 18 | 
|Item 7A.                                                              |  | Quantitative and Qualitative Disclosures
    about Market Risk                                                       |  |  | 45 | 
|Item 8.                                                               |  | Consolidated Financial Statements and
    Supplementary Data                                                         |  |  | 45 | 
|Item 9.                                                               |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure                             |  |  | 45 | 
|Item 9A.                                                              |  | Controls and Procedures                                                                                              |  |  | 46 | 
|Item 9B.                                                              |  | Other Information                                                                                                    |  |  | 47 | 
|PART III                                                              |  |                                                                                                                      |  | 
|Item 10.                                                              |  | Directors and Executive Officers of the
    Registrant                                                               |  |  | 48 | 
|Item 11.                                                              |  | Executive Compensation                                                                                               |  |  | 48 | 
|Item 12.                                                              |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters                   |  |  | 48 | 
|Item 13.                                                              |  | Certain Relationships and Related
    Transactions                                                                   |  |  | 48 | 
|Item 14.                                                              |  | Principal Accountant Fees and Services                                                                               |  |  | 49 | 
|PART IV                                                              
|Item 15.                                                              |  | Exhibits and Financial Statement Schedules                                                                           |  |  | 50 | 
|EX-3.2 AMENDED AND RESTATED BYLAWS OF AFC ENTERPRISES, INC.          
|EX-10.46 2005 SHORT TERM INCENTIVE PLAN                              
|EX-10.58 FIRST AMENDMENT TO AMENDED AND RESTATED EMPLOYMENT AGREEMENT
|EX-10.62 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT                     
|EX-10.63 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT                     
|EX-10.64 INDEMNITY AGREEMENT DATED OCTOBER 14, 2004                  
|EX-10.65 INDEMNITY AGREEMENT DATED FEBRUARY 5, 2005                  
|EX-10.66 AMENDED AND RESTATED CREDIT AGREEMENT                       
|EX-10.67 EMPLOYMENT AGREEMENT, KENNETH L. KEYMER                     
|EX-10.68 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT, KENNETH L.KEYMER   
|EX-21.1 SUBSIDIARIES OF AFC                                          
|EX-23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM     
|EX-31.1 SECTION 302 CERTIFICATION OF THE CEO                         
|EX-31.2 SECTION 302 CERTIFICATION OF THE CFO                         
|EX-32.1 SECTION 906 CERTIFICATION OF THE CEO                         
|EX-32.2 SECTION 906 CERTIFICATION OF THE CFO                         











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PART I.







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











Brand Profiles


Popeyes® Chicken & Biscuits.





1



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Churchs Chicken.






AFCs Overall Business Strategy




For 2005, our key corporate strategies relate to:




| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | Restructuring our Corporate Staff. As part of our
    efforts to reduce overhead costs, we have reduced our corporate
    staffing from 86 persons as of December 28, 2003 to 17
    persons as of January 3, 2005. Some of this reduction
    involved persons transferred to our brand operations (Popeyes,
    Churchs and Cinnabon), while some of it constituted a
    permanent reduction in company-wide staffing. We also terminated
    our corporate lease and re-leased a portion of our former space
    for part of 2005.



| |                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | During 2005, we expect to further reduce our corporate staffing
    and to eventually integrate the remaining AFC corporate
    employees into the corporate function at Popeyes.



| |    |                                                                                                                                                                                                                                                                                                                                             
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2. | Deploying the Cash Proceeds from the Churchs
    Sale. Two days after our 2004 fiscal year end, we sold
    our Churchs operations and certain real property. Cash
    proceeds from these sales, net of transaction costs and
    adjustments, are estimated at $373.0 million. We are
    exploring alternative uses for these proceeds.



| |                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Presently the proceeds from the Churchs sale are invested
    in bank repurchase agreements, money market funds, high quality
    municipal securities, commercial paper and variable rate demand
    notes.



| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 3. | Restructuring Our Financing Relationships. Our
    2002 Credit Facility was amended and restated in conjunction
    with the sale of Churchs. As a condition to obtaining
    lender approval and release of the liens associated with the
    Churchs assets, we agreed to deposit $125.5 million
    of the proceeds from the sale of Churchs into an account
    to collateralize outstanding indebtedness of the facility and
    certain contingencies. Also, debt maturities associated with the
    facility were accelerated to March 2006.

2



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| |                                                                                                                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Presently, we are pursuing refinancing alternatives as it
    concerns our 2002 Credit Facility in order to release the cash
    collateral referred to above, expand our ability to use the
    proceeds from the Churchs sale, and to establish a debt
    structure that will meet our capital needs in the years ahead.



| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 4. | Reducing General and Administrative Expenses.
    During 2003 and 2004, our general and administrative expenses
    rose significantly, despite an ongoing effort to reduce such
    costs. The cost of implementing new information technology
    systems, the cost associated with our Sarbanes-Oxley compliance
    testing and improvement measures, audit fees, outside consultant
    fees and severance payments increased our general and
    administrative expenses in both those years. We expect most of
    these cost components to decline in 2005, as well as salary
    costs associated with our corporate operations. However, we
    expect increased severance costs in 2005.



For 2005, our key operational strategies at Popeyes relate
to:




| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | Growing System Sales Through Increased
    Franchising. We intend to pursue business growth
    principally through franchising activities. We believe that our
    focus on franchising provides us with higher profit margins and
    enhanced investment returns when compared to a growth strategy
    principally focused on building new company-operated
    restaurants. As of December 26, 2004, approximately 97% of
    Popeyes 1,825 system-wide restaurants were franchised, and we
    had development commitments from existing and new franchisees to
    open 635 additional restaurants.
|
| | 2. | Growing System Sales Through Menu Enhancements. We
    are continuing to review our Popeyes menu to find the optimal
    mix of products that drive our lunch, snack and dinner day-parts
    and help bring incremental transactions into our restaurants and
    the restaurants of our franchisees. Our focus includes
    additional boneless chicken offerings (sandwiches and strips)
    and new seafood offerings.                                                                                                                                                                                
|
| | 3. | Growing System Sales Through Restaurant Development and
    Re-imaging. We and our franchisees are in the process of
    reimaging our Popeyes system from our previous
    Red-White-Blue restaurant image to our updated
    Heritage image, which provides a distinctive image
    incorporating elements of New Orleans architecture and colors.
    Approximately 45% of Popeyes system-wide restaurants have
    adopted the Heritage format and we anticipate having the entire
    system converted to the Heritage format by 2008.                                                           
|
| | 4. | Growing System Sales Through Creative Marketing.
    We are continuing to review our media and advertising strategies
    to maximize the effectiveness of the marketing funds generated
    from our Popeyes system. Our advertising continues to emphasize
    our distinctive food and flavors using tag lines and props that
    are catchy and memorable. Our media spending typically focuses
    on television, radio and print options at the local market level
    rather than a national focus because we believe this maximizes
    the effectiveness of our media dollars.                   
|
| | 5. | Growing System Sales Through Improved Restaurant
    Operations. A key opportunity for Popeyes will be to
    drive top line sales by improving the level of operations in our
    restaurants, both in the dining room and at the drive-thru. In
    2004, we made significant investments to improve the level and
    number of field service personnel for operations, marketing and
    development, as well as adding a system-wide mystery shop
    program that periodically reviews all restaurants in our
    domestic system.                                                                  

Franchise Development




Domestic Development Agreements.


3



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International Development Agreements.


Domestic Franchise Agreements.




International Franchise Agreements.




Site Selection






Suppliers and Purchasing Cooperative


Suppliers.


Purchasing Cooperative.


4



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Supply Agreements.








Marketing and Advertising






5



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Employees






Intellectual Property and Other Proprietary Rights




Copeland Formula Agreement.


King Features Agreements.


International Operations




6



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Insurance




Seasonality




Competition




Government Regulation








Environmental Matters




7



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Forward Looking Statements






Where You Can Find Additional Information




8



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





|            |       |                |    |     |                 |  |    |       |  |  |     |     | 
|----------- | ----- | -------------- | -- | --- | --------------- |  | -- | ----- |  |  | --- | --- | 
|            |      
|            |       | Land and       |    |     | Land and/or     |  |    |      
|            |       | Building Owned |    |     | Building Leased |  |    | Total | 
|            |       |                |    |     |                 |  |    |       | 
|Texas       |       |                | 99 |     |                 |  | 56 |       |  |  | 155 |    
|Georgia     |       |                | 25 |     |                 |  | 28 |       |  |  | 53  |    
|Louisiana   |       |                | 4  |     |                 |  | 33 |       |  |  | 37  |    
|Arizona     |       |                | 15 |     |                 |  | 10 |       |  |  | 25  |    
|Alabama     |       |                | 15 |     |                 |  | 8  |       |  |  | 23  |    
|Tennessee   |       |                | 12 |     |                 |  | 2  |       |  |  | 14  |    
|Mississippi |       |                | 10 |     |                 |  | 1  |       |  |  | 11  |    
|New Mexico  |       |                | 5  |     |                 |  | 2  |       |  |  | 7   |    
|Arkansas    |       |                | 5  |     |                 |  | 1  |       |  |  | 6   |    
|Missouri    |       |                | 6  |     |                 |  |   |       |  |  | 6   |    
|Kansas      |       |                | 2  |     |                 |  |   |       |  |  | 2   |    
|           
|            | Total |                |    | 198 |                 |  |    | 141   |  |  |     | 339 | 
|           











9



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

Matters Relating to the Restatement








10



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11



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Other Matters







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







Item 4A.     EXECUTIVE
OFFICERS




|                       |  |     |    |  |          |                                                               
|---------------------- |  | --- | -- |  | -------- | --------------------------------------------------------------
|Name                   |  | Age |    |  | Position
|                       |  |     |    |  |         
|Frank J. Belatti       |  |     | 57 |  |          | Chairman of the Board and Chief Executive Officer             
|Frederick B. Beilstein |  |     | 57 |  |          | Chief Financial Officer                                       
|Kenneth L. Keymer      |  |     | 56 |  |          | President of Popeyes                                          
|Allan J. Tanenbaum     |  |     | 58 |  |          | Senior Vice President, General Counsel and Corporate Secretary
|H. Melville Hope, III  |  |     | 44 |  |          | Senior Vice President, Finance and Chief Accounting Officer   

Frank J. Belatti,


Frederick B. Beilstein,


12



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Kenneth L. Keymer,


Allan J. Tanenbaum,


H. Melville Hope, III,


13



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PART II.







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





|                    |  |      |       |  |      |   |       |      |  |   |       |  |  |   |       | 
|------------------- |  | ---- | ----- |  | ---- | - | ----- | ---- |  | - | ----- |  |  | - | ----- | 
|                    | 
|(Dollars per share) |  | 2004 |       |  | 2003 |  
|                    | 
|                    |  | High |       |  | Low  |   |       | High |  |   | Low   | 
|                    |  |      |       |  |      |   |       |      |  |   |       | 
|First Quarter       |  | $    | 24.50 |  |      | $ | 18.00 |      |  | $ | 22.00 |  |  | $ | 11.30 | 
|Second Quarter      |  | $    | 23.00 |  |      | $ | 17.00 |      |  | $ | 18.49 |  |  | $ | 14.95 | 
|Third Quarter       |  | $    | 22.50 |  |      | $ | 17.00 |      |  | $ | 17.30 |  |  | $ | 12.00 | 
|Fourth Quarter      |  | $    | 25.70 |  |      | $ | 21.00 |      |  | $ | 20.25 |  |  | $ | 15.50 | 
|                   

Shareholders of Record




Dividend Policy




14



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



|                                                                       |                                       |                |       |      |       |   |       |      |       |   |       |      |       |      |       |       |       |   |       |       |       | 
|---------------------------------------------------------------------- | ------------------------------------- | -------------- | ----- | ---- | ----- | - | ----- | ---- | ----- | - | ----- | ---- | ----- | ---- | ----- | ----- | ----- | - | ----- | ----- | ----- | 
|                                                                       |                                      
|(Dollars in millions, except per share data)                           |                                       | 2004           |       |      | 2003  |   |       | 2002 |       |   | 2001  |      |       | 2000 |      
|                                                                       |                                      
|Summary of operations:(1)                                              |                                       |                |       |      |       |   |       |      |       |   |       |      |       |      |       |       |       |   |       |      
|Revenues(2)                                                            |                                       |                |       |      |       |   |       |      |       |   |       |      |       |      |       |       |       |   |       |      
|                                                                       | Sales by company-operated restaurants |                | $     | 85.8 |       |   | $     | 85.4 |       |   | $     | 85.2 |       |      | $     | 107.4 |       |   | $     | 142.0 |      
|                                                                       | Franchise revenues                    |                |       | 72.8 |       |   |       | 70.8 |       |   |       | 67.1 |       |      |       | 61.6  |       |   |       | 54.3  |      
|                                                                       | Other revenues                        |                |       | 5.3  |       |   |       | 5.3  |       |   |       | 6.6  |       |      |       | 5.4   |       |   |       | 3.1   |      
|                                                                       |                                       |               
|                                                                       |                                       | Total revenues |       | $    | 163.9 |   |       | $    | 161.5 |   |       | $    | 158.9 |      |       | $     | 174.4 |   |       | $     | 199.4 | 
|Operating (loss) profit(3)                                             |                                       | $              | (19.4 | )    |       | $ | (19.7 | )    |       | $ | 10.3  |      |       | $    | 7.9   |       |       | $ | 6.5   |      
|Loss before discontinued operations and accounting change(4)           |                                       |                | (14.3 | )    |       |   | (14.5 | )    |       |   | (6.4  | )    |       |      | (11.5 | )     |       |   | (19.4 | )    
|Net income (loss)(5)                                                   |                                       |                | 24.6  |      |       |   | (9.1  | )    |       |   | (11.7 | )    |       |      | 15.6  |       |       |   | 18.3  |      
|Basic earnings per common share:(6)                                    |                                       |                |       |      |       |   |       |      |       |   |       |      |       |      |       |       |       |   |       |      
|(Loss) income before discontinued operations and accounting
    change |                                       | $              | (0.51 | )    |       | $ | (0.52 | )    |       | $ | (0.21 | )    |       | $    | (0.39 | )     |       | $ | (0.74 | )    
|Net income (loss)                                                      |                                       |                | 0.87  |      |       |   | (0.33 | )    |       |   | (0.39 | )    |       |      | 0.53  |       |       |   | 0.70  |      
|Diluted earnings per common share:(6)                                  |                                       |                |       |      |       |   |       |      |       |   |       |      |       |      |       |       |       |   |       |      
|(Loss) income before discontinued operations and accounting
    change |                                       | $              | (0.51 | )    |       | $ | (0.52 | )    |       | $ | (0.21 | )    |       | $    | (0.39 | )     |       | $ | (0.74 | )    
|Net income (loss)                                                      |                                       |                | 0.87  |      |       |   | (0.33 | )    |       |   | (0.39 | )    |       |      | 0.53  |       |       |   | 0.70  |      
|Year-end balance sheet data:                                           |                                       |                |       |      |       |   |       |      |       |   |       |      |       |      |       |       |       |   |       |      
|Total assets                                                           |                                       | $              | 361.9 |      |       | $ | 359.5 |      |       | $ | 487.3 |      |       | $    | 525.3 |       |       | $ | 547.8 |      
|Total debt(7)                                                          |                                       |                | 94.0  |      |       |   | 130.9 |      |       |   | 226.6 |      |       |      | 209.5 |       |       |   | 313.1 |      
|Total shareholders equity(8)                                          |                                       |                | 140.9 |      |       |   | 108.8 |      |       |   | 109.8 |      |       |      | 187.3 |       |       |   | 115.1 |      
|                                                                      






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Revenues and costs from continuing operations include those
    associated with our Popeyes brand and our corporate operations.
    Revenues and costs associated with our Churchs, Cinnabon
    and Seattle Coffee operations are included in net income (loss)
    as a component of discontinued operations. See Note 23 of
    our Consolidated Financial Statements for information concerning
    the operations and sale of these businesses.
|   
|(2) | Factors that impact the comparability of revenues for the years
    presented include:                                                                                                                                                                                                                                                                                                                                                               



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | Our fiscal year ends on the last Sunday in December. Fiscal year
    2000 includes 53 weeks. All other years shown include
    52 weeks.                                                                                                                                                                                                                                                                                                                                
|
| | (b) | In 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 certain
    franchisees that qualified for consolidation under FIN 46R.
    In 2004, the consolidation of these franchisees increased sales
    by company-operated restaurants by $12.6 million.
|
| | (c) | The effects of restaurant openings, closings and unit
    conversions and same-store sales (see Summary of
    System-Wide Data later in this Item 6).                                                                                                                                                                                                                                                                                                                

15



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|    |                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|(3) | In addition to the matters discussed in Note 2, factors
    that impact the comparability of operating (loss) profit for the
    years presented include:



