NPC INTERNATIONAL INC - FORM 10-Q

Attached files

file	filename
EX-31.1 - CERTIFICATION - NPC INTERNATIONAL INC	dex311.htm
EX-31.2 - CERTIFICATION - NPC INTERNATIONAL INC	dex312.htm
EX-32.1 - CERTIFICATION - NPC INTERNATIONAL INC	dex321.htm
EX-32.2 - CERTIFICATION - NPC INTERNATIONAL INC	dex322.htm
EX-10.23 - MASTER DISTRIBUTION AGREEMENT - NPC INTERNATIONAL INC	dex1023.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark one)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 28, 2010

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 333-138338

NPC INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)


	KANSAS	48-0817298
	(State or other jurisdiction of incorporation or organization)	(I.R.S. employer identification number)

7300 W. 129^th Street Overland Park, KS		66213
(Address of principal executive offices)		(Zip Code)

Telephone: (913) 327-5555

(Registrant’s telephone number, including area code)

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 ¨ No x

(Note: As a voluntary filer, not subject to the filing requirements, the registrant filed all reports required under Section 13 or 15(d) of the Exchange Act during the preceding 12 months.)

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer x Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

There is no market for the Registrant’s equity. As of November 8, 2010, there were 1,000 shares of common stock outstanding.

INDEX


		Page
Part I	FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements (unaudited)		3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		24
Item 4.	Controls and Procedures		25

Part II	OTHER INFORMATION
Item 1.	Legal Proceedings		26
Item 1A.	Risk Factors		26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		26
Item 3.	Defaults Upon Senior Securities		26
Item 4.	Reserved		26
Item 5.	Other Information		27
Item 6.	Exhibits		27
Signatures			28
Exhibit Index			29

PART I

PART 1.

FINANCIAL INFORMATION

Item 1.

Condensed Consolidated Financial Statements

NPC INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share and per share data)


	September 28, 2010		December 29, 2009
Assets
Current assets:
Cash and cash equivalents	$	41,446	$	14,669
Accounts receivable		4,003		4,897
Inventories		6,893		7,019
Prepaid expenses and other current assets		4,867		4,415
Assets held for sale		910		1,010
Deferred income taxes		3,576		2,801
Income taxes receivable		—		2,703

Total current assets		61,695		37,514
Facilities and equipment		277,450		270,304
Less accumulated depreciation		(129,181)		(105,891)

Net facilities and equipment		148,269		164,413
Franchise rights, less accumulated amortization of $38,638 and $31,509, respectively		401,624		408,714
Goodwill		191,701		191,701
Other assets, net		25,187		26,982

Total assets	$	828,476	$	829,324


Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	27,340	$	25,936
Accrued liabilities		39,815		34,484
Accrued interest		8,566		4,936
Income taxes payable		147		—
Current portion of insurance reserves		10,117		9,056
Current portion of debt		1,190		31,340

Total current liabilities		87,175		105,752

Long-term debt		401,180		402,370
Other deferred items		30,973		36,841
Insurance reserves		13,025		12,313
Deferred income taxes		117,877		113,473

Total long-term liabilities		563,055		564,997

Commitments and contingencies
Stockholders’ equity:
Common stock ($0.01 par value, 2,000 shares authorized and 1,000 shares issued and outstanding as of September 28, 2010 and December 29, 2009)		—		—
Paid-in-capital		163,376		163,325
Accumulated other comprehensive loss		(1,821)		(3,372)
Retained earnings (deficit)		16,691		(1,378)

Total stockholders’ equity		178,246		158,575

Total liabilities and stockholders’ equity	$	828,476	$	829,324

See accompanying notes to the condensed consolidated financial statements.

NPC INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(in thousands)


	13 Weeks Ended Sept. 28, 2010		13 Weeks Ended Sept. 29, 2009
Sales:
Net product sales	$	226,748	$	205,107
Fees and other income		10,419		8,847

Total sales		237,167		213,954
Costs and expenses:
Cost of sales		65,879		53,855
Direct labor		69,255		65,273
Other restaurant operating expenses		76,381		73,442
General and administrative expenses		11,884		11,901
Corporate depreciation and amortization of intangibles		2,894		2,955
Other		329		718

Total costs and expenses		226,622		208,144

Operating income		10,545		5,810
Interest expense		(7,278)		(7,695)

Income (loss) before income taxes		3,267		(1,885)
Income tax benefit		(222)		(3,215)

Net income	$	3,489	$	1,330

See accompanying notes to the condensed consolidated financial statements.

NPC INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(in thousands)


	39 Weeks Ended Sept. 28, 2010		39 Weeks Ended Sept. 29, 2009
Sales:
Net product sales	$	715,332	$	641,803
Fees and other income		33,087		28,305

Total sales		748,419		670,108
Costs and expenses:
Cost of sales		213,769		170,806
Direct labor		214,929		197,002
Other restaurant operating expenses		228,950		221,405
General and administrative expenses		36,328		36,671
Corporate depreciation and amortization of intangibles		8,570		8,810
Other		1,115		1,483

Total costs and expenses		703,661		636,177

Operating income		44,758		33,931
Interest expense		(22,152)		(23,438)

Income before income taxes		22,606		10,493
Income tax expense (benefit)		4,537		(216)

Income from continuing operations		18,069		10,709
Loss from discontinued operations, net of taxes		—		(59)

Net income	$	18,069	$	10,650

See accompanying notes to the condensed consolidated financial statements.

NPC INTERNATIONAL, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(Unaudited)

(in thousands, except share data)


	Shares of common stock		Common stock		Paid-in capital		Retained (deficit) earnings		Accumulated other comprehensive loss		Total stockholders’ equity

Balance at December 29, 2009		1,000	$	—	$	163,325	$	(1,378)	$	(3,372)	$	158,575
Restricted common units Comprehensive income:						51						51
Net income		—		—		—		18,069		—		18,069
Net unrealized change in cash flow hedging derivatives		—		—		—		—		(1,774)		(1,774)
Reclassification adjustment into income for derivatives used in cash flow hedges		—		—		—		—		3,325		3,325

Total comprehensive income												19,620

Balance at September 28, 2010		1,000	$	—	$	163,376	$	16,691	$	(1,821)	$	178,246

See accompanying notes to the condensed consolidated financial statements.

NPC INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)


	39 Weeks Ended		39 Weeks Ended
	Sept. 28, 2010		Sept. 29, 2009
Operating activities
Net income	$	18,069	$	10,650
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization		34,217		39,077
Amortization of debt issuance costs		1,930		1,515
Net facility impairment charges		1,183		947
Deferred income taxes		2,634		(30)
Net (gain) loss on disposition of assets		(101)		64
Other		51		—
Changes in assets and liabilities, excluding acquisitions:
Accounts receivable		777		506
Inventories		126		1,349
Prepaid expenses and other current assets		(618)		(266)
Accounts payable		1,404		(649)
Income taxes		2,850		(1,097)
Accrued interest		3,630		2,782
Accrued liabilities		3,225		(1,875)
Insurance reserves		1,773		823
Other deferred items		(1,511)		(1,816)
Other assets		(605)		(182)

Net cash provided by operating activities		69,034		51,798

Investing activities
Capital expenditures		(13,884)		(19,526)
Net proceeds from sale of units		—		19,463
Purchase of business assets, net of cash acquired		—		(32,798)
Proceeds from sale or disposition of assets		2,102		660

Net cash used in investing activities		(11,782)		(32,201)

Financing activities
Borrowings under revolving credit facility		13,105		216,224
Payments under revolving credit facility		(13,105)		(219,224)
Payments on term bank facilities		(31,340)		(17,094)
Debt issue costs		—		(796)
Proceeds from sale-leaseback transactions		865		6,402

Net cash used in financing activities		(30,475)		(14,488)

Net change in cash and cash equivalents		26,777		5,109
Beginning cash and cash equivalents		14,669		5,327

Ending cash and cash equivalents	$	41,446	$	10,436


Supplemental disclosures of cash flow information:
Net cash paid for interest	$	16,593	$	19,141
Net cash paid for income taxes	$	98	$	2,813

See accompanying notes to the condensed consolidated financial statements.

NPC INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 – Basis of Presentation

NPC International, Inc., together with its subsidiaries, is referred to herein as “NPC” and “the Company.”

The accompanying unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for reporting on Form 10-Q. Accordingly, certain information and disclosures required by accounting principles generally accepted in the United States for complete consolidated financial statements are not included herein.

The interim statements should be read in conjunction with the financial statements and notes thereto included in the Company’s latest Annual Report on Form 10-K.

The results of operations of any interim period are not necessarily indicative of the results of operations for the full year. The Company believes the accompanying unaudited interim condensed consolidated financial statements include all adjustments (consisting of normal recurring adjustments and accruals) necessary to fairly present the Company’s results of operations, financial position and cash flows as of the dates and for the periods presented.

Reclassifications. Reclassifications have been made to the prior year’s operating activities section of the Consolidated Statement of Cash Flows to conform to current year reporting.

Note 2 – Goodwill and Other Intangible Assets

There were no changes in goodwill during the 39 weeks ended September 28, 2010.

