10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2006

Commission file number 000-32369

AFC Enterprises, Inc.

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

(404) 459-4450

Registrant’s telephone number, including area code:

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

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

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o     No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.  Yes o     No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  Yes þ     No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.

Large accelerated filer o     Accelerated filer þ     Non-accelerated filer o

Indicate by check mark whether the registrant is shell a company (as defined in Exchange Act rule 12b-2).  Yes o     No þ

As of July 9, 2006 (the last day of the registrant’s second quarter for 2006), the aggregate market value of the registrant’s voting common stock held by non-affiliates of the registrant, based on the closing sale price as reported on the Nasdaq Global Market System, was approximately $366,449,268.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding at February 25, 2007
Common stock, $0.01 par value per share	29,536,378 shares

Documents incorporated by reference:  Portions of our 2007 Proxy Statement are incorporated herein by reference in Part III of this Annual Report.

AFC ENTERPRISES, INC.

INDEX TO FORM 10-K

PART I
	Item 1.	Business	1
	Item 1A.	Risk Factors	8
	Item 1B.	Unresolved Staff Comments	14
	Item 2.	Properties	15
	Item 3.	Legal Proceedings	15
	Item 4.	Submission of Matters to a Vote of Security Holders	16
	Item 4A.	Executive Officers	16
PART II
	Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	18
	Item 6.	Selected Financial Data	21
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
	Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	44
	Item 8.	Financial Statements and Supplementary Data	44
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	44
	Item 9A.	Controls and Procedures	44
	Item 9B.	Other Information	46
PART III
	Item 10.	Directors, Executive Officers and Corporate Governance	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, and Director Independence	48
	Item 14.	Principal Accountant Fees and Services	48
PART IV
	Item 15.	Exhibits and Financial Statement Schedules	49
EX-10.54 POPEYES CHICKEN AND BISCUIT 2006 BONUS PLAN
EX-10.55 EMPLOYMENT AGREEMENT/ FREDERICK B. BEILSTEIN III
EX-10.56 EMPLOYMENT AGREEMENT/ JAMES W. LYONS
EX-10.57 EMPLOYMENT AGREEMENT/ ROBERT CALDERIN
EX-10.58 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT/ FRANK J. BELATTI
EX-23.1 CONSENT OF GRANT THORNTON LLP
EX-23.2 CONSENT OF KPMG LLP
EX-31.1 SECTION 302 CERTIFICATION OF CEO
EX-31.2 SECTION 302 CERTIFICATION OF CFO
EX-32.1 SECTION 906 CERTIFICATION OF CEO
EX-32.2 SECTION 906 CERTIFICATION OF CFO

PART I.

Item 1.   BUSINESS

AFC Enterprises, Inc. (“AFC” or “the Company”) develops, operates, and franchises quick-service restaurants (“QSRs” or “restaurants”) under the trade name Popeyes^® Chicken & Biscuits (“Popeyes”). Within Popeyes, we manage two business segments: franchise operations and company-operated restaurants. Financial information concerning these business segments can be found at Note 24 to our Consolidated Financial Statements.

In recent years, we have narrowed our business model from a multi-brand operator to focus only on the Popeyes brand. Following the sale of Church’s Chicken^® (“Church’s”) in December of 2004 (which is more fully described in Note 22 to our Consolidated Financial Statements), we renegotiated our material outsourcing contracts, closed our AFC corporate offices, reduced our AFC corporate staffing, and integrated the remaining AFC corporate staff and services into Popeyes’ business operations (which is more fully described in Note 23 to our Consolidated Financial Statements). These transitional activities were completed during 2005 and the first half of 2006.

Popeyes Profile

Popeyes was founded in New Orleans, Louisiana in 1972 and has grown to be the world’s second largest quick-service chicken concept based on the number of units. Within the QSR industry, Popeyes distinguishes itself with a unique “New Orleans” style menu that features spicy chicken, chicken sandwiches, chicken strips, fried shrimp and other seafood, jambalaya, red beans and rice and other regional items. Popeyes is a highly differentiated QSR brand with a passion for its New Orleans heritage and flavorful authentic food.

As of December 31, 2006, we operated and franchised 1,878 Popeyes restaurants in 44 states, the District of Columbia, Puerto Rico, Guam and 24 foreign countries. The map below shows the concentration of our domestic restaurants, by state.

Of our 1,503 domestic franchised restaurants, approximately 70% were concentrated in Texas, California, Louisiana, Florida, Illinois, Maryland, New York, Mississippi, Georgia and Virginia. Of our 319 international franchised restaurants, approximately 67% were located in Korea, Indonesia, Canada and Mexico. Of our 56 company-operated restaurants, more than 90% were concentrated in Georgia, Louisiana and Tennessee.

Overall Business Strategy

United States restaurant industry sales exceeded $500 billion in 2006, of which sales from Popeyes restaurants represent a small fraction. Given the size of the domestic QSR industry, and Popeyes’ broad appeal, we believe Popeyes’ 1,559 restaurant domestic system has the potential to at least double in size without reaching saturation in

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our markets. The success of Popeyes outside the United States indicates that the Popeyes international system can expand substantially as well, perhaps outpacing restaurant growth domestically in future years.

Because of Popeyes’ distinctive menu and our opportunities to further penetrate existing and new markets, the Company’s business strategy centers on increasing the number of restaurants in the global Popeyes’ system. Popeyes is heavily franchised (97% of all Popeyes’ restaurants are operated by our franchisees). We favor this business model because it facilitates the simultaneous growth of the system in multiple markets and provides our investors with an attractive return on invested capital from a dependable and diversified royalty stream.

In order to accomplish Popeyes’ growth objectives, the Company is focused on improving the unit economics of the Popeyes system restaurants with business initiatives tailored to enhance the experience of Popeyes’ guests and to promote new restaurant development.

These initiatives are as follows:

•  Menu Development.  New product introductions and “limited time offers” promotional items play a major role in building sales and encouraging repeat customers. We constantly review our menu to find the optimal mix of products and promotions which address changing consumer preferences and which build on an integrated day-part strategy to increase transactions in our restaurants. Our menu strategies will not only continue to focus on growing our bone-in chicken market share, but will also focus on boneless chicken products and seafood. During 2007, we also expect to combine new product concepts with tested value offerings to provide quality and value to our guests.

During 2007, we plan to strengthen our focus on value offering tests, as we believe that will broaden our appeal in a variety of markets.

•  Creative Brand Marketing and Advertising.  Our consumer messaging continues to emphasize our distinctive products, flavors and New Orleans heritage. Our media spending typically focuses on television, radio and print options (print advertisement, signage, and point of purchase materials) at the local market and restaurant level. We continually review our advertising strategies and mediums to maximize the effectiveness of the marketing funds generated from our Popeyes system and to offset the increasing cost of media spending. While we have not traditionally used national media, we began a test of national cable advertising in 2006 and continue to consider alternative mediums to supplement our typical spending strategies.

•  Customer Service Focus.  We will sharpen our focus on the customer to improve both customer satisfaction and the consistency of the experience within our restaurants. Our operational efforts include speed of service initiatives, enhanced field-based training, training certification programs, and continued development and execution of restaurant management testing programs. In addition, we continue our focus on raising service standards throughout our organization and our franchise system.

We believe that the cleanliness, freshness and appearance of our restaurants are critical components of our customers’ overall dining experience and will affect their desire to return. As of December 31, 2006, approximately 76% of our system-wide restaurants have been updated in our Heritage image. We believe our distinctive New Orleans inspired Heritage design adds to our customers’ dining experience and improves the appeal of our restaurants.

•  Operations Management.  Together with our franchisees we are coordinating the implementation of new restaurant reporting technology which will provide improved information from Popeyes restaurants. We will use this data to help Popeyes’ restaurant managers improve restaurant performance by providing enhanced information regarding labor and food costs in addition to sales data. Additionally, we will continue to reinforce our ongoing effort to improve operations by hosting our second annual franchisee operations conference in the spring of 2007. We use this forum to provide training, re-enforce standards and share best practices among the attendees.

•  Store Investment.  We stress our continued attention to controlling the costs associated with the construction of new Popeyes restaurants. We evaluate new construction materials, assist franchisees by recommending proven contractors, and test new equipment for use in the restaurants. Additionally, we

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design restaurants for new construction and conversion of existing buildings, which allows us to tailor a Popeyes restaurant design for virtually any site that provides our franchisees an attractive market.

•  New Restaurant Development and Growth.  We believe each of the preceding initiatives serve to improve restaurant unit economics as they are designed to minimize initial construction costs, increase the visit frequency of our current customers, and to give new customers reasons to try our restaurants. Improving restaurant profitability and return stimulates new restaurant development by the existing Popeyes franchisee community as well as new franchisees. Our restaurant development strategy promotes restaurant openings in both new and existing markets. Popeyes offers an array of facilities which provide franchisees with flexibility to appropriately tailor new restaurants for the markets they serve.

To further stimulate growth during 2006, we offered financial incentives to franchisees to accelerate new restaurant openings through temporary reductions in franchise fees and royalties. By accelerating the timing of restaurant openings and through stimulating incremental openings, we expect to expedite revenue growth. Our franchisees opened 29 new restaurants during 2006 under this incentive program, and we expect continued acceleration of openings under this program during 2007.

Key to Popeyes continued restaurant growth is the cultivation of a rich pipeline of qualified franchisee candidates, composed of both existing franchisees and new franchisees. During 2007, we will accelerate recruitment of new, qualified franchisees. In addition, we continue to develop existing strategic markets by assisting our current franchise operators in their efforts to identify and secure attractive new restaurant sites.

Internationally, we anticipate substantial growth in new restaurants in Canada, Mexico, Latin America and the Middle East. Our intention in international markets is to enter into area franchise development agreements with franchise operators who already have multi-unit restaurant operating experience, preferably with international QSR brands. We will target franchisees who have the ambition, experience and infrastructure to effectively secure good restaurant sites and execute the Popeyes brand in their countries. Our international leadership and field support team members comprise a cross-functional group responsible for developing prospective franchisees, tailoring the Popeyes menu and operational methods to the consumers in each respective country and coordinating significant ongoing franchisee support.

During 2006, our initiatives allowed us to achieve growth in same-store sales and new restaurant openings. As a result, cash generated from our Popeyes operations has been used for the benefit of our investors (1) to repurchase shares of our outstanding common stock, (2) to reduce the portion of our long-term debt that is subject to a floating interest rate which trended upward during the year, (3) to reinvest in the Popeyes brand through the construction of new restaurants in company-controlled markets, and (4) to acquire existing Popeyes restaurants to provide additional company-operated test markets for our new menu items and promotional concepts to, in turn, help strategically fuel the overall growth of the Popeyes’ system.

As it concerns the expected financial and operating impacts of these strategies during 2007, see the discussion under the heading “Operating and Financial Outlook for 2007” at Item 7 of this Annual Report.

The following features of the Company are material to the execution of our initiatives and business strategies discussed above:

Our Agreements with Popeyes Franchisees

As discussed above, our strategy places a heavy emphasis on increasing the number of restaurants in the Popeyes system through franchising activities. The following discussion describes the standard arrangements we enter into with our Popeyes franchisees.

Domestic Development Agreements.  Our domestic franchise development agreements provide for the development of a specified number of Popeyes restaurants within a defined geographic territory. Generally, these agreements call for the development of the restaurants over a specified period of time, usually three to five years, with targeted opening dates for each restaurant. Our Popeyes franchisees currently pay a development fee of $7,500 per restaurant. These development fees typically are paid when the agreement is executed, and are typically non-refundable.

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International Development Agreements.  Our international franchise development agreements are similar to our domestic franchise development agreements, though the development time frames can be longer and the development fees generally can be as much as $15,000 for each restaurant developed. Depending on the market, limited sub-franchising rights may also be granted.

Domestic Franchise Agreements.  Once we execute a development agreement, approve a site to be developed under that agreement, and our franchisee secures the real property for a restaurant, we enter into a franchise agreement with our franchisee that conveys the right to operate the specific Popeyes restaurant at the site. Our current franchise agreements generally provide for payment of a franchise fee of $30,000 per location.

These agreements generally require franchisees to pay a 5% royalty on net restaurant sales. In addition, franchisees must contribute to national and local advertising funds. Payments to the advertising funds are generally 3% of net restaurant sales. Some of our institutional and older franchise agreements provide for lower royalties and advertising fund contributions. These agreements constitute a decreasing percentage of our total outstanding franchise agreements.

International Franchise Agreements.  The terms of our international franchise agreements are substantially similar to those included in our domestic franchise agreements, except that these agreements may be modified to reflect the multi-national nature of the transaction and to comply with the requirements of applicable local laws. Our current international franchise agreements generally provide for payment of a franchise fee of up to $30,000 per location. In addition, the effective royalty rates may differ from those included in domestic franchise agreements, and generally are lower due to the greater number of restaurants required to be developed by our international franchisees.

All of our franchise agreements require that our franchisees operate restaurants in accordance with our defined operating procedures, adhere to the menu established by us, and meet applicable quality, service, health and cleanliness standards. We may terminate the franchise rights of any franchisee who does not comply with these standards and requirements.

Site Selection

For new domestic restaurants, we assist our franchisees in identifying and obtaining favorable sites consistent with the overall market plan for each development area. Domestically, we primarily emphasize freestanding sites and “end-cap, in-line” strip-mall sites with ample parking and easy access from high traffic roads.

Each international market has its own factors that lead to venue and site determination. In international markets, we use different venues including freestanding, in-line, food-court and other non-traditional venues. Market development strategies are a collaborative process between Popeyes and our franchisees so we can leverage local market knowledge.

Suppliers and Purchasing Cooperative

Suppliers.  Our franchisees are required to purchase all ingredients, products, materials, supplies and other items necessary in the operation of their businesses solely from suppliers who have been approved by us. These suppliers are required to meet or exceed strict quality control standards, and they must possess adequate capacity to supply our franchisees’ reliably.

Purchasing Cooperative.  Supplies are generally provided to our domestic franchised and company-operated restaurants pursuant to supply agreements negotiated by Supply Management Services, Inc. (“SMS”), a not-for-profit purchasing cooperative. We, our Popeyes franchisees and the owners of Cinnabon bakeries hold membership interests in SMS in proportion to the number of restaurants owned. As of December 31, 2006, we held one of SMS’s seven seats on the SMS board of directors. Our Popeyes franchise agreements require that each franchisee join SMS.

Supply Agreements.  The principal raw material for a Popeyes restaurant operation is fresh chicken. Company-operated and franchised restaurants purchase their chicken from suppliers who service the Popeyes system. In order to ensure favorable pricing and to secure an adequate supply of fresh chicken, SMS has entered into

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supply agreements with several chicken suppliers. These contracts, which pertain to the vast majority of our system-wide purchases, are “cost-plus” contracts with prices based partially upon the cost of feed grains plus certain agreed upon non-feed and processing costs. These contracts include volume purchase commitments that are adjustable at the election of SMS. Each year, purchase commitments may be adjusted by up to 10%, if notice is given within specified time frames; and the commitment levels for future years may be adjusted based on revised estimates of need. The Company has agreed to indemnify SMS for certain shortfalls in the annual purchase commitments entered into by SMS on behalf of the Popeyes restaurant system. To date, that indemnity has never been called due to the demand for poultry and the chicken suppliers’ ability to mitigate shortfalls, if any. Information about this guarantee can be found in Item 7 of this Annual Report under the caption “Off-Balance Sheet Arrangements.”

We have entered into long-term beverage supply arrangements with certain major beverage vendors. These contracts are customary in the QSR industry. Pursuant to the terms of these arrangements, marketing rebates are provided to the owner/operator of Popeyes restaurants based upon the volume of beverage purchases.

We also have a long-term agreement with Diversified Foods and Seasonings, Inc. (“Diversified”), under which we have designated Diversified as the supplier of certain proprietary products for the Popeyes system. Diversified sells these products to our approved distributors, who in turn sell them to our franchised and company-operated Popeyes restaurants.

Marketing and Advertising

We contribute on behalf of our company-operated restaurants, together with our Popeyes franchisees who contribute on behalf of their franchised restaurants, to an advertising fund that supports (1) branding initiatives and the development of marketing materials that are used throughout our domestic restaurant system and (2) local marketing programs. We act as agent for the fund and coordinate its activities. We work closely with franchisees on local marketing programs, which are the principal uses of collected funds. We and our Popeyes franchisees made contributions to the advertising fund of approximately $57.7 million in 2006, $56.3 million in 2005, and $53.7 million in 2004.

Fiscal Year and Seasonality

Our fiscal year is composed of 13 four-week accounting periods and ends on the last Sunday in December. The first quarter of our fiscal year has four periods, or 16 weeks. All other quarters have three periods, or 12 weeks. Fiscal 2006, which ended on December 31, 2006, included 53 weeks (including one five-week accounting period in our fiscal fourth quarter); fiscal 2005 and fiscal 2004 included 52 weeks.

Seasonality has little effect on our operations.

Employees

As of December 31, 2006, we had 1,532 hourly employees working in our company-operated restaurants. Additionally, we had 82 employees involved in the management of our company-operated restaurants, composed of multi-unit managers and field management employees. We also had 137 employees responsible for corporate administration, franchise administration and business development.

None of our employees are covered by a collective bargaining agreement. We believe that the dedication of our employees is critical to our success and that our relationship with our employees is good.

Intellectual Property and Other Proprietary Rights

We own a number of trademarks and service marks that have been registered with the U.S. Patent and Trademark Office, including the marks “AFC,” “AFC Enterprises,” “Popeyes,” “Popeyes Chicken & Biscuits,” and the brand logo for Popeyes. In addition, we have registered, or made application to register, one or more of these marks and others, or their linguistic equivalents, in foreign countries in which we do business, or are contemplating doing business. There is no assurance that we will be able to obtain the registration for the marks in every country where registration has been sought. We consider our intellectual property rights to be important to our business and we actively defend and enforce them.

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Copeland Formula Agreement.  We have a formula licensing agreement with Alvin C. Copeland, the founder of Popeyes. Under this agreement, we have the worldwide exclusive rights to the Popeyes fried chicken recipe and certain other ingredients used in Popeyes products. The agreement provides that we pay Mr. Copeland approximately $3.1 million annually through March 2029.

King Features Agreements.  We have several agreements with the King Features Syndicate Division (“King Features”) of Hearst Holdings, Inc. under which we have the non-exclusive license to use the image and likeness of the cartoon character “Popeye” in the United States. Popeyes locations outside the United States have the non-exclusive use of the image and likeness of the cartoon character “Popeye” and certain companion characters. We are obligated to pay King Features a royalty of approximately $1.0 million annually, as adjusted for fluctuations in the Consumer Price Index, plus twenty percent of our gross revenues from the sale of products outside of the Popeyes restaurant system, if any. These agreements extend through June 30, 2010.

International Operations

We continue to expand our international operations through franchising. As of December 31, 2006, we franchised 319 international restaurants. During 2006, franchise revenues from these operations represented approximately 8.8% of our total franchise revenues. For each of 2006, 2005 and 2004, international revenues represented 4.7%, 4.5%, and 4.0% of total revenues, respectively.

Insurance

We carry property, general liability, business interruption, crime, directors and officers liability, employment practices liability, environmental and workers’ compensation insurance policies, which we believe are customary for businesses of our size and type. Pursuant to the terms of their franchise agreements, our franchisees are also required to maintain certain types and levels of insurance coverage, including commercial general liability insurance, workers’ compensation insurance, all risk property and automobile insurance.

Competition

The foodservice industry, and particularly the QSR industry, is intensely competitive with respect to price, quality, name recognition, service and location. We compete against other QSRs, including chicken, hamburger, pizza, Mexican and sandwich restaurants, other purveyors of carry out food and convenience dining establishments, including national restaurant chains. Many of our competitors possess substantially greater financial, marketing, personnel and other resources than we do.

Government Regulation

We are subject to various federal, state and local laws affecting our business, including various health, sanitation, fire and safety standards. Newly constructed or remodeled restaurants are subject to state and local building code and zoning requirements. In connection with the re-imaging and alteration of our company-operated restaurants, we may be required to expend funds to meet certain federal, state and local regulations, including regulations requiring that remodeled or altered restaurants be accessible to persons with disabilities. Difficulties or failures in obtaining the required licenses or approvals could delay or prevent the opening of new restaurants in particular areas.

We are also subject to the Fair Labor Standards Act and various other laws governing such matters as minimum wage requirements, overtime and other working conditions and citizenship requirements. A significant number of our foodservice personnel are paid at rates related to the federal minimum wage, and increases in the minimum wage have increased our labor costs.

Many states and the Federal Trade Commission, as well as certain foreign countries, require franchisors to transmit specified disclosure statements to potential franchisees before granting a franchise. Additionally, some states and certain foreign countries require us to register our franchise offering documents before we may offer a franchise. We believe that our uniform franchise offering circulars, together with any applicable state versions or supplements, and our franchising procedures, comply in all material respects with both the Federal Trade

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Commission guidelines and all applicable state laws regulating franchising in those states which we have offered franchises. We believe that our international disclosure statements, franchise offering documents and franchising procedures comply, in all material respects, with the laws of the foreign countries in which we have offered franchises.

Environmental Matters

We are subject to various federal, state and local laws regulating the discharge of pollutants into the environment. We believe that we conduct our operations in substantial compliance with applicable environmental laws and regulations. Certain of our current and formerly owned and/or leased properties are known or suspected to have been used by prior owners or operators as retail gas stations and a few of these properties may have been used for other environmentally sensitive purposes. Certain of these properties previously contained underground storage tanks (“USTs”) and some of these properties may currently contain abandoned USTs. It is possible that petroleum products and other contaminants may have been released at these properties into the soil or groundwater. Under applicable federal and state environmental laws, we, as the current or former owner or operator of these sites, may be jointly and severally liable for the costs of investigation and remediation of any such contamination, as well as any other environmental conditions at its properties that are unrelated to USTs. We have obtained insurance coverage that we believe is adequate to cover any potential environmental remediation liabilities. We are currently not subject to any administrative or court order requiring remediation at any of our properties.

Where You Can Find Additional Information

We file our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports with the Securities and Exchange Commission (the “SEC”). You may obtain copies of these documents by visiting the SEC’s Public Reference Room at 100 F. Street, N.E., Room 1580, Washington, DC 20549, by calling the SEC at 1-800-SEC-0330 or by accessing the SEC’s website at http://www.sec.gov. In addition, as soon as reasonably practicable after such materials are filed with, or furnished to, the SEC, we make copies of these documents (except for exhibits) available to the public free of charge through our web site at www.afce.com or by contacting our Secretary at our principal offices, which are located at 5555 Glenridge Connector, NE, Suite 300, Atlanta, Georgia 30342, telephone number (404) 459-4450.

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Item 1A.   RISK FACTORS

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

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

The QSR industry is intensely competitive with respect to price, quality, brand recognition, service and location. If we are unable to compete successfully against other foodservice providers, we could lose customers and our revenues may decline. We compete against other QSRs, including chicken, hamburger, pizza, Mexican and sandwich restaurants, other purveyors of carry out food and convenience dining establishments, including national restaurant chains. Many of our competitors possess substantially greater financial, marketing, personnel and other resources than we do. There can be no assurance that consumers will continue to regard our products favorably, that we will be able to develop new products that appeal to consumer preferences, or that we will be able to continue to compete successfully in the QSR industry.

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

Our operating results are dependent on our franchisees and, in some cases, on certain franchisees that operate a large number of restaurants. How well our franchisees operate their restaurants and their desire to maintain their franchise relationship with us is outside of our direct control. Any failure of these franchisees to operate their franchises successfully or loss of these franchisees could adversely affect our operating results. As of December 31, 2006, we had 347 franchisees operating restaurants within the Popeyes system and several preparing to become operators. The largest of our domestic franchisees operates 166 Popeyes restaurants; and the largest of our international franchisees operates 108 Popeyes restaurants. Typically, each of our international franchisees is responsible for the development of significantly more restaurants than our domestic franchisees. As a result, our international operations are more closely tied to the success of a smaller number of franchisees than our domestic operations. There can be no assurance that our domestic and international franchisees will operate their franchises successfully.

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

Labor is a primary component in the cost of operating our restaurants. As of December 31, 2006, we employed 1,532 hourly employees in our company-operated restaurants. If we face labor shortages or increased labor costs because of increased competition for employees, higher employee turnover rates, increases in the federal minimum wage or increases in other employee benefits costs (including costs associated with health insurance coverage), our operating expenses could increase and our growth could be adversely affected. Our success depends in part upon our and our franchisees’ ability to attract, motivate and retain a sufficient number of qualified employees, including restaurant managers, kitchen staff and servers, necessary to keep pace with our expansion schedule. The number of qualified individuals needed to fill these positions is in short supply in some areas.

Since Hurricane Katrina, in our New Orleans company market, we have experienced labor shortages and increased labor costs. If this were to continue indefinitely, our future operating results could be adversely impacted.

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As it is, increased sales in those same restaurants since the hurricane have more than compensated for the increased costs. However, if sales normalize in future periods, we may have a cost structure out of line with our restaurant sales volume in that market.

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

The principal raw material for Popeyes is fresh chicken. Any material increase in the costs of fresh chicken could adversely affect our operating results. Our company-operated and franchised restaurants purchase fresh chicken from various suppliers who service us from various plant locations. These costs are significantly affected by increases in the cost of chicken, which can result from a number of factors, including increases in the cost of grain, disease, declining market supply of fast-food sized chickens and other factors that affect availability. Because our purchasing agreements for fresh chicken allow the prices that we pay for chicken to fluctuate, a rise in the prices of chicken products could expose us to cost increases. If we fail to anticipate and react to increasing food costs by adjusting our purchasing practices or increasing our sales prices, our cost of sales may increase and our operating results could be adversely affected.

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

We, and our franchisees, are dependent on frequent deliveries of fresh food products that meet our specifications. Shortages or interruptions in the supply of fresh food products caused by unanticipated demand, problems in production or distribution, declining number of distributors, inclement weather or other conditions could adversely affect the availability, quality and cost of ingredients, which would adversely affect our operating results.

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

Foodservice businesses are often affected by changes in consumer tastes, national, regional and local economic conditions, discretionary spending priorities, demographic trends, traffic patterns and the type, number and location of competing restaurants. Our franchisees, and we, are from time to time, the subject of complaints or litigation from guests alleging illness, injury or other food quality, health or operational concerns. Adverse publicity resulting from these allegations may harm our reputation or our franchisees’ reputation, regardless of whether the allegations are valid or not, whether we are found liable or not, or those concerns relate only to a single restaurant or a limited number of restaurants or many restaurants. In addition, the restaurant industry is currently under heightened legal and legislative scrutiny resulting from the perception that the practices of restaurant companies have contributed to the obesity of their guests. Additionally, some animal rights organizations have engaged in confrontational demonstrations at certain restaurant companies across the country. As a multi-unit restaurant company, we can be adversely affected by the publicity surrounding allegations involving illness, injury, or other food quality, health or operational concerns. Complaints, litigation or adverse publicity experienced by one or more of our franchisees could also adversely affect our business as a whole. If we are unable to adapt to changes in consumer preferences and trends, or we have adverse publicity due to any of these concerns, we may lose customers and our revenues may decline.

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

Instances of avian flu or food-borne illnesses could adversely affect the price and availability of poultry and other foods. As a result, Popeyes restaurants could experience a significant increase in food costs if there are additional instances of avian flu or food-borne illnesses. In addition to losses associated with higher prices and a lower supply of our food ingredients, instances of food-borne illnesses could result in negative publicity for us. This negative publicity, as well as any other negative publicity concerning food products we serve, may reduce demand for our food and could result in a decrease in guest traffic to our restaurants. A decrease in guest traffic to Popeyes restaurants as a result of these health concerns or negative publicity could result in a decline in our sales.

9

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

During the last week of August 2005, the Company’s business operations in Louisiana, Mississippi, and Alabama were adversely impacted by Hurricane Katrina. We describe the effect of Hurricane Katrina on our operations at Note 16 to our Consolidated Financial Statement. There were 36 company-operated restaurants which were temporarily closed as a result of Hurricane Katrina. At December 31, 2006, 21 of these restaurants had re-opened (1 of which had temporarily closed due to fire damage), 8 had been permanently closed, and 7 remained temporarily closed.

Our ability to re-open remaining restaurants impacted by Hurricane Katrina depends on a number of factors, including but not limited to: the restoration of local and regional infrastructure such as utilities, transportation and other public services; the displacement and return of the population in affected locations and the plans of governmental authorities for the rebuilding of affected areas; and the amounts and timing of payments under our insurance coverage. Our ability to collect our insurance coverage is subject to, among other things, our insurers not denying coverage of claims, timing matters related to the processing and payment of claims and the solvency of our insurance carriers. Factors which could limit our ability to recover total losses from insurance proceeds include: the percentage of losses ultimately attributable to wind versus flood perils, the business interruption recovery period deemed allowable under the term of our insurance policies, and our ability to limit ongoing costs such as facility rents, taxes, and utilities.

Further, there can be no assurance that sales levels at certain company-operated and franchised restaurants open in the region will continue at the heightened levels experienced since the storm.

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

We are dependent on the experience and industry knowledge of the members of our senior management team. If, for any reason, our senior executives do not continue to be active in management or if we are unable to retain qualified new members of senior management, our operating results could be adversely affected. We cannot guarantee that we will be able to attract and retain additional qualified senior executives as needed. We have employment agreements with certain executives; however, these agreements do not ensure their continued employment with us.

As we disclosed on March 2, 2007, Ken Keymer, our current Chief Executive Officer and President has resigned effective March 30, 2007. Our Board of Directors has appointed Fred Beilstein, former Chief Financial Officer of AFC Enterprises, as interim Chief Executive Officer effective March 30, 2007 and has engaged an executive search firm to work with us to find a new Chief Executive Officer. Turnover, particularly among senior management like our Chief Executive Officer, can create distractions as we search for replacement personnel, which could result in recruiting, relocation, training and other costs and can cause operational inefficiencies.

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

The 2005 Credit Facility contains financial and other covenants, including covenants requiring us to maintain various financial ratios, limiting our ability to incur additional indebtedness, restricting the amount of capital expenditures that may be incurred, restricting the payment of cash dividends and limiting the amount of debt which can be loaned to our franchisees or guaranteed on their behalf. This facility also limits our ability to engage in mergers or acquisitions, sell certain assets, repurchase our stock and enter into certain lease transactions. The 2005 Credit Facility includes customary events of default, including, but not limited to, the failure to pay any interest, principal or fees when due, the failure to perform certain covenant agreements, inaccurate or false representations or warranties, insolvency or bankruptcy, change of control, the occurrence of certain ERISA events and judgment defaults. The restrictive covenants in our 2005 Credit Facility may limit our ability to expand our business, and our ability to comply with these provisions may be affected by events beyond our control. A failure to comply with any of the financial and operating covenants included in the 2005 Credit Facility would result in an event of default,

10

permitting the lenders to accelerate the maturity of outstanding indebtedness. This acceleration could also result in the acceleration of other indebtedness that we may have outstanding at that time. Were we to default on the terms and conditions of the 2005 Credit Facility and the debt were accelerated by the facility’s lenders, such developments would have a material adverse impact on our financial condition and our liquidity.

If our franchisees are unable or unwilling to open a sufficient number of restaurants, our growth strategy could be at risk.

As of December 31, 2006, we franchised 1,503 restaurants domestically and 319 restaurants in Puerto Rico, Guam and 24 foreign countries. Our growth strategy is significantly dependent on increasing the number of our franchised restaurants. If our franchisees are unable to open a sufficient number of restaurants, our growth strategy could be significantly impaired.

Our ability to successfully open additional franchised restaurants will depend on various factors, including the availability of suitable sites, the negotiation of acceptable leases or purchase terms for new locations, permitting and regulatory compliance, the ability to meet construction schedules, the financial and other capabilities of our franchisees, and general economic and business conditions. Many of the foregoing factors are beyond the control of our franchisees. Further, there can be no assurance that our franchisees will successfully develop or operate their restaurants in a manner consistent with our concepts and standards, or will have the business abilities or access to financial resources necessary to open the restaurants required by their agreements. Historically, there have been many instances in which Popeyes franchisees have not fulfilled their obligations under their development agreements to open new restaurants.

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

As of December 31, 2006, we had 319 franchised restaurants in Puerto Rico, Guam and 24 foreign countries. Business at these operations is conducted in the respective local currency. The amount owed us is based on a conversion of the royalties and other fees to U.S. dollars using the prevailing exchange rate. In particular, the royalties are based on a percentage of net sales generated by our foreign franchisees’ operations. Consequently, our revenues from international franchisees are exposed to the potentially adverse effects of our franchisees’ operations, currency exchange rates, local economic conditions, political instability and other risks associated with doing business in foreign countries. We expect that our franchise revenues generated from international operations will increase in the future, thus increasing our exposure to changes in foreign economic conditions and currency fluctuations.

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

We had 116 franchised restaurants in Korea as of December 31, 2006 as compared to 154 at December 25, 2005. The decline in the number of Korean restaurants was primarily due to weak financial and operating performance by our master franchisee in that country (our largest international franchisee). We agreed to abate the entire 3% royalty due to be paid to us by that franchisee for the last two quarters of 2005 and to abate one-third of the royalties to be paid to us during the first two quarters of 2006. We continue to work with that franchisee to address challenges facing its restaurants and those of sub-franchisees concerning sales growth and profitability, and to otherwise strengthen our franchise system in that country. There can be no assurance; however, that these efforts will be successful.

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.

In order to ensure favorable pricing for fresh chicken purchases and to maintain an adequate supply of fresh chicken for us and our Popeyes franchisees, SMS has entered into poultry supply contracts with various suppliers. These contracts establish pricing arrangements, as well as purchase commitments. AFC has agreed to indemnify SMS as it concerns any shortfall of annual purchase commitments entered into by SMS on behalf of the Popeyes restaurant system. If we and our Popeyes franchisees fail to purchase fresh chicken at the commitment levels, and

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our suppliers are unable to mitigate damages, AFC may be required to purchase the commitment short-fall. This may result in losses as AFC would then need to find uses for the excess chicken purchases or to resell the excess purchases at spot market prices. This could adversely affect our operating results.

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

Our quarterly operating results and same-store sales have fluctuated significantly in the past and may continue to fluctuate significantly in the future as a result of a variety of factors, many of which are outside of our control. If our quarterly results or same-store sales fluctuate or fall below the expectations of securities analysts and investors, the market price of our common stock could decline.

Factors that may cause our quarterly results or same-store sales to fluctuate include the following:

•  the opening of new restaurants by us or our franchisees;

•  the re-opening of restaurants temporarily closed due to Hurricane Katrina;

•  the closing of restaurants by us or our franchisees;

•  rising gasoline prices;

•  increases in labor costs;

•  increases in the cost of food products;

•  the ability of our franchisees to meet their future commitments under development agreements;

•  consumer concerns about food quality or food safety;

•  the level of competition from existing or new competitors in the QSR industry;

•  inclement weather patterns; and

•  economic conditions generally, and in each of the markets in which we, or our franchisees, are located.

Accordingly, results for any one-quarter are not indicative of the results to be expected for any other quarter or for the full year, and same-store sales for any future period may decrease.

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

We are subject to numerous federal, state, local and foreign government laws and regulations, including those relating to:

•  the preparation and sale of food;

•  franchising;

•  building and zoning requirements;

•  environmental protection;

•  minimum wage, overtime and other labor requirements;

•  compliance with the Americans with Disabilities Act; and

•  working and safety conditions.

If we fail to comply with existing or future regulations, we may be subject to governmental or judicial fines or sanctions, or we could suffer business interruption or loss. In addition, our capital expenses could increase due to remediation measures that may be required if we are found to be noncompliant with any of these laws or regulations.

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We are also subject to regulation by the Federal Trade Commission and to state and foreign laws that govern the offer, sale and termination of franchises and the refusal to renew franchises. The failure to comply with these regulations in any jurisdiction or to obtain required approvals could result in a ban or temporary suspension on future franchise sales or fines or require us to make a rescission offer to franchisees, any of which could adversely affect our business and operating results.

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

On April 30, 2003, we received an informal, nonpublic inquiry from the staff of the SEC requesting voluntary production of documents and other information. The requests, for documents and information, to which we have responded, relate primarily to our announcement on March 24, 2003 indicating we would restate our financial statements for fiscal year 2001 and the first three quarters of 2002. The staff has informed our counsel that the SEC issued an order authorizing a formal investigation with respect to these matters. We have cooperated with the SEC in these inquiries.

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.

We depend in large part on our Popeyes brand and branded products and believe that it is very important to the conduct of our business. We rely on a combination of trademarks, copyrights, service marks, trade secrets and similar intellectual property rights to protect our Popeyes brand and branded products. The success of our expansion strategy depends on our continued ability to use our existing trademarks and service marks in order to increase brand awareness and further develop our branded products in both domestic and international markets. We also use our trademarks and other intellectual property on the Internet. If our efforts to protect our intellectual property are not adequate, or if any third party misappropriates or infringes on our intellectual property, either in print or on the internet, the value of our Popeyes brand may be harmed, which could have a material adverse effect on our business, including the failure of our Popeyes brand and branded products to achieve and maintain market acceptance.

We franchise our restaurants to various franchisees. While we try to ensure that the quality of our Popeyes brand and branded products is maintained by all of our franchisees, we cannot be certain that these franchisees will not take actions that adversely affect the value of our intellectual property or reputation.

We have registered certain trademarks and have other trademark registrations pending in the U.S. and foreign jurisdictions. The trademarks that we currently use have not been registered in all of the countries in which we do business and may never be registered in all of these countries. We cannot be certain that we will be able to adequately protect our trademarks or that our use of these trademarks will not result in liability for trademark infringement, trademark dilution or unfair competition.

There can be no assurance that all of the steps we have taken to protect our intellectual property in the U.S. and foreign countries will be adequate. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the U.S. Further, through acquisitions of third parties, we may acquire brands and related trademarks that are subject to the same risks as the brand and trademarks we currently own.

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

Certain of our currently or formerly owned and/or leased properties (including certain Church’s locations formerly owned) are known or suspected to have been used by prior owners or operators as retail gas stations, and a few of these properties may have been used for other environmentally sensitive purposes. Certain of these properties previously contained underground storage tanks, and some of these properties may currently contain abandoned underground storage tanks. It is possible that petroleum products and other contaminants may have been released at these properties into the soil or groundwater. Under applicable federal and state environmental laws, we, as the current or former owner or operator of these sites, may be jointly and severally liable for the costs of investigation and remediation of any contamination, as well as any other environmental conditions at our properties that are unrelated to underground storage tanks. If we are found liable for the costs of remediation of contamination at any of these properties, our operating expenses would likely increase and our operating results would be materially adversely affected. We have obtained insurance coverage that we believe will be adequate to cover any potential environmental remediation liabilities. However, there can be no assurance that the actual costs of any potential remediation liabilities will not materially exceed the amount of our policy limits.

Item 1B.   UNRESOLVED STAFF COMMENTS

None.

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Item 2.   PROPERTIES

We either own, lease or sublease the land and buildings for our company-operated restaurants. In addition, we own, lease or sublease land and buildings, which we lease or sublease to our franchisees and third parties.

The following table sets forth the locations by state of our domestic company-operated restaurants as of December 31, 2006:

	Land and		Land and/or
	Buildings Owned		Buildings Leased		Total
Georgia		3		20		23
Louisiana		2		18		20
Tennessee		1		8		9
Mississippi		0		3		3
Arkansas		0		1		1
Total		6		50		56

At December 31, 2006, seven company-operated restaurants remained temporarily closed due to the adverse effects of Hurricane Katrina and one company-operated restaurant was temporarily closed due to fire damage. These temporarily closed restaurants are excluded from the above table. A second company-operated restaurant temporarily closed subsequent to December 31, 2006 due also to fire damage.

We typically lease our restaurants under “triple net” leases that require us to pay minimum rent, real estate taxes, maintenance costs and insurance premiums and, in some cases, percentage rent based on sales in excess of specified amounts. Generally, our leases have initial terms ranging from five to 20 years, with options to renew for one or more additional periods, although the terms of our leases vary depending on the facility.