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | During the first quarter of 2002, we adopted
    SFAS No. 142, Goodwill and Other Intangible
    Assets, and, at that time, discontinued our prior practice
    of amortizing goodwill and other indefinite-lived intangible
    assets. These assets are now being accounted for by the
    impairment-only approach. For each of 2004, 2003, 2002, 2001 and
    2000, amortization expense was approximately $0.1 million,
    $0.1 million, $0.1 million, $3.3 million, and
    $4.5 million, respectively.                                                                                                                                                                                                                                                                         
|
| | (b) | During 2004, general and administrative expenses include
    approximately $10.8 million relating to corporate
    severances, Sarbanes-Oxley compliance, implementation of a new
    information technology system and legal and other costs
    associated with the settlement of certain franchisee disputes.
    During 2003, general and administrative expenses include
    approximately $5.0 million relating to employee severance
    costs and consultant fees for a productivity initiative. During
    2001, general and administrative expenses include approximately
    $2.9 million relating to the retirement of a former
    officer. During 2000, general and administrative expenses were
    reduced by the reversal of a $6.0 million environmental
    reserve.
|
| | (c) | Asset write-downs for each of 2004, 2003, 2002, 2001 and 2000
    were approximately $4.8 million, $15.0 million,
    $3.8 million, $1.1 million and $2.2 million,
    respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| | (d) | During 2003, we incurred approximately $14.0 million in
    costs associated with the re-audit and restatement of previously
    issued financial statements, an independent investigation
    commissioned by our Audit Committee and legal fees associated
    the shareholder lawsuit described in Item 3 of this report.
    There were no comparable costs in prior years. During 2004, we
    incurred approximately $3.8 million of additional costs
    associated with the shareholder lawsuit.                                                                                                                                                                                                                                                                               
|
| | (e) | During 2004, other expenses, net includes approximately
    $9.0 million of charges associated with the termination of
    our corporate lease.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(4) | Loss before discontinued operations and accounting change
    includes interest expense, net of approximately
    $5.5 million in 2004, $5.3 million in 2003,
    $21.1 million in 2002, $24.3 million in 2001, and
    $32.7 million in 2000. Interest expense was substantially
    higher in 2002, 2001 and 2000 due to substantially higher debt
    balances and higher interests rates associated with such debt.                                                                                                                                                                                                                                                                                                                                  
|   
|(5) | Net income (loss) includes discontinued operations which
    provided income (loss) of $39.1 million in 2004,
    $5.6 million in 2003, $(5.3) million in 2002,
    $27.0 million in 2001 and $37.5 million in 2000.
    Discontinued operations include: in 2004, the write-off of
    $6.5 million of goodwill and other intangible assets
    associated with Cinnabon and the recognition of a
    $22.6 million tax benefit associated with capital loss
    carryforwards that arose with the sale of Cinnabon; in 2003, the
    write-off of $26.2 million of intangible assets associated
    with Cinnabon; and in 2002, the write-off of $45.1 million
    of goodwill and other assets associated with Seattle Coffee.                          
|   
|(6) | Weighted average common shares for the computation of basic
    earnings per common share were 28.1 million,
    27.8 million, 30.0 million, 29.5 million and
    26.3 million for 2004, 2003, 2002, 2001, and 2000,
    respectively. Weighted average common shares for the computation
    of diluted earnings per common share were 28.1 million,
    27.8 million, 30.0 million, 29.5 million and
    26.3 million for 2004, 2003, 2002, 2001, and 2000,
    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 debt
    facilities, capital lease obligations, lines of credit, and
    other borrowings associated with both continuing and
    discontinued operations, which, in 2004, includes the debt
    associated with certain VIEs consolidated pursuant to
    FIN 46R.                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|(8) | During 2001, we completed an initial public offering of
    3.1 million shares of our common stock and received
    approximately $46.0 million of proceeds. During 2002, we
    repurchased 3.7 million shares of our common stock for
    approximately $77.9 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

16



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##### Table of Contents



Summary of System-Wide Data




|                                                                                   |                      |      |       |       |      |  |       |       |  |  |       |       |  |         |       |       |  |  |       |       |  |  | 
|---------------------------------------------------------------------------------- | -------------------- | ---- | ----- | ----- | ---- |  | ----- | ----- |  |  | ----- | ----- |  | ------- | ----- | ----- |  |  | ----- | ----- |  |  | 
|                                                                                  
|                                                                                   |                      | 2004 |       |       | 2003 |  |       | 2002  |  |  | 2001  |       |  | 2000(1) |       |       | 
|                                                                                  
|Increase in system-wide sales from the prior year                                  |                      |      | 4.5   | %     |      |  | 3.6   | %     |  |  | 7.3   | %     |  |         | 7.5   | %     |  |  | 15.2  | %     |  | 
|Domestic same-store sales growth (decline) for
    company-operated restaurants(2) |                      |      | 0.9   | %     |      |  | (2.4  | )%    |  |  | 1.1   | %     |  |         | 4.8   | %     |  |  | 0.9   | %     |  | 
|Domestic same-store sales growth (decline) for
    franchised restaurants(2)       |                      |      | 1.4   | %     |      |  | (2.7  | )%    |  |  | 0.6   | %     |  |         | 4.1   | %     |  |  | 3.8   | %     |  | 
|Company-operated restaurants (all domestic)                                        |                      |      |       |       |      |  |       |       |  |  |       |       |  |         |       |       |  |  |       |       |  | 
|Units at beginning of year                                                         |                      |      | 80    |       |      |  | 96    |       |  |  | 96    |       |  |         | 130   |       |  |  | 175   |       |  | 
|New unit openings                                                                  |                      |      |      |       |      |  | 1     |       |  |  | 2     |       |  |         | 3     |       |  |  | 2     |       |  | 
|Unit conversions, net(3)                                                           |                      |      | (19   | )     |      |  |      |       |  |  | 1     |       |  |         | (26   | )     |  |  | (47   | )     |  | 
|Permanent closings                                                                 |                      |      | (4    | )     |      |  | (18   | )     |  |  | (2    | )     |  |         | (10   | )     |  |  |      |       |  | 
|Temporary closings, net(4)                                                         |                      |      | (1    | )     |      |  | 1     |       |  |  | (1    | )     |  |         | (1    | )     |  |  |      |       |  | 
|                                                                                   |                      |     
|                                                                                   | Units at end of year |      |       | 56    |      |  |       | 80    |  |  |       | 96    |  |         |       | 96    |  |  |       | 130   |  |  | 
|                                                                                   |                      |     
|Franchised restaurants                                                             |                      |      |       |       |      |  |       |       |  |  |       |       |  |         |       |       |  |  |       |       |  | 
|Units at beginning of year                                                         |                      |      | 1,726 |       |      |  | 1,616 |       |  |  | 1,524 |       |  |         | 1,371 |       |  |  | 1,221 |       |  | 
|New unit openings                                                                  |                      |      | 109   |       |      |  | 176   |       |  |  | 167   |       |  |         | 174   |       |  |  | 141   |       |  | 
|Unit conversions, net(3)                                                           |                      |      | 19    |       |      |  |      |       |  |  | (1    | )     |  |         | 26    |       |  |  | 47    |       |  | 
|Permanent closings                                                                 |                      |      | (77   | )     |      |  | (68   | )     |  |  | (76   | )     |  |         | (41   | )     |  |  | (37   | )     |  | 
|Temporary closings, net(4)                                                         |                      |      | (8    | )     |      |  | 2     |       |  |  | 2     |       |  |         | (6    | )     |  |  | (1    | )     |  | 
|                                                                                   |                      |     
|                                                                                   | Units at end of year |      |       | 1,769 |      |  |       | 1,726 |  |  |       | 1,616 |  |         |       | 1,524 |  |  |       | 1,371 |  |  | 
|                                                                                   |                      |     
|Franchised restaurants (end of year)                                               |                      |      |       |       |      |  |       |       |  |  |       |       |  |         |       |       |  |  |       |       |  | 
|Domestic                                                                           |                      |      | 1,416 |       |      |  | 1,367 |       |  |  | 1,298 |       |  |         | 1,231 |       |  |  | 1,118 |       |  | 
|International                                                                      |                      |      | 353   |       |      |  | 359   |       |  |  | 318   |       |  |         | 293   |       |  |  | 253   |       |  | 
|                                                                                   |                      |     
|                                                                                   | Units at end of year |      |       | 1,769 |      |  |       | 1,726 |  |  |       | 1,616 |  |         |       | 1,524 |  |  |       | 1,371 |  |  | 
|                                                                                   |                      |     
|Outstanding commitments(end of year)(5)                                            |                      |      | 635   |       |      |  | 999   |       |  |  | 1,198 |       |  |         | 903   |       |  |  | 896   |       |  | 
|                                                                                  



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Our fiscal year ends on the last Sunday in December. Fiscal year
    2000 includes 53 weeks. All other years shown include
    52 weeks.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(2) | Restaurants are included in the computation of same-store sales
    after they have been open 15 months. Same-store sales for
    2000 is calculated by comparing the 53 weeks of sales for
    2000 to the prior 53 weeks, which includes the
    52 weeks from 1999 plus the first week of 2000.                                                                                                                                                                                                                                                                                                                                                                           
|(3) | Unit conversions include the sale or, in limited circumstances,
    the buy-back 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(5) | Outstanding commitments represent obligations to open franchised
    restaurants under executed development agreements. The decline
    in outstanding commitments during 2003 and 2004 is due to four
    factors, (i) the slowdown in new commitments resulting from
    the suspension, during a substantial portion of 2003 and 2004,
    of our domestic franchising due to our delay in producing
    current financial statements to include in Uniform Franchise
    Offering Circulars, (ii) a slowdown associated with general
    economic conditions, (iii) the expiration of prior
    commitments, and (iv) new openings associated with prior
    commitments.

17



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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 this section under the heading Risks
Factors That May Affect Financial Condition and Results of
Operations and other factors presented throughout this
filing.


Nature of Business




tm








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


18



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##### Table of Contents



Management Overview of 2004 Operating Results






|                                         |  |               |       |   |      |   |       |             |  |   |         |  |  |  |     |  
|---------------------------------------- |  | ------------- | ----- | - | ---- | - | ----- | ----------- |  | - | ------- |  |  |  | --- | -
|                                         | 
|                                         |  | Favorable     |       |   |     
|                                         |  | (Unfavorable) |       |   | As a |  
|(Dollars in millions)                    |  | 2004          |       |   | 2003 |   |       | Fluctuation |  |   | Percent | 
|                                         | 
|Total revenues  continuing operations   |  | $             | 163.9 |   |      | $ | 161.5 |             |  | $ | 2.4     |  |  |  | 1.5 | %
|Operating losses  continuing operations |  |               | (19.4 | ) |      |   | (19.7 | )           |  |   | 0.3     |  |  |  | n/a |  
|Net income (loss)                        |  |               | 24.6  |   |      |   | (9.1  | )           |  |   | 33.7    |  |  |  | n/a |  
|                                        











19



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##### Table of Contents



Factors Affecting Comparability of Consolidated Results of
Operations: 2004, 2003 and 2002






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In 2004, we adopted FIN 46R and began consolidating certain
    franchisees that qualified for consolidation. In 2004, the
    consolidation of these franchisees increased sales by
    company-operated restaurants by $12.6 million.                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | During 2004, general and administrative expenses include
    approximately $10.8 million relating to corporate severance
    costs, Sarbanes-Oxley compliance, implementation of a new
    information technology system, and legal and other costs
    associated with the settlement of certain franchisee disputes.
    During 2003, general and administrative expenses include
    approximately $5.0 million relating to employee severance
    costs and consultant fees for a productivity initiative.                                                                                                                    
|
| |  | During 2004, 2003 and 2002, other expenses, net includes asset
    write-downs of $4.8 million, $15.0 million,
    $3.8 million, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | During 2003, other expenses, net includes $14.0 million in
    costs associated with the re-audit and restatement of previously
    issued financial statements, an independent investigation
    commissioned by our Audit Committee and legal fees associated
    with the shareholder lawsuit described in Item 3 of this
    report. There were no comparable costs in 2002. During 2004, we
    incurred $3.8 million of additional costs associated with
    the shareholder lawsuit.                                                                                                                                       
|
| |  | During 2004, other expenses, net includes a $9.0 million
    charge associated with the termination of our corporate lease.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | Interest expense for 2002 includes premiums paid on the early
    extinguishment of debt and the write-off of debt issuance costs,
    which aggregated to $9.6 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | Discontinued operations include: in 2004, the write-off of
    $6.5 million of goodwill and other intangible assets
    associated with Cinnabon and the recognition of a
    $22.6 million tax benefit for capital loss carryforwards
    that arose in connection with our sale of Cinnabon in 2003, the
    write-off of $26.2 million of intangible assets associated
    with Cinnabon; and in 2002, the write-off of $45.1 million
    of goodwill and other assets associated with Seattle Coffee
    (including $11.8 million associated with the adoption of
    SFAS No. 142, Goodwill and Other Intangible
    Assets).

20



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|                                                                            |                                                                |                |     |    |      |   |     |      |     |   |    |    |     |  
|--------------------------------------------------------------------------- | -------------------------------------------------------------- | -------------- | --- | -- | ---- | - | --- | ---- | --- | - | -- | -- | --- | -
|                                                                            |                                                               
|                                                                            |                                                                | 2004           |     |    | 2003 |   |     | 2002 |    
|                                                                            |                                                                |                |    
|Revenues:                                                                   |                                                                |                |     |    |      |   |     |      |     |   |    |   
|Sales by company-operated restaurants                                       |                                                                |                | 52  | %  |      |   | 53  | %    |     |   | 54 | % 
|Franchise revenues                                                          |                                                                |                | 45  | %  |      |   | 44  | %    |     |   | 42 | % 
|Other revenues                                                              |                                                                |                | 3   | %  |      |   | 3   | %    |     |   | 4  | % 
|                                                                            |                                                                |               
|                                                                            |                                                                | Total revenues |     |    | 100  | % |     |      | 100 | % |    |    | 100 | %
|                                                                           
|Expenses:                                                                   |                                                                |                |     |    |      |   |     |      |     |   |    |   
|                                                                            | Restaurant employee, occupancy and other expenses(1)           |                |     | 55 | %    |   |     | 55   | %   |   |    | 54 | %  
|                                                                            | Restaurant food, beverages and packaging(1)                    |                |     | 32 | %    |   |     | 31   | %   |   |    | 30 | %  
|                                                                            | General and administrative expenses                            |                |     | 50 | %    |   |     | 41   | %   |   |    | 40 | %  
|                                                                            | Depreciation and amortization                                  |                |     | 6  | %    |   |     | 7    | %   |   |    | 6  | %  
|                                                                            | Other expenses                                                 |                |     | 10 | %    |   |     | 19   | %   |   |    | 2  | %  
|                                                                            |                                                                |               
|                                                                            |                                                                | Total expenses |     |    | 112  | % |     |      | 112 | % |    |    | 94  | %
|                                                                           
|Operating (loss) profit                                                     |                                                                |                | (12 | )% |      |   | (12 | )%   |     |   | 6  | % 
|                                                                            | Interest expense, net                                          |                |     | 3  | %    |   |     | 3    | %   |   |    | 13 | %  
|                                                                            |                                                                |               
|                                                                           
|Loss before income taxes, discontinued operations and
    accounting change |                                                                |                | (15 | )% |      |   | (15 | )%   |     |   | (7 | )%
|                                                                            | Income tax benefit                                             |                |     | (6 | )%   |   |     | (6   | )%  |   |    | (3 | )% 
|                                                                            | Minority interest                                              |                |     |   |      |   |     |     |     |   |    |   |    
|                                                                            |                                                                |               
|                                                                           
|Loss before discontinued operations and accounting
    change               |                                                                |                | (9  | )% |      |   | (9  | )%   |     |   | (4 | )%
|                                                                            | Discontinued operations, net of income taxes                   |                |     | 24 | %    |   |     | 3    | %   |   |    | (3 | )% 
|                                                                            | Cumulative effect of an accounting change, net of income taxes |                |     |   |      |   |     |     |     |   |    |   |    
|                                                                            |                                                                |               
|                                                                           
|Net income (loss)                                                           |                                                                |                | 15  | %  |      |   | (6  | )%   |     |   | (7 | )%
|                                                                           






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

21



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##### Table of Contents



Comparisons of Fiscal Years 2004 and 2003


Sales by Company-Operated Restaurants




Franchise Revenues












Other Revenues




Restaurant Employee, Occupancy and Other Expenses




Restaurant Food, Beverages and Packaging




22



---



##### Table of Contents







General and Administrative Expenses












Depreciation and Amortization




Other Expenses, Net






23



---



##### Table of Contents







Operating Losses


|                      |       |               |       |       |      |   |       |             |   |   |         |     |  |  |      |     | 
|--------------------- | ----- | ------------- | ----- | ----- | ---- | - | ----- | ----------- | - | - | ------- | --- |  |  | ---- | --- | 
|                      |      
|                      |       | Favorable     |       |       |     
|                      |       | (Unfavorable) |       |       | As a |  
|(Dollars in millions) |       | 2004          |       |       | 2003 |   |       | Fluctuation |   |   | Percent |    
|                      |      
|Corporate             |       | $             | (63.1 | )     |      | $ | (56.2 | )           |   |   | (6.9    | )   |  |  | n/a  |    
|Chicken               |       |               | 43.7  |       |      |   | 36.5  |             |   | $ | 7.2     |     |  |  | 19.7 | %  
|                     
|                      | Total |               | $     | (19.4 | )    |   | $     | (19.7       | ) |   | $       | 0.3 |  |  |      | n/a | 
|                     











Interest Expense, Net




Income Tax Expense




24



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##### Table of Contents



Discontinued Operations, Net of Income Taxes








Cumulative Effect of an Accounting Change, Net of Income
Taxes


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


Accounting for
Asset Retirement Obligations


25



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##### Table of Contents



Comparisons of Fiscal Years 2003 and 2002


Sales by Company-Operated Restaurants




Franchise Revenues












Other Revenues




Restaurant Employee, Occupancy and Other Expenses




Restaurant Food, Beverages and Packaging




26



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##### Table of Contents



General and Administrative Expenses












Depreciation and Amortization




Other Expenses, Net






Interest Expense, Net




27



---



##### Table of Contents





Income Tax Expense




Discontinued Operations, Net of Income Taxes










Cumulative Effect of an Accounting Change, Net of Income
Taxes


Accounting for
Asset Retirement Obligations


28



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##### Table of Contents



Consolidated Cash Flows (Including Discontinued
Operations)


| |  |                                                       |  |      |       |   |      |   |       |      |  |   |       |   |  | 
| |  | ----------------------------------------------------- |  | ---- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | - |  | 
|
| |  | (in millions)                                         |  | 2004 |       |   | 2003 |   |       | 2002 |  |   |      
|
| |  | Cash flows provided by operating activities           |  | $    | 44.0  |   |      | $ | 46.1  |      |  | $ | 94.3  |   |  | 
| |  | Cash flows provided by (used in) investing activities |  |      | (2.8  | ) |      |   | 39.5  |      |  |   | (14.1 | ) |  | 
| |  | Cash flows used in financing activities               |  |      | (32.0 | ) |      |   | (91.4 | )    |  |   | (75.7 | ) |  | 
|
| |  | Net increase (decrease) in cash                       |  | $    | 9.2   |   |      | $ | (5.8  | )    |  | $ | 4.5   |   |  | 
|

Cash flows provided by operating activities.