Amortizable other intangible assets consist of franchise rights, leasehold interests, internally developed software and a non-compete agreement. These intangible assets are amortized on a straight-line basis over the lesser of their economic lives or the remaining life of the applicable agreement. Intangible assets subject to amortization are summarized below (in thousands):


	September 28, 2010
	Gross Carrying Amount		Accumulated Amortization		Net Book Value
Amortizable intangible assets:
Franchise rights	$	440,262	$	(38,638)	$	401,624
Favorable leasehold interests		10,071		(2,816)		7,255
Unfavorable leasehold interests		(4,327)		1,653		(2,674)
Internally developed software		1,069		(944)		125
Non-compete		1,925		(1,700)		225

Total	$	449,000	$	(42,445)	$	406,555


	December 29, 2009
	Gross Carrying Amount		Accumulated Amortization		Net Book Value
Amortizable intangible assets:
Franchise rights	$	440,223	$	(31,509)	$	408,714
Favorable leasehold interests		10,114		(2,241)		7,873
Unfavorable leasehold interests		(4,425)		1,248		(3,177)
Internally developed software		1,069		(784)		285
Non-compete		1,925		(1,412)		513

Total	$	448,906	$	(34,698)	$	414,208

Amortization expense on intangible assets was $2.6 million and $2.7 million for the 13 weeks ended September 28, 2010 and September 29, 2009, respectively, and $7.7 million and $8.0 million for the 39 weeks ended September 28, 2010 and September 29, 2009, respectively.

Note 3 – Debt

The Company’s long-term debt consisted of the following (in thousands):


	September 28, 2010		December 29, 2009
Senior Secured Term Loan Note	$	227,370	$	258,710
Senior Subordinated Notes		175,000		175,000
Senior Secured Revolving Credit Facility		—		—

		402,370		433,710
Less current portion		1,190		31,340

	$	401,180	$	402,370

The Company’s debt facilities contain restrictions on additional borrowing, certain asset sales, capital expenditures, dividend payments, certain investments and related-party transactions, as well as requirements to maintain various financial ratios. At September 28, 2010, the Company was in compliance with all of its debt covenants.

Under the provisions of the credit agreement for the Senior Secured Credit Facility, the Company is required under certain circumstances to make an excess cash flow mandatory prepayment on the term loan notes not later than 120 days after each fiscal year end. Based upon the amount of excess cash flow generated during fiscal 2009 and the Company’s leverage at fiscal 2009 year end, each of which is defined in the credit agreement, the Company was required to make an excess cash flow mandatory prepayment of $31.3 million. This amount was included in the current portion of long-term debt at December 29, 2009 and was paid utilizing cash reserves on March 30, 2010. Based on currently expected 2010 results, the Company anticipates that it will be required to make a mandatory prepayment of between $27 million and $33 million in 2011, depending upon the amount of excess cash flow generated during its fiscal year and its leverage at fiscal year-end. As this is a preliminary estimate, the final excess cash flow mandatory prepayment could ultimately differ materially from the amounts reflected above and as such the Company has not reflected any of this estimate as a current liability. Such payment is due the earlier of 120 days after the end of the current fiscal year or 30 days after the Company files its form 10-K for the current fiscal year.

Based upon independent trading data the estimated fair value of the Company’s debt facilities was as follows (in thousands):


	September 28, 2010		December 29, 2009
Senior Secured Term Loan Note	$	220,549	$	242,541
Senior Subordinated Notes		178,500		172,375
Senior Secured Revolving Credit Facility		—		—

	$	399,049	$	414,916

Carrying value	$	402,370	$	433,710

The Company determined the estimated fair value using available market information. However, the fair value estimates presented herein are not necessarily indicative of the amount that the Company’s debt holders could realize in an actual market transaction.

Note 4 – Income Taxes

For the 39 weeks ended September 28, 2010, the Company recorded income tax expense of $4.5 million which resulted in an effective income tax rate of 20.1% compared to income tax expense of $0.2 million during the 39 weeks ended September 29, 2009. For the 39 weeks ended September 28, 2010, the lower than statutory rate was primarily attributable to tax credits and the net tax benefit of $1.2 million associated with the change in the liability for uncertain tax positions. During the 39 weeks ended September 29, 2009, the Company recorded a net tax benefit of $1.9 million associated with the change in the liability for uncertain tax positions. Additionally, during this period the Company recorded $0.4 million of income tax benefit related to state tax rate changes and federal tax credit carry back adjustments. Excluding the impact of these discrete items totaling $2.3 million, the Company’s income tax expense would have been $2.1 million or 20.2% for the 39 weeks ended September 29, 2009.

The liability for uncertain tax positions was $8.8 million as of September 28, 2010, was considered long term and was included in other deferred items in the Consolidated Balance Sheet. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:


Balance at December 29, 2009	$	9,799
Additions based on tax positions related to the current year		43
Additional interest / penalties accrued		667
Lapse of applicable statute of limitations		(1,682)

Balance at September 28, 2010	$	8,827

Note 5 – Commitments and Contingencies

On May 12, 2009, a lawsuit against the Company, entitled Jeffrey Wass, et al. v. NPC International, Inc., Case No. 2:09-CV-2254-JWL-KGS, was filed in the United States District Court for the District of Kansas. A First Amended Complaint, entitled Jeffrey Wass and Mark Smith, et al. v. NPC International, Inc., was filed on July 2, 2009. The Complaint was brought by Plaintiffs Wass and Smith individually and on behalf of similarly situated employees who work or previously worked as delivery drivers for NPC. The First Amended Complaint alleged a collective action under the Fair Labor Standards Act (“FLSA”) to recover unpaid wages and excessive deductions owed to plaintiffs and similarly situated workers employed by NPC in 28 states, and as a class action under Colorado law on behalf of Plaintiff Smith and all other similarly situated workers employed by NPC in Colorado to recover unpaid minimum wages and excess payroll deductions and certain costs relating to uniforms and special apparel. The First Amended Complaint alleged among other things that NPC deprived plaintiffs and other NPC delivery drivers of minimum wages by providing insufficient reimbursements for automobile and other job-related expenses incurred for the purposes of delivering NPC’s pizza and other food items.

On March 2, 2010, the Court entered an Order granting NPC’s motions for judgment on the pleadings as to all claims brought by plaintiffs in the First Amended Complaint, with the exception of a claim for the reimbursement of uniform costs under Colorado law. The Order provided that the claims failed to state a claim under the FLSA and Colorado law and, therefore, would be dismissed with prejudice unless plaintiffs filed a Second Amended Complaint that cured the deficiencies in the First Amended Complaint. The Order also operated to moot plaintiffs’ then-pending motion for conditional collective action certification.

Plaintiffs filed a Second Amended Complaint on March 22, 2010, which alleged a collective action under the FLSA on behalf of plaintiffs and similarly situated workers employed by NPC in 28 states, and a class action under Rule 23 of the Federal Rules of Civil Procedure on behalf of Plaintiff Smith and similarly situated workers employed in states in which the state minimum wage is higher than the federal minimum wage. The Second Amended Complaint contended that NPC deprived delivery drivers of minimum wages by providing insufficient reimbursements for automobile expenses incurred for the purposes of delivering NPC’s pizza and other food items. NPC filed a motion to dismiss the Second Amended Complaint on April 8, 2010.

On June 24, 2010, the Court granted NPC’s motion to dismiss the Second Amended Complaint as to all claims filed by Plaintiff Wass, all Plaintiffs who had opted in to the class and all putative class members. The only claims not dismissed were the individual claims of one remaining class representative, Mark Smith. The Court’s Order did not grant Plaintiffs leave to amend the Second Amended Complaint, but Plaintiffs filed a motion seeking leave to amend. NPC filed an opposition to the motion on July 27, 2010.

On September 1, 2010, the Court granted plaintiffs leave to file their Third Amended Complaint, which was filed on September 3, 2010, again asserting claims by Wass and all class members. NPC filed a motion for summary judgment as to named plaintiff Wass’ claims on September 17, 2010. Wass filed his opposition on October 8, 2010. NPC replied on October 22, 2010. Because the motion is pending before the Court, NPC is not able to predict the outcome of this suit or possible loss ranges, nor, its effect on NPC’s operations or financial condition.

On September 30, 2010 the Court entered a routine scheduling order, setting January 21, 2011 as the deadline for plaintiffs to file a motion for conditional certification of a collective action under FLSA. It also set deadlines for class discovery, but did not at that time set deadlines for Rule 23 certification, final discovery, dispositive motions, decertification, or trial. The Company believes the lawsuit is wholly without merit and will defend itself from all claims vigorously.

Note 6 – Derivative Financial Instruments

The Company participates in interest rate related derivative instruments to manage its exposure on its debt instruments, which the Company designated as cash flow hedges. Gains and losses on derivative instruments designated as cash flow hedges are reported in other comprehensive income and reclassified into earnings in the periods in which earnings are impacted by the hedged item. The following interest rate swap contracts were entered into as a hedge to fix a portion of the term loan notes under the Senior Secured Credit Facility and provide for fixed rates as compared to the three-month LIBOR rate on the following notional amounts of floating rate debt at September 28, 2010:


Effective Date	Notional Amount (in thousands)		Fixed Rate Paid		Maturity Date

June 6, 2006	$	20,000		5.39%		December 31, 2010
January 31, 2008		50,000		3.16%		January 31, 2011
April 7, 2008		50,000		2.79%		April 7, 2011
November 18, 2008		30,000		2.81%		November 18, 2011

	$	150,000

The following table presents the fair value of the Company’s hedging portfolio as of September 28, 2010 and December 29, 2009 (in thousands):


Liability Derivatives
Balance Sheet Location	Fair Value
	September 28, 2010		December 29, 2009
Accrued liabilities	$	2,105	$	—
Other deferred items	$	885	$	5,536

The effect of the derivative instruments on the unaudited Condensed Consolidated Financial Statements was as follows (in thousands):


	Loss Recognized in OCI on Derivative Instruments (Effective Portion)												Loss Reclassified from Accumulated OCI into Income (Effective Portion)
	For the 13 Weeks Ended						For the 39 Weeks Ended						Location		For the 13 Weeks Ended						For the 39 Weeks Ended
	Sept. 28, 2010			Sept. 29, 2009			Sept. 28, 2010			Sept. 29, 2009			Location		Sept. 28, 2010			Sept. 29, 2009			Sept. 28, 2010			Sept. 29, 2009
Interest rate contracts	$	(683	)	$	(1,740	)	$	(1,774	)	$	(3,131	)		Interest expense	$	(1,060	)	$	(1,360	)	$	(3,325	)	$	(3,366	)

The Company currently estimates that earnings will be negatively impacted by approximately $2.1 million within the next twelve months, contemporaneously with the net settlement of the underlying interest payments, which may vary based on actual changes within the LIBOR market rates.

