Total Operating Restaurants as of:    07/13/08     12/30/07
              Domestic:
              Company-Operated                           67           65
              Franchised                              1,509        1,518
              International:
              Franchised                                325          322

              Total                                   1,901        1,905

Our Business Strategy
Our business strategy is based upon the appeal of our franchise model. We believe this model provides diverse and reliable earnings and cash flows, as well as the ability to expand the Popeyes' system more rapidly than under a company-operated model. Our strategy is summarized in the following statements which describe our promotion and growth of the Popeyes system primarily through our franchise model:
• Build the Popeyes Brand - by offering franchisees a distinctive brand and menu with clear competitive advantages.

• Run Great Restaurants - by strengthening restaurant operations and improving the Popeyes guest experience.

• Strengthen Unit Economics - by growing revenue, identifying cost savings to improve food, labor and overhead efficiencies in the restaurant, and delivering solid returns to our franchisees.

• Align People and Resources to Deliver Results - by making investments in brand building, operational tools and people.

Management Overview of 2008 Operating Results (Second Quarter) Our second quarter of 2008 results and highlights include the following:
• We reported net income of $6.6 million, or diluted earnings per common share of $0.26 (approximately $0.17 before a $0.09 benefit of $3.8 million of Other income, net, as discussed in Note 7 to our condensed consolidated financial statements at Part 1, Item 1 to this quarterly report).

• Total system-wide sales increased by 1.5% as compared to the second quarter of 2007.

• Total domestic same-store sales decreased by 1.7% and international same-store sales increased by 1.7%, resulting in a global same-store sales decrease of 1.4%.

• The Popeyes system opened 32 new restaurants, offset by 31 permanent closings.

• We received $12.3 million from litigation related proceeds. See Note 7 to our condensed consolidated financial statements at Part 1, Item 1 to this quarterly report.

• We recorded $8.1 million in impairment charges associated with the refranchising of company-operated restaurants in Atlanta, Georgia and Nashville, Tennessee. See further discussion under the heading entitled "Critical Accounting Policies and Significant Estimates" within this Item 2 and in Note 2 to our condensed consolidated financial statements at Part 1, Item 1 to this quarterly report for additional discussion.

A summary of our financial results and key operational metrics is presented below.

                                                     12 Weeks Ended                        28 Weeks Ended
(Dollars in millions)                          07/13/08           07/15/07           07/13/08           07/15/07
Sales by company-operated restaurants         $     18.8         $     18.1         $     45.2         $     42.6
Franchise revenues (a)                              19.6               19.1               45.4               44.2
Other revenues                                       0.9                1.1                2.0                2.5

Total revenues                                $     39.3         $     38.3         $     92.6         $     89.3


Operating profit                              $     12.9         $     12.7         $     26.2         $     25.7
Net income                                    $      6.6         $      6.6         $     13.0         $     13.0

Global system-wide sales growth:                     1.5 %              2.9 %              1.5 %              2.2 %

Same-store sales growth (decline) (b):
Company-operated restaurant segment                 (4.3 )%            (7.3 )%            (5.3 )%            (6.7 )%
Domestic franchised restaurants                     (1.5 )%            (1.8 )%            (1.6 )%            (2.7 )%
Total domestic (company-operated and
franchised restaurants)                             (1.7 )%            (2.1 )%            (1.7 )%            (2.8 )%
International franchised restaurants                 1.7 %              1.7 %              2.6 %              1.0 %
Total global system                                 (1.4 )%            (1.7 )%            (1.3 )%            (2.5 )%

Company operated restaurants (all
domestic):
Restaurants at beginning of period                    64                 56                 65                 56
New restaurant openings                                1                  1                  1                  2
Unit conversions, net                                  0                  1                  0                  1
Permanent closings                                     0                 (1 )                0                 (1 )
Temporary closings, net of re-openings                 2                  4                  1                  3

Restaurants at the end of second quarter              67                 61                 67                 61


