UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark one)

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

For the fiscal year ended December 28, 2010

or

¨ 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)

Telephone: (913) 327-5555

(Registrant’s telephone number, including area code)

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

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

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

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

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 under Section 13 or 15(d) of the Exchange Act during the preceding twelve 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

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 February 21, 2011, there were 1,000 shares of common stock outstanding.

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INDEX

		Page
Part I.			2-18
Item 1.	Business		2
Item 1A.	Risk Factors		8
Item 1B.	Unresolved Staff Comments		17
Item 2.	Properties		17
Item 3.	Legal Proceedings		18
Item 4.	Reserved		18
Part II.			19-59
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		19
Item 6.	Selected Financial Data		19
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		20
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		35
Item 8.	Financial Statements and Supplementary Data		36
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		58
Item 9A.	Controls and Procedures		58
Item 9B.	Other Information		59
Part III.			60-83
Item 10.	Directors, Executive Officers and Corporate Governance of the Registrant		60
Item 11.	Executive Compensation		64
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		81
Item 13.	Certain Relationships and Related Transactions and Director Independence		82
Item 14.	Principal Accounting Fees and Services		83
Part IV.			84-89
Item 15.	Exhibits, Financial Statement Schedules		84

PART I

Item 1. Business.

General

NPC International, Inc. (referred to herein as “NPC” the “Company” or in the first person notations of “we,” “us” and “our”) is the largest Pizza Hut franchisee and the largest franchisee of any restaurant concept in the United States according to the 2010 “Top 200 Restaurant Franchisees” by Franchise Times. We were founded in 1962 and, as of December 28, 2010 we operated 1,136 Pizza Hut units in 28 states with a significant presence in the Midwest, South and Southeast. As of the end of fiscal 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.

We are a Kansas corporation incorporated in 1974 under the name Southeast Pizza Huts, Inc. In 1984, our name was changed to National Pizza Company, and we were subsequently renamed NPC International, Inc. on July 12, 1994.

On May 3, 2006, all of our outstanding stock was acquired by NPC Acquisition Holdings, LLC (“Holdings”), a company controlled by Merrill Lynch Global Private Equity (“MLGPE”), (now known as BAML Capital Partners) and certain of its affiliates, referred to in this report as the “2006 Transaction.”

Acquisitions and Dispositions

Between October 2006 and February 2009 we acquired 508 Pizza Hut units, including 333 units from Pizza Hut, Inc. (“PHI”) and 175 units from other Pizza Hut franchisees. During this same time period, we also sold 112 units to PHI as part of an asset sale and purchase agreement and nine units to another Pizza Hut franchisee. These acquisitions were funded through our revolving credit facility, the issuance of a $40.0 million term loan, proceeds from the sale of units to PHI and cash on hand.

Our Consolidated Statements of Income (Loss) for fiscal 2009 and prior years have been adjusted to remove the operations of the 2008 and 2009 sold units which were reported as discontinued operations. Also included in discontinued operations for the fiscal year ended December 30, 2008 was the loss on the sale of those units. The amounts presented throughout, except where otherwise indicated, relate to continuing operations only.

Overview

Our restaurants are diversely located, ranging from metro to small-town markets with approximately half of our restaurants located in “1 to 2 Pizza Hut Towns.” Our size and scale provides significant operating efficiencies and geographic and market diversity within certain regions of the country. We believe our diversity of locations, with an emphasis on non-metro locations and small cities provides a cost effective and diversified basis for operations. Additionally, we are an operationally driven company that is focused on running efficient restaurants while providing high levels of customer service and quality food at attractive values.

Our Pizza Hut restaurants are open seven days a week and serve both lunch and dinner. Pizza Hut restaurants generally provide carry-out and delivery, and are the only national pizza chain to offer full table service. 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, and are principally located in “1 to 2 Pizza Hut Towns.” Restaurant-Based Delivery units, or “RBDs,” conduct delivery, dine-in, and carry-out operations from the same location. Approximately 45% of our units include the WingStreet™ product line. The WingStreet™ menu includes bone-in and bone-out fried chicken wings which are tossed in one of eight sauces and are available for dine-in, carry-out and delivery.

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

	December 28, 2010		December 29,     2009		December 30,     2008
Average annual revenue per restaurant(1)	$	821,447	$	739,995	$	827,331
Sales by occasion:
Carryout		45%		40%		41%
Delivery		38%		40%		35%
Dine-in		17%		20%		24%
Number of restaurants open at the end of the period:
Delco		424		435		372
RR		180		185		188
RBD		532		529		496
		1,136(2)		1,149(2)		1,056(2)
Units held for sale						42
Total units in operation						1,098

⁽¹⁾ In computing these averages, total net product sales for the fiscal periods were divided by “equivalent units” which represents 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. Equivalent units were 1,138, 1,142 and 806 in 2010, 2009 and 2008, respectively. Fiscal 2010 and 2009 each consisted of 52 weeks; fiscal 2008 consisted of 53 weeks.

⁽²⁾ Includes 512, 513 and 385 units offering the WingStreet™ product line, as of fiscal year end 2010, 2009 and 2008, respectively.

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Approximately 20%, or $151.8 million, of our fiscal 2010 delivery and carry-out sales were processed by our customer service representatives in five call centers. As of December 28, 2010, substantially all of the delivery and carry-out sales for 207 restaurants were processed by these call centers. In addition, these call centers process overflow delivery and carry-out orders for approximately 800 units. Internet and mobile ordering are becoming an increasingly popular access mode with our consumers with approximately 16% of our delivery and carry-out orders being placed via the internet in fiscal 2010.

Pizza Hut, Inc.

PHI is the world’s largest pizza quick service restaurant, or “QSR,” company. As of December 31, 2010, the Pizza Hut brand had approximately 6,000 restaurants and delivery units in the United States and over 5,800 international units in 95 other countries and territories, excluding licensed units. Since the first Pizza Hut restaurant was opened in 1958 in Wichita, Kansas, the Pizza Hut brand has become one of the most recognized brands in the restaurant industry.

PHI is owned and operated by Yum! Brands, Inc., or “Yum!” Yum! is the world’s largest QSR company, based on number of units, and as of December 31, 2010, its brands comprised approximately 35,600 units (excluding licensed units) in more than 110 countries and territories. In addition to Pizza Hut, Yum! also owns the restaurant brands Taco Bell, KFC, Long John Silver’s and A&W All-American Food Restaurants. Yum! has global scale capabilities in marketing, advertising, purchasing and research and development, and invests significant time working with the franchise community on all aspects of the business, ranging from new products to new equipment to new management techniques.

Our Products

Pizza Hut restaurants generally provide full table service, carry-out and delivery and a menu featuring pizza, pasta, buffalo wings, salads, soft drinks and, in some restaurants, sandwiches and beer. Pizza sales account for approximately 79% of our net product sales. Sales of alcoholic beverages are less than 1% of our net product sales.

Most dough products are made fresh daily and we use only 100% Real cheese products. All product ingredients are of a high quality and are prepared in accordance with proprietary formulas established by PHI. We offer a variety of pizzas in multiple sizes with a variety of crust styles and different toppings. With the exception of food served at the luncheon buffet, food products are prepared at the time of order.

The WingStreet™ menu includes bone-in and bone-out fried chicken wings which are tossed in one of eight sauces and are available for dine-in, carry-out and delivery, and is already the largest dedicated wing brand in the U.S., based on number of units. We have approximately 45% of our units operating with the WingStreet™ format at December 28, 2010.

New product innovations are vital to the continued success of any restaurant system and PHI maintains a research and development department which develops new products and recipes, tests new procedures and equipment and approves suppliers for Pizza Hut products. All new products are developed by PHI and franchisees are prohibited from offering any other products in their restaurants unless approved by PHI.

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Business Growth Strategy

The primary focus of our business growth strategy is to deliver upon the fundamentals of restaurant operational excellence and customer service in our existing markets in order to grow our share of pizza occasions year over year. We intend to augment this basic strategy with (i) opportunistic acquisitions of Pizza Hut restaurants from franchisees or PHI, (ii) the development of new Delco locations within our existing territories as justified by the number of currently unserved households and other relevant demographics and (iii) rebuilding or relocating existing assets to better serve our customers.

Franchise Agreements

On January 1, 2003, we began operating under new franchise agreements with PHI, pursuant to two types of agreements: territory franchise agreements and location franchise agreements. Territory franchise agreements govern the franchise relationship between PHI and us with respect to a specific geographical territory, while location franchise agreements govern the franchise relationship between PHI and us with respect to specified restaurants.

We operate approximately 52% of our units under territory franchise agreements, with the remaining units operating under location franchise agreements.

Territory franchise agreements.  Our territory franchise agreements provide us with the exclusive right to develop and operate Pizza Hut restaurants and delivery units within a defined geographic territory, such as a county. We also have the right to develop additional Pizza Hut restaurants and delivery units within our franchise territory. If we fail to develop a franchise territory or provide adequate delivery service as required under our franchise agreements, PHI would have the right to operate or franchise Pizza Hut restaurants in that area. As of December 28, 2010, we had no commitments for future development under any territory franchise agreement. Pursuant to our territory franchise agreements, we were required to pay a royalty rate of 4.0% of sales, as defined in the franchise agreements. The royalty rate for delivery units increased to 4.5% as of January 1, 2010 and will increase to 4.75% as of January 1, 2020 and to 5.0% as of January 1, 2030.