The Company estimates the fair value of its interest rate swap contracts using independent market data considered to be a Level 2 observable input. The Company uses a mark-to-market valuation based on observable interest rate yield curves which are adjusted for credit risk. During the third quarter and year-to-date periods of fiscal 2010 and 2009, there was virtually no ineffectiveness related to cash flow hedges.

Note 7 – Comprehensive Income

Comprehensive income is comprised of the following:


	13 Weeks Ended				39 Weeks Ended
	Sept. 28, 2010		Sept. 29, 2009		Sept. 28, 2010		Sept. 29, 2009
Net income	$	3,489	$	1,330	$	18,069	$	10,650
Change in valuation of interest rate swap agreements, net of tax		377		(380)		1,551		235

Comprehensive income	$	3,866	$	950	$	19,620	$	10,885

Note 8 – Related-Party Transactions

MLGPE Advisory Agreement. On May 3, 2006, the Company entered into an advisory agreement with an affiliate of MLGPE pursuant to which such entity or its affiliates will provide advisory services to the Company. Under the agreement MLGPE or its affiliates will continue to provide financial, investment banking, management advisory and other services on the Company’s behalf for an annual fee of $1.0 million. The Company has paid $1.0 million to MLGPE for this fee for fiscal 2010 and fiscal 2009, which is being amortized ratably to expense.

Bank of America Merchant Services. In January 2009, Bank of America Corporation (“BOA”) acquired the parent company of MLGPE, Merrill Lynch & Co., Inc. During both the 39 weeks ended September 28, 2010 and September 29, 2009, the Company paid Bank of America Merchant Services, an affiliate of BOA, $0.3 million for credit card processing services.

Bank of America, N.A. In December 2009, the Company opened a money market account with Bank of America, N.A., an affiliate of BOA, to invest any excess cash balances on hand. As of September 28, 2010, the Company had $38.1 million invested in this account. These investments are trading securities, which are included in cash and cash equivalents, and the fair value of the investment was determined using independent market data considered to be a Level 2 observable input.

Participation in Senior Secured Credit Facility. Bank of America, N.A., an affiliate of BOA, and Merrill Lynch Capital Corporation (“MLCC”), an affiliate of MLGPE, were active participants in the Company’s Senior Secured Credit Facility. As of September 28, 2010, Bank of America, N.A., held $1.9 million, or 1.0%, of the term loan notes outstanding and $12.5 million, or 16.7%, of the revolving credit facility, and MLCC held $7.5 million, or 10.0%, of the revolving credit facility. The Company had no amounts outstanding on the revolving credit facility as of September 28, 2010.

Note 9 – New Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2010-06, Fair Value Measurements and Disclosures (“ASU 2010-06”), which amends ASC 820 and requires additional disclosure related to recurring and non-recurring fair value measurements in respect of transfers in and out of Levels 1 and 2 and activity in Level 3 fair value measurements. The update also clarifies existing disclosure requirements related to the level of disaggregation and disclosure about inputs and valuation techniques. ASU 2010-06 is effective for interim and annual periods beginning after December 15, 2009 except for disclosures related to activity in Level 3 fair value measurements which are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. The Company does not expect the provisions of ASU 2010-06 to have a material effect on the financial position, results of operations or cash flows of the Company.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statement Regarding Forward Looking Information

This report includes forward-looking statements regarding, among other things, our plans, strategies, and prospects, both business and financial. All statements contained in this document other than current and historical information are forward-looking statements. Forward-looking statements include, but are not limited to, statements that represent our beliefs concerning future operations, strategies, financial results or other developments, and may contain words and phrases such as “may,” “expect,” “should,” “anticipate,” “intend,” or similar expressions. Because these forward-looking statements are based on estimates and assumptions that are subject to significant business, economic and competitive uncertainties, many of which are beyond our control or are subject to change, actual results could be materially different. Although we believe that our plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, there can be no assurance that we will achieve or realize these plans, intentions or expectations. Forward-looking statements are inherently subject to risks, uncertainties and assumptions. Important factors that could cause actual results to differ materially from our forward-looking statements, expectations and historical trends include, but are not limited to, the following:

•

competitive conditions;

•

general economic and market conditions;

•

effectiveness of franchisor advertising programs and the overall success of the franchisor;

•

increases in food, labor, fuel and other costs;

•

effectiveness of the hedging program for cheese prices directed by the Unified Foodservice Purchasing Co-op (“UFPC”);

•

significant disruptions in service or supply by any of our suppliers or distributors;

•

changes in consumer tastes, geographic concentration and demographic patterns;

•

consumer concerns about health and nutrition;

•

our ability to manage our growth and successfully implement our business strategy;

•

the effect of disruptions to our computer and information systems;

•

the effect of local conditions, events and natural disasters;

•

general risks associated with the restaurant industry;

•

the outcome of pending or yet-to-be instituted legal proceedings;

•

regulatory factors, including changing laws related to healthcare coverage and menu labeling, which may adversely affect our business operations;

•

the loss of our executive officers and certain key personnel;

•

our ability to service our substantial indebtedness;

•

restrictions contained in our debt agreements;

•

availability, terms and deployment of capital;

•

our ability to obtain debt or equity financing on reasonable terms or at costs similar to that of our current credit facility;

•

and, various other factors beyond our control.

Consequently, such forward-looking statements should be regarded solely as our current plans, estimates and beliefs. We do not intend, and do not undertake, any obligation to update any forward looking statements to reflect future events or circumstances after the date of such statements. For a more detailed discussion of the principal factors that could cause actual results to be materially different, investors should read our risk factors in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 29, 2009 (“2009 Form 10-K”) as well as our unaudited condensed consolidated financial statements, related notes, and other financial information appearing elsewhere in this report and our other filings with the Securities and Exchange Commission.

Overview

Who We Are. We are the largest Pizza Hut franchisee and the largest franchisee of any restaurant concept in the United States according to the 2009 “Top 200 Restaurant Franchisees” by Franchise Times. We were founded in 1962 and, as of September 28, 2010 we operated 1,143 Pizza Hut units in 28 states with significant presence in the Midwest, South and

Southeast. As of the third quarter 2010, our operations represented approximately 19% of the domestic Pizza Hut restaurant system and 21% of the domestic Pizza Hut franchised restaurant system as measured by number of units, excluding licensed units which operate with a limited menu and no delivery in certain of our markets.

Our Fiscal Year. We operate on a 52- or 53-week fiscal year ending on the last Tuesday in December. Fiscal year 2010 and 2009 each contains 52 weeks.

Our Sales

Net Product Sales. Net product sales are comprised of sales of food and beverages from our restaurants, net of discounts. For the 39 weeks ended September 28, 2010, pizza sales accounted for approximately 79% of net product sales. Various factors influence sales at a given unit, including customer recognition of the Pizza Hut brand, our level of service and operational effectiveness, pricing, marketing and promotional efforts and local competition. Several factors affect our sales in any period, including the number of units in operation, comparable store sales and seasonality. “Comparable store sales” refer to period-over-period net product sales comparisons for units under our operation for at least 12 months.

Fees and Other Income. Fees and other income are comprised primarily of delivery fees charged to customers, vending receipts and other fee income and are not included in our comparable store sales metric.

Seasonality. Our business is seasonal in nature with net product sales typically being higher in the first half of the fiscal year. Sales are largely driven by product innovation, advertising and promotional activities and can be adversely impacted by holidays and economic times that generally negatively impact consumer discretionary spending, such as the back to school season. As a result of these seasonal fluctuations, our operating results may vary substantially between fiscal quarters. Further, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year.

Restaurant formats. We operate our Pizza Hut restaurants through three different formats to cater to the needs of our customers in each respective market. Delivery units, or “Delcos,” are typically located in strip centers and provide delivery and carry-out, with a greater proportion being located in more densely populated areas. Red Roof units, or “RRs,” are traditional free-standing, dine-in restaurants which offer on-location dining room service as well as carry-out service. Restaurant-Based Delivery units, or “RBDs,” conduct delivery, dine-in, and carry-out operations from the same free-standing location. Approximately 45% of our units include the WingStreet™ product line at September 28, 2010. The WingStreet™ menu includes bone-in and bone-out fried chicken wings which are tossed in one of eight sauces and appetizers which are available for dine-in, carry-out and delivery.

The following table sets forth certain information with respect to each year-to-date fiscal period:


	39 Weeks Ended Sept. 28, 2010		39 Weeks Ended Sept. 29, 2009
Sales by occasion:
Delivery		37%		40%
Carryout		45%		39%
Dine-in		18%		21%
Number of restaurants open at the end of the period:
Delco		428		431
RR		182		187
RBD		533		534

		1,143⁽¹⁾		1,152⁽¹⁾

⁽¹⁾ Includes 513 units and 508 units offering the WingStreet™ product line, at September 28, 2010 and September 29, 2009, respectively.

Our Costs

Our operating costs and expenses are comprised of cost of sales, direct labor, other restaurant expenses and general and administrative expenses. Our cost structure is highly variable with approximately 70% of operating costs variable to sales and volume of transactions.