Franchised restaurants (domestic and
international):
Restaurants at beginning of period                 1,825              1,820              1,840              1,822
New restaurant openings                               31                 23                 68                 51
Unit conversions, net                                  0                 (1 )                0                 (1 )
Permanent closings                                   (31 )              (27 )              (64 )              (57 )
Temporary closings, net of re-openings                 9                  2                (10 )                2

Restaurants at the end of second quarter           1,834              1,817              1,834              1,817

Total system restaurants                           1,901              1,878              1,901              1,878

(a) Franchise revenues are principally comprised of royalty payments from franchisees that are based upon franchisee sales. While franchisee sales are not recorded as revenue by the Company, we believe they are important in understanding the Company's financial performance as these sales are indicative of the Company's performance, given the Company's strategic focus on growing its overall business through franchising. For the second quarter of 2008 and 2007, franchisee sales, as reported by the franchisees, were approximately $387.4 million and $382.0 million, respectively.

(b) Same-store sales statistics exclude temporarily and permanently closed restaurants. New restaurants are included in the computation of same-store sales after they have been open for 65 weeks. Unit conversions are included immediately upon conversion.

In reviewing our operating results, we believe the following table can be helpful. The table presents selected revenues and expenses as a percentage of total revenues (or as a percentage of a corresponding revenue line item).

                                                      12 Weeks Ended                     28 Weeks Ended
                                                07/13/08          07/15/07         07/13/08          07/15/07
Revenues:
Sales by company-operated restaurants               48%               47%              49%               48%
Franchise revenues                                  50%               50%              49%               49%
Other revenues                                       2%                3%               2%                3%

Total revenues                                     100%              100%             100%              100%

Expenses:
Restaurant employee, occupancy and other
expenses (a)                                        53%               51%              51%               51%
Restaurant food, beverages and packaging
(a)                                                 35%               34%              35%               34%
General and administrative expenses                 31%               25%              31%               27%
Depreciation and amortization                        4%                4%               4%                4%
Other expenses (income), net                      (10)%              (2)%             (6)%              (0)%

Total expenses                                      67%               67%              72%               71%

Operating profit                                    33%               33%              28%               29%
Interest expense, net                                5%                5%               5%                5%

Income before income taxes and
discontinued operations                             28%               28%              23%               24%
Income tax expense                                  11%               11%               9%                9%

Net Income                                          17%               17%              14%               15%

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

2008 Same-Store Sales - Second Quarter
Total domestic same-store sales decreased 1.7% in the second quarter of 2008, as compared to the same period in 2007. By business segment, domestic same-store sales decreased 1.5% for our domestic franchised restaurants and decreased 4.3% for our company-operated restaurants. Lower same-store sales are the result of fewer transactions partially offset by higher average check, as traffic continues to slow due to challenging economic conditions and to industry-wide pricing increases to offset rising commodity costs. We are focused on increasing guest traffic through an expansion of our menu that brings flavorful, high quality recipes to new products that are portable, offer strong value for the money, and are suitable for lunch.
Our international same-store sales increased 1.7% during the second quarter of 2008 due to strong same-store sales in the Middle East, Latin America and Canada, partially offset by negative performance for the quarter in Korea, Mexico and U.S. military bases abroad. Our international franchisees face similar economic conditions to the U.S. including high commodity costs. They are responding with similar strategies; raising prices where necessary due to commodity costs and offering strong value in promotion events. Looking Forward to the Remainder of 2008 The Company expects total domestic same-store sales for fiscal 2008 to be consistent with previous guidance of negative 1.0 to 2.0 percent. The Company also expects global new restaurant openings for 2008 to remain in the range of 115-130 and expects its closure rate to be similar to the past few years. Net openings are expected to be consistent with previous guidance of 5-15 units. The Company now expects its full year earnings to be $0.75-$0.80 per diluted share, compared to previous guidance of $0.66-$0.71 per diluted share. The revised earnings guidance includes an increase of $0.09 per diluted share of other non-operating income realized in the second quarter.
General and administrative expenses as a percentage of system-wide sales are expected to remain at previous guidance of 3.0% to 3.1%.
Consistent with the Company's announced strategic initiative to refranchise company-operated restaurants, the Company has considered refranchising proposals from qualified operators. Such refranchising is in the ordinary course of business and includes the buyers' obligation to develop new restaurants in under-penetrated markets.
The Company's board of directors authorized the negotiation of definitive agreements to refranchise the company-operated restaurants in Atlanta, Georgia and Nashville, Tennessee. The Company expects to receive cash of approximately $9 million from refranchising the Atlanta and Nashville restaurants, which is consistent with the Company's original estimates of proceeds for these markets made at the time the Company's refranchising strategy was announced. Based on the proposed terms of the refranchising transactions for the Atlanta and Nashville markets, the Company recognized an impairment charge of $8.1 million in the second quarter, which includes a portion of the long-lived assets to be sold plus additional allocated goodwill.
The Company remains committed to the strategy of refranchising its restaurants with the best franchise operators for Popeyes long-term growth. Due to the uncertainty in the credit markets, the Company is currently unable to estimate the timing of future refranchising transactions or the aggregate earnings effect. The Company continues to expect cash proceeds of no less than the original estimate of $38-42 million estimate upon the refranchising of all company-operated markets. Future refranchising of the company-operated restaurants in the Memphis and New Orleans markets would, in aggregate, result in substantial net gains.