Within our franchise operations segment, our typical restaurant leases or subleases to franchisees are triple net to the franchisee, that require them to pay minimum rent (based upon prevailing market rental rates), real estate taxes, maintenance costs and insurance premiums, as well as percentage rents based on sales in excess of specified amounts. These leases have a term that usually coincides with the term of the underlying base lease for the location. These leases are typically cross-defaulted with the corresponding franchise agreement for that site. At December 31, 2006, we leased or subleased 71 restaurants to franchisees, of which 24 were owned by us.

At December 31, 2006, we leased approximately 30,000 square feet of office space in a facility located in Atlanta, Georgia that is the headquarters for the Company. This lease is subject to extensions through 2016.

We believe that our leased and owned facilities provide sufficient space to support our corporate and operational needs.

Item 3.   LEGAL PROCEEDINGS

We were previously involved in several lawsuits arising from our announcements on March 24, 2003 and April 22, 2003 indicating that we would restate certain previously issued financial statements, including a derivative lawsuit filed by plaintiffs claiming to be acting on behalf of AFC and certain Section 10(b) and Section 11 securities litigation. During the second quarter of 2005, we settled these lawsuits pursuant to joint settlement agreements (the “Joint Settlement Agreements”) and recognized $21.8 million of charges related to shareholder litigation, including $15.5 million associated with the joint settlement agreements.

On April 30, 2003, we received an informal, nonpublic inquiry from the staff of the SEC requesting voluntary production of documents and other information. The requests, for documents and information, to which we have responded, relate primarily to our announcement on March 24, 2003 indicating we would restate our financial statements for fiscal year 2001 and the first three quarters of 2002. The staff has informed our counsel that the SEC has issued an order authorizing a formal investigation with respect to these matters. We have cooperated with the SEC in these inquiries.

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We are involved in legal matters against certain of our former insurers related to directors and officers liability insurance policies, constituting a gain contingency. We are unable to predict the outcome of these matters. If we were successful in these matters, a substantial portion of any recovery would be provided to (1) the counterparties to the above referenced Joint Settlement Agreements, and (2) our attorneys in these matters.

We are a defendant in various legal proceedings arising in the ordinary course of business, including claims resulting from “slip and fall” accidents, employment-related claims, claims from guests or employees alleging illness, injury or other food quality, health or operational concerns and claims related to franchise matters. We have established adequate reserves to provide for the defense and settlement of such matters, and we believe their ultimate resolution will not have a material adverse effect on our financial condition or our results of operations.

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

Not applicable.

Item 4A.   EXECUTIVE OFFICERS

The following table sets forth the name, age (as of the date of this filing) and position of our current executive officers:

Name	Age		Position
Kenneth L. Keymer		58	President and Chief Executive Officer
H. Melville Hope, III		45	Senior Vice President and Chief Financial Officer
James W. Lyons		52	Chief Operating Officer
Robert Calderin		49	Chief Marketing Officer
Harold M. Cohen		43	Senior Vice President, General Counsel and Corporate Secretary

Kenneth L. Keymer, age 58, has served as our Chief Executive Officer since September 2005 and as President of Popeyes^® Chicken & Biscuits since June 2004. From January 2002 to May 2004, Mr. Keymer served as President and Co-chief Executive Officer and Member of the Board of Directors of Noodles  & Company, which is based in Boulder, Colorado. From August 1996 to January 2002, Mr. Keymer was President and Chief Operating Officer of Sonic Corporation, the largest publicly-held chain of drive-in restaurants in the U.S. While at Sonic, he led the management team, oversaw franchising operations, company operations, promotional and field marketing, as well as R&D, information technology, and construction, and served as a member of the Board of Directors.

On March 2, 2007, the Company announced the resignation of Mr. Keymer effective March 30, 2007. The Company’s Board of Directors has appointed Fred Beilstein, Former Chief Financial Officer of AFC Enterprises, as interim Chief Executive Officer effective March 30, 2007 and has engaged an executive search firm to work with the Company to find a new Chief Executive Officer.

H. Melville Hope, III, age 45, has served as our Chief Financial Officer since December 2005. From February 2004 until December 2005, Mr. Hope served as our Senior Vice President, Finance and Chief Accounting Officer. From April 2003 to February 2004, Mr. Hope was our Vice President of Finance. Prior to joining AFC, he was an independent consultant in Atlanta, Georgia from January 2003 to April 2003. From April 2002 to January 2003, Mr. Hope was Chief Financial Officer for First Cambridge HCI Acquisitions, LLC, a real estate investment firm, located in Birmingham, Alabama. From November 2001 to April 2002, Mr. Hope was a financial and business advisory consultant in Atlanta, Georgia. From July 1984 to July 2001, Mr. Hope was an accounting, auditing and business advisory professional for PricewaterhouseCoopers, LLP in Atlanta, Georgia, in Savannah, Georgia and in Houston, Texas where he was admitted to the partnership in 1998.

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James W. Lyons, age 52, was appointed to the position of our Chief Operating Officer effective March 2, 2007. Prior to that, Mr. Lyons had served as our Chief Development Officer since July 2004. From June 2002 to April 2004, he was Vice President of Development for Domino’s Pizza in Ann Arbor, Michigan. Mr. Lyons was Executive Vice President of Franchising and Development for Denny’s Restaurants in Spartanburg, South Carolina from July 1997 to December 2001.

Robert Calderin, age 49, has served as our Chief Marketing Officer since January 2005. From September 2001 to December 2004, he was an owner of Novus Mentis, Inc. in Miami, Florida. Mr. Calderin was Vice President, U.S. Marketing for Burger King Corporation in Miami, Florida from February 1998 to September 2001.

Harold M. Cohen, age 43, has served as our Senior Vice President of Legal Affairs, Corporate Secretary and General Counsel since September 2005. Mr. Cohen has been General Counsel of Popeyes Chicken & Biscuits, a division of AFC Enterprises, Inc., since January 2005. He also has served as Vice President of AFC since July 2000. From April 2001 to December 2004, he served as Deputy General Counsel of AFC. From August 1995 to June 2000, he was Corporate Counsel for AFC.

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PART II.

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

Our common stock currently trades on the Nasdaq Global Market under the symbol “AFCE.”

The following table sets forth the high and low per share sales prices of our common stock, by quarter, for fiscal years 2006 and 2005.

	2006				2005
(Dollars per share)	High		Low		High		Low
First Quarter	$	16.89	$	12.54	$	26.99	$	22.46
Second Quarter(1)	$	15.15	$	12.13	$	28.82	$	12.90
Third Quarter	$	15.29	$	12.11	$	14.66	$	10.95
Fourth Quarter	$	18.04	$	13.90	$	16.45	$	10.47

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

Share Repurchases

During fiscal year 2006, we repurchased and retired 1,486,714 shares of our common stock for approximately $20.3 million under our share repurchase program, all of which were repurchased during the first three quarters of the year.

					Total Number of		Maximum Value of
					Shares Repurchased		Shares that May Yet
	Number of Shares		Average Price Paid		as Part of a Publicly		Be Repurchased
Period	Repurchased(1)(2)		Per Share		Announced Plan		Under the Plan(2)
Period 11 10/02/06 – 10/29/06		—	$	—		—	$	47,269,110
Period 12 10/30/06 – 11/26/06		—	$	—		—	$	47,269,110
Period 13 11/27/06 – 12/31/06		—	$	—		—	$	47,269,110
Total		—	$	—		—	$	47,269,110

(1)

As originally announced on July 22, 2002, and subsequently amended and expanded, the Company’s board of directors has approved a share repurchase program. See Note 12 to our Consolidated Financial Statements.

(2)

From January 1, 2007 through February 25, 2007 (the end of the Company’s second period for 2007), the Company repurchased and retired an additional 136,400 shares of common stock for approximately $2.4 million. As of February  25, 2007, the remaining value of shares that may be repurchased under the program was $44.8 million. Pursuant to the terms of the Company’s 2005 Credit Facility, the Company is subject to a repurchase limit of approximately $7.3 million for the remainder of fiscal 2007.

Shareholders of Record

As of February 25, 2007, we had 105 shareholders of record of our common stock.

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Dividend Policy

On May 11, 2005, our Board of Directors declared a special cash dividend of $12.00 per common share. The dividend, which totaled $352.9 million, was paid on June 3, 2005 to the common shareholders of record at the close of business on May 23, 2005. We funded the dividend with a portion of the net proceeds from the sale of Church’s and a portion of the net proceeds from our 2005 Credit Facility.

We anticipate that we will retain any future earnings to support operations and to finance the growth and development of our business, and we do not expect to pay cash dividends in the foreseeable future. Any future determination relating to our dividend policy will be made at the discretion of our board of directors and will depend on a number of factors, including future earnings, capital requirements, financial conditions, plans for share repurchases, future prospects and other factors that the board of directors may deem relevant. Other than the special cash dividend, we have never declared or paid cash dividends on our common stock. Additionally, our 2005 Credit Facility restricts the extent to which we may declare or pay a cash dividend.

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Stock Performance Graph

The following stock performance graph compares the performance of our common stock to the Standard & Poor’s 500 Stock Index (“S&P 500 Index”) and a peer group index for the period from December 30, 2001 through December 31, 2006 and further assumes the reinvestment of all dividends.

Company Name/ Index	12/30/2001		12/29/2002		12/28/2003		12/26/2004		12/25/2005		12/31/2006
AFC Enterprises, Inc.	$	100	$	76	$	70	$	82	$	101	$	117
S&P 500 INDEX	$	100	$	76	$	98	$	110	$	117	$	134
Peer Group	$	100	$	91	$	126	$	167	$	191	$	239

Our Peer Group Index is now composed of the following quick service restaurant companies: CKE Restaurants, Inc., Jack In the Box, Inc., Papa Johns International Inc., Sonic Corp., Yum! Brands Inc., and Wendy’s International Inc.

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Item 6.   SELECTED FINANCIAL DATA

The following data was derived from our Consolidated Financial Statements. Such data should be read in conjunction with our Consolidated Financial Statements and the notes thereto and our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” at Item 7 of this Annual Report.

(Dollars in millions, except per share data)	2006			2005			2004			2003			2002
Summary of operations:
Revenues(1)
Sales by company-operated restaurants	$	65.2		$	60.3		$	85.8		$	85.4		$	85.2
Franchise revenues(2)		82.6			77.5			72.8			70.8			67.1
Other revenues		5.2			5.6			5.3			5.3			6.6
Total revenues	$	153.0		$	143.4		$	163.9		$	161.5		$	158.9
Operating profit (loss)(3)	$	45.3		$	(6.9	)	$	(19.4	)	$	(19.7	)	$	10.3
Income (loss) before discontinued operations and accounting change(4)		22.2			(8.4	)		(14.3	)		(14.5	)		(6.4	)
Net income (loss)(5)		22.4			149.6			24.6			(9.1	)		(11.7	)
Earnings per common share, basic:(6)
Income (loss) before discontinued operations and accounting change	$	0.75		$	(0.29	)	$	(0.51	)	$	(0.52	)	$	(0.21	)
Net income (loss)		0.76			5.14			0.87			(0.33	)		(0.39	)
Earnings per common share, diluted:(6)
Income (loss) before discontinued operations and accounting change	$	0.74		$	(0.29	)	$	(0.51	)	$	(0.52	)	$	(0.21	)
Net income (loss)		0.75			5.14			0.87			(0.33	)		(0.39	)
Year-end balance sheet data:
Total assets	$	163.1		$	212.7		$	361.9		$	359.5		$	487.3
Total debt(7)		134.0			191.4			94.0			130.9			226.6
Total shareholders’ equity (deficit)(8)		(31.2	)		(48.7	)		140.9			108.8			109.8

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

(a)  The effects of restaurant openings, closings, unit conversions and same-store sales (see “Summary of System-Wide Data” later in this Item 6).

(b)  During the third quarter of 2005, the company-operated restaurants in the City of New Orleans were adversely affected by Hurricane Katrina. There were 36 company-operated restaurants which were temporarily closed as a result of Hurricane Katrina. Additional information concerning the impact of these hurricane related restaurant closures on company-operated restaurant sales can be found under the title “Sales by Company-Operated Restaurants” in both the “Comparisons of Fiscal Years 2006 and 2005” and the “Comparison of Fiscal Years 2005 and 2004” sections in Item 7.

(c)  The Company’s fiscal year ends on the last Sunday in December. The 2006 fiscal year consisted of 53 weeks. The 2005, 2004, 2003 and 2002 fiscal years consisted of 52 weeks each. The 53rd week in 2006 increased sales by company-operated restaurants by approximately $1.2 million and increased franchise revenues by approximately $1.3 million.

(d)  On May 1, 2006, the Company completed an acquisition of 13 franchised restaurants from a Popeyes franchisee in the Memphis and Nashville, Tennessee markets. The results of operations of the acquired restaurants are included in the consolidated financial statements since that date. The acquired units increased 2006 revenues by approximately $10.0 million dollars (net of lost franchise revenues attributable to these restaurants). Additional information concerning this acquisition can be found at Note 25 to our Consolidated Financial Statements.

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(e)  During 2004, we adopted Financial Accounting Standards Board Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51, as revised in December 2003 (“FIN 46R”) and began consolidating three franchisees that qualify for consolidation under FIN 46R. These franchisees were not retroactively consolidated for years prior to 2004. Since adoption of FIN 46R, our relationship to each of the franchisees has substantially changed, as described in the section entitled “Principles of Consolidation” in Note 2 to our Consolidated Financial Statements, and they are no longer VIEs. During 2006, 2005 and 2004, the consolidation of these franchisees increased sales by company-operated restaurants by approximately $1.1 million, $2.7 million and $12.6 million, respectively.

(2)

Franchise revenues are principally composed of royalty payments from franchisees that are determined based upon franchisee sales. While franchisee sales are not recorded as revenues by the Company, management believes they are important in understanding the Company’s financial performance because these sales are indicative of the Company’s financial health, given the Company’s strategic focus on growing its overall business through franchising. Total franchisee sales were $1.661 billion in 2006, $1.552 billion in 2005, $1.452 billion in 2004, $1.386 billion in 2003 and $1.335 billion in 2002.

(3)

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

(a)  During 2005, general and administrative expenses included approximately $8.3 million relating to corporate restructuring charges as well as stay bonuses and severance costs paid to the Company’s former Chief Executive Officer, former Chief Financial Officer and former General Counsel. During 2004, general and administrative expenses included approximately $10.8 million relating to corporate severances, initial costs for Sarbanes-Oxley controls documentation and compliance, implementation of a new information technology system and legal and other costs associated with the settlement of certain franchisee disputes. During 2003, general and administrative expenses included approximately $5.0 million relating to employee severance costs and consultant fees for a productivity initiative.

(b)  During 2006, 2005, 2004 and 2003, our expenses (income) associated with shareholder and other litigation and a special investigation by our Audit Committee were approximately $(0.3) million, $21.8 million, $3.8 million, and $1.4 million, respectively. The substantially higher costs in 2005 relate to the settlement of certain shareholder litigation.

(c)  During 2006, 2005, 2004, 2003, and 2002, asset write-downs were approximately $0.1 million, $5.8 million, $4.8 million, $15.0 million, and $3.8 million, respectively. Of the 2005 impairments, $4.1 million were due to the adverse effects of Hurricane Katrina, $0.6 million of which were subsequently reversed due to adjustments to damage estimates in 2006. Of the 2003 impairments, $7.0 million of charges related to the write-down of assets under contractual arrangements and $4.9 million related to the closing of 18 company-operated restaurants.

(d)  During 2006 and 2005, we incurred approximately $1.7 and $3.1 million, respectively, of hurricane-related costs (other than impairments of long-lived assets) associated with Hurricane Katrina. During 2006 and 2005, the Company also accrued insurance proceeds of approximately $1.0 and $5.6 million, respectively, for property damage (see item (c) above) and business interruption losses.

(e)  During 2004, we incurred approximately $9.0 million of net costs associated with the termination of the lease for our AFC corporate headquarters.

(f)  During 2003, we incurred approximately $12.6 million of costs associated with the re-audit and restatement of previously issued financial statements.

(g)  Effective December 26, 2005, the Company adopted SFAS No. 123(R), Share-Based Payment (“SFAS 123R”), which requires the measurement and recognition of compensation cost at fair value for all share-based payments, including stock options and restricted stock awards. The Company adopted SFAS 123R using the modified prospective transition method and, as a result, did not retroactively adjust results from prior periods. For further discussion regarding SFAS 123R see the section entitled “Stock-Based Employee Compensation” in Note 2 to our Consolidated Financial Statements. The Company

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recorded $3.4 million, $2.9 million, $0.4 million, $0.2 million and $0.3 million in total stock compensation expense during 2006, 2005, 2004, 2003 and 2002, respectively.

(4)	During 2006, 2005, 2004, 2003 and 2002, loss before discontinued operations and accounting change includes “interest expense, net” of approximately $11.1 million, $6.8 million, $5.5 million, $5.3 million, and $21.1 million, respectively. Interest expense was substantially higher in 2002 due to substantially higher debt balances and substantially higher interests rates associated with such debt.
(5)	Net income (loss) includes discontinued operations which provided income (loss) of $0.2 million in 2006, $158.0 million in 2005, $39.1 million in 2004, $5.6 million in 2003, and $(5.3) million in 2002. Discontinued operations, in 2005, represent a $158.0 million gain on sale of Church’s, net of income taxes.
(6)	Weighted average common shares for the computation of basic earnings per common share were 29.5 million, 29.1 million, 28.1 million, 27.8 million, and 30.0 million for 2006, 2005, 2004, 2003, and 2002, respectively. Weighted average common shares for the computation of diluted earnings per common share were 29.8 million, 29.1 million, 28.1 million, 27.8 million, and 30.0 million for 2006, 2005, 2004, 2003, and 2002, respectively. For all five years presented, potentially dilutive employee stock options were excluded from the computation of dilutive earnings per share due to the anti-dilutive effect they would have on “loss before discontinued operations and accounting change.”

(7)

Total debt includes the long-term and current portions of our debt facilities, capital lease obligations, outstanding lines of credit, and other borrowings associated with both continuing and discontinued operations.

(8)

During 2006, we repurchased approximately 1.5 million shares of our common stock for approximately $20.3 million. During 2005, we repurchased approximately 1.5 million shares of our common stock for approximately $19.5 million and we paid a special cash dividend of approximately $352.9 million. During 2002, we repurchased approximately 3.7 million shares of our common stock for approximately $77.9 million.

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Summary of System-Wide Data

The following table presents financial and operating data for the Popeyes restaurants we operate and those that we franchise. The data presented is unaudited. Data for franchised restaurants is derived from information provided by our franchisees. We present this data because it includes important operational measures relevant to the QSR industry.

	2006			2005			2004			2003			2002
Global system-wide sales growth(1)		7.0	%		4.8	%		4.5	%		3.6	%		7.3	%
Domestic same-store sales growth (decline) for company-operated restaurants(2)		9.0	%		6.5	%		0.9	%		(2.4	)%		1.1	%
Domestic same-store sales growth (decline) for franchised restaurants(2)		1.3	%		3.2	%		1.4	%		(2.7	)%		0.6	%
Total domestic same-store sales growth (decline) for company-operated and franchised restaurants		1.6	%		3.3	%		1.3	%		(2.6	)%		0.7	%
International same-store sales growth (decline) for franchised restaurants(2)		(3.2	)%		(4.2	)%		(6.0	)%		(10.0	)%		(5.4	)%
Company-operated restaurants (all domestic)
Restaurants at beginning of year		32			56			80			96			96
New restaurant openings		3			1			—			1			2
Unit conversions, net(3)		12			2			(19	)		—			1
Permanent closings		(3	)		(7	)		(4	)		(18	)		(2	)
Temporary (closings)/ re-openings, net(4)		12			(20	)		(1	)		1			(1	)
Restaurants at end of year		56			32			56			80			96
Franchised restaurants (domestic and international)
Restaurants at beginning of year		1,796			1,769			1,726			1,616			1,524
New restaurant openings		139			122			109			176			167
Unit conversions, net(3)		(12	)		(2	)		19			—			(1	)
Permanent closings		(93	)		(95	)		(77	)		(68	)		(76	)
Temporary (closings)/ re-openings, net(4)		(8	)		2			(8	)		2			2
Restaurants at end of year		1,822			1,796			1,769			1,726			1,616
Total system restaurants		1,878			1,828			1,825			1,806			1,712
New franchised restaurant openings
Domestic		97			71			57			87			87
International		42			51			52			89			80
Total new franchised restaurant openings		139			122			109			176			167
Franchised restaurants (end of year)
Domestic		1,503			1,451			1,416			1,367			1,298
International		319			345			353			359			318
Restaurants at end of year		1,822			1,796			1,769			1,726			1,616

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

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Item 7.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

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

Nature of Business

AFC develops, operates, and franchises quick-service restaurants under the trade name Popeyes^® Chicken & Biscuits (“Popeyes”) in 44 states, the District of Columbia, Puerto Rico, Guam, and 24 foreign countries. Popeyes has two reportable business segments: franchise operations and company-operated restaurants. Financial information concerning these business segments can be found at Note 24 to our Consolidated Financial Statements.

Historically, AFC also developed, operated and franchised quick-service restaurants and bakeries under the trade names Church’s Chicken^® (“Church’s”) (sold December 28, 2004), Cinnabon^® (“Cinnabon”) (sold November 4, 2004) and Seattle’s Best Coffee^® (“Seattle Coffee”) (sold July 14, 2003). For a discussion of these divestitures, see Note 22 to our Consolidated Financial Statements. In our Consolidated Financial Statements, financial results relating to these divested operations are presented as discontinued operations. Unless otherwise noted, discussions and amounts throughout this Annual Report relate to our continuing operations.

Management Overview of 2006 Operating Results

During 2006, our accomplishments include the following. We:

•  reported diluted earnings per share of $0.75,

•  increased system-wide sales by 7.0%,

•  increased domestic same-store sales by 1.6%,

•  increased our global restaurant system by 50 restaurants,

•  repurchased approximately 1.5 million shares of our common stock,

•  paid down $59.5 million of our 2005 Credit Facility,

•  completed the acquisition of 13 previously franchised restaurants, and

•  improved annualized average unit sales for new free-standing restaurants in our domestic system to approximately $1.3 million.

2006 Same-Store Sales

During 2006, total domestic same-store sales increased 1.6%. By business segment, domestic same-store sales improved 1.3% for our domestic franchised restaurants and 9.0% for our company-operated restaurants.

Our total domestic same-store sales growth, while positive for fiscal year 2006, declined during the latter part of the third quarter and during the fourth quarter due primarily to the continuing effect of economic concerns related to the discretionary income of our consumers and the impact of rolling over strong comparable sales in markets affected by Hurricanes Katrina and Rita in 2005. During 2005, the hurricanes displaced residents from the costal region into surrounding markets in Louisiana, Texas and Mississippi. As a result, these surrounding markets, which represent approximately 20% of our total domestic system, realized strong same-store sales growth during the latter part of the third quarter and throughout the fourth quarter of 2005. Additionally, restaurants forced to close due to the hurricanes realized extraordinarily high sales performance upon re-opening as workers and residents returned.

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The total same-store sales growth of 9% for our company-operated business segment was driven principally by our New Orleans market, which comprised over 35% of our company-operated restaurants as of December 31, 2006. Our company-operated restaurants benefited during the first three quarters of 2006 from the return of residents, influx of consumers engaged in rebuilding New Orleans and reduced QSR competition in that market following Hurricane Katrina in August of 2005. Restaurants that re-opened continued to experience elevated sales levels during the first three quarters of 2006 as compared to the comparable periods of 2005. However, our company-operated restaurants realized negative same-store sales growth in the fourth quarter of 2006 due to the impact of rolling over the extraordinarily high sales performance in the New Orleans market for stores re-opened during 2005, as compared to the somewhat normalized sales levels during the comparable periods of 2006.

Within our international operations, our same-store sales decreased by 3.2% during fiscal 2006. However, international same-store sales performance demonstrated improvement during the latter part of 2006 as strong performance in Latin America and the Middle East helped offset negative performance in Korea and on U.S. military bases abroad. Although remaining negative, Korea has shown steady progress as operational initiatives focused on improving customer experience gain traction.

2006 Unit Growth

During 2006, our global restaurant system grew by 50 restaurants. We opened 139 new franchised restaurants and 3 new company-operated restaurants. These openings during 2006 were offset by 96 permanent closures (including the closing of 45 franchised restaurants within Korea). In addition, our year end restaurant count includes 4 re-opened restaurants (net of temporary closures) which had been temporarily closed at the end of 2005.

As it concerns our expected financial and operating results for 2007, see the discussion under the heading “Operating and Financial Outlook for 2007” later in this Item 7.

Factors Affecting Comparability of Consolidated Results of Operations: 2006, 2005, and 2004

For 2006, 2005 and 2004, the following items and events affect comparability of reported operating results:

•  The effects of restaurant openings, closings, unit conversions and same-store sales (see “Summary of System-Wide Data” later in this Item 6).

•  During the third quarter of 2005, the company-operated restaurants in the New Orleans market were adversely affected by Hurricane Katrina. There were 36 company-operated restaurants which were at least temporarily closed as a result of Hurricane Katrina. Additional information concerning the impact of these hurricane related restaurant closures on company-operated restaurant sales can be found under the title “Sales by Company-Operated Restaurants” in both the “Comparisons of Fiscal Years 2006 and 2005” and the “Comparison of Fiscal Years 2005 and 2004” sections in this Item 7.

•  The Company’s fiscal year ends on the last Sunday in December. The 2006 fiscal year consisted of 53 weeks. The 2005 and 2004, fiscal years consisted of 52 weeks each. The 53rd week in 2006 increased sales by company-operated restaurants by approximately $1.2 million and increased franchise revenues by approximately $1.3 million.

•  On May 1, 2006, \the Company completed the acquisition of 13 franchised restaurants from a Popeyes franchisee in the Memphis and Nashville, Tennessee markets. The results of operations of the acquired restaurants are included in the consolidated financial statements since that date. The acquired units increased 2006 revenues by approximately $10.0 million dollars (net of lost franchise revenues). Additional information concerning this acquisition can be found at Note 25 to our Consolidated Financial statements.

•  During 2004, we adopted Financial Accounting Standards Board Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51, as revised in December 2003 (“FIN 46R”) and began consolidating three franchisees that qualify for consolidation under FIN 46R as variable interest entities (“VIEs”). These franchisees were not retroactively consolidated for years prior to 2004. Since adoption of FIN 46R, our relationship to each of the franchisees has substantially changed, as described in the section entitled “Principles of Consolidation” in Note 2 to our

26

Consolidated Financial Statements, and they are no longer VIEs. During 2006, 2005 and 2004, the consolidation of these franchisees increased sales by company-operated restaurants by approximately $1.1 million, $2.7 million and $12.6 million, respectively.

•  During 2005, general and administrative expenses include approximately $8.3 million relating to corporate restructuring charges as well as stay bonuses and severance costs paid to the Company’s former Chief Executive Officer, former Chief Financial Officer and former General Counsel. During 2004, general and administrative expenses included approximately $10.8 million relating to corporate severances, initial costs for Sarbanes-Oxley controls documentation and compliance, implementation of a new information technology system and legal and other costs associated with the settlement of certain franchisee disputes.

•  During 2006, 2005, and 2004, our costs (income) associated with shareholder and other litigation and a special investigation by our Audit Committee were approximately $(0.3) million, $21.8 million, and $3.8 million, respectively. The substantially higher costs in 2005 relate to the settlement of certain shareholder litigation.

•  During 2006, 2005, and 2004, asset write-downs were approximately $0.1 million, $5.8 million, and $4.8 million, respectively. Of the 2005 impairments, $4.1 million were due to the adverse effects of Hurricane Katrina, $0.6 million of which were subsequently reversed due to adjustments to damage estimates in 2006.

•  During 2006 and 2005, we incurred approximately $1.7 and $3.1 million, respectively, of hurricane-related costs (other than impairments of long-lived assets) associated with Hurricane Katrina. During 2006 and 2005, the Company also accrued insurance proceeds of approximately $1.0 and $5.6 million, respectively, for property damage and business interruption losses.

•  During 2004, we incurred $9.0 million of net costs associated with the termination of the lease for our AFC corporate headquarters.

•  Effective December 26, 2005, the Company adopted SFAS No. 123(R), Share-Based Payment (“SFAS 123R”), which requires the measurement and recognition of compensation cost at fair value for all share-based payments, including stock options and restricted stock awards. The Company adopted SFAS 123R using the modified prospective transition method and, as a result, did not retroactively adjust results from prior periods. For further discussion regarding SFAS 123R see the section entitled “Stock-Based Employee Compensation” in Note 2 to our Consolidated Financial Statements. The Company recorded $3.4 million, $2.9 million and $0.4 million in total stock compensation expense during 2006, 2005, and 2004, respectively.

•  During 2006, 2005, and 2004, loss before discontinued operations and accounting change includes “interest expense, net” of approximately $11.1 million, $6.8 million, and $5.5 million, respectively.

•  Discontinued operations, net of income taxes, provided income of $0.2 million in 2006, $158.0 million in 2005, and $39.1 million in 2004. Discontinued operations, in 2005, consist of a $158.0 million gain on sale of Church’s.

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The following table presents selected revenues and expenses as a percentage of total revenues (or, in certain circumstances, as a percentage of a corresponding revenue line item).

	2006			2005			2004
Revenues:
Sales by company-operated restaurants		43	%		42	%		52	%
Franchise revenues		54	%		54	%		45	%
Other revenues		3	%		4	%		3	%
Total revenues		100	%		100	%		100	%
Expenses:
Restaurant employee, occupancy and other expenses(1)		52	%		51	%		53	%
Restaurant food, beverages and packaging(1)		33	%		34	%		34	%
General and administrative expenses		31	%		48	%		50	%
Depreciation and amortization		4	%		5	%		6	%
Other expenses (income), net		(1	)%		16	%		10	%
Total expenses		70	%		105	%		112	%
Operating profit (loss)		30	%		(5	)%		(12	)%
Interest expense, net		8	%		5	%		3	%
Income (loss) before income taxes, minority interest, discontinued operations and accounting change		22	%		(10	)%		(15	)%
Income tax expense (benefit)		7	%		(4	)%		(6	)%
Minority Interest		—			—			—
Income(loss) before discontinued operations and accounting change		15	%		(6	)%		(9	)%
Discontinued operations, net of income taxes		—			110	%		24	%
Cumulative effect of accounting change, net of income taxes		—			—			—
Net income		15	%		104	%		15	%

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

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Comparisons of Fiscal Years 2006 and 2005

Sales by Company-Operated Restaurants

Sales by company-operated restaurants were $65.2 million in 2006, a $4.9 million increase from 2005. The increase was primarily due to:

•  $10.5 million increase due to the acquisition of 13 restaurants in the Memphis and Nashville, Tennessee markets which were previously owned by a franchisee, and

•  $5.3 million increase due to same-store sales growth in fiscal 2006 as compared to fiscal 2005, and

•  $1.2 million increase attributable to a 53rd week in fiscal 2006 (Fiscal 2005 was composed of 52 weeks),

partially offset by:

•  $9.9 million decrease due to the timing of permanent and temporary restaurant closures and related re-openings resulting from Hurricane Katrina, and

•  $1.6 million decrease due to the termination of a VIE relationship in the second quarter of 2006 that was previously consolidated during fiscal 2005, and

•  $1.0 million decrease due to the temporary closure of a restaurant which suffered fire damage during fiscal 2006.

The remaining fluctuation was due to various factors, including restaurant openings, restaurant transfers, and the timing and duration of temporary restaurant closings, in both 2006 and 2005.

Franchise Revenues

Franchise revenues has three basic components: (1) ongoing royalty payments that are determined based on a percentage of franchisee sales; (2) franchise fees associated with new restaurant openings; and (3) development fees associated with the opening of new franchised restaurants in a given market. Royalty revenues are the largest component of franchise revenues, constituting more than 90% of franchise revenues.

Franchise revenues were $82.6 million in 2006, a $5.1 million increase from 2005. Of this increase, approximately $4.2 million was due to an increase in domestic franchise revenues and approximately $0.9 million was due to an increase in international franchise revenues.

The $4.2 million increase in domestic franchise revenue was primarily due to: (1) a $3.1 million increase in royalties and fees due principally to a net increase of 52 domestic restaurants from December 25, 2005 to December 31, 2006 and a 1.3% increase in same-store sales, and (2) an increase of approximately $1.2 million in royalties associated with the 53rd week in fiscal year 2006. Fiscal year 2005 consisted of 52 weeks.

The $0.9 million increase in international revenue was primarily due to:

•  the resumption of the 3% royalty from our Korean master franchisee (the entire 3% royalty due during the last two quarters of 2005 and one-third of the royalties due during the first two quarters of 2006 were abated as temporary royalty relief), and

•  increases in royalties and development fees from net openings within our system,

partially offset by:

•  negative same-store sales decrease of 3.2%, and

•  the closure of poor performing restaurants, primarily in Korea, where 45 restaurants closed during 2006.

Other Revenues

Other revenues were $5.2 million in 2006, a $0.4 million decrease from 2005, primarily as a result of a reduction in the number of leased or subleased properties.

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Restaurant Employee, Occupancy and Other Expenses

Restaurant employee, occupancy and other expenses were $33.7 million in 2006, a $3.2 million increase from 2005. The increase was principally attributable to the increase in sales from company-operated restaurants (discussed above). Restaurant employee, occupancy and other expenses were approximately 52% and 51% of sales from company-operated restaurants in 2006 and 2005, respectively.

Restaurant Food, Beverages and Packaging

Restaurant food, beverages and packaging expenses were $21.3 million in 2006, a $0.7 million increase from 2005. The increase was principally attributable to the increase in sales from company-operated restaurants (discussed above). Restaurant food, beverages and packaging expenses were approximately 33% and 34% of sales from company-operated restaurants in 2006 and 2005, respectively.

General and Administrative Expenses

General and administrative expenses were $48.1 million in 2006, a $20.6 million decrease from 2005. The decrease was primarily due to:

•  $12.8 million of lower personnel and other costs resulting primarily from the transition of our corporate operations, and severances and stay bonuses paid to certain executives during 2005,

•  $5.8 million of lower professional fees (primarily legal, consulting and auditing),

•  $3.2 million of lower outsourcing and contractor costs for information technology and accounting support services, and

•  $0.4 million of lower bank service fees,

partially offset by:

•  $0.7 million of higher marketing and advertising expense, and

•  $0.3 million of registration costs associated with a shareholder’s sale of our common stock.

General and administrative expenses were approximately 31% of total revenues in 2006, compared to approximately 48% in 2005.

Depreciation and Amortization

Depreciation and amortization was $6.4 million in 2006, a $0.9 million decrease from 2005. The decrease was primarily due to the accelerated depreciation during 2005 associated with the closing of the corporate center. Depreciation and amortization was approximately 4% of total revenues in 2006, compared to 5% in 2005.

Other Expenses (Income), Net

Other expenses (income), net includes (1) costs associated with certain shareholder litigation discussed in Note 15 to our Consolidated Financial Statements; (2) asset write-downs; (3) hurricane-related costs (other than impairments); (4) estimated insurance proceeds for hurricane-related damages; (5) costs associated with restaurant closures and refurbishments; and (6) gains and losses on the sale of assets.

These aggregated to $1.8 million in income in 2006 compared to $23.2 million of expense in 2005. The decrease in expense was primarily due to:

•  $22.1 million of net lower shareholder litigation costs associated with the settlement of outstanding legal actions,

•  $5.7 million of lower charges for asset write-downs ($4.7 of which related to hurricane damage), and

•  $1.4 million of lower (non-impairment related) hurricane costs, and

•  $0.9 million of higher net gains on sale of assets,

30

partially offset by:

•  $4.6 million reduction in income from estimates for insurance proceeds associated with asset impairments and other claims arising from hurricane damage, and

•  $0.5 million of higher costs associated with restaurant closures and refurbishments.

See Note 17 to our Consolidated Financial Statements for a description of other expenses (income), net for 2006, 2005 and 2004.

Operating Profit (Loss)

On a consolidated basis, operating profits were $45.3 million in 2006, a $52.2 million improvement when compared to 2005. Fluctuations in the various components of revenue and expense giving rise to this change are discussed above. The following is a general discussion of the fluctuations in operating profit by business segment.

									As a
(Dollars in millions)	2006			2005			Fluctuation		Percent
Franchise operations	$	44.6		$	42.4		$	2.2		5.2	%
Company-operated restaurants		1.4			(1.8	)		3.2		n/a
Corporate		(0.7	)		(47.5	)		46.8		n/a
Total	$	45.3		$	(6.9	)	$	52.2		n/a

Our franchise operations include an allocation of direct and indirect overhead charges incurred by our corporate operations of $29.6 million in 2006, and $24.9 million in 2005. Our company-operated restaurants include an allocation of direct and indirect overhead charges incurred by our corporate operations of $3.8 million in 2006, and $2.8 million in 2005.

The $2.2 million favorable fluctuation in operating profit associated with our franchise operations was principally due to higher franchise revenues partially offset by higher corporate allocations primarily for field training activities, marketing activities and IT related costs.

The $3.2 million favorable fluctuation in operating profit (loss) associated with our company-operated restaurants was principally due to (1) more company-operated restaurants (both related to re-openings in New Orleans and the acquisition of 13 restaurants in the Memphis and Nashville markets from a franchisee) contributing to our net operating performance, (2) a reduction in damages and costs from Hurricane Katrina in excess of accrued insurance proceeds as compared to fiscal 2005 and (3) gain on sale of assets; partially offset by (4) higher depreciation and amortization, insurance and other costs.

The $46.8 million favorable fluctuation in operating profit (loss) associated with our corporate headquarters was principally due to substantially lower general and administrative expenses and lower shareholder litigation and other costs as compared to fiscal 2005.

Interest Expense, Net

Interest expense, net was $11.1 million in 2006, a $4.3 million increase from 2005. The increase was primarily due to:

•  $4.0 million of lower interest income in 2006 as compared to 2005, and

•  $1.9 million of higher interest on debt, due primarily to higher average outstanding debt balances for the year and higher average interest rates,

partially offset by:

•  $1.4 million of lower amortization and write-offs of debt issuance costs, and

•  $0.2 million of lower other debt related charges.

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Income Tax Expense

In 2006, we had an income tax expense associated with our continuing operations of $12.0 million compared to a benefit of $5.3 million in 2005. Our effective tax rate for 2006 was 35.1% compared to 38.7% for 2005 (see a reconciliation of these effective rates in Note 19 to our Consolidated Financial Statements). Our effective tax rate decreased in 2006 compared to 2005 primarily due to provision to return adjustments, partially offset by adjustments to prior year tax accruals, increases in state income taxes and the effects of tax free interest income.

Discontinued Operations, Net of Income Taxes

Discontinued operations, net of income taxes provided $0.2 million of income in 2006, compared to income of $158.0 million in 2005.

During 2005, we sold our Church’s division. We recognized an after-tax gain of $158.0 million.

Comparisons of Fiscal Years 2005 and 2004

Sales by Company-Operated Restaurants

Sales by company-operated restaurants were $60.3 million in 2005, a $25.5 million decrease from 2004. The decrease was primarily due to:

•  $10.7 million decrease due to the reduction in the number of company-operated restaurants resulting from the sale of company-operated restaurants to franchisees and the permanent closure of underperforming restaurants,

•  $9.9 million decrease due to the non-consolidation of a VIE relationship during 2005 that was consolidated during 2004, and

•  $8.7 million decrease due to temporary and permanent restaurant closures resulting from Hurricane Katrina,

partially offset by:

•  $1.8 million increase due to one newly constructed company-operated restaurant in 2005 and the acquisition of two restaurants that were previously franchised restaurants, and

•  $1.5 million increase due to an increase in same-store sales (a 6.5% improvement in 2005 compared to 2004).

The remaining fluctuation was due to various factors, including the timing and duration of temporary restaurant closings, in both 2005 and 2004, related to the re-imaging or rebuilding of older restaurants.