Cost of sales. Cost of sales includes the cost of food and beverage products sold, less rebates from suppliers, as well as paper and packaging, and is primarily influenced by fluctuations in commodity prices. Historically, our cost of sales has primarily been comprised of the following: cheese: 30-35%; dough: 16-19%; meat: 13-17%; and packaging: 8-10%. These

costs can fluctuate from year-to-year due to a shift in product mix and given the commodity nature of the cost category, but are constant across regions. We are a member of the UFPC, a cooperative set up to act as a central procurement service for the operators of Yum! Brands, Inc. restaurants, and participate in various cheese hedging and procurement programs that are directed by the UFPC for cheese, meat and certain other commodities to help reduce the price volatility of those commodities from period-to-period. Based on information provided by the UFPC, the UFPC expects to hedge approximately 30% to 50% of the Pizza Hut system’s anticipated cheese purchases through a combination of derivatives taken under the direction of the UFPC.

Direct Labor. Direct labor includes the salary, payroll taxes, fringe benefit costs and workers’ compensation expense associated with restaurant based personnel. Direct labor is highly dependent on federal and state minimum wage rate legislation given that the vast majority of our workers are hourly employees. To control labor costs, we are focused on proper scheduling and adequate training of our store employees, as well as retention of existing employees.

Other restaurant operating expenses. Other restaurant operating expenses include all other costs directly associated with operating a restaurant facility, which primarily represents royalties, advertising, rent and depreciation (facilities and equipment), utilities, delivery expenses, supplies, repairs, insurance, and other restaurant related costs.

Included within other restaurant operating expenses are royalties paid to Pizza Hut, Inc. (“PHI”). Our blended average royalty rate for the year-to-date periods of both 2010 and 2009 was 4.8% of total sales.

General and administrative expenses. General and administrative expenses include field supervision and personnel costs and the corporate and administrative functions that support our restaurants, including employee wages and benefits, travel, information systems, recruiting and training costs, professional fees, supplies, insurance and bank service and credit card transaction fees.

Trends and Uncertainties Affecting Our Business

We believe that as a franchisee of such a large number of Pizza Hut restaurants, our financial success is driven less by variable factors that affect regional restaurants and their markets, and more by trends affecting the food purchase industry – specifically the Quick Service Restaurants or “QSR” industry. The following discussion describes certain key factors that may affect our future performance.

General Economic Conditions and Consumer Spending

Consumers continue to face high unemployment rates, lower home values and a more stringent credit environment. Low consumer confidence as a result of these changes within the economic environment has caused the consumer to experience a real and perceived reduction in disposable income which has negatively impacted consumer spending in most segments of the restaurant industry, including the segment in which we compete. While general economic conditions appear to be stabilizing, we believe pressures on low and lower-middle income customers continue to be significant, and we believe that these customers are particularly interested in receiving value at a reasonable price in the current environment.

Competition

The QSR industry is a fragmented market, with competition from national and regional chains, as well as independent operators, which affects pricing strategies and margins. Additionally, there is increasing competition in the pizza segment from the frozen pizza and take-and-bake alternatives. Limited product variability within our segment can make differentiation among competitors difficult. Thus, competitors continuously promote and market new product introductions, price discounts and bundled deals, and rely heavily on effective marketing and advertising to drive sales.

Commodity Prices

Commodity prices of packaging products (liner board) and ingredients such as cheese, dough (wheat), and meat, can vary. The prices of these commodities can fluctuate throughout the year due to changes in supply and demand. Our costs can also fluctuate as a result of changes in ingredients or packaging instituted by PHI.

Overall, our total commodity costs were higher during the third quarter of 2010 than the prior year, largely due to higher meat and cheese costs which were partially offset by lower packaging costs. The average meat price for the third quarter of 2010 increased $0.42 per pound or 28% as compared to the third quarter of 2009. The average block cheese price was $1.62 per pound for the third quarter of fiscal 2010, an increase of $0.36 or 29% versus the average price for the third quarter of 2009.

Labor Cost

The restaurant industry is labor intensive and known for having a high level of employee turnover given low hourly wages and the part-time composition of the workforce. To the extent that our delivery sales mix increases due to acquisition of units or customer preference, our labor costs would be expected to increase due to the more labor intensive nature of the delivery transaction. Direct labor is highly dependent on federal and state minimum wage rate legislation given the vast majority of workers are hourly employees whose compensation is either determined or influenced by the minimum wage rate. There has been legislation passed in recent years to increase certain states’ and federal minimum wage rates. This has resulted in incremental direct labor expense which we have attempted to mitigate through pricing initiatives, productivity improvement in our restaurants, better overall wage management tactics and other auxiliary cost reduction strategies. The federal tipped wage rate remained unchanged at $2.13 per hour. The expected impact on our direct labor costs for these changes is described below under “Inflation and Deflation.”

The federal government and several state governments have proposed or enacted legislation regarding health care, including legislation that in some cases requires employers to either provide health care coverage to their full-time employees, pay a penalty or pay into a fund that would provide coverage for them. We are currently evaluating the effects on our business of the Patient Protection and Affordable Care Act, which was signed into law on March 23, 2010, and the related Health Care and Education Reconciliation Act of 2010, which was signed into law on March 30, 2010 (collectively, the “Federal Health Care Acts”). The provisions of the Federal Health Care Acts having the greatest potential financial impact on us are scheduled to become effective in 2014. Based upon our current evaluation, we expect that the Federal Health Care Acts will likely increase our future costs and could have a material adverse effect on our business, results of operations and financial condition, but we are currently unable to quantify the amount of the impact with any degree of certainty.

Additionally, potential changes in federal labor laws, including the possible enactment of the Employee Free Choice Act (“EFCA”), could result in portions of our workforce being subjected to greater organized labor influence. The EFCA, also referred to as the “card check” bill, if passed in its current form could significantly change the nature of labor relations in the United States, specifically, how union elections and contract negotiations are conducted. Although we do not currently have union employees, the EFCA could impose more requirements and union activity on our business, thereby potentially increasing our costs, and could have a material adverse effect on our business, results of operations and financial condition.

Inflation and Deflation

Inflationary factors, such as increases in food and labor costs, directly affect our operations. Because most of our employees are paid on an hourly basis, changes in rates related to federal and state minimum wage and tip credit laws will affect our labor costs. The rollover impact of the July 24, 2009 federal minimum wage increase was approximately $3.0 million for fiscal year 2010. We are not always able to offset higher food, labor, fuel and other costs with price increases.

If the economy experiences deflation, which is a persistent decline in the general price level of goods and services, we may suffer a decline in revenues as a result of the falling prices. In that event, given our fixed costs and minimum wage requirements, it is unlikely that we would be able to reduce our costs at the same pace as any declines in revenues. Consequently, a period of prolonged or significant deflation would likely have a material adverse effect on our business, results of operations and financial condition. Similarly, if we reduce the prices we charge for our products as a result of declines in comparable store sales or competitive pressures, we may suffer decreased revenues, margins, income and cash flow from operations.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our unaudited Condensed Consolidated Financial Statements. The preparation of these financial statements requires estimation and judgment that affect the reported amounts of revenues, expenses, assets, and liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. If these estimates differ materially from actual results, the impact on the unaudited Condensed Consolidated Financial Statements may be material. Our critical accounting policies are available in Item 7 of our 2009 Form 10-K. There have been no significant changes with respect to these policies during the first 39 weeks of fiscal 2010 except as described below.

Accounting for Goodwill. The Company has one operating segment and reporting unit for purposes of evaluating goodwill for impairment. Goodwill was $191.7 million as of September 28, 2010 and December 29, 2009, respectively.

Goodwill primarily originated with the acquisition of the Company by a new controlling shareholder in May 2006. Additional goodwill was recorded in connection with multiple acquisitions of Pizza Hut units since 2006.

We evaluate goodwill for impairment annually and at any other date when events or changes in circumstances indicate that potential impairment is more likely than not and that the carrying amount of goodwill may not be recoverable.

The goodwill impairment test involves a two-step process. The first step is a comparison of the reporting unit’s fair value to its carrying value. If the carrying value exceeds fair value, goodwill is considered potentially impaired and we must complete the second step of the goodwill impairment test. Under step two, the implied fair value of the reporting unit’s goodwill is compared with the carrying amount of the reporting unit’s goodwill. If the carrying amount of goodwill is greater than the implied fair value of goodwill, an impairment loss would be recognized in an amount equal to the excess. The implied fair value of goodwill is calculated in the same manner as the amount of goodwill that is recognized in a business combination by allocating fair value to all assets and liabilities (both recognized and unrecognized). The difference between the fair value and the sum of the amounts that are assigned to recognized and unrecognized assets and liabilities is the implied value of goodwill.

Three calculation methodologies are considered when determining fair value of the reporting unit: the asset approach, the market approach and the income approach. The asset approach was not used as we have significant intangible value that is dependent on our cash flow. The market approach was not used due to deficiencies in the quality and quantity of comparable company data. The income approach explicitly recognizes that the current value of an investment or asset is premised upon the expected receipt of future economic benefits. When applied to a business ownership interest, a value indication is developed by discounting expected cash flows to their present value at a rate of return that incorporates the risk-free rate for the use of the funds, the expected rate of inflation, and the risk associated with the particular investment. The discount rate selected is generally based on the rates of return available from alternative investments of similar type and quality as of the valuation date. The discounted cash flow method provides an indication of value by discounting future net cash flows available for distribution to their present worth at a rate that reflects both the current requirement of the market and the risk inherent in the specific investment. The income approach was used to determine our fair value.