Location franchise agreements.  Our location franchise agreements provide us with the right to operate a Pizza Hut restaurant at a specific location. For dine-in restaurants, PHI may not develop or franchise a new dine-in restaurant in a geographical circle centered on the restaurant containing 15,000 households and with a radius of at least one mile and no more than ten miles. For Delcos, as long as we provide adequate delivery service to our delivery area, PHI may not provide or license delivery service to any point within the delivery area. If PHI identifies an opportunity to open a new restaurant, within a Site Specific Market (no Territorial franchisees and no PHI-owned units), and we operate the closest Pizza Hut restaurant, PHI must first offer the new opening opportunity to us. Under our 2003 location franchise agreements, we are required to pay a royalty rate of 6.5% of sales, as defined in the franchise agreements. Completion of a remodel of a dine-in restaurant results in a 1.5% royalty rate reduction. Rebuilds and relocations qualify for a 2.5% reduction of the royalty rate at that location.

Other terms of franchise agreements.  The territory franchise agreements are effective until December 31, 2032 and contain perpetual 20-year renewal terms subject to certain criteria. The location franchise agreements are also effective until December 31, 2032 at which time we may renew them at our option for a 20-year term. Pursuant to our franchise agreements, PHI must approve our opening of any new restaurant and the closing of any of our existing restaurants. In addition, the franchise agreements limit our ability to raise equity capital and require approval to effect a change of control. PHI has a right of first refusal to acquire existing Pizza Hut restaurants which we may seek to acquire. The franchise agreements also govern the operation of their respective franchises with respect to issues such as restaurant upkeep, advertising, purchase of equipment, the use of Pizza Hut trademarks and trade secrets, training and assistance, advertising, the purchase of supplies, books and records and employee relations. If we fail to comply with PHI’s standards of operations, PHI has various rights, including the right to terminate the applicable franchise agreement, redefine the franchise territory or terminate our right to establish additional restaurants in a territory. The franchise agreements may also be terminated upon the occurrence of certain events, such as the insolvency or bankruptcy of the Company. At no time during our history has PHI sought to terminate any of our franchise agreements, redefine our territories or otherwise limit our franchise rights.

Franchise agreement asset upgrade requirements.  The 2003 location and territory franchise agreements require us to perform facility upgrades to dine-in restaurants constructed before 1998; however, there is no specific provision under the franchise agreements related to required asset activity with respect to our Delco’s. The required asset upgrade is determined based upon a combination of (i) the 2002 sales volume of the individual location, and (ii) the population within a three mile radius. These factors are measured for each location relative to established benchmarks to determine the required asset action for each location. The required asset actions consist of three activity classes (i) partial re-image, (ii) full re-image, and (iii) rebuild, relocate or remodel. The partial re-image is the least costly of the standards and is generally reserved for low-volume, low population density locations. A full re-image is generally required for restaurants with average volumes and low

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population densities and a rebuild, relocate or remodel is generally required for high volume assets or average volume restaurants with high population densities. We must achieve satisfactory progress in completing these asset activities, as determined at various checkpoints through-out the term of the agreement to remain in compliance. All partial and full re-images were completed by the deadline of September 30, 2009. All rebuild, remodel and relocation activities must be completed by December 31, 2015. Estimated costs to complete the asset upgrade requirements for all franchise agreements are included in Note 11 of the Notes to Consolidated Financial Statements – Commitments and Contingencies and the Off Balance Sheet Arrangements and Contractual Obligations table include in Item 7.

The 2006 location franchise agreement that we executed in conjunction with our acquisition in October 2006 of 39 units from PHI in and around Nashville, TN requires us to bring all assets, including Delco’s in that market, in compliance with PHI’s minimum asset standards and re-image specifications. We have one remaining dine-in asset that is required to have a major asset action (defined as a rebuild, relocate, or remodel) completed by October 2018. We were in full compliance with the upgrade requirements defined in the agreement as of December 28, 2010.

Between December 2008 and February 2009, the Company acquired 294 units under the 2008 location franchise agreement which was amended effective with the acquisition of the units primarily as follows:

• Kansas City.  This agreement for 51 units was amended to be substantially similar (including royalty rates) to the 2003 territory franchise agreement. This agreement expires December 31, 2032 and contains perpetual 20-year renewal terms subject to certain criteria. This agreement, as amended, does not require any future development activity but does require that we complete five major asset actions by December 2019 on certain qualifying dine-in assets in the market.

• Florida, Georgia, Iowa, and St. Louis.  These agreements were amended to be substantially similar to the 2006 location franchise agreement executed in the Nashville acquisition for the 138 units acquired in Florida, Georgia, and Iowa as a part of the December 9, 2008 acquisition and for the 50 units acquired in St. Louis as a part of the February 17, 2009 acquisition. These agreements expire December 31, 2032 and contain a 20-year renewal term subject to certain criteria with no opportunity for royalty reduction for major asset actions, except for four assets paying royalties of 6.5% that can realize a royalty reduction of 2.5% for a rebuild or relocation or 1.5% for a major remodel if completed by January 1, 2016. These agreements, as amended, do not require any future development activity but do require that we complete 13 major asset actions by December 2019 and 10 by February 2020, on certain qualifying dine-in assets in the market and four re-images on system restaurants.

• Denver.  Two agreements for 55 units were executed as part of the January 20, 2009 acquisition, which expire December 31, 2032 and contain perpetual 20-year renewal terms subject to certain criteria. For 25 units in the market, an agreement was amended to be substantially similar to the 2006 location franchise agreement executed in the Nashville acquisition. We are required to pay a royalty rate of 6.0% of sales for all asset types during the original term of the agreement with no opportunity for royalty reduction for major asset actions, except for one asset paying royalties of 6.5%, which can realize a royalty reduction of 2.5% for a rebuild or relocation or 1.5% for a major remodel if completed by January 1, 2016. The agreement for the remaining 30 units was amended to be substantially similar to the 2003 territory franchise agreement, paying a royalty rate between 4.0%-4.6% of sales for all asset types. This agreement, as amended, does not require any future development activity but does require that we complete three major asset actions by January 2020 on certain qualifying dine-in assets in the market.

For the units acquired under the 2008 location franchise agreement, beginning five years after acquisition date, PHI has the option to impose new re-image standards every five years.

WingStreet™ agreement.  Effective December 25, 2007, the Company entered into a new agreement (the “WingStreet™ agreement”) with PHI that terminated its prior WingStreet™ franchise agreement addendum, which the Company had operated under since December 16, 2005. This agreement identifies the WingStreet™ concept as a Pizza Hut product line or menu extension that is to be incorporated under the Company’s existing franchise agreements with PHI. The royalty rate paid on WingStreet™ sales is the same as Pizza Hut product sales. The WingStreet™ agreement allows the addition of the less costly WingStreet™ Lite format, as defined in accordance with PHI specifications, to an existing dine-in asset to constitute an approved full re-image under the existing franchise agreements. Further, any assets adding the WingStreet™ product line that have had a qualifying major asset action or re-image will no longer be required to have additional asset upgrades in order to incorporate the product line into their unit. Finally, the WingStreet™ agreement provides that the maximum royalty fee to be charged to a unit that incorporates the WingStreet™ product line should not exceed 6.25% of sales, as defined in the franchise agreements. This rate is a reduction from the exiting royalty rate of 6.5% that was being paid on certain Delco units operating under our location franchise agreements.

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Our blended average royalty rate as a percentage of total net sales was 4.9% for fiscal 2010, 4.8% for fiscal 2009 and 4.4% for fiscal 2008. The increase beginning in fiscal 2009 is due to higher royalty rates associated with the fiscal 2008 and fiscal 2009 acquisitions.

Promotion and Advertising

We spend on average 6% of net product sales on local and national advertising activities. We are required under our franchise agreements to be a member of the International Pizza Hut Franchise Holder’s Association (“IPHFHA”), an independent association of substantially all Pizza Hut franchisees. IPHFHA requires its members to pay dues, which are spent primarily for national advertising and promotion. Dues are 2.5% of gross sales, as defined in the franchise agreement. AdCom, a joint advertising committee, consisting of representatives from PHI and IPHFHA, directs the national advertising campaign. PHI is not a member of IPHFHA, but has agreed to make contributions with respect to those restaurants it owns on a per-restaurant basis to AdCom at the same rate as its franchisees. National advertising represents approximately 44% on average of our advertising expenditures.

In addition, each Pizza Hut restaurant is required pursuant to franchise agreements to contribute dues of 1.75% of gross sales, as defined in the franchise agreement, to advertising cooperatives. The advertising cooperatives control the advertising within designated market areas (“DMA’s”). As the major operator in most of the DMA’s in which we operate, 81% of our units are in marketing areas in which we control the majority of the advertising cooperatives in which we participate. The advertising cooperatives are required to use their funds to purchase broadcast media advertising within the designated marketing areas. All advertisements must be approved by PHI. Our contributions to advertising cooperatives represented approximately 29% of our advertising expenditures during the fiscal year ended December 28, 2010.

