To Our Stakeholders

In AFC's 2004 annual report, I shared my expectations that 2005 would bring "alignment to brand communications, a larger re-image presence in our existing markets, a menu that is more consistent and relevant to our customers, operations that are responsive to what our guests expect, and a business that provides stronger sales and profits to our franchisees." I am extremely pleased to report that in 2005, the AFC team turned those expectations into realities.

Staying focused

In 2005, our company's infrastructure went through an incredible transition as we moved from an organization that once managed five different brands to management of the single brand that we felt would maximize our shareholders' satisfaction and return—Popeyes¨ Chicken & Biscuits. The AFC team remained focused on results, despite the potential for significant distractions as brands were sold, the infrastructure was reduced, and a new management team formed.

First and foremost, we had to take the steps necessary to set a strong foundation for 2006. These efforts included putting in place a new credit facility that would provide operating capital and enable the company to pay a $12 per share dividend to our shareholders. In addition, we settled shareholder litigation relating to the restatement of AFC's financial statements for fiscal years 2000 and 2001 and the first three quarters of 2002. Finally, we closed the former AFC headquarters and consolidated all functions and personnel into the existing Popeyes Chicken & Biscuits facility.

Next, we sharpened our focus on key business drivers and delivered positive performance over the course of the year. From development to marketing, 2005 saw a new approach centered on specific objectives. As a direct result, we saw renewed vigor and interest from franchisees, consumers, investors, and employees.

Excellent results reflect outstanding efforts

The Popeyes team worked extremely hard during 2005 and our efforts paid off with positive numbers across a range of metrics. System-wide sales increased 4.8 percent versus fiscal 2004, driven primarily by a 3.3 percent increase in domestic restaurant comparable sales. In addition, we saw a solid trend of positive transactions in 2005 and we fully expect that to continue throughout 2006.

Our restaurant development pipeline improved significantly in 2005 and the results of those efforts were seen in our new restaurant opening performance late in 2005, extending into 2006. Our development team delivered nearly 13 percent more unit openings than in 2004, with 123 new Popeyes restaurants opening during the year. We believe we are on track for continued strong performance in 2006.

Our goal for 2006: continue the momentum

AFC and Popeyes made significant strides in 2005 and we have created positive momentum that will continue the long-term viability of this company. We have a number of important initiatives we plan to execute in the months ahead that will keep driving the business forward and generate continued growth.

First, we will continue to focus on operations to make our stores run more smoothly and provide even faster service. We have already made progress in this area as reflected in the 12 percentage point improvement in our operating scores over the past year. These scores, measured by consumer comments and mystery shop scores conducted by two independent firms, provide a first-hand consumer perspective—a key indicator of our performance at the operations level. Clearly, in such a competitive environment, we must consistently deliver a positive customer experience on every visit.

We are designating 2006 to be the "Year of the Operator" for Popeyes and placing significant emphasis on consistent operations across the system. We began this initiative in March 2006 with our first Popeyes Operators Summit in Atlanta. Open to all Popeyes franchisees and their key operators, the summit focused solely on improving our operations execution at the restaurant level. Additionally, we will place great emphasis on consistent national standards and system-wide testing throughout the year, all in an effort to improve the quality and speed of our service.

Working with our current and new franchise operators, we have targeted 130-140 new system-wide restaurant openings for 2006 with domestic new unit openings expected to comprise approximately 60 percent of that total. The brand's new unit development will continue to focus on penetrating existing markets and expanding under-penetrated areas of the country such as the Northeast, Northwest, and Southwest. Internationally, Popeyes will continue to focus on developing restaurants in Canada, Mexico, Latin America, and the Middle East. The growth of our development pipeline, the renewed vigor of our existing franchise operators, and the excitement surrounding the Popeyes brand make me confident that 2006 will be another strong development year for the brand.

Finally, in 2006 Popeyes expects domestic same-store sales growth of 2.0-3.0 percent driven by the introduction of new menu items, continued operational improvements, and more effective food-focused advertising. We will communicate a strong brand message built around food, flavor, and fun. We call this campaign "Food with 'tude," and you can expect that message to come through loud and clear in every Popeyes market. It is all part of our effort to communicate how Popeyes maximizes flavor and choice for the consumer. These are our most compelling points of difference and we intend to leverage them at every opportunity—both to convince new customers to try us and to encourage existing customers to come back again and again.

Financially, 2006 will bring greater emphasis on enhancing value and long-term growth for investors. We will continue efforts begun in 2005 to lower operational costs and to improve margins and overall cash flow.

When you look at the challenges we faced in 2005—both the transitional challenges and the curves Mother Nature threw at us—I think you'll agree that we had a very remarkable year operationally. We started to see things come together very strongly toward the end of the year and I believe that what we've seen in the last half of 2005 will translate very well into 2006. As a result, I have every reason to believe that 2006 will be a very successful year for AFC and the Popeyes brand. It has been and continues to be an exciting time to be part of this organization.