Cash flows used in (provided by) investing
activities.




Cash flows used in financing activities.






29



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##### Table of Contents





Liquidity and Capital Resources








Acquisitions and Dispositions


Sale of Churchs.






Sale of Cinnabon.


30



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##### Table of Contents





Sale of Seattle Coffee.




Contractual Obligations




|                                                |  |        |      |  |      |   |      |      |  |   |      |  |  |      |      |  |       |   |      |       |  |   |      |  |  |   |       | 
|----------------------------------------------- |  | ------ | ---- |  | ---- | - | ---- | ---- |  | - | ---- |  |  | ---- | ---- |  | ----- | - | ---- | ----- |  | - | ---- |  |  | - | ----- | 
|                                                | 
|                                                |  | There- |      |  |     
|(in millions)                                   |  | 2005   |      |  | 2006 |   |      | 2007 |  |   | 2008 |  |  | 2009 |      |  | after |   |      | Total | 
|                                                | 
|Long-term debt, excluding capital leases(1)     |  | $      | 4.9  |  |      | $ | 7.5  |      |  | $ | 38.2 |  |  | $    | 10.6 |  |       | $ | 30.4 |       |  | $ | 1.0  |  |  | $ | 92.6  | 
|Leases(2)                                       |  |        | 13.3 |  |      |   | 11.7 |      |  |   | 10.3 |  |  |      | 8.9  |  |       |   | 7.1  |       |  |   | 27.3 |  |  |   | 78.6  | 
|Copeland formula agreement(3)                   |  |        | 3.1  |  |      |   | 3.1  |      |  |   | 3.1  |  |  |      | 3.1  |  |       |   | 3.1  |       |  |   | 58.4 |  |  |   | 73.9  | 
|Business process services  DCO(3)              |  |        | 4.6  |  |      |   | 5.0  |      |  |   | 5.2  |  |  |      | 5.4  |  |       |   | 5.6  |       |  |   |     |  |  |   | 25.8  | 
|Information technology outsourcing  IBM(3)     |  |        | 5.0  |  |      |   | 4.8  |      |  |   | 4.5  |  |  |      | 4.3  |  |       |   | 4.2  |       |  |   | 1.1  |  |  |   | 23.9  | 
|King Features agreements(3)                     |  |        | 0.9  |  |      |   | 0.9  |      |  |   | 0.9  |  |  |      | 0.9  |  |       |   | 0.9  |       |  |   | 0.5  |  |  |   | 5.0   | 
|Post-employment payments to a former officer(3) |  |        | 0.4  |  |      |   | 0.4  |      |  |   | 0.4  |  |  |      | 0.3  |  |       |   | 0.3  |       |  |   | 0.7  |  |  |   | 2.5   | 
|Purchase commitments(3)(4)                      |  |        | 1.1  |  |      |   |     |      |  |   |     |  |  |      |     |  |       |   |     |       |  |   |     |  |  |   | 1.1   | 
|                                               
|                                                |  | $      | 33.3 |  |      | $ | 33.4 |      |  | $ | 62.6 |  |  | $    | 33.5 |  |       | $ | 51.6 |       |  | $ | 89.0 |  |  | $ | 303.4 | 
|                                               






|    |                                                                                                                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | See Note 9 to the Consolidated Financial Statements.                                                                                                                                                                                                 
|   
|(2) | Of the $78.6 million of minimum lease payments,
    $76.3 million of those payments relate to operating leases
    and the remaining $2.3 million of payments relate to
    capital leases. See Note 10 to the Consolidated Financial
    Statements.
|   
|(3) | See Note 13 to the Consolidated Financial Statements.                                                                                                                                                                                                
|   
|(4) | Purchase commitments relate to equipment items and certain
    non-chicken menu items.                                                                                                                                                               



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|                                             |  |        |      |  |      |   |       |      |  |   |      |  |  |      |      |  |       |   |      |       |  |   |      |  |  |   |       | 
|-------------------------------------------- |  | ------ | ---- |  | ---- | - | ----- | ---- |  | - | ---- |  |  | ---- | ---- |  | ----- | - | ---- | ----- |  | - | ---- |  |  | - | ----- | 
|                                             | 
|                                             |  | There- |      |  |     
|(in millions)                                |  | 2005   |      |  | 2006 |   |       | 2007 |  |   | 2008 |  |  | 2009 |      |  | after |   |      | Total | 
|                                             | 
|Long-term debt, excluding capital leases     |  | $      | 4.9  |  |      | $ | 85.8  |      |  | $ | 0.2  |  |  | $    | 0.1  |  |       | $ | 0.2  |       |  | $ | 0.6  |  |  | $ | 91.8  | 
|Leases                                       |  |        | 7.8  |  |      |   | 7.5   |      |  |   | 6.7  |  |  |      | 5.9  |  |       |   | 5.0  |       |  |   | 18.5 |  |  |   | 51.4  | 
|Copeland formula agreement                   |  |        | 3.1  |  |      |   | 3.1   |      |  |   | 3.1  |  |  |      | 3.1  |  |       |   | 3.1  |       |  |   | 58.4 |  |  |   | 73.9  | 
|Accounting, tax and IT outsourcing  DCO     |  |        | 2.6  |  |      |   | 2.8   |      |  |   | 2.9  |  |  |      | 3.1  |  |       |   | 3.2  |       |  |   |     |  |  |   | 14.6  | 
|Business process services  IBM              |  |        | 5.0  |  |      |   | 4.8   |      |  |   | 4.5  |  |  |      | 4.3  |  |       |   | 4.2  |       |  |   | 1.1  |  |  |   | 23.9  | 
|King Features agreements                     |  |        | 0.9  |  |      |   | 0.9   |      |  |   | 0.9  |  |  |      | 0.9  |  |       |   | 0.9  |       |  |   | 0.5  |  |  |   | 5.0   | 
|Post-employment payments to a former officer |  |        | 0.4  |  |      |   | 0.4   |      |  |   | 0.4  |  |  |      | 0.3  |  |       |   | 0.3  |       |  |   | 0.7  |  |  |   | 2.5   | 
|Purchase commitments                         |  |        | 1.1  |  |      |   |      |      |  |   |     |  |  |      |     |  |       |   |     |       |  |   |     |  |  |   | 1.1   | 
|                                            
|                                             |  | $      | 25.8 |  |      | $ | 105.3 |      |  | $ | 18.7 |  |  | $    | 17.7 |  |       | $ | 16.9 |       |  | $ | 79.8 |  |  | $ | 264.2 | 
|                                            

Off-Balance Sheet Arrangements


SMS Indemnity Agreement.


AFC Loan Guarantee Programs.




32



---



##### Table of Contents







Other Commitments.


Long Term Debt


2002 Credit Facility.














33



---



##### Table of Contents











Amendments to the 2002 Credit Facility.










34



---



##### Table of Contents







Senior Subordinated Notes.


Share Repurchase Program




Capital Expenditures














35



---



##### Table of Contents



Impact of Inflation




Tax Matters




Market Risk




Chicken Market Risk.




Foreign Currency Exchange Rate Risk.




Interest Rate Risk.


Critical Accounting Policies




36



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##### Table of Contents





Consolidation of Variable Interest Entities.


Impairment of Long-Lived Assets.


Impairment of Goodwill.




Gains and Losses Associated With Unit Conversions.


Allowances for Accounts and Notes Receivables and
Contingent Liabilities.




37



---



##### Table of Contents







Leases. Accounting for
Leases,






Income Tax Reserves.




Accounting Standards Adopted in 2004


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


Accounting Standards That We Have Not Yet Adopted




38



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##### Table of Contents



Risks Factors That May Affect Financial Condition and Results
of Operations


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.




| |                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Litigation or regulatory actions arising in connection
    with the restatement of our financial statements could adversely
    affect our financial condition.









| |                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Relationships with franchisees and our vendors and
    suppliers may be adversely affected by our restatement of our
    financial results and related litigation.



39



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





| |                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If 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.





| |                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are unable to successfully address the deficiencies
    in our internal controls, our ability to report our financial
    results on a timely and accurate basis may continue to be
    adversely affected.





| |                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our 2002 Credit Facility may limit our ability to expand
    our business, and our ability to comply with the covenants,
    tests and restrictions contained in these agreements may be
    affected by events that are beyond our control.



40



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##### Table of Contents









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







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





| |                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.



41



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##### Table of Contents







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





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





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



42



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##### Table of Contents







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





| |                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 disposition of company-operated restaurants;                                                           
|
| |  | the opening of new restaurants by us or our franchisees;                                                   
|
| |  | increases in labor costs;                                                                                  
|
| |  | increases in the cost of food products;                                                                    
|
| |  | the ability of our franchisees to meet their future commitments
    under development agreements;          
|
| |  | consumer concerns about food quality;                                                                      
|
| |  | the level of competition from existing or new competitors in the
    QSR industry;                         
|
| |  | inclement weather patterns, and                                                                            
|
| |  | economic conditions generally, and in each of the markets in
    which we, or our franchisees, are located.





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





| |   |                                                     
| | - | ----------------------------------------------------
| |  | the preparation and sale of food;                   
|
| |  | building and zoning requirements;                   
|
| |  | environmental protection;                           
|
| |  | minimum wage, overtime and other labor requirements;

43



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##### Table of Contents





| |   |                                                         
| | - | --------------------------------------------------------
| |  | compliance with the Americans with Disabilities Act; and
|
| |  | working and safety conditions.                          







| |                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------
| | We continue to increase the size of our franchisee system,
    and this growth may place a significant strain on our
    resources.





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





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







| |                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.



44



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##### Table of Contents













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








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








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








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



45



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##### Table of Contents








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

Disclosure controls and procedures.


Our evaluation of AFCs disclosure controls and
procedures.


Managements Report on Internal Control Over
Financial Reporting.


.






46



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##### Table of Contents







Inherent Limitations of Any Control System.


Changes in Internal Control Over Financial Reporting.









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



47



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##### Table of Contents






PART III.





Item 10.     DIRECTORS AND
EXECUTIVE OFFICERS OF THE REGISTRANT









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




48



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##### Table of Contents








|         |                                       
|-------- | --------------------------------------
|Item 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES



| |           
| | ----------
| | Audit Fees





| |                   
| | ------------------
| | Audit-Related Fees





| |         
| | --------
| | Tax Fees





| |               
| | --------------
| | All Other Fees





49



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##### Table of Contents






PART IV.







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

(a) Financial Statements




|                                                                                                    |  |       |     | 
|--------------------------------------------------------------------------------------------------- |  | ----- | --- | 
|                                                                                                    |  | Pages |    
|                                                                                                    |  |       |    
|Report of Independent Registered Public Accounting Firm                                             |  |       | F-1 | 
|Consolidated Balance Sheets as of December 26, 2004 and
    December 28, 2003                       |  |       | F-2 | 
|Consolidated Statements of Operations for Fiscal Years 2004,
    2003 and 2002                      |  |       | F-3 | 
|Consolidated Statements of Changes in Shareholders Equity
    for Fiscal Years 2004, 2003 and 2002 |  |       | F-4 | 
|Consolidated Statements of Cash Flows for Fiscal Years 2004,
    2003 and 2002                      |  |       | F-5 | 
|Notes to the Consolidated Financial Statements                                                      |  |       | F-6 | 



(b) Exhibits


|        |         |  |             |                                                                                                                                                                                                                                                                                                                                                                                                                                              
|------- | ------- |  | ----------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |  |            
|Number  |         |  | Description
|        |         |  |            
|        | 2.1(h)  |  |             | Stock Purchase Agreement between AFC Enterprises, Inc. and
    Starbucks, dated as of April 15, 2003                                                                                                                                                                                                                                                                                                                                         
|        | 2.2(n)  |  |             | First Amendment to Stock Purchase Agreement between AFC
    Enterprises, Inc. and Starbucks, dated as of June 30, 2003                                                                                                                                                                                                                                                                                                                       
|        | 2.3(n)  |  |             | Second Amendment to Stock Purchase Agreement between AFC
    Enterprises, Inc. and Starbucks, dated as of July 11, 2003                                                                                                                                                                                                                                                                                                                      
|        | 2.4(n)  |  |             | Third Amendment to Stock Purchase Agreement between AFC
    Enterprises, Inc. and Starbucks, dated as of November 19,
    2003                                                                                                                                                                                                                                                                                                               
|        | 2.5(j)  |  |             | Stock Purchase Agreement by and between AFC Enterprises, Inc.
    and Focus Brands Inc. dated as of September 3, 2004                                                                                                                                                                                                                                                                                                                        
|        | 2.6(j)  |  |             | First Amendment to Stock Purchase Agreement by and between AFC
    Enterprises, Inc. and Focus Brands Inc. dated as of
    November 1, 2004                                                                                                                                                                                                                                                                                                  
|        | 2.7(k)  |  |             | Asset Purchase Agreement by and among AFC Enterprises, Inc. and
    Cajun Holding Company dated as of October 30, 2004                                                                                                                                                                                                                                                                                                                       
|        | 2.8(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     |  |             | Amended and Restated Bylaws of AFC Enterprises, Inc.                                                                                                                                                                                                                                                                                                                                                                                         
|        | 4.1(q)  |  |             | Form of registrants common stock certificate                                                                                                                                                                                                                                                                                                                                                                                                
|        | 10.1(a) |  |             | Stockholders Agreement dated April 11, 1996 (the 1996
    Stockholders Agreement) among FS Equity Partners III,
    L.P. and FS Equity Partners International, L.P., CIBC, Pilgrim
    Prime Rate Trust, Van Kampen American Capital Prime Rate Income
    Trust, Senior Debt Portfolio, ML IBK Positions, Inc., Frank J.
    Belatti, Dick R. Holbrook, Samuel N. Frankel (collectively, the
    Shareholders) and AFC Enterprises, Inc.
|        | 10.2(a) |  |             | Amendment No. 1 to the 1996 Stockholders Agreement
    dated as of May 1, 1996 by and among the Shareholders and
    PENMAN Private Equity and Mezzanine Fund, L.P.                                                                                                                                                                                                                                                                         
|        | 10.3(e) |  |             | Form of Popeyes Development Agreement, as amended                                                                                                                                                                                                                                                                                                                                                                                            
|        | 10.4(e) |  |             | Form of Popeyes Franchise Agreement                                                                                                                                                                                                                                                                                                                                                                                                          