For 2008 through 2011, the advertising cooperatives agreed to transfer amounts equal to 0.75% of member gross sales from local advertising to the AdCom for its national advertising campaign, bringing the total national advertising budget to 3.25%. Cooperative members will re-evaluate this transfer of funds annually.

The remaining 27% of our total advertising expenditures were utilized within our discretion for local print marketing, including coupon distribution as well as telephone directory advertising, point of purchase materials, local store marketing and sponsorships.

Supplies and Distribution

We purchase substantially all equipment, supplies and food products required in the operation of our restaurants from suppliers who have been quality assurance approved and audited by PHI. Purchasing is substantially provided by the Unified Foodservice Purchasing Co-op LLC, (“UFPC”), a cooperative set up to act as a central procurement service for the operators of Yum! franchises.

Under our direction, our distributor will purchase all products under terms negotiated by the UFPC or another cooperative designated by us. If the product is not available through a UFPC agreement, then our distributor may purchase from another Yum! approved source. Our restaurants take delivery of food supplies about twice a week; some restaurants take delivery once a week to take advantage of contracted discounts.

Information Technology

Our restaurants have a point-of-sale, or “POS,” cash register system. The POS system provides effective communication between the kitchen and the server, allowing employees to serve customers in a quick and consistent manner while maintaining a high level of control. It includes a back office system that provides support for inventory, payroll, accounts payable, cash management, and management reporting functions. The system also helps dispatch and monitor delivery activities in the store. The POS system is fully integrated with order entry systems in our call centers, as well as Pizza Hut’s online ordering site – www.PizzaHut.com. In over half of our restaurants, it includes a kitchen management system, which automatically displays recipes, preparation and cooking instructions for all food items.

Product sales and most expenses are captured through the back office system and transferred directly to our general ledger system for accurate and timely reporting. Management and support personnel have access to on-line reporting systems which provide extensive time critical management data. All corporate computer systems, including laptops, restaurant computers, call centers, and administrative support systems are connected using a wide-area network. This network supports an internal web site, or “Portal”, for daily administrative functions, allowing us to eliminate paperwork from many functions and accelerate response time.

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Competition

The restaurant business is highly competitive with respect to price, service, location, convenience, food quality and presentation, and is affected by changes in local and national economic conditions, taste and eating habits of the public and population and traffic patterns. We compete with a variety of restaurants offering moderately priced food to the public, including other large, national QSRs. Within the QSR pizza segment, we compete directly with Domino’s Pizza, Papa John’s, Cici’s, Little Caesars and numerous locally owned restaurants which offer similar pizza, pasta and sandwich products. We do not compete with other operators in the Pizza Hut system. More broadly, we also compete in the food purchase industry against supermarkets and others such as Papa Murphy’s who offer “take and bake” pizza products. Consumers have become more value conscious and have reduced discretionary spending in response to high levels of unemployment and other factors. As a result, the frozen pizza and take and bake alternatives are an increasingly intrusive competitive threat in the pizza segment. We believe that other companies can easily enter our market segment, which could result in the market becoming saturated, thereby adversely affecting our revenues and profits. There is also active competition for competent employees and for the type of real estate sites suitable for our restaurants.

Intellectual Property

The trade name “Pizza Hut^®,” and all other trademarks, service marks, symbols, slogans, emblems, logos and design used in the Pizza Hut system are owned by PHI. The “WingStreet™” name is a trademark of WingStreet, LLC. All of the foregoing are of material importance to our business and are licensed to us under our franchise agreements for use with respect to the operation and promotion of our restaurants.

Government Regulation

We are subject to various federal, state and local laws affecting our business. Each of our restaurants must comply with licensing and regulation by a number of governmental authorities, which include health, sanitation, safety and fire agencies in the state or municipality in which the restaurant is located. To date, we have not been significantly affected by any difficulty, delay or failure to obtain required licenses or approvals.

A small portion of our net product sales are attributable to the sale of beer. A license is required for each site that sells alcoholic beverages (in most cases, with renewal on an annual basis) and licenses may be revoked or suspended for cause at any time.

Regulations governing the sale of alcoholic beverages relate to many aspects of restaurant operations, including the minimum age of patrons and employees, hours of operation, advertising, wholesale purchasing, inventory control and handling, and storage and dispensing of alcoholic beverages.

We are subject to federal and state laws governing such matters as employment and pay practices, overtime, tip credits and working conditions. The bulk of our employees are paid on an hourly basis at rates related to the federal and state minimum wages. We are also subject to federal and state child labor laws, which, among other things, prohibit the use of certain hazardous equipment by employees 18 years of age or younger. We have not, to date, been materially adversely affected by such laws.

We are also subject to the Americans with Disabilities Act of 1990, or “ADA.” The ADA is a federal law which prohibits discrimination against people with disabilities in employment, transportation, public accommodation, communications and activities of government. In part, the ADA requires that public accommodations, or entities licensed to do business with the public, such as restaurants, are accessible to those with disabilities.

Seasonality

Our business is seasonal in nature with net product sales typically being higher in the first half of the fiscal year. 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.

Working Capital Practices

Our working capital was a deficit of $40.2 million as of December 28, 2010, which includes the impact of approximately $29.7 million for our mandatory term loan pre-payment that we are required to pay the earlier of 30 days following the filing of our Form 10-K or 120 days after our 2010 fiscal year-end. 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

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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. Although not required, we currently pay the next day for certain of our supply purchases in order to take advantage of a prompt-payment discount from our distributor. If we were to utilize the 30 day term of trade credit for this distributor, it would increase our cash position by approximately $20.0 million; however this would not impact our working capital.

Employees

As of December 28, 2010, we had over 26,000 employees, of which approximately 95% were employed on an hourly basis. We are not a party to any collective bargaining agreements and believe our employee relations are satisfactory.

Item 1A. Risk Factors.

Our business operations and the implementation of our business strategy are subject to significant risks inherent in our business, including, without limitation, the risks and uncertainties described below. The occurrence of any one or more of the risks or uncertainties described below could have a material adverse effect on our financial condition, results of operations and cash flows. 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.

Changes in consumer discretionary spending and general economic conditions could have a material adverse effect on our business and results of operations.

Purchases at our stores are discretionary for consumers and, therefore, our results of operations are susceptible to economic slowdowns and recessions. Our results of operations are dependent upon discretionary spending by consumers, particularly by consumers living in the communities in which our restaurants are located. A significant portion of our stores are clustered in certain geographic areas. A significant weakening in the local economies of these geographic areas, or any of the areas in which our stores are located, may cause consumers to curtail discretionary spending, which in turn could reduce our store sales and have an adverse effect on our results of operations.

The future performance of the U.S. economy is uncertain and is directly affected by numerous national and global financial and other factors beyond our control. Continued high unemployment, lower home values and a more stringent credit environment could further weaken the U.S. economy leading to a further decrease in consumer spending. It is difficult to predict the severity and the duration of the current economic slowdown. We believe that consumers generally are more willing to make discretionary purchases, including at our stores, during periods in which favorable economic conditions prevail. Further, fluctuations in the retail price of gasoline and the potential for future increases in gasoline and other energy costs may affect consumers’ disposable incomes available for dining. Changes in consumer spending habits as a result of a further economic slowdown or a reduction in consumer confidence would likely reduce our sales performance, which could have a material adverse affect on our business, results of operations or financial condition.

It is likely that many of our suppliers and other vendors have been adversely impacted by the economic downturn. The inability of suppliers and vendors to access financing, or the insolvency of suppliers or vendors, could lead to disruptions in our supplies. If we are forced to find alternative suppliers or vendors, that could be a distraction to us and adversely impact our business. In addition, we may be adversely affected if the landlords for our leased restaurant properties encounter financial difficulties as a result of the current economic slowdown.

There can be no assurance that economic and financial market conditions will improve or that consumer confidence will be restored in the near future.

Increases in food, labor and other costs could adversely affect our profitability and operating results.

An increase in our operating costs could adversely affect our profitability. Factors such as inflation, including but not limited to, increased food costs, increased labor and employee benefit cost and increased energy costs may adversely affect our operating costs. Additionally, significant increases in gasoline prices could result in a decrease of customer traffic at our units and increased operating costs. Most of the factors affecting cost are beyond our control and, in many cases, we may not be able to pass along these increased costs to our customers. Most ingredients used in our pizza, particularly cheese, dough and meat, which are the largest components of our food costs, are subject to significant price fluctuations as a result of

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seasonality, weather, demand and other factors. While we have developed strategies to mitigate or partially offset the impact of higher commodity costs, there can be no assurances such measures will be successful. In addition, no assurances can be given that the magnitude and duration of these cost increases or any future cost increases will not have a larger adverse impact on our profitability and consolidated financial position than currently anticipated.

The estimated increase in our food costs from a hypothetical $0.10 adverse change in the average cheese block price per pound would have been approximately $4.9 million in 2010, without giving effect to the UFPC directed hedging programs. In addition, our participation in the food hedging programs directed by the UPFC may hedge less than half of our cheese purchases and therefore may not adequately protect us from price fluctuations.