Management judgment is a significant factor in determining whether an indicator of impairment has occurred. Management relies on estimates in determining the fair value of each reporting unit, which include the following critical quantitative factors:

Anticipated future cash flows and terminal value for each reporting unit. The income approach to determining fair value relies on the timing and estimates of future cash flows, including an estimate of terminal value. The projections use management’s estimates of economic and market conditions over the projected period including growth rates in sales and estimates of expected changes in operating margins. Our projections of future cash flows are subject to change if actual results are achieved that differ from those anticipated. We do not expect actual results to vary such that there would be a material change to the estimated fair value of our reporting unit.

Selection of an appropriate discount rate. The income approach requires the selection of an appropriate discount rate, which is based on a weighted average cost of capital analysis. The discount rate is subject to changes in short-term interest rates and long-term yield as well as variances in the typical capital structure of marketplace participants in the quick service restaurant industry. The discount rate is determined based on assumptions that would be used by marketplace participants, and for that reason, the capital structure of selected marketplace participants was used in the weighted average cost of capital analysis. Given the current volatile economic conditions, it is possible that the discount rate could change.

We completed our annual impairment testing during the second quarter of 2010 and determined that goodwill was not impaired. A key assumption on our fair value estimate using the income approach is the discount rate. We selected a weighted average cost of capital of 10.8%.

Recently Issued Accounting Statements and Pronouncements

See Note 9 of the unaudited Condensed Consolidated Financial Statements for new accounting standards, including the expected dates of adoption and estimated effects on our unaudited Condensed Consolidated Financial Statements.

Results of Operations

The table below presents (i) comparable store sales indices and (ii) selected restaurant operating results as a percentage of net product sales for the 13-week and 39-week periods ended September 28, 2010 and September 29, 2009, respectively:


	13 Weeks Ended				39 Weeks Ended
	Sept. 28, 2010		Sept. 29, 2009		Sept. 28, 2010		Sept. 29, 2009
Comparable store sales		10.9%		(12.9)%		10.5%		(10.1)%
Net product sales		100%		100%		100%		100%
Direct restaurant costs and expenses:
Cost of sales		29.1%		26.3%		29.9%		26.6%
Direct labor		30.5%		31.8%		30.0%		30.7%
Other restaurant operating expenses		33.7%		35.8%		32.0%		34.5%

Activity with respect to unit count is set forth in the table below:


	39 Weeks Ended Sept. 28, 2010		39 Weeks Ended Sept. 29, 2009
Beginning of period		1,149		1,098
Developed⁽¹⁾		1		4
Acquired⁽²⁾		—		105
Sold		—		(42)
Closed^{(1) (2)}		(7)		(13)

End of period		1,143		1,152

Equivalent units, continuing operations⁽³⁾		1,145		1,145

⁽¹⁾

For the 39 weeks ended September 29, 2009 four units were relocated or rebuilt and are included in both the developed and closed total above.

⁽²⁾

Includes one unit acquired during the 39 weeks ended September 29, 2009 that was closed immediately upon purchase and is included in both the acquired and closed total above.

⁽³⁾

Equivalent units represent the number of units open at the beginning of a given period, adjusted for units opened, closed, acquired or sold during the period on a weighted average basis.

We had 513 units offering the WingStreet™ product line at September 28, 2010 and did not have any WingStreet™ development during the 39 weeks ended September 28, 2010.

Thirteen Weeks Ended September 28, 2010 Compared to September 29, 2009

Net Product Sales. Net product sales for the third quarter of 2010 compared to 2009, were $226.7 million and $205.1 million, respectively, an increase of $21.6 million, or 10.6%, resulting largely from a comparable store sales increase of 10.9% for the third quarter of 2010, rolling over last year’s third quarter comparable store sales decrease of 12.9% and a 0.8% decrease in equivalent units. The improved comparable store sales results are largely a result of our continued sales momentum associated with our simplified value pricing strategy and the introduction of the Big Italy pizza during the quarter.

Fees and Other Income. Fees and other income were $10.4 million for the third quarter of 2010, compared to $8.8 million for the prior year, for an increase of $1.6 million or 17.8%. The increase was due to higher customer delivery charge income from increased delivery transactions.

Cost of Sales. Cost of sales was $65.9 million for the third quarter of 2010, compared to $53.9 million for the prior year for an increase of $12.0 million or 22.3%. Cost of sales increased 2.8%, as a percentage of net product sales, to 29.1%, compared to 26.3% in the prior year. This increase was largely due to lower net pricing and product mix changes as well as higher ingredient costs which were partially offset by lower packaging costs, resulting in a higher cost of sales percentage as compared to prior period.

With the continuation of our value pricing strategy, we continued to realize a shift in both pizza size and toppings, which has resulted in a higher level of sales of large and specialty (3+ topping) pizzas when compared to the prior year. Because our net selling price is significantly less than the prior year, it has resulted in a higher cost of sales percentage.

Direct Labor. Direct labor costs for the third quarter of 2010 were $69.3 million compared to $65.3 million for the prior year, an increase of $4.0 million, or 6.1%. Direct labor costs were 30.5% of net product sales for the third quarter of 2010, a 1.3% decrease compared to the prior year. The favorable variance was primarily due to the sales leveraging impact on fixed and semi-fixed labor costs and decreased health insurance costs (approximately 50 basis points) due to favorable claims experience as compared to the prior year.

Other Restaurant Operating Expenses. Other restaurant operating expenses for the 13 weeks ended September 28, 2010 and September 29, 2009 were $76.4 million and $73.4 million, respectively, an increase of $3.0 million, or 4%. Other operating expenses were 33.7% of net product sales for the third quarter of 2010 compared to 35.8% of net product sales for the same period of the prior year, a decrease of 2.1%.

The changes in the other restaurant operating expenses as a percentage of net product sales are explained as follows:


Other restaurant operating expenses as a percentage of net product sales for the 13 weeks ended September 29, 2009	35.8	%
Depreciation expense	(1.1	)
Rent and occupancy costs	(1.0	)
Telephone expense	(0.2	)
Outsourced call center costs brought in-house	(0.2	)
Restaurant manager bonuses	0.5
Other, net	(0.1	)

Other restaurant operating expenses as a percentage of net product sales for the 13 weeks ended September 28, 2010	33.7	%

The favorable variance was largely due to the sales leveraging impact on fixed and semi-fixed costs, primarily occupancy costs and depreciation, as well as lower telephone expense and outsourced call center expenses for a certain acquisition market in the prior year which was brought in-house in late third quarter 2009. These decreases were partially offset by higher restaurant manager bonuses due to improved financial results.

Depreciation expense for store operations was $8.4 million or 3.7% of net product sales for the third quarter of 2010 compared to $9.9 million or 4.8% of net product sales for the prior year. The decrease in depreciation expense as compared to the prior year is largely due to short-lived assets from the 2008 and 2009 unit acquisitions becoming fully depreciated.

General and Administrative Expenses. General and administrative expenses for the 13 weeks ended September 28, 2010 and September 29, 2009 were both $11.9 million. Higher credit card transaction fees from increased sales volume of $0.3 million were offset by lower salaries and profit sharing expense as compared to the prior year.

Corporate Depreciation and Amortization. Corporate depreciation and amortization costs were $2.9 million and $3.0 million for the third quarter of 2010 and 2009, respectively.

Other. We recorded expense of $0.3 million and $0.7 million for other expenses during the third quarter of 2010 and 2009, respectively.

Interest Expense. Interest expense was $7.3 million for the third quarter of 2010 compared to $7.7 million for the prior year, a decrease of $0.4 million due to lower average outstanding debt balances as compared to the prior year. Our cash borrowing rate was 6.5% for both the third quarter of 2010 and 2009 and our average outstanding debt balance decreased $35.0 million to $402.4 million for the third quarter of 2010. Interest expense included $0.6 million and $0.5 million for amortization of deferred debt issuance costs in the third quarter 2010 and 2009, respectively.

Income Taxes. For the 13 weeks ended September 28, 2010, we recorded an income tax benefit of $0.2 million compared to an income tax benefit of $3.2 million for the 13 weeks ended September 29, 2009. The income tax benefit for the third quarter of 2010 was largely due to a favorable discrete tax adjustment of $1.5 million related to the release of liabilities for uncertain tax positions partially offset by tax expense for the quarter of $1.3 million. The income tax benefit for the third quarter of 2009 was largely due to a favorable discrete tax adjustment of $2.1 million related to the release of liabilities for uncertain tax positions which was partially offset by an unfavorable discrete tax adjustment of $0.5 million for federal tax credit carry back adjustments. Additionally, during the third quarter last year, the 2009 anticipated annual tax rate was decreased 11% to 20.2% excluding discrete items, due to lower projected taxable income which resulted in a third quarter 2009 tax benefit.

Net income. Net income for the 13 weeks ended September 28, 2010 was $3.5 million, compared to $1.3 million for the prior year. The increase was primarily due to the benefit of a 10.6% increase in net product sales and increased customer delivery charge income which were partially offset by increased cost of sales, direct labor costs and other restaurant operating expenses.

Thirty-Nine Weeks Ended September 28, 2010 Compared to September 29, 2009-adjusted for discontinued operations

Net Product Sales. Net product sales for the 39 weeks ended September 28, 2010 were $715.3 million compared to $641.8 million for the same period of 2009, an increase of $73.5 million, or 11.5%, resulting largely from a comparable store sales increase of 10.5% for the 39 weeks ended September 28, 2010, rolling over last year’s comparable store sales decline of 10.1%. The improved comparable store sales results are largely a result of our continued sales momentum associated with our $10 Any Pizza promotion during the first half of the year and our simplified value pricing strategy introduced during the third quarter of 2010.