Franchise Revenues

Franchise revenues were $77.5 million in 2005, a $4.7 million increase from 2004. The increase was primarily due to a $4.0 million increase in royalties, due principally to an increase in same-store sales, and a $0.7 million increase in franchise fees (net of franchising incentives).

Within the international portion of our franchise operations, we experienced a $0.4 million decline in royalties, driven principally by declines in revenues from our Korean franchise operations. This is due to the net closure of 32 franchised restaurants in that country and temporary royalty relief provided our Korean master franchisee, partially offset by growth in the number of franchised restaurants elsewhere in our international system. We agreed to abate the entire 3% royalty due to be paid to us by the Korean master franchisee for the last two quarters of 2005 and to abate one-third of the royalties to be paid to us during the first two quarters of 2006.

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Other Revenues

Other revenues were $5.6 million in 2005, a $0.3 million increase from 2004. The increase is principally due to an increase in rental revenues associated with an increase in the number of restaurants leased to franchisees as a result of unit conversions in 2004.

Restaurant Employee, Occupancy and Other Expenses

Restaurant employee, occupancy and other expenses were $30.5 million in 2005, a $14.8 million decrease from 2004. The decrease was principally attributable to the decrease in sales from company-operated restaurants (discussed above). Restaurant employee, occupancy and other expenses were approximately 51% and 53% of sales from company-operated restaurants in 2005 and 2004, respectively.

Restaurant Food, Beverages and Packaging

Restaurant food, beverages and packaging expenses were $20.6 million in 2005, an $8.2 million decrease from 2004. The decrease was principally attributable to the decrease in sales from company-operated restaurants (discussed above). Restaurant food, beverages and packaging expenses were approximately 34% of sales from company-operated restaurants in both 2005 and 2004.

General and Administrative Expenses

General and administrative expenses were $68.7 million in 2005, a $13.4 million decrease from 2004. The decrease was primarily due to:

•  $8.0 million of lower outsourcing and contractor costs for information technology, accounting, audit and tax support services,

•  $4.3 million of lower professional fees,

•  $3.8 million of lower personnel costs associated with terminated positions at our AFC corporate office,

•  $2.0 million of lower costs for settlement of franchisee and landlord disputes,

•  $1.3 million of lower office rents, principally due to the closure of our AFC corporate office,

•  $1.2 million of lower net provisions for accounts receivable bad debts, and

•  $0.7 million of lower insurance costs,

partially offset by:

•  $4.3 million of higher stay bonuses and severance costs,

•  $2.6 million of higher deferred compensation associated with stock-based awards, and

•  $1.2 million of higher salary costs related to senior positions at Popeyes that were vacant for portions of 2004 and additional field-based personnel who provide support to our franchisees.

General and administrative expenses were approximately 48% of total revenues in 2005, compared to approximately 50% in 2004.

Depreciation and Amortization

Depreciation and amortization was $7.3 million in 2005, a $2.7 million decrease from 2004. The decrease was primarily due to the write-off of assets in 2004 associated with our corporate operations. Depreciation and amortization was approximately 5% of total revenues in 2005, compared to 6% in 2004.

Other Expenses (Income), Net

Other expenses (income), net includes (1) costs associated with certain shareholder litigation discussed in Note 15 to our Consolidated Financial Statements; (2) asset write-downs; (3) hurricane-related costs (other than

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impairments); (4) estimated insurance proceeds for hurricane-related damages; (5) costs associated with restaurant closures and refurbishments; (6) gains and losses on the sale of assets; and (7) costs associated with the termination of our corporate lease. These aggregated to $23.2 million in 2005, a $6.1 million increase from 2004. The increase was primarily due to:

•  $18.0 million of higher shareholder litigation costs associated with the settlement of outstanding legal actions,

•  $3.1 million of higher (non-impairment related) hurricane costs, and

•  $1.0 million of higher charges for asset write-downs,

partially offset by:

•  $9.0 million of lower costs associated with the termination of our corporate lease (zero in 2005 and $9.0 million in 2004),

•  $5.6 million of insurance proceeds accrued in 2005 associated with claims arising from the adverse affects of Hurricane Katrina,

•  $0.9 million of higher net gains on sale of assets, and

•  $0.5 million of lower costs associated with restaurant closures and refurbishments.

See Note 17 to our Consolidated Financial Statements for a description of other expenses (income), net for 2006, 2005 and 2004.

Operating Profit (Loss)

On a consolidated basis, operating losses were $6.9 million in 2005, a $12.5 million improvement when compared to 2004. Fluctuations in the various components of revenue and expense giving rise to this change are discussed above. The following is a general discussion of the fluctuations in operating profit by business segment.

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

Our franchise operations include an allocation of direct and indirect overhead charges incurred by our corporate operations of $24.9 million in 2005, and $22.2 million in 2004. Our company-operated restaurants include an allocation of direct and indirect overhead charges incurred by our corporate operations of $2.8 million in 2005, and $3.0 million in 2004.

The $1.3 million unfavorable fluctuation in operating profit associated with our franchise operations was principally due to higher corporate allocations primarily for new business development activities, partially offset by higher franchise revenues.

The $1.8 million unfavorable fluctuation in operating loss associated with our company-operated restaurants was principally due to (1) fewer company-operated restaurants contributing to our net operating performance and (2) damages and costs from Hurricane Katrina in excess of accrued insurance proceeds; partially offset by (3) lower asset impairments exclusive of those resulting from Hurricane Katrina.

The $15.6 million favorable fluctuation in operating losses associated with our corporate headquarters was principally due to substantially lower general and administrative expenses and lower lease termination costs associated with the closure of our AFC corporate offices, partially offset by higher shareholder litigation costs.

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Interest Expense, Net

Interest expense, net was $6.8 million in 2005, a $1.3 million increase from 2004. The increase was primarily due to:

•  $5.0 million of higher interest on debt in 2005 as compared to 2004, due to higher debt balances, and

•  $1.3 million of higher amortization and write-offs of debt issuance costs,

partially offset by:

•  $4.6 million of higher interest income, and

•  $0.4 million of lower debt amendment fees and other debt related charges.

During 2005, our outstanding indebtedness associated with continuing operations increased from $92.4 million at the start of fiscal 2005, to $191.4 million at the end of fiscal 2005. During 2005, subsequent to the sale of Church’s, the Company had substantial short-term investments which yielded higher interest income.

Income Tax Expense

In 2005, we had an income tax benefit associated with our continuing operations of $5.3 million compared to a benefit of $10.7 million in 2004. Our effective tax rate for 2005 was 38.7% compared to 43.0% for 2004 (see a reconciliation of these effective rates in Note 20 to our Consolidated Financial Statements). Our effective tax rate decreased in 2005 compared to 2004 primarily due to adjustments to our valuation allowance for deferred tax assets and adjustments to prior year tax accruals, partially offset by increases in state income taxes and the effects of tax free interest income.

Discontinued Operations, Net of Income Taxes

Discontinued operations, net of income taxes provided $158.0 million of income in 2005, compared to income of $39.1 million in 2004.

During 2005, we sold our Church’s division. We recognized an after-tax gain of $158.0 million.

During 2004, we sold our Cinnabon subsidiary. We recognized an after-tax gain of $20.9 million. That gain includes a $22.6 million tax benefit for capital loss carryforwards that arose in connection with our sale of Cinnabon. During 2004, we also recognized an after-tax loss of $0.5 million relating to certain adjustments to the sales price of Seattle Coffee. From an operational perspective, during 2004, we recognized: (1) a net loss of $6.4 million relating to Cinnabon; and (2) net income of $25.1 million relating to Church’s.

Cumulative Effect of an Accounting Change, Net of Income Taxes

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”). In conjunction with its adoption of FIN 46R, the Company recorded a cumulative effect adjustment that decreased net income in 2004 by $0.5 million (of which $0.2 million, after tax, relates to continuing operations). For a discussion of this accounting standard and our adoption of it, see Note 2 to our Consolidated Financial Statements.

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Liquidity and Capital Resources

We finance our business activities primarily with:

•  cash flows generated from our operating activities, and

•  borrowings under our 2005 Credit Facility.

Based upon our current level of operations, our existing cash reserves ($6.7 million available as of December 31, 2006), and available borrowings under our 2005 Credit Facility, we believe that we will have adequate cash flow to meet our anticipated future requirements for working capital, including various contractual obligations and expected capital expenditures for 2007.

Our strong financial position allows us to pursue our growth strategies. Our priorities in the use of available cash are:

•  reinvestment in our core business activities,

•  repurchase of shares, and

•  pay down of indebtedness.

Our investment in core business activities includes the re-imaging of our company-operated restaurants, building of new company-operated restaurants, strategic acquisitions of franchised restaurants, marketing initiatives, and franchisee support systems.

In addition to the scheduled payments of principal on the term loan, at the end of each fiscal year the Company is subject to mandatory prepayments (25% or 50% of consolidated excess cash flows as applicable) in those situations when consolidated excess cash flows for the year and total leverage ratio, as defined in the 2005 Credit Facility, exceed specified amounts. During 2006, we paid principal in the amount of $59.5 million, including $57.5 million of voluntary prepayments. Due to the amount of principal paid during the year, the Company has no mandatory payment due on behalf of fiscal 2006 under the terms of the 2005 Credit Facility.

During fiscal year 2006, the Company repurchased and retired approximately 1.5 million shares of common stock for approximately $20.3 million. From January 1, 2007 through February 25, 2007 (the end of the Company’s second period for 2007), the Company repurchased and retired an additional 136,400 shares of common stock for approximately $2.4 million. As of February 25, 2007, the remaining value of shares that may be repurchased under the Company’s share repurchase program was $44.8 million. Pursuant to the terms of the Company’s 2005 Credit Facility, the Company is subject to a repurchase limit of approximately $7.3 million for the remainder of fiscal 2007.

Operating and Financial Outlook for 2007

Fiscal 2007 will consist of 52 weeks as compared to 53 weeks in 2006. For 2007, we estimate full-year total domestic same-store sales growth (blended growth including both company-operated and franchised restaurants) to be between 1.5% to 2.5%. In the first quarter, same-store sales growth is expected to be negative and is expected to strengthen throughout the year, as the rollover effect of hurricane markets diminishes and the Company’s new products, operational improvement efforts and promotional strategies continue to gain traction.

During 2007, we expect 165 to 175 new restaurant openings, including 4 to 6 new company-operated restaurants. We estimate that approximately 60% of these openings will be in our domestic system. During 2007, we also expect 70 to 80 permanent restaurant closings, including 30 to 40 closures in Korea.

There were 36 company-operated restaurants which were temporarily closed as a result of Hurricane Katrina. At December 31, 2006, 21 of these restaurants had re-opened (1 of which had temporarily closed due to fire damage), 8 had been permanently closed and 7 remained temporarily closed. The Company expects to re-open 2 to 3 additional restaurants in 2007. The remaining company-operated restaurants will be evaluated to determine which restaurants will be re-opened at their current site, relocated, or permanently closed. That evaluation will be significantly influenced by governmental plans for revitalization and re-settlement of New Orleans, which will become clearer over time.

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We had 116 franchised restaurants in Korea as of December 31, 2006 as compared to 154 at December 25, 2005. The decline in the number of Korean restaurants was primarily due to weak financial and operating performance by our master franchisee in that country. We continue to work with that franchisee to address challenges facing its restaurants and those of sub-franchisees concerning sales growth and profitability, and to otherwise strengthen our franchise system in that country. We expect in 2007 to see moderating comparable sales and restaurant closing trends as well as a resumption of new unit openings.

The Company’s general and administrative expenses in fiscal 2007 are expected to be in the range of $48 to $50 million (approximately 2.7% of estimated system-wide sales), an increase over fiscal 2006 due to additional strategic investments in marketing for national cable advertising, and additional field support to be used for accelerating domestic restaurant development, and improving operations and training.

Under the heading “Overall Business Strategy” in Item 1 of this Annual Report, we discuss our key operational strategies for fiscal year 2007.

Under the heading “Risks Factors” in Item 1A of this Annual Report, we discuss various factors that could adversely impact us and hinder our ability to achieve our projected results, including general economic factors and competition from the dominant brands in the QSR industry.

Contractual Obligations

The following table summarizes our contractual obligations, due over the next five years and thereafter, as of December 31, 2006:

											There-
(in millions)	2007		2008		2009		2010		2011		after		Total
Long-term debt, excluding capital leases(1)	$	1.1	$	1.4	$	1.5	$	32.5	$	94.3	$	2.4	$	133.2
Interest on long-term debt, excluding capital leases(1)		6.7		8.9		9.7		9.6		3.5		1.1		39.5
Leases(2)		6.8		6.6		5.9		5.2		4.8		81.1		110.4
Copeland formula agreement(3)		3.1		3.1		3.1		3.1		3.1		52.2		67.7
Information technology outsourcing — IBM(3)		1.8		1.8		—		—		—		—		3.6
King Features agreements(3)		1.0		1.0		1.0		0.5		—		—		3.5
Total	$	20.5	$	22.8	$	21.2	$	50.9	$	105.7	$	136.8	$	357.9

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

Share Repurchase Program

Share Repurchase Program.  Effective July 22, 2002, as amended on October 7, 2002, re-affirmed on May 27, 2005, and expanded on February 17, 2006 and June 27, 2006, the Company’s board of directors approved a share repurchase program of up to $165.0 million. The program, which is open-ended, allows the Company to repurchase shares of the Company’s common stock from time to time. During 2006 and 2005, the Company repurchased and retired 1,486,714 and 1,542,872 shares of common stock for approximately $20.3 million and $19.5 million, respectively, under this program.

From January 1, 2007 through February 25, 2007 (the end of the Company’s second period for 2007), the Company repurchased and retired an additional 136,400 shares of common stock for approximately $2.4 million. As of February 25, 2007, the maximum value of shares that may yet be repurchased under the program was $44.8 million. Pursuant to the terms of the Company’s 2005 Credit Facility, the Company is subject to a repurchase limit of approximately $7.3 million for the remainder of fiscal 2007.

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Capital Expenditures

Our capital expenditures consist of re-imaging activities associated with company-operated restaurants, new restaurant construction and development, equipment replacements, the purchase of new equipment for our company-operated restaurants, investments in information technology, accounting systems and improvements at our corporate offices. Capital expenditures related to re-imaging activities consist of significant renovations, upgrades and improvements, which on a per restaurant basis typically cost between $70,000 and $160,000. Capital expenditures associated with new restaurant construction and rebuilding activities, typically cost, on a per restaurant basis, between $0.7 million and $1.0 million.

During 2006, we invested $7.0 million in various capital projects, including $2.6 million in repairs and replacement of equipment associated with hurricane-damaged restaurants, $1.6 million in new restaurant locations, $0.5 million in our re-imaging program, $1.7 million in other capital assets to maintain, replace and extend the lives of company-operated QSR equipment and facilities, and $0.6 million for information technology systems.

During 2005, we invested $4.2 million in various capital projects, including $0.6 million in repairs and replacement of equipment associated with hurricane-damaged restaurants, $1.9 million in new restaurant locations, $0.4 million in Popeyes corporate office renovations, $0.7 million in other capital assets to maintain, replace and extend the lives of company-operated QSR equipment and facilities, $0.2 million for information technology systems, and $0.4 million to complete other projects.

During 2004, we invested $25.4 million in various capital projects, including $11.6 million in new and relocated restaurant, bakery and cafe locations, $3.1 million in our re-imaging program, $4.2 million in other capital assets to maintain, replace and extend the lives of company-operated QSR equipment and facilities, $5.2 million for information technology systems, and $1.3 million to complete other projects.

Substantially all of our capital expenditures have been financed using cash provided from operating activities and borrowings under our bank credit facilities.

With respect to the rebuilding and refurbishment of hurricane-damaged restaurants, we expect capital expenditures of $1.0 to $1.5 million during 2007. We anticipate the building of 4 to 6 new company-operated restaurants during 2007, with associated capital expenditures of $4.0 to $6.0 million. As to all other capital expenditures during 2007 (for re-imagings, equipment upgrades, and information technology system upgrades), we expect such costs to range from $3.0 to $4.0 million.

Acquisition of Previously Franchised Restaurants

On May 1, 2006, we completed an acquisition of 13 previously franchised restaurants from a Popeyes franchisee in the Memphis and Nashville, Tennessee markets. The total consideration was $15.8 million consisting of (1) $9.3 million in cash, (2) $3.3 million of assumed long-term debt obligations, (3) $2.9 million in above market rent obligations, and (4) $0.3 million in legal and professional fees associated with the transaction. The acquired units provide regional diversity and additional company-operated test markets for our new menu items, promotional concepts and new restaurant designs for the benefit of the entire Popeyes system. The acquisition also provides a new market for growth of company-operated restaurants.

Effects of Hurricane Katrina and Insurance Proceeds

We maintain insurance coverage which provides for reimbursement from losses resulting from property damage, including flood, loss of product, and business interruption. Our insurance policy covering the hurricane damage entitles us to receive reimbursement for approximate replacement value for the damaged real and personal property as well as certain business interruption losses, net of applicable deductibles and subject to insurable limits. The insurance coverage is limited to $25.0 million, with a $10.0 million flood sub limit.

We have recorded a receivable for insurance recoveries to the extent losses have been incurred, and the realization of a related insurance claim, net of applicable deductibles, is probable. As of December 31, 2006, the Company has recognized insurance recovery receivables for $3.5 million in net book value write-downs for real property and equipment damages, $2.4 million of business interruption losses and other costs, and $0.3 million of

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lost inventory. The Company’s insurance carriers have advanced $5.0 million against these and other claims made by the Company. The Company believes its estimated recoverable losses under the terms of its insurance policies will exceed the net book value of damaged assets and will exceed the insurance proceeds received to date. We are engaged in discussion with our insurance carriers and are unable to estimate the full amount of recovery.

Off-Balance Sheet Arrangements

SMS Indemnity Agreement.  In order to ensure favorable pricing for fresh chicken purchases and to maintain an adequate supply of fresh chicken for the Company and its Popeyes franchisees, SMS has entered into purchase contracts with chicken suppliers. The contracts which pertain to the vast majority of our system-wide purchases for Popeyes are “cost-plus” contracts that utilize prices based upon the cost of feed grains plus certain agreed upon non-feed and processing costs. These contracts include volume purchase commitments that are adjustable at the election of SMS (which is done in consultation with and under the direction of the Company and its Popeyes franchisees). In a given year, that year’s commitment may be adjusted by up to 10%, if notice is given within specified time frames; and the commitment levels for future years may be adjusted based on revised estimates of need, whether due to restaurant openings and closings, changes in SMS’s membership, changes in the business, or changes in general economic conditions.

The estimated minimum level of purchases under these contracts is $173.3 million for 2007 and $183.7 million for 2008. AFC has agreed to indemnify SMS for any shortfall between actual purchases by the Popeyes system and the annual purchase commitments entered into by SMS on behalf of the Popeyes restaurant system. The indemnification has not been recorded as an obligation in the Company’s balance sheets. The Company does not expect any material loss to result from the indemnification since we do not believe that performance, on our part, will be required.

AFC Loan Guarantee Programs.  In March 1999, we implemented a program to assist qualified current and prospective franchisees in obtaining the financing needed to purchase or develop franchised restaurants at competitive rates. Under the program, we guarantee up to 20% of the loan amount toward a maximum aggregate liability for the entire pool of $1.0 million. For loans within the pool, we assume a first loss risk until the maximum liability for the pool has been reached. Such guarantees typically extend for a three-year period. As of December 31, 2006, approximately $0.7 million was borrowed under this program, of which we were contingently liable for approximately $0.1 million in the event of default.

In November 2002, we implemented a second loan guarantee program to provide qualified franchisees with financing to fund new construction, re-imaging and facility upgrades. Under the program, we assume a first loss risk on the portfolio up to 10% of the sum of the original funded principal balances of all program loans. As of December 31, 2006, approximately $1.4 million was borrowed under this program, of which we were contingently liable for approximately $0.2 million in the event of default.

These loan guarantees have not been recorded as an obligation in our consolidated balance sheets. We do not expect any material loss to result from these guarantees because we do not believe that any indemnity under this agreement will be necessary.

Long Term Debt

2005 Credit Facility.  On May 11, 2005, and as amended on April 14, 2006, we entered into a bank credit facility (the “2005 Credit Facility”) with J.P. Morgan Chase Bank and certain other lenders, which consists of a $60.0 million, five-year revolving credit facility and a six-year $190.0 million term loan.

The revolving credit facility and term loan bear interest based upon alternative indices (LIBOR, Federal Funds Effective Rate, Prime Rate and a Base CD rate) plus an applicable margin as specified in the facility. The margins on the revolving credit facility may fluctuate because of changes in certain financial leverage ratios and our compliance with applicable covenants of the 2005 Credit Facility. We also pay a quarterly commitment fee of 0.125% on the unused portions of the revolving credit facility.

At the closing of the 2005 Credit Facility, we drew the entire $190.0 million term loan and applied approximately $57.4 million of the proceeds to pay off the 2002 Credit Facility, to pay fees associated with that

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facility, and to pay closing costs associated with the new facility. The remaining proceeds were used to fund a portion of our special cash dividend and for general corporate purposes.

The 2005 Credit Facility is secured by a first priority security interest in substantially all of our assets. The 2005 Credit Facility contains financial and other covenants, including covenants requiring us to maintain various financial ratios, limiting our ability to incur additional indebtedness, restricting the amount of capital expenditures that may be incurred, restricting the payment of cash dividends, and limiting the amount of debt which can be loaned to our franchisees or guaranteed on their behalf. This facility also limits our ability to engage in mergers or acquisitions, sell certain assets, repurchase our stock and enter into certain lease transactions. The 2005 Credit Facility includes customary events of default, including, but not limited to, the failure to pay any interest, principal or fees when due, the failure to perform certain covenant agreements, inaccurate or false representations or warranties, insolvency or bankruptcy, change of control, the occurrence of certain ERISA events and judgment defaults.

Under the terms of the revolving credit facility, we may obtain other short-term borrowings of up to $10.0 million and letters of credit up to $25.0 million. Collectively, these other borrowings and letters of credit may not exceed the amount of unused borrowings under the 2005 Credit Facility. As of December 31, 2006, we had $5.3 million of outstanding letters of credit. Availability for other short-term borrowings and letters of credit was $29.7 million.

In addition to the scheduled payments of principal on the term loan, at the end of each fiscal year, we are subject to mandatory prepayments in those situations when consolidated cash flows for the year, as defined pursuant to the terms of the facility, exceed specified amounts. Whenever any prepayment is made, subsequent scheduled payments of principal are ratably reduced.

As of December 31, 2006, we were in compliance with the financial and other covenants of the 2005 Credit Facility. As of December 31, 2006, the Company’s weighted average interest rate for all outstanding indebtedness under the 2005 Credit Facility, including the effect of the interest swap agreements, was approximately 6.6%.

2005 Interest Rate Swap Agreements.  Effective May 12, 2005, we entered into two interest rate swap agreements with a combined notional amount of $130.0 million. Effective December 29, 2006, the Company reduced the notional amounts of the combined agreements to $110.0 million. The agreements terminate on June 30, 2008, or sooner under certain limited circumstances. The effective portion of the gain associated with the termination of the $20.0 million notional amount, approximately $0.3 million, will be amortized into interest expense over the remaining life of the hedge. Pursuant to these agreements, pay a fixed rate of interest and receive a floating rate of interest. The effect of the agreements is to limit the interest rate exposure on a portion of the 2005 Credit Facility to a fixed rate of 6.4%. During 2006, the net interest income associated with these agreements was $1.3 million. These agreements are accounted for as an effective cash flow hedge. At December 31, 2006, the fair value of these agreements was $1.6 million, which was recorded as a component of “other long term assets, net.” The changes in fair value are recognized in accumulated other comprehensive income in the Consolidated Balance Sheets.

Impact of Inflation

We believe that, over time, we generally have been able to pass along inflationary increases in our costs through increased prices of our menu items, and the effects of inflation on our net income historically have not been, and are not expected to be, materially adverse. Due to competitive pressures, however, increases in prices of menu items often lag behind inflationary increases in costs.

Tax Matters

We are continuously involved in U.S., state and local tax audits for income, franchise, property and sales and use taxes. In general, the statute of limitations remains open with respect to tax returns that were filed for each fiscal year after 2002. However, upon notice of a pending tax audit, we often agree to extend the statute of limitations to allow for complete and accurate tax audits to be performed.

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Market Risk

We are exposed to market risk from changes in certain commodity prices, foreign currency exchange rates and interest rates. All of these market risks arise in the normal course of business, as we do not engage in speculative trading activities. The following analysis provides quantitative information regarding these risks.

Chicken Market Risk.  Fresh chicken is the principal raw material for our Popeyes operations. It constitutes more than 40% of our combined “restaurant food, beverages and packaging” costs. These costs are significantly affected by increases in the cost of chicken, which can result from a number of factors, including increases in the cost of grain, disease, declining market supply of fast-food sized chickens and other factors that affect availability, and greater international demand for domestic chicken products.

In order to ensure favorable pricing for fresh chicken purchases and to maintain an adequate supply of fresh chicken for AFC and its Popeyes franchisees, SMS (a not-for-profit purchasing cooperative) has entered into chicken purchasing contracts with chicken suppliers.

Foreign Currency Exchange Rate Risk.  We are exposed to currency risk from the potential changes in foreign currency rates that directly impact our revenues and cash flows from our international franchise operations. In 2006, franchise revenues from these operations represented approximately 8.8% of our total franchise revenues. For each of 2006, 2005 and 2004, foreign-sourced revenues represented 4.7%, 4.5% and 4.0% of our total revenues, respectively. As of December 31, 2006, approximately $0.7 million of our accounts receivable were denominated in foreign currencies.

Interest Rate Risk.  Our net exposure to interest rate risk consists of our borrowings under our 2005 Credit Facility. Borrowings made pursuant to that facility include interest rates that are benchmarked to U.S. and European short-term floating-rate interest rates. As of December 31, 2006, the balances outstanding under our 2005 Credit Facility totaled $130.0 million. The impact on our annual results of operations of a hypothetical one-point interest rate change on the outstanding balances under our 2005 Credit Facility would be approximately $0.2 million.

Critical Accounting Policies

Our significant accounting policies are presented in Note 2 to our Consolidated Financial Statements. Of our significant accounting policies, we believe the following involve a higher degree of risk, judgment and/or complexity. These policies involve estimations of the effect of matters that are inherently uncertain and may significantly impact our quarterly or annual results of operations or financial condition. Changes in the estimates and judgments could significantly affect our results of operations, financial condition and cash flows in future years.

Accounting Related to Hurricane Katrina.  As discussed at Note 16 to our Consolidated Financial Statements, during the last week of August 2005, the Company’s business operations in Louisiana, Mississippi, and Alabama were adversely impacted by Hurricane Katrina. As it relates to the operations of our company-operated restaurants segment, 36 restaurants were closed for at least one day as a result of the hurricane. Certain of the restaurants have been permanently closed and others remain temporarily closed.

The Company has recognized impairments associated with damaged restaurants in accordance with our policies for asset impairments discussed below. The Company has incurred several costs as a result of the hurricanes, including costs associated with our leasing arrangements for the adversely effected restaurants. The Company accounts for the future lease payments associated with idled facilities in accordance with EITF 01-10.

The Company maintains insurance coverage which provides for reimbursement from losses resulting from property damage, including flood, loss of product, and business interruption. The Company records a receivable for insurance recoveries to the extent losses have been incurred and the realization of a related insurance claim, net of applicable deductibles, is probable. Accruals for business interruption do not include certain amounts for which recovery under the insurance policy is uncertain.

The accounting for the above matters involves significant estimates by management. These estimates will be subject to revision as events proceed forward with the repopulating of New Orleans, the refurbishment of our restaurants, resolution of certain disputed lease provisions, and the processing of claims with our insurance carrier.

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Consolidation of Variable Interest Entities.  In accordance with FIN 46R, we consolidate entities that we determine (1) to be a variable interest entity (“VIE”) and (2) AFC is that entity’s primary beneficiary. In the first quarter of 2004, upon adoption of FIN 46R, we evaluated several of our business relationships that indicated that the other party might be a VIE; and subsequent to that time we continue to evaluate various relationships as circumstances change. Determination of whether an entity is a VIE and whether we are its primary beneficiary involves the exercise of judgment. See Note 2 to the Consolidated Financial Statements for a discussion of our VIE relationships and the impact of consolidating certain VIEs.

Impairment of Long-Lived Assets.  We evaluate property and equipment for impairment on an annual basis (during the fourth quarter of each year) or when circumstances arise indicating that a particular asset may be impaired. For property and equipment at company-operated restaurants, we perform our annual impairment evaluation on a site-by-site basis. We evaluate restaurants using a “two-year history of operating losses” as our primary indicator of potential impairment. Based on the best information available, we write-down an impaired restaurant to its estimated fair market value, which becomes its new cost basis. We generally measure the estimated fair market value by discounting estimated future cash flows. In addition, when we decide to close a restaurant, it is reviewed for impairment and depreciable lives are adjusted. The impairment evaluation is based on the estimated cash flows from continuing use through the expected disposal date and the expected terminal value.

Impairment of Goodwill and Trademarks.  We evaluate goodwill and trademarks for impairment on an annual basis (during the fourth quarter of each year) or more frequently when circumstances arise indicating that a particular asset may be impaired. Our impairment evaluation includes a comparison of the fair value of our reporting units with their carrying value. Our reporting units are our business segments. Intangible assets, including goodwill, are allocated to each reporting unit. The estimated fair value of each reporting unit is the amount for which the reporting unit could be sold in a current transaction between willing parties. We estimate the fair value of our reporting units using a discounted cash flow model or market price, if available. The operating assumptions used in the discounted cash flow model are generally consistent with the reporting unit’s past performance and with the projections and assumptions that are used in our current operating plans. Such assumptions are subject to change as a result of changing economic and competitive conditions. If a reporting unit’s carrying value exceeds its fair value, goodwill and trademarks are written down to their implied fair value.

Allowances for Accounts and Notes Receivable and Contingent Liabilities.  We reserve a franchisee’s receivable balance based upon pre-defined aging criteria and upon the occurrence of other events that indicate that we may or may not collect the balance due. In the case of notes receivable, we perform this evaluation on a note-by-note basis, whereas this analysis is performed in the aggregate for accounts receivable. We evaluate our notes receivable for uncollectibility each reporting period, on a note-by-note basis. We provide for an allowance for uncollectibility based on such reviews. See Note 2 to the Consolidated Financial Statements for information concerning our allowance account for both accounts receivable and notes receivable.

With respect to contingent liabilities, we similarly reserve for such contingencies when we are able to assess that an expected loss is both probable and reasonably estimable.

Leases.  The Company accounts for leases in accordance with SFAS No. 13, Accounting for Leases, and other related authoritative guidance. When determining the lease term, the Company often includes option periods for which failure to renew the lease imposes a penalty on the Company in such an amount that a renewal appears, at the inception of the lease, to be reasonably assured. The primary penalty to which we are subject is the economic detriment associated with the existence of leasehold improvements which might be impaired if we choose not to continue the use of the leased property.

The Company records rent expense for leases that contain scheduled rent increases on a straight-line basis over the lease term, including any option periods considered in the determination of that lease term. Contingent rentals are generally based on sales levels in excess of stipulated amounts, and thus are not considered minimum lease payments and are included in rent expense as they accrue.

Deferred Tax Assets and Tax Reserves.  We make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of certain tax

42

assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes.

We assess the likelihood that we will be able to recover our deferred tax assets. We consider historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance. If recovery is not likely, we increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable. We carried a valuation allowance on our deferred tax assets of $3.4 million and $1.9 million at December 31, 2006 and December 25, 2005, respectively, based on our view that it is more likely than not that we will not be able to take a tax benefit for certain state operating loss carryforwards which begin to expire in 2008.

As a matter of course, we are regularly audited by federal, state and foreign tax authorities. We provide reserves for potential exposures when we consider it probable that a taxing authority may take a sustainable position on a matter contrary to our position. We evaluate these reserves, including interest thereon, on a quarterly basis to ensure that they have been appropriately adjusted for events that may impact our ultimate payment for such exposures. Presently, we do not believe that we have any tax matters that could have a material adverse effect on our financial position, results of operations or liquidity.

See Note 19 to the Consolidated Financial Statements for a further discussion of our income taxes.

Accounting Standards Adopted in 2006

Effective December 26, 2005, the Company adopted SFAS No. 123(R), “Share-Based Payment” (“SFAS 123R”), which requires the measurement and recognition of compensation cost at fair value for all share-based payments, including stock options and restricted stock awards. The Company adopted SFAS 123R using the modified prospective transition method and, as a result, did not retroactively adjust results from prior periods. Under this transition method, stock-based compensation is recognized for: (1) expense related to the remaining non-vested portion of all stock awards granted prior to December 26, 2005, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123, Accounting for Stock-Based Compensation (“SFAS 123”) and the same straight-line attribution method used to determine the pro forma disclosures under SFAS 123; and (2) expense related to all stock awards granted on or subsequent to December 26, 2005, based on the grant date fair value estimated in accordance with the provisions of SFAS 123R. At December 31, 2006, the total compensation cost related to stock options granted to employees under the Company’s stock option plans but not yet recognized was approximately $2.6 million, net of forfeitures. This cost will be amortized on a straight-line basis over a weighted average period of 2.5 years. See Note 2 to the Consolidated Financial Statements for a discussion of the impact of adopting this accounting standard.

Effective December 26, 2005, the Company adopted FASB Staff Position No. 13-1, “Accounting for Rental Costs Incurred during a Construction Period” (“FSP 13-1”), which requires rental costs associated with ground or building operating leases that are incurred during a construction period be recognized as rental expense. The Company has historically expensed such rentals. Thus, there was no material impact upon adoption of FSP 13-1.

In the fourth quarter of 2006, the Company adopted Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB No. 108”), which provides guidance on the consideration of the effects of prior year misstatements in quantifying current year misstatements for the purpose of materiality. The adoption of SAB No. 108 did not have a material impact on the Company’s consolidated financial statements.

Accounting Standards That We Have Not Yet Adopted

For a discussion of recently issued accounting standards that we have not yet adopted, see Note 3 to our Consolidated Financial Statements. That note is hereby incorporated by reference into this Item 7.

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Item 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Information about market risk can be found in Item 7 of this report under the caption “Market Risk” and is hereby incorporated by reference into this Item 7A.

Item 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our Consolidated Financial Statements can be found beginning on Page F-1 of this Annual Report and the relevant portions of those statements and the accompanying notes are hereby incorporated by reference into this Item 8.

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

None.

Item 9A.   CONTROLS AND PROCEDURES

(a)   Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures of a registrant designed to ensure that information required to be disclosed by the registrant in the reports that it files or submits under the Securities Exchange Act of 1934 (the “Exchange Act”) is properly recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include processes to accumulate and evaluate relevant information and communicate such information to a registrant’s management, including its principal executive and financial officers, as appropriate, to allow for timely decisions regarding required disclosures.

(b)   Our Evaluation of AFC’s Disclosure Controls and Procedures

We evaluated the effectiveness of the design and operation of AFC’s disclosure controls and procedures as of the end of our fiscal year 2006, as required by Rule 13a-15 of the Exchange Act. This evaluation was carried out under the supervision and with the participation of our management, including our CEO and CFO.

Based on management’s assessment, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2006 to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.

(c)   Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a - 15(f) and 15d - 15(f) under the Exchange Act. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles.

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006, using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway

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Commission in Internal Control-Integrated Framework. This evaluation was carried out under the supervision and with the participation of our management, including our CEO and CFO. Based on this assessment, management believes that as of December 31, 2006, the Company’s internal control over financial reporting is effective.

Grant Thornton, LLP, our independent registered public accounting firm that audited our consolidated financial statements included in this Annual Report, has issued an audit report on management’s assessment of the Company’s internal control over financial reporting. This report can be found in section (e) below.

(d)   Changes in Internal Control Over Financial Reporting

During the fourth quarter of 2006, there was no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

(e)   Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting

Board of Directors and

Shareholders of AFC Enterprises, Inc.

We have audited management’s assessment included in Management’s Report on Internal Controls Over Financial Reporting included in AFC Enterprises, Inc. and subsidiaries (the “Company”) Form 10-K for 2006, that the Company maintained effective internal control over financial reporting as of December 31, 2006 based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on criteria established in Internal Control — Integrated Framework issued by the COSO. Also in our opinion, the Company maintained, in

45

all material respects, effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control — Integrated Framework issued by the COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company as of December 31, 2006 and December 25, 2005, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the years in the periods ended December 31, 2006 and December 25, 2005 and our report dated March 9, 2007 expressed an unqualified opinion on those financial statements.

/s/  GRANT THORNTON LLP

Atlanta, Georgia

March 9, 2007

Item 9B.   OTHER INFORMATION

Employment Agreement with Frederick B. Beilstein III

On March 14, 2007, we entered into an employment agreement with Frederick B. Beilstein III that provides for the terms of Mr. Beilstein’s employment as interim Chief Executive Officer of the Company. The agreement provides for a term beginning March 19, 2007 and unless earlier terminated extending for an initial term of ninety days concluding on June 22, 2007. The term of the agreement may be extended for an additional 30 day period upon written notice to Mr. Beilstein by the Company. Thereafter, the agreement may be extended by mutual agreement of the Company and Mr. Beilstein. The employment agreement provides for a bi-weekly salary at the rate of $29,423. In addition, Mr. Beilstein is eligible to participate in our employee benefit plans. In the event of a termination without cause, Mr. Beilstein will be entitled to receive a payment equal to his salary due for the current term of the agreement at the time of termination less any amount for the current term that has been previously paid to Employee. The agreement also contains covenants regarding confidentiality and non-competition and dispute resolution clauses. A copy of the employment agreement with Mr. Beilstein is attached to this Form 10-K as Exhibit 10.55 and is incorporated herein by reference.

Employment Agreement with and Restricted Stock Grant to James W. Lyons

On March 14, 2007, we entered into an employment agreement with James W. Lyons that provides for the terms of Mr. Lyons employment as Chief Operating Officer of the Company and provides for a base salary of $300,000 per annum plus a $15,000 flex perk allowance. The initial term of the employment agreement is through December 28, 2008, with an automatic extension for successive one-year periods following the expiration of each term, unless the company or Mr. Lyons provide written notice of non-extension to the other at least thirty days prior to the expiration of the term of the agreement. The employment agreement provides for an annual incentive bonus that is based on our achievement of certain performance targets with a total target incentive pay of $180,000, fringe benefits and participation in our benefit plans. In the event of a termination without cause, Mr. Lyons will be entitled to receive an amount equal to one times his annual base salary and target incentive bonus for the year in which the termination occurs and the acceleration of any unvested rights under any stock options or other equity incentive programs. If there is a change in control (as defined in the employment agreement) and within one year of the change in control, Mr. Lyon’s employment is terminated without cause, or there is a material diminution of or change in Mr. Lyon’s responsibilities, duties or title, Mr. Lyons may terminate his employment and receive the same severance he would have received upon a termination without cause. The agreement also contains covenants regarding confidentiality and non-competition and dispute resolution clauses. A copy of the employment agreement with Mr. Lyons is attached to this Form 10-K as Exhibit 10.56 and is incorporated herein by reference.

Pursuant to the employment agreement with Mr. Lyons, on March 14, 2007, the Company granted to Mr. Lyons 10,000 shares of restricted stock. The restricted stock vests over three years, with one-third vesting on each anniversary date of the grant.