50



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##### Table of Contents



|        |          |  |             |                                                                                                                                                                                                                                                
|------- | -------- |  | ----------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |          |  |            
|Number  |          |  | Description
|        |          |  |            
|        | 10.5(a)  |  |             | Formula Agreement dated July 2, 1979 among Alvin C.
    Copeland, Gilbert E. Copeland, Mary L. Copeland, Catherine
    Copeland, Russell J. Jones, A. Copeland Enterprises, Inc. and
    Popeyes Famous Fried Chicken, Inc., as amended to date
|        | 10.6(a)  |  |             | Supply Agreement dated March 21, 1989 between New Orleans
    Spice Company, Inc. and Biscuit Investments, Inc.                                                                                                                                
|        | 10.7(a)  |  |             | Recipe Royalty Agreement dated March 21, 1989 by and among
    Alvin C. Copeland, New Orleans Spice Company, Inc. and Biscuit
    Investments, Inc.                                                                                            
|        | 10.8(a)  |  |             | Licensing Agreement dated March 11, 1976 between King
    Features Syndicate Division of The Hearst Corporation and A.
    Copeland Enterprises, Inc.                                                                                          
|        | 10.9(a)  |  |             | Assignment and Amendment dated January 1, 1981 between
    A. Copeland Enterprises, Inc., Popeyes Famous Fried
    Chicken, Inc. and King Features Syndicate Division of The Hearst
    Corporation                                            
|        | 10.10(a) |  |             | Letter Agreement dated September 17, 1981 between King
    Features Syndicate Division of The Hearst Corporation,
    A. Copeland Enterprises, Inc. and Popeyes Famous Fried
    Chicken, Inc.                                                 
|        | 10.11(a) |  |             | License Agreement dated December 19, 1985 by and between
    King Features Syndicate, Inc., The Hearst Corporation, Popeyes,
    Inc. and A. Copeland Enterprises, Inc.                                                                        
|        | 10.12(a) |  |             | Letter Agreement dated July 20, 1987 by and between King
    Features Syndicate, Division of The Hearst Corporation, Popeyes,
    Inc. and A. Copeland Enterprises, Inc.                                                                       
|        | 10.13(b) |  |             | Amendment dated January 1, 2002 by and between Hearst
    Holdings, Inc., King Features Syndicate Division and AFC
    Enterprises, Inc.                                                                                                       
|        | 10.14(a) |  |             | Employment Agreement dated as of December 4, 1995 between
    AFC and Samuel N. Frankel.*                                                                                                                                                      
|        | 10.15(a) |  |             | 1992 Stock Option Plan of AFC, effective as of November 5,
    1992, as amended to date.*                                                                                                                                                      
|        | 10.16(a) |  |             | 1996 Nonqualified Performance Stock Option Plan 
    Executive of AFC, effective as of April 11, 1996.*                                                                                                                                       
|        | 10.17(a) |  |             | 1996 Nonqualified Performance Stock Option Plan 
    General of AFC, effective as of April 11, 1996.*                                                                                                                                         
|        | 10.18(a) |  |             | 1996 Nonqualified Stock Option Plan of AFC, effective as of
    April 11, 1996.*                                                                                                                                                               
|        | 10.19(a) |  |             | Form of Nonqualified Stock Option Agreement  General
    between AFC and stock option participants.*                                                                                                                                          
|        | 10.20(a) |  |             | Form of Nonqualified Stock Option Agreement 
    Executive between AFC and certain key executives.*                                                                                                                                           
|        | 10.21(a) |  |             | 1996 Employee Stock Bonus Plan  Executive of AFC
    effective as of April 11, 1996.*                                                                                                                                                         
|        | 10.22(a) |  |             | 1996 Employee Stock Bonus Plan  General of AFC
    effective as of April 11, 1996.*                                                                                                                                                           
|        | 10.23(a) |  |             | Form of Stock Bonus Agreement  Executive between AFC
    and certain executive officers.*                                                                                                                                                     
|        | 10.24(a) |  |             | Form of Stock Bonus Agreement  General between AFC
    and certain executive officers.*                                                                                                                                                       
|        | 10.25(a) |  |             | Form of Secured Promissory Note issued by certain members of
    management.*                                                                                                                                                                  
|        | 10.26(a) |  |             | Form of Stock Pledge Agreement between AFC and certain members
    of management.*                                                                                                                                                             
|        | 10.27(a) |  |             | Settlement Agreement between Alvin C. Copeland, Diversified
    Foods and Seasonings, Inc., Flavorite Laboratories, Inc. and AFC
    dated May 29, 1997                                                                                        
|        | 10.28(d) |  |             | Stockholder Agreement by and among AFC Franchise Acquisition
    Corp. and other signatories dated as of August 13, 1998                                                                                                                       
|        | 10.29(e) |  |             | Stockholders Agreement dated as of March 18, 1998 among FS
    Equity Partners III, L.P., FS Equity Partners
    International, L.P., the new shareholders identified therein and
    AFC                                                      
|        | 10.30(a) |  |             | Indemnification Agreement dated April 11, 1996 by and
    between AFC and Ronald P. Spogli.*                                                                                                                                                   
|        | 10.31(a) |  |             | Indemnification Agreement dated April 11, 1996 by and
    between AFC and John M. Roth.*                                                                                                                                                       
|        | 10.32(a) |  |             | Indemnification Agreement dated May 1, 1996 by and between
    AFC and Kelvin J. Pennington.*                                                                                                                                                  
|        | 10.33(a) |  |             | Indemnification Agreement dated April 11, 1996 by and
    between AFC and Matt L. Figel.*                                                                                                                                                      

51



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|        |          |  |             |                                                                                                                                                       
|------- | -------- |  | ----------- | ------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |          |  |            
|Number  |          |  | Description
|        |          |  |            
|        | 10.34(a) |  |             | Indemnification Agreement dated April 11, 1996 by and
    between AFC and Frank J. Belatti.*                                                          
|        | 10.35(e) |  |             | Employment Agreement dated as of December 8, 2000 between
    AFC and Frank J. Belatti.*                                                              
|        | 10.36(e) |  |             | Employment Agreement dated as of December 8, 2000 between
    AFC and Dick R. Holbrook.*                                                              
|        | 10.37(i) |  |             | Amended and Restated Employment Agreement dated as of
    June 28, 2004 between AFC and Hala Moddelmog.*                                              
|        | 10.38(e) |  |             | Amendment No. 3 to the 1996 Stockholders Agreement dated as
    of February 8, 2001 by and among AFC and the other
    signatories thereto            
|        | 10.39(e) |  |             | Substitute Nonqualified Stock Option Plan, effective
    March 17, 1998.*                                                                             
|        | 10.40(i) |  |             | First Amendment to Employment Agreement dated February 8,
    2001 between AFC and Frank J. Belatti.*                                                 
|        | 10.41(i) |  |             | Fourth Amendment to Employment Agreement dated as of
    February 9, 2001 between AFC and Samuel N. Frankel.*                                         
|        | 10.42(i) |  |             | First Amendment to Employment Agreement dated February 8,
    2001 between AFC and Dick R. Holbrook.*                                                 
|        | 10.43(p) |  |             | 2004 Adjusted Short Term Incentive Plan.*                                                                                                             
|        | 10.44(f) |  |             | Second Amendment to Employment Agreement dated August 31,
    2001 between AFC and Frank J. Belatti.*                                                 
|        | 10.45(f) |  |             | Second Amendment to Employment Agreement dated August 31,
    2001 between AFC and Dick R. Holbrook.*                                                 
|        | 10.46    |  |             | Popeyes Chicken and Biscuits 2005 Bonus Plan.*                                                                                                        
|        | 10.47(f) |  |             | Indemnification Agreement dated May 16, 2001 by and between
    AFC and Gerald J. Wilkins.*                                                           
|        | 10.48(f) |  |             | Indemnification Agreement dated May 16, 2001 by and between
    AFC and Victor Arias Jr.*                                                             
|        | 10.49(f) |  |             | Indemnification Agreement dated May 16, 2001 by and between
    AFC and Carolyn Hogan Byrd.*                                                          
|        | 10.50(f) |  |             | Indemnification Agreement dated August 9, 2001 by and
    between AFC and R. William Ide, III.*                                                       
|        | 10.51(g) |  |             | AFC Enterprises, Inc. Employee Stock Purchase Plan.*                                                                                                  
|        | 10.52(g) |  |             | AFC Enterprises, Inc. 2002 Incentive Stock Plan.*                                                                                                     
|        | 10.53(g) |  |             | AFC Enterprises, Inc. Annual Executive Bonus Program.*                                                                                                
|        | 10.54(o) |  |             | First Amendment to Employment Agreement dated as of June 1,
    1997 between AFC Enterprises, Inc. and Samuel N. Frankel.*                            
|        | 10.55(o) |  |             | Second Amendment to Employment Agreement dated as of
    April 16, 1998 between AFC Enterprises, Inc. and Samuel N.
    Frankel.*                     
|        | 10.56(o) |  |             | Third Amendment to Employment Agreement dated as of May 17,
    2000 between AFC Enterprises, Inc. and Samuel N. Frankel.*                            
|        | 10.57(m) |  |             | Amended and Restated Employment Agreement dated as of
    June 28, 2004 between AFC Enterprises, Inc. and Allan J.
    Tanenbaum.*                    
|        | 10.58    |  |             | First Amendment to Amended and Restated Employment Agreement
    dated as of March 28, 2005 between AFC Enterprises, Inc.
    and Allan J. Tanenbaum.*
|        | 10.59(n) |  |             | Employment Agreement dated as of January 27, 2003 between
    AFC Enterprises, Inc. and Chris Elliott.*                                               
|        | 10.60(n) |  |             | Employment Agreement effective as of December 29, 2003
    between AFC Enterprises, Inc. and Frederick B. Beilstein.*                                 
|        | 10.61(n) |  |             | Employment Agreement effective as of February 12, 2004
    between AFC Enterprises, Inc. and Henry Hope, III.*                                        
|        | 10.62    |  |             | First Amendment to Employment Agreement dated as of
    March 28, 2005 between AFC Enterprises, Inc. and Frederick
    B. Beilstein.*                 
|        | 10.63    |  |             | First Amendment to Employment Agreement dated as of
    March 28, 2005 between AFC Enterprises, Inc. and Henry
    Hope, III.*                        

52



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|        |        |  |             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|------- | ------ |  | ----------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |        |  |            
|Number  |        |  | Description
|        |        |  |            
|        | 10.64  |  |             | Indemnity Agreement dated October 14, 2004 by and between
    AFC Enterprises, Inc. and Supply Management Services, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                  
|        | 10.65  |  |             | Indemnity Agreement dated February 5, 2005 by and between
    AFC Enterprises, Inc., Cajun Operating Company and Supply
    Management Services, Inc.                                                                                                                                                                                                                                                                                                                                                                                     
|        | 10.66  |  |             | Amended and Restated Credit Agreement dated as of
    December 16, 2004 among AFC Enterprises, Inc., as Borrower,
    and the Lenders Party thereto, J.P. Morgan Chase Bank, as
    Administrative Agent, J.P. Morgan Securities, Inc., as
    Joint Bookrunner and Co-Lead Arranger, Credit Suisse First
    Boston, as Joint Bookrunner and Co-Lead Arranger, Credit
    Lyonnais New York Branch, as Co-Documentation Agent, Fleet
    National Bank, Inc., as Co-Documentation Agent, and SunTrust
    Bank, as Co-Documentation Agent
|        | 10.67  |  |             | Employment Agreement effective as of June 14, 2004 between
    AFC Enterprises, Inc. and Kenneth L. Keymer.*                                                                                                                                                                                                                                                                                                                                                                                                                              
|        | 10.68  |  |             | First Amendment to Employment Agreement dated as of
    March 28, 2005 between AFC Enterprises, Inc. and
    Kenneth L. Keymer.*                                                                                                                                                                                                                                                                                                                                                                                                          
|        | 11.1** |  |             | Statement regarding computation of per share earnings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        | 21.1   |  |             | Subsidiaries of AFC                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | 23.1   |  |             | Consent of Independent Registered Public Accounting Firm                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        | 31.1   |  |             | Certification Pursuant to Rule 13a-14(a), as Adopted
    Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                        
|        | 31.2   |  |             | Certification Pursuant to Rule 13a-14(a), as Adopted
    Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                        
|        | 32.1   |  |             | Certification of Chief Executive Officer, pursuant to 18 U.S.C
    Section 1350, as adopted pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                 
|        | 32.2   |  |             | Certification of Chief Financial Officer, pursuant to 18 U.S.C
    Section 1350, as adopted pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                 






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



|   |                                                                                                                                                               
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|*  | Management contract, compensatory plan or arrangement required
    to be filed as an exhibit.                                                                 
|  
|** | Data required by SFAS No. 128, Earnings per
    Share, is provided in Note 21 to the Consolidated
    Financial Statements in this Annual Report on Form 10-K.



|    |                                                                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Filed as an exhibit to the Registration Statement of AFC on
    Form S-4/A (Registration No. 333-29731) on
    July 2, 1997 and incorporated by reference herein.    
|   
|(b) | Filed as an exhibit to the Form 10-K of AFC for the year
    ended December 27, 1998 on March 29, 1999 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
    October 29, 1998 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 Registration Statement of AFC on
    Form S-1/A (Registration No. 333-52608) on
    February 9, 2001 and incorporated by reference herein.

53



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##### Table of Contents





|    |                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 Form 10-K of AFC for the fiscal
    year ended December 29, 2002 on December 15, 2003 and
    incorporated by reference herein.            
|   
|(p) | Filed as an exhibit to the Form 8-K of AFC filed
    February 18, 2005 and incorporated by reference herein.                                                          
|   
|(q) | 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.

54



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##### Table of Contents



SIGNATURES






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



| |     |                     
| | --- | --------------------
| | By: | /s/ Frank J. Belatti

| |                          
| | -------------------------
| |                          
| | Frank J. Belatti         
| | Chairman of the Board and
| | Chief Executive Officer  



|                                                     |  |                                                                                    |  |               
|---------------------------------------------------- |  | ---------------------------------------------------------------------------------- |  | --------------
|Signature                                            |  | Title(s)                                                                           |  | Date          
|                                                     |  |                                                                                    |  |               
|                                                    
|/s/ Frank J. BelattiFrank
    J. Belatti             |  | Chairman of the Board and
    Chief Executive Officer(Principal Executive Officer) |  | March 28, 2005
|                                                    
|/s/ Fred B. BeilsteinFred
    B. Beilstein           |  | Chief Financial Officer(Principal Financial and
     Accounting Officer)           |  | March 28, 2005
|                                                    
|/s/ Victor Arias, JrVictor
    Arias, Jr.            |  | Director                                                                           |  | March 28, 2005
|                                                    
|/s/ Carolyn H. ByrdCarolyn
    H. Byrd               |  | Director                                                                           |  | March 28, 2005
|                                                    
|/s/ R. William Ide, IIIR.
    William Ide, III       |  | Director                                                                           |  | March 28, 2005
|                                                    
|/s/ Kelvin J.
    PenningtonKelvin
    J. Pennington |  | Director                                                                           |  | March 28, 2005
|                                                    
|/s/ John M. RothJohn
    M. Roth                     |  | Director                                                                           |  | March 28, 2005
|                                                    
|/s/ Ronald P. SpogliRonald
    P. Spogli             |  | Director                                                                           |  | March 28, 2005
|                                                    
|/s/ Peter StarrettPeter
    Starrett                 |  | Director                                                                           |  | March 28, 2005

55



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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




















F-1



---



##### Table of Contents



AFC Enterprises, Inc.


Consolidated Balance Sheets


As of December 26, 2004 and December 28, 2003


(In millions, except share data)


|                                       |                                                                                                                                                                                              |                                            |   |       |       |  |   |       |       | 
|-------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | - | ----- | ----- |  | - | ----- | ----- | 
|                                       |                                                                                                                                                                                              | 2004                                       |   |       | 2003  | 
|                                       |                                                                                                                                                                                              |                                            |   |       |       | 
|ASSETS                                
|Current assets:                        |                                                                                                                                                                                              |                                            |   |       |       |  |   |      
|                                       | Cash and cash equivalents                                                                                                                                                                    |                                            | $ | 12.8  |       |  | $ | 3.6   |      
|                                       | Accounts and current notes receivable, net                                                                                                                                                   |                                            |   | 13.3  |       |  |   | 12.6  |      
|                                       | Prepaid income taxes                                                                                                                                                                         |                                            |   | 25.9  |       |  |   | 20.6  |      
|                                       | Other current assets                                                                                                                                                                         |                                            |   | 40.6  |       |  |   | 9.3   |      
|                                       | Assets of discontinued operations                                                                                                                                                            |                                            |   | 153.3 |       |  |   | 185.2 |      
|                                       |                                                                                                                                                                                              |                                            |   |       |       | 
|                                       |                                                                                                                                                                                              | Total current assets                       |   |       | 245.9 |  |   |       | 231.3 | 
|                                       |                                                                                                                                                                                              |                                            |   |       |       | 
|Long-term assets:                      |                                                                                                                                                                                              |                                            |   |       |       |  |   |      
|                                       | Property and equipment, net                                                                                                                                                                  |                                            |   | 47.2  |       |  |   | 56.1  |      
|                                       | Goodwill                                                                                                                                                                                     |                                            |   | 9.6   |       |  |   | 9.6   |      
|                                       | Trademarks and other intangible assets, net                                                                                                                                                  |                                            |   | 42.8  |       |  |   | 42.8  |      
|                                       | Other long-term assets, net                                                                                                                                                                  |                                            |   | 16.4  |       |  |   | 19.7  |      
|                                       |                                                                                                                                                                                              |                                            |   |       |       | 
|                                       |                                                                                                                                                                                              | Total long-term assets                     |   |       | 116.0 |  |   |       | 128.2 | 
|                                       |                                                                                                                                                                                              |                                            |   |       |       | 
|                                       |                                                                                                                                                                                              | Total assets                               |   | $     | 361.9 |  |   | $     | 359.5 | 
|                                       |                                                                                                                                                                                              |                                            |   |       |       | 
|                                      
|LIABILITIES AND SHAREHOLDERS EQUITY  
|Current liabilities:                   |                                                                                                                                                                                              |                                            |   |       |       |  |   |      
|                                       | Accounts payable                                                                                                                                                                             |                                            | $ | 41.6  |       |  | $ | 23.2  |      
|                                       | Accrued liabilities                                                                                                                                                                          |                                            |   | 20.8  |       |  |   | 13.1  |      
|                                       | Current debt maturities                                                                                                                                                                      |                                            |   | 4.9   |       |  |   | 12.1  |      
|                                       | Liabilities of discontinued operations                                                                                                                                                       |                                            |   | 41.5  |       |  |   | 53.0  |      
|                                       |                                                                                                                                                                                              |                                            |   |       |       | 
|                                       |                                                                                                                                                                                              | Total current liabilities                  |   |       | 108.8 |  |   |       | 101.4 | 
|                                       |                                                                                                                                                                                              |                                            |   |       |       | 
|Long-term liabilities:                 |                                                                                                                                                                                              |                                            |   |       |       |  |   |      
|                                       | Long-term debt                                                                                                                                                                               |                                            |   | 87.5  |       |  |   | 118.0 |      
|                                       | Deferred credits and other long-term liabilities                                                                                                                                             |                                            |   | 24.7  |       |  |   | 31.3  |      
|                                       |                                                                                                                                                                                              |                                            |   |       |       | 
|                                       |                                                                                                                                                                                              | Total long-term liabilities                |   |       | 112.2 |  |   |       | 149.3 | 
|                                       |                                                                                                                                                                                              |                                            |   |       |       | 
|Commitments and contingencies(Note 13) |                                                                                                                                                                                              |                                            |   |       |       |  |   |      
|Shareholders equity:                  |                                                                                                                                                                                              |                                            |   |       |       |  |   |      
|                                       | Preferred stock ($.01 par value; 2,500,000 shares
    authorized;
    0 issued and outstanding)                                                                                              |                                            |   |      |       |  |   |      |      
|                                       | Common stock ($.01 par value; 150,000,000 shares
    authorized;
    28,325,355 and 27,992,999 shares issued and outstanding at
    the
    end of fiscal years 2004 and 2003, respectively) |                                            |   | 0.3   |       |  |   | 0.3   |      
|                                       | Capital in excess of par value                                                                                                                                                               |                                            |   | 155.4 |       |  |   | 150.1 |      
|                                       | Notes receivable from officers, including accrued interest                                                                                                                                   |                                            |   | (1.2  | )     |  |   | (3.4  | )    
|                                       | Accumulated losses                                                                                                                                                                           |                                            |   | (13.6 | )     |  |   | (38.2 | )    
|                                       |                                                                                                                                                                                              |                                            |   |       |       | 
|                                       |                                                                                                                                                                                              | Total shareholders equity                 |   |       | 140.9 |  |   |       | 108.8 | 
|                                       |                                                                                                                                                                                              |                                            |   |       |       | 
|                                       |                                                                                                                                                                                              | Total liabilities and shareholders equity |   | $     | 361.9 |  |   | $     | 359.5 | 
|                                       |                                                                                                                                                                                              |                                            |   |       |       | 



F-2



---



##### Table of Contents



AFC Enterprises, Inc.