Wage rates for a substantial number of our employees are at or slightly above the minimum wage. As federal and/or state minimum wage rates increase, we may need to increase not only the wage rates of our minimum wage employees but also the wages paid to the employees at wage rates which are above the minimum wage, which will increase our costs. Legislation was passed to increase Federal and certain states’ minimum wage rates during 2007 through 2009 and certain states on a limited basis for 2011.

We are highly dependent on the Pizza Hut system and our success is tied to the success of PHI’s brand strength, marketing campaigns and product innovation.

We are a franchisee of PHI and are highly dependent on PHI for our operations. Due to the nature of franchising and our agreements with PHI, our success is, to a large extent, directly related to the success of the Pizza Hut restaurant system, including the financial condition, management and marketing success of PHI and the successful operation of Pizza Hut restaurants owned by other franchisees. Further, if Yum! Brands Inc. were to reallocate resources away from the Pizza Hut brand in favor of its other brands, the Pizza Hut brand could be harmed, which would have a material adverse effect on our operating results. These strategic decisions and PHI’s future strategic decisions may not be in our best interests and may conflict with our strategic plans.

Our ability to compete effectively depends upon the success of the management of the Pizza Hut system; for example, we depend on PHI’s introduction of innovative products, promotions and advertising to differentiate us from our competitors, drive sales and maintain the strength of the Pizza Hut brand. If PHI fails to introduce successful innovative products and launch effective marketing campaigns, our sales may suffer. As a result, any failure of the Pizza Hut system to compete effectively would likely have a material adverse effect on our operating results.

Under our franchise agreements with PHI, we are required to comply with operational programs and standards established by PHI. In particular, PHI maintains discretion over the menu items that we can offer in our restaurants. If we fail to comply with PHI’s standards of operations, PHI has various rights, including the right to terminate the applicable franchise agreement, redefine the franchise territory or terminate our right to establish additional restaurants in a territory. The franchise agreements may also be terminated upon the occurrence of certain events, such as the insolvency or bankruptcy of the Company. If any of our franchise agreements were terminated or any of our franchise rights were limited, our business, financial condition and results of operations would be harmed.

PHI must also approve the acquisition or opening of any new restaurant and the closing of any of our existing restaurants. Therefore, PHI could limit our ability to expand our operations through acquisitions and require us to continue operating underperforming units. In addition, the franchise agreements limit our ability to raise equity capital and require approval to effect a change of control.

The U.S. Quick Service Restaurant market is highly competitive, and that competition could affect our operating results.

We compete on a broad scale with Quick Service Restaurants, or “QSRs,” and other national, regional and local restaurants. The overall food service market generally and the QSR market, in particular, are intensely competitive with respect to price, service, location, personnel and type and quality of food. Other key competitive factors include the number and location of restaurants, quality and speed of service, attractiveness of facilities, effectiveness of advertising and marketing programs, and new product development by PHI and its competitors. In addition, we compete within the food service market and the QSR sector not only for customers, but also for management and hourly employees and suitable real estate sites. If we are unable to maintain our competitive position, we could experience downward pressure on prices, lower demand for our products, reduced margins, the inability to take advantage of new business opportunities and the loss of market share, which would have an adverse effect on our operating results.

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We face risks associated with litigation from customers, employees and others in the ordinary course of business.

Claims of illness or injury relating to food quality or food handling are common in the food service industry. In addition, class action lawsuits have been filed, and may continue to be filed, against various QSRs alleging, among other things, that they have failed to disclose the health risks associated with high-fat foods and that their marketing practices have encouraged obesity. In addition to decreasing our sales and profitability and diverting our management resources, adverse publicity or a substantial judgment against us could negatively impact Pizza Hut’s brand reputation, hindering our ability to grow our business.

Further, we may be subject to employee and other claims in the future based on, among other things, discrimination, harassment, wrongful termination and wage, rest break and meal break issues, including those relating to overtime compensation. These types of claims, as well as other types of lawsuits to which we are subject from time to time, can distract our management’s attention from our business operations. We have been subject to these types of claims, and if one or more of these claims were to be successful, or if there is a significant increase in the number of these claims, our business, financial condition and results of operations could be adversely affected.

In addition, since certain of our restaurants serve alcoholic beverages, we are subject to “dram shop” statutes. These statutes generally allow a person injured by an intoxicated person to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person. Litigation against restaurant chains has resulted in significant judgments and settlements under dram shop statutes. Because such a plaintiff seeks punitive damages, which may not be covered by insurance, such litigation could have an adverse impact on our financial condition and results of operations. Regardless of whether any claims against us are valid or whether we are liable, claims may be expensive to defend and may divert time and money away from our operations and hurt our performance. A judgment significantly in excess of our insurance coverage could have a material adverse effect on our financial condition or results of operations. Further, adverse publicity resulting from these allegations may materially affect us and our restaurants.

Incidents involving food-borne illnesses, food tampering or other concerns can cause damage to the Pizza Hut brand and swiftly affect our sales and profitability.

If our customers become ill from food-borne illnesses or as a result of food tampering, we could be forced to temporarily close some restaurants. We cannot guarantee that our operational controls and employee training will be effective in preventing food-borne illnesses and other food safety issues that may affect our restaurants. Incidents involving food-borne illness or food tampering could be caused by food suppliers and transporters and, therefore, would be outside of our control.

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

We are subject to extensive federal, state and local laws and regulations, including those relating to:

• the preparation and sale of food;

• liquor licenses which allow us to serve alcoholic beverages;

• building and zoning requirements;

• environmental protection;

• minimum wage, overtime and other labor requirements;

• compliance with the Americans with Disabilities Act of 1990;

• industry regulation regarding credit card information;

• reporting of credit card information;

• working and safety conditions; and,

• federal and state regulations governing the operations of franchises, including rules promulgated by the Federal Trade Commission.

In recent years there has been an increased legislative, regulatory and consumer focus on nutrition and advertising practices in the food industry, particularly among QSRs. As a result, we may become subject to regulatory initiatives in the area of nutrition disclosure or advertising, such as requirements to provide information about the nutritional content of our food, which could increase our expenses. We may become subject to legislation or regulation seeking to tax and/or regulate high-fat foods. New or changing laws and regulations relating to union organizing rights and activities may impact our operations and increase our cost of labor. If we fail to comply with existing or future regulations, we may be subject to governmental or judicial fines or sanctions. In addition, our capital expenditures could increase due to remediation measures that may be required if we are found to be noncompliant with any of these laws or regulations.

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Adverse media reports on our restaurant segment or brand, such as incidents involving food-borne illnesses, food tampering or other concerns, whether or not accurate, could damage the Pizza Hut brand and adversely affect consumer demand and our sales and profitability.

Adverse media reports on our segment of the restaurant industry, such as pizza, or restaurants operating under a particular brand, can have an almost immediate and significant adverse impact on companies operating in that segment or restaurants using that brand, even though they have personally not engaged in the conduct being publicized. Such sensationalist media topics could include food borne illness, food contamination, unsanitary conditions or discriminatory behavior. Reports of food-borne illnesses (such as e-coli, mad cow disease, hepatitis A, trichinosis or salmonella) and injuries caused by food tampering have in the past severely injured the reputations of participants in the QSR segment and could in the future affect us as well. If such a situation were to arise, consumer demand for the food products we sell and our results of operations could be adversely affected, regardless of our lack of ownership of the relevant locations where the incidents may have occurred.

Our systems may fail, be damaged or be perceived to be insecure. Further, if we do not maintain the security of customer-related information, we could damage our reputation with customers, incur substantial additional costs and become subject to litigation.

Our operations are dependent upon the successful and uninterrupted functioning of our computer and information systems. Our systems could be exposed to damage or interruption from fire, natural disaster, power loss, telecommunications failure, unauthorized entry and computer viruses. System defects, failures and interruptions could result in:

• additional development costs;

• diversion of technical and other resources;

• loss of customers and sales;

• loss of customer data;

• negative publicity;

• harm to our business and reputation; and,

• exposure to litigation claims, fraud losses or other liabilities.

To the extent we rely on the systems of third parties in areas such as credit card processing, telecommunications and wireless networks, any defects, failures and interruptions in such systems could result in similar adverse effects on our business. Sustained or repeated system defects, failures or interruptions could materially impact our operations and operating results. Also, if we are unsuccessful in updating and expanding our systems, our ability to increase same store sales, improve operations, implement cost controls and grow our business may be constrained.

As do most retailers, we receive certain personal information about our customers. In addition, our online operations at www.pizzahut.com depend upon the secure transmission of confidential information over public networks, including information permitting cashless payments. A compromise of our security systems that results in customer personal information being obtained by unauthorized persons could adversely affect our reputation with our customers and others, as well as our operations, results of operations, financial condition and liquidity, and could result in litigation against us or the imposition of penalties. In addition, a security breach could require that we expend significant additional resources related to our information security systems and could result in a disruption of our operations. Any well-publicized compromise of either our security or the security of other Pizza Hut operators could deter people from conducting transactions that involve transmitting confidential information to our systems. Therefore, it is critical that our facilities and infrastructure remain secure and are perceived to be secure. Despite the implementation of security measures, our infrastructure may be vulnerable to physical break-ins, computer viruses, programming errors, attacks by third parties or similar disruptive problems.