Comparisons of the Second Quarter for 2008 and 2007 Sales by Company-Operated Restaurants
Sales by company-operated restaurants were $18.8 million in the second quarter of 2008, a $0.7 million increase from the second quarter of 2007. The increase was primarily due to:
• a $0.8 million increase due to the opening of new company-operated restaurants, and

• a net $0.6 million increase due primarily to the timing and duration of temporary restaurant closures occurring during the second quarters of 2008 and 2007,

partially offset by:

• a $0.7 million decrease due to a 4.3% decrease in same-store sales in the second quarter of 2008.

Franchise Revenues
Franchise revenues have three basic components: (1) ongoing royalty fees that are based on a percentage of franchisee sales; (2) franchise fees associated with new unit openings and renewals; and (3) development fees associated with the agreement pursuant to which a franchisee may develop new restaurants in a given market (usually paid at the inception of the agreement and recognized as revenue as restaurants are actually opened or the development right is terminated). Royalty revenues are the largest component of franchise revenues, generally constituting more than 90% of franchise revenues. Franchise revenues were $19.6 million in the second quarter of 2008, a $0.5 million increase from the second quarter of 2007. The increase was due primarily to a net $0.7 million increase in royalties and fees, primarily from new franchised restaurants, partially offset by a 1.5% decrease in domestic franchise same-store sales.
Other Revenues
Other revenues are principally composed of rental income associated with properties leased or subleased to franchisees. Other revenues were $0.9 million in the second quarter of 2008, a $0.2 million decrease from the second quarter of 2007, primarily as a result of a reduction in the number of leased and subleased properties.
Restaurant Employee, Occupancy and Other Expenses Restaurant employee, occupancy and other expenses were $10.0 million in the second quarter of 2008, a $0.7 million increase from the second quarter of 2007. Restaurant employee, occupancy and other expenses were approximately 53% and 51% of sales from company-operated restaurants in the second quarter of 2008 and 2007, respectively, increasing primarily due to higher costs for utilities and insurance related reserves.
Restaurant Food, Beverages and Packaging Restaurant food, beverages and packaging costs were $6.6 million in the second quarter of 2008, a $0.5 million increase from the second quarter of 2007. Restaurant food, beverages and packaging costs were approximately 35% and 34% percent of sales from company-operated restaurants in the second quarter of 2008 and 2007, respectively, increasing primarily as a result of higher costs for chicken, wheat and shortening.

General and Administrative Expenses
General and administrative expenses were $12.0 million in the second quarter of 2008, a $2.5 million increase from the second quarter of 2007. The increase was primarily due to:
• a $1.0 million increase due to higher personnel related costs, including bonus and stock-based employee compensation,

• a $0.9 million increase due to higher professional and legal fees, including non-recurring costs related to marketing and menu initiatives, and

• a $0.6 million increase due to travel and other net general and administrative costs.