Consolidated Statements of Operations


For Fiscal Years 2004, 2003 and 2002


(In millions, except per share data)


|                                                                                               |                                                                |                |       |       |       |   |       |       |       |   |       |       |       | 
|---------------------------------------------------------------------------------------------- | -------------------------------------------------------------- | -------------- | ----- | ----- | ----- | - | ----- | ----- | ----- | - | ----- | ----- | ----- | 
|                                                                                               |                                                                | 2004           |       |       | 2003  |   |       | 2002  |      
|                                                                                               |                                                                |                |       |       |       |   |       |       |      
|Revenues:                                                                                      |                                                                |                |       |       |       |   |       |       |       |   |       |      
|                                                                                               | Sales by company-operated restaurants                          |                | $     | 85.8  |       |   | $     | 85.4  |       |   | $     | 85.2  |      
|                                                                                               | Franchise revenues                                             |                |       | 72.8  |       |   |       | 70.8  |       |   |       | 67.1  |      
|                                                                                               | Other revenues                                                 |                |       | 5.3   |       |   |       | 5.3   |       |   |       | 6.6   |      
|                                                                                               |                                                                |                |       |       |       |   |       |       |      
|                                                                                               |                                                                | Total revenues |       |       | 163.9 |   |       |       | 161.5 |   |       |       | 158.9 | 
|                                                                                               |                                                                |                |       |       |       |   |       |       |      
|Expenses:                                                                                      |                                                                |                |       |       |       |   |       |       |       |   |       |      
|                                                                                               | Restaurant employee, occupancy and other expenses              |                |       | 46.9  |       |   |       | 46.9  |       |   |       | 46.1  |      
|                                                                                               | Restaurant food, beverages and packaging                       |                |       | 27.2  |       |   |       | 26.7  |       |   |       | 25.7  |      
|                                                                                               | General and administrative expenses                            |                |       | 82.1  |       |   |       | 66.0  |       |   |       | 63.3  |      
|                                                                                               | Depreciation and amortization                                  |                |       | 10.0  |       |   |       | 10.7  |       |   |       | 9.9   |      
|                                                                                               | Other expenses, net                                            |                |       | 17.1  |       |   |       | 30.9  |       |   |       | 3.6   |      
|                                                                                               |                                                                |                |       |       |       |   |       |       |      
|                                                                                               |                                                                | Total expenses |       |       | 183.3 |   |       |       | 181.2 |   |       |       | 148.6 | 
|                                                                                               |                                                                |                |       |       |       |   |       |       |      
|                                                                                              
|Operating (loss) profit                                                                        |                                                                |                | (19.4 | )     |       |   | (19.7 | )     |       |   | 10.3  |      
|                                                                                               | Interest expense, net                                          |                |       | 5.5   |       |   |       | 5.3   |       |   |       | 21.1  |      
|                                                                                               |                                                                |                |       |       |       |   |       |       |      
|Loss before income taxes, minority interest, discontinued
    operations and accounting change |                                                                |                | (24.9 | )     |       |   | (25.0 | )     |       |   | (10.8 | )    
|                                                                                               | Income tax benefit                                             |                |       | (10.7 | )     |   |       | (10.5 | )     |   |       | (4.4  | )    
|                                                                                               | Minority interest                                              |                |       | 0.1   |       |   |       |      |       |   |       |      |      
|                                                                                               |                                                                |                |       |       |       |   |       |       |      
|Loss before discontinued operations and accounting change                                      |                                                                |                | (14.3 | )     |       |   | (14.5 | )     |       |   | (6.4  | )    
|                                                                                               | Discontinued operations, net of income taxes                   |                |       | 39.1  |       |   |       | 5.6   |       |   |       | (5.3  | )    
|                                                                                               | Cumulative effect of an accounting change, net of income taxes |                |       | (0.2  | )     |   |       | (0.2  | )     |   |       |      |      
|                                                                                               |                                                                |                |       |       |       |   |       |       |      
|Net income (loss)                                                                              |                                                                | $              | 24.6  |       |       | $ | (9.1  | )     |       | $ | (11.7 | )    
|                                                                                               |                                                                |                |       |       |       |   |       |       |      
|Basic loss per common share:                                                                   |                                                                |                |       |       |       |   |       |       |       |   |       |      
|                                                                                               | Loss before discontinued operations and accounting change      |                | $     | (0.51 | )     |   | $     | (0.52 | )     |   | $     | (0.21 | )    
|                                                                                               | Discontinued operations, net of income taxes                   |                |       | 1.39  |       |   |       | 0.20  |       |   |       | (0.18 | )    
|                                                                                               | Cumulative effect of an accounting change, net of income taxes |                |       | (0.01 | )     |   |       | (0.01 | )     |   |       |      |      
|                                                                                               |                                                                |                |       |       |       |   |       |       |      
|                                                                                               | Net income (loss)                                              |                | $     | 0.87  |       |   | $     | (0.33 | )     |   | $     | (0.39 | )    
|                                                                                               |                                                                |                |       |       |       |   |       |       |      
|Diluted loss per common share:                                                                 |                                                                |                |       |       |       |   |       |       |       |   |       |      
|                                                                                               | Loss before discontinued operations and accounting change      |                | $     | (0.51 | )     |   | $     | (0.52 | )     |   | $     | (0.21 | )    
|                                                                                               | Discontinued operations, net of income taxes                   |                |       | 1.39  |       |   |       | 0.20  |       |   |       | (0.18 | )    
|                                                                                               | Cumulative effect of an accounting change, net of income taxes |                |       | (0.01 | )     |   |       | (0.01 | )     |   |       |      |      
|                                                                                               |                                                                |                |       |       |       |   |       |       |      
|                                                                                               | Net income (loss)                                              |                | $     | 0.87  |       |   | $     | (0.33 | )     |   | $     | (0.39 | )    
|                                                                                               |                                                                |                |       |       |       |   |       |       |      



F-3



---



##### Table of Contents



AFC Enterprises, Inc.


Consolidated Statements of Changes in Shareholders
Equity


For Fiscal Years 2004, 2003 and 2002


(In millions, except share data)


|                             |                                                   |              |            |            |            |   |     |         |  |       |            |       |             |        |      |      |       |   |       |       |   |   |       |       |  
|---------------------------- | ------------------------------------------------- | ------------ | ---------- | ---------- | ---------- | - | --- | ------- |  | ----- | ---------- | ----- | ----------- | ------ | ---- | ---- | ----- | - | ----- | ----- | - | - | ----- | ----- | -
|                             |                                                   | Common Stock |            |            | Capital in |   |     |         |  |       |            |      
|                             |                                                   |              |            |            | Excess of  |   |     | Officer |  |       |            |       |            
|                             |                                                   | Number of    |            |            |            |   | Par |         |  | Notes |            |       | Accumulated |        |      |     
|                             |                                                   | Shares       |            |            | Amount     |   |     | Value   |  |       | Receivable |       |             | Losses |      |      | Total |  
|                             |                                                   |              |            |            |            |   |     |         |  |       |            |       |             |        |      |      |       |  
|Balance at December 30, 2001 |                                                   |              | 30,441,887 |            |            | $ | 0.3 |         |  | $     | 212.1      |       |             | $      | (7.7 | )    |       | $ | (17.4 | )     |   | $ | 187.3 |      
|                             | Issuance of common stock, net of offering costs   |              |            | 19,365     |            |   |     |        |  |       |            | 0.3   |             |        |      |     |       |   |       |      |   |   |       | 0.3   |  
|                             | Issuance of common stock under stock option plans |              |            | 710,455    |            |   |     |        |  |       |            | 10.2  |             |        |      |     |       |   |       |      |   |   |       | 10.2  |  
|                             | Repurchase and cancellation of shares             |              |            | (3,692,963 | )          |   |     |        |  |       |            | (77.9 | )           |        |      |     |       |   |       |      |   |   |       | (77.9 | )
|                             | Notes and interest receivable payments            |              |            |           |            |   |     |        |  |       |            |      |             |        |      | 2.1  |       |   |       |      |   |   |       | 2.1   |  
|                             | Interest accrued                                  |              |            |           |            |   |     |        |  |       |            |      |             |        |      | (0.3 | )     |   |       |      |   |   |       | (0.3  | )
|                             | Amortization of discount                          |              |            |           |            |   |     |        |  |       |            |      |             |        |      | (0.2 | )     |   |       |      |   |   |       | (0.2  | )
|                             | Net loss                                          |              |            |           |            |   |     |        |  |       |            |      |             |        |      |     |       |   |       | (11.7 | ) |   |       | (11.7 | )
|                             |                                                   |              |            |            |            |   |     |         |  |       |            |       |             |        |      |      |       |  
|Balance at December 29, 2002 |                                                   |              | 27,478,744 |            |            |   | 0.3 |         |  |       | 144.7      |       |             |        | (6.1 | )    |       |   | (29.1 | )     |   |   | 109.8 |      
|                             | Issuance of common stock                          |              |            | 25,889     |            |   |     |        |  |       |            | 0.4   |             |        |      |     |       |   |       |      |   |   |       | 0.4   |  
|                             | Issuance of common stock under stock option plans |              |            | 488,366    |            |   |     |        |  |       |            | 5.0   |             |        |      |     |       |   |       |      |   |   |       | 5.0   |  
|                             | Notes and interest receivable payments            |              |            |           |            |   |     |        |  |       |            |      |             |        |      | 3.1  |       |   |       |      |   |   |       | 3.1   |  
|                             | Interest accrued                                  |              |            |           |            |   |     |        |  |       |            |      |             |        |      | (0.3 | )     |   |       |      |   |   |       | (0.3  | )
|                             | Amortization of discount                          |              |            |           |            |   |     |        |  |       |            |      |             |        |      | (0.1 | )     |   |       |      |   |   |       | (0.1  | )
|                             | Net loss                                          |              |            |           |            |   |     |        |  |       |            |      |             |        |      |     |       |   |       | (9.1  | ) |   |       | (9.1  | )
|                             |                                                   |              |            |            |            |   |     |         |  |       |            |       |             |        |      |      |       |  
|Balance at December 28, 2003 |                                                   |              | 27,992,999 |            |            |   | 0.3 |         |  |       | 150.1      |       |             |        | (3.4 | )    |       |   | (38.2 | )     |   |   | 108.8 |      
|                             | Issuance of common stock                          |              |            | 8,230      |            |   |     |        |  |       |            | 0.1   |             |        |      |     |       |   |       |      |   |   |       | 0.1   |  
|                             | Issuance of common stock under stock option plans |              |            | 324,924    |            |   |     |        |  |       |            | 5.2   |             |        |      |     |       |   |       |      |   |   |       | 5.2   |  
|                             | Cancellation of shares                            |              |            | (798       | )          |   |     |        |  |       |            |      |             |        |      |     |       |   |       |      |   |   |       |      |  
|                             | Notes and interest receivable payments            |              |            |           |            |   |     |        |  |       |            |      |             |        |      | 2.3  |       |   |       |      |   |   |       | 2.3   |  
|                             | Interest accrued                                  |              |            |           |            |   |     |        |  |       |            |      |             |        |      | (0.1 | )     |   |       |      |   |   |       | (0.1  | )
|                             | Net income                                        |              |            |           |            |   |     |        |  |       |            |      |             |        |      |     |       |   |       | 24.6  |   |   |       | 24.6  |  
|                             |                                                   |              |            |            |            |   |     |         |  |       |            |       |             |        |      |      |       |  
|Balance at December 26, 2004 |                                                   |              | 28,325,355 |            |            | $ | 0.3 |         |  | $     | 155.4      |       |             | $      | (1.2 | )    |       | $ | (13.6 | )     |   | $ | 140.9 |      
|                             |                                                   |              |            |            |            |   |     |         |  |       |            |       |             |        |      |      |       |  



F-4



---



##### Table of Contents



AFC Enterprises, Inc.


Consolidated Statements of Cash Flows


For Fiscal Years 2004, 2003 and 2002


(In millions)