Our results of operations could be adversely affected by increased costs as a result of changes in laws relating to health care.

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

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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, without taking mitigating steps 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 pending resolution of the litigation and proposed new legislation relating to the Federal Health Care Acts and future rulemaking under the Federal Health Care Acts.

We are subject to risks associated with refinancing our existing indebtedness. Our $75.0 million revolving credit facility is due May 3, 2012 and our $300.0 million term loan notes are due May 3, 2013.

Our $75.0 million revolving credit facility is due May 3, 2012 and our $300.0 million term loan notes are due May 3, 2013. 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. Although we do not currently anticipate any problems in obtaining financing due to our historical results of operations and our generation of free cash flow, adverse changes in business or credit market conditions in the future could materially adversely affect our ability to refinance the existing indebtedness on reasonable terms.

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

We are dependent on frequent deliveries of food products that meet our specifications at competitive prices. Shortages or interruptions in the supply of food products caused by unanticipated demand, problems in production or distribution, disease or food-borne illnesses, inclement weather or other conditions could adversely affect the availability, quality and cost of ingredients, which would adversely affect our business. In particular, if our distributor fails to meet its service requirements for any reason, it could lead to a material disruption of service or supply until a new distributor is engaged, which could have a material adverse effect on our business. Likewise, all of our cheese is purchased from a single supplier, the loss of which could have a material adverse effect on our business.

Changing health or dietary preferences may cause consumers to avoid products offered by us in favor of alternative foods.

A significant portion of our sales is derived from products, including pizza, which can contain high levels of fat, carbohydrates, and sodium. The foodservice industry is affected by consumer preferences and perceptions. If prevailing health or dietary preferences and perceptions cause consumers to avoid pizza and other products we offer in favor of foods perceived to be healthier, demand for our products may be reduced and our business would be harmed. If PHI does not continually develop and successfully introduce new menu offerings that appeal to changing consumer preferences or if we do not timely capitalize on new products, our operating results will suffer.

Moreover, because we are primarily dependent on a single product, if consumer demand for pizza should decrease, our business would suffer more than if we had a more diversified menu, as many other food service businesses do.

Failure to successfully implement our growth strategy could harm our business.

We may continue to grow our business by opening and selectively acquiring Pizza Hut restaurants. We may not be able to achieve our growth objectives and these new restaurants may not be profitable. The opening and success of restaurants we may open or acquire in the future depends on various factors, including:

• our ability to obtain the necessary approvals from PHI;

• our ability to obtain or self-fund adequate development financing;

• competition from other QSRs in current and future markets;

• our degree of saturation in existing markets;

• the identification and availability of suitable and economically viable locations;

• our ability to successfully integrate acquired locations;

• sales levels at existing restaurants;

• the negotiation of acceptable lease or purchase terms for new locations;

• permitting and regulatory compliance;

• the ability to meet construction schedules;

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• our ability to hire and train qualified management and other personnel; and

• general economic and business conditions.

In addition, the QSR pizza market is mature with limited opportunity for unit growth. If we are unable to successfully implement our growth strategy, our revenue growth and profitability may be adversely affected.

Some restaurants constructed or acquired in the future may be located in areas where we have little or no meaningful operating experience. Those markets may have different competitive conditions, consumer tastes and discretionary spending patterns than our existing markets, which may cause our new restaurants to be less successful than restaurants in our existing markets or to incur losses. Restaurants opened in new markets may open at lower average weekly sales volumes than restaurants opened in existing markets, and may have higher restaurant-level operating expense ratios than in existing markets. Sales at restaurants opened in new markets may take longer to reach average unit volumes, if at all, thereby adversely affecting our operating results.

Local conditions, events, and natural disasters could adversely affect our business.

Certain of the regions in which our units are located have been, and may in the future be, subject to adverse local conditions, events or natural disasters, such as earthquakes and hurricanes. Depending upon its magnitude, a natural disaster could severely damage our stores or call centers, which could adversely affect our business, financial condition and operations. We currently maintain property and business interruption insurance through our aggregate property policy for each of our stores. However, in the event of a significant natural disaster or other cataclysmic occurrence, our coverage may not be sufficient to offset all property damages and lost sales. In addition, upon the expiration of our current policies, adequate coverage may not be available at economically justifiable rates, if at all.

Changes in geographic concentration and demographic patterns may negatively impact our operations.

The success of any restaurant depends in substantial part on its location. There can be no assurance that our current locations will continue to be attractive as demographic patterns change. Neighborhood or economic conditions where restaurants are located could change in the future, thus resulting in potentially reduced sales in those locations.

A significant number of our restaurants are located in the Midwest, South and Southeast and in non-metro and mid-metro areas. As a result, a severe or prolonged economic recession or changes in demographic mix, employment levels, population density, weather patterns, real estate market conditions or other factors unique to those geographic regions may adversely affect us more than some of our competitors that are located in other regions or in more urban areas.

Counterparties to our revolving credit facility may not be able to fulfill their obligations due to disruptions in the global credit markets.

In borrowing amounts under our revolving credit facility, we are dependent upon the ability of participating financial institutions to honor draws on the facility. Although we do not currently have amounts drawn on our revolving credit facility, we have utilized this facility in the past to fund acquisitions or working capital needs. The disruptions in the global credit markets may impede the ability of financial institutions syndicated under our revolving credit facility to fulfill their commitments.

We could incur substantial losses if one of the third party depository institutions we use in our operations would happen to fail or if the money market funds in which we hold cash were to incur losses.

As part of our business operations, we maintain cash balances at third party depository institutions and in money market funds. The balances held in the money market funds are not insured or guaranteed by the FDIC or any other governmental agency. The balances held in third party depository institutions, to the extent in interest bearing accounts, may exceed the FDIC insurance limits or, with respect to non-interest-bearing transaction deposit accounts, may be held in banks which have opted out of the FDIC’s Temporary Liquidity Guarantee Program. We could incur substantial losses if the underlying financial institutions fail or are otherwise unable to return our deposits or if the money market funds in which we hold cash were to incur losses.

We are subject to all of the risks associated with owning and leasing real estate.

As of December 28, 2010, we owned the land and/or the building for 19 restaurants and leased the land and/or building for 1,117 restaurants. Accordingly, we are subject to all of the risks generally associated with owning and leasing real estate, including changes in the investment climate for real estate, demographic trends and supply or demand for the use of the restaurants, as well as potential liability for environmental contamination.

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The majority of our existing lease terms end within the next two to six years. We have the ability to exercise lease options to extend the terms at virtually all of these locations. If an existing or future store is not profitable, and we decide to close it, we may nonetheless be committed to perform our obligations under the applicable lease including, among other things, paying the base rent for the balance of the lease term. Our obligation to continue making rental payments in respect of leases for closed restaurants could have a material adverse effect on our business and results of operations. In addition, as each of our leases expires, we may be subject to increased rental costs or may fail to negotiate renewals, either on commercially acceptable terms or at all. If we are unable to renew our restaurant leases, we may be forced to close or relocate a restaurant, which could subject us to construction and other costs and risks, and could have a material adverse effect on our business and results of operations.

We depend on the service of key individuals, the loss of which could materially harm our business.

Our success will depend, in part, on the efforts of our executive officers and other key employees. In addition, the market for qualified personnel is competitive and our future success will depend on our ability to attract and retain these personnel. We do not have employment agreements with any of our executive officers, other than our chief executive officer and our chief financial officer, and we do not maintain key-person insurance for any of our officers, employees or members of our Board of Directors. The loss of the services of any of our key employees or the failure to attract and retain employees could have a material adverse effect on our business, results of operations and financial condition.

Our current insurance policies may not provide adequate levels of coverage against all claims.

We believe that we maintain insurance coverage that is customary for businesses of our size and type. These insurance policies may not be adequate to protect us from liabilities that we incur in our business. In addition, in the future, our insurance premiums may increase and we may not be able to obtain similar levels of insurance on reasonable terms or at all. Moreover, there are types of losses we may incur that cannot be insured against or that we believe are not commercially reasonable to insure such as trade name restoration coverage associated with losses like food borne illness and Avian flu. Any such inadequacy of or inability to obtain insurance coverage could have a material adverse effect on our business, financial condition and results of operations.

In addition, we self-insure a significant portion of expected losses under our workers’ compensation, employee medical, general liability, auto and non-owned auto programs. Reserves are recorded based on our estimates of the ultimate costs to resolve or settle incurred claims, both reported and unreported. If our reserves were inadequate to cover costs associated with resolving or settling claims associated with these programs, or if a judgment substantially in excess of our insurance coverage is entered against us, our financial condition and cash flow could be adversely affected.

Our annual and quarterly financial results may fluctuate depending on various factors, including seasonality of the business, many of which are beyond our control.

Our sales and operating results can vary from quarter to quarter and year to year depending on various factors, which include:

• variations in timing and volume of our sales;

• sales promotions by us and our competitors;

• changes in average same store sales and customer visits;

• variations in the price, availability and shipping costs of our supplies;

• timing of holidays or other significant events; and

• changes in competitive and economic conditions generally.