Fees and Other Income. Fees and other income were $33.1 million for the 39 weeks ended September 28, 2010, compared to $28.3 million for the prior year, for an increase of $4.8 million or 16.9%. The increase was due to higher customer delivery charge income from increased delivery transactions.

Cost of Sales. Cost of sales was $213.8 million for the 39 weeks ended September 28, 2010, compared to $170.8 million for the prior year for an increase of $43.0 million or 25.2%. Cost of sales increased 3.3%, as a percentage of net product sales, to 29.9%, compared to 26.6% in the prior year. This increase was largely due to lower net pricing and product mix changes due to the $10 Any Pizza promotion and our simplified pricing strategy, as well as higher ingredient costs, primarily meat. With the $10 Any Pizza promotion and our simplified pricing, we realized a shift in both pizza size and toppings, which resulted in a higher level of sales of large and specialty (3+ topping) pizzas when compared to the prior year. Because our net selling price is significantly less than the prior year, it has resulted in a higher cost of sales percentage.

Direct Labor. Direct labor costs for the 39 weeks ended September 28, 2010 as compared to the prior year were $214.9 million and $197.0 million, respectively, an increase of $17.9 million, or 9.1%. Direct labor costs were 30.0% of net product sales for the 39 weeks ended September 28, 2010, a 0.7% decrease compared to the prior year. The favorable variance was primarily due to the sales leveraging impact on fixed and semi-fixed labor costs and decreased health insurance costs (approximately 20 basis points) due to favorable claims experience as compared to the prior year which were partially offset by increased average wage rates (approximately 40 basis points) related to the July 2009 minimum wage increase.

Other Restaurant Operating Expenses. Other restaurant operating expenses for the 39 weeks ended September 28, 2010 as compared to the prior year were $229.0 million and $221.4 million, respectively, an increase of $7.6 million, or 3.4%. Other operating expenses were 32.0% of net product sales for the 39 weeks ended September 28, 2010 compared to 34.5% of net product sales for the prior year, a decrease of 2.5%.

The changes in the other restaurant operating expenses as a percentage of net product sales are explained as follows:


Other restaurant operating expenses as a percentage of net product sales for the 39 weeks ended September 29, 2009	34.5	%
Depreciation expense	(1.2	)
Rent and occupancy costs	(1.0	)
Telephone expense	(0.2	)
Outsourced call center costs brought in-house	(0.2	)
Delivery driver reimbursements	0.3
Restaurant manager bonuses	0.3
Other, net	(0.5	)

Other restaurant operating expenses as a percentage of net product sales for the 39 weeks ended September 28, 2010	32.0	%

The favorable variance was largely due to the sales leveraging impact on fixed and semi-fixed costs, primarily depreciation and occupancy costs, lower telephone expense and outsourced call center expenses for a certain acquisition market in the prior year which was brought in-house in late third quarter 2009. These decreases were partially offset by increased delivery driver reimbursement expenses due to increased delivery transactions and higher fuel costs and higher restaurant manager bonuses.

Depreciation expense for store operations was $24.5 million or 3.4% of net product sales for the 39 weeks ended September 28, 2010 compared to $29.4 million or 4.6% of net product sales for the prior year. The decrease in depreciation expense as compared to the prior year is largely due to short-lived assets from the 2008 and 2009 unit acquisitions becoming fully depreciated.

General and Administrative Expenses. General and administrative expenses for the 39 weeks ended September 28, 2010 were $36.3 million compared to $36.7 million for the prior year, a decrease of $0.4 million or 0.9%. This decrease is largely due to a reduction in certain employee related compensation expenses and targeted headcount reductions of approximately $1.1 million. Additionally, increased credit card transaction fees from higher sales volume in the current year of $1.2 million were partially offset by approximately $0.5 million for non-recurring acquisition integration costs incurred in the first half of 2009.

Corporate Depreciation and Amortization. Corporate depreciation and amortization costs were $8.6 million and $8.8 million for the 39 weeks ended September 28, 2010 and September 29, 2009, respectively.

Other. We recorded other expense of $1.1 million and $1.5 million for the 39 weeks ended September 28, 2010 and September 29, 2009, respectively. Included in this category for the 39 weeks ended September 28, 2010 were facility impairment charges of $1.2 million compared to charges of $0.9 million for the same period of the prior year. The 39 weeks ended September 29, 2009 also included direct acquisition costs which were required to be expensed under accounting guidance for business combinations effective for fiscal year 2009 of $0.5 million.

Interest Expense. Interest expense was $22.2 million for the 39 weeks ended September 28, 2010 compared to $23.4 million for the prior year, a decrease of $1.2 million due to lower average outstanding debt balances as compared to the prior year. Our cash borrowing rate for the 39 weeks ended September 28, 2010 was flat as compared to the prior year at 6.5%, however, our average outstanding debt balance decreased $36.0 million to $412.8 million for the 39 weeks ended September 28, 2010 largely due to the payment of our mandatory excess cash flow pre-payment of $31.3 million during the first quarter of 2010. Interest expense included $1.9 million and $1.5 million for amortization of deferred debt issuance costs for the 39 week periods of 2010 and 2009, respectively.

Income Taxes. For the 39 weeks ended September 28, 2010, we recorded income tax expense of $4.5 million which resulted in an effective income tax rate of 20.1% compared to an income tax benefit of $0.2 million for the prior year. For the 39 weeks ended September 28, 2010, the lower than statutory rate was primarily attributable to tax credits and the net tax benefit of $1.2 million associated with the change in the liability for uncertain tax positions consisting of the release of liabilities due to the lapse of applicable statutes of limitations which was partially offset by additional interest and penalties accrued.

During 2009, we recorded a net tax benefit of $1.9 million associated with the change in the liability for uncertain tax positions consisting of the release of liabilities due to the lapse of applicable statutes of limitations which was partially offset by additional interest and penalties accrued. Additionally, we recorded $0.4 million of income tax benefit related to state tax rate changes and federal tax credit carry back adjustments. Excluding the impact of these discrete items totaling $2.3 million, our income tax expense would have been $2.1 million or 20.2% of net income before taxes for the 39 weeks ended September 29, 2009. The lower than statutory rates for both years were due to the impact of tax credits in relation to income before taxes.

Income from Continuing Operations, net of taxes. Income from continuing operations for the 39 weeks ended September 28, 2010 was $18.1 million, compared to $10.7 million for the prior year. The increase was primarily due to the benefit of an 11.5% increase in net product sales, increased customer delivery charge income and lower interest expense which were partially offset by increases in cost of sales, restaurant operating expenses and direct labor and higher income tax expense.

Liquidity and Sources of Capital

Our short-term and long-term liquidity needs will arise primarily from: (1) interest and principal payments related to our existing credit facility and the senior subordinated notes; (2) capital expenditures, including those for our re-imaging plan and maintenance capital expenditures; (3) opportunistic acquisitions of Pizza Hut restaurants or other acquisition opportunities; and (4) working capital requirements as may be needed to support our business. We intend to fund our operations, interest expense, capital expenditures, acquisitions and working capital requirements principally from cash from operations, cash reserves and borrowings on our revolving credit facility. Future acquisitions, depending on the size, may require borrowings beyond those available on our existing revolving credit facility and therefore may require further utilization of the additional remaining term loan borrowing capacity under our credit facility described below as well as other sources of debt or additional equity capital.

Any additional debt incurred, beyond the parameters established in our current credit agreement, or refinancing of any of our existing indebtedness may result in increased borrowing costs that are in excess of our current borrowing costs based on current credit market conditions. We will continue to evaluate the credit markets as we assess the future potential refinancing of our existing credit facility and our acquisition and other growth opportunities.

Our working capital was a deficit of $25.5 million at September 28, 2010. Like many other restaurant companies, we are able to operate and generally do operate with a working capital deficit. We are able to operate with a working capital deficit because (i) restaurant revenues are received primarily in cash or by credit card with a low level of accounts receivable; (ii) rapid turnover results in a limited investment in inventories; and (iii) cash from sales is usually received before related liabilities for food, supplies and payroll become due. Because we are able to operate with a working capital deficit, we have historically utilized excess cash flow from operations and our revolving line of credit for debt reduction, capital expenditures and acquisitions, and to provide liquidity for our working capital needs. At September 28, 2010, we had $58.1 million of borrowing capacity available under our revolving line of credit net of $16.9 million of outstanding letters of credit.

Cash flows from operating activities

Cash from operations is our primary source of funds. Changes in earnings and working capital levels are the two key factors that generally have the greatest impact on cash from operations. Our operating activities provided net cash inflows of $69.0 million for the 39 weeks ended September 28, 2010 compared to $51.8 million for the prior year. Cash flows from operations during the 39 weeks ended September 28, 2010 were positively impacted by a $11.6 million increase from net changes in working capital and a $5.8 million positive impact of after tax cash flows from operations (after adding back non-cash items to net income) as compared to the prior year.

Cash flows from investing activities

Cash flows used in investing activities were $11.8 million during the 39 weeks ended September 28, 2010 compared to $32.2 million for the 39 weeks ended September 29, 2009. For the 39 weeks ended September 28, 2010, we invested $13.9 million in capital expenditures. Additionally, we received proceeds of $2.1 million from asset sales as PHI exercised its option to purchase five assets which were part of the fiscal 2008 and 2009 sale transactions. During 2009, we completed an asset purchase and sale transaction with PHI in which we purchased 55 units for $18.7 million and sold 42 units for $19.5 million. We also completed an acquisition of 50 units for $14.1 million. During the 39 weeks ended September 29, 2009 we invested $19.5 million in capital expenditures, consisting of approximately $14.0 million in our existing operations (including approximately $1.6 million for WingStreet^™development at 36 units) and $5.5 million for acquisition related information technology equipment.