|                                                                                                       |                                                                                    |                                                  |                                                                          |       |      |       |       |      |      |       |        |      |      |       |  
|------------------------------------------------------------------------------------------------------ | ---------------------------------------------------------------------------------- | ------------------------------------------------ | ------------------------------------------------------------------------ | ----- | ---- | ----- | ----- | ---- | ---- | ----- | ------ | ---- | ---- | ----- | -
|                                                                                                       |                                                                                    | 2004                                             |                                                                          |       | 2003 |       |       | 2002 |     
|                                                                                                       |                                                                                    |                                                  |                                                                          |       |      |       |       |      |     
|Cash flows provided by (used in) operating activities:                                                 |                                                                                    |                                                  |                                                                          |       |      |       |       |      |      |       |        |     
|Net income (loss)                                                                                      |                                                                                    | $                                                | 24.6                                                                     |       |      | $     | (9.1  | )    |      | $     | (11.7  | )   
|Adjustments to reconcile net income (loss) to net cash provided
    by (used in) operating activities: |                                                                                    |                                                  |                                                                          |       |      |       |       |      |      |       |        |     
|                                                                                                       | Discontinued operations                                                            |                                                  |                                                                          | (39.1 | )    |       |       | (5.6 | )    |       |        | 5.3  |     
|                                                                                                       | Depreciation and amortization                                                      |                                                  |                                                                          | 10.0  |      |       |       | 10.7 |      |       |        | 9.9  |     
|                                                                                                       | Impairment and other write-downs of non-current assets                             |                                                  |                                                                          | 4.8   |      |       |       | 15.0 |      |       |        | 3.8  |     
|                                                                                                       | Net gain on sale of assets                                                         |                                                  |                                                                          | (0.5  | )    |       |       | (0.7 | )    |       |        | (0.2 | )   
|                                                                                                       | Cumulative effect of accounting changes, pre-tax                                   |                                                  |                                                                          | 0.2   |      |       |       | 0.3  |      |       |        |     |     
|                                                                                                       | Deferred income taxes                                                              |                                                  |                                                                          | 3.2   |      |       |       | (2.9 | )    |       |        | 6.6  |     
|                                                                                                       | Non-cash interest, net                                                             |                                                  |                                                                          | 1.3   |      |       |       | 0.5  |      |       |        | 3.7  |     
|                                                                                                       | Provision for credit losses                                                        |                                                  |                                                                          | 0.9   |      |       |       | 1.8  |      |       |        | 0.9  |     
|                                                                                                       | Minority interest                                                                  |                                                  |                                                                          | 0.1   |      |       |       |     |      |       |        |     |     
|                                                                                                       | Compensatory expense for stock options                                             |                                                  |                                                                          | 0.4   |      |       |       | 0.2  |      |       |        | 0.3  |     
|                                                                                                       | Change in operating assets and liabilities, exclusive of opening
    VIE balances: |                                                  |                                                                          |       |      |       |       |      |      |       |        |      |     
|                                                                                                       |                                                                                    | Accounts receivable                              |                                                                          |       | (2.4 | )     |       |      | (2.2 | )     |        |      | (0.5 | )    
|                                                                                                       |                                                                                    | Prepaid income taxes                             |                                                                          |       | (4.4 | )     |       |      | (1.8 | )     |        |      | (8.4 | )    
|                                                                                                       |                                                                                    | Other operating assets                           |                                                                          |       | (6.5 | )     |       |      | 4.0  |       |        |      | 0.6  |      
|                                                                                                       |                                                                                    | Accounts payable and other operating liabilities |                                                                          |       | 15.8 |       |       |      | 0.2  |       |        |      | 10.7 |      
|                                                                                                       |                                                                                    |                                                  |                                                                          |       |      |       |       |      |     
|                                                                                                       |                                                                                    |                                                  | Net cash provided by operating activities of continuing
    operations   |       |      | 8.4   |       |      |      | 10.4  |        |      |      | 21.0  |  
|                                                                                                       |                                                                                    |                                                  |                                                                          |       |      |       |       |      |     
|                                                                                                       |                                                                                    |                                                  | Net cash provided by operating activities of discontinued
    operations |       |      | 35.6  |       |      |      | 35.7  |        |      |      | 73.3  |  
|                                                                                                       |                                                                                    |                                                  |                                                                          |       |      |       |       |      |     
|Cash flows provided by (used in) investing activities:                                                 |                                                                                    |                                                  |                                                                          |       |      |       |       |      |      |       |        |     
|Capital expenditures of continuing operations                                                          |                                                                                    |                                                  | (8.5                                                                     | )     |      |       | (15.1 | )    |      |       | (20.0  | )   
|Capital expenditures of discontinued operations                                                        |                                                                                    |                                                  | (16.9                                                                    | )     |      |       | (10.4 | )    |      |       | (27.3  | )   
|Proceeds from dispositions of property and equipment                                                   |                                                                                    |                                                  | 2.0                                                                      |       |      |       | 1.8   |      |      |       | 32.5   |     
|Proceeds relating to the sale of discontinued operations, net                                          |                                                                                    |                                                  | 18.6                                                                     |       |      |       | 62.1  |      |      |       |       |     
|Proceeds from notes receivable                                                                         |                                                                                    |                                                  |                                                                         |       |      |       | 2.3   |      |      |       | 0.8    |     
|Issuances of notes receivable                                                                          |                                                                                    |                                                  |                                                                         |       |      |       | (1.2  | )    |      |       | (0.1   | )   
|Other, net                                                                                             |                                                                                    |                                                  | 2.0                                                                      |       |      |       |      |      |      |       |       |     
|                                                                                                       |                                                                                    |                                                  |                                                                          |       |      |       |       |      |     
|                                                                                                       |                                                                                    |                                                  | Net cash provided by (used in) investing activities                      |       |      | (2.8  | )     |      |      | 39.5  |        |      |      | (14.1 | )
|                                                                                                       |                                                                                    |                                                  |                                                                          |       |      |       |       |      |     
|Cash flows provided by (used in) financing activities:                                                 |                                                                                    |                                                  |                                                                          |       |      |       |       |      |      |       |        |     
|Proceeds from 2002 Credit Facility                                                                     |                                                                                    |                                                  |                                                                         |       |      |       |      |      |      |       | 200.0  |     
|Principal and premium payments  Senior Subordinated
    Notes                                         |                                                                                    |                                                  |                                                                         |       |      |       |      |      |      |       | (133.4 | )   
|Principal payments  1997 Credit Facility                                                              |                                                                                    |                                                  |                                                                         |       |      |       |      |      |      |       | (78.7  | )   
|Principal payments  2002 Credit Facility (term loans)                                                 |                                                                                    |                                                  | (39.9                                                                    | )     |      |       | (77.3 | )    |      |       | (27.1  | )   
|Principal proceeds (payments)  2002 Credit Facility
    (revolver), net                               |                                                                                    |                                                  | 0.9                                                                      |       |      |       | (16.3 | )    |      |       | 50.0   |     
|Principal payments  other notes (including VIEs in
    2004)                                          |                                                                                    |                                                  | (0.2                                                                     | )     |      |       | (2.0  | )    |      |       |       |     
|Principal payments  capital lease obligations                                                         |                                                                                    |                                                  | (0.1                                                                     | )     |      |       |      |      |      |       | (0.3   | )   
|Net repayments  Southtrust Line of Credit                                                             |                                                                                    |                                                  |                                                                         |       |      |       |      |      |      |       | (1.7   | )   
|Stock repurchases                                                                                      |                                                                                    |                                                  |                                                                         |       |      |       |      |      |      |       | (77.9  | )   
|Increase (decrease) in bank overdrafts, net (including effects
    of discontinued operations)         |                                                                                    |                                                  | 4.3                                                                      |       |      |       | (1.0  | )    |      |       | (7.8   | )   
|(Increase) decrease in restricted cash (including effects of
    discontinued operations)              |                                                                                    |                                                  | (1.4                                                                     | )     |      |       | (0.3  | )    |      |       | 0.6    |     
|Debt issuance costs                                                                                    |                                                                                    |                                                  |                                                                         |       |      |       | (0.2  | )    |      |       | (4.9   | )   
|Issuance of common stock, net                                                                          |                                                                                    |                                                  | 0.1                                                                      |       |      |       | 0.4   |      |      |       | 0.3    |     
|Proceeds from exercise of employee stock options                                                       |                                                                                    |                                                  | 3.8                                                                      |       |      |       | 3.2   |      |      |       | 4.7    |     
|Other, net                                                                                             |                                                                                    |                                                  | 0.5                                                                      |       |      |       | 2.1   |      |      |       | 0.5    |     
|                                                                                                       |                                                                                    |                                                  |                                                                          |       |      |       |       |      |     
|                                                                                                       |                                                                                    |                                                  | Net cash (used in) financing activities                                  |       |      | (32.0 | )     |      |      | (91.4 | )      |      |      | (75.7 | )
|                                                                                                       |                                                                                    |                                                  |                                                                          |       |      |       |       |      |     
|Net increase (decrease) in cash and cash equivalents                                                   |                                                                                    |                                                  | 9.2                                                                      |       |      |       | (5.8  | )    |      |       | 4.5    |     
|Cash and cash equivalents at beginning of year                                                         |                                                                                    |                                                  | 3.8                                                                      |       |      |       | 9.6   |      |      |       | 5.1    |     
|                                                                                                       |                                                                                    |                                                  |                                                                          |       |      |       |       |      |     
|Cash and cash equivalents at end of year                                                               |                                                                                    | $                                                | 13.0                                                                     |       |      | $     | 3.8   |      |      | $     | 9.6    |     
|                                                                                                       |                                                                                    |                                                  |                                                                          |       |      |       |       |      |     
|Cash and cash equivalents of continuing operations                                                     |                                                                                    | $                                                | 12.8                                                                     |       |      | $     | 3.6   |      |      | $     | 8.2    |     
|Cash and cash equivalents of discontinued operations                                                   |                                                                                    | $                                                | 0.2                                                                      |       |      | $     | 0.2   |      |      | $     | 1.4    |     



F-5



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##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


For Fiscal Years 2004, 2003 and 2002


Note  1 Description of Business


Continuing Operations.


Discontinued Operations.




tm






Note  2 Summary of Significant Accounting
Policies


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








F-6



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##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2004, 2003 and 2002














Use of Estimates.


Reclassifications.


Foreign Currency Transactions.


Fiscal Year.


Cash and Cash Equivalents.


F-7



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##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2004, 2003 and 2002




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

| |  |                                           |  |      |      |  |      |   |      |      |  |   |      |  |  | 
| |  | ----------------------------------------- |  | ---- | ---- |  | ---- | - | ---- | ---- |  | - | ---- |  |  | 
|
| |  | (in millions)                             |  | 2004 |      |  | 2003 |   |      | 2002 |  |   |     
|
| |  | Interest paid, net of capitalized amounts |  | $    | 6.0  |  |      | $ | 7.6  |      |  | $ | 21.1 |  |  | 
| |  | Income taxes paid, net of refunds         |  |      | 11.3 |  |      |   | 14.6 |      |  |   | 7.2  |  |  | 
|

Accounts Receivable, Net.


| |  |                            |  |      |     |  |      |   |      |      |  |   |      |   |  | 
| |  | -------------------------- |  | ---- | --- |  | ---- | - | ---- | ---- |  | - | ---- | - |  | 
|
| |  | (in millions)              |  | 2004 |     |  | 2003 |   |      | 2002 |  |   |     
|
| |  | Balance, beginning of year |  | $    | 2.7 |  |      | $ | 1.1  |      |  | $ | 1.0  |   |  | 
| |  | Provisions                 |  |      | 0.9 |  |      |   | 1.8  |      |  |   | 1.1  |   |  | 
| |  | Write-offs and adjustments |  |      |    |  |      |   | (0.1 | )    |  |   | 0.3  |   |  | 
| |  | Other                      |  |      | 0.1 |  |      |   | (0.1 | )    |  |   | (1.3 | ) |  | 
|
| |  | Balance, end of year       |  | $    | 3.7 |  |      | $ | 2.7  |      |  | $ | 1.1  |   |  | 
|

Notes Receivable, Net.






Inventories.


Property and Equipment.




F-8



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##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2004, 2003 and 2002




Assets Under Contractual Agreement.






Derivative Financial Instruments.


Goodwill and Other Intangible Assets.


Goodwill and Other Intangible Assets






F-9



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##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2004, 2003 and 2002








Debt Issuance Costs.


Advertising Fund.






Revenue Recognition  Sales by Company-Operated
Restaurants.


Revenue Recognition  Franchise
Operations.




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Development Agreements. In general, the
    Companys development agreements provide for the
    development of a specified number of QSRs within a defined
    geographic territory in accordance with a schedule of opening
    dates. Development schedules cover specified periods of time and
    typically have benchmarks for the number of QSRs to be opened at
    six to twelve month intervals. Development agreement payments
    are made when the agreement is executed and are nonrefundable.

F-10



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##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2004, 2003 and 2002




| |                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Franchise Agreements. In general, the
    Companys franchise agreements provide for the payment of a
    one-time fee associated with the opening of a new QSR and an
    ongoing royalty based on a percentage of QSR sales.



Other Revenues.


Gains and Losses Associated With Unit Conversions.








Stock-Based Employee Compensation.


| |  |                                                                                                                                       |  |      |      |   |      |   |       |      |  |   |       |   |  | 
| |  | ------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---- | - | ---- | - | ----- | ---- |  | - | ----- | - |  | 
|
| |  | (in millions, except per share amounts)                                                                                               |  | 2004 |      |   | 2003 |   |       | 2002 |  |   |      
|
| |  | Net income (loss) as reported                                                                                                         |  | $    | 24.6 |   |      | $ | (9.1  | )    |  | $ | (11.7 | ) |  | 
| |  | Total stock-based employee compensation
    expense determined under fair value method
    for all awards, net of related tax effects |  |      | (2.8 | ) |      |   | (2.2  | )    |  |   | (2.4  | ) |  | 
| |  |                                                                                                                                       |  |      |      |  
| |  | Pro forma net income (loss)                                                                                                           |  | $    | 21.8 |   |      | $ | (11.3 | )    |  | $ | (14.1 | ) |  | 
| |  |                                                                                                                                       |  |      |      |  
| |  | Basic loss per share                                                                                                                  |  |      |      |   |      |   |       |      |  |   |       |   |  | 
| |  | As reported                                                                                                                           |  | $    | 0.87 |   |      | $ | (0.33 | )    |  | $ | (0.39 | ) |  | 
| |  | Pro forma                                                                                                                             |  |      | 0.77 |   |      |   | (0.41 | )    |  |   | (0.47 | ) |  | 
| |  | Diluted loss per share(a)                                                                                                             |  |      |      |   |      |   |       |      |  |   |       |   |  | 
| |  | As reported                                                                                                                           |  | $    | 0.87 |   |      | $ | (0.33 | )    |  | $ | (0.39 | ) |  | 
| |  | Pro forma                                                                                                                             |  |      | 0.77 |   |      |   | (0.41 | )    |  |   | (0.47 | ) |  | 
|

F-11



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##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2004, 2003 and 2002




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



| |  |                                                |  |      |      |   |         |  |     |      |  |  |      |   |  | 
| |  | ---------------------------------------------- |  | ---- | ---- | - | ------- |  | --- | ---- |  |  | ---- | - |  | 
|
| |  |                                                |  | 2004 |      |   | 2003(a) |  |     | 2002 |  |  |     
|
| |  | Approximate risk-free interest rate percentage |  |      | 2.8  | % |         |  | n/a |      |  |  | 2.8  | % |  | 
| |  | Expected dividend yield percentage             |  |      | 0.0  | % |         |  | n/a |      |  |  | 0.0  | % |  | 
| |  | Expected lives (in years)                      |  |      | 4.0  |   |         |  | n/a |      |  |  | 4.0  |   |  | 
| |  | Expected volatility percentage                 |  |      | 52.7 | % |         |  | n/a |      |  |  | 46.4 | % |  | 
|



| |     |                                                                                                                          
| | --- | -------------------------------------------------------------------------------------------------------------------------
| | (a) | During 2003, there were no options granted. See Note 16 for
    a further discussion of the Companys stock option plans.

Leases. Accounting for
Leases,




Research and Development.


Income Taxes.


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


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


F-12



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##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2004, 2003 and 2002


Inventory Costs, an amendment of ARB No. 43,
Chapter 4


Note  4 Other Current Assets


| |  |                            |  |      |      |      |  |   |     |  |  | 
| |  | -------------------------- |  | ---- | ---- | ---- |  | - | --- |  |  | 
|
| |  | (in millions)              |  | 2004 |      | 2003 |  |  
|
| |  | Deferred income taxes      |  | $    | 25.2 |      |  | $ | 1.2 |  |  | 
| |  | Restricted cash            |  |      | 7.4  |      |  |   | 5.3 |  |  | 
| |  | Deferred transaction costs |  |      | 5.9  |      |  |   |    |  |  | 
| |  | Other                      |  |      | 2.1  |      |  |   | 2.8 |  |  | 
|
| |  |                            |  | $    | 40.6 |      |  | $ | 9.3 |  |  | 
|





Note  5 Property and Equipment, Net


| |  |                                                |  |      |       |      |  |   |       |   |  | 
| |  | ---------------------------------------------- |  | ---- | ----- | ---- |  | - | ----- | - |  | 
|
| |  | (in millions)                                  |  | 2004 |       | 2003 |  |  
|
| |  | Land                                           |  | $    | 5.9   |      |  | $ | 6.6   |   |  | 
| |  | Buildings and improvements                     |  |      | 33.1  |      |  |   | 34.4  |   |  | 
| |  | Equipment                                      |  |      | 51.4  |      |  |   | 71.7  |   |  | 
| |  | Properties held for sale and other             |  |      | 0.3   |      |  |   | 1.5   |   |  | 
| |  |                                                |  |     
| |  |                                                |  |      | 90.7  |      |  |   | 114.2 |   |  | 
| |  | Less accumulated depreciation and amortization |  |      | (43.5 | )    |  |   | (58.1 | ) |  | 
|
| |  |                                                |  | $    | 47.2  |      |  | $ | 56.1  |   |  | 
|



F-13



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##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2004, 2003 and 2002


Note  6 Trademarks and Other Intangible Assets,
Net


| |  |                                    |  |      |      |  |      |   |      |  |  | 
| |  | ---------------------------------- |  | ---- | ---- |  | ---- | - | ---- |  |  | 
|
| |  | (in millions)                      |  | 2004 |      |  | 2003 |   |      | 
|
| |  | Non-amortizable intangible assets: |  |      |      |  |      |   |      |  |  | 
| |  | Trademarks                         |  | $    | 42.0 |  |      | $ | 42.0 |  |  | 
| |  | Other                              |  |      | 0.6  |  |      |   | 0.6  |  |  | 
| |  |                                    |  |     
| |  |                                    |  |      | 42.6 |  |      |   | 42.6 |  |  | 
| |  | Amortizable intangible assets, net |  |      | 0.2  |  |      |   | 0.2  |  |  | 
|
| |  |                                    |  | $    | 42.8 |  |      | $ | 42.8 |  |  | 
|



Note  7 Other Long-Term Assets, Net


| |  |                                   |  |      |      |  |      |   |      |  |  | 
| |  | --------------------------------- |  | ---- | ---- |  | ---- | - | ---- |  |  | 
|
| |  | (in millions)                     |  | 2004 |      |  | 2003 |   |      | 
|
| |  | Non-current notes receivable, net |  | $    | 5.2  |  |      | $ | 5.9  |  |  | 
| |  | Deferred income taxes             |  |      | 5.0  |  |      |   | 5.5  |  |  | 
| |  | Debt issuance costs               |  |      | 2.3  |  |      |   | 3.7  |  |  | 
| |  | Other                             |  |      | 3.9  |  |      |   | 4.6  |  |  | 
|
| |  |                                   |  | $    | 16.4 |  |      | $ | 19.7 |  |  | 
|

Note  8 Accrued Liabilities


| |  |                                       |  |      |      |  |      |   |      |  |  | 
| |  | ------------------------------------- |  | ---- | ---- |  | ---- | - | ---- |  |  | 
|
| |  | (in millions)                         |  | 2004 |      |  | 2003 |   |      | 
|
| |  | Accrued wages, bonuses and severances |  | $    | 6.7  |  |      | $ | 1.8  |  |  | 
| |  | Accrued legal                         |  |      | 3.4  |  |      |   | 1.9  |  |  | 
| |  | Accrued employee benefits             |  |      | 2.9  |  |      |   | 2.3  |  |  | 
| |  | Accrued audit fees                    |  |      | 1.4  |  |      |   | 2.4  |  |  | 
| |  | Other                                 |  |      | 6.4  |  |      |   | 4.7  |  |  | 
|
| |  |                                       |  | $    | 20.8 |  |      | $ | 13.1 |  |  | 
|

F-14



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##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2004, 2003 and 2002


Note  9 Long-Term Debt and Other Borrowings


| |  |                                               |  |      |      |   |      |   |       |   |  | 
| |  | --------------------------------------------- |  | ---- | ---- | - | ---- | - | ----- | - |  | 
|
| |  | (in millions)                                 |  | 2004 |      |   | 2003 |   |       |  
|
| |  | 2002 Credit Facility:                         |  |      |      |   |      |   |       |   |  | 
| |  | Revolving credit facility                     |  | $    | 34.6 |   |      | $ | 33.7  |   |  | 
| |  | Tranche A term loan                           |  |      | 14.0 |   |      |   | 37.8  |   |  | 
| |  | Tranche B term loan                           |  |      | 41.7 |   |      |   | 57.8  |   |  | 
| |  | Capital lease obligations                     |  |      | 0.6  |   |      |   | 0.7   |   |  | 
| |  | Other notes ($1.4 at 12/26/04 related to VIE) |  |      | 1.5  |   |      |   | 0.1   |   |  | 
| |  |                                               |  |      |      |  
| |  |                                               |  |      | 92.4 |   |      |   | 130.1 |   |  | 
| |  | Less current portion                          |  |      | (4.9 | ) |      |   | (12.1 | ) |  | 
|
| |  |                                               |  | $    | 87.5 |   |      | $ | 118.0 |   |  | 
|

2002 Credit Facility.










F-15



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##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2004, 2003 and 2002








Amendments to the 2002 Credit Facility.