Certain of the foregoing events may directly and immediately decrease demand for our products, and therefore, may result in an adverse affect on our results of operations and cash flow.

In addition, the Company typically experiences higher net sales in the first half of the year. As a result of these seasonal fluctuations, our operating results may vary substantially between fiscal quarters.

PHI may not be able to adequately protect its intellectual property, which could harm the value of the Pizza Hut brand and branded products and adversely affect our business.

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The success of our business depends on our continued ability to use PHI’s existing trademarks, service marks and other components of the Pizza Hut brand in order to increase brand awareness and further develop our branded products. We have no control over the Pizza Hut brand. If PHI does not adequately protect the Pizza Hut brand, our competitive position and operating results could be harmed.

We are not aware of any assertions that the trademarks or menu offerings we license from PHI infringe upon the proprietary rights of third parties, but third parties may claim infringement by us in the future. Any such claim, whether or not it has merit, could be time-consuming, result in costly litigation, cause delays in introducing new menu items in the future or require us to enter into royalty or licensing agreements. As a result, any such claim could have a material adverse effect on our business and operating results.

Failure by us to establish, maintain and apply effective internal control over financial reporting in accordance with the rules of the SEC could harm our business and operating results and/or result in a loss of investor confidence in our financial reports, which could have a material adverse effect on our business.

Beginning with the year ended December 25, 2007 and thereafter, we were required to comply with Section 404 of the Sarbanes-Oxley Act. Failure to comply with Section 404 or the report by us of a material weakness may cause investors to lose confidence in our financial statements. If we fail to remedy any material weakness, our financial statements may be inaccurate and we may face restricted access to the capital markets.

Our substantial leverage could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry, expose us to interest rate risk to the extent of our variable rate debt (exclusive of hedging agreements) and prevent us from meeting our debt obligations.

We are highly leveraged. As of December 28, 2010, our total funded indebtedness was $402.4 million. We had cash and cash equivalents of $44.2 million and an additional $58.1 million available at that date for borrowing under the revolving credit facility of our senior secured credit facility. The following table shows our level of indebtedness and certain other information as of December 28, 2010:

	As of     December 28, 2010
	(in millions, except percentages)
Floating rate debt(1)	$	77.4
Fixed rate debt		325.0
Total debt		402.4
Shareholders’ equity		182.3
Total capitalization	$	584.7
Ratio of total debt to total capitalization		68.8%
(1)  The floating rate debt included in the table above is reduced by $150.0 million, which is the total notional amount of the floating-to-fixed rate interest rate swaps at December 28, 2010, and is included in fixed rate debt. This was reduced to $80.0 million during the first quarter of 2011 based on the swap’s maturity schedule, thereby increasing floating rate debt by $70.0 million to $147.4 million. Two remaining interest rate swaps with a total notional amount of $80.0 million are scheduled to mature in fiscal 2011, thereby increasing floating rate debt by an additional $80.0 million.

Our high degree of leverage could have important consequences, including:

• making it more difficult for us to make payments on our Senior Subordinated Notes (“Notes”);

• increasing our vulnerability to general economic and industry conditions;

• requiring a substantial portion of cash flows from operating activities to be dedicated to the payment of principal and interest on our indebtedness, therefore reducing our ability to use our cash flow to fund our operations, capital expenditures and future business opportunities;

• exposing us to interest rate risk on certain of our borrowings, including borrowings under our senior secured credit facility;

• restricting us from making strategic acquisitions or causing us to make non-strategic divestitures;

• limiting our ability to obtain additional financing for working capital, capital expenditures, product development, debt service requirements, acquisitions and general corporate or other purposes; and

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• limiting our ability to adjust to changing market conditions and placing us at a competitive disadvantage compared to our competitors who are less highly leveraged.

We may be able to incur substantial additional indebtedness in the future, subject to the restrictions contained in our senior secured credit facility and the indenture governing the Notes. If new indebtedness is added to our current debt levels, the related risks that we now face could intensify.

In addition, we have substantial obligations under our operating leases relating to a substantial portion of our retail facilities as well as our regional offices. For fiscal 2010, our minimum required operating lease payments were approximately $51.3 million.

Our debt agreements contain restrictions that limit our flexibility in operating our business.

Our senior secured credit facility and the indenture governing the Notes contain various covenants that limit our ability to engage in specified types of transactions. These covenants limit our ability to, among other things:

• incur additional indebtedness or issue certain preferred shares;

• pay dividends on, redeem or repurchase our capital stock or make other restricted payments;

• make investments;

• create certain liens;

• sell certain assets;

• incur obligations that restrict the ability of our subsidiaries to make dividend or other payments to us;

• guarantee indebtedness;

• engage in transactions with affiliates; and

• consolidate, merge or transfer all or substantially all of our assets.

In addition, under our senior secured credit facility, we are required to satisfy and maintain specified amortizing financial ratios and other financial condition tests. Our ability to meet those financial ratios and tests can be affected by events beyond our control, and we may be unable to meet those ratios and tests. A breach of any of these covenants could result in a default under our senior secured credit facility. Upon the occurrence of an event of default under our senior secured credit facility, the lenders could elect to declare all amounts outstanding under our senior secured credit facility to be immediately due and payable and terminate all commitments to extend further credit. If we were unable to repay those amounts, the lenders under our senior secured credit facility could proceed against the collateral granted to them to secure that indebtedness. We have pledged a significant portion of our assets as collateral under our senior secured 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 remaining additional term loan borrowing capacity under our credit facility as well as other sources of debt or additional equity capital. Recent changes in the financial and credit markets may impair our ability to obtain additional debt financing at costs similar to that of our current credit facility, if at all. If the Company were to access additional debt financing beyond our revolving credit facility to sustain our capital resource growth, it is anticipated that any such additional financing may be at higher costs than the Company’s currently outstanding borrowings under its existing credit facility. In addition any utilization of the remaining additional term loan borrowing capacity under our existing credit facility may result in a reset of the interest rate on our existing term loan borrowings, which may increase our borrowing costs based on current market conditions.

Federal, state and local environmental regulations relating to the use, storage, discharge, emission and disposal of hazardous materials could expose us to liabilities, which could adversely affect our results of operations.

We are subject to a variety of federal, state and local environmental regulation relating to the use, storage, discharge, emission and disposal of hazardous materials. We own and lease numerous parcels of real estate on which our restaurants are located.

Failure to comply with environmental laws could result in the imposition of severe penalties or restrictions on operations by governmental agencies or courts of law that could adversely affect our operations. Also, if contamination is discovered on properties owned or operated by us, including properties we own or operated in the past, we can be held liable for severe penalties and costs of remediation. These penalties could adversely affect our consolidated results of operations.

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Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

The following table sets forth certain information regarding restaurants operated by the Company as of December 28, 2010.

	Units in Operation     Dec. 28, 2010
Alabama		100
Arkansas		59
Colorado		54
Delaware		10
Florida		132
Georgia		81
Idaho		33
Illinois		52
Indiana		4
Iowa		58
Kansas		33
Kentucky		23
Louisiana		15
Maryland		2
Minnesota		5
Mississippi		70
Missouri		80
North Carolina		39
North Dakota		14
Oklahoma		23
Oregon		26
South Carolina		5
South Dakota		21
Tennessee		89
Texas		16
Virginia		87
Washington		4
West Virginia		1
		1,136

As of December 28, 2010, we leased approximately 98% of our restaurant properties, as indicated below. The majority of our existing lease terms end within the next two to six years. We have the ability to exercise lease extension options, which exist in a majority of our leases, for a period of generally one to five years. All leased properties are owned by unaffiliated entities. Our 2010 base rent for continuing operations was approximately $50.0 million and contingent rents were approximately $1.3 million.

Restaurants in Operation as of December 28, 2010
	Own		Lease		Total
Red Roof		13		167		180
RBD		6		526		532
Delco and other		—		424		424
		19		1,117		1,136

The Company operated 1,136 restaurants as of December 28, 2010, which were located in buildings either leased or owned by us. The distinctive Pizza Hut red roof is the identifying feature of Pizza Hut restaurants throughout the world. Pizza Hut restaurants historically have been built according to identification specifications established by PHI relating to exterior style and interior décor. Variations from such specifications are permitted only upon request and if required by local regulations or to take advantage of specific opportunities in a market area. Property sites range from 10,000 to 80,000 square feet. Typically, Red Roof and RBD units range from 1,800 to 5,600 square feet, including a kitchen area, and have seating capacity for 70 to 125 persons. Delco units range from 800 to 3,000 square feet.

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We own our restaurant service center office in Pittsburg, Kansas, containing approximately 46,000 square feet of commercial office space. We also own our 12,000 square foot principal executive office building in Overland Park, Kansas. We currently lease from third parties office space for eleven of our regional offices (which includes shared space with one territory office), one territory office, one training office and five call centers.

Item 3. Legal Proceedings.

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. On January 21, 2011, Plaintiffs filed their motion for conditional certification under FLSA. NPC is currently preparing its Opposition. Because the motion is pending, NPC is not able to predict its outcome at this time. The Company believes the lawsuit is wholly without merit and will defend itself from all claims vigorously.

