"We believe that strengthening sales, combined with lower cost building alternatives, improved operator profitability, resulting in increased domestic development in the later half of the year and a stronger development pipeline for 2006. Although international openings were below expectations primarily due to less development from our Korean master franchisee, the domestic system delivered 72 openings, which was above expectations. Our franchisees' enthusiasm about development supports our belief that we will deliver even stronger opening performance in 2006."

Financial Performance Review

During 2005, total system-wide sales increased by 4.8 percent which included an increase of approximately 6.8 percent for domestic and international franchise system-wide sales. This increase was offset by a decline in sales by company-operated restaurants of $25.5 million.

The decline in company-operated restaurant sales was comprised of approximately $10.7 million due to sale of company-owned restaurants to franchisees and closure of underperforming restaurants, non-consolidation of a franchisee pursuant to FIN 46R (Financial Accounting Standard Board Interpretation No. 46) of $9.9 million, and $8.7 million of lost company restaurant sales due to Hurricane Katrina. These reductions were partially offset by an increase in revenue of $3.3 million primarily due to the Company's acquisition of two franchisee restaurants and the impact of company restaurant same-store sales growth.

Total revenues decreased 12.5 percent to $143.4 million in 2005. The $20.5 million decline in total revenues was principally due to the decrease in company-operated restaurant sales described above.

Franchise revenues increased $4.7 million from prior year. This increase included approximately $2.0 million in royalties from non-comparable restaurants and approximately $2.0 million driven by same-store sales growth at franchised restaurants. This improvement was partially offset by a decline of $0.4 million in international franchise royalties. This reduction was principally caused by a reduction of 32 international restaurants, largely related to restaurant closings by the Company's Korean master franchisee and the impact of the royalty relief granted to that franchisee. The Company granted the Korean master franchisee temporary royalty relief substantially for reinvestment in marketing and operations initiatives. The Company will continue this reinvestment of royalties in Korea at a lower level during the first half of 2006.

General and administrative expenses were $68.7 million in 2005 representing a $13.4 million decrease from 2004. The overall net decrease was principally associated with the reduction in professional and legal fees, information technology costs and the closing of the AFC corporate center. Included in the $68.7 million general and administrative expenses was $2.4 million for restricted stock grants to existing employees, $3.1 million for spice royalty, $3.3 million for rental expense, and $24.2 million of expenses associated with transition costs for the AFC corporate center which was closed during the fourth quarter of 2005.

Operating loss was $6.9 million in 2005 compared to an operating loss of $19.4 million in 2004. This improvement was primarily due to the reduction of $13.4 million in general and administrative expenses, a $4.7 million increase in franchise revenue, and a $2.7 million decrease in depreciation and amortization.

Loss before discontinued operations and accounting change decreased to $8.4 million in 2005 compared to a loss before discontinued operations and accounting change of $14.3 million in 2004. This improvement was principally due to a $12.5 million decrease in operating loss which was partially offset by $1.3 million in higher net interest expense and $5.4 million for a reduction in an income tax benefit.

The Company reported net income of $149.6 million, or $5.14 per diluted share, in 2005, compared to net income of $24.6 million, or $0.87 per diluted share, in 2004. This improvement was primarily due to a $158.0 million after- tax gain recognized from the sale of our Church's Chicken brand, which occurred at the beginning of 2005.

AFC reported cash and cash equivalents and short-term investments of $39.0 million at the end of its fiscal 2005 compared to $12.8 million at fiscal year end 2004.

As reported on February 22, 2006, the Company announced that its Board of Directors approved an extension of the existing share repurchase program for 2006, authorizing management to spend up to $15 million to repurchase stock. Since AFC announced its initial share repurchase program in 2002, the Company has repurchased an aggregate of 5.4 million shares of common stock for approximately $100 million under this program, including approximately 1.5 million shares of common stock for approximately $19.5 million during 2005. The Company now has $15 million available for repurchases under the program.

As of February 22, 2006, there were approximately 30.2 million shares of the Company's common stock outstanding.