We currently expect our capital expenditure investment to be approximately $24 million to $26 million in fiscal 2011. This estimate includes the development of 16 Delco units.

Cash flows from financing activities

Net cash outflows for financing activities were $30.5 million for the 39 weeks ended September 28, 2010 compared to $14.5 million for the 39 weeks ended September 29, 2009. We are required, under certain circumstances as defined in our credit agreement, to make an excess cash flow mandatory prepayment on our term loan notes not later than 120 days after each fiscal year end. During the first quarter of 2010, we paid our mandatory excess cash flow prepayment of $31.3 million on our senior secured credit facility utilizing cash reserves. The mandatory prepayment during 2009 was made in the second quarter last year and totaled $17.1 million. We had no net activity on our revolving credit facility during the first 39 weeks of 2010 compared to net repayments of $3.0 million for the same period of 2009.

During the third quarter of 2010, we completed a sale-leaseback transaction on one fee owned property for $0.9 million. During the first half of 2009 we completed sale-leaseback transactions for six properties acquired in Virginia during the fourth quarter of 2008 for $2.9 million and completed sale-leaseback transactions on two formerly leased properties (purchased in 2008) for $0.9 million. Additionally, during the third quarter of 2009, we completed sale-leaseback transactions for two properties constructed in 2009 for $2.6 million.

Based on currently expected 2010 results, we anticipate that we will be required to make a mandatory prepayment of an amount between $27 million and $33 million in 2011 depending upon the amount of excess cash flow generated during our fiscal year and our leverage at fiscal year-end. The excess cash flow mandatory prepayment is an annual requirement under the credit agreement and is due the earlier of 120 days after the end of our current fiscal year or 30 days after we file our Form 10-K for our current fiscal year. As the excess cash flow mandatory prepayment is an estimate, the final excess cash flow mandatory prepayment could ultimately differ materially from the amounts reflected above and as such we have not reflected any of this estimate as a current liability.

As of September 28, 2010, we were in compliance with all of the financial covenants under our senior secured credit facility. Further, as shown in the following table, our financial leverage ratio has declined from 4.51x at fiscal 2009 year end to 4.00x as a result of our $31.3 million payment on our senior secured credit facility and improved operating results. Such ratios do not include the benefit of our cash balances. Our ratios under the foregoing financial covenants in our credit agreement as of September 28, 2010 were as follows:


	Actual		Covenant Requirement

Maximum leverage ratio		4.00x	Not more than 4.75x
Minimum interest coverage ratio		1.94x	Not less than 1.75x

Based upon the provisions of our credit agreement, the financial covenants applicable to the Company adjust based on the following schedule:


Maximum total leverage ratio	Leverage Ratio
December 30, 2009 - December 28, 2010		4.75x
December 29, 2010 - December 27, 2011		4.25x
December 28, 2011 and thereafter		4.00x

Minimum interest coverage ratio	Coverage Ratio
December 30, 2009 - June 29, 2010		1.70x
June 30, 2010 and thereafter		1.75x

The credit agreement defines “Leverage Ratio” as the ratio of Consolidated Debt for Borrowed Money to Consolidated EBITDA; “Consolidated Interest Coverage Ratio” is defined as the ratio of (x) Consolidated EBITDA plus Rent Expense to (y) Consolidated Interest Expense plus Rent Expense. All of the foregoing capitalized terms are defined in the Credit Agreement, which was filed with the Securities and Exchange Commission on October 31, 2006 as Exhibit 10.2 to the Company’s Registration Statement on Form S-4 (File No 333-138338). The Credit Agreement provides that each of the above defined terms include the pro forma effect of acquisitions and divestitures on a full year basis. This pro forma effect used in connection with the financial debt covenant ratio calculations is not the same calculation we use to determine Adjusted EBITDA, which we disclose to investors in our earnings releases and which is discussed below.

Based upon current operations, we believe that our cash flows from operations, together with borrowings that are available under the revolving credit facility portion of our senior secured credit facility, will be adequate to meet our anticipated requirements for working capital, capital expenditures, and scheduled principal and interest payments through the next 12 months. At September 28, 2010, we had $58.1 million of borrowing capacity available under our revolving line of credit net of $16.9 million of outstanding letters of credit. We will consider additional sources of financing to fund our long-term growth if necessary, including the remaining $60.0 million of term loan capacity available under our existing credit facility.

Non-GAAP measures

Adjusted EBITDA is a supplemental measure of our performance that is not required by or presented in accordance with GAAP. We have included Adjusted EBITDA as a supplemental disclosure because we believe that Adjusted EBITDA provides investors a helpful measure for comparing our operating performance with the performance of other companies that have different financing and capital structures or tax rates. We have substantial interest expense relating to the financing of the 2006 acquisition of us and substantial depreciation and amortization expense relating to this transaction and to our acquisitions of units in recent years. We believe that the elimination of these items, as well as taxes, pre-opening and other expenses and facility impairment charges give investors useful information to compare the performance of our core operations over different periods. The following is a reconciliation of net income to Adjusted EBITDA⁽¹⁾ (in thousands).


	13 Weeks Ended						39 Weeks Ended
	Sept. 28, 2010			Sept. 29, 2009			Sept. 28, 2010		Sept. 29, 2009
Net income from continuing operations	$	3,489		$	1,330		$	18,069	$	10,709
Adjustments:
Interest expense		7,278			7,695			22,152		23,438
Income tax expense (benefit)		(222	)		(3,215	)		4,537		(216	)
Depreciation and amortization		11,694			13,082			34,217		39,067
Net facility impairment charges		339			696			1,183		947
Pre-opening expenses and other		267			425			775		1,511

Adjusted EBITDA from continuing operations		22,845			20,013			80,933		75,456
Adjusted EBITDA from discontinued operations		—			—			—		142

Adjusted EBITDA	$	22,845		$	20,013		$	80,933	$	75,598

⁽¹⁾

The Company defines Adjusted EBITDA as consolidated net income plus interest, income taxes, depreciation and amortization, facility impairment charges and pre-opening expenses. Adjusted EBITDA is not a measure of financial performance under generally accepted accounting principles. Adjusted EBITDA has limitations as an analytical tool, and should not be considered in isolation from, or as a substitute for analysis of, the Company’s financial information reported under generally accepted accounting principles. Adjusted EBITDA as defined above may not be similar to EBITDA measures of other companies.

Letters of Credit

As of September 28, 2010, we had letters of credit of $16.9 million issued under our existing credit facility in support of self-insured risks.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

We are exposed to various market risks. Market risk is the potential loss arising from adverse changes in market prices and rates. We do not enter into derivative or other financial instruments for trading or speculative purposes.

Interest Rate Risk. Our primary market risk exposure is interest rate risk. All of our borrowings under our senior secured credit facility bear interest at a floating rate. As of September 28, 2010, we had $227.4 million in funded floating rate debt outstanding under our senior secured credit facility. We have interest rate swap agreements that provide for fixed rates as compared to the three-month LIBOR rate on the following notional amounts of floating rate debt at September 28, 2010:


Effective Date	Notional Amount (in millions)		Fixed Rate Paid		Maturity Date

June 6, 2006	$	20.0		5.39%	Dec. 31, 2010
Jan. 31, 2008		50.0		3.16%	Jan. 31, 2011
April 7, 2008		50.0		2.79%	April 7, 2011
Nov. 18, 2008		30.0		2.81%	Nov. 18, 2011

	$	150.0

After giving effect to these swaps, which leaves us with $77.4 million of floating rate debt, a 100 basis point increase in this floating rate would increase annual interest expense by approximately $0.8 million.

Commodity Prices. Commodity prices such as cheese can vary. The price of this commodity can change throughout the year due to changes in supply and demand. Cheese has historically represented approximately 30-35% of our cost of sales. We are a member of the UFPC, and participate in cheese hedging programs that are directed by the UFPC to help reduce the volatility of this commodity from period-to-period. Based on information provided by the UFPC, the UFPC expects to hedge approximately 30% to 50% of the Pizza Hut system’s anticipated cheese purchases through a combination of derivatives taken under the direction of the UFPC.

The estimated increase in our food costs from a hypothetical 10% adverse change in the average cheese block price per pound (approximately $0.15 for the 39 weeks ended September 28, 2010 and $0.12 per pound for 2009) would have been approximately $5.4 million and $3.5 million for the 39 weeks ended September 28, 2010 and September 29, 2009, respectively, without giving effect to the UFPC directed hedging programs.

Item 4.

Controls and Procedures.

Evaluation of Disclosure Controls and Procedures.

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as such term is defined in Rule 15d-15(e) of the Securities Exchange Act of 1934, as amended (“Exchange Act”). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of such date to provide reasonable assurance that the information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in internal control over financial reporting. There has been no change in our internal control over financial reporting that occurred during our third fiscal quarter of 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings.

Item 1A.

Risk Factors.

There have been no material changes in our risk factors from those disclosed in our 2009 Form 10-K.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

Not applicable.

Item 3.

Defaults Upon Senior Securities.

Not applicable.

Item 4.

Reserved.

Item 5.

Other Information.

Not applicable.

Item 6.