F-16



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##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2004, 2003 and 2002




Future Debt Maturities.


1997 Credit Facility.




Senior Subordinated Notes.


Southtrust Line of Credit.


Note  10 Leases




F-17



---



##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2004, 2003 and 2002






| |  |                                                             |  |        |           |   |        |   |      |  |  | 
| |  | ----------------------------------------------------------- |  | ------ | --------- | - | ------ | - | ---- |  |  | 
|
| |  | Capital                                                     |  |        | Operating |   |        |  
| |  | (in millions)                                               |  | Leases |           |   | Leases |   |      | 
|
| |  | 2005                                                        |  | $      | 0.2       |   |        | $ | 13.1 |  |  | 
| |  | 2006                                                        |  |        | 0.2       |   |        |   | 11.5 |  |  | 
| |  | 2007                                                        |  |        | 0.3       |   |        |   | 10.0 |  |  | 
| |  | 2008                                                        |  |        | 0.2       |   |        |   | 8.7  |  |  | 
| |  | 2009                                                        |  |        | 0.2       |   |        |   | 6.9  |  |  | 
| |  | Thereafter                                                  |  |        | 1.2       |   |        |   | 26.1 |  |  | 
| |  |                                                             |  |       
| |  | Future minimum lease payments                               |  |        | 2.3       |   |        | $ | 76.3 |  |  | 
| |  |                                                             |  |        |           |   |       
| |  | Less Churchs amounts                                       |  |        | (1.3      | ) |        |   |      |  |  | 
| |  | Less amounts representing interest on continuing operations |  |        | (0.4      | ) |        |   |      |  |  | 
| |  |                                                             |  |        |          
| |  |                                                             |  | $      | 0.6       |   |        |   |      |  |  | 
|







Note  11 Deferred Credits and Other Long-Term
Liabilities


| |  |                                              |  |      |      |  |      |   |      |  |  | 
| |  | -------------------------------------------- |  | ---- | ---- |  | ---- | - | ---- |  |  | 
|
| |  | (in millions)                                |  | 2004 |      |  | 2003 |   |      | 
|
| |  | Deferred franchise revenues                  |  | $    | 6.8  |  |      | $ | 6.5  |  |  | 
| |  | Executive retirement arrangements            |  |      | 4.4  |  |      |   | 4.5  |  |  | 
| |  | Deferred gain on unit conversions            |  |      | 4.3  |  |      |   | 4.8  |  |  | 
| |  | Deferred rentals                             |  |      | 2.5  |  |      |   | 4.2  |  |  | 
| |  | Future lease obligations  closed facilities |  |      | 1.8  |  |      |   | 4.5  |  |  | 
| |  | Other                                        |  |      | 4.9  |  |      |   | 6.8  |  |  | 
|
| |  |                                              |  | $    | 24.7 |  |      | $ | 31.3 |  |  | 
|

F-18



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##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2004, 2003 and 2002


Note  12 Asset Retirement Obligations


Accounting for Asset Retirement
Obligations




| |  |                            |  |      |     |  |      |   |     |  |  | 
| |  | -------------------------- |  | ---- | --- |  | ---- | - | --- |  |  | 
|
| |  | (in millions)              |  | 2004 |     |  | 2003 |   |     | 
|
| |  | Balance, beginning of year |  | $    | 0.4 |  |      | $ |    |  |  | 
| |  | Adoption of SFAS 143       |  |      |    |  |      |   | 0.4 |  |  | 
| |  | Accretion expense          |  |      | 0.1 |  |      |   |    |  |  | 
| |  | Liabilities incurred       |  |      |    |  |      |   |    |  |  | 
|
| |  | Balance, end of year       |  | $    | 0.5 |  |      | $ | 0.4 |  |  | 
|



Note  13 Commitments and Contingencies


Supply Contracts.






F-19



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##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2004, 2003 and 2002










Formula and Supply Agreements with Former Owner.


King Features Agreements.




Business Process Services  DCO.


F-20



---



##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2004, 2003 and 2002








Information Technology Outsourcing 
IBM.






Employment Agreements.


AFC Loan Guarantee Programs.


F-21



---



##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2004, 2003 and 2002








Other Commitments.


Litigation.




F-22



---



##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2004, 2003 and 2002










F-23



---



##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2004, 2003 and 2002














F-24



---



##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2004, 2003 and 2002


Insurance Programs.




Environmental Matters.


Foreign Operations.




Geographic Concentrations.


Significant Franchisee.


F-25



---



##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2004, 2003 and 2002


Note  14 Fair Value of Financial
Instruments




Current assets and current liabilities.


Long-term notes receivable.


Notes receivable from officers.


Long-term debt.


Note  15 Common Stock


Share Repurchase Program.


Dividends.


Note  16 Stock Option Plans


The 1992 Stock Option Plan.




The 1996 Nonqualified Performance Stock Option
Plan.


F-26



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##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2004, 2003 and 2002






The 1996 Nonqualified Stock Option Plan.




The 1998 Substitute Nonqualified Stock Option
Plan.


The 2002 Incentive Stock Option Plan.






F-27



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##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2004, 2003 and 2002


A Summary of Plan Activity.


| |  |                                                                |  |      |          |   |      |        |       |      |          |  |       |        |  |   |          |  |  |  |       |   |  |   |       |  |  | 
| |  | -------------------------------------------------------------- |  | ---- | -------- | - | ---- | ------ | ----- | ---- | -------- |  | ----- | ------ |  | - | -------- |  |  |  | ----- | - |  | - | ----- |  |  | 
|
| |  | (shares in thousands)                                          |  | 2004 |          |   | 2003 |        |       | 2002 |          |  |      
|
| |  |                                                                |  |      | Wtd      |   |      |        |       |      | Wtd      |  |       |        |  |   | Wtd      |  |  | 
| |  |                                                                |  |      | Avg      |   |      |        |       |      | Avg      |  |       |        |  |   | Avg      |  |  | 
| |  | Shares                                                         |  |      | Ex.Price |   |      | Shares |       |      | Ex.Price |  |       | Shares |  |   | Ex.Price |  |  | 
| |  |                                                                |  |      |          |   |      |        |       |      |          |  |       |        |  |   |          |  |  | 
| |  | Outstanding at beginning of year                               |  |      | 3,213    |   |      | $      | 12.89 |      |          |  | 4,136 |        |  | $ | 13.27    |  |  |  | 3,986 |   |  | $ | 8.68  |  |  | 
| |  | Granted options                                                |  |      | 851      |   |      |        | 21.54 |      |          |  |      |        |  |   |         |  |  |  | 1,014 |   |  |   | 28.01 |  |  | 
| |  | Exercised options                                              |  |      | (275     | ) |      |        | 13.74 |      |          |  | (488  | )      |  |   | 6.65     |  |  |  | (710  | ) |  |   | 6.58  |  |  | 
| |  | Cancelled options                                              |  |      | (406     | ) |      |        | 23.87 |      |          |  | (435  | )      |  |   | 23.54    |  |  |  | (154  | ) |  |   | 22.30 |  |  | 
| |  |                                                                |  |      |          |   |      |        |       |      |          |  |       |        |  |   |          |  |  |  |       |  
| |  | Outstanding at end of year                                     |  |      | 3,383    |   |      |        | 13.68 |      |          |  | 3,213 |        |  |   | 12.89    |  |  |  | 4,136 |   |  |   | 13.27 |  |  | 
| |  |                                                                |  |      |          |   |      |        |       |      |          |  |       |        |  |   |          |  |  |  |       |  
| |  | Exercisable at end of year                                     |  |      | 2,550    |   |      | $      | 10.75 |      |          |  | 2,486 |        |  | $ | 9.75     |  |  |  | 2,478 |   |  | $ | 6.95  |  |  | 
| |  | Weighted average fair value of options granted during the year |  |      |          |   |      | $      | 9.81  |      |          |  |       |        |  | $ |         |  |  |  |       |   |  | $ | 10.92 |  |  | 
|

Note  17 Other Employee Benefit Plans


401(k) Savings Plan.


Deferred Compensation Plan.


Executive Retirement and Benefit Plan.


F-28



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##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2004, 2003 and 2002






| |  |                                            |  |      |      |   |      |   |     |  |  | 
| |  | ------------------------------------------ |  | ---- | ---- | - | ---- | - | --- |  |  | 
|
| |  | (in millions)                              |  | 2004 |      |   | 2003 |   |     | 
|
| |  | Benefit obligation at beginning of year    |  | $    | 2.0  |   |      | $ | 1.6 |  |  | 
| |  | Service cost                               |  |      | 0.2  |   |      |   | 0.1 |  |  | 
| |  | Interest cost                              |  |      | 0.1  |   |      |   | 0.1 |  |  | 
| |  | Curtailments                               |  |      | (0.2 | ) |      |   |    |  |  | 
| |  | Change in cumulative actuarial (gain)/loss |  |      | 0.6  |   |      |   | 0.2 |  |  | 
| |  | Benefits paid                              |  |      | (0.1 | ) |      |   |    |  |  | 
|
| |  | Benefit obligation at end of year          |  | $    | 2.6  |   |      | $ | 2.0 |  |  | 
|



| |  |                |  |      |     |  |      |   |     |      |  |   |     |  |  | 
| |  | -------------- |  | ---- | --- |  | ---- | - | --- | ---- |  | - | --- |  |  | 
|
| |  | (in millions)  |  | 2004 |     |  | 2003 |   |     | 2002 |  |   |    
|
| |  | Service costs  |  | $    | 0.2 |  |      | $ | 0.1 |      |  | $ | 0.1 |  |  | 
| |  | Interest costs |  |      | 0.1 |  |      |   | 0.1 |      |  |   | 0.1 |  |  | 
|
| |  | Plan expense   |  | $    | 0.3 |  |      | $ | 0.2 |      |  | $ | 0.2 |  |  | 
|







| |  |                                            |  |      |      |   |      |   |     |  |  | 
| |  | ------------------------------------------ |  | ---- | ---- | - | ---- | - | --- |  |  | 
|
| |  | (in millions)                              |  | 2004 |      |   | 2003 |   |     | 
|
| |  | Benefit obligation at beginning of year    |  | $    | 0.5  |   |      | $ | 0.4 |  |  | 
| |  | Service cost                               |  |      |     |   |      |   |    |  |  | 
| |  | Interest cost                              |  |      |     |   |      |   |    |  |  | 
| |  | Curtailments                               |  |      | (0.1 | ) |      |   |    |  |  | 
| |  | Change in cumulative actuarial (gain)/loss |  |      | 0.2  |   |      |   | 0.1 |  |  | 
| |  | Benefits paid                              |  |      |     |   |      |   |    |  |  | 
|
| |  | Benefit obligation at end of year          |  | $    | 0.6  |   |      | $ | 0.5 |  |  | 
|

F-29



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##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2004, 2003 and 2002




| |  |               |  |          |         |  |          |   |     |  |  | 
| |  | ------------- |  | -------- | ------- |  | -------- | - | --- |  |  | 
|
| |  | Retirement    |  |          | Medical |  |          |  
| |  | (in millions) |  | Benefits |         |  | Benefits |   |     | 
|
| |  | 2005          |  | $        | 0.3     |  |          | $ | 0.1 |  |  | 
| |  | 2006          |  |          | 0.3     |  |          |   | 0.1 |  |  | 
| |  | 2007          |  |          | 0.3     |  |          |   | 0.1 |  |  | 
| |  | 2008          |  |          | 0.3     |  |          |   | 0.1 |  |  | 
| |  | 2009          |  |          | 0.4     |  |          |   | 0.1 |  |  | 
| |  | 2010-2014     |  |          | 1.7     |  |          |   | 0.3 |  |  | 
|



Employee Stock Purchase Program.


Note  18 Other Expenses, Net


| |  |                                                         |  |      |      |   |      |   |      |      |  |   |      |   |  | 
| |  | ------------------------------------------------------- |  | ---- | ---- | - | ---- | - | ---- | ---- |  | - | ---- | - |  | 
|
| |  | (in millions)                                           |  | 2004 |      |   | 2003 |   |      | 2002 |  |   |     
|
| |  | Corporate lease termination                             |  | $    | 9.0  |   |      | $ |     |      |  | $ |     |   |  | 
| |  | Asset write-downs                                       |  |      | 4.8  |   |      |   | 15.0 |      |  |   | 3.8  |   |  | 
| |  | Special investigation, shareholder litigation and other |  |      | 3.8  |   |      |   | 1.4  |      |  |   |     |   |  | 
| |  | Unit closures                                           |  |      |     |   |      |   | 2.6  |      |  |   |     |   |  | 
| |  | Net gain on sale of assets                              |  |      | (0.5 | ) |      |   | (0.7 | )    |  |   | (0.2 | ) |  | 
| |  | Restatement costs                                       |  |      |     |   |      |   | 12.6 |      |  |   |     |   |  | 
|
| |  |                                                         |  | $    | 17.1 |   |      | $ | 30.9 |      |  | $ | 3.6  |   |  | 
|



F-30



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##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2004, 2003 and 2002




| |  |               |  |      |     |  |      |   |      |      |  |   |     |  |  | 
| |  | ------------- |  | ---- | --- |  | ---- | - | ---- | ---- |  | - | --- |  |  | 
|
| |  | (in millions) |  | 2004 |     |  | 2003 |   |      | 2002 |  |   |    
|
| |  | Chicken       |  | $    | 2.6 |  |      | $ | 14.6 |      |  | $ | 3.8 |  |  | 
| |  | Corporate     |  |      | 2.2 |  |      |   | 0.4  |      |  |   |    |  |  | 
|
| |  |               |  | $    | 4.8 |  |      | $ | 15.0 |      |  | $ | 3.8 |  |  | 
|







Note  19 Interest Expense, Net


| |  |                                                    |  |      |      |   |      |   |      |      |  |   |      |   |  | 
| |  | -------------------------------------------------- |  | ---- | ---- | - | ---- | - | ---- | ---- |  | - | ---- | - |  | 
|
| |  | (in millions)                                      |  | 2004 |      |   | 2003 |   |      | 2002 |  |   |     
|
| |  | Interest on debt, less capitalized amounts         |  | $    | 4.2  |   |      | $ | 5.3  |      |  | $ | 11.2 |   |  | 
| |  | Amortization and write-offs of debt issuance costs |  |      | 1.4  |   |      |   | 0.9  |      |  |   | 4.2  |   |  | 
| |  | Premiums  early debt extinguishments              |  |      |     |   |      |   |     |      |  |   | 6.5  |   |  | 
| |  | Other debt related charges                         |  |      | 0.9  |   |      |   | 0.9  |      |  |   | 0.7  |   |  | 
| |  | Interest income                                    |  |      | (1.0 | ) |      |   | (1.8 | )    |  |   | (1.5 | ) |  | 
|
| |  |                                                    |  | $    | 5.5  |   |      | $ | 5.3  |      |  | $ | 21.1 |   |  | 
|

Note  20 Income Taxes




| |  |                                                                                                                                          |  |      |       |   |      |   |       |      |  |   |      |   |  | 
| |  | ---------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----- | - | ---- | - | ----- | ---- |  | - | ---- | - |  | 
|
| |  | (in millions)                                                                                                                            |  | 2004 |       |   | 2003 |   |       | 2002 |  |   |     
|
| |  | Income tax (benefit) expense from continuing operations                                                                                  |  | $    | (10.7 | ) |      | $ | (10.5 | )    |  | $ | (4.4 | ) |  | 
| |  | Income tax expense (benefit) from discontinued operations                                                                                |  |      | (11.9 | ) |      |   | 11.5  |      |  |   | 20.4 |   |  | 
| |  | Cumulative effect of a change in accounting principle                                                                                    |  |      |      |   |      |   | (0.1  | )    |  |   |     |   |  | 
| |  |                                                                                                                                          |  |     
| |  | Income taxes in the statements of operations, net                                                                                        |  |      | (22.6 | ) |      |   | 0.9   |      |  |   | 16.0 |   |  | 
| |  | Stockholders equity, for compensation expense for tax
    purposes in excess of amounts recognized for financial reporting
    purposes |  |      | (1.1  | ) |      |   | (1.5  | )    |  |   | (5.3 | ) |  | 
|
| |  | Total                                                                                                                                    |  | $    | (23.7 | ) |      | $ | (0.6  | )    |  | $ | 10.7 |   |  | 
|