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Employment Agreement with Robert Calderin

On March 14, 2007, we entered into an employment agreement with Robert Calderin that provides for the terms of Mr. Calderin’s employment as Chief Marketing Officer of the Company and provides for a base salary of $285,137 per annum plus a $15,000 flex perk allowance. The agreement provides for an initial term through December 28, 2008, with an automatic extension for successive one-year periods following the expiration of each term, unless the Company or Mr. Calderin provide written notice of non-extension to the other at least thirty days prior to the expiration of the term of the agreement. The employment agreement provides for an annual incentive bonus that is based on our achievement of certain performance targets with a total target incentive pay of $128,312, fringe benefits and participation in our benefit plans. In the event of a termination without cause, Mr. Calderin will be entitled to receive an amount equal to one times his annual base salary and target incentive bonus for the year in which the termination occurs and the acceleration of any unvested rights under any stock options or other equity incentive programs. If there is a change in control (as defined in the employment agreement) and within one year of the change in control, Mr. Calderin’s employment is terminated without cause, or there is a material diminution of or change in Mr. Calderin’s responsibilities, duties or title, Mr. Calderin may terminate his employment and receive the same severance he would have received upon a termination without cause. The agreement also contains covenants regarding confidentiality and non-competition and dispute resolution clauses. A copy of the employment agreement with Mr. Calderin is attached to this Form 10-K as Exhibit 10.57 and is incorporated herein by reference.

Amendment to Employment Agreement with Frank J. Belatti

On March 14, 2007, we entered into an amendment (the “First Amendment”) to the employment agreement dated August 31, 2005 by and between the Company and Frank J. Belatti (the “Agreement”). The First Amendment eliminates Section 9.02 of the Agreement which previously provided for reimbursement of certain business expenses. A copy of the First Amendment is attached to this Form 10-K as Exhibit 10.58 and is incorporated herein by reference.

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PART III.

Item 10.   DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information regarding our directors, executive officers, audit committee and our audit committee financial expert required by this Item 10 is included in our definitive Proxy Statement for the 2007 Annual Meeting of Stockholders and such disclosure is incorporated herein by reference. Biographical information on our executive officers is contained in Item 4A of this Annual Report on Form 10-K and is incorporated herein by reference.

We have adopted an Honor Code that applies to our directors and all of our employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of the Honor Code is available on our website at www.afce.com. Copies will be furnished upon request. You may mail your requests to the following address: Attn: Office of General Counsel, 5555 Glenridge Connector, NE, Suite 300, Atlanta GA, 30342. If we make any amendments to the Honor Code other than technical, administrative, or other non-substantive amendments, or grant any waivers, from the Honor Code, we will disclose the nature of the amendment or waiver, its effective date and to who it applies on our website or in a report on Form 8-K filed with the SEC.

Item 11.   EXECUTIVE COMPENSATION

Information regarding executive compensation required by this Item 11 is included in our definitive Proxy Statement for the 2007 Annual Meeting of Stockholders and such disclosure is incorporated herein by reference.

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

Information regarding security ownership of certain beneficial owners and management and related stockholder matters required by this Item 12 is included in our definitive Proxy Statement for the 2007 Annual Meeting of Stockholders and such disclosure is incorporated herein by reference.

Item 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Information regarding certain relationships and related transactions, and director independence required by this Item 13 is included in our definitive Proxy Statement for the 2007 Annual Meeting of Stockholders and such disclosure is incorporated herein by reference.

Item 14.   PRINCIPAL ACCOUNTANT FEES AND SERVICES

The Company’s independent registered public accounting firm is Grant Thornton LLP. Information regarding principal accountant fees and services required by this Item 14 is included in our definitive Proxy Statement for the 2007 Annual Meeting of Stockholders and such disclosure is incorporated herein by reference.

The Company’s former independent registered public accounting firm was KPMG LLP (“KPMG”). AFC has agreed to indemnify and hold KPMG harmless against and from any and all legal costs and expenses incurred by KPMG in successful defense of any legal action or proceeding that arises as a result of KPMG’s consent to the inclusion of its audit report on AFC’s past financial statements.

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PART IV.

Item 15.   EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)   Financial Statements

The following consolidated financial statements appear beginning on Page F-1 of the report:

	Pages
Reports of Independent Registered Public Accounting Firms		F-1
Consolidated Balance Sheets as of December 31, 2006 and December 25, 2005		F-3
Consolidated Statements of Operations for Fiscal Years 2006, 2005 and 2004		F-4
Consolidated Statements of Changes in Shareholders’ Equity (Deficit) for Fiscal Years 2006, 2005 and 2004		F-5
Consolidated Statements of Cash Flows for Fiscal Years 2006, 2005 and 2004		F-6
Notes to the Consolidated Financial Statements		F-7

We have omitted all other schedules because the conditions requiring their filing do not exist or because the required information appears in our Consolidated Financial Statements, including the notes to those statements.

(b)   Exhibits

Exhibit
Number			Description
	2	.1(h)	Stock Purchase Agreement between AFC Enterprises, Inc. and Starbucks Corporation, dated as of April 15, 2003.
	2	.2(n)	First Amendment to Stock Purchase Agreement between AFC Enterprises, Inc. and Starbucks Corporation, dated as of June 30, 2003.
	2	.3(n)	Second Amendment to Stock Purchase Agreement between AFC Enterprises, Inc. and Starbucks Corporation, dated as of July 11, 2003.
	2	.4(n)	Third Amendment to Stock Purchase Agreement between AFC Enterprises, Inc. and Starbucks Corporation, dated as of November 19, 2003.
	2	.5(j)	Stock Purchase Agreement by and between AFC Enterprises, Inc. and Focus Brands Inc. dated as of September 3, 2004.
	2	.6(j)	First Amendment to Stock Purchase Agreement by and between AFC Enterprises, Inc. and Focus Brands Inc. dated as of November 1, 2004.
	2	.7(j)	Second Amendment to Stock Purchase Agreement by and between AFC Enterprises, Inc. and Focus Brands Inc. dated as of November 4, 2004.
	2	.8(k)	Asset Purchase Agreement by and among AFC Enterprises, Inc. and Cajun Holding Company dated as of October 30, 2004.
	2	.9(l)	First Amendment to Asset Purchase Agreement by and between AFC Enterprises, Inc. and Cajun Holding Company dated as of December 28, 2004.
	3	.1(c)	Articles of Incorporation of AFC Enterprises, Inc., as amended, dated June 24, 2002.
	3	.2(p)	Amended and Restated Bylaws of AFC Enterprises, Inc.
	4	.1(o)	Form of registrant’s common stock certificate.
	10	.1(e)	Form of Popeyes Development Agreement, as amended.
	10	.2(e)	Form of Popeyes Franchise Agreement.
	10	.3(a)	Formula Agreement dated July 2, 1979 among Alvin C. Copeland, Gilbert E. Copeland, Mary L. Copeland, Catherine Copeland, Russell J. Jones, A. Copeland Enterprises, Inc. and Popeyes Famous Fried Chicken, Inc., as amended to date.
	10	.4(a)	Supply Agreement dated March 21, 1989 between New Orleans Spice Company, Inc. and Biscuit Investments, Inc.
	10	.5(a)	Recipe Royalty Agreement dated March 21, 1989 by and among Alvin C. Copeland, New Orleans Spice Company, Inc. and Biscuit Investments, Inc.

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Exhibit
Number			Description
	10	.6(a)	Licensing Agreement dated March 11, 1976 between King Features Syndicate Division of The Hearst Corporation and A. Copeland Enterprises, Inc.
	10	.7(a)	Assignment and Amendment dated January 1, 1981 between A. Copeland Enterprises, Inc., Popeyes Famous Fried Chicken, Inc. and King Features Syndicate Division of The Hearst Corporation.
	10	.8(a)	Letter Agreement dated September 17, 1981 between King Features Syndicate Division of The Hearst Corporation, A. Copeland Enterprises, Inc. and Popeyes Famous Fried Chicken, Inc.
	10	.9(a)	License Agreement dated December 19, 1985 by and between King Features Syndicate, Inc., The Hearst Corporation, Popeyes, Inc. and A. Copeland Enterprises, Inc.
	10	.10(a)	Letter Agreement dated July 20, 1987 by and between King Features Syndicate, Division of The Hearst Corporation, Popeyes, Inc. and A. Copeland Enterprises, Inc.
	10	.11(n)	Amendment dated January 1, 2002 by and between Hearst Holdings, Inc., King Features Syndicate Division and AFC Enterprises, Inc.
	10	.12(a)	1992 Stock Option Plan of AFC, effective as of November 5, 1992, as amended to date.*
	10	.13(a)	1996 Nonqualified Performance Stock Option Plan — Executive of AFC, effective as of April 11, 1996.*
	10	.14(a)	1996 Nonqualified Performance Stock Option Plan — General of AFC, effective as of April 11, 1996.*
	10	.15(a)	1996 Nonqualified Stock Option Plan of AFC, effective as of April 11, 1996.*
	10	.16(a)	Form of Nonqualified Stock Option Agreement — General between AFC and stock option participants.*
	10	.17(a)	Form of Nonqualified Stock Option Agreement — Executive between AFC and certain key executives.*
	10	.18(a)	1996 Employee Stock Bonus Plan — Executive of AFC effective as of April 11, 1996.*
	10	.19(a)	1996 Employee Stock Bonus Plan — General of AFC effective as of April 11, 1996.*
	10	.20(a)	Form of Stock Bonus Agreement — Executive between AFC and certain executive officers.*
	10	.21(a)	Form of Stock Bonus Agreement — General between AFC and certain executive officers.*
	10	.22(a)	Form of Secured Promissory Note issued by certain members of management.*
	10	.23(a)	Form of Stock Pledge Agreement between AFC and certain members of management.*
	10	.24(a)	Settlement Agreement between Alvin C. Copeland, Diversified Foods and Seasonings, Inc., Flavorite Laboratories, Inc. and AFC dated May 29, 1997.
	10	.25(a)	Indemnification Agreement dated April 11, 1996 by and between AFC and John M. Roth.*
	10	.26(a)	Indemnification Agreement dated May 1, 1996 by and between AFC and Kelvin J. Pennington.*
	10	.27(a)	Indemnification Agreement dated April 11, 1996 by and between AFC and Frank J. Belatti.*
	10	.28(e)	Substitute Nonqualified Stock Option Plan, effective March 17, 1998.*
	10	.29(f)	Indemnification Agreement dated May 16, 2001 by and between AFC and Victor Arias Jr.*
	10	.30(f)	Indemnification Agreement dated May 16, 2001 by and between AFC and Carolyn Hogan Byrd.*
	10	.31(f)	Indemnification Agreement dated August 9, 2001 by and between AFC and R. William Ide, III.*
	10	.32(g)	AFC Enterprises, Inc. Employee Stock Purchase Plan.*
	10	.33(g)	AFC Enterprises, Inc. 2002 Incentive Stock Plan.*
	10	.34(g)	AFC Enterprises, Inc. Annual Executive Bonus Program.*
	10	.35(m)	Amended and Restated Employment Agreement dated as of June 28, 2004 between AFC Enterprises, Inc. and Allan J. Tanenbaum.*
	10	.36(p)	First Amendment to Amended and Restated Employment Agreement dated as of March 28, 2005 between AFC Enterprises, Inc. and Allan J. Tanenbaum.*
	10	.37(n)	Employment Agreement effective as of December 29, 2003 between AFC Enterprises, Inc. and Frederick B. Beilstein.*
	10	.38(n)	Employment Agreement effective as of February 12, 2004 between AFC Enterprises, Inc. and Henry Hope, III.*
	10	.39(p)	First Amendment to Employment Agreement dated as of March 28, 2005 between AFC Enterprises, Inc. and Frederick B. Beilstein.*

50

Exhibit
Number			Description
	10	.40(p)	First Amendment to Employment Agreement dated as of March 28, 2005 between AFC Enterprises, Inc. and Henry Hope, III.*
	10	.41(p)	Indemnity Agreement dated October 14, 2004 by and between AFC Enterprises, Inc. and Supply Management Services, Inc.
	10	.42(p)	Indemnity Agreement dated February 5, 2004 by and between AFC Enterprises, Inc., Cajun Operating Company and Supply Management Services, Inc.
	10	.43(d)	Second Amended and Restated Credit Agreement dated as of May 11, 2005 among AFC Enterprises, Inc., JPMorgan Chase and certain other lenders.
	10	.44(i)	Fourth Amendment to the 1992 Stock Option Plan of America’s Favorite Chicken Company.
	10	.45(i)	Fifth Amendment to the America’s Favorite Chicken Company 1996 Nonqualified Performance Stock Option Plan — General.
	10	.46(i)	Amendment No. 1 to the America’s Favorite Chicken Company 1996 Nonqualified Stock Option Plan.
	10	.47(i)	Second Amendment to the America’s Favorite Chicken Company 1996 Nonqualified Performance Stock Option Plan — Executive.
	10	.48(i)	Second Amendment to the AFC Enterprises, Inc. 2002 Incentive Stock Plan.
	10	.49(i)	Indemnification Agreement between AFC and Peter Starrett.
	10	.50(r)	Second Amendment to Employment Agreement dated June 7, 2005 between the Company and Frederick B. Beilstein.
	10	.51(r)	Second Amendment to the Amended and Restated Employment Agreement dated June 7, 2005 between the Company and Allan J. Tanenbaum.
	10	.52(s)	Indemnification Agreement dated November 28, 2006 by and between AFC and John M. Cranor, III.*
	10	.53(s)	Indemnification Agreement dated November 28, 2006 by and between AFC and Cheryl A. Bachelder. *
	10	.54	Popeyes Chicken and Biscuits 2006 Bonus Plan.*
	10	.55	Employment Agreement dated as of March 14, 2007 between AFC Enterprises, Inc. and Frederick B. Beilstein III.
	10	.56	Employment Agreement dated as of March 14, 2007 between AFC Enterprises, Inc. and James W. Lyons.
	10	.57	Employment Agreement dated as of March 14, 2007 between AFC Enterprises, Inc. and Robert Calderin.
	10	.58	First Amendment to Employment Agreement, dated March 14, 2007 between AFC Enterprises, Inc. and Frank J. Belatti dated August 31, 2005.
	11	.1**	Statement regarding computation of per share earnings.
	23	.1	Consent of Grant Thornton LLP
	23	.2	Consent of KPMG LLP
	31	.1	Certification Pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31	.2	Certification Pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32	.1	Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	32	.2	Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

†	Certain portions of this exhibit have been granted confidential treatment.
*	Management contract, compensatory plan or arrangement required to be filed as an exhibit.
**	Data required by SFAS No. 128, Earnings per Share, is provided in Note 21 to our Consolidated Financial Statements in this Annual Report.
(a)	Filed as an exhibit to the Registration Statement of AFC on Form S-4/ A (Registration No. 333-29731) on July 2, 1997 and incorporated by reference herein.

51

(c)	Filed as an exhibit to the Form 10-Q of AFC for the quarter ended July 14, 2002, on August 14, 2002 and incorporated by reference herein.
(d)	Filed as an exhibit to the Form 8-K of AFC filed May 16, 2005 and incorporated by reference herein.
(e)	Filed as an exhibit to the Registration Statement of AFC on Form S-1/ A (Registration No. 333-52608) on January 22, 2001 and incorporated by reference herein.
(f)	Filed as an exhibit to the Registration Statement of AFC on Form S-1 (Registration No. 333-73182) on November 13, 2001 and incorporated by reference herein.
(g)	Filed as an exhibit to the Proxy Statement and Notice of 2002 Annual Shareholders Meeting of AFC on April 12, 2002 and incorporated by reference herein.
(h)	Filed as an exhibit to the Form 8-K of AFC filed April 16, 2003 and incorporated by reference herein.
(i)	Filed as an exhibit to the Form 10-Q of AFC for the quarter ended April 17, 2005, on May 27, 2005, and incorporated by reference herein.
(j)	Filed as an exhibit to the Form 8-K of AFC filed November 5, 2004 and incorporated herein by reference.
(k)	Filed as an exhibit to the Form 8-K of AFC filed November 2, 2004 and incorporated herein by reference.
(l)	Filed as an exhibit to the Form 8-K of AFC filed January 5, 2005 and incorporated herein by reference.
(m)	Filed as an exhibit to the Form 10-Q of AFC for the quarter ended July 11, 2004 on August 20, 2004 and incorporated by reference herein.
(n)	Filed as an exhibit to the Form 10-K of AFC for the fiscal year ended December 28, 2003 on March 29, 2004 and incorporated by reference herein.
(o)	Filed as an exhibit to the Registration Statement of AFC on Form S-1/ A (Registration No. 333-52608) on February 28, 2001 and incorporated by reference herein.
(p)	Filed as an exhibit to the Form 10-K of AFC for the fiscal year ended December 26, 2004, on April 25, 2005.
(r)	Filed as an exhibit to the Form 8-K of AFC filed June 7, 2005 and incorporated herein by reference.
(s)	Filed as an exhibit to the Form 8-K of AFC filed November 29, 2006 and incorporated herein by reference.

52

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 14th day of March 2007.

AFC ENTERPRISES, INC.

By:  /s/  Kenneth L. Keymer

Kenneth L. Keymer

Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title(s)	Date
/s/  Kenneth L. Keymer Kenneth L. Keymer	Chief Executive Officer (Principal Executive Officer)	March 14, 2007
/s/  H. Melville Hope H. Melville Hope	Chief Financial Officer (Principal Financial and Accounting Officer)	March 14, 2007
/s/  Frank J. Belatti Frank J. Belatti	Director, Chairman of the Board	March 14, 2007
/s/  Victor Arias, Jr. Victor Arias, Jr.	Director	March 14, 2007
/s/  Carolyn H. Byrd Carolyn H. Byrd	Director	March 14, 2007
/s/  R. William Ide, III R. William Ide, III	Director	March 14, 2007
/s/  Kelvin J. Pennington Kelvin J. Pennington	Director	March 14, 2007
/s/  John M. Roth John M. Roth	Director	March 14, 2007
/s/  John F. Hoffner John F. Hoffner	Director	March 14, 2007
/s/  Cheryl A. Bachelder Cheryl A. Bachelder	Director	March 14, 2007
/s/  John M. Cranor, III John M. Cranor	Director	March 14, 2007

53

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON CONSOLIDATED
FINANCIAL STATEMENTS

Board of Directors and Shareholders

AFC Enterprises, Inc.:

We have audited the accompanying consolidated balance sheets of AFC Enterprises, Inc. and subsidiaries (the “Company”) as of December 31, 2006 and December 25, 2005, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the years in the periods ended December 31, 2006 and December 25, 2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of AFC Enterprises, Inc. and subsidiaries as of December 31, 2006 and December 25 2005, and the consolidated results of its operations and its consolidated cash flows for each of the years in the periods ended December 31, 2006 and December 25, 2005 in conformity with accounting principles generally accepted in the United States of America.

As described in Note 2 to the consolidated financial statements, the Company adopted the recognition provisions of Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” during 2006.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of AFC Enterprises, Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 9, 2007 expressed an unqualified opinion.

/s/  Grant Thornton LLP

Atlanta, Georgia

March 9, 2007

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders

AFC Enterprises, Inc.:

We have audited the accompanying consolidated statements of operations, changes in shareholders’ equity, and cash flows for the year ended December 26, 2004 of AFC Enterprises, Inc. and subsidiaries (the “Company”). These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and cash flows for AFC Enterprises, Inc. and subsidiaries in conformity with U.S. generally accepted accounting principles.

As discussed in Note 2 to the accompanying consolidated financial statements, effective December 29, 2003, the Company adopted the provisions of Financial Accounting Standards Board Interpretation No. 46R, Consolidation of Variable Interest Entities.

/s/  KPMG LLP

Atlanta, Georgia

March 25, 2005

F-2

AFC Enterprises, Inc.

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

	2006			2005
ASSETS
Current assets:
Cash and cash equivalents	$	6.7		$	8.2
Short-term investments		—			30.8
Accounts and current notes receivable, net		12.9			16.9
Prepaid income taxes		7.4			31.4
Other current assets		15.6			16.4
Total current assets		42.6			103.7
Long-term assets:
Property and equipment, net		39.9			37.1
Goodwill		11.7			9.6
Trademarks and other intangible assets, net		52.4			43.9
Other long-term assets, net		16.5			18.4
Total long-term assets		120.5			109.0
Total assets	$	163.1		$	212.7
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	23.8		$	26.1
Other current liabilities		10.9			22.4
Current debt maturities		1.4			14.8
Total current liabilities		36.1			63.3
Long-term liabilities:
Long-term debt		132.6			176.6
Deferred credits and other long-term liabilities		25.6			21.5
Total long-term liabilities		158.2			198.1
Commitments and contingencies
Shareholders’ deficit:
Preferred stock ($.01 par value; 2,500,000 shares authorized; 0 issued and outstanding)		—			—
Common stock ($.01 par value; 150,000,000 shares authorized; 29,487,648 and 30,001,877 shares issued and outstanding at the end of fiscal years 2006 and 2005, respectively)		0.3			0.3
Capital in excess of par value		161.7			167.8
Notes receivable from officers, including accrued interest		—			(1.1	)
Accumulated deficit		(194.4	)		(216.8	)
Accumulated other comprehensive income		1.2			1.1
Total shareholders’ deficit		(31.2	)		(48.7	)
Total liabilities and shareholders’ deficit	$	163.1		$	212.7

See accompanying notes to consolidated financial statements.

F-3

AFC Enterprises, Inc.

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

	2006			2005			2004
Revenues:
Sales by company-operated restaurants	$	65.2		$	60.3		$	85.8
Franchise revenues		82.6			77.5			72.8
Other revenues		5.2			5.6			5.3
Total revenues		153.0			143.4			163.9
Expenses:
Restaurant employee, occupancy and other expenses		33.7			30.5			45.3
Restaurant food, beverages and packaging		21.3			20.6			28.8
General and administrative expenses		48.1			68.7			82.1
Depreciation and amortization		6.4			7.3			10.0
Other expenses (income), net		(1.8	)		23.2			17.1
Total expenses		107.7			150.3			183.3
Operating profit (loss)		45.3			(6.9	)		(19.4	)
Interest expense, net		11.1			6.8			5.5
Income (loss) before income taxes, minority interest, discontinued operations and accounting change		34.2			(13.7	)		(24.9	)
Income tax expense (benefit)		12.0			(5.3	)		(10.7	)
Minority interest		—			—			0.1
Income (loss) before discontinued operations and accounting change		22.2			(8.4	)		(14.3	)
Discontinued operations, net of income taxes		0.2			158.0			39.1
Cumulative effect of accounting change, net of income taxes		—			—			(0.2	)
Net income	$	22.4		$	149.6		$	24.6
Earnings per common share, basic:
Income (loss) before discontinued operations and accounting change	$	0.75		$	(0.29	)	$	(0.51	)
Discontinued operations, net of income taxes		0.01			5.43			1.39
Cumulative effect of accounting change, net of income taxes		—			—			(0.01	)
Net income	$	0.76		$	5.14		$	0.87
Earnings per common share, diluted:
Income (loss) before discontinued operations and accounting change	$	0.74		$	(0.29	)	$	(0.51	)
Discontinued operations, net of income taxes		0.01			5.43			1.39
Cumulative effect of accounting change, net of income taxes		—			—			(0.01	)
Net income	$	0.75		$	5.14		$	0.87
Weighted-average shares outstanding:
Basic		29.5			29.1			28.1
Diluted		29.8			29.1			28.1

See accompanying notes to consolidated financial statements.

F-4

AFC Enterprises, Inc.

Consolidated Statements of Changes in Shareholders’ Equity (Deficit)
For Fiscal Years 2006, 2005 and 2004
(In millions, except share data)

						Capital in									Accumulated
	Common Stock					Excess of			Officer						Other
	Number of					Par			Notes						Comprehensive
	Shares			Amount		Value			Receivable			Deficit			Income		Total
Balance at December 28, 2003		27,992,999		$	0.3	$	150.1		$	(3.4	)	$	(38.2	)	$	—	$	108.8
Net income		—			—		—			—			24.6			—		24.6
Issuance of common stock		8,230			—		0.1			—			—			—		0.1
Issuance of common stock under stock option plans, including income tax benefit of $1.1 million		274,924			—		4.8			—			—			—		4.8
Cancellation of shares		(798	)		—		—			—			—			—		—
Issuance of restricted stock awards, net of forfeitures		50,000			—		—			—			—			—		—
Notes and interest receivable payments		—			—		—			2.3			—			—		2.3
Interest accrued		—			—		—			(0.1	)		—			—		(0.1	)
Shared based payment expense		—			—		0.4			—			—			—		0.4
Balance at December 26, 2004		28,325,355			0.3		155.4			(1.2	)		(13.6	)		—		140.9
Net income		—			—		—			—			149.6			—		149.6
Other comprehensive income: related to interest rate swap agreements, net of income taxes of $0.7 million (Note 9)		—			—		—			—			—			1.1		1.1
Total comprehensive income																		150.7
Issuance of common stock under stock option plans, including income tax benefit of $11.2 million		3,093,251			—		29.0			—			—			—		29.0
Repurchases and cancellation of shares (Note 12)		(1,542,872	)		—		(19.5	)		—			—			—		(19.5	)
Special cash dividend (Note 13)		—			—		—			—			(352.9	)		—		(352.9	)
Cancellation of shares		(1,857	)		—		—			—			—			—		—
Issuance of restricted stock awards, net of forfeitures		128,000			—		—			—			0.1			—		0.1
Notes and interest receivable payments		—			—		—			0.1			—			—		0.1
Shared based payment expense		—			—		2.9			—			—			—		2.9
Balance at December 25, 2005		30,001,877			0.3		167.8			(1.1	)		(216.8	)		1.1		(48.7	)
Net income		—			—		—			—			22.4			—		22.4
Other comprehensive income: related to interest rate swap agreements, net of income taxes of $0.0 million (Note 9)		—			—		—			—			—			0.1		0.1
Total comprehensive income																		22.5
Issuance of common stock under stock option plans, including income tax benefit of $1.8 million		1,012,480			—		12.3			—			—			—		12.3
Repurchases and cancellation of shares (Note 12)		(1,486,714	)		—		(20.3	)		—			—			—		(20.3	)
Cancellation of shares		(21,839	)		—		(0.4	)		—			—			—		(0.4	)
Issuance of restricted stock awards, net of forfeitures		55,896			—		—			—			—			—		—
Notes and interest receivable payments		(74,052	)		—		(1.1	)		1.1			—			—		—
Shared based payment expense		—			—		3.4			—			—			—		3.4
Balance at December 31, 2006		29,487,648		$	0.3	$	161.7		$	—		$	(194.4	)	$	1.2	$	(31.2	)

See accompanying notes to consolidated financial statements.

F-5

AFC Enterprises, Inc.

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

	2006			2005			2004
Cash flows provided by (used in) operating activities:
Net income	$	22.4		$	149.6		$	24.6
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Discontinued operations		(0.2	)		(158.0	)		(39.1	)
Depreciation and amortization		6.4			7.3			10.0
Asset write-downs		0.1			5.8			4.8
Net gain on sale of assets		(2.3	)		(1.4	)		(0.5	)
Cumulative effect of accounting changes, pre-tax		—			—			0.2
Deferred income taxes		2.2			9.3			3.2
Non-cash interest, net		0.4			1.7			1.3
Provision for credit losses		(0.3	)		(0.3	)		0.9
Minority interest		—			—			0.1
Excess tax benefits from stock-based compensation		(1.8	)		—			—
Stock-based compensation expense		3.4			2.9			0.4
Change in operating assets and liabilities, exclusive of opening VIE balances:
Accounts receivable		2.0			(2.9	)		(2.4	)
Prepaid income taxes		25.8			(69.2	)		(5.5	)
Other operating assets		(0.4	)		5.1			(6.5	)
Accounts payable and other operating liabilities		(9.0	)		(15.2	)		16.9
Net cash provided by (used in) operating activities of continuing operations		48.7			(65.3	)		8.4
Net cash provided by (used in) operating activities of discontinued operations		—			(7.4	)		35.6
Cash flows provided by (used in) investing activities:
Capital expenditures of continuing operations		(7.0	)		(4.2	)		(8.5	)
Capital expenditures of discontinued operations		—			—			(16.9	)
Proceeds from dispositions of property and equipment		4.3			3.1			2.0
Property insurance proceeds		3.5			—			—
Proceeds relating to the sale of discontinued operations, net		—			367.6			18.6
Acquisition of franchised restaurants		(9.3	)		(2.2	)		—
Purchases of short-term investments		(5.9	)		(275.0	)		—
Sales and maturities of short-term investments		36.7			244.2			—
Proceeds from notes receivable		0.8			1.2			—
Issuances of notes receivable		—			(0.3	)		—
Other, net		—			—			2.0
Net cash provided by (used in) investing activities		23.1			334.4			(2.8	)
Cash flows provided by (used in) financing activities:
Proceeds from 2005 Credit Facility		—			190.0			—
Principal payments — 2005 Credit Facility (term loans)		(59.5	)		(0.5	)		—
Principal payments — 2002 Credit Facility, net		—			(90.3	)		(39.0	)
Principal payments — other notes (including VIEs)		(1.3	)		(0.1	)		(0.2	)
Special cash dividend		(0.7	)		(350.8	)		—
Stock repurchases		(24.4	)		(15.4	)		—
Proceeds from exercise of employee stock options		10.7			17.5			3.8
Excess tax benefits from stock-based compensation		1.8			—			—
Issuance of common stock, net		—			—			0.1
Increase (decrease) in bank overdrafts, net		—			(6.4	)		4.3
(Increase) decrease in restricted cash		0.7			(3.8	)		(1.4	)
Debt issuance costs		(0.1	)		(3.7	)		—
Other, net		(0.5	)		(3.0	)		0.4
Net cash (used in) financing activities		(73.3	)		(266.5	)		(32.0	)
Net increase (decrease) in cash and cash equivalents		(1.5	)		(4.8	)		9.2
Cash and cash equivalents at beginning of year		8.2			13.0			3.8
Cash and cash equivalents at end of year	$	6.7		$	8.2		$	13.0
Cash and cash equivalents of continuing operations	$	6.7		$	8.2		$	12.8
Cash and cash equivalents of discontinued operations	$	—		$	—		$	0.2

See accompanying notes to consolidated financial statements.

F-6

AFC ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For Fiscal Years 2006, 2005 and 2004

Note — 1 Description of Business

Continuing Operations.  AFC Enterprises, Inc. (“AFC” or “the Company”) develops, operates and franchises quick-service restaurants under the trade name Popeyes^® Chicken & Biscuits (“Popeyes”) in 44 states, the District of Columbia, Puerto Rico, Guam and 24 foreign countries.

Discontinued Operations.  On December 28, 2004, the Company sold its Church’s Chicken^® (“Church’s”) division to an affiliate of Crescent Capital Investments, Inc. On November 4, 2004, the Company sold its Cinnabon^® (“Cinnabon”) subsidiary to Focus Brands, Inc. On July 14, 2003, the Company sold its Seattle Coffee Company (“Seattle Coffee”) subsidiary to Starbucks Corporation. See Note 22 for information concerning these divestitures.

In the accompanying consolidated financial statements, financial information relating to the Company’s divested businesses are presented as discontinued operations. Unless otherwise noted, discussions and amounts throughout these notes relate to AFC’s continuing operations.

Note — 2 Summary of Significant Accounting Policies

Principles of Consolidation.  The consolidated financial statements include the accounts of AFC Enterprises, Inc. and certain variable interest entities that the Company is required to consolidate pursuant to 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”). All significant intercompany balances and transactions are eliminated in consolidation.

As of the beginning of the Company’s first fiscal quarter for 2004, the Company adopted FIN 46R and began consolidating three franchisees. In conjunction with its adoption of FIN 46R, the Company recorded a cumulative effect adjustment that decreased net income in 2004 by $0.5 million, or $0.02 per diluted share (of which $0.2 million or $0.01 per dilutive share, related to continuing operations).

The Company allocates earnings and losses of these franchisees to the common equity holders as a component of minority interest. However, the Company does not allocate any losses to the common equity holders if doing so would reduce their common equity interests below zero.

At the end of the third quarter of 2004, the Company’s equity interest in one of the VIEs was liquidated. As a result, AFC’s management determined that the Company was no longer the primary beneficiary for the enterprise and the Company stopped consolidating its balance sheet and operations.

On December 28, 2004, a second VIE relationship was substantially modified coincident with the sale of Church’s and the Company discontinued consolidating its balance sheet and operations. The VIE was a Church’s franchisee and its 2004 operations are reported as a component of the Company’s discontinued operations.

During the second quarter of 2006, the Company purchased all the assets of the third previously consolidated variable interest entity and discontinued consolidating its balance sheet and operations. The assets were purchased for the assumption of the variable interest entity’s long-term debt and the forgiveness of the outstanding payable balance owed to the Company. Subsequent to the purchase of the assets, the Company closed one of the restaurants and sold the remaining two restaurants to an existing franchisee for approximately $2.5 million. The sale transaction qualified for full accrual method accounting under Statement of Financial Accounting Standards (“SFAS”) No. 66, Accounting for Sales of Real Estate. Accordingly, the Company recognized a net gain on the sale of the assets of approximately $1.4 million.

During 2006, 2005 and 2004, amounts included in sales by company-operated restaurants associated with VIE operations were $1.2 million, $2.7 million and $12.6 million, respectively. During 2006, 2005 and 2004, royalties and rents of $0.1 million, $0.1 million and $0.7 million, respectively, were eliminated in consolidation.

F-7

AFC ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For Fiscal Years 2006, 2005 and 2004

The Company has other VIE relationships for which it is not the primary beneficiary. These relationships arose in connection with certain loan guarantees that are described in Note 15.

Use of Estimates.  The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities. These estimates affect the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during each reporting period. Actual results could differ from those estimates.

Reclassifications.  In the accompanying consolidated financial statements and in these notes, certain prior year amounts have been reclassified to conform to the current year’s presentation.

The Company reclassified amounts previously reported as “Unearned compensation” to “Capital in excess of par value” to conform with the presentation required by SFAS No. 123(R), Share-Based Payment (“SFAS 123R”). The reclassification had no impact on total shareholders’ (deficit).

The Company also reclassified certain food costs associated with its limited time offers and other promotional activities from “Restaurant employee, occupancy and other expenses” to “Restaurant food, beverages and packaging”. For fiscal years 2005 and 2004, these costs were approximately $1.2 million and $1.6 million, respectively. The reclassification had no impact on operating profit or net income.

Fiscal Year.  The Company has a 52/53-week fiscal year that ends on the last Sunday in December. The 2006, 2005, 2004 fiscal year consists of 53 weeks, 52 weeks, and 52 weeks, respectively.

Cash and Cash Equivalents.  The Company considers all money market investment instruments and certificates of deposit with original maturities of three months or less to be cash equivalents. Under the terms of the Company’s bank agreements, outstanding checks in excess of the cash balances in the Company’s primary disbursement accounts create a bank overdraft liability. At December 31, 2006 and December 25, 2005, such overdrafts were zero.

Supplemental Cash Flow Information.

(in millions)	2006			2005		2004
Interest paid, net of capitalized amounts	$	14.1		$	7.6	$	6.0
Income taxes (refunded)/paid, net		(16.9	)		54.8		11.3

Short-Term Investments.  The Company’s short-term investments are accounted for as available-for-sale securities and, as a result, are stated at fair value which approximates their market value. During 2006 and 2005, there were no realized gains or losses on the Company’s sales of short-term investments.

Accounts Receivable, Net.  At December 31, 2006 and December 25, 2005, accounts receivable, net were $12.1 million and $16.2 million, respectively. Accounts receivable consist primarily of amounts due from franchisees related to royalties, and rents, amounts due from insurance carriers, and various miscellaneous items. The accounts receivable balance is stated net of an allowance for doubtful accounts. The Company reserves a franchisee’s receivable balance based upon pre-defined aging criteria and upon the occurrence of other events that

F-8

AFC ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For Fiscal Years 2006, 2005 and 2004

indicate that it may or may not collect the balance due. During 2006, 2005 and 2004, changes in the allowance for doubtful accounts were as follows:

(in millions)	2006			2005			2004
Balance, beginning of year	$	1.7		$	3.7		$	2.7
Provisions		(0.3	)		(0.3	)		0.9
Write-offs		(0.2	)		(0.8	)		—
Fully reserved accounts receivable converted to notes receivable		(1.0	)		—			—
Other (principally associated with the advertising fund)		(0.1	)		(0.9	)		0.1
Balance, end of year	$	0.1		$	1.7		$	3.7

Notes Receivable, Net.  At December 31, 2006 and December 25, 2005, notes receivable, net were approximately $12.7 million and $12.8 million, respectively, of which $0.8 million and $0.7 million, respectively, was current. At December 31, 2006, several notes aggregating approximately $1.0 million had zero percent interest rates and the remaining notes had fixed interest rates that ranged from 8% to 10%. The zero percent interest rate notes are primarily past due royalties converted from accounts receivable and are fully reserved for in the allowance for uncollectible notes receivable.

Notes receivable consist primarily of consideration received in conjunction with the sale of Company assets in three distinct transactions: (1) the sale of Church’s to an affiliate of Crescent Capital Investments, Inc. during 2005; (2) the sale of 24 Popeyes company-operated restaurants to a franchisee during 2001; and (3) the sale of an equipment manufacturing operation during 2000. Notes receivable also include notes from franchisees to finance certain past due franchise revenues, rents and interest. The notes receivable balance is stated net of an allowance for uncollectibility, which is evaluated each reporting period on a note-by-note basis. The balance in the allowance account at December 31, 2006 was approximately $1.0 million. The allowance for uncollectible notes receivable was reclassified from the allowance for doubtful accounts at the time the past due trade accounts receivables were converted to notes receivables. There was no other activity in the allowance in 2006. See Note 21 for a discussion of notes receivable from officers which were included as a component of shareholders’ equity (deficit) in the accompanying consolidated financial statements.

Inventories.  Inventories are stated at the lower of cost (first-in, first-out method) or net realizable value and consist principally of food, beverage items, paper and supplies. At December 31, 2006 and December 25, 2005, inventories of $0.5 million and $0.4 million, respectively, were included as a component of “other current assets.”

Property and Equipment.  Property and equipment is stated at cost less accumulated depreciation. During 2006, 2005 and 2004, capitalized interest amounts were insignificant.

Provisions for depreciation are made using the straight-line method over an asset’s estimated useful life: 7-35 years for buildings; 5-15 years for equipment; and in the case of leasehold improvements and capital lease assets, the lesser of the economic life of the asset or the lease term (generally 3-20 years). During 2006, 2005 and 2004, depreciation expense was approximately $5.9 million $7.2 million, and $9.9 million, respectively.

The Company evaluates property and equipment for impairment on an annual basis (during the fourth quarter of each year) or when circumstances arise indicating that a particular asset may be impaired. For property and equipment at company-operated restaurants, the Company performs its annual impairment evaluation on a site-by-site basis. The Company evaluates restaurants using a “two-year history of operating losses” as its primary indicator of potential impairment. Based on the best information available, the Company writes down an impaired restaurant to its estimated fair market value, which becomes its new cost basis. The Company generally measures the estimated fair market value of a restaurant by discounting its estimated future cash flows. In addition, when the Company decides to close a restaurant, the restaurant is reviewed for impairment and depreciable lives are re-

F-9

AFC ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For Fiscal Years 2006, 2005 and 2004

evaluated. The impairment evaluation is based on the estimated cash flows from continuing use through the expected disposal date and the expected terminal value.

Goodwill, Trademarks, and Other Intangible Assets.  Amounts assigned to goodwill arose from the allocation of reorganization value when the Company emerged from bankruptcy in 1992 and from business combinations accounted for by the purchase method. Amounts assigned to trademarks arose from the allocation of reorganization value when the Company emerged from bankruptcy in 1992. These assets are deemed indefinite-lived assets and are not amortized for financial reporting purposes.

The Company’s finite-lived intangible assets (primarily re-acquired franchise rights) are amortized on a straight-line basis over 10 to 20 years based on the remaining life of the original franchise agreement or lease agreement. Amortization expense was approximately $0.5 million for 2006 and was insignificant in 2005 and 2004. For each of the upcoming five years, estimated amortization expense is expected to be approximately $0.7 million per year. The remaining weighted average amortization period for these assets is 14 years.