Item 4. Removed and reserved.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

There is no established public trading market for any class of common equity of the Company. There is one holder of record of the outstanding shares of common stock of the Company. The Company did not pay any dividends on the common stock in fiscal year 2010 or 2009. The Company’s debt facilities include limitations on the Company’s ability to pay cash dividends on the common stock.

The Company did not issue or sell any equity securities during fiscal 2010 that were not registered under the Securities Act of 1933, as amended.

Item 6. Selected Financial Data.

The selected consolidated financial data set forth below should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the audited consolidated financial statements and notes to the financial statements of NPC, which can be found in Item 8.

As a result of the 2006 Transaction, purchase accounting adjustments were made to underlying assets and liabilities based on the appraisal associated with the valuation of certain assets and liabilities. The primary impact to the post-2006 Transaction income statement as a result of the application of purchase accounting included an increase in the amortization and depreciation expense associated with the adjustments to franchise rights and facilities and equipment based upon the estimates of fair value and management’s estimate of the remaining useful lives of the subject assets. The 2006 Transaction resulted in higher debt levels and related interest accruals and increased capitalized debt issue costs which resulted in higher interest expense during the post-transaction periods.

Due to the impact of the changes resulting from the purchase accounting adjustments as a result of the 2006 Transaction, the statement of operations data presentation separates our results into two periods: (1) the period ending with May 2, 2006, the day preceding the consummation of the 2006 Transaction (“Predecessor”) and (2) the period beginning on May 3, 2006 utilizing the new basis of accounting (“Successor”). The results are further separated by a heavy black line to indicate the effective date of the new basis of accounting. Similarly, the current and prior period amounts presented under restaurant operating data and consolidated balance sheet data are separated by a heavy black line to indicate the application of a new basis of accounting between the periods presented. All amounts are in thousands, except restaurant operating data, and all periods have been adjusted to reflect the effect of discontinued operations (See Note 3 to the Consolidated Financial Statements).

																Predecessor
	52 Weeks ended Dec. 28, 2010			52 Weeks ended Dec. 29, 2009			53 Weeks ended Dec. 30, 2008(1)			52 Weeks ended Dec. 25, 2007			34 Weeks ended Dec. 26, 2006			18 Weeks ended May 2, 2006
Summary of Operations:
Total sales	$	978,284		$	882,465		$	689,689		$	611,254		$	351,811		$	194,498
Operating income		56,412			39,252			44,002			41,536			19,100			10,417
Interest expense		29,283			31,266			33,850			38,012			25,306			3,744
Income (loss) from continuing operations		21,464			10,449			7,524			3,884			(3,165)			(5,323)(3)
(Loss) income from discontinued operations, net of taxes		—			(59)			(25,578)			3,886			2,042			3,706
Net income (loss)	$	21,464		$	10,390		$	(18,054)		$	7,770		$	(1,123)		$	(1,617)(3)
Restaurant Operating Data:
Number of restaurants (at period end)		1,136			1,149	(2)		1,056	(2)		777			726			704
Same store net product sales index		10.1	%		(10.2)	%		2.0	%		3.5	%			(4)		(4)
Working capital(5)	$	(40,188)		$	(68,238)		$	(42,532)		$	(40,844)		$	(31,464)		$	(172,038)(6)
Consolidated Balance Sheet Data(5):
Total assets	$	825,228		$	829,324		$	839,515		$	829,959		$	805,702		$	406,420
Total debt (including current portion)	$	402,370		$	433,710		$	453,804		$	430,500		$	431,700		$	136,346

⁽¹⁾ The fiscal year ended December 30, 2008 includes 53 weeks of operations as compared with 52 weeks for all other years presented. We estimate the additional, or 53^rd week, added approximately $14.5 million of net product sales in 2008.

⁽²⁾ We acquired 288 units during the fourth quarter of 2008 and 105 units during the first quarter of 2009.

⁽³⁾ Includes $11.3 million for loss on early termination of debt associated with the extinguishment of debt at the close of the 2006 Transaction.

⁽⁴⁾ Comparable store sales for the 52 weeks ended December 26, 2006 were 0.0%.

⁽⁵⁾ Amounts were not adjusted for discontinued operations.

⁽⁶⁾ Working capital at May 2, 2006 included $127,346 of current portion of long-term debt due to the 2006 Transaction.

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Item 7. 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 or 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, we cannot assure you 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 the forward-looking statements include, but are not limited to, the risk factors described in Item 1A, Risk Factors.

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.

Introduction

As you read this section, please refer to our Consolidated Financial Statements and accompanying notes found in Item 8. Our Consolidated Statements of Income (Loss) show our operating results for the fiscal years ended December 28, 2010, December 29, 2009 and December 30, 2008. In this section, we analyze and explain the significant annual changes of specific line items in the Consolidated Statements of Income (Loss) and Consolidated Statements of Cash Flows. We also suggest you read Item 1A, “Risk Factors” which will help your understanding of our financial condition, liquidity and operations.

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 2010 “Top 200 Restaurant Franchisees” by Franchise Times. We were founded in 1962 and, as of December 28, 2010 we operated 1,136 Pizza Hut units in 28 states with significant presence in the Midwest, South and Southeast. As of the end of fiscal 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 years 2010 and 2009 each contained 52 weeks. Fiscal year 2008 contained 53 weeks.

Acquisitions and Dispositions.  Between September 2008 and February 2009 we acquired 294 Pizza Hut units from Pizza Hut, Inc. (“PHI”) for approximately $87.9 million and 99 units for $36.2 million from another Pizza Hut franchisee. During this same time period, we also sold 112 units to PHI for approximately $37.8 million as part of an asset sale and purchase agreement. These acquisitions were funded through our revolving credit facility, the issuance of a $40.0 million term loan, proceeds from sale of units to PHI and cash on hand.

Our Consolidated Statements of Income (Loss) for fiscal 2009 and prior have been adjusted to remove the operations of the 2008 and 2009 sold units which were reported as discontinued operations. Also included in discontinued operations for the fiscal year ended December 30, 2008 was the loss on the sale of those units. The amounts presented throughout, except where otherwise indicated, relate to continuing operations only.

Our Sales

Net Product Sales.  Net product sales are comprised of sales of food and beverages from our restaurants, net of discounts. In fiscal 2010, pizza sales accounted for approximately 79% of net product sales. Sales of alcoholic beverages are less than 1% of our 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 stores in operation, comparable store sales and seasonality. “Comparable store sales” refer to period-over-period net product sales comparisons for stores under our operation for at least 12 months.

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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.

Store Openings and Closures.  Store openings, acquisitions, divestitures, relocations and closures affect period-over-period comparisons. In addition to growth through new store openings and acquisitions, stores that do not meet our operating performance or image criteria are either rebuilt, relocated or closed without replacement. The table below shows unit activity during the 52 weeks ended December 28, 2010.

	52 Weeks Ended     December 28, 2010
Beginning of period		1,149
Developed		1
Closed		(14)
End of period		1,136

Comparable Store Sales/Sales Growth.  The primary driver of sales growth in fiscal 2010 was an increase in comparable store sales of 10.1% resulting largely from our value pricing strategies.

We expect our fiscal 2011 comparable store sales growth will revert closer to traditional levels associated with a mature restaurant brand rolling over fiscal 2010’s strong sales growth.

The following table summarizes the quarterly comparable store sales results for fiscal years 2010, 2009 and 2008 for stores in continuing operations:

Comparable Store Sales     Growth / (decline)	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Fiscal         Year
2010	10.2%	10.4%	10.9%	8.8%	10.1%
2009	(5.0)%	(12.6)%	(12.9)%	(10.5)%	(10.2)%
2008	0.4%	7.2%	4.5%	(3.4)%	2.0%

Seasonality.  Our business is seasonal in nature with net product sales and operating income typically being higher in the first half of the fiscal year. Sales are largely driven by product innovation, value pricing strategies, 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.

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 fluctuation in commodity prices. Historically, our cost of sales has primarily been comprised of the following: cheese: 30-35%; dough: 16-19%; meat: 16-20%; and packaging: 8-10%. These costs can fluctuate from year-to-year given the commodity nature of the cost category, but are constant across regions. We are a member of the UFPC, a cooperative designed to operate 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 for fiscal year 2011 through a combination of derivatives taken under the direction of the UFPC.

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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 and testing 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 PHI, which are impacted by changes in royalty rates under the Company’s existing franchise agreements. For delivery units currently operating under the Company’s existing franchise agreements, royalty rates increased by 0.5% of sales to 4.5% effective January 1, 2010, resulting in $0.7 million of additional royalty expense for fiscal 2010. Effective January 1, 2020, royalty rates for these delivery units are scheduled to increase to 4.75% and, effective January 1, 2030, these rates will increase to 5.0%.

Our blended average royalty rate as a percentage of total net sales was 4.9% for fiscal 2010, 4.8% for fiscal 2009 and 4.4% for fiscal 2008. The increase is due to higher royalty rates associated with the fiscal 2008 and fiscal 2009 acquisitions and the increase for delivery units under the Company’s existing franchise agreements.

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, bank service and credit card transaction fees, professional fees, travel, information systems, recruiting and training costs, supplies, and insurance.