F-31



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##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2004, 2003 and 2002




| |  |                                        |  |      |       |   |      |   |       |      |  |   |       |   |  | 
| |  | -------------------------------------- |  | ---- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | - |  | 
|
| |  | (in millions)                          |  | 2004 |       |   | 2003 |   |       | 2002 |  |   |      
|
| |  | Current income tax expense:            |  |      |       |   |      |   |       |      |  |   |       |   |  | 
| |  | Federal                                |  | $    | (14.5 | ) |      | $ | (9.6  | )    |  | $ | (11.7 | ) |  | 
| |  | Foreign                                |  |      | 2.1   |   |      |   | 2.4   |      |  |   | 2.2   |   |  | 
| |  | State                                  |  |      | (1.5  | ) |      |   | (0.4  | )    |  |   | (1.5  | ) |  | 
| |  |                                        |  |     
| |  |                                        |  |      | (13.9 | ) |      |   | (7.6  | )    |  |   | (11.0 | ) |  | 
| |  | Deferred income tax expense (benefit): |  |      |       |   |      |   |       |      |  |   |       |   |  | 
| |  | Federal                                |  |      | 3.2   |   |      |   | (2.3  | )    |  |   | 5.4   |   |  | 
| |  | State                                  |  |      |      |   |      |   | (0.6  | )    |  |   | 1.2   |   |  | 
|
| |  |                                        |  | $    | (10.7 | ) |      | $ | (10.5 | )    |  | $ | (4.4  | ) |  | 
|





| |  |                                       |  |      |       |    |      |  |       |      |  |  |       |    |  | 
| |  | ------------------------------------- |  | ---- | ----- | -- | ---- |  | ----- | ---- |  |  | ----- | -- |  | 
|
| |  |                                       |  | 2004 |       |    | 2003 |  |       | 2002 |  |  |      
|
| |  | Federal income tax rate               |  |      | (35.0 | )% |      |  | (35.0 | )%   |  |  | (35.0 | )% |  | 
| |  | State taxes, net of federal benefit   |  |      | (4.0  | )  |      |  | (2.7  | )    |  |  | (1.5  | )  |  | 
| |  | Non-deductible meals                  |  |      | 0.2   |    |      |  | 0.2   |      |  |  | 0.6   |    |  | 
| |  | Benefit of job tax credits            |  |      | (1.1  | )  |      |  | (1.6  | )    |  |  | (3.3  | )  |  | 
| |  | Adjustment to prior year tax accruals |  |      | (3.2  | )  |      |  | (4.0  | )    |  |  |      |    |  | 
| |  | Other items, net                      |  |      | 0.1   |    |      |  | 1.1   |      |  |  | (1.5  | )  |  | 
|
| |  | Effective income tax benefit rate     |  |      | (43.0 | )% |      |  | (42.0 | )%   |  |  | (40.7 | )% |  | 
|

F-32



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##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2004, 2003 and 2002




| |  |                                  |  |      |       |   |      |   |       |   |  | 
| |  | -------------------------------- |  | ---- | ----- | - | ---- | - | ----- | - |  | 
|
| |  | (in millions)                    |  | 2004 |       |   | 2003 |   |       |  
|
| |  | Deferred tax assets:             |  |      |       |   |      |   |       |   |  | 
| |  | Capital loss carryforward        |  | $    | 22.6  |   |      | $ |      |   |  | 
| |  | Deferred franchise fee revenue   |  |      | 4.4   |   |      |   | 4.7   |   |  | 
| |  | Deferred compensation            |  |      | 4.7   |   |      |   | 4.5   |   |  | 
| |  | Deferred rentals                 |  |      | 3.1   |   |      |   | 3.9   |   |  | 
| |  | Insurance accruals               |  |      | 1.2   |   |      |   | 2.1   |   |  | 
| |  | Allowance for doubtful accounts  |  |      | 1.2   |   |      |   | 1.0   |   |  | 
| |  | Net operating loss carryforwards |  |      | 0.6   |   |      |   | 0.4   |   |  | 
| |  | Other accruals                   |  |      | 2.0   |   |      |   | 0.5   |   |  | 
| |  | Other assets                     |  |      | 4.4   |   |      |   | 4.4   |   |  | 
| |  |                                  |  |     
| |  | Total gross deferred tax assets  |  |      | 44.2  |   |      |   | 21.5  |   |  | 
| |  |                                  |  |     
| |  | Deferred tax liabilities:        |  |      |       |   |      |   |       |   |  | 
| |  | Franchise value and trademarks   |  | $    | (12.6 | ) |      | $ | (11.9 | ) |  | 
| |  | Property, plant and equipment    |  |      | (1.4  | ) |      |   | (2.9  | ) |  | 
| |  |                                  |  |     
| |  | Total gross deferred liabilities |  |      | (14.0 | ) |      |   | (14.8 | ) |  | 
|
| |  | Net deferred tax asset           |  | $    | 30.2  |   |      | $ | 6.7   |   |  | 
|







F-33



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##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2004, 2003 and 2002


Note  21 Components of Earnings Per Share
Computation


| |  |                                                                        |  |      |       |   |      |   |       |      |  |   |       |   |  | 
| |  | ---------------------------------------------------------------------- |  | ---- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | - |  | 
|
| |  | (in millions)                                                          |  | 2004 |       |   | 2003 |   |       | 2002 |  |   |      
|
| |  | Numerators for income (loss) per share computation:                    |  |      |       |   |      |   |       |      |  |   |       |   |  | 
| |  | Loss before discontinued operations and accounting change              |  | $    | (14.3 | ) |      | $ | (14.5 | )    |  | $ | (6.4  | ) |  | 
| |  | Discontinued operations                                                |  |      | 39.1  |   |      |   | 5.6   |      |  |   | (5.3  | ) |  | 
| |  | Cumulative effect of an accounting change                              |  |      | (0.2  | ) |      |   | (0.2  | )    |  |   |      |   |  | 
|
| |  | Net income (loss)                                                      |  | $    | 24.6  |   |      | $ | (9.1  | )    |  | $ | (11.7 | ) |  | 
|
| |  | Denominator for basic earnings per share  weighted
    average shares |  |      | 28.1  |   |      |   | 27.8  |      |  |   | 30.0  |   |  | 
| |  | Dilutive employee stock options(a)                                     |  |      |      |   |      |   |      |      |  |   |      |   |  | 
|
| |  | Denominator for diluted earnings per share                             |  |      | 28.1  |   |      |   | 27.8  |      |  |   | 30.0  |   |  | 
|



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) In 2004, 2003, and 2002, 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 for 2004, 2003 and 2002 were
    1.0 million, 0.9 million, and 1.5 million,
    respectively.

Note  22 Related Party Transactions










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##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2004, 2003 and 2002


Note  23 Discontinued Operations


Churchs.


Cinnabon.


Seattle Coffee.




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##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2004, 2003 and 2002




| |  |                                              |  |      |       |   |      |   |       |      |  |   |       |   |  | 
| |  | -------------------------------------------- |  | ---- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | - |  | 
|
| |  | (in millions)                                |  | 2004 |       |   | 2003 |   |       | 2002 |  |   |      
|
| |  | Total revenues:                              |  |      |       |   |      |   |       |      |  |   |       |   |  | 
| |  | Churchs                                     |  | $    | 261.3 |   |      | $ | 249.1 |      |  | $ | 298.1 |   |  | 
| |  | Cinnabon                                     |  |      | 37.1  |   |      |   | 48.7  |      |  |   | 67.7  |   |  | 
| |  | Seattle Coffee                               |  |      |      |   |      |   | 49.5  |      |  |   | 94.9  |   |  | 
|
| |  | Total revenues                               |  | $    | 298.4 |   |      | $ | 347.3 |      |  | $ | 460.7 |   |  | 
|
| |  | Income (loss) from operations:               |  |      |       |   |      |   |       |      |  |   |       |   |  | 
| |  | Churchs                                     |  | $    | 40.9  |   |      | $ | 46.4  |      |  | $ | 65.6  |   |  | 
| |  | Cinnabon                                     |  |      | (7.8  | ) |      |   | (27.7 | )    |  |   | (7.5  | ) |  | 
| |  | Seattle Coffee                               |  |      |      |   |      |   | (1.4  | )    |  |   | (43.0 | ) |  | 
| |  | Income tax benefit (expense)                 |  |      | (14.4 | ) |      |   | (9.6  | )    |  |   | (20.4 | ) |  | 
|
| |  | Income (loss) from operations, net           |  |      | 18.7  |   |      |   | 7.7   |      |  |   | (5.3  | ) |  | 
|
| |  | Income (loss) from sale of businesses:       |  |      |       |   |      |   |       |      |  |   |       |   |  | 
| |  | Churchs                                     |  | $    |      |   |      | $ |      |      |  | $ |      |   |  | 
| |  | Cinnabon                                     |  |      | (5.1  | ) |      |   |      |      |  |   |      |   |  | 
| |  | Seattle Coffee                               |  |      | (0.8  | ) |      |   | (0.2  | )    |  |   |      |   |  | 
| |  | Income tax benefit (expense)                 |  |      | 26.3  |   |      |   | (1.9  | )    |  |   |      |   |  | 
|
| |  | Income (loss) from sale of businesses, net   |  |      | 20.4  |   |      |   | (2.1  | )    |  |   |      |   |  | 
|
| |  | Discontinued operations, net of income taxes |  | $    | 39.1  |   |      | $ | 5.6   |      |  | $ | (5.3  | ) |  | 
|



F-36



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##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2004, 2003 and 2002




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



| |  |                                                  |  |          |       |  |          |   |      |       |  |   |       |  |  | 
| |  | ------------------------------------------------ |  | -------- | ----- |  | -------- | - | ---- | ----- |  | - | ----- |  |  | 
|
| |  | (in millions)                                    |  | Churchs |       |  | Cinnabon |   |      | Total |  |   |      
|
| |  | Assets:                                          |  |          |       |  |          |   |      |       |  |   |       |  |  | 
| |  | Cash and cash equivalents                        |  | $        | 0.1   |  |          | $ | 0.1  |       |  | $ | 0.2   |  |  | 
| |  | Accounts receivable, net                         |  |          | 7.2   |  |          |   | 3.5  |       |  |   | 10.7  |  |  | 
| |  | Property and equipment, net                      |  |          | 113.2 |  |          |   | 7.5  |       |  |   | 120.7 |  |  | 
| |  | Goodwill and other intangible assets             |  |          | 19.4  |  |          |   | 27.2 |       |  |   | 46.6  |  |  | 
| |  | Other assets                                     |  |          | 5.5   |  |          |   | 1.5  |       |  |   | 7.0   |  |  | 
|
| |  |                                                  |  | $        | 145.4 |  |          | $ | 39.8 |       |  | $ | 185.2 |  |  | 
|
| |  | Liabilities:                                     |  |          |       |  |          |   |      |       |  |   |       |  |  | 
| |  | Accounts payable and accrued liabilities         |  | $        | 17.8  |  |          | $ | 3.9  |       |  | $ | 21.7  |  |  | 
| |  | Deferred credits and other long-term liabilities |  |          | 19.8  |  |          |   | 11.5 |       |  |   | 31.3  |  |  | 
|
| |  |                                                  |  | $        | 37.6  |  |          | $ | 15.4 |       |  | $ | 53.0  |  |  | 
|





Note  24 Segment Information (Continuing
Operations)




F-37



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##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2004, 2003 and 2002




|     |  |                               |  |         |       |  |           |   |       |       |  |   |       |   |  | 
|---- |  | ----------------------------- |  | ------- | ----- |  | --------- | - | ----- | ----- |  | - | ----- | - |  | 
|    
|     |  | (in millions)                 |  | Chicken |       |  | Corporate |   |       | Total |  |   |      
|    
|2004 |  |                               |  |         |       |  |           |   |       |       |  |   |       |  
|     |  |                               |  |         |       |  |           |   |       |       | 
|     |  | Total revenues                |  | $       | 163.3 |  |           | $ | 0.6   |       |  | $ | 163.9 |   |  | 
|     |  | Operating profit (loss)       |  |         | 43.7  |  |           |   | (63.1 | )     |  |   | (19.4 | ) |  | 
|     |  | Depreciation and amortization |  |         | 5.5   |  |           |   | 4.5   |       |  |   | 10.0  |   |  | 
|     |  | Capital expenditures          |  |         | 3.7   |  |           |   | 4.8   |       |  |   | 8.5   |   |  | 
|     |  | Goodwill  year end           |  |         | 9.6   |  |           |   |      |       |  |   | 9.6   |   |  | 
|     |  | Total assets  year end(a)    |  |         | 110.8 |  |           |   | 251.1 |       |  |   | 361.9 |   |  | 
|2003 |  |                               |  |         |       |  |           |   |       |       |  |   |       |  
|     |  |                               |  |         |       |  |           |   |       |       | 
|     |  | Total revenues                |  | $       | 160.8 |  |           | $ | 0.7   |       |  | $ | 161.5 |   |  | 
|     |  | Operating profit (loss)       |  |         | 36.5  |  |           |   | (56.2 | )     |  |   | (19.7 | ) |  | 
|     |  | Depreciation and amortization |  |         | 4.4   |  |           |   | 6.3   |       |  |   | 10.7  |   |  | 
|     |  | Capital expenditures          |  |         | 4.3   |  |           |   | 10.8  |       |  |   | 15.1  |   |  | 
|     |  | Goodwill  year end           |  |         | 9.6   |  |           |   |      |       |  |   | 9.6   |   |  | 
|     |  | Total assets  year end(a)    |  |         | 107.0 |  |           |   | 252.5 |       |  |   | 359.5 |   |  | 
|2002 |  |                               |  |         |       |  |           |   |       |       |  |   |       |  
|     |  |                               |  |         |       |  |           |   |       |       | 
|     |  | Total revenues                |  | $       | 157.1 |  |           | $ | 1.8   |       |  | $ | 158.9 |   |  | 
|     |  | Operating profit (loss)       |  |         | 52.0  |  |           |   | (41.7 | )     |  |   | 10.3  |   |  | 
|     |  | Depreciation and amortization |  |         | 5.1   |  |           |   | 4.8   |       |  |   | 9.9   |   |  | 
|     |  | Capital expenditures          |  |         | 10.5  |  |           |   | 9.5   |       |  |   | 20.0  |   |  | 
|     |  | Goodwill  year end           |  |         | 9.6   |  |           |   |      |       |  |   | 9.6   |   |  | 
|     |  | Total assets  year end(a)    |  |         | 119.3 |  |           |   | 368.0 |       |  |   | 487.3 |   |  | 
|    



| |     |                                                                                                                                                                                      
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | Included in corporate assets for 2004, 2003 and 2002 are
    $153.3 million, $185.2 million and
    $292.4 million, respectively, representing assets of
    discontinued operations.

Note  25 Restructuring of Corporate Operations






F-38



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##### Table of Contents



AFC ENTERPRISES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


For Fiscal Years 2004, 2003 and 2002


Note  26 Quarterly Financial Data (Unaudited)




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

|                                  |  |                                                           |  |          |       |   |         |   |       |         |  |   |           |   |  |   |       |   |  | 
|--------------------------------- |  | --------------------------------------------------------- |  | -------- | ----- | - | ------- | - | ----- | ------- |  | - | --------- | - |  | - | ----- | - |  | 
|                                  |  |                                                           |  | 2003    
|                                  |  |                                                           |  |         
|                                  |  |                                                           |  | First(a) |       |   | Second  |   |       | Third   |  |   | Fourth(b) |   |  |  
|                                  |  |                                                           |  | Quarter  |       |   | Quarter |   |       | Quarter |  |   | Quarter   |   |  |  
|                                  |  |                                                           |  |          |       |   |         |   |       |         |  |   |           |   |  |  
|Results of Operations             |  |                                                           |  |          |       |   |         |   |       |         |  |   |           |   |  |   |       |  
|                                  |  |                                                           |  |          |       |   |         |   |       |         |  |   |           |  
|                                  |  | Total revenues                                            |  | $        | 49.1  |   |         | $ | 38.0  |         |  | $ | 37.7      |   |  | $ | 36.7  |   |  | 
|                                  |  | Operating loss                                            |  |          | (3.8  | ) |         |   | (1.6  | )       |  |   | (1.1      | ) |  |   | (13.2 | ) |  | 
|                                  |  | Loss before discontinued operations and accounting change |  |          | (3.3  | ) |         |   | (1.8  | )       |  |   | (1.3      | ) |  |   | (8.1  | ) |  | 
|                                  |  | Net income (loss)                                         |  |          | 5.7   |   |         |   | 5.9   |         |  |   | 3.8       |   |  |   | (24.5 | ) |  | 
|Basic earnings per common share   |  |                                                           |  |          |       |   |         |   |       |         |  |   |           |   |  |   |       |  
|                                  |  |                                                           |  |          |       |   |         |   |       |         |  |   |           |  
|                                  |  | Loss before discontinued operations and accounting change |  | $        | (0.12 | ) |         | $ | (0.06 | )       |  | $ | (0.05     | ) |  | $ | (0.29 | ) |  | 
|                                  |  | Net income (loss)                                         |  |          | 0.21  |   |         |   | 0.21  |         |  |   | 0.14      |   |  |   | (0.88 | ) |  | 
|Diluted earnings per common share |  |                                                           |  |          |       |   |         |   |       |         |  |   |           |   |  |   |       |  
|                                  |  |                                                           |  |          |       |   |         |   |       |         |  |   |           |  
|                                  |  | Loss before discontinued operations and accounting change |  | $        | (0.12 | ) |         | $ | (0.06 | )       |  | $ | (0.05     | ) |  | $ | (0.29 | ) |  | 
|                                  |  | Net income (loss)                                         |  |          | 0.21  |   |         |   | 0.21  |         |  |   | 0.14      |   |  |   | (0.88 | ) |  | 
|                                 



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | The Companys first quarters contained sixteen weeks. The
    remaining quarters contained twelve weeks each.                                                                                                                                                                                                                                                                                                                                        
|
| | (a) | Significant fourth quarter adjustments recognized in 2004
    include (i) corporate lease termination costs of
    $9.0 million and (ii) severances of $4.1 million.
    Significant fourth quarter adjustments recognized in 2003
    include (i) $11.8 million of asset impairments in our
    chicken segment and (ii) $28.0 million of asset
    write-downs associated with Cinnabon and included as a component
    of discontinued operations.

F-39