The Company evaluates goodwill and trademarks for impairment on an annual basis (during the fourth quarter of each year) or more frequently when circumstances arise indicating that a particular asset may be impaired. The impairment evaluation for goodwill includes a comparison of the fair value of each of the Company’s reporting units with their carrying value. The Company’s reporting units are its business segments. Goodwill is allocated to each reporting unit for purposes of this analysis. Goodwill associated with bankruptcy reorganization value is assigned to reporting units using a relative fair value approach. Goodwill associated with a business combination is allocated to the reporting unit or a component of the reporting unit expected to benefit from the synergies of the combination. For goodwill impairment testing purposes, goodwill is assigned to the component of the reporting unit associated with a business combination for a two year period following the combination. After two years, goodwill from a business combination is allocated to the reporting unit for impairment evaluation purposes. The fair value of each reporting unit is the amount for which the reporting unit could be sold in a current transaction between willing parties. The Company estimates the fair value of its reporting units using a discounted cash flow model. The operating assumptions used in the discounted cash flow model are generally consistent with the reporting unit’s past performance and with the projections and assumptions that are used in the Company’s current operating plans. Such assumptions are subject to change as a result of changing economic and competitive conditions. If a reporting unit’s carrying value exceeds its fair value, goodwill is written down to its implied fair value. The Company follows a similar analysis for the evaluation of trademarks, but that analysis is performed on a company-wide basis.

Debt Issuance Costs.  Costs incurred securing new debt facilities are capitalized and then amortized, utilizing a method that approximates the effective interest method. Absent a basis for cost deferral, debt amendment fees are expensed as incurred. In the Company’s consolidated statements of operations, the amortization of debt issuance costs, any write-off of debt issuance costs when a debt facility is modified or prematurely paid off, and debt amendment fees are included as a component of “interest expense, net.”

Advertising Fund.  The Company maintains a cooperative advertising fund that receives contributions from the Company and from its franchisees, based upon a percentage of restaurant sales, as required by their franchise agreements. This fund is used exclusively for marketing of the Popeyes brand. The Company acts as an agent for the franchisees with regards to their contributions to the fund.

In the Company’s consolidated financial statements, the advertising fund is accounted for in accordance with SFAS No. 45, Accounting for Franchise Fee Revenue. Contributions received and expenses of the advertising fund are excluded from the Company’s consolidated statements of operations. The balance sheet components of the fund are consolidated by line item in the Company’s consolidated balance sheets with the exception of (1) cash, which is restricted as to use and included as a component of “other current assets” and (2) the net fund balance, which is included in the Company’s consolidated balance sheets as a component of “accounts payable.” The net fund balance was approximately $8.1 million at December 31, 2006 and $4.8 million at December 25, 2005.

F-10

AFC ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For Fiscal Years 2006, 2005 and 2004

Amounts associated with the advertising fund included in our balance sheet at December 31, 2006 and December 25, 2005 were as follows:

(in millions)	2006		2005
Accounts and notes receivable, net	$	3.7	$	3.7
Other current assets		12.5		12.4
	$	16.2	$	16.1
Accounts payable:
Accounts payable	$	8.1	$	11.3
Net fund balance		8.1		4.8
	$	16.2	$	16.1

The Company’s contributions to the advertising fund are reflected in the Company’s consolidated statements of operations as a component of “restaurant employee, occupancy and other expenses.” Those contributions, and the Company’s other advertising costs, are expensed as incurred. During 2006, 2005 and 2004, the Company’s advertising costs were approximately $3.3 million, $3.2 million and $5.1 million, respectively.

Leases.  The Company accounts for leases in accordance with SFAS No. 13, Accounting for Leases, and other related authoritative guidance. When determining the lease term, the Company includes option periods for which failure to renew the lease imposes economic penalty on the Company in such an amount that a renewal appears, at the inception of the lease, to be reasonably assured. The primary economic penalty is associated with the loss of use of leasehold improvements which might be impaired if the Company chooses not to exercise the renewal options.

The Company records rent expense for leases that contain scheduled rent increases on a straight-line basis over the lease term, including any option periods considered in the determination of that lease term. Contingent rentals are generally based on sales levels in excess of stipulated amounts, and thus are not considered minimum lease payments and are included in rent expense as they accrue.

Fair Value of Financial Instruments.  At December 31, 2006 and December 25, 2005, the fair value of the Company’s current assets and current liabilities approximates carrying value because of the short-term nature of these instruments. The Company believes that it is not practicable to estimate the fair value of its notes receivable, because there is no ready market for sale of these instruments. The counterparties to these notes are private business enterprises. The Company believes the fair value of its credit facilities approximates its carrying value, as management believes the floating rate interest and other terms are commensurate with the credit and interest rate risks involved. See Note 9 for a discussion of the fair value of the Company’s interest rate swap agreements.

Revenue Recognition — Sales by Company-Operated Restaurants.  Revenues from the sale of food and beverage products are recognized on a cash basis. The Company presents sales net of sales tax and other sales related taxes.

Revenue Recognition — Franchise Operations.  Revenues from franchising activities include development fees associated with a franchisee’s planned development of a specified number of restaurants within a defined geographic territory, franchise fees associated with the opening of new restaurants, and ongoing royalty fees which are based on a percentage of restaurant sales. Development fees and franchise fees are recorded as deferred franchise revenue when received and are recognized as revenue when the restaurants covered by the fees are opened or all material services or conditions relating to the fees have been substantially performed or satisfied by the Company. The Company recognizes royalty revenues as earned. Franchise renewal fees are recognized when a renewal agreement becomes effective.

F-11

AFC ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For Fiscal Years 2006, 2005 and 2004

Other Revenues.  Other revenues are principally composed of rental income associated with properties leased or subleased to franchisees and other fees associated with unit conversions. Rental income is recognized on the straight-line basis over the lease term.

Gains and Losses Associated With Unit Conversions.  From time to time, AFC engages in transactions that are commonly referred to as unit conversions. Typically, these transactions involve the sale of a company-operated restaurant to an existing or new franchisee (and, in limited cases, the purchase of a restaurant from a franchisee).

The Company defers gains on the sale of company-operated restaurants when the Company has continuing involvement in the assets sold beyond the customary franchisor role. The Company’s continuing involvement generally includes seller financing or the leasing of real estate to the franchisee. Deferred gains are recognized over the remaining term of the continuing involvement. Losses are recognized immediately.

During 2006 and 2005, gains and losses associated with the sale of company-operated restaurants were insignificant. There were no sales of company-operated restaurants in 2004. During 2006, 2005 and 2004, previously deferred gains of $0.7 million, $0.3 million and $0.3 million, respectively, were recognized in income as a component of “net gain on the sale of assets” in the accompanying consolidated statements of operations.

Research and Development.  Research and development costs are expensed as incurred. During 2006, 2005 and 2004, such costs were approximately $1.1 million, $1.2 million and $0.9 million, respectively.

Foreign Currency Transactions.  Substantially all of the Company’s foreign-sourced revenues (principally royalties from international franchisees) are recorded in U.S. dollars. The aggregate effects of any exchange gains or losses associated with continuing operations are included in the accompanying consolidated statements of operations as a component of “general and administrative expenses.” During 2006, 2005 and 2004, net foreign currency gains and losses were insignificant.

Income Taxes.  Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss, capital loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company provides a valuation allowance against deferred tax assets if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

Stock-Based Employee Compensation.  Effective December 26, 2005, the Company adopted SFAS No. 123(R), Share-Based Payment (“SFAS 123R”), which requires the measurement and recognition of compensation cost at fair value for all share-based payments, including stock options and restricted stock awards. The Company adopted SFAS 123R using the modified prospective transition method and, as a result, did not retroactively adjust results from prior periods. Under this transition method, stock-based compensation is recognized for: (1) expense related to the remaining non-vested portion of all stock awards granted prior to December 26, 2005, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123, Accounting for Stock-Based Compensation (“SFAS 123”) and the same straight-line attribution method used to determine the pro forma disclosures under SFAS 123; and (2) expense related to all stock awards granted on or subsequent to December 26, 2005, based on the grant date fair value estimated in accordance with the provisions of SFAS 123R. Under SFAS 123R, the Company applies the Black-Scholes valuation model in determining the fair value of stock-based compensation, which is then amortized on the graded vesting attribution method. The Company issues new shares for common stock upon exercise of stock options.

SFAS 123R requires the Company to estimate forfeitures in calculating the expense relating to stock-based compensation rather than recognizing forfeitures as they occur. The adjustment to apply estimated forfeitures to

F-12

AFC ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For Fiscal Years 2006, 2005 and 2004

previously recognized stock-based compensation was considered immaterial and as such was not classified as a cumulative effect of a change in accounting principle.

The Company recorded $3.4 million ($2.1 million net of tax), $2.9 million ($1.8 million net of tax), and $0.4 million ($0.2 million net of tax) in total stock compensation expense during 2006, 2005 and 2004, respectively.

The impact of expensing stock options under SFAS No. 123R reduced basic and diluted net income $0.02 per share. The following table shows the impact to our fiscal 2006 condensed consolidated statements of operations due to the adoption of SFAS 123R:

(in millions)	2006
General and administrative expenses	$	1.2
Income (loss) before income taxes and discontinued operations		(1.2	)
Income tax (benefit)		(0.5	)
Income (loss) before discontinued operations		(0.7	)
Discontinued operations, net of income taxes		—
Net income	$	(0.7	)

Prior to fiscal 2006, the Company accounted for stock-based compensation expense under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”), and related interpretations and adopted the disclosure-only provisions of SFAS 123 as if the fair value based method had been applied in measuring compensation expense.

The following table illustrates the effect on net income and net income per share as if we had applied the fair value recognition provisions of SFAS 123 to stock-based compensation for 2005 and 2004:

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

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

F-13

AFC ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For Fiscal Years 2006, 2005 and 2004

During 2005 and 2004, the fair value of each option was estimated on the date of grant using the Black-Scholes option pricing model. The following weighted-average assumptions were used for the grants:

	2006		2005			2004
Approximate risk-free interest rate percentage		—		3.8	%		2.8	%
Expected dividend yield percentage		—		0.0	%		0.0	%
Expected lives (in years)		—		4.0			4.0
Expected volatility percentage		—		61.4	%		52.7	%

There were no options granted in 2006.

Quantification of Misstatements.  In September 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 108 (“SAB No. 108”), Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements which provides guidance on the consideration of the effects of prior year misstatements in quantifying current year misstatements for the purpose of materiality. SAB No. 108 is effective for fiscal years ending after November 15, 2006. The adoption of SAB No. 108 did not have a material impact on the Company’s consolidated financial statements.

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

In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes by prescribing a threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. A company must determine whether it is “more-likely-than-not” that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Once it is determined that a position meets the more-likely-than-not recognition threshold, the position is measured to determine the amount to recognize in the financial statements. The requirements of FIN 48 are effective for our fiscal year beginning January 1, 2007. Upon adoption, the cumulative effect of applying the provisions of FIN 48 would be reported as an adjustment to the opening balance of retained earnings. The Company is currently evaluating the impact of the recognition and measurement provisions of FIN 48 on our existing tax positions and estimates the adoption of the standard will result in an adjustment to retained earnings of approximately zero to $3.0 million.

In September 2006, the FASB issued Statement of Financial Standards No. 157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The Company has not yet determined the effect, if any, that the application of SFAS No. 157 will have on its consolidated financial statements.

Note — 4 Other Current Assets

(in millions)	2006		2005
Restricted cash	$	10.5	$	11.2
Other current assets of the advertising fund		2.2		1.4
Prepaid insurance		1.1		0.9
Prepaid expenses and other current assets		1.8		2.9
	$	15.6	$	16.4

F-14

AFC ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For Fiscal Years 2006, 2005 and 2004

At December 31, 2006, $10.3 million of the restricted cash related to the cooperative advertising fund, and $0.2 million related to state escrow accounts. At December 25, 2005, $10.9 million of restricted cash related to the cooperative advertising fund the Company maintains for its franchisees and $0.3 million related to VIE cash balances.

Note — 5 Property and Equipment, Net

(in millions)	2006			2005
Land	$	4.6		$	5.2
Buildings and improvements		32.5			28.3
Equipment		27.0			48.6
Properties held for sale and other		0.1			0.3
		64.2			82.4
Less accumulated depreciation and amortization		(24.3	)		(45.3	)
	$	39.9		$	37.1

At December 31, 2006 and December 25, 2005, property and equipment, net included capital lease assets with a gross book value of $1.0 million and $0.8 million, respectively, and accumulated amortization of $0.5 million and $0.5 million, respectively. As of December 31, 2006, property and equipment with a net book value of $3.0 million were temporarily idled due to the adverse effects of Hurricane Katrina (Note 16). The Company continues to depreciate these assets. During 2006, the Company wrote off fully depreciated assets of approximately $22.0 million associated with the closure of its AFC corporate offices.

Note — 6 Trademarks and Other Intangible Assets, Net

(in millions)	2006			2005
Non-amortizable intangible assets:
Trademarks	$	42.0		$	42.0
Other		0.6			0.6
		42.6			42.6
Amortizable intangible assets:
Re-acquired franchise rights		10.7			1.7
Accumulated amortization		(0.9	)		(0.4	)
		9.8			1.3
	$	52.4		$	43.9

During 2006, the Company re-acquired thirteen franchised restaurants for $15.8 million of cash and debt. In the recording of the transaction, the Company recognized $9.0 million of re-acquired franchise rights.

Note — 7 Other Long-Term Assets, Net

(in millions)	2006		2005
Non-current notes receivable, net	$	12.0	$	12.1
Debt issuance costs, net		2.1		3.3
Interest rate swap agreements		1.6		1.7
Other		0.8		1.3
	$	16.5	$	18.4

F-15

AFC ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For Fiscal Years 2006, 2005 and 2004

Note — 8 Other Current Liabilities

(in millions)	2006		2005
Accrued wages, bonuses and severances	$	2.3	$	9.7
Accrued income taxes reserves		4.5		3.6
Accrued interest		0.1		3.0
Accrued legal		0.6		1.3
Accrued employee benefits		0.9		0.8
Accrued lease obligations		0.7		0.8
Accrued property taxes		0.5		0.8
Current deferred tax liabilities		—		1.2
Other		1.3		1.2
	$	10.9	$	22.4

Note — 9 Long-Term Debt and Other Borrowings

(in millions)	2006			2005
2005 Credit Facility:
Revolving credit facility	$	—		$	—
Term loan		130.0			189.5
Capital lease obligations		0.8			0.6
Other notes ($1.2 at 12/25/05 related to a VIE)		3.2			1.3
		134.0			191.4
Less current portion		(1.4	)		(14.8	)
	$	132.6		$	176.6

2005 Credit Facility.  On May 11, 2005, the Company entered into a bank credit facility (the “2005 Credit Facility”) with J.P. Morgan Chase Bank and certain other lenders, which consists of a $60.0 million, five-year revolving credit facility and a six-year $190.0 million term loan.

The revolving credit facility and term loan bear interest based upon alternative indices (LIBOR, Federal Funds Effective Rate, Prime Rate and a Base CD rate) plus an applicable margin as specified in the facility. The margins on the revolving credit facility may fluctuate because of changes in certain financial leverage ratios and the Company’s compliance with applicable covenants of the 2005 Credit Facility. The Company also pays a quarterly commitment fee of 0.125% on the unused portions of the revolving credit facility.

At the closing of the 2005 Credit Facility, the Company drew the entire $190.0 million term loan and applied approximately $57.4 million of the proceeds to pay off its 2002 Credit Facility, to pay fees associated with that facility, and to pay closing costs associated with the new facility. The remaining proceeds were used to fund a portion of the Company’s special cash dividend (Note 12) and for general corporate purposes.

The 2005 Credit Facility is secured by a first priority security interest in substantially all of the Company’s assets. The 2005 Credit Facility contains financial and other covenants, including covenants requiring the Company to maintain various financial ratios, limiting its ability to incur additional indebtedness, restricting the amount of capital expenditures that may be incurred, restricting the payment of cash dividends, and limiting the amount of debt which can be loaned to the Company’s franchisees or guaranteed on their behalf. This facility also limits the Company’s ability to engage in mergers or acquisitions, sell certain assets, repurchase its stock and enter into certain lease transactions. The 2005 Credit Facility includes customary events of default, including, but not limited to, the

F-16

AFC ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For Fiscal Years 2006, 2005 and 2004

failure to pay any interest, principal or fees when due, the failure to perform certain covenant agreements, inaccurate or false representations or warranties, insolvency or bankruptcy, change of control, the occurrence of certain ERISA events and judgment defaults.

Under the terms of the revolving credit facility, the Company may obtain other short-term borrowings of up to $10.0 million and letters of credit up to $25.0 million. Collectively, these other borrowings and letters of credit may not exceed the amount of unused borrowings under the 2005 Credit Facility. As of December 31, 2006, the Company had $5.3 million of outstanding letters of credit. Availability for other short-term borrowings and letters of credit was $29.7 million.

In addition to the scheduled payments of principal on the term loan, at the end of each fiscal year, the Company is subject to mandatory prepayments in those situations when consolidated cash flows for the year, as defined pursuant to the terms of the facility, exceed specified amounts. Whenever any prepayment is made, subsequent scheduled payments of principal are ratably reduced.

As of December 31, 2006, the Company was in compliance with the financial and other covenants of the 2005 Credit Facility. As of December 31, 2006, the Company’s weighted average interest rate for all outstanding indebtedness under the 2005 Credit Facility was 6.6%.

2005 Interest Rate Swap Agreements.  Effective May 12, 2005, the Company entered into two interest rate swap agreements with a combined notional amount of $130.0 million. Effective December 29, 2006, the Company reduced the notional amounts of the combined agreements to $110.0 million. The agreements terminate on June 30, 2008, or sooner under certain limited circumstances. The effective portion of the gain associated with the termination of the $20.0 million notional amount, approximately $0.3 million, will be amortized into interest expense over the remaining life of the hedge. Pursuant to these agreements, the Company pays a fixed rate of interest and receives a floating rate of interest. The effect of the agreements is to limit the interest rate exposure on a portion of the 2005 Credit Facility to a fixed rate of 6.4%. Net interest expense (income) associated with these agreements was approximately $(1.3) million and $0.4 million for 2006 and 2005 respectively. These agreements are accounted for as an effective cash flow hedge. The fair value of these agreements is recorded as a component of “other long term assets, net” and was approximately $1.6 million and $1.7 million as of December 31, 2006 and December 25, 2005, respectively. The changes in fair value are recognized in accumulated other comprehensive income in the Consolidated Balance Sheets.

Future Debt Maturities.  At December 31, 2006, aggregate future debt maturities, excluding capital lease obligations, were as follows:

(in millions)
2007	$	1.1
2008		1.4
2009		1.5
2010		32.5
2011		94.3
Thereafter		2.4
	$	133.2

Note — 10 Leases

The Company leases property and equipment associated with its (1) corporate facilities; (2) company-operated restaurants; (3) certain former company-operated restaurants that are now operated by franchisees and the property subleased to the franchisee; and (4) certain former company-operated restaurants that are now subleased to a third party.

F-17

AFC ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For Fiscal Years 2006, 2005 and 2004

At December 31, 2006, future minimum payments under capital and non-cancelable operating leases were as follows:

	Capital			Operating
(in millions)	Leases			Leases
2007	$	0.1		$	6.7
2008		0.1			6.5
2009		0.1			5.8
2010		0.1			5.1
2011		0.1			4.7
Thereafter		1.1			80.0
Future minimum lease payments		1.6		$	108.8
Less amounts representing interest on continuing operations		(0.8	)
	$	0.8

During 2006, 2005 and 2004, rental expense for continuing operations was approximately $6.8 million, $7.6 million, and $9.8 million, respectively, including percentage rentals of $0.2 million, $0.2 million, and $0.1 million, respectively. At December 31, 2006, the implicit rate of interest on capital leases ranged from 8.1% to 11.5%.

The Company leases certain restaurant properties and subleases other restaurant properties to franchisees. At December 31, 2006, the aggregate gross book value and the net book value of owned properties that were leased to franchisees was approximately $3.6 million and $2.9 million, respectively. During 2006, 2005 and 2004, rental income from these leases and subleases was approximately $5.2 million, $5.6 million, and $5.2 million, respectively. At December 31, 2006, future minimum rental income associated with these leases and subleases, are approximately $4.2 million in 2007, $3.6 million in 2008, $3.0 million in 2009, $2.1 million in 2010, $1.7 million in 2011 and $7.9 million thereafter.

Note — 11 Deferred Credits and Other Long-Term Liabilities

(in millions)	2006		2005
Deferred franchise revenues	$	6.1	$	6.5
Deferred income taxes		5.7		3.3
Deferred gains on unit conversions		3.5		4.0
Deferred rentals		3.8		3.7
Above-market rent obligations		3.2		0.4
Liability insurance reserves		1.7		1.4
Special cash dividends payable		0.7		1.4
Other		0.9		0.8
	$	25.6	$	21.5

The increase in above-market rent obligations includes $2.9 million recorded in connection with the Company’s acquisition of 13 franchised restaurants as described in note 25.

Note — 12 Common Stock

Share Repurchase Program.  Effective July 22, 2002, as amended on October 7, 2002, re-affirmed on May 27, 2005, and expanded on February 17, 2006 and June 27, 2006, the Company’s board of directors approved a share repurchase program of up to $165.0 million. The program, which is open-ended, allows the Company to

F-18

AFC ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For Fiscal Years 2006, 2005 and 2004

repurchase shares of the Company’s common stock from time to time. During 2006 and 2005, the Company repurchased and retired 1,486,714 and 1,542,872 shares of common stock for approximately $20.3 million and $19.5 million, respectively, under this program. Of the 2005 repurchases, $4.1 million settled in the first quarter of 2006 and was included in accounts payable at December 25, 2005. No repurchases were made in 2004.

From January 1, 2007 through February 25, 2007 (the end of the Company’s second period for 2007), the Company repurchased and retired an additional 136,400 shares of common stock for approximately $2.4 million. As of February 25, 2007, the remaining value of shares that may be repurchased under the program was $44.8 million. Pursuant to the terms of the Company’s 2005 Credit Facility, the Company is subject to a repurchase limit of approximately $7.3 million for the remainder of fiscal 2007.

Dividends.  On May 11, 2005, the Company’s Board of Directors declared a special cash dividend of $12.00 per common share. The dividend, which totaled $352.9 million, was paid on June 3, 2005 to the common shareholders of record at the close of business on May 23, 2005. The Company funded the dividend with a portion of the net proceeds from the sale of Church’s and a portion of the net proceeds from the 2005 Credit Facility. For financial reporting purposes, this dividend was charged to the Company’s accumulated deficit. During 2006, the Company paid dividends of approximately $0.7 million associated with vested restricted share awards which were accrued at December 25, 2005. As of December 31, 2006 accrued dividends associated with unvested restricted share awards were approximately $1.4 million.

Note — 13 Stock Option Plans

The 1992 Stock Option Plan.  Under the 1992 Nonqualified Stock Option Plan, the Company was authorized to issue options to purchase approximately 1.2 million shares of the Company’s common stock. As of November 13, 2002, the Company no longer grants options from this plan. At December 31, 2006, all of the outstanding options were exercised.

The 1996 Nonqualified Performance Stock Option Plan.  In April 1996, the Company created the 1996 Nonqualified Performance Stock Option Plan. This plan authorized the issuance of options to purchase approximately 1.6 million shares of the Company’s common stock. As of November 13, 2002, the Company no longer grants options from this plan. The options outstanding as of December 31, 2006 allow certain employees of the Company to purchase approximately 0.1 million shares of common stock. Vesting was based upon the Company achieving annual levels of earnings before interest, taxes, depreciation and amortization over fiscal year periods beginning with fiscal year 1996 through 1998. From 1999 through 2001, vesting was based on earnings. If not exercised, the options expire ten years from the date of issuance. Under this plan, compensation expense was recorded over the service period.

The 1996 Nonqualified Stock Option Plan.  In April 1996, the Company created the 1996 Nonqualified Stock Option Plan. This plan authorized the issuance of approximately 4.1 million options. As of November 13, 2002, the Company no longer grants options from this plan. The options currently granted and outstanding as of December 31, 2006 allow certain employees of the Company to purchase approximately 0.2 million shares of common stock, which vest at 25% per year. If not exercised, the options expire seven years from the date of issuance.

The 2002 Incentive Stock Plan.  In February 2002, the Company created the 2002 Incentive Stock Plan. This plan authorized the issuance of 4.5 million shares of the Company’s common stock. All grants have been at prices which approximate the fair market value of the Company’s common stock at the date of grant. The options currently granted and outstanding as of December 31, 2006 allow certain employees of the Company to purchase approximately 0.4 million shares of common stock (which vest at 25% per year) and 0.1 million shares of common stock (which vest at 33.3% per year). If not exercised, the options expire seven years from the date of issuance. As of May 25, 2006, the Company no longer grants options under this plan.

F-19

AFC ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For Fiscal Years 2006, 2005 and 2004

The 2006 Incentive Stock Plan.  In May 2006, the Company created the 2006 Incentive Stock Plan. The plan authorizes the issuance of approximately 3.3 million shares of the Company’s common stock. The plan replaces the existing 2002 Incentive Stock Plan and no further grants will be made under the 2002 Incentive Stock Plan. The 2006 Incentive Stock Plan did not increase the number of shares of stock available for grant under the 2002 Incentive Stock Plan. Options and other awards such as restricted stock, stock appreciation rights, stock grants, and stock unit grants under the plan generally may be granted to any of the Company’s employees and non-employee directors.

Modifications to outstanding awards.  During 2005, in connection with the declaration of the special cash dividend discussed at Note 12, the Company’s Board of Directors approved adjustments to outstanding options under the Company’s employee stock option plans. The modifications adjusted the exercise price and the number of shares associated with each employee’s outstanding stock options to preserve the value of the options after the special cash dividend. The Company did not recognize a charge as a result of the modifications because the intrinsic value of the awards and the ratio of the exercise price to the market value per share for each award did not change.

A Summary of Stock Option Plan Activity.  The table below summarizes the activity within the Company’s stock option plans for 2006.

	2006
						Weighted
						Average
						Remaining		Aggregate
				Weighted		Contractual		Intrinsic
				Average		Term		Value
(shares in thousands)	Shares			Exercise Price		(years)		(millions)
Stock options:
Outstanding at beginning of year		1,840		$	10.80
Granted options		—			—
Exercised options		(1,012	)		10.52
Modification to awards		—			—
Cancelled options		(31	)		10.66
Outstanding at end of year		797		$	11.16		3.2	$	5.2
Exercisable at end of year		500		$	10.92		2.9	$	3.4
Shares available for future grants under the plans at end of year		3,273

The aggregate intrinsic value in the above table represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading date of 2006 and the exercise price, multiplied by the number of options). The amount of aggregate intrinsic value will change based on the fair market value of the Company’s common stock.

The Company recognized approximately $1.2 million, $0.5 million and $0.1 million in stock based compensation expense associated with its stock option grants during 2006, 2005 and 2004, respectively. As of December 31, 2006, there was approximately $1.4 million of total unrecognized compensation costs related to unvested stock options which are expected to be recognized over a weighted average period of approximately 1.7 years.

The weighted-average grant date fair value of awards granted during 2005 and 2004 was $8.89 and $9.92, respectively. The total intrinsic value of stock options exercised during 2006, 2005 and 2004 was $6.6 million, $31.9 million and $3.2 million, respectively.

F-20

AFC ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For Fiscal Years 2006, 2005 and 2004

The following table summarizes the non-vested stock option activity for the 53 week period ended December 31, 2006:

				Weighted
				Average
				Grant Date
(shares in thousands)	Shares			Value
Non-vested stock options outstanding at beginning of period		553		$	5.57
Granted		—			—
Vested		(239	)		5.57
Forfeited		(17	)		5.99
Non-vested stock options outstanding at end of period		297		$	5.55

Restricted Share Awards

The Company has granted 244,372 restricted shares pursuant to the 2002 Incentive Stock Plan. These awards are amortized as expense on a graded-vesting basis. The Company recognized approximately $2.0 million, $2.4 million, and $0.3 million in stock-based compensation expense associated with these awards during 2006, 2005 and 2004, respectively. During the vesting period, recipients of the shares are entitled to dividends on such shares, provided that such shares are not forfeited. Dividends are accumulated and paid out at the end of the vesting period. The Company paid dividends of approximately $0.7 million associated with vested awards during both fiscal year 2006 and fiscal year 2005.

	2006					2005					2004
				Weighted					Weighted				Weighted
				Average					Average				Average
				Grant					Grant				Grant
				Date Fair					Date Fair				Date Fair
(share awards in thousands)	Shares			Value		Shares			Value		Shares		Value
Non-vested restricted share awards:
Outstanding beginning of year		173		$	24.84		50		$	20.95		—	$	—
Granted		56			13.45		138			24.61		50		20.95
Vested		(61	)		24.91		(5	)		20.95		—		—
Cancelled		—			—		(10	)		24.53		—		—
Outstanding end of year		168		$	21.00		173		$	24.84		50	$	20.95

As of December 31, 2006, there was approximately $0.6 million of total unrecognized compensation cost related to nonvested restricted stock awards which are expected to be recognized over a weighted-average period of approximately 0.9 years.

Restricted Share Units

On September 1, 2006, the Company granted 22,599 restricted stock units (RSUs) to members of its board of directors pursuant to the 2006 Incentive Stock Plan. Vested RSUs are convertible into shares of the Company’s common stock on a 1:1 basis at such time the director no longer serves on the board of the Company. The market value of the RSUs as of the date of grant was $15.01 per share. One third of the awards vested on the date of grant, and the unvested awards vest one-twelfth on the 26^th of each month through April 26, 2007. On November 25, 2006, the Company granted an additional 2,930 RSUs to new members of its board of directors pursuant to the 2006 Incentive Stock Plan. The market value of the RSUs as of the date of grant was $17.10 per share. One-sixth of the awards vested on the date of grant, and the unvested awards vest one-sixth on the 26^th of each month through April 26, 2007.

F-21

AFC ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For Fiscal Years 2006, 2005 and 2004

The Company recognized $0.2 million in stock based compensation expense associated with these awards during the 2006. As of December 31, 2006, there was approximately $0.1 million of total unrecognized compensation cost related to nonvested RSUs, which is expected to be recognized over a weighted-average period of approximately 0.3 years.

Note — 14 Other Employee Benefit Plans

401(k) Savings Plan.  The Company maintains a qualified retirement plan (“Plan”) under Section 401(k) of the Internal Revenue Code of 1986, as amended, for the benefit of employees meeting certain eligibility requirements as outlined in the Plan document. All Company employees are subject to the same contribution and vesting schedules. Under the Plan, non-highly compensated employees may contribute up to 75.0% of their eligible compensation to the Plan on a pre-tax basis up to statutory limitations. Highly compensated employees are limited to 4.0% of their eligible compensation in 2006 (increasing to 5% in 2007). The Company may make both voluntary and matching contributions to the Plan. The Company expensed approximately $0.2 million, $0.2 million, and $0.5 million during 2006, 2005 and 2004, respectively, for its contributions to the Plan.

Executive Retirement and Benefit Plan.  During 2005, the Company terminated its nonqualified, unfunded retirement, disability and death benefit plan for certain executive officers. Annual retirement benefits were equal to 30% of the executive officer’s average base compensation for the five years preceding retirement plus health benefit coverage and are payable in 120 equal monthly installments following the executive officer’s retirement date. Death benefits were up to five times the officer’s base compensation as provided for in the officer’s employment agreement.

A reconciliation of the benefit obligation follows.

(in millions)	2006		2005
Benefit obligation at beginning of year	$	—	$	2.6
Service cost		—		—
Interest cost		—		—
Loss due to curtailments		—		0.1
Loss due to settlements		—		0.2
Change in cumulative actuarial (gain)/loss		—		—
Settlement payments		—		(2.9	)
Benefits paid		—		—
Benefit obligation at end of year	$	—	$	—

During 2006, 2005 and 2004, benefits paid under the plan were less than $0.1 million per year. Expense for the retirement plan, for fiscal years 2006, 2005 and 2004, included the following cost components:

(in millions)	2006		2005		2004
Service costs	$	—	$	—	$	0.2
Interest costs		—		—		0.1
Plan expense	$	—	$	—	$	0.3

The Company’s assumptions used in determining the plan cost and liabilities included a 5.8% per annum discount rate and a 0.0% rate of salary progression in 2004.

During 2005, the Company terminated its post-retirement medical and dental benefits plan for certain retirees and their spouses. The accumulated post-retirement benefit obligation for the plan at December 31, 2006 and

F-22

AFC ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For Fiscal Years 2006, 2005 and 2004

December 25, 2005, was approximately zero and zero, respectively. The net periodic expense for the medical coverage continuation plan was less than $0.1 million for 2006, less than $0.1 million for 2005, and approximately $0.1 million for 2004.

A reconciliation of the medical benefit obligation follows.

(in millions)	2006		2005
Benefit obligation at beginning of year	$	—	$	0.6
Service cost		—		—
Interest cost		—		—
Curtailments		—		—
Change in cumulative actuarial (gain)/loss		—		(0.2	)
Settlement payments		—		(0.4	)
Benefits paid		—		—
Benefit obligation at end of year	$	—	$	—

Employee Stock Purchase Program.  On August 18, 2005, the board of directors of the Company terminated the AFC Enterprises Inc. Employee Stock Purchase Plan effective as of September 1, 2005. This plan had been suspended on June 22, 2004 by the Company’s Executive Committee of the Board of Directors effective with the purchase period which expired on July 11, 2004. Residual amounts of money held by the Company on behalf of employees were refunded to the employees in connection with the suspension of the plan at that time. The plan authorized the issuance of 750,000 shares and allowed eligible employees the opportunity to purchase stock of the Company at a discount during an offering period. Each approximate twelve month offering period consisted of two purchase periods of approximately six months duration wherein the stock purchase price on the last day of each purchase period was the lesser of 85% of the fair market value of a share of common stock of the Company on the first day of the offering period or 85% of such fair market value on the last day of the purchase period.

Note — 15 Commitments and Contingencies

Supply Contracts.  Supplies are generally provided to Popeyes franchised and company-operated restaurants, pursuant to supply agreements negotiated by Supply Management Services, Inc. (“SMS”), a not-for-profit purchasing cooperative. The Company, its franchisees and the owners of Cinnabon bakeries hold membership interests in SMS in proportion to the number of restaurants they own. At December 31, 2006, the Company held one of SMS’s seven board seats. The operations of SMS are not included in the consolidated financial statements and the investment is accounted for using the cost method.

The principal raw material for a Popeyes restaurant operation is fresh chicken. Company-operated and franchised restaurants purchase their chicken from suppliers who service AFC and its franchisees from various plant locations. These costs are significantly affected by increases in the cost of fresh chicken, which can result from a number of factors, including increases in the cost of grain, disease, declining market supply of fast-food sized chickens and other factors that affect availability.

In order to ensure favorable pricing for fresh chicken purchases and to maintain an adequate supply of fresh chicken for the Company and its Popeyes franchisees, SMS has entered into purchase contracts with chicken suppliers. The contracts which pertain to the vast majority of the Company’s system-wide purchases for Popeyes are “cost-plus” contracts that utilize prices based upon the cost of feed grains plus certain agreed upon non-feed and processing costs. These contracts include volume purchase commitments that are adjustable at the election of SMS (which is done in consultation with and under the direction of the Company and its Popeyes franchisees). In a given year, that year’s commitment may be adjusted by up to 10%, if notice is given within specified time frames; and the commitment levels

F-23

AFC ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For Fiscal Years 2006, 2005 and 2004

for future years may be adjusted based on revised estimates of need, whether due to restaurant openings and closings, changes in SMS’s membership, changes in the business, or changes in general economic conditions.

The estimated minimum level of purchases under these contracts is $173.3 million for 2007 and $183.7 million for 2008. AFC has agreed to indemnify SMS for any shortfall between actual purchases by the Popeyes system and the annual purchase commitments entered into by SMS on behalf of the Popeyes restaurant system. The indemnification has not been recorded as an obligation in the Company’s balance sheets. The Company does not expect any material loss to result from the indemnification because it does not believe that performance, on its part, will be required.

The Company has entered into long-term beverage supply agreements with certain major beverage vendors. Pursuant to the terms of these arrangements, marketing rebates are provided to the Company and its franchisees from the beverage vendors based upon the dollar volume of purchases for company-operated restaurants and franchised restaurants, respectively, which will vary according to their demand for beverage syrup and fluctuations in the market rates for beverage syrup.

Formula and Supply Agreements with Former Owner.  The Company has a formula licensing agreement with Alvin C. Copeland, the founder of Popeyes and the present primary owner of Diversified Foods and Seasonings, Inc. (“Diversified”). Under this agreement, the Company has the worldwide exclusive rights to the Popeyes fried chicken recipe and certain other ingredients used in Popeyes products. The agreement provides that the Company pay Mr. Copeland approximately $3.1 million annually until March 2029. During each of 2006, 2005 and 2004, the Company expensed approximately $3.1 million under this agreement. The Company also has a supply agreement with Diversified through which the Company purchases certain proprietary spices and other products made exclusively by Diversified.

King Features Agreements.  The Company has several agreements with the King Features Syndicate Division (“King Features”) of Hearst Holdings, Inc. under which they have the non-exclusive license to use the image and likeness of the cartoon character “Popeye” in the United States. Popeyes locations outside the United States have the non-exclusive use of the image and likeness of the cartoon character “Popeye” and certain companion characters. The Company is obligated to pay King Features a royalty of approximately $1.0 million annually, as adjusted for fluctuations in the Consumer Price Index, plus twenty percent of the Company’s gross revenues from the sale of products outside of the Popeyes restaurant system, if any. These agreements extend through June 30, 2010.

During 2006, 2005 and 2004, payments made to King Features were $1.0 million, $1.0 million and $0.9 million, respectively. A portion of these payments was made from the Popeyes cooperative advertising fund (Note 2) and the remainder by the Company.

Business Process Services.  Certain accounting and information technology services are provided to the Company under an agreement with Convergys Corporation which expires April 30, 2009. At December 31, 2006, future minimum payments under this contract are $1.3 million in 2007, and $1.3 million in 2008 and $0.4 million in 2009. During 2006, 2005 and 2004, the Company expensed $1.9 million, $2.1 million, and $3.7 million, respectively, under this agreement.

Information Technology Outsourcing.  Certain information technology services are provided to the Company under an Information Technology Services Agreement with IBM which expires December 28, 2008. At December 31, 2006, future minimum payments under this contract are $1.8 million in 2007, and $1.8 million in 2008. During 2006, 2005 and 2004, the Company expensed $2.9 million, $7.3 million and $8.0 million, respectively, under this agreement.

Employment Agreements.  As of December 31, 2006, the Company had employment agreements with three senior executives which provide for annual base salaries ranging from $220,000 to $500,000, subject to annual

F-24

AFC ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For Fiscal Years 2006, 2005 and 2004

adjustment by the Board of Directors, an annual incentive bonus, fringe benefits, participation in Company-sponsored benefit plans and such other compensation as may be approved by the Board of Directors. The initial terms of the agreements end in 2006 or 2007, unless earlier terminated or otherwise renewed pursuant to the terms thereof and are automatically extended for successive one-year periods following the expiration of each term unless notice is given by the Company or the executive not to renew. Pursuant to the terms of the agreements, if employment is terminated without cause or if written notice not to renew employment is given by the Company, the terminated executive would in certain cases be entitled to, among other things, one times his annual base salary and one times the bonus payable to the individual for the fiscal year in which such termination occurs. Under the agreements, upon a change of control of the Company and a significant reduction in the executive’s responsibilities or duties, the executive may terminate his employment and would be entitled to receive the same severance pay he would have received had his employment been terminated without cause.

In addition, the Company has an employment agreement with its Chairman of the Board providing a base salary of $150,000, health and welfare benefits under the Company’s regular and ongoing plans, and a tax gross up if he is obligated to pay certain excise taxes under the tax code. The current term of the agreement expires as of the date of the 2007 Annual Meeting of Stockholders. The agreement provides that in the event of a termination without cause or if he is not re-elected to the Board at the Annual Meeting during the term of the agreement, the Company will pay his full annual base salary for the year of termination ($150,000) less any amount of such base salary that has been previously paid to him, and the vesting of his stock-based compensation will accelerate. The agreement also contains covenants regarding confidentiality and non-competition and dispute resolution clauses.