On a consolidated basis, general and administrative expenses were approximately 31% and 25% of total revenues in the second quarter of 2008 and 2007, respectively. General and administrative expenses were approximately 3.0% and 2.4% of system-wide sales in the second quarter of 2008 and 2007, respectively. Depreciation and Amortization
Depreciation and amortization was $1.6 million in the second quarter of both 2008 and 2007.
Other Expenses (Income), Net
Other expenses (income), net were $3.8 million of income in the second quarter of 2008 as compared to $0.9 million of income in the second quarter of 2007. The income generated in 2008 resulted primarily from litigation related proceeds partially offset by impairment charges. A schedule of the components of other expenses (income), net can be found at Note 7 to our condensed consolidated financial statements at Part 1, Item 1 to this quarterly report. Interest Expense, Net
Interest expense, net was $1.9 million in the second quarter of 2008, a $0.1 million decrease from the comparable period in 2007. A schedule of the components of interest expense, net can be found at Note 9 to our condensed consolidated financial statements included at Part 1, Item 1 to this quarterly report.
Income Tax Expense
Income tax expense was $4.4 million in the second quarter of 2008 as compared to $4.1 million in the second quarter of 2007. Our effective tax rate in the second quarters of 2008 and 2007 was 40.0% and 38.3%, respectively. These rates differ from statutory rates due to adjustments to estimated tax reserves, non-deductible goodwill impairments, other permanent differences and inter-period allocations.
Comparisons of the Twenty-Eight Weeks Ended July 13, 2008 and July 15, 2007 Sales by Company-Operated Restaurants
Sales by company-operated restaurants were $45.2 million in the twenty-eight weeks ended July 13, 2008, a $2.6 million increase from the comparable period in 2007. The increase was primarily due to:
• a $2.4 million increase due to the opening of new company-operated restaurants and the acquisition of one restaurant during the second quarter of 2007 which was previously owned by a franchisee, and

• a net $2.2 million increase due primarily to the timing and duration of temporary restaurant closures during both the twenty-eight weeks of 2008 and 2007,

partially offset by:

• a $2.0 million decrease due to a 5.3% decrease in same-store sales in the twenty eight weeks ended July 13, 2008.

Franchise Revenues
Franchise revenues were $45.4 million in the twenty-eight weeks ended July 13, 2008, a $1.2 million increase from the comparable period in 2007. The increase was due primarily to a net $1.6 million increase in royalties and fees, primarily from new franchised restaurants, partially offset by a 1.6% decrease in domestic franchise same-store sales.
Other Revenues
Other revenues were $2.0 million in the twenty-eight weeks ended July 13, 2008, a $0.5 million decrease from the comparable period in 2007, primarily as a result of a reduction in the number of leased or subleased properties. Restaurant Employee, Occupancy and Other Expenses Restaurant employee, occupancy and other expenses were $23.2 million in the twenty-eight weeks ended July 13, 2008, a $1.6 million increase from the comparable period in 2007. Restaurant employee, occupancy and other expenses were 51% and 51% of sales from company-operated restaurants in the first twenty-eight weeks of 2008 and 2007, respectively. Restaurant Food, Beverages and Packaging Restaurant food, beverages and packaging costs were $15.8 million in the twenty-eight weeks ended July 13, 2008, a $1.5 million increase from the comparable period in 2007. Restaurant food, beverages and packaging costs were 35% and 34% of sales from company-operated restaurants in the first twenty-eight weeks of 2008 and 2007, respectively, increasing primarily as a result of higher costs of poultry and other commodities.
General and Administrative Expenses
General and administrative expenses were $28.8 million in the twenty-eight weeks ended July 13, 2008, a $4.4 million increase from the comparable period of 2007. The increase was primarily due:
• a $2.2 million increase due to higher personnel related costs, including bonus, stock-based employee compensation, severance and relocation costs,

• a $1.5 million increase due to higher professional and legal fees, including non-recurring costs related to marketing and menu initiatives, and

• a $0.7 million increase due to travel and other net general and administrative costs.