Exhibits, Financial Statement Schedules

Pursuant to the rules and regulations of the Securities and Exchange Commission, we have filed or incorporated by reference the documents referenced below as exhibits to this Form 10-Q. The documents include agreements to which the Company is a party or has a beneficial interest. The agreements have been filed to provide investors with information regarding their respective terms. The agreements are not intended to provide any other factual information about the Company or its business or operations. In particular, the assertions embodied in any representations, warranties and covenants contained in the agreements may be subject to qualifications with respect to knowledge and materiality different from those applicable to investors and may be qualified by information in confidential disclosure schedules not included with the exhibits. These disclosure schedules may contain information that modifies, qualifies and creates exceptions to the representations, warranties and covenants set forth in the agreements. Moreover, certain representations, warranties and covenants in the agreements may have been used for the purpose of allocating risk between the parties, rather than establishing matters as facts. In addition, information concerning the subject matter of the representations, warranties and covenants may have changed after the date of the respective agreement, which subsequent information may or may not be fully reflected in the Company’s public disclosures. Accordingly, investors should not rely on the representations, warranties and covenants in the agreements as characterizations of the actual state of facts about the Company or its business or operations on the date hereof.

The exhibits that are required to be filed or incorporated by reference herein are listed in the Exhibit Index below (following the signatures page of this report).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, on November 8, 2010.


NPC INTERNATIONAL, INC.

By:		/s/ Troy D. Cook
Name:		Troy D. Cook
Title:		Executive Vice President—Finance, Chief Financial Officer, Secretary and Treasurer (Principal Financial Officer)

By:		/s/ Susan G. Dechant
Name:		Susan G. Dechant
Title:		Vice President—Administration and Chief Accounting Officer (Principal Accounting Officer)

Exhibit Index


Exhibit No.		Document Description

2.1*		Stock Purchase Agreement dated as of March 3, 2006 among NPC Acquisition Holdings, LLC, NPC International, Inc. and the stockholders of NPC International, Inc. named therein

2.2*		Merger Agreement dated as of May 3, 2006 between Hawk-Eye Pizza, LLC and NPC Management, Inc.

2.3		Asset Sale Agreement by and between NPC International, Inc., Pizza Hut of America, Inc. and Pizza Hut, Inc. dated as of November 3, 2008 (incorporated herein by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the Commission on December 9, 2008)

2.4		Asset Purchase and Sale Agreement by and between NPC International, Inc., Pizza Hut of America, Inc. and Pizza Hut, Inc. dated as of November 3, 2008 (incorporated herein by reference to Exhibit 2.2 to the Company’s Current Report on Form 8-K filed with the Commission on December 9, 2008)

2.5		Amendment to Asset Sale Agreement dated as of December 8, 2008 among NPC International, Inc., Pizza Hut of America, Inc. and Pizza Hut, Inc. (incorporated herein by reference to Exhibit 2.3 to the Company’s Current Report on Form 8-K filed with the Commission on December 9, 2008)

2.6		Amendment to Asset Purchase and Sale Agreement dated as of December 8, 2008 among NPC International, Inc., Pizza Hut of America, Inc. and Pizza Hut, Inc. (incorporated herein by reference to Exhibit 2.4 to the Company’s Current Report on Form 8-K filed with the Commission on December 8, 2008)

2.7		Asset Purchase and Sale Agreement by and between NPC International, Inc., Pizza Hut of America, Inc. and Pizza Hut, Inc. dated as of December 15, 2008 (incorporated herein by reference to Exhibit 2.5 to the Company’s Current Report on Form 8-K filed with the Commission on January 20, 2009)

2.8		Asset Sale Agreement by and between NPC International, Inc., Pizza Hut of America, Inc. and Pizza Hut, Inc. dated as of January 13, 2009 (incorporated herein by reference to Exhibit 2.6 to the Company’s Current Report on Form 8-K filed with the Commission on February 17, 2009)

2.9		Amendment to Asset Sale Agreement dated as of February 12, 2009 between NPC International, Inc., Pizza Hut of America, Inc. and Pizza Hut, Inc. (incorporated herein by reference to Exhibit 2.7 to the Company’s Current Report on Form 8-K filed with the Commission on February 17, 2009)

2.10		Second Amendment to Asset Sale Agreement dated as of February 16, 2009 between NPC International, Inc., Pizza Hut of America, Inc. and Pizza Hut, Inc. (incorporated herein by reference to Exhibit 2.8 to the Company’s Current Report on Form 8-K filed with the Commission on February 17, 2009)

3.1*		Amended and Restated Articles of Incorporation of NPC International, Inc.

3.2*		Bylaws of NPC International, Inc.

4.1*		Indenture dated as of May 3, 2006 among NPC International, Inc., NPC Management, Inc. and Wells Fargo Bank, National Association, related to the issue of the 9 1/2% Senior Subordinated Notes due 2014

4.2*		Form of 9 1/2% Senior Subordinated Note due 2014 (included in Exhibit 4.1)

4.3*		Registration Rights Agreement dated as of May 3, 2006 among NPC International, Inc., NPC Management, Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and J.P. Morgan Securities Inc.

10.1*		Hawk-Eye Interests Purchase Agreement, dated as of May 3, 2006, among NPC International, Inc., Oread Capital Holdings, LLC and Troy D. Cook

10.2*		Credit agreement dated as of May 3, 2006 among NPC International, Inc., NPC Acquisition Holdings, LLC as a Guarantor, the other Guarantors party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, Collateral Agent and Issuing Bank, Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Syndication Agent, Bank of America, N.A. and Sun Trust Bank, as Co-Documentation Agents, and the Lenders signatory thereto

10.4*		Advisory Agreement, dated as of May 3, 2006, among NPC International, Inc., NPC Acquisition Holdings, LLC and Merrill Lynch Global Partners, Inc.

10.7*		NPC International, Inc. Deferred Compensation and Retirement Plan

10.8*		NPC International, Inc. POWR Plan for Key Employees

10.9*		Form of Location Franchise Agreement dated as of January 1, 2003 between Pizza Hut, Inc. and NPC Management, Inc.


Exhibit No.		Document Description

10.10*		Form of Territory Franchise Agreement dated as of January 1, 2003 between Pizza Hut, Inc. and NPC Management, Inc.

10.11*		Purchase Agreement and Escrow Instructions dated as of August 26, 2006 between Realty Income Corporation and NPC International, Inc.

10.12*		Purchase Agreement dated as of April 25, 2006 among Merrill Lynch & Co. and J.P. Morgan Securities Inc., as representative for the initial purchasers, NPC International, Inc, and NPC Management, Inc.

10.13		Pizza Hut National Purchasing Coop, Inc. Membership Subscription and Commitment Agreement (incorporated herein by reference to Exhibit 10.32 to the Registrant’s Annual Report on Form 10-K filed with the Commission on May 28, 1999 (File No. 0-13007))

10.14*		ISDA Master Agreement dated as of June 6, 2006 between Merrill Lynch Capital Services, Inc. and NPC International, Inc.

10.15		NPC Acquisition Holdings, LLC Management Option Plan (including forms of executive and director option agreements) dated January 24, 2007 (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on January 25, 2007)

10.16		Amendment to Franchise Agreement dated as of December 25, 2007 between Pizza Hut, Inc. and NPC International, Inc. (incorporated herein by reference as Exhibit 10.16 to the Company’s Annual Report on Form 10-K filed with the Commission on March 14, 2008)

10.17		Swap Transaction Confirmation dated March 31, 2008 between Merrill Lynch Capital Services, Inc. and NPC International, Inc. (incorporated herein by reference to Exhibit 10.17 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 9, 2008)

10.18		Amended and Restated Employment Agreement, dated as of December 29, 2008 among NPC International, Inc., NPC Acquisition Holdings, LLC and James K. Schwartz (incorporated herein by reference as Exhibit 10.17 to the Company’s Current Report on Form 8-K filed with the Commission on January 5, 2009)

10.19		Amended and Restated Employment Agreement, dated as of December 29, 2008 among NPC International, Inc., NPC Acquisition Holdings, LLC and Troy D. Cook (incorporated herein by reference as Exhibit 10.18 to the Company’s Current Report on Form 8-K filed with the Commission on January 5, 2009)

10.20		Amendment, dated as of March 10, 2009, to Amended and Restated Employment Agreement, dated as of December 29, 2008, among NPC International, Inc., NPC Acquisition Holdings, LLC and James K. Schwartz (incorporated herein by reference as Exhibit 10.19 to the Company’s Current Report on Form 8-K filed with the Commission on March 16, 2009)

10.21		Amendment, dated as of March 10, 2009, to Amended and Restated Employment Agreement, dated as of December 29, 2008, among NPC International, Inc., NPC Acquisition Holdings, LLC and Troy D. Cook (incorporated herein by reference as Exhibit 10.20 to the Company’s Current Report on Form 8-K filed with the Commission on March 16, 2009)

10.22		Restricted Common Unit Bonus Award Agreement dated May 5, 2010 between NPC Acquisition Holdings, LLC and James K. Schwartz

10.23***		Master Distribution Agreement between Unified Foodservice Purchasing Co-op, LLC, for and on behalf of itself as well as the Participants, as defined therein (including certain subsidiaries of Yum! Brands, Inc.) and McLane Foodservice, Inc., effective as of January 1, 2011 and Participant Distribution Joinder Agreement with McLane Foodservice, Inc. dated August 11, 2010

14.1		Code of Business Conduct and Ethics (incorporated herein by reference to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 23, 2007)

21.1**		List of subsidiaries

31.1****		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2****		Certification of Chief Financial Officer 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

*	Filed as an exhibit with corresponding number to the registrant’s registration statement on Form S-4 (File No 333-138338) and incorporated herein by reference

**	Filed as an exhibit with the corresponding number to Amendment No. 1 to the registrant’s registration statement on Form S-4 (File No. 333-138338) and incorporated herein by reference

***

Filed herewith. Portions of these documents have been omitted pursuant to a Request for Confidential Treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. Omitted portions of these documents are indicated with an asterisk.

****	Filed herewith

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