AFC Loan Guarantee Programs.  In March 1999, the Company implemented a program to assist qualified current and prospective franchisees in obtaining the financing needed to purchase or develop franchised restaurants at competitive rates. Under the program, the Company guarantees up to 20% of the loan amount toward a maximum aggregate liability for the entire pool of $1.0 million. For loans within the pool, the Company assumes a first loss risk until the maximum liability for the pool has been reached. Such guarantees typically extend for a three-year period. At December 31, 2006, approximately $0.7 million was borrowed under this program, of which the Company was contingently liable for approximately $0.1 million in the event of default.

In November 2002, the Company implemented a second loan guarantee program to provide qualified franchisees with financing to fund new construction, re-imaging and facility upgrades. Under the program, the Company assumes a first loss risk on the portfolio up to 10% of the sum of the original funded principal balances of all program loans. At December 31, 2006, approximately $1.4 million was borrowed under this program, of which the Company was contingently liable for approximately $0.2 million in the event of default. During 2004, the re-imaging and facility upgrade portions of this program were cancelled.

The loan guarantees under both these programs have not been recorded as an obligation in the Company’s consolidated balance sheets. The Company does not expect any material loss to result from these guarantees because it does not believe that any indemnity under this agreement will be necessary.

Litigation.  The Company was previously involved in several lawsuits arising from its announcements on March 24, 2003 and April 22, 2003 indicating that it would restate certain previously issued financial statements including a derivative lawsuit filed by plaintiffs claiming to be acting on behalf of AFC and certain Section 10(b) and Section 11 securities litigation. During the second quarter of 2005, the Company settled these lawsuits and recognized $21.8 million of charges related to shareholder litigation, including $15.5 million associated with the joint settlement agreements.

On April 30, 2003, the Company received an informal, nonpublic inquiry from the staff of the SEC requesting voluntary production of documents and other information. The requests, for documents and information, to which we have responded, relate primarily to the Company’s announcement on March 24, 2003 indicating it would restate its financial statements for fiscal year 2001 and the first three quarters of 2002. The staff has informed the

F-25

AFC ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For Fiscal Years 2006, 2005 and 2004

Company’s counsel that the SEC has issued an order authorizing a formal investigation with respect to these matters. The Company has cooperated with the SEC in these inquiries.

The Company is a defendant in various legal proceedings arising in the ordinary course of business, including claims resulting from “slip and fall” accidents, employment-related claims, claims from guests or employees alleging illness, injury or other food quality, health or operational concerns and claims related to franchise matters. The Company has established adequate reserves to provide for the defense and settlement of such matters. The Company’s management believes their ultimate resolution will not have a material adverse effect on the Company’s financial condition or its results of operations.

Insurance Programs.  The Company carries property, general liability, business interruption, crime, directors and officers liability, employment practices liability, environmental and workers’ compensation insurance policies which it believes are customary for businesses of its size and type. Pursuant to the terms of their franchise agreements, the Company’s franchisees are also required to maintain certain types and levels of insurance coverage, including commercial general liability insurance, workers’ compensation insurance, all risk property and automobile insurance.

The Company has established reserves with respect to the programs described above based on the estimated total losses the Company will experience. At December 31, 2006, the Company’s insurance reserves of approximately $2.1 million were partially collateralized by letters of credit and/or cash deposits of $5.3 million.

Environmental Matters.  The Company is subject to various federal, state and local laws regulating the discharge of pollutants into the environment. The Company believes that it conducts its operations in substantial compliance with applicable environmental laws and regulations. Certain of the Company’s current and formerly owned and/or leased properties (including certain Church’s locations) are known or suspected to have been used by prior owners or operators as retail gas stations, and a few of these properties may have been used for other environmentally sensitive purposes. Certain of these properties previously contained underground storage tanks (“USTs”), and some of these properties may currently contain abandoned USTs. It is possible that petroleum products and other contaminants may have been released at these properties into the soil or groundwater. Under applicable federal and state environmental laws, the Company, as the current or former owner or operator of these sites, may be jointly and severally liable for the costs of investigation and remediation of any such contamination, as well as any other environmental conditions at its properties that are unrelated to USTs. The Company has obtained insurance coverage that it believes is adequate to cover any potential environmental remediation liabilities.

Foreign Operations.  The Company’s international operations are limited to franchising activities. During 2006, 2005 and 2004, such operations represented approximately 8.8%, 8.2%, and 9.1% of total franchise revenues, respectively; and approximately 4.7%, 4.5%, and 4.0% of total revenues, respectively. At December 31, 2006, approximately $0.7 million of the Company’s accounts receivable were related to our international franchise operations.

Significant Franchisee.  During 2006, 2005 and 2004, one domestic franchisee accounted for approximately 11.0%, 11.6%, and 10.2% respectively of the Company’s royalty revenues.

Geographic Concentrations.  Of AFC’s domestic company-operated and franchised restaurants, the majority are located in the southern and southwestern United States. The Company’s international franchisees operate in Korea, Indonesia, Canada, Mexico and various countries throughout Central America, Asia and Europe.

The Company had 116 franchised restaurants in Korea as of December 31, 2006 as compared to 154 at December 25, 2005. The decline in the number of Korean restaurants was primarily due to weaker performance by the Company’s master franchisee in that country. The Company agreed to abate the entire 3% royalty due to be paid to it by that franchisee for the last two quarters of 2005 and to abate one-third of the royalties to be paid to the Company directly during the first two quarters of 2006. The conditional relief totaled $0.7 million in 2005 and

F-26

AFC ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For Fiscal Years 2006, 2005 and 2004

$0.2 million in the first half of 2006. During 2006, 2005 and 2004, total franchise revenues related to the Company’s Korean operations, net of the relief for 2006 and 2005, were $1.3 million, $1.0 million, and $1.4 million.

Note — 16 Adverse Effects of Hurricane

Hurricane Katrina.  During the third quarter of 2005, the company-operated restaurants in the New Orleans market were adversely affected by Hurricane Katrina. There were 36 company-operated restaurants which were temporarily closed as a result of Hurricane Katrina. At December 31, 2006, 21 of these restaurants had re-opened (1 of which had temporarily closed due to fire damage), 8 had been permanently closed, and 7 remained temporarily closed.

Outlook for Temporarily Closed Restaurants.  The Company expects to re-open 2 to 3 additional restaurants during fiscal year 2007. The outlook for the remaining 4 to 5 temporarily closed restaurants is uncertain and each will be evaluated on an ongoing basis to determine which restaurants will be re-opened at their current site, relocated, or permanently closed. That evaluation will be influenced by the re-settlement of New Orleans. The net book value of these restaurants is approximately $1.8 million as of December 31, 2006, with two restaurants representing approximately $1.7 million of this amount. If the Company determines that the city’s rebuilding efforts in the areas surrounding these stores do not provide sufficient customer traffic to support our restaurants, these stores may be permanently closed, resulting in an impairment charge to reduce the book value of these restaurants to reflect the market value at that time.

Accounting Estimates.  The Company maintains insurance coverage which provides for reimbursement from losses resulting from property damage, including flood, and business interruption. The Company’s policy entitles it to receive reimbursement for replacement value for damaged real and personal property as well as reimbursement of certain business interruption losses, net of applicable deductibles and subject to insurable limits. The insurance coverage is limited to $25.0 million, with a $10.0 million flood sub limit.

The Company has recorded a receivable for insurance recoveries to the extent losses have been incurred, and the realization of a related insurance claim, net of applicable deductibles, is probable. As of December 31, 2006, the Company has recognized receivables for $3.5 million in net book value write-downs for real property and equipment damages, $2.4 million of business interruption losses and other costs, and $0.3 million of lost inventory. The Company’s insurance carriers have advanced $5.0 million against these and other claims made by the Company.

The Company believes its estimated recoverable losses at replacement value under the terms of its insurance policies will exceed the net book value of damaged assets and will exceed the insurance proceeds received to date. However, we are currently engaged in discussion with our insurance carriers and are unable to estimate the full amount of recovery.

F-27

AFC ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For Fiscal Years 2006, 2005 and 2004

Note — 17 Other Expenses (Income), Net

(in millions)	2006			2005			2004
Shareholder litigation, special investigation, and other	$	(0.3	)	$	21.8		$	3.8
Asset write-downs		0.1			5.8			4.8
Hurricane-related costs (other than impairments)		1.7			3.1			—
Estimated insurance proceeds for hurricane and other property damage		(1.0	)		(5.6	)		—
Net gain on sale of assets		(2.3	)		(1.4	)		(0.5	)
Restaurant closures and refurbishments		—			(0.5	)		—
Corporate lease termination		—			—			9.0
Restatement costs		—			—			—
	$	(1.8	)	$	23.2		$	17.1

For a discussion of shareholder litigation, all of which was settled in 2005, see Note 15.

Of the $0.1 million and $5.8 million of asset write-downs incurred during 2006 and 2005, approximately $(0.6) million and $4.1 million related to estimates of Hurricane Katrina real property and equipment damage estimates. Hurricane related costs include relief and other payments to employees, ongoing rental expense for temporarily idled but useable restaurants, accruals of future rental expense for permanently closed restaurants and those restaurants that are temporarily unusable, inventory write-offs, clean-up costs, restaurant pre-opening costs for re-opened restaurants, and a donation to the American Red Cross. For a discussion of the adverse effects of hurricanes, related impairments, other hurricane-related costs, and estimated insurance proceeds for hurricane damages, see Note 16.

Restaurant closures and refurbishments includes the accrual of future lease obligations on closed facilities and other charges associated with the closing or the re-imaging of company-operated restaurants. The Company’s current re-imaging program involves interior and exterior makeovers of older restaurants, which includes new logos, uniforms, menu boards and menu items. The credit balance associated with restaurant closures in 2005 results from the revision of estimates for future lease obligations on closed facilities, due to the settlement of certain obligations.

During 2004, as part of a restructuring of its corporate operations, the Company terminated the lease for its corporate headquarters. Total costs incurred associated with the lease termination, less the write-off of deferred rent balances, were $9.0 million. For a discussion of the corporate restructuring, see Note 23.

Note — 18 Interest Expense, Net

(in millions)	2006			2005			2004
Interest on debt, less capitalized amounts	$	11.1		$	9.2		$	4.2
Amortization and write-offs of debt issuance costs		1.3			2.7			1.4
Other debt related charges		0.3			0.5			0.9
Interest income		(1.6	)		(5.6	)		(1.0	)
	$	11.1		$	6.8		$	5.5

F-28

AFC ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For Fiscal Years 2006, 2005 and 2004

Note — 19 Income Taxes

Total income taxes for fiscal years 2006, 2005 and 2004, were allocated as follows:

(in millions)	2006			2005			2004
Income tax expense (benefit):
From continuing operations	$	12.0		$	(5.3	)	$	(10.7	)
From discontinued operations		—			94.1			(11.9	)
Income taxes in the statements of operations, net		12.0			88.8			(22.6	)
Income taxes charged (credited) to statements of shareholders’ equity (deficit):
Compensation expense for tax purposes in excess of amounts recognized for financial reporting purposes		(1.8	)		(11.2	)		(1.1	)
Other comprehensive income		—			0.7			—
Total	$	10.2		$	78.3		$	(23.7	)

Total U.S. and foreign (loss) income before income taxes, discontinued operations and accounting change for fiscal years 2006, 2005 and 2004, were as follows:

(in millions)	2006		2005			2004
United States	$	29.8	$	(17.7	)	$	(29.1	)
Foreign		4.4		4.0			4.2
Total	$	34.2	$	(13.7	)	$	(24.9	)

The components of income tax expense associated with continuing operations were as follows:

(in millions)	2006		2005			2004
Current income tax expense:
Federal	$	7.7	$	(13.7	)	$	(14.5	)
Foreign		0.6		0.7			2.1
State		1.5		(1.6	)		(1.5	)
		9.8		(14.6	)		(13.9	)
Deferred income tax expense (benefit):
Federal		2.1		7.3			3.2
State		0.1		2.0			—
		2.2		9.3			3.2
	$	12.0	$	(5.3	)	$	(10.7	)

Applicable foreign withholding taxes are generally deducted from royalties and certain other revenues collected from international franchisees. Foreign taxes withheld are generally eligible for credit against the Company’s U.S. income tax liabilities.

F-29

AFC ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For Fiscal Years 2006, 2005 and 2004

Reconciliations of the Federal statutory income tax rate to the Company’s effective tax rate associated with continuing operations are presented below:

	2006			2005			2004
Federal income tax rate		35.0	%		(35.0	)%		(35.0	)%
State taxes, net of federal benefit		1.1			(10.9	)		(4.0	)
Valuation allowance		4.4			13.9			—
Non-deductible meals		0.2			0.4			0.2
Benefit of job tax credits		(0.3	)		(0.4	)		(1.1	)
Adjustments to estimated tax reserves		0.3			(0.7	)		(3.2	)
State deferred tax rate change		—			(0.5	)		—
Tax free interest income		(0.2	)		(7.5	)		—
Provision to return adjustments		(5.8	)		2.8			—
Other items, net		0.4			(0.8	)		0.1
Effective income tax benefit rate		35.1	%		(38.7	)%		(43.0	)%

Adjustments to estimated tax reserves include changes in tax reserves established for potential exposure we may incur if a taxing authority takes a position on a matter contrary to our position. We evaluate these reserves, including interest thereon, on a quarterly basis to ensure that they have been appropriately adjusted for events we believe may impact our exposure.

Provision to return adjustments include the effects of the reconciliation of income tax amounts recorded in our Consolidated Statements of Operations to amounts reflected on our tax returns.

F-30

AFC ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For Fiscal Years 2006, 2005 and 2004

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:

(in millions)	2006			2005
Deferred tax assets:
Deferred franchise fee revenue	$	3.7		$	4.1
State net operating loss carryforwards		3.4			1.9
Deferred rentals		2.9			1.9
Deferred compensation		1.6			1.0
Allowance for doubtful accounts		0.4			0.8
Insurance accruals		0.6			0.6
Other accruals		0.6			0.6
Property, plant and equipment		—			0.2
Reorganization costs		2.2			2.2
Total gross deferred tax assets	$	15.4		$	13.3
Deferred tax liabilities:
Franchise value and trademarks	$	(13.9	)	$	(13.2	)
Insurance proceeds		(1.0	)		(2.1	)
Property, plant and equipment		(2.1	)		—
Other		(0.7	)		(0.6	)
Total gross deferred liabilities		(17.7	)		(15.9	)
Valuation allowance		(3.4	)		(1.9	)
Net deferred tax liability	$	(5.7	)	$	(4.5	)

The Company assesses quarterly the likelihood that the deferred tax assets will be recovered. To make this assessment, historical levels of income, expectations and risks associated with estimates of future taxable income are considered. If recovery is not likely, we increase our valuation allowance for the deferred tax assets that we estimate will not be recovered.

At December 31, 2006, the Company had state net operating losses (“NOLs”) of approximately $65.1 million which begin to expire in 2008. The Company established a full valuation allowance on the deferred tax asset related to these NOLs as it is more likely than not that such tax benefit will not be realized. As such, the Company has established a valuation allowance of approximately $3.4 million at December 31, 2006 and $1.9 million at December 25, 2005.

Included in accrued liabilities at December 31, 2006 and December 25, 2005 are accrued income tax reserves of $4.5 million and $3.6 million, respectively.

During July, 2006, the Company received a tax assessment from the Canadian Revenue Authority (“CRA”). The assessment relates to a voluntary disclosure filed by the Company during 2003 on behalf of its former Seattle Coffee subsidiary, and the payment of $1.0 million of estimated tax liabilities. The CRA has assessed $0.3 million of interest associated with the earlier payment and an additional $0.5 million of taxes associated with certain disallowed deductions. The Company has appealed the assessment and is presently unable to estimate a probable loss contingency as it concerns the disallowed deductions.

F-31

AFC ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For Fiscal Years 2006, 2005 and 2004

Note — 20 Components of Earnings Per Share Computation

(in millions)	2006		2005			2004
Numerators for income (loss) per share computation:
Loss before discontinued operations and accounting change	$	22.2	$	(8.4	)	$	(14.3	)
Discontinued operations, net of income taxes		0.2		158.0			39.1
Cumulative effect of accounting change, net of income taxes		—		—			(0.2	)
Net income (loss)	$	22.4	$	149.6		$	24.6
Denominator for basic earnings per share — weighted average shares		29.5		29.1			28.1
Dilutive employee stock options(a)		0.3		—			—
Denominator for diluted earnings per share		29.8		29.1			28.1

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

Note — 21 Related Party Transactions

In April and May of 1996, the Company loaned certain officers of the Company an aggregate of $4.7 million to pay personal withholding tax liabilities incurred as a result of a $10.0 million executive stock compensation award earned in 1995. All the individual notes had similar terms, bore interest at 6.25% per annum and matured on December 31, 2003. The notes were secured primarily by shares of AFC common stock owned by the officers. During 2004, the balances of these notes were paid. The full recourse note receivable balances and interest receivable balances, net of payments, at December 28, 2003 were included as a reduction to shareholders’ equity (deficit) in the accompanying consolidated balance sheets and consolidated statements of shareholders’ equity (deficit).

In October 1998, the Company loaned certain officers of the Company an aggregate of $1.3 million to pay for shares of common stock offered by AFC in connection with the acquisition of Cinnabon. During 1999, AFC loaned two officers of the Company an aggregate of $0.4 million to pay for shares of common stock offered by other departing officers. All the individual notes had similar terms. Each full recourse note bears interest at 7.0% per annum with principal and interest payable at December 31, 2005. The notes were secured primarily by the shares purchased by the employees. During 2004, the balance of the $0.4 million loaned during 1999 was paid. The remaining note receivable balances and interest receivable balances, net of payments, at December 25, 2005 and December 26, 2004 were included as a reduction to shareholders’ equity (deficit) in the accompanying consolidated balance sheets and consolidated statements of shareholders’ equity (deficit).

The $1.1 million of notes receivable (including accrued interest) due from officers outstanding at December 25, 2005 was satisfied in full on December 31, 2005 through the transfer of 74,052 shares of the Company’s common stock.

Note — 22 Discontinued Operations

Church’s Chicken.  On December 28, 2004, the Company sold its Church’s brand to an affiliate of Crescent Capital Investments, Inc. for approximately $379.0 million in cash and a $7.0 million subordinated note, subject to customary closing adjustments. Concurrent with the sale of Church’s, the Company sold certain real property to a Church’s franchisee for approximately $3.7 million in cash. Cash proceeds of these two sales, net of transaction costs and adjustments, were approximately $367.6 million.

F-32

AFC ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For Fiscal Years 2006, 2005 and 2004

The subordinated note bears interest at 8% per year, and is due in full on December 31, 2012. The payment of interest is accomplished by the issuance of additional subordinated notes on each June 30th and December 31st up to but not including the maturity date. The issuer may choose to make voluntary payments in cash on the interest date beginning with December 31, 2008, provided that all obligations to Senior Creditors have been indefeasibly paid in full in cash and all other commitments to the Senior Creditors have been terminated. The note is subordinated to all other debt obligations related to AFC Enterprises, Inc.’s sale of Church’s to an affiliate of Crescent Capital Investments, Inc.

Cinnabon.  On November 4, 2004, the Company sold its Cinnabon subsidiary to Focus Brands, Inc. for approximately $21.0 million in cash, subject to customary closing adjustments. Proceeds of the sale, net of transaction costs and adjustments, were approximately $19.6 million. The sale included certain franchise rights for Seattle’s Best Coffee which were retained following the sale of Seattle Coffee in July 2003.

Seattle Coffee.  On July 14, 2003, the Company sold its Seattle Coffee subsidiary to Starbucks Corporation for approximately $72.0 million in cash, subject to customary closing adjustments. Proceeds of the sale, net of transaction costs and adjustments, were approximately $62.1 million (before consideration of the matters discussed in the succeeding paragraph). Seattle Coffee was the parent company for AFC’s Seattle’s Best Coffee^® and Torrefazione Italia^® Coffee brands. Following this transaction, the Company continued to franchise the Seattle’s Best Coffee brand in retail locations in Hawaii, in certain international markets and on certain U.S. military bases.

During 2004, the Company recognized a pre-tax charge of $0.8 million associated with the Seattle Coffee sale. This charge was treated as an adjustment to the purchase price. The charge included a $1.0 million payment to settle certain indemnities associated with the transaction offset by $0.2 million of adjustments to accruals established at the time of sale.

Summary operating results for these discontinued operations were as follows:

(in millions)	2006			2005			2004
Total revenues:
Church’s	$	—		$	—		$	261.3
Cinnabon		—			—			37.1
Total revenues	$	—		$	—		$	298.4
Income (loss) from operations:
Church’s	$	(0.1	)	$	—		$	40.9
Cinnabon		0.3			—			(7.8	)
Income tax benefit (expense)		—			—			(14.4	)
Income from operations, net	$	0.2		$	—		$	18.7
Income (loss) from sale of businesses:
Church’s	$	—		$	252.1		$	—
Cinnabon		—			—			(5.1	)
Seattle Coffee		—			—			(0.8	)
Income tax benefit (expense)		—			(94.1	)		26.3
Income from sale of businesses, net		—			158.0			20.4
Discontinued operations, net of income taxes	$	0.2		$	158.0		$	39.1

The above operational results include the write-off of $6.5 million of Cinnabon intangible assets in 2004.

F-33

AFC ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For Fiscal Years 2006, 2005 and 2004

Note — 23 Restructuring of Corporate Operations and Other

Restructuring of Corporate Operations.  During 2004, the Company began a restructuring of its corporate operations which it completed in 2006. The restructuring included: (1) the reduction of AFC’s corporate staffing in concert with the divestiture of Cinnabon and Church’s, (2) the closure of AFC’s corporate offices, (3) the integration of AFC’s corporate function into the Popeyes corporate function, and (4) the termination or restructuring of certain outsourcing and other contractual arrangements. A summary of the total restructuring costs incurred is presented below.

							Incurred
(in millions)	2006		2005		2004		to date
Contract terminations and other	$	1.0	$	2.1	$	9.0	$	12.1
Employee termination benefits		—		0.4		3.4		3.8
Total restructuring charges	$	1.0	$	2.5	$	12.4	$	15.9

The $9.0 million charge for contract terminations during 2004 was associated with the termination of the Company’s corporate office lease. For financial reporting purposes, that charge is included as a component of “other expenses (income), net.” All other costs associated with the restructuring are a component of “general and administrative expenses.” For business segment reporting purposes, all of these costs are included within our corporate operations.

Other.  During 2005, general and administrative expenses included $5.8 million of stay bonuses and severance costs paid to the Company’s former Chief Executive Officer, former Chief Financial Officer, and former General Counsel who resigned during 2005. For business segment reporting purposes, these costs are included within our corporate operations.

Note — 24 Segment Information (Continuing Operations)

The Company’s reportable business segments are its franchise operations and its company-operated restaurants.

Historically, the Company had three business segments: chicken, bakery and coffee. After the divestitures of Seattle Coffee and Cinnabon, the Company reported one business segment: chicken. During the fourth quarter of 2005, the Company reassessed its business segment reporting taking into consideration the divesture of Church’s and the progress achieved on its corporate restructuring. Based on that assessment, the Company determined it appropriate to report two business segments: franchise operations and company-operated restaurants. In the Company’s business segment disclosures, information for 2004 has been restated to conform to the current year’s presentation.

Corporate revenues are principally rental income from leasing and sub-leasing agreements with third parties.

F-34

AFC ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For Fiscal Years 2006, 2005 and 2004

				Company -
	Franchise			Operated
(in millions)	Operations			Restaurants			Corporate			Total
2006
Total revenues	$	87.8		$	65.2		$	—		$	153.0
Operating profit (loss) before allocations		74.2			5.2			(34.1	)		45.3
Corporate overhead allocations(a)		(29.6	)		(3.8	)		33.4			—
Operating profit(b)		44.6			1.4			(0.7	)		45.3
Depreciation and amortization		2.1			4.3			—			6.4
Capital expenditures		0.7			6.3			—			7.0
Goodwill — year end		8.9			2.8			—			11.7
Total assets — year end		85.9			47.9			29.3			163.1
2005
Total revenues	$	82.9		$	60.3		$	0.2		$	143.4
Operating profit (loss) before allocations		67.3			1.0			(75.2	)		(6.9	)
Corporate overhead allocations(a)		(24.9	)		(2.8	)		27.7			—
Operating profit (loss)(b)		42.4			(1.8	)		(47.5	)		(6.9	)
Depreciation and amortization		2.3			3.6			1.4			7.3
Capital expenditures		0.5			3.7			—			4.2
Goodwill — year end		8.9			0.7			—			9.6
Total assets — year end		90.6			32.5			89.6			212.7
2004
Total revenues	$	77.5		$	85.8		$	0.6		$	163.9
Operating profit (loss) before allocations		65.9			3.0			(88.3	)		(19.4	)
Corporate overhead allocations(a)		(22.2	)		(3.0	)		25.2			—
Operating profit (loss)(b)		43.7			—			(63.1	)		(19.4	)
Depreciation and amortization		1.8			3.7			4.5			10.0
Capital expenditures		—			3.7			4.8			8.5
Goodwill — year end		8.9			0.7			—			9.6
Total assets — year end(c)		77.5			33.3			251.1			361.9

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

(b)  For all years presented, corporate operating loss, after allocations, relates principally to the AFC corporate offices which were closed during 2005. Costs associated with the Popeyes corporate function and certain AFC costs directly related to our operating segments are allocated to the Company’s franchise operations and company-operated restaurants. In 2006, the Company’s corporate operating profit represents a settlement of legal matters associated with shareholder litigation. In 2005, the Company’s corporate operating loss includes $21.8 million associated with the settlement of shareholder litigation.

(c)  For the year ended 2004, corporate assets include the assets of discontinued operations of approximately $153.3 million.

F-35

AFC ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For Fiscal Years 2006, 2005 and 2004

Note — 25 Acquisition

On May 1, 2006, the Company completed an acquisition of 13 franchised restaurants from a Popeyes franchisee in the Memphis and Nashville, Tennessee markets. The results of operations of the acquired restaurants are included in the consolidated financial statements since that date. The acquired units provide regional diversity and additional company-operated test markets for our new menu items, promotional concepts and new restaurant designs for the benefit of the entire Popeyes system. The acquisition also provides a new market for continued growth of company-operated restaurants.

The following table summarizes the purchase price consideration and the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition.

(in millions)	2006
Cash	$	9.3
Long-term debt assumed		3.3
Above-market rent obligations		2.9
Transaction costs		0.3
Total purchase price	$	15.8
Assets acquired
Property and equipment	$	3.7
Goodwill		2.0
Reacquired franchise rights		9.0
Deferred tax asset		1.1
Total assets acquired	$	15.8

The reacquired franchise rights are amortized over the remaining life of the franchise agreements. The weighted average life of the reacquired franchise rights is 14 years.

F-36

AFC ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For Fiscal Years 2006, 2005 and 2004

The following unaudited pro forma condensed consolidated summary operating results of the Company for fiscal year 2006 and 2005, have been prepared by adjusting the historical data as set forth in the accompanying condensed consolidated statement of operations to give effect to the acquisition as if it had been consummated as of December 27, 2004. The pro forma results include adjustments to recognize depreciation and amortization expense on the allocated purchase price of the acquired assets, interest expense on debt assumed, rent expense on properties leased from the seller, and the elimination of royalty revenues and expenses. The pro forma information does not necessarily reflect the actual results that would have been attained nor necessarily indicative of future results of the operations of the combined companies:

(in millions, except per share data)	2006		2005
Total revenues	$	158.1	$	159.0
Operating (loss) profit		45.7		(5.1	)
Income (loss) before discontinued operations		22.2		(7.7	)
Net income	$	22.4	$	150.3
Basic earnings per common share
Income (loss) before discontinued operations	$	0.75	$	(0.27	)
Discontinued operations, net of income taxes		0.1		5.43
Net income	$	0.76	$	5.16
Diluted earnings per common share
Income (loss) before discontinued operations	$	0.74	$	(0.27	)
Discontinued operations, net of income taxes		0.1		5.43
Net income	$	0.75	$	5.16

F-37

AFC ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For Fiscal Years 2006, 2005 and 2004

Note — 26 Quarterly Financial Data (Unaudited)

	2006
	First(a)		Second		Third		Fourth(b)
(in millions, except per share data)	Quarter		Quarter		Quarter		Quarter
Results of Operations
Total revenues	$	42.6	$	34.4	$	36.0	$	40.0
Operating profit		12.7		10.6		11.9		10.1
Income before discontinued operations and accounting change		5.7		5.0		5.9		5.6
Net income		5.8		5.1		5.9		5.6
Basic earnings per common share
Income before discontinued operations and accounting change	$	0.19	$	0.17	$	0.20	$	0.19
Net income		0.19		0.18		0.20		0.19
Diluted earnings per common share
Income before discontinued operations and accounting change	$	0.19	$	0.16	$	0.20	$	0.19
Net income		0.19		0.17		0.20		0.19

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

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

(b)  Significant fourth quarter adjustments recognized in 2005 include: (1) severances of $2.0 million, and (2) outsourcing contract termination costs of $2.1 million.

F-38

EX-10.54

Exhibit 10.54

POPEYES CHICKEN AND BISCUITS
2006 BONUS PLAN
Terms & Conditions
Effective 12/26/05

Introduction

Popeyes Chicken and Biscuits (PCB) compensation practice is to provide bonus compensation opportunities to specifically selected positions. Bonus opportunities are paid based on the achievement of financial and /or business plan metrics as outlined in the attachment. This bonus plan is designed to ensure participants focus on the strategic financial and business plan metrics of PCB.

General Terms and Conditions

A. EFFECTIVE DATES, AMENDMENTS, RESERVATIONS

The 2006 Bonus Plan is effective December 26, 2005 (the “Effective Date”) and will continue for the Plan Year 2006. As of the Effective Date, all other bonus compensation plans, either written or oral become void. While every effort is made by PCB to reward performance through this plan, PCB reserves the right at any time, to modify, revoke, suspend, terminate or change any or all of the provisions of the Plan, including disqualifying an employee from participation, at any time and from time to time, due to business or economic considerations. PCB will provide Participants with notice of any such action as soon as possible after such action has been taken.

B. DEFINITIONS

1. “Business Quarter” or “Quarter” shall be as follows:

First Quarter	Period 1 through 4;
Second Quarter	Period 5 through 7;
Third Quarter	Period 8 through 10, and;
Fourth Quarter	Period 11 through 13.

 Confidential PCB 2006 Bonus Plan Page 1

2.	“Semi-Annual” is defined as twice a year. The first half-year is made up of the First Quarter and the Second Quarter. The second half-year is made up of the Third Quarter and the Fourth Quarter.
3.	“Eligible Employee” means an employee of the Company who is an employee of the Company for at least one full period within a Semi-Annual period. Individuals not eligible for the plan include:

a.	any employee who is classified as a unit-level, multi-unit level, or regional director of operations employee;
b.	a “leased employee” within the meaning of Section 414(n)(2) of the Internal Revenue Code of 1986, as amended;
c.	any individual classified by the Company as a leased employee or an independent contractor; or
d.	any employee who is currently on a written performance improvement plan at the time of the bonus payout.

4.	“Bonus Compensation” means any bonus incentive, commission, bonus or other remuneration as set forth under this Bonus Plan.
5.	“Participating Company” or “Company” means PCB and any other PCB company or affiliate designated as a Participating Company by the Committee.
6.	“Participant” means an Eligible Employee.
7.	“Semi-Annual Bonus Payment” means bonus compensation, which if earned, is paid, as soon as practical, after the end of the Second Quarter and the Fourth Quarter.
8.	“Quarterly Bonus Payment” means bonus compensation, which if earned, is paid, as soon as practical, after the end of the each quarter.
9.	“Plan Year” is defined as PCB’s 2006 fiscal year.

C. TRANSFERS/PROMOTIONS/DEMOTIONS

A Participant who is promoted or demoted during the Plan Year, for purposes of the Plan, will have any payment (if earned) pro-rated based on the number of periods worked in each position. Partial periods worked will be credited to the “higher” bonus plan opportunity of the two possible bonus plans, if one of the two possible bonus metric payments is higher than the other. Nothing in the foregoing is intended to allow for person hired in the middle of a period to receive partial payment for the period.

D.	MID-PERIOD HIRES
	A Participant who is hired during a period must work at least two (2) full weeks during the period to be eligible for a bonus payout for that period, if a bonus is paid. Nothing in the foregoing is intended to allow for person hired in the middle of a period to receive partial payment for the period.
E.	DECEASED EMPLOYEE
	Bonus Compensation earned by a deceased employee before such employee’s death will be paid to the deceased employee’s estate on the payment date.
F.	ADMINISTRATION

     A Corporate Compensation Committee (“the Committee”) consisting of the following persons administers this Plan:

(i)	Chief Executive Officer
(ii)	Chief Financial Officer
(ii)	Senior Vice President, General Counsel of AFC
(iv)	Chief People Services Officer

From time to time, persons may be added to or deleted from the Committee as deemed appropriate the Chief Executive Officer. The specific duties of this Committee are, but not limited to:

(i)	develop and enforce the polices and procedures necessary to administer the Plan;
(ii)	interpret the Plan and make decisions concerning any and all issues arising from the Plan; and
(iii)	ensure the administration of the Plan is equitable, fair and consistent.

G.

BONUS COMPENSATION PAYMENTS

Any Bonus Compensation Payments, when earned, will be made to Participants as provided in each Participant’s 2006 Bonus Plan, as soon as practical after the end of the second and fourth Quarters or otherwise specified. Participants whose employment with a company is terminated for any reason other than death before payment of earned Bonus Compensation shall not receive such payment, where allowable under state law unless otherwise set forth in writing and approved by the Compensation Committee. No bonus payments will be paid to any employee

Confidential PCB 2006 Bonus Plan Page 3

until specific financial metrics have been met, reviewed and approved. (See attached document for metric details). PCB will apply applicable withholdings from bonus plan payments.

H.	ADVANCES, DRAWS OR EARLY ON BONUS PAYOUT
	No advances, draws or early payments against any potential bonus will be allowed.
I.	TAX WITHHOLDING
	All bonus payments made under this plan will be taxed using the appropriate Local and State tax rates. The Federal supplemental tax rate will be applied to Bonus payments unless otherwise requested by the employee, in writing to payroll, prior to the bonus payout.
J.	EMPLOYMENT
	The language used in the Plan is not intended to create, nor is it to be construed to constitute, a contract of employment between PCB and any Participant. All Participants under the Plan remain at-will employees unless specifically designated otherwise in writing. PCB retains all of its rights to discipline or discharge Participants who participate in the Plan. Employees who participate in the Plan retain the right to terminate employment at any time and for any reason, and PCB retains a reciprocal right.
K.	ELIGIBILITY
	In order to participate under the Plan, an Employee must be an Eligible Employee (as defined in section B.3)
L.	LEAVE OR PRORATION
	Participant’s earned Bonus Compensation will be pro-rated under the Plan, if any of the following conditions exist during the Plan Year and if permitted by applicable law:

(i)	Leaves of Absence;
(ii)	Short Term Disability or Long Term Disability; or
(iii)	Worker’s Compensation.

Confidential PCB 2006 Bonus Plan Page 4

M.

DISPUTES

Any dispute regarding Bonus Compensation under the Plan shall be submitted by the Participant in writing to the Committee, attention: PCB’s Chief People Services Officer, within sixty (60) days after the end of each semi-annual payout; otherwise, the payment made or decision that no payment is due, will be deemed to be correct, final and binding upon the Participant. All decisions by the Compensation Committee shall be binding and conclusive upon PCB and the Participant and not subject to appeal. The Participant must notify the immediate Supervisor of such disputes.

Confidential PCB 2006 Bonus Plan Page 5

EX-10.55

Exhibit 10.55

EMPLOYMENT AGREEMENT
dated as of March 14, 2007 between
AFC Enterprises, Inc. (the “Company”) and
Frederick B. Beilstein III (“Employee”)

     This Agreement (this “Agreement”) is made and entered into as of March 14, 2007 by and between AFC Enterprises, Inc., a Minnesota corporation (the “Company”), and Frederick B. Beilstein III (“Employee”) (the Company and Employee hereinafter referred to together as the “Parties”).

     WHEREAS, the Board of Directors of the Company (the “Board”) has determined that it is in the best interests of the Company to retain Employee as Interim Chief Executive Officer of the Company upon the effective date of the resignation of the Company’s current Chief Executive Officer, and to compensate Employee for his services pursuant to the terms and subject to the conditions set forth in this Agreement;

     WHEREAS, the purpose of this Agreement is to confirm the agreed upon terms, conditions and arrangements concerning Employee’s employment as Interim Chief Executive Officer of the Company.

     NOW, THEREFORE, in consideration of the foregoing and of the mutual promises and agreements contained herein, the sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, agree as follows:

     1. Capitalized Terms. Capitalized terms used herein without definition shall have the meanings assigned to them in the Employment Agreement.

     2. Term of Agreement.

          2.01. Initial Term. This Agreement shall be effective as of March 19, 2007 (the “Effective Date”) and, unless earlier terminated pursuant to Section 10 hereof, shall be for one initial term of ninety (90) days (the “Initial Term”) beginning on the Effective Date and concluding on June 22, 2007 (the “Original Termination Date”). For purposes of clarity, this Agreement shall be effective as of the Effective Date, however Employee shall not assume the title and role as Interim Chief Executive Officer until the effective date of the resignation of the Company’s current Chief Executive Officer.

          2.02. Renewal. The Term of this Agreement and Employee’s employment hereunder may automatically be extended for an additional thirty (30) day period upon written notice to Employee by the Company prior to the Original Termination Date. Thereafter, the Agreement may be extended by mutual agreement of the Parties. The Initial Term and any term pursuant to a renewal under this Section 2.02 are referred to herein as the “Term.”

     3. Employment. Employee shall serve as Interim Chief Executive Officer of the Company upon the effective date of the resignation of the Company’s current Chief Executive Officer, and shall perform such duties consistent with his position as may be assigned to him from time to time by the Board of Directors of the Company.

     4. Salary. During the Term, the Company shall pay Employee, in bi-weekly installments, a salary at the rate of Twenty Nine Thousand Four Hundred Twenty Three Dollars ($29,423.00 U.S.) per bi-weekly pay period (the “Salary”). For purposes of clarity, it is understood that other than the benefits described in Section 5 below, the amount described in this Section 4 shall be Employee’s total compensation hereunder.

     5. Employee Benefits. Employee shall be eligible to (i) receive health and welfare benefits under the Company’s regular and ongoing plans, policies and programs available, from time to time, to senior executive officers of the Company, in accordance with the provisions of such plans, policies and programs governing eligibility and participation; provided, however, that such benefits may be modified, amended or rescinded by the Board in its sole discretion, and (ii) all the other rights and benefits of an employee of the Company.

     6. Business Expenses.

          6.01 Business Expenses. All reasonable and customary business expenses incurred by Employee in the performance of his duties hereunder shall be paid or reimbursed by the Company in accordance with the Company’s policies in effect, from time to time.

     7. Termination of Employment.

          7.01 Definitions. For purposes of this Section 7, the following terms shall have the following meanings:

     (a) Cause. The term “Cause” shall mean (i) Employee commits fraud or is convicted of a crime involving moral turpitude, or (ii) Employee, in carrying out his duties hereunder, has been guilty of gross neglect or gross misconduct resulting in harm to the Company or any of its subsidiaries or affiliates, or (iii) Employee shall have refused to follow or comply with the duly promulgated directives of the Board of Directors of the Company, or (iv) Employee otherwise materially breaches this Agreement.

     (b) Disability. The term “Disability” shall mean the good faith determination by the Board of Directors of the Company that Employee has failed to or has been unable to perform his duties as the result of any physical or mental disability for an aggregate of thirty (30) calendar days.