On a consolidated basis, general and administrative expenses were approximately 31% and 27% of total revenues in the first twenty-eight weeks of 2008 and 2007, respectively. General and administrative expenses were approximately 3.1% and 2.6% of system-wide sales in the first twenty-eight weeks of 2008 and 2007, respectively.
Depreciation and Amortization
Depreciation and amortization was $3.7 million in both twenty-eight weeks ended July 13, 2008 and July 15, 2007.
Other Expenses (Income), Net
Other expenses (income), net were $5.1 million in income in the twenty-eight weeks ended July 13, 2008 as compared to an income of $0.4 million in the comparable period of 2007. The income generated in 2008 resulted primarily from litigation related proceeds and gain on sale of assets partially offset by impairment charges. A schedule of the components of other expenses (income), net can be found at Note 7 to our condensed consolidated financial statements at Part 1, Item 1 to this quarterly report. Interest Expense, Net
Interest expense, net was $4.7 million in the twenty-eight weeks ended July 13, 2008, a $0.2 million increase from the comparable period in 2007. A schedule of the components of interest expense, net can be found at Note 9 to our condensed consolidated financial statements included at Part 1, Item 1 to this quarterly report.

Income Tax Expense
In the first twenty-eight weeks of 2008, we had an income tax expense associated with our continuing operations of $8.5 million compared to $8.2 million for the comparable period in 2007. Our effective tax rate associated with continuing operations in the first twenty-eight weeks of 2008 and 2007 was 39.5% and 38.7% respectively. These rates differ from statutory rates due to adjustments to estimated tax reserves, non-deductible goodwill impairments, other permanent differences and inter-period allocations. 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 generation of cash flow from operations, our existing cash reserves (approximately $5.5 million available as of July 13, 2008), and available borrowings under our 2005 Credit Facility (approximately $42.9 million available as of July 13, 2008), we believe that we will have adequate resources to meet our anticipated future requirements for working capital, including various contractual obligations and expected capital expenditures for the next twelve months.
During the second quarter of 2008, the Company's Board of Directors authorized the negotiation of definitive agreements for the refranchising and sale of company-operated restaurant assets in Atlanta, Georgia. Subsequent to the balance sheet date, the Company's Board of Directors further authorized the negotiation of a definitive agreement for the refranchising and sale of company-operated restaurant assets in Nashville, Tennessee. If completed on the terms approved by the Board of Directors, the Company expects to receive proceeds of approximately $9.0 million from refranchising the Atlanta and Nashville restaurants.
During the twelve and twenty-eight weeks ended July 13, 2008, we received $12.3 and $12.9 million, respectively, of litigation related proceeds. See Note 7 to our condensed consolidated financial statements at Part 1, Item 1 to this quarterly report.
Our cash flows and available borrowings allow us to pursue our growth strategies. Our priorities in the use of available cash are:
• reinvestment in our core business activities that promote the Company's strategic initiatives,

• repurchase of shares of our common stock, and

• reduction of debt.

Our investment in core business activities includes our obligation to re-image our company-operated restaurants and build new company-operated restaurants, marketing initiatives, and franchisee support systems.
Under the terms of the Company's 2005 Credit Facility, as amended, at the end of each fiscal year the Company is subject to mandatory prepayments on term loan borrowings of Consolidated Excess Cash Flow, as defined in the 2005 Credit Facility, less the amount of (1) any voluntary prepayments and (2) the amount by which the revolving loan commitments are permanently reduced in connection with repayments and mandatory prepayments of the revolving loans under the 2005 Credit Facility, when the Company's Total Leverage Ratio equals or exceeds specified amounts, as defined in the 2005 Credit Facility. During the second quarter of 2008, we paid principal on the outstanding term loan of $0.3 million (bringing total principal payments on the term loan to $8.6 million for the twenty-eight weeks ended July 13, 2008). During the second quarter, we also paid down the outstanding revolving credit facility in the amount of $10.0 million. As of July 13, 2008, the Company had outstanding borrowings under the revolving credit facility totaling $15.0 million.
On March 13, 2008, the Company repurchased approximately two million shares of its common stock under an accelerated share repurchase agreement (the "ASR") with a financial institution. The ASR was completed during the second quarter of 2008. The Company paid a cash adjustment of $2.3 million for a final purchase . . .