          7.02 Termination upon Death or Disability. If Employee’s employment is terminated due to his death or Disability, the Company shall pay to the estate of the Employee or

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to the Employee, as the case may be, within fifteen (15) days following Employee’s death or upon his termination in the event of Disability, all amounts then payable to Employee pro rated through the date of termination, for the year in which such termination occurs.

          7.03 Termination for other than Death or Disability or for Cause. If Employee’s employment is terminated by the Company other than (i) by reason of Employee’s death or Disability, or (ii) for Cause, the Company shall pay or provide to Employee, in lieu of all other amounts payable hereunder or benefits to be provided hereunder the following: (a) a payment equal to Employee’s salary due for the then-current Term at the time of termination less any amount of Employee’s salary for the then-current Term (including the date of termination) that has been previously paid to Employee. As a condition precedent to the requirement of Company to make such payments, Employee shall execute and deliver to Company a general release in favor of the Company in substantially the same form as the general release then contained in the latest Severance Agreement being used by the Company.

     Any payments required to be made under this Section 7.03 shall be made to Employee, at the election of the Company, as soon as practicable after the date of Employee’s termination of employment.

          7.04 Voluntary Termination by Employee or Termination for Cause. Employee may terminate his employment hereunder at any time whatsoever, with or without cause, upon thirty (30) days prior written notice to the Company. The Company may terminate Employee’s employment hereunder at any time without notice for Cause. In the event Employee’s employment is terminated voluntarily by Employee or by the Company for Cause:

     (a) The Company shall pay to Employee upon such termination all amounts then due hereunder, prorated, through the date of termination for the date in which he is terminated; and

     (b) The Company shall be under no obligation to make severance payments to Employee or continue any benefits being provided to Employee beyond the date of such termination.

     8. Confidentiality and Non-Competition.

          8.01 Definitions. For purposes of this Section 8, the following terms shall have the following meanings:

     “Affiliate” means any corporation, limited liability company, partnership or other entity of which the Company owns at least fifty percent (50%) of the outstanding equity and voting rights, directly or indirectly, through any other corporation, limited liability company, partnership or other entity.

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     “Businesses” means the businesses engaged in by the Company directly or through its Affiliates immediately prior to termination of employment.

     “Confidential Information” means information which does not rise to the level of a Trade Secret, but is valuable to the Company or any Affiliate and provided in confidence to Employee.

     “Proprietary Information” means, collectively, Trade Secrets and Confidential Information.

     “Restricted Period” means the period commencing as of the date hereof and ending on that date two years (2) year after the termination of Employee’s employment with the Company for any reason, whether voluntary or involuntary.

     “Trade Secrets” means information which derives economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

          8.02 Covenant Not-To-Disclose. The Company and Employee recognize that, during the course of Employee’s employment with the Company, the Company has disclosed and will continue to disclose to Employee Proprietary Information concerning the Company and the Affiliates, their products, their franchisees, their services and other matters concerning their Businesses, all of which constitute valuable assets of the Company and the Affiliates. The Company and Employee further acknowledge that the Company has, and will, invest considerable amounts of time, effort and corporate resources in developing such valuable assets and that disclosure by Employee of such assets to the public shall cause irreparable harm, damage and loss to the Company and the Affiliates. Accordingly, Employee acknowledges and agrees:

     (a) that the Proprietary Information is and shall remain the exclusive property of the Company (or the applicable Affiliate);

     (b) to use the Proprietary Information exclusively for the purpose of fulfilling his obligations under this Agreement;

     (c) to return the Proprietary Information, and any copies thereof, in his possession or under his control, to the Company (or the applicable Affiliate) upon request of the Company (or the Affiliate), or expiration or termination of Employee’s employment hereunder for any reason; and

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     (d) to hold the Proprietary Information in confidence and not copy, publish or disclose to others or allow any other party to copy, publish or disclose to others in any form, any Proprietary Information without the prior written approval of an authorized representative of the Company.

The obligations and restrictions set forth in this Section 8.02 shall survive the expiration or termination of this Agreement, for any reason, and shall remain in full force and effect as follows:

     (x) as to Trade Secrets, indefinitely, and

     (y) as to Confidential Information, for a period of two (2) years after the expiration or termination of this Agreement for any reason.

     The confidentiality, property, and proprietary rights protections available in this Agreement are in addition to, and not exclusive of, any and all other corporate rights, including those provided under copyright, corporate officer or director fiduciary duties, and trade secret and confidential information laws. The obligations set forth in this Section 8.02 shall not apply or shall terminate with respect to any particular portion of the Proprietary Information which (i) was in Employee’s possession, free of any obligation of confidence, prior to his receipt from the Company or its Affiliate, (ii) Employee establishes the Proprietary Information is already in the public domain at the time the Company or the Affiliate communicates it to Employee, or becomes available to the public through no breach of this Agreement by Employee, or (iii) Employee establishes that he received the Proprietary Information independently and in good faith from a third party lawfully in possession thereof and having no obligation to keep such information confidential.

          8.03 Covenant of Non-Disparagement and Cooperation. Employee agrees that he shall not at any time during or following the term of this Agreement make any remarks disparaging the conduct or character of the Company or the Affiliates or any of the Company’s or the Affiliates’ current or former agents, employees, officers, directors, successors or assigns (collectively the “Related Parties”). In addition, Employee agrees to cooperate with the Related Parties, at no extra cost, in any litigation or administrative proceedings (e.g., EEOC charges) involving any matters with which Employee was involved during Employee’s employment with the Company. The Company shall reimburse Employee for reasonable expenses incurred by Employee in providing such assistance.

          8.04 Remedies. The Company and Employee expressly agree that a violation of any of the covenants contained in subsections 8.02 and 8.03 of this Section 8, or any provision thereof, shall cause irreparable injury to the Company and that, accordingly, the Company shall be entitled, in addition to any other rights and remedies it may have at law or in equity, to an injunction enjoining and restraining Employee from doing or continuing to do any such act and any other violation or threatened violation of said Sections 8.02 and 8.03 hereof.

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          8.05 Severability. In the event any provision of this Agreement shall be found to be void, the remaining provisions of this Agreement shall nevertheless be binding with the same effect as though the void part were deleted; provided, however, if subsections 8.02 and 8.03 of this Section 8 shall be declared invalid, in whole or in part, Employee shall execute, as soon as possible, a supplemental agreement with the Company, granting the Company, to the extent legally possible, the protection afforded by said subsections. It is expressly understood and agreed by the parties hereto that the Company shall not be barred from enforcing the restrictive covenants contained in each of subsections 8.02 and 8.03, as each are separate and distinct, so that the invalidity of any one or more of said covenants shall not affect the enforceability and validity of the other covenants.

          8.06 Ownership of Property. Employee agrees and acknowledges that all works of authorship and inventions, including but not limited to products, goods, know-how, Trade Secrets and Confidential Information, and any revisions thereof, in any form and in whatever stage of creation or development, arising out of or resulting from, or in connection with, the services provided by Employee to the Company or any Affiliate under this Agreement are works made for hire and shall be the sole and exclusive property of the Company or such Affiliate. Employee agrees to execute such documents as the Company may reasonably request for the purpose of effectuating the rights of the Company or the Affiliate in any such property.

          8.07 No Defense. The existence of any claim, demand, action or cause of action of the Employee against the Company shall not constitute a defense to the enforcement by the Company of any of the covenants or agreements herein.

     9. Indemnification.

          9.01 Company Obligations. The Company hereby indemnifies and agrees to hold harmless Employee, to the extent allowed by applicable law, against all liabilities, obligations, claims, demands, actions, causes of action, lawsuits, judgments, expenses and costs, including but not limited to the reasonable costs of investigation and attorney’s fees, incurred by the Employee as a result of any threat, demand, claim action or lawsuits, made, instituted or initiated against the Employee, which arises out of, results from or relates to this Agreement or any action taken by Employee in the course of performance of Employee’s duties hereunder, except for Employee’s own gross negligence or willful misconduct.

          9.02 Notice and Defense of Claim. If any claim suit or other legal proceeding shall be commenced, or any claim or demand be asserted against the Employee and Employee desires indemnification pursuant to this paragraph, the Company shall be notified to such effect with reasonable promptness and shall have the right to assume at its full cost and expense the entire control of any legal proceeding, subject to the right of the Employee to participate (at his full cost and expense and with counsel of his choice) in the defense, compromise or settlement thereof. The Employee shall cooperate fully in all respects with the Company in any such

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defense, compromise or settlement, including, without limitation, making available to the Company all pertinent information under the control of the Employee. The Company may compromise or settle any such action, suit, proceeding, claim or demand without Employee’s approval so long as the Company obtains for Employee’s benefit a release of liability with respect to such claim from the claimant and the Company assumes and agrees to pay any amounts due with respect to such settlement. In no event shall the Company be liable for any settlement entered into by the Employee without the Company’s prior written consent.

          9.03 Survival. The provisions of this Section 9 shall survive the termination of this Agreement for a period of four (4) years, unless Employee is terminated for Cause, in which event the provisions of this Section 9 shall not survive termination of this Agreement.

     10. Dispute Resolution.

          10.01 Agreement to Arbitrate. In consideration for his continued employment with the Company, and other consideration, the sufficiency of which is hereby acknowledged, Employee acknowledges and agrees that any controversy or claim arising out of or relating to Employees employment, termination of employment, or this Agreement including, but not limited to, controversies and claims that are protected or covered by any federal, state, or local statute, regulation or common law, shall be settled by arbitration pursuant to the Federal Arbitration Act. This includes, but is not limited to, violations or alleged violations of any federal or state statute or common law (including, but not limited to, the laws of the United States or of any state, or the Constitution of the United States or of any state), or of any other law, statute, ordinance, including but not limited to, the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, as Amended, the Americans with Disabilities Act, the Equal Pay Act, the Employee Retirement Income Security Act, the Rehabilitation Act of 1973, and any other statute or common law. This provision shall not, however, preclude the Company from seeking equitable relief as provided in Section 8.04 of this Agreement.

          10.02 Procedure. The arbitration shall be conducted in accordance with the Employment Arbitration Rules of the American Arbitration Association: a single arbitrator who is experienced in employment law shall be selected under those Rules, and the arbitration shall be initiated in Atlanta, Georgia, unless the parties agree in writing to a different location or the Arbitrator directs the arbitration to be held at a different location. Except for filing fees, all costs of the arbitrator shall be allocated by the arbitrator. The award rendered by the arbitrator shall be final and binding on the parties hereto and judgment thereon may be entered in any court having jurisdiction thereof. In addition to that provided for in the Employment Arbitration Rules, the arbitrator has sole discretion to permit discovery consistent with the Federal Rules of Civil Procedure and the judicial interpretation of those rules upon request by any party; provided, however, it is the intent of the parties that the arbitrator limit the time and scope of any such discovery to the greatest extent practicable and provide a decision as rapidly as possible given the circumstances of the claims to be determined. The arbitrator also shall have the power and authority to grant injunctive relief for any violation of Sections 8.02 and 8.03 and the arbitrator’s

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order granting such relief may be entered in any court of competent jurisdiction. The agreement to arbitrate any claim arising out of the employment relationship or termination of employment shall not apply to those claims which cannot be made subject to this provision by statute, regulation or common law. These include, but are not limited to, any claims relating to work related injuries and claims for unemployment benefits under applicable state laws.

          10.03 Rights of Parties. Nothing in this clause shall be construed to prevent the Company from asking a court of competent jurisdiction to enter appropriate equitable relief to enjoin any violation of this Agreement by Employee. The Company shall have the right to seek such relief in connection with or apart from the parties’ rights under this clause to arbitrate all disputes. With respect to disputes arising under this Agreement that are submitted to a court rather than an arbitrator, including actions to compel arbitration or for equitable relief in aid of arbitration, the parties agree that venue and jurisdiction are proper in any state or federal court lying within Atlanta, Georgia and specifically consent to the jurisdiction and venue of such court for the purpose of any proceedings contemplated by this paragraph. By entering into this Agreement the parties have waived any right which may exist for a trial by jury and have expressly agreed to resolve any disputes covered by this Agreement through the arbitration process described herein.

     11. Employee Acknowledgment. By signing this Agreement, Employee acknowledges that the Company has advised Employee of his right to consult with an attorney prior to executing this Agreement; that he has the right to retain counsel of his own choosing concerning the agreement to arbitrate or any waiver of rights or claims; that he has read and fully understands the terms of this Agreement and/or has had the right to have it reviewed and approved by counsel of choice, with adequate opportunity and time for such review; and that he is fully aware of its contents and of its legal effect. Accordingly, this Agreement shall not be construed against any party on the grounds that the party drafted this Agreement. Instead, this Agreement shall be interpreted as though drafted equally by all parties.

     12. Amendments. This Agreement may not be altered, modified or amended except by a written instrument signed by each of the parties hereto.

     13. Successors. As used in this Agreement, the term the Company shall include any successors to all or substantially all of the business and/or assets of the Company which assumes and agrees to perform this Agreement.

     14. Assignment. Neither this Agreement nor any of the rights or obligations of either party hereunder shall be assigned or delegated by any party hereto without the prior written consent of the other party, except that the Company may without the consent of Employee assign its rights and delegate its duties hereunder to any successor to the business of the Company. In the event of the assignment by the Company of its rights and the delegation of its duties to a successor to the business of the Company and the assumption of such rights and obligations by

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such successor, the Company shall, effective upon such assumption, be relieved from any and all obligations whatsoever to Employee hereunder.

     15. Waiver. Waiver by any party hereto of any breach or default by any other party of any of the terms of this Agreement shall not operate as a waiver of any other breach or default, whether similar to or different from the breach or default waived.

     16. Severability. In the event that any one or more of the provisions of this Agreement shall be or become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby.

     17. Survival. Notwithstanding anything herein to the contrary, the provisions of Sections 6, 7, 8 and 10 shall survive the termination of this Agreement.

     18. Entire Terms. This Agreement contains the entire understanding of the parties with respect to the employment of Employee by the Company. There are no restrictions, agreements, promises, warranties, covenants or undertakings other than those expressly set forth herein. This Agreement supersedes all prior agreements, arrangements and understandings between the parties, whether oral or written, with respect to the subject matter hereof

     19. Notices. Notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or if mailed in the manner specified herein, five (5) days after the postmark of such mailing when mailed by United States registered mail, return receipt requested, postage prepaid, addressed as follows:

If to Employee:

Frederick B. Beilstein III
2685 Hazy Hollow Run
Roswell, Georgia 30076

If to the Company to:

AFC Enterprises, Inc.
5555 Glenridge Connector NE, Suite 300
Atlanta, GA 30342

Attn: Legal Department

or to such other address or such other person as Employee or the Company shall designate in writing in accordance with this Section 19 except that notices regarding changes in notices shall be effective only upon receipt.

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     20. Headings. Headings to Sections in this Agreement are for the convenience of the parties only and are not intended to be a part of, or to affect the meaning or interpretation of, this Agreement.

     21. Governing Laws. The Agreement shall be governed by the laws of the State of Georgia without reference to the principles of conflict of laws.

     IN WITNESS WHEREOF, the Company has caused this Agreement to be executed and Employee has hereunto set his hand as of the day and year first above written.

COMPANY: AFC ENTERPRISES, INC.
By:	/s/ Frank J. Belatti
	Frank J. Belatti
	Chairman of the Board
EMPLOYEE:
By:	/s/ Frederick B. Beilstein III
	Frederick B. Beilstein III

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EX-10.56

Exhibit 10.56

EMPLOYMENT AGREEMENT
Effective as of March 14, 2007 between
AFC Enterprises, Inc. (the “Company”) and
James W. Lyons (“Employee”)

     WHEREAS, the Company desires to continue the employment of Employee and to enter into an agreement embodying the terms of such employment; and

     WHEREAS, Employee desires to accept such employment and to enter into such agreement;

     NOW, THEREFORE, in consideration of the promises and mutual covenants contained herein and for other good and valuable consideration, the parties agree as follows:

     1. Term of Agreement.

     This Agreement shall be effective as of the date hereof and, unless earlier terminated pursuant to Section 8 or Section 9 hereof, shall be for an initial term of one (1) year (the “Term”). The Term of this Agreement and Employee’s employment hereunder will automatically be extended for an additional one-year period following the expiration of each year of employment hereunder (the “Renewal Date”), without further action by Employee or the Company. Such automatic one-year renewal shall continue from year to year unless and until either the Company or Employee gives to the other written notice not less than thirty (30) days prior to the applicable Renewal Date of its decision not to renew for an additional one year.

     For purposes of this Section 1 only, the first “year” of the Term shall be deemed to begin as of the date hereof and end on December 28, 2008, and each one (1) year period thereafter shall coincide with the Company’s fiscal year.

     2. Employment.

          2.01 Position. Employee shall serve as Chief Operating Officer of the Company and shall perform such duties consistent with his position as may be assigned to him from time to time by the Chief Executive Officer or the Board of Directors of the Company.

          2.02 Time and Efforts. Employee, so long as he is employed hereunder, shall devote his full business time and attention to the services required of him hereunder, except as otherwise agreed and for vacation time and reasonable periods of absence due to sickness or personal injury, and shall use his best efforts, judgment and energy to perform, improve and advance the business and interests of the Company in a manner consistent with the duties of his position.

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     3. Base Salary.

          Beginning as of March 2, 2007, the Company shall pay Employee, in equal installments no less frequently than monthly, a base salary at the rate of no less than Three Hundred Thousand Dollars ($300,000 U.S.) per annum (the “Base Salary”) during the Term hereof. The Employee’s Base Salary shall be reviewed by the Chief Executive Officer or the Board of Directors of the Company on an annual basis.

     4. Incentive Pay.

     4.01 Annual Plan. The Board of Directors of the Company, acting in its sole discretion, shall annually, at the beginning of each fiscal year of the Company, approve an annual incentive plan (the “Annual Incentive Plan”) for Employee, which Plan shall contain such terms and provisions as the Board of Directors shall determine. Any amounts payable to Employee pursuant to the Annual Incentive Plan is hereinafter referred to as “Incentive Pay”.

     4.02 Target Incentive Pay. The target incentive pay (“Target Incentive Pay”) for Employee for the 2007 fiscal year of the Company shall be as follows: One Hundred Eighty Thousand Dollars (U.S. $180,000); provided, however, that the Target Incentive Pay with respect to any fiscal year is subject to, and may be modified by, the Annual Incentive Plan approved by the Board of Directors pursuant to Section 4.01 above and this Section 4.02 shall be read accordingly. After 2007, the Target Incentive Pay for Employee will be set by the Chief Executive Officer or the Board of Directors of the Company for each fiscal year and will be included in the Annual Incentive Plan for such year.

     4.03 Payment of Incentive Pay. If Employee is entitled to payment of any Incentive Pay for any fiscal year, an accounting will be furnished and payment will be made to Employee as set forth in the Annual Incentive Plan, but in no event later than two and one-half months following the end of each fiscal year.

     4.04 Termination of Employment. If Employee’s employment hereunder shall terminate other than pursuant to Sections 8.03 or 8.04, Employee shall receive, at the time contemplated by the Annual Incentive Plan, such Incentive Pay, if any, to which he would have been entitled under the terms of the Annual Incentive Plan had Employee remained in the employ of the Company for the entire fiscal year in which such termination occurs. If Employee’s employment hereunder shall terminate pursuant to (a) Section 8.03, the provisions of Section 8.03 shall determine the amount of Incentive Pay payable to Employee; or (b) Section 8.04, no Incentive Pay shall be payable to Employee after such termination.

     5. Restricted Stock Grant.

     As soon as practicable after the execution of this Agreement, the Company shall grant to Employee 10,000 shares of restricted stock. Such shares of restricted stock shall vest over three years, with one-third vesting on each anniversary date of the grant. As part of the Employee’s

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compensation after the Company’s 2007 fiscal year, Employee may be granted restricted stock and/or stock options in the future based upon Employee’s performance as determined in the sole discretion of the Board of Directors of the Company.

     6. Employee Benefits.

     6.01 Executive Flex Perk. Employee shall be entitled to participate in the Company’s Executive Flex Perk Plan subject to the terms, conditions and limitations thereof. The Company will pay to, or for the benefit of Employee, an amount equal to $15,000.00 per year payable in the same manner as Employee’s Base Salary is paid.

     6.02 Life Insurance. During the term and any renewal term of this Agreement, Employee shall be entitled to life insurance coverage paid by the Company with a death benefit in an amount not less than $1,500,000.

     6.03 Disability Insurance.

          (a) During the Term and any renewal term of this Agreement, Employee shall be entitled to disability insurance coverage in an amount not less than his disability coverage on the date of this Agreement and the Company shall maintain in full force and effect during the Term a Supplemental Disability Policy which will supplement the benefits payable under any disability benefit provided to Employee by the Company under its basic employee health care benefit program, so that, subject to Section 6.07 below, with respect to a disability as defined in the Supplemental Disability Policy (a “Disability”) occurring after the Company has obtained the Supplemental Disability Policy, the total monthly disability benefit (the “Disability Benefit”) payable to Employee under all disability policies maintained by the Company, after a maximum elimination period of ninety (90) days, shall equal 70% of the sum of Employee’s Base Salary and Incentive Pay for the year immediately preceding the year in which the Disability occurs.

          (b) Notwithstanding anything herein to the contrary, if the premiums for the Supplemental Disability Policy for Employee shall exceed regular, non-rated premiums, the Company may, but shall have no obligation to, fund such excess. In the event the Company determines not to fund such excess it shall promptly notify Employee and Employee may, at his option, elect to pay the excess. If Employee fails to pay such excess or if for any other reason the Company, after reasonable efforts, is not able to obtain the Supplemental Disability Income Policy required herein, then Employee shall not be entitled to any Disability Benefit hereunder except as may otherwise be determined in the discretion of the Company and set forth in writing.

     6.04 Executive Medical Benefit. The Company, at its expense, shall provide Employee with an annual physical examination to be conducted by a physician or physicians as determined by the Company, or by Employee with the approval of the Company.

     6.05 Other Benefits. Employee shall be provided additional employee benefits, including health, accident and disability insurance under the Company’s regular and ongoing plans, policies and programs available, from time to time, to senior officers of the Company, in accordance with the provisions of such plans, policies and programs governing eligibility and

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participation; provided, however, that such benefits may be modified, amended or rescinded by the Board of Directors of the Company in its sole discretion.

     6.06 Vacation. Employee shall be entitled to four (4) weeks paid vacation each year during the Term hereof and any renewal therof. Any vacation not used in any year shall not accrue for use in subsequent years and shall be forfeited as of the end of such year.

     6.07 Paramount Provisions.

             (a) Notwithstanding anything in Sections 6.02 and 6.03 above or any other provision of this Agreement to the contrary, if the Company has met all of its obligations under this Agreement with respect to obtaining and maintaining in force (i) the life insurance policy described in Section 6.02 hereof on the life of Employee to fund the minimum death benefit described therein or (ii) the Supplemental Disability Policy maintained for Employee pursuant to Section 6.03 hereof to fund such Employee’s Disability Benefit, but all or any portion of the proceeds under any such policy are not actually received by the Employee for any reason whatsoever, including without limitation the insolvency of the insurer or any misrepresentation made by Employee in the application for such insurance, then the right of Employee or his designated beneficiary to receive a Disability Benefit or a death benefit, as the case may be, shall be reduced (but not below zero) by the amount by which the Disability Benefit or death benefit otherwise payable exceeds the insurance proceeds actually received.

             (b) Anything in Sections 6.01, 6.02, 6.03, and 6.04 to the contrary notwithstanding, the amount of the benefits provided for in Section 6 are subject to adjustment as shall be provided for in the plan or insurance contract, as the case may be, pursuant to which such benefit is being paid and the Employee will be given written notice of any such change. Anything in this Agreement to the contrary notwithstanding, the Chief Executive Officer or the Board of Directors shall have full authority to make all determinations deemed necessary or advisable for the administration of the benefits described in this Section 6. The good faith interpretation and construction by the Chief Executive Officer or the Board of Directors of the terms of this Section 6 or the benefit programs described herein shall be final, conclusive and binding on Employee.

     7. Business Expenses.

     All reasonable and customary business expenses incurred by Employee in the performance of his duties hereunder shall be paid or reimbursed by the Company in accordance with the Company’s policies in effect, from time to time.

     8. Termination of Employment.

     8.01 Definitions. For purposes of this Section 8, the following terms shall have the following meanings:

          (a) Cause. The term “Cause” shall mean (i) Employee commits fraud or is convicted of a crime involving moral turpitude, (ii) Employee, in carrying out his duties hereunder, has

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been guilty of gross neglect or gross misconduct resulting in harm to the Company or any of its subsidiaries or affiliates, (iii) Employee shall have failed to materially comply with the policies of the Company or shall have refused to follow or comply with the duly promulgated directives of the Chief Executive Officer or the Board of Directors of the Company, (iv) Employee has breached any of the provisions of Section 10.02 through and including 10.04 or (v) Employee otherwise materially breaches this Agreement.

          (b) Disability. The term “Disability” shall mean the good faith determination by the Chief Executive Officer or of the Board of Directors of the Company that Employee has failed to or has been unable to perform his duties as the result of any physical or mental disability for a period of ninety (90) consecutive days during any one period of Disability.

     8.02 Termination upon Death or Disability. If Employee’s employment is terminated due to his death or Disability, the Company shall pay to the estate of the Employee or to the Employee, as the case may be, within fifteen (15) days following Employee’s death or upon his termination in the event of Disability, all amounts then payable to Employee pro rated through the date of termination pursuant to Sections 3 and 6.01, and the amount of any accrued but unused vacation under Section 6.06 for the year in which such termination occurs and any reimbursable amounts owed Employee under Section 7. In addition, the Company shall pay to Employee any Incentive Pay payable pursuant to Section 4.04 hereof in accordance with the terms thereof.

     8.03 Termination by the Company for other than Death or Disability or for Cause. The Company may terminate Employee’s employment hereunder without cause at any time, upon written notice. If upon expiration of the term of this Agreement or if Employee’s employment is terminated by the Company prior to the expiration of the term of this Agreement without cause or other than (i) by reason of Employee’s death or Disability or (ii) for Cause, the Company shall pay or provide to Employee, in lieu of all other amounts payable hereunder or benefits to be provided hereunder the following: (a) a payment equal to the sum of one (1) times Employee’s Base Salary at the time of termination; (b) a payment equal to one (1) times Employee’s Target Incentive Pay for the year in which such termination occurs (or, if no Target Incentive Pay has been designated for such year, then the Target Incentive Pay for the last year in which it was designated prior to such termination), and (c) the acceleration of any unvested rights of Employee under any stock options or other equity incentive programs such that they shall immediately vest under the terms of such plans. As a condition precedent to the requirement of Company to make such payments or grant such accelerated vesting, Employee shall not be in breach of his obligations under Section 10 hereof and Employee shall execute and deliver to Company a general release in favor of the Company in substantially the same form as the general release then contained in the latest Severance Agreement being used by the Company.

     Any payments required to be made under this Section 8.03 shall be made to Employee within thirty (30) days after the date of Employee’s termination of employment.

     8.04 Voluntary Termination by Employee or Termination for Cause. Employee may terminate his employment hereunder at any time whatsoever, with or without cause, upon thirty (30) days prior written notice to the Company. The Company may terminate Employee’s

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employment hereunder at any time without notice for Cause. In the event Employee’s employment is terminated voluntarily by Employee or by the Company for Cause:

          (a) The Company shall pay to Employee upon such termination all amounts then due under sections 3, 4 (but only to the extent of earned but unpaid Incentive Pay), 6, and 7, prorated, through the date of termination for the year in which he is terminated; and

          (b) The Company shall be under no obligation to make severance payments to Employee or continue any benefits being provided to Employee beyond the date of such termination.

     9. Change of Control, Change in Responsibilities.

     Upon the occurrence of both of the following events:

          (a) The dissolution or liquidation of the Company, or a reorganization, merger or consolidation of the Company with one or more corporations as a result of which the owners of all of the outstanding shares of Common Stock immediately prior to such reorganization, merger or consolidation own in the aggregate, directly and indirectly, less than 50% of the outstanding shares of Common Stock of the Company or any other entity into which the Company shall be merged or consolidated immediately following the consummation thereof, or the sale, transfer or other disposition of all or substantially all of the assets or more than 50% of the then outstanding shares of Common Stock of the Company in a single transaction or series of related transactions (a “Change in Control”); and

          (b) Within one (1) year of such Change in Control there is a termination of employment without cause or a material diminution of or change in Employee’s responsibilities or duties, Employee may elect, in writing, within ninety (90) days following the occurrence of such events, to terminate this Agreement and his employment with the Company will terminate, effective thirty (30) days after the Company’s receipt of such notice. In such event Employee shall be deemed to have been terminated by the Company other than for Cause and all amounts payable to Employee pursuant to Section 8.03 shall become immediately due and payable.

          A Change in Control of the Company shall not be deemed to occur by reason of any public offering of the Common Stock of the Company.

          Except as expressly contemplated by this Agreement, or in any other agreement referred to in Section 5 hereof, no merger, reorganization, recapitalization, sale of stock, sale of assets or other change in the capital structure of the Company or in the identity of the legal or beneficial owners of the Company shall affect the rights or obligations of the Company or Employee hereunder.

     10. Confidentiality and Non-Competition.

     10.01 Definitions. For purposes of this Section 10, the following terms shall have the following meanings:

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          “Affiliate” means any corporation, limited liability company, partnership or other entity of which the Company owns at least fifty percent (50%) of the outstanding equity and voting rights, directly or indirectly, through any other corporation, limited liability company, partnership or other entity.

          “Businesses” means the businesses engaged in by the Company directly or through its Affiliates immediately prior to termination of employment.

          “Confidential Information” means information which does not rise to the level of a Trade Secret, but is valuable to the Company or any Affiliate and provided in confidence to Employee.

          “Proprietary Information” means, collectively, Trade Secrets and Confidential Information.

          “Restricted Period” means the period commencing as of the date hereof and ending on that date two years (2) year after the termination of Employee’s employment with the Company for any reason, whether voluntary or involuntary.

          “Trade Secrets” means information which derives economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

     10.02 Covenant Not-To-Disclose. The Company and Employee recognize that, during the course of Employee’s employment with the Company, the Company has disclosed and will continue to disclose to Employee Proprietary Information concerning the Company and the Affiliates, their products, their franchisees, their services and other matters concerning their Businesses, all of which constitute valuable assets of the Company and the Affiliates. The Company and Employee further acknowledge that the Company has, and will, invest considerable amounts of time, effort and corporate resources in developing such valuable assets and that disclosure by Employee of such assets to the public shall cause irreparable harm, damage and loss to the Company and the Affiliates. Accordingly, Employee acknowledges and agrees:

          (a) that the Proprietary Information is and shall remain the exclusive property of the Company (or the applicable Affiliate);

          (b) to use the Proprietary Information exclusively for the purpose of fulfilling the obligations under this Agreement;

          (c) to return the Proprietary Information, and any copies thereof, in his possession or under his control, to the Company (or the applicable Affiliate) upon request of the Company (or the Affiliate), or expiration or termination of Employee’s employment hereunder for any reason; and

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          (d) to hold the Proprietary Information in confidence and not copy, publish or disclose to others or allow any other party to copy, publish or disclose to others in any form, any Proprietary Information without the prior written approval of an authorized representative of the Company.

     The obligations and restrictions set forth in this Section 10.02 shall survive the expiration or termination of this Agreement, for any reason, and shall remain in full force and effect as follows:

          (a) as to Trade Secrets, indefinitely, and

          (b) as to Confidential Information, for a period of two (2) years after the expiration or termination of this Agreement for any reason.

     The confidentiality, property, and proprietary rights protections available in this Agreement are in addition to, and not exclusive of, any and all other corporate rights, including those provided under copyright, corporate officer or director fiduciary duties, and trade secret and confidential information laws. The obligations set forth in this Section 10.02 shall not apply or shall terminate with respect to any particular portion of the Proprietary Information which (i) was in Employee’s possession, free of any obligation of confidence, prior to his receipt from the Company or its Affiliate, (ii) Employee establishes the Proprietary Information is already in the public domain at the time the Company or the Affiliate communicates it to Employee, or becomes available to the public through no breach of this Agreement by Employee, or (iii) Employee establishes that he received the Proprietary Information independently and in good faith from a third party lawfully in possession thereof and having no obligation to keep such information confidential.

     10.03 Covenant of Non-Disparagement and Cooperation. Employee agrees that he shall not at any time during or following the term of this Agreement make any remarks disparaging the conduct or character of the Company or the Affiliates or any of the Company’s or the Affiliates’ current or former agents, employees, officers, directors, successors or assigns (collectively the “Related Parties”). In addition, Employee agrees to cooperate with the Related Parties, at no extra cost, in any litigation or administrative proceedings (e.g., EEOC charges) involving any matters with which Employee was involved during Employee’s employment with the Company. The Company shall reimburse Employee for reasonable expenses incurred by Employee in providing such assistance.

     10.04 Covenant Not-To-Induce. Employee covenants and agrees that during the Restricted Period, he will not, directly or indirectly, on his own behalf or in the service or on behalf of others, hire, solicit, take away or attempt to hire, solicit or take away any person who is or was an employee of the Company or any Affiliate during the one (1) year period preceding the termination of Employee’s employment.

     10.05 Remedies. The Company and Employee expressly agree that a violation of any of the covenants contained in subsections 10.02 through and including 10.04 of this Section 10, or

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any provision thereof, shall cause irreparable injury to the Company and that, accordingly, the Company shall be entitled, in addition to any other rights and remedies it may have at law or in equity, to an injunction enjoining and restraining Employee from doing or continuing to do any such act and any other violation or threatened violation of said Sections 10.02 through and including 10.04 hereof.

     10.06 Severability. In the event any provision of this Agreement shall be found to be void, the remaining provisions of this Agreement shall nevertheless be binding with the same effect as though the void part were deleted; provided, however, if subsections 10.02 through and including 10.04 of this Section 10 shall be declared invalid, in whole or in part, Employee shall execute, as soon as possible, a supplemental agreement with the Company, granting the Company, to the extent legally possible, the protection afforded by said subsections. It is expressly understood and agreed by the parties hereto that the Company shall not be barred from enforcing the restrictive covenants contained in each of subsections 10.02 through and including 10.04, as each are separate and distinct, so that the invalidity of any one or more of said covenants shall not affect the enforceability and validity of the other covenants.

     10.07 Ownership of Property. Employee agrees and acknowledges that all works of authorship and inventions, including but not limited to products, goods, know-how, Trade Secrets and Confidential Information, and any revisions thereof, in any form and in whatever stage of creation or development, arising out of or resulting from, or in connection with, the services provided by Employee to the Company or any Affiliate under this Agreement are works made for hire and shall be the sole and exclusive property of the Company or such Affiliate. Employee agrees to execute such documents as the Company may reasonably request for the purpose of effectuating the rights of the Company or the Affiliate in any such property.

     10.08 No Defense. The existence of any claim, demand, action or cause of action of the Employee against the Company shall not constitute a defense to the enforcement by the Company of any of the covenants or agreements herein.

     11. Gross Up Payment. The term “Gross Up Payment” as used in this Agreement shall mean a payment to or on behalf of Employee which shall be sufficient to pay (1) 100% of any excise tax described in this Section 11, (2) 100% of any federal, state and local income tax and social security and other employment tax on the payment made to pay such excise tax as well as any additional taxes on such payment and (3) 100% of any interest or penalties assessed by the Internal Revenue Service on Employee which are related to the timely payment of such excise tax (unless such interest or penalties are attributable to Employee’s willful misconduct or gross negligence with respect to such timely payment). A Gross Up Payment shall be made by the Company promptly after either the Company or the Company’s independent accountants determine that any payments and benefits called for under this Employment Agreement together with any other payments and benefits made available to Employee by the Company and any other person will result in Employee being subject to an excise tax under § 4999 of the Internal Revenue Code of 1986, as amended (which shall be referred to in this Section 11 as the “Code”) or such an excise tax is assessed against Employee as a result of any such payments and other benefits if Employee takes such action (other than waiving Employee’s right to any payments or benefits in excess of the payments or benefits which Employee has expressly agreed to waive

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under this Section 11) as the Company reasonably requests under the circumstances to mitigate or challenge such excise tax; provided, however, if the Company or the Company’s independent accountants make the determination described in this Section 11 and, further, determine that Employee will not be subject to any such excise tax if Employee waives Employee’s right to receive a part of such payments or benefits and such part does not exceed $10,000, Employee shall irrevocably waive Employee’s right to receive such part if an independent accountant or lawyer retained by Employee and paid by the Company agrees with the determination made by the Company or the Company’s independent accountants with respect to the effect of such reduction in payments or benefits. Any determinations under this Section 11 shall be made in accordance with § 280G of the Code and any applicable related regulations (whether proposed, temporary or final) and any related Internal Revenue Service rulings and any related case law and, if the Company reasonably requests that Employee take action to mitigate or challenge, or to mitigate and challenge, any such tax or assessment (other than waiving Employee’s right to any payments or benefits in excess of the payments or benefits which Employee has expressly agreed to waive under this Section 11) and Employee complies with such request, the Company shall provide Employee with such information and such expert advice and assistance from the Company’s independent accountants, lawyers and other advisors as Employee may reasonably request and shall pay for all expenses incurred in effecting such compliance and any related fines, penalties, interest and other assessments.

     12. Indemnification.

     12.01 Company Obligations. The Company hereby indemnifies and agrees to hold harmless Employee, to the extent allowed by applicable law, against all liabilities, obligations, claims, demands, actions, causes of action, lawsuits, judgments, expenses and costs, including but not limited to the reasonable costs of investigation and attorney’s fees, incurred by the Employee as a result of any threat, demand, claim action or lawsuits, made, instituted or initiated against the Employee, which arises out of, results from or relates to this Agreement or any action taken by Employee in the course of performance of Employee’s duties hereunder, except for Employee’s own gross negligence or willful misconduct.

     12.02 Notice and Defense of Claim. If any claim suit or other legal proceeding shall be commenced, or any claim or demand be asserted against the Employee and Employee desires indemnification pursuant to this paragraph, the Company shall be notified to such effect with reasonable promptness and shall have the right to assume at its full cost and expense the entire control of any legal proceeding, subject to the right of the Employee to participate at his full cost and expense and with counsel of his choice in the defense, compromise or settlement thereof. The Employee shall cooperate fully in all respects with the Company in any such defense, compromise or settlement, including, without limitation, making available to the Company all pertinent information under the control of the Employee. The Company may compromise or settle any such action, suit, proceeding, claim or demand without Employee’s approval so long as the Company obtains for Employee’s benefit a release of liability with respect to such claim from the claimant and the Company assumes and agrees to pay any amounts due with respect to such settlement. In no event shall the Company be liable for any settlement entered into by the Employee without the Company’s prior written consent.

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     12.03 Survival. The provisions of this paragraph 12 shall survive the termination of this Agreement for a period of four (4) years, unless Employee is terminated for Cause, in which event the provisions of this Section 12 shall not survive termination of this Agreement.

     13. Dispute Resolution.

     13.01 Agreement to Arbitrate. In consideration for his continued employment with the Company, and other consideration, the sufficiency of which is hereby acknowledged, but subject to Section 6.07(b) above, Employee acknowledges and agrees that any controversy or claim arising out of or relating to Employees employment, termination of employment, or this Agreement including, but not limited to, controversies and claims that are protected or covered by any federal, state, or local statute, regulation or common law, shall be settled by arbitration pursuant to the Federal Arbitration Act. This includes, but is not limited to, violations or alleged violations of any federal or state statute or common law (including, but not limited to, the laws of the United States or of any state, or the Constitution of the United States or of any state), or of any other law, statute, ordinance, including but not limited to, the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, as amended, the Americans with Disabilities Act, the Equal Pay Act, the Employee Retirement Income Security Act, the Rehabilitation Act of 1973, and any other statute or common law. This provision shall not, however, preclude the Company from seeking equitable relief as provided in Section 10.06 of this Agreement.

     13.02 Procedure. The arbitration shall be conducted in accordance with the Employment Arbitration Rules of the American Arbitration Association: a single arbitrator who is experienced in employment law shall be selected under those Rules, and the arbitration shall be initiated in Atlanta, Georgia, unless the parties agree in writing to a different location or the Arbitrator directs the arbitration to be held at a different location. Except for filing fees, all costs of the arbitrator shall be allocated by the arbitrator. The award rendered by the arbitrator shall be final and binding on the parties hereto and judgment thereon may be entered in any court having jurisdiction thereof. In addition to that provided for in the Employment Arbitration Rules, the arbitrator has sole discretion to permit discovery consistent with the Federal Rules of Civil Procedure and the judicial interpretation of those rules upon request by any party; provided, however, it is the intent of the parties that the arbitrator limit the time and scope of any such discovery to the greatest extent practicable and provide a decision as rapidly as possible given the circumstances of the claims to be determined. The arbitrator also shall have the power and authority to grant injunctive relief for any violation of Sections 10.02 through and including 10.04 and the arbitrator’s order granting such relief may be entered in any court of competent jurisdiction. The agreement to arbitrate any claim arising out of the employment relationship or termination of employment shall not apply to those claims which cannot be made subject to this provision by statute, regulation or common law. These include, but are not limited to, any claims relating to work related injuries and claims for unemployment benefits under applicable state laws.

     13.03 Rights of Parties. Nothing in this clause shall be construed to prevent the Company from asking a court of competent jurisdiction to enter appropriate equitable relief to enjoin any violation of this Agreement by Employee. The Company shall have the right to seek

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such relief in connection with or apart from the parties’ rights under this clause to arbitrate all disputes. With respect to disputes arising under this Agreement that are submitted to a court rather than an arbitrator, including actions to compel arbitration or for equitable relief in aid of arbitration, the parties agree that venue and jurisdiction are proper in any state or federal court lying within Atlanta, Georgia and specifically consent to the jurisdiction and venue of such court for the purpose of any proceedings contemplated by this paragraph. By entering into this Agreement the parties have waived any right which may exist for a trial by jury and have expressly agreed to resolve any disputes covered by this Agreement through the arbitration process described herein.

     14. Employee Acknowledgment.

     By signing this Agreement, Employee acknowledges that the Company has advised Employee of his right to consult with an attorney prior to executing this Agreement; that he has the right to retain counsel of his own choosing concerning the agreement to arbitrate or any waiver of rights or claims; that he has read and fully understands the terms of this Agreement and/or has had the right to have it reviewed and approved by counsel of choice, with adequate opportunity and time for such review; and that he is fully aware of its contents and of its legal effect. Accordingly, this Agreement shall not be construed against any party on the grounds that the party drafted this Agreement. Instead, this Agreement shall be interpreted as though drafted equally by all parties.

     15. Amendments.

     This Agreement may not be altered, modified or amended except by a written instrument signed by each of the parties hereto.

     16. Successors.

     As used in this Agreement, the term the Company shall include any successors to all or substantially all of the business and/or assets of the Company which assumes and agrees to perform this Agreement.

     17. Assignment.

     Neither this Agreement nor any of the rights or obligations of either party hereunder shall be assigned or delegated by any party hereto without the prior written consent of the other party, except that the Company may without the consent of Employee assign its rights and delegate its duties hereunder to any successor to the business of the Company. In the event of the assignment by the Company of its rights and the delegation of its duties to a successor to the business of the Company and the assumption of such rights and obligations by such successor, the Company shall, effective upon such assumption, be relieved from any and all obligations whatsoever to Employee hereunder.

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     18. Waiver.

     Waiver by any party hereto of any breach or default by any other party of any of the terms of this Agreement shall not operate as a waiver of any other breach or default, whether similar to or different from the breach or default waived.

     19. Severability.

     In the event that any one or more of the provisions of this Agreement shall be or become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby.

     20. Survival.

     Notwithstanding anything herein to the contrary, the provisions of Sections 6.07, 7, 8.03, 9, 10, and 12 shall survive the termination of this Agreement.

     21. Entire Terms.

     This Agreement contains the entire understanding of the parties with respect to the employment of Employee by the Company. There are no restrictions, agreements, promises, warranties, covenants or undertakings other than those expressly set forth herein. This Agreement supersedes all prior agreements, arrangements and understandings between the parties, whether oral or written, with respect to the employment of Employee.

     22. Notices.

     Notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or if mailed in the manner specified herein, five (5) days after the postmark of such mailing when mailed by United States registered mail, return receipt requested, postage prepaid, addressed as follows:

If to Employee:

James W. Lyons
145 Celandine Way
Alpharetta, Georgia 30022

If to the Company to:

AFC Enterprises, Inc.
5555 Glenridge Connector NE
Suite 300
Atlanta, Georgia 30342
Attn: Chief Executive Officer

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or to such other address or such other person as Employee or the Company shall designate in writing in accordance with this Section 22 except that notices regarding changes in notices shall be effective only upon receipt.

     23. Headings.

     Headings to Sections in this Agreement are for the convenience of the parties only and are not intended to be a part of, or to affect the meaning or interpretation of, this Agreement.

     24. Governing Laws.

     The Agreement shall be governed by the laws of the State of Georgia without reference to the principles of conflict of laws.

[SIGNATURE PAGE FOLLOWS]

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     IN WITNESS WHEREOF, the Company has caused this Agreement to be executed and Employee has hereunto set his hand as of the day and year first above written.

COMPANY: AFC ENTERPRISES, INC.
By:	/s/ Frank J. Belatti
	Frank J. Belatti
	Chairman of the Board
EMPLOYEE:
/s/ James W. Lyons
James W. Lyons

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EX-10.57

Exhibit 10.57

EMPLOYMENT AGREEMENT

Effective as of March 14, 2007 between
AFC Enterprises, Inc. (the “Company”) and
Robert Calderin (“Employee”)

     WHEREAS, the Company desires to continue the employment of Employee and to enter into an agreement embodying the terms of such employment; and

     WHEREAS, Employee desires to accept such employment and to enter into such agreement;

     NOW, THEREFORE, in consideration of the promises and mutual covenants contained herein and for other good and valuable consideration, the parties agree as follows:

     1. Term of Agreement.

     This Agreement shall be effective as of the date hereof and, unless earlier terminated pursuant to Section 8 or Section 9 hereof, shall be for an initial term of one (1) year (the “Term”). The Term of this Agreement and Employee’s employment hereunder will automatically be extended for an additional one-year period following the expiration of each year of employment hereunder (the “Renewal Date”), without further action by Employee or the Company. Such automatic one-year renewal shall continue from year to year unless and until either the Company or Employee gives to the other written notice not less than thirty (30) days prior to the applicable Renewal Date of its decision not to renew for an additional one year.

     For purposes of this Section 1 only, the first “year” of the Term shall be deemed to begin as of the date hereof and end on December 28, 2008, and each one (1) year period thereafter shall coincide with the Company’s fiscal year.

     2. Employment.

          2.01 Position. Employee shall serve as Chief Marketing Officer of the Company and shall perform such duties consistent with his position as may be assigned to him from time to time by the Chief Executive Officer or the Board of Directors of the Company.

          2.02 Time and Efforts. Employee, so long as he is employed hereunder, shall devote his full business time and attention to the services required of him hereunder, except as otherwise agreed and for vacation time and reasonable periods of absence due to sickness or personal injury, and shall use his best efforts, judgment and energy to perform, improve and advance the business and interests of the Company in a manner consistent with the duties of his position.

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     3. Base Salary.

          The Company shall pay Employee, in equal installments no less frequently than monthly, a base salary at the rate of no less than Two Hundred Eighty Five Thousand One Hundred Thirty Seven Dollars ($285,137 U.S.) per annum (the “Base Salary”) during the Term hereof. The Employee’s Base Salary shall be reviewed by the Chief Executive Officer or the Board of Directors of the Company on an annual basis.

     4. Incentive Pay.

     4.01 Annual Plan. The Board of Directors of the Company, acting in its sole discretion, shall annually, at the beginning of each fiscal year of the Company, approve an annual incentive plan (the “Annual Incentive Plan”) for Employee, which Plan shall contain such terms and provisions as the Board of Directors shall determine. Any amounts payable to Employee pursuant to the Annual Incentive Plan is hereinafter referred to as “Incentive Pay”.

     4.02 Target Incentive Pay. The target Incentive Pay (“Target Incentive Pay”) for Employee for the 2007 fiscal year of the Company shall be as follows: One Hundred Twenty Eight Thousand Three Hundred Twelve Dollars (U.S. $128,312); provided, however, that the Target Incentive Pay with respect to any fiscal year is subject to, and may be modified by, the Annual Incentive Plan approved by the Board of Directors pursuant to Section 4.01 above and this Section 4.02 shall be read accordingly. After 2007, the Target Incentive Pay for Employee will be set by the Chief Executive Officer or the Board of Directors of the Company for each fiscal year and will be included in the Annual Incentive Plan for such year.

     4.03 Payment of Incentive Pay. If Employee is entitled to payment of any Incentive Pay for any fiscal year, an accounting will be furnished and payment will be made to Employee as set forth in the Annual Incentive Plan, but in no event later than two and one-half months following the end of each fiscal year.

     4.04 Termination of Employment. If Employee’s employment hereunder shall terminate other than pursuant to Sections 8.03 or 8.04, Employee shall receive, at the time contemplated by the Annual Incentive Plan, such Incentive Pay, if any, to which he would have been entitled under the terms of the Annual Incentive Plan had Employee remained in the employ of the Company for the entire fiscal year in which such termination occurs. If Employee’s employment hereunder shall terminate pursuant to (a) Section 8.03, the provisions of Section 8.03 shall determine the amount of Incentive Pay payable to Employee; or (b) Section 8.04, no Incentive Pay shall be payable to Employee after such termination.

     5. Restricted Stock Grant and Stock Options.

     As part of the Employee’s compensation after the Company’s 2007 fiscal year, Employee may be granted restricted stock and/or stock options in the future based upon Employee’s performance as determined in the sole discretion of the Board of Directors of the Company.

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     6. Employee Benefits.

     6.01 Executive Flex Perk. Employee shall be entitled to participate in the Company’s Executive Flex Perk Plan subject to the terms, conditions and limitations thereof. The Company will pay to, or for the benefit of Employee, an amount equal to $15,000.00 per year payable in the same manner as Employee’s Base Salary is paid.

     6.02 Life Insurance. During the term and any renewal term of this Agreement, Employee shall be entitled to life insurance coverage paid by the Company with a death benefit in an amount not less than $1,425,000.

     6.03 Disability Insurance.

          (a) During the Term and any renewal term of this Agreement, Employee shall be entitled to disability insurance coverage in an amount not less than his disability coverage on the date of this Agreement and the Company shall maintain in full force and effect during the Term a Supplemental Disability Policy which will supplement the benefits payable under any disability benefit provided to Employee by the Company under its basic employee health care benefit program, so that, subject to Section 6.07 below, with respect to a disability as defined in the Supplemental Disability Policy (a “Disability”) occurring after the Company has obtained the Supplemental Disability Policy, the total monthly disability benefit (the “Disability Benefit”) payable to Employee under all disability policies maintained by the Company, after a maximum elimination period of ninety (90) days, shall equal 70% of the sum of Employee’s Base Salary and Incentive Pay for the year immediately preceding the year in which the Disability occurs.

          (b) Notwithstanding anything herein to the contrary, if the premiums for the Supplemental Disability Policy for Employee shall exceed regular, non-rated premiums, the Company may, but shall have no obligation to, fund such excess. In the event the Company determines not to fund such excess it shall promptly notify Employee and Employee may, at his option, elect to pay the excess. If Employee fails to pay such excess or if for any other reason the Company, after reasonable efforts, is not able to obtain the Supplemental Disability Income Policy required herein, then Employee shall not be entitled to any Disability Benefit hereunder except as may otherwise be determined in the discretion of the Company and set forth in writing.

     6.04 Executive Medical Benefit. The Company, at its expense, shall provide Employee with an annual physical examination to be conducted by a physician or physicians as determined by the Company, or by Employee with the approval of the Company.

     6.05 Other Benefits. Employee shall be provided additional employee benefits, including health, accident and disability insurance under the Company’s regular and ongoing plans, policies and programs available, from time to time, to senior officers of the Company, in accordance with the provisions of such plans, policies and programs governing eligibility and participation; provided, however, that such benefits may be modified, amended or rescinded by the Board of Directors of the Company in its sole discretion.

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     6.06 Vacation. Employee shall be entitled to four (4) weeks paid vacation each year during the Term hereof and any renewal therof. Any vacation not used in any year shall not accrue for use in subsequent years and shall be forfeited as of the end of such year.

     6.07 Paramount Provisions.

          (a) Notwithstanding anything in Sections 6.02 and 6.03 above or any other provision of this Agreement to the contrary, if the Company has met all of its obligations under this Agreement with respect to obtaining and maintaining in force (i) the life insurance policy described in Section 6.02 hereof on the life of Employee to fund the minimum death benefit described therein or (ii) the Supplemental Disability Policy maintained for Employee pursuant to Section 6.03 hereof to fund such Employee’s Disability Benefit, but all or any portion of the proceeds under any such policy are not actually received by the Employee for any reason whatsoever, including without limitation the insolvency of the insurer or any misrepresentation made by Employee in the application for such insurance, then the right of Employee or his designated beneficiary to receive a Disability Benefit or a death benefit, as the case may be, shall be reduced (but not below zero) by the amount by which the Disability Benefit or death benefit otherwise payable exceeds the insurance proceeds actually received.

          (b) Anything in Sections 6.01, 6.02, 6.03, and 6.04 to the contrary notwithstanding, the amount of the benefits provided for in Section 6 are subject to adjustment as shall be provided for in the plan or insurance contract, as the case may be, pursuant to which such benefit is being paid and the Employee will be given written notice of any such change. Anything in this Agreement to the contrary notwithstanding, the Chief Executive Officer or the Board of Directors shall have full authority to make all determinations deemed necessary or advisable for the administration of the benefits described in this Section 6. The good faith interpretation and construction by the Chief Executive Officer or the Board of Directors of the terms of this Section 6 or the benefit programs described herein shall be final, conclusive and binding on Employee.

     7. Business Expenses.

     All reasonable and customary business expenses incurred by Employee in the performance of his duties hereunder shall be paid or reimbursed by the Company in accordance with the Company’s policies in effect, from time to time.

     8. Termination of Employment.

     8.01 Definitions. For purposes of this Section 8, the following terms shall have the following meanings:

          (a) Cause. The term “Cause” shall mean (i) Employee commits fraud or is convicted of a crime involving moral turpitude, (ii) Employee, in carrying out his duties hereunder, has been guilty of gross neglect or gross misconduct resulting in harm to the Company or any of its subsidiaries or affiliates, (iii) Employee shall have failed to materially comply with the policies

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of the Company or shall have refused to follow or comply with the duly promulgated directives of the Chief Executive Officer or the Board of Directors of the Company, (iv) Employee has breached any of the provisions of Section 10.02 through and including 10.04 or (v) Employee otherwise materially breaches this Agreement.

          (b) Disability. The term “Disability” shall mean the good faith determination by the Chief Executive Officer or of the Board of Directors of the Company that Employee has failed to or has been unable to perform his duties as the result of any physical or mental disability for a period of ninety (90) consecutive days during any one period of Disability.

     8.02 Termination upon Death or Disability. If Employee’s employment is terminated due to his death or Disability, the Company shall pay to the estate of the Employee or to the Employee, as the case may be, within fifteen (15) days following Employee’s death or upon his termination in the event of Disability, all amounts then payable to Employee pro rated through the date of termination pursuant to Sections 3 and 6.01, and the amount of any accrued but unused vacation under Section 6.06 for the year in which such termination occurs and any reimbursable amounts owed Employee under Section 7. In addition, the Company shall pay to Employee any Incentive Pay payable pursuant to Section 4.04 hereof in accordance with the terms thereof.

     8.03 Termination by the Company for other than Death or Disability or for Cause. The Company may terminate Employee’s employment hereunder without cause at any time, upon written notice. If upon expiration of the term of this Agreement or if Employee’s employment is terminated by the Company prior to the expiration of the term of this Agreement without cause or other than (i) by reason of Employee’s death or Disability or (ii) for Cause, the Company shall pay or provide to Employee, in lieu of all other amounts payable hereunder or benefits to be provided hereunder the following: (a) a payment equal to the sum of one (1) times Employee’s Base Salary at the time of termination; (b) a payment equal to one (1) times Employee’s Target Incentive Pay for the year in which such termination occurs (or, if no Target Incentive Pay has been designated for such year, then the Target Incentive Pay for the last year in which it was designated prior to such termination), and (c) the acceleration of any unvested rights of Employee under any stock options or other equity incentive programs such that they shall immediately vest under the terms of such plans. As a condition precedent to the requirement of Company to make such payments or grant such accelerated vesting, Employee shall not be in breach of his obligations under Section 10 hereof and Employee shall execute and deliver to Company a general release in favor of the Company in substantially the same form as the general release then contained in the latest Severance Agreement being used by the Company.

     Any payments required to be made under this Section 8.03 shall be made to Employee within thirty (30) days after the date of Employee’s termination of employment.

     8.04 Voluntary Termination by Employee or Termination for Cause. Employee may terminate his employment hereunder at any time whatsoever, with or without cause, upon thirty (30) days prior written notice to the Company. The Company may terminate Employee’s employment hereunder at any time without notice for Cause. In the event Employee’s employment is terminated voluntarily by Employee or by the Company for Cause:

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          (a) The Company shall pay to Employee upon such termination all amounts then due under sections 3, 4 (but only to the extent of earned but unpaid Incentive Pay), 6, and 7, prorated, through the date of termination for the year in which he is terminated; and

          (b) The Company shall be under no obligation to make severance payments to Employee or continue any benefits being provided to Employee beyond the date of such termination.

     9. Change of Control, Change in Responsibilities.

     Upon the occurrence of both of the following events:

          (a) The dissolution or liquidation of the Company, or a reorganization, merger or consolidation of the Company with one or more corporations as a result of which the owners of all of the outstanding shares of Common Stock immediately prior to such reorganization, merger or consolidation own in the aggregate, directly and indirectly, less than 50% of the outstanding shares of Common Stock of the Company or any other entity into which the Company shall be merged or consolidated immediately following the consummation thereof, or the sale, transfer or other disposition of all or substantially all of the assets or more than 50% of the then outstanding shares of Common Stock of the Company in a single transaction or series of related transactions (a “Change in Control”); and

          (b) Within one (1) year of such Change in Control there is a termination of employment without cause or a material diminution of or change in Employee’s responsibilities or duties, Employee may elect, in writing, within ninety (90) days following the occurrence of such events, to terminate this Agreement and his employment with the Company will terminate, effective thirty (30) days after the Company’s receipt of such notice. In such event Employee shall be deemed to have been terminated by the Company other than for Cause and all amounts payable to Employee pursuant to Section 8.03 shall become immediately due and payable.

     A Change in Control of the Company shall not be deemed to occur by reason of any public offering of the Common Stock of the Company.

     Except as expressly contemplated by this Agreement, or in any other agreement referred to in Section 5 hereof, no merger, reorganization, recapitalization, sale of stock, sale of assets or other change in the capital structure of the Company or in the identity of the legal or beneficial owners of the Company shall affect the rights or obligations of the Company or Employee hereunder.

     10. Confidentiality and Non-Competition.

     10.01 Definitions. For purposes of this Section 10, the following terms shall have the following meanings:

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          “Affiliate” means any corporation, limited liability company, partnership or other entity of which the Company owns at least fifty percent (50%) of the outstanding equity and voting rights, directly or indirectly, through any other corporation, limited liability company, partnership or other entity.

          “Businesses” means the businesses engaged in by the Company directly or through its Affiliates immediately prior to termination of employment.

          “Confidential Information” means information which does not rise to the level of a Trade Secret, but is valuable to the Company or any Affiliate and provided in confidence to Employee.

          “Proprietary Information” means, collectively, Trade Secrets and Confidential Information.

          “Restricted Period” means the period commencing as of the date hereof and ending on that date two years (2) year after the termination of Employee’s employment with the Company for any reason, whether voluntary or involuntary.

          “Trade Secrets” means information which derives economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

     10.02 Covenant Not-To-Disclose. The Company and Employee recognize that, during the course of Employee’s employment with the Company, the Company has disclosed and will continue to disclose to Employee Proprietary Information concerning the Company and the Affiliates, their products, their franchisees, their services and other matters concerning their Businesses, all of which constitute valuable assets of the Company and the Affiliates. The Company and Employee further acknowledge that the Company has, and will, invest considerable amounts of time, effort and corporate resources in developing such valuable assets and that disclosure by Employee of such assets to the public shall cause irreparable harm, damage and loss to the Company and the Affiliates. Accordingly, Employee acknowledges and agrees:

          (a) that the Proprietary Information is and shall remain the exclusive property of the Company (or the applicable Affiliate);

          (b) to use the Proprietary Information exclusively for the purpose of fulfilling the obligations under this Agreement;

          (c) to return the Proprietary Information, and any copies thereof, in his possession or under his control, to the Company (or the applicable Affiliate) upon request of the Company (or the Affiliate), or expiration or termination of Employee’s employment hereunder for any reason; and

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          (d) to hold the Proprietary Information in confidence and not copy, publish or disclose to others or allow any other party to copy, publish or disclose to others in any form, any Proprietary Information without the prior written approval of an authorized representative of the Company.

     The obligations and restrictions set forth in this Section 10.02 shall survive the expiration or termination of this Agreement, for any reason, and shall remain in full force and effect as follows:

          (a) as to Trade Secrets, indefinitely, and

          (b) as to Confidential Information, for a period of two (2) years after the expiration or termination of this Agreement for any reason.

     The confidentiality, property, and proprietary rights protections available in this Agreement are in addition to, and not exclusive of, any and all other corporate rights, including those provided under copyright, corporate officer or director fiduciary duties, and trade secret and confidential information laws. The obligations set forth in this Section 10.02 shall not apply or shall terminate with respect to any particular portion of the Proprietary Information which (i) was in Employee’s possession, free of any obligation of confidence, prior to his receipt from the Company or its Affiliate, (ii) Employee establishes the Proprietary Information is already in the public domain at the time the Company or the Affiliate communicates it to Employee, or becomes available to the public through no breach of this Agreement by Employee, or (iii) Employee establishes that he received the Proprietary Information independently and in good faith from a third party lawfully in possession thereof and having no obligation to keep such information confidential.

     10.03 Covenant of Non-Disparagement and Cooperation. Employee agrees that he shall not at any time during or following the term of this Agreement make any remarks disparaging the conduct or character of the Company or the Affiliates or any of the Company’s or the Affiliates’ current or former agents, employees, officers, directors, successors or assigns (collectively the “Related Parties”). In addition, Employee agrees to cooperate with the Related Parties, at no extra cost, in any litigation or administrative proceedings (e.g., EEOC charges) involving any matters with which Employee was involved during Employee’s employment with the Company. The Company shall reimburse Employee for reasonable expenses incurred by Employee in providing such assistance.

     10.04 Covenant Not-To-Induce. Employee covenants and agrees that during the Restricted Period, he will not, directly or indirectly, on his own behalf or in the service or on behalf of others, hire, solicit, take away or attempt to hire, solicit or take away any person who is or was an employee of the Company or any Affiliate during the one (1) year period preceding the termination of Employee’s employment.

     10.05 Remedies. The Company and Employee expressly agree that a violation of any of the covenants contained in subsections 10.02 through and including 10.04 of this Section 10, or any provision thereof, shall cause irreparable injury to the Company and that, accordingly, the

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Company shall be entitled, in addition to any other rights and remedies it may have at law or in equity, to an injunction enjoining and restraining Employee from doing or continuing to do any such act and any other violation or threatened violation of said Sections 10.02 through and including 10.04 hereof.

     10.06 Severability. In the event any provision of this Agreement shall be found to be void, the remaining provisions of this Agreement shall nevertheless be binding with the same effect as though the void part were deleted; provided, however, if subsections 10.02 through and including 10.04 of this Section 10 shall be declared invalid, in whole or in part, Employee shall execute, as soon as possible, a supplemental agreement with the Company, granting the Company, to the extent legally possible, the protection afforded by said subsections. It is expressly understood and agreed by the parties hereto that the Company shall not be barred from enforcing the restrictive covenants contained in each of subsections 10.02 through and including 10.04, as each are separate and distinct, so that the invalidity of any one or more of said covenants shall not affect the enforceability and validity of the other covenants.

     10.07 Ownership of Property. Employee agrees and acknowledges that all works of authorship and inventions, including but not limited to products, goods, know-how, Trade Secrets and Confidential Information, and any revisions thereof, in any form and in whatever stage of creation or development, arising out of or resulting from, or in connection with, the services provided by Employee to the Company or any Affiliate under this Agreement are works made for hire and shall be the sole and exclusive property of the Company or such Affiliate. Employee agrees to execute such documents as the Company may reasonably request for the purpose of effectuating the rights of the Company or the Affiliate in any such property.

     10.08 No Defense. The existence of any claim, demand, action or cause of action of the Employee against the Company shall not constitute a defense to the enforcement by the Company of any of the covenants or agreements herein.

     11. Gross Up Payment. The term “Gross Up Payment” as used in this Agreement shall mean a payment to or on behalf of Employee which shall be sufficient to pay (1) 100% of any excise tax described in this Section 11, (2) 100% of any federal, state and local income tax and social security and other employment tax on the payment made to pay such excise tax as well as any additional taxes on such payment and (3) 100% of any interest or penalties assessed by the Internal Revenue Service on Employee which are related to the timely payment of such excise tax (unless such interest or penalties are attributable to Employee’s willful misconduct or gross negligence with respect to such timely payment). A Gross Up Payment shall be made by the Company promptly after either the Company or the Company’s independent accountants determine that any payments and benefits called for under this Employment Agreement together with any other payments and benefits made available to Employee by the Company and any other person will result in Employee being subject to an excise tax under § 4999 of the Internal Revenue Code of 1986, as amended (which shall be referred to in this Section 11 as the “Code”) or such an excise tax is assessed against Employee as a result of any such payments and other benefits if Employee takes such action (other than waiving Employee’s right to any payments or benefits in excess of the payments or benefits which Employee has expressly agreed to waive under this Section 11) as the Company reasonably requests under the circumstances to mitigate

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or challenge such excise tax; provided, however, if the Company or the Company’s independent accountants make the determination described in this Section 11 and, further, determine that Employee will not be subject to any such excise tax if Employee waives Employee’s right to receive a part of such payments or benefits and such part does not exceed $10,000, Employee shall irrevocably waive Employee’s right to receive such part if an independent accountant or lawyer retained by Employee and paid by the Company agrees with the determination made by the Company or the Company’s independent accountants with respect to the effect of such reduction in payments or benefits. Any determinations under this Section 11 shall be made in accordance with § 280G of the Code and any applicable related regulations (whether proposed, temporary or final) and any related Internal Revenue Service rulings and any related case law and, if the Company reasonably requests that Employee take action to mitigate or challenge, or to mitigate and challenge, any such tax or assessment (other than waiving Employee’s right to any payments or benefits in excess of the payments or benefits which Employee has expressly agreed to waive under this Section 11) and Employee complies with such request, the Company shall provide Employee with such information and such expert advice and assistance from the Company’s independent accountants, lawyers and other advisors as Employee may reasonably request and shall pay for all expenses incurred in effecting such compliance and any related fines, penalties, interest and other assessments.

     12. Indemnification.

     12.01 Company Obligations. The Company hereby indemnifies and agrees to hold harmless Employee, to the extent allowed by applicable law, against all liabilities, obligations, claims, demands, actions, causes of action, lawsuits, judgments, expenses and costs, including but not limited to the reasonable costs of investigation and attorney’s fees, incurred by the Employee as a result of any threat, demand, claim action or lawsuits, made, instituted or initiated against the Employee, which arises out of, results from or relates to this Agreement or any action taken by Employee in the course of performance of Employee’s duties hereunder, except for Employee’s own gross negligence or willful misconduct.

     12.02 Notice and Defense of Claim. If any claim suit or other legal proceeding shall be commenced, or any claim or demand be asserted against the Employee and Employee desires indemnification pursuant to this paragraph, the Company shall be notified to such effect with reasonable promptness and shall have the right to assume at its full cost and expense the entire control of any legal proceeding, subject to the right of the Employee to participate at his full cost and expense and with counsel of his choice in the defense, compromise or settlement thereof. The Employee shall cooperate fully in all respects with the Company in any such defense, compromise or settlement, including, without limitation, making available to the Company all pertinent information under the control of the Employee. The Company may compromise or settle any such action, suit, proceeding, claim or demand without Employee’s approval so long as the Company obtains for Employee’s benefit a release of liability with respect to such claim from the claimant and the Company assumes and agrees to pay any amounts due with respect to such settlement. In no event shall the Company be liable for any settlement entered into by the Employee without the Company’s prior written consent.

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     12.03 Survival. The provisions of this paragraph 12 shall survive the termination of this Agreement for a period of four (4) years, unless Employee is terminated for Cause, in which event the provisions of this Section 12 shall not survive termination of this Agreement.

     13. Dispute Resolution.

     13.01 Agreement to Arbitrate. In consideration for his continued employment with the Company, and other consideration, the sufficiency of which is hereby acknowledged, but subject to Section 6.07(b) above, Employee acknowledges and agrees that any controversy or claim arising out of or relating to Employees employment, termination of employment, or this Agreement including, but not limited to, controversies and claims that are protected or covered by any federal, state, or local statute, regulation or common law, shall be settled by arbitration pursuant to the Federal Arbitration Act. This includes, but is not limited to, violations or alleged violations of any federal or state statute or common law (including, but not limited to, the laws of the United States or of any state, or the Constitution of the United States or of any state), or of any other law, statute, ordinance, including but not limited to, the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, as amended, the Americans with Disabilities Act, the Equal Pay Act, the Employee Retirement Income Security Act, the Rehabilitation Act of 1973, and any other statute or common law. This provision shall not, however, preclude the Company from seeking equitable relief as provided in Section 10.06 of this Agreement.

     13.02 Procedure. The arbitration shall be conducted in accordance with the Employment Arbitration Rules of the American Arbitration Association: a single arbitrator who is experienced in employment law shall be selected under those Rules, and the arbitration shall be initiated in Atlanta, Georgia, unless the parties agree in writing to a different location or the Arbitrator directs the arbitration to be held at a different location. Except for filing fees, all costs of the arbitrator shall be allocated by the arbitrator. The award rendered by the arbitrator shall be final and binding on the parties hereto and judgment thereon may be entered in any court having jurisdiction thereof. In addition to that provided for in the Employment Arbitration Rules, the arbitrator has sole discretion to permit discovery consistent with the Federal Rules of Civil Procedure and the judicial interpretation of those rules upon request by any party; provided, however, it is the intent of the parties that the arbitrator limit the time and scope of any such discovery to the greatest extent practicable and provide a decision as rapidly as possible given the circumstances of the claims to be determined. The arbitrator also shall have the power and authority to grant injunctive relief for any violation of Sections 10.02 through and including 10.04 and the arbitrator’s order granting such relief may be entered in any court of competent jurisdiction. The agreement to arbitrate any claim arising out of the employment relationship or termination of employment shall not apply to those claims which cannot be made subject to this provision by statute, regulation or common law. These include, but are not limited to, any claims relating to work related injuries and claims for unemployment benefits under applicable state laws.

     13.03 Rights of Parties. Nothing in this clause shall be construed to prevent the Company from asking a court of competent jurisdiction to enter appropriate equitable relief to enjoin any violation of this Agreement by Employee. The Company shall have the right to seek

Employee’s Initials:

11

such relief in connection with or apart from the parties’ rights under this clause to arbitrate all disputes. With respect to disputes arising under this Agreement that are submitted to a court rather than an arbitrator, including actions to compel arbitration or for equitable relief in aid of arbitration, the parties agree that venue and jurisdiction are proper in any state or federal court lying within Atlanta, Georgia and specifically consent to the jurisdiction and venue of such court for the purpose of any proceedings contemplated by this paragraph. By entering into this Agreement the parties have waived any right which may exist for a trial by jury and have expressly agreed to resolve any disputes covered by this Agreement through the arbitration process described herein.

     14. Employee Acknowledgment.

     By signing this Agreement, Employee acknowledges that the Company has advised Employee of his right to consult with an attorney prior to executing this Agreement; that he has the right to retain counsel of his own choosing concerning the agreement to arbitrate or any waiver of rights or claims; that he has read and fully understands the terms of this Agreement and/or has had the right to have it reviewed and approved by counsel of choice, with adequate opportunity and time for such review; and that he is fully aware of its contents and of its legal effect. Accordingly, this Agreement shall not be construed against any party on the grounds that the party drafted this Agreement. Instead, this Agreement shall be interpreted as though drafted equally by all parties.

     15. Amendments.

     This Agreement may not be altered, modified or amended except by a written instrument signed by each of the parties hereto.

     16. Successors.

     As used in this Agreement, the term the Company shall include any successors to all or substantially all of the business and/or assets of the Company which assumes and agrees to perform this Agreement.

     17. Assignment.

     Neither this Agreement nor any of the rights or obligations of either party hereunder shall be assigned or delegated by any party hereto without the prior written consent of the other party, except that the Company may without the consent of Employee assign its rights and delegate its duties hereunder to any successor to the business of the Company. In the event of the assignment by the Company of its rights and the delegation of its duties to a successor to the business of the Company and the assumption of such rights and obligations by such successor, the Company shall, effective upon such assumption, be relieved from any and all obligations whatsoever to Employee hereunder.

     18. Waiver.

Employee’s Initials:

12

     Waiver by any party hereto of any breach or default by any other party of any of the terms of this Agreement shall not operate as a waiver of any other breach or default, whether similar to or different from the breach or default waived.

     19. Severability.

     In the event that any one or more of the provisions of this Agreement shall be or become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby.

     20. Survival.

     Notwithstanding anything herein to the contrary, the provisions of Sections 6.07, 7, 8.03, 9, 10, and 12 shall survive the termination of this Agreement.

     21. Entire Terms.

     This Agreement contains the entire understanding of the parties with respect to the employment of Employee by the Company. There are no restrictions, agreements, promises, warranties, covenants or undertakings other than those expressly set forth herein. This Agreement supersedes all prior agreements, arrangements and understandings between the parties, whether oral or written, with respect to the employment of Employee.

     22. Notices.

     Notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or if mailed in the manner specified herein, five (5) days after the postmark of such mailing when mailed by United States registered mail, return receipt requested, postage prepaid, addressed as follows:

If to Employee:

Robert Calderin
3338 Peachtree Road
#2505
Atlanta, Georgia 30326

If to the Company to:

AFC Enterprises, Inc.
5555 Glenridge Connector NE
Suite 300
Atlanta, Georgia 30342
Attn: Chief Executive Officer

Employee’s Initials:

13

or to such other address or such other person as Employee or the Company shall designate in writing in accordance with this Section 22 except that notices regarding changes in notices shall be effective only upon receipt.

     23. Headings.

     Headings to Sections in this Agreement are for the convenience of the parties only and are not intended to be a part of, or to affect the meaning or interpretation of, this Agreement.

     24. Governing Laws.

     The Agreement shall be governed by the laws of the State of Georgia without reference to the principles of conflict of laws.

[SIGNATURE PAGE FOLLOWS]

Employee’s Initials:

14

     IN WITNESS WHEREOF, the Company has caused this Agreement to be executed and Employee has hereunto set his hand as of the day and year first above written.

COMPANY:
AFC ENTERPRISES, INC.
By:	/s/ Frank J. Belatti
	Frank J. Belatti
	Chairman of the Board
EMPLOYEE:
/s/ Robert Calderin
Robert Calderin

Employee’s Initials:

15

EX-10.58

Exhibit 10.58

FIRST AMENDMENT TO EMPLOYMENT AGREEMENT

BETWEEN
AFC ENTERPRISES, INC. (THE “COMPANY”)
AND
FRANK J. BELATTI (“EMPLOYEE”)

     WHEREAS, Employee and the Company are parties to an Employment Agreement dated as of August 31, 2005 (the “Employment Agreement”) governing the terms and conditions of Employee’s employment with the Company; and

     WHEREAS, the Company and Employee previously agreed that upon renewal of the Employment Agreement on September 1, 2006, that Employee would no longer receive reimbursement for office and support services; and

     WHEREAS, the Company and Employee desire to document such agreement and to amend the provision of the Employment Agreement pertaining thereto;

     NOW, THEREFORE, in consideration of the promises and mutual covenants contained herein and for other good and valuable consideration, the parties agree as follows:

     1. Section 9.02 is hereby deleted in its entirety.

     2. The Employment Agreement, as amended hereby, is hereby reaffirmed by the undersigned, and said Employment Agreement is hereby incorporated herein by reference as fully as if set forth in its entirety in this First Amendment.

     IN WITNESS WHEREOF, the Company has caused this First Amendment to be executed and Employee has hereunto set his hand this 12th day of March, 2007, effective for the year of the Employment Agreement commencing September 1, 2006.

COMPANY:
AFC Enterprises, Inc.
By:	/s/ Kenneth L. Keymer
	Name: Kenneth L. Keymer
	Title: Chief Executive Officer
EMPLOYEE:
By:	/s/ Frank J. Belatti
	Name: Frank J. Belatti

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We have issued our reports dated March 9, 2007, accompanying the consolidated financial statements and on internal control over financial reporting (which report expressed an unqualified opinion and contains an explanatory paragraph relating to the adoption of new accounting standards during 2006) included in the Annual Report of AFC Enterprises, Inc. and subsidiaries (the “Company”) on Form 10-K for the year ended December 31, 2006. We hereby consent to the incorporation by reference of said reports in the Registration Statements of the Company on Forms S-8 (File No. 56444, effective March 2, 2001, File No. 333-98867, effective August 28, 2002, and File No. 333-137087, effective September 1, 2006) and on form S-3 (File No. 333-86914).

/s/  GRANT THORNTON LLP

Atlanta, Georgia

March 9, 2007

EX-23.2

Exhibit 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors
AFC Enterprises, Inc.:

We consent to the incorporation by reference in the registration statements (Nos. 333-86914) on Form S-3 and (Nos. 333-56444 and 333-98867) on Form S-8 of AFC Enterprises, Inc. (the “Company”) of our report dated March 25, 2005 with respect to the consolidated statements of operations, changes in shareholders’ equity, and cash flows for the year ended December 26, 2004 of AFC Enterprises, Inc. and subsidiaries, which report appears in the December 31, 2006 annual report on Form 10-K of AFC Enterprises, Inc.

Our report dated March 25, 2005 contains an explanatory paragraph that states that effective December 29, 2003 the Company adopted the provisions of Financial Accounting Standards Board Interpretation No. 46R, Consolidation of Variable Interest Entities.

/s/  KPMG LLP

Atlanta, Georgia

March 14, 2007

EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

I, Kenneth L. Keymer, certify that:

1. I have reviewed this Annual Report on Form 10-K of AFC Enterprises, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/  KENNETH L. KEYMER

Kenneth L. Keymer

Chief Executive Officer

Date: March 14, 2007

EX-31.2

EXHIBIT 31.2

CERTIFICATIONS

I, H. Melville Hope, III, certify that:

1. I have reviewed this Annual Report on Form 10-K of AFC Enterprises, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/  H. MELVILLE HOPE, III

H. Melville Hope, III

Chief Financial Officer

Date: March 14, 2007

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and in connection with the Annual Report on Form 10-K of AFC Enterprises, Inc. (the “Corporation”) for the period ended December 31, 2006, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, the Chief Executive Officer of the Corporation, certifies that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

/s/  KENNETH L. KEYMER

Kenneth L. Keymer

Chief Executive Officer

Date: March 14, 2007

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and in connection with the Annual Report on Form 10-K of AFC Enterprises, Inc. (the “Corporation”) for the period ended December 31, 2006, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, the Chief Financial Officer of the Corporation, certifies that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

/s/  H. MELVILLE HOPE, III

H. Melville Hope, III

Chief Financial Officer

Date: March 14, 2007