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 QSR industry. The following discussion describes certain key factors that may affect our future performance.

General Economic Conditions and Consumer Spending

Continued high unemployment rates, lower home values and sales, the negative impact of changes in the credit markets, and low consumer confidence as a result of the changes within the economic environment have 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. We responded to these trends with our lower net pricing strategy which substantially contributed to increased comparable store sales for 2010.

Competition

The restaurant business is highly competitive. 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, the frozen pizza and take-and-bake alternatives are becoming an increasingly intrusive competitive threat in the pizza segment. Limited product variability within our segment can make differentiation among competitors difficult. Thus, companies in the industry 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 Pizza Hut. Overall, our total commodity costs were modestly higher during fiscal 2010 than the prior year largely due to increased meat costs.

The block cheese price for fiscal 2010 averaged $1.50 per pound, an increase of $0.21 or 16% versus the average price for fiscal year 2009. Additionally, our average costs of meat increased during fiscal 2010 by 20%, as compared to the prior year. Based upon current market conditions, we expect commodity inflation for fiscal 2011 to be greater than fiscal 2010.

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Labor Costs

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. 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. Federal and certain states’ minimum wage rates increased during 2007-2009. This resulted in incremental direct labor expense which we were able to partially mitigate through pricing initiatives, productivity improvement in our restaurants, better overall wage management tactics and other auxiliary cost reduction strategies. The estimated impact on our direct labor costs for these changes is described below under “Inflation and Deflation.”

Additionally, potential changes in federal labor laws and regulations relating to union organizing rights and activities could result in portions of our workforce being subjected to greater organized labor influence, thereby potentially increasing our labor 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. Twenty-six percent of our units operate in states with indexed minimum wage rates. Most of these states did not increase minimum wage rates for 2011 and the remainder only experienced a modest increase in wage rates. We experienced three Federal minimum wage rate increases since 2007 which impacted 93% of our units, including some of the states with indexed minimum wage rates. The federal minimum wage increases effective July 24, 2009 and July 24, 2008 increased our direct labor costs by $3.9 million during fiscal 2009. The year-over-year impact of the July 24, 2009 increase was $3.1 million during fiscal 2010.

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 continuing declines in same store sales or competitive pressures, we may suffer decreased revenues, margins, income and cash flow from operations.

Critical Accounting Policies and Estimates

Certain accounting policies require us to make subjective or complex judgments about matters that are uncertain and may change in subsequent periods, resulting in changes to reported results.

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following policies could be deemed critical and require us to make judgments and estimates.

Long-lived Assets.  We review long-lived assets related to each unit quarterly for impairment or whenever events or changes in circumstances indicate that the carrying amount of a unit’s leasehold improvements may not be recoverable. Based on the best information available, impaired leasehold improvements are written down to estimated fair market value, which becomes the new cost basis. Personal property is reviewed for impairment using the closure of the unit as an indicator of impairment. Additionally, when a commitment is made to close a unit beyond the quarter, any remaining leasehold improvements and all personal property are reviewed for impairment and depreciable lives are adjusted.

Intangible Assets.  Franchise rights and other intangible assets with finite lives are amortized over their useful lives using the straight-line method. Each reporting period we evaluate whether events and circumstances warrant a revision to the remaining estimated useful life of each intangible asset. If we determine that a revision is necessary, then the remaining carrying amount of the intangible asset would be amortized prospectively over that revised remaining useful life. As of December 28, 2010 we had $404.0 million in intangible assets (see Note 5 of the Notes to Consolidated Financial Statements – Goodwill and Other Intangible Assets) of which $399.2 million were franchise rights.

Additionally, if an indicator of impairment exists, the results of the designated marketing area (DMA) that supports the franchise rights are reviewed to determine whether the carrying amount of the asset is recoverable based on an undiscounted

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cash flow method. The underlying estimates of cash flows are developed using historical results projected over the remaining term of the agreements. The estimate of fair value is highly subjective and requires significant judgment related to the estimate of the magnitude and timing of future cash flows. A change in events or circumstances, including a decision to hold an asset or group of assets for sale, a change in strategic direction, or a change in the competitive environment could adversely affect the fair value of the business, which could have a material impact on our results of operations and financial condition.

Goodwill.  We have one operating segment and reporting unit for purposes of evaluating goodwill for impairment. Goodwill was $191.7 million as of both December 28, 2010 and December 29, 2009.

Goodwill primarily originated with the 2006 Transaction. Additional goodwill was recorded in connection with multiple acquisitions by us 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.

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

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 the 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.

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Business Combinations.  We allocate the purchase price of an acquired business to its identifiable assets and liabilities based on estimated fair values. The excess of the purchase price over the amount allocated to the assets and liabilities, if any, is recorded as goodwill.

We use all available information to estimate fair values including the fair value determination of identifiable intangible assets such as franchise rights, and any other significant assets or liabilities. We adjust the preliminary purchase price allocation, as necessary, up to one year after the acquisition closing date when information that is known to be available or obtainable is obtained.

Our purchase price allocation methodology contains uncertainties because it requires management to make assumptions and to apply judgment to estimate the fair value of acquired assets and liabilities. Management estimates the fair value of assets and liabilities based upon quoted market prices, the carrying value of the acquired assets and widely accepted valuation techniques, including discounted cash flows. Unanticipated events or circumstances may occur which could affect the accuracy of our fair value estimates, including assumptions regarding industry economic factors and business strategies. See Note 2 of the Notes to Consolidated Financial Statements for a discussion of the allocation of the purchase price for acquisitions in fiscal year 2009 and 2008.

Self-insurance Accruals.  We operate with a significant self-insured retention of expected losses under our workers’ compensation, employee medical, general liability, auto, and non-owned auto programs. We purchase third party coverage for losses in excess of the normal expected levels. Liabilities for insurance reserves have been recorded based on our estimates of the ultimate costs to settle incurred claims, both reported and unreported, subject to the Company’s retentions. Provisions for losses expected under the workers’ compensation, general liability and auto programs are recorded based upon estimates of the aggregate liability for claims incurred utilizing independent actuarial calculations based on historical results. However, if actual settlements or resolutions under our insurance program are not consistent with our estimates or assumptions, we may be exposed to losses or gains that could be material.

A 10% change in our self-insured liabilities estimates would have affected net earnings by approximately $2.2 million for the fiscal year ended December 28, 2010.

Accounting for Derivatives.  We participate in interest rate related derivative instruments to manage our exposure on our debt instruments. We record all derivative instruments on the balance sheet as either assets or liabilities measured at fair value adjusted for counterparty credit risk. The calculation of the fair value of the interest rate related derivative instruments is based on estimates of future interest rates and consideration of risk of nonperformance, which may change based on economic or other factors. Changes in the fair value of these derivative instruments are recorded either through current earnings or as other comprehensive income, depending on the type of hedge designation. 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.

Recently Issued Accounting Statements and Pronouncements

See Note 1 to the Consolidated Financial Statements for new accounting standards, including the expected dates of adoption and estimated effects on our consolidated financial statements.

Results of Operations-Adjusted for Discontinued Operations

The table below presents selected restaurant operating results as a percentage of net product sales for the 52 weeks ended December 28, 2010 and December 29, 2009 and the 53 weeks ended December 30, 2008:

	52 Weeks Ending Dec. 28, 2010		52 Weeks Ending Dec. 29, 2009		53 Weeks Ending Dec. 30, 2008
Net product sales		100.0%		100.0%		100.0%
Direct restaurant costs and expenses
Cost of sales		29.6%		26.8%		28.3%
Cost of labor		30.0%		31.0%		28.3%
Other restaurant operating expenses		32.1%		34.5%		32.5%

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Fiscal 2010 Compared to Fiscal 2009-Adjusted for Discontinued Operations

Net Product Sales.  Net product sales for fiscal 2010 compared to fiscal 2009 were $934.8 million and $845.1 million, respectively, an increase of $89.7 million or 10.6% resulting largely from a comparable store sales increase of 10.1% for fiscal 2010, rolling over last year’s comparable store sales decline of 10.2%. The improved comparable store sales results for fiscal 2010 are largely a result of our continued sales momentum associated with our value pricing strategies.

Fees and Other Income.  Fees and other income were $43.5 million for fiscal 2010, compared to $37.4 million for the prior year, for an increase of $6.1 million or 16.3%. The increase was due to higher customer delivery charge income from increased delivery transactions.

Cost of Sales.  Cost of sales was $277.0 million for fiscal 2010 compared to $226.7 million for the prior year, for an increase of $50.3 million or 22.2%. Cost of sales increased 280 basis points (“bps”), as a percentage of net product sales, to 29.6%, compared to 26.8% in the prior year. This increase was largely due to lower net pricing and product mix changes due to the value pricing strategies, as well as increased meat costs. With the value pricing strategies, we realized a shift in both pizza size and toppings, which resulted in a higher level of sales of large and multi-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 were $280.7 million for fiscal 2010, compared to $262.3 million for the prior year, an increase of $18.4 million or 7.0%. Direct labor costs as a percentage of net product sales were 30.0% for fiscal 2010, a 100 basis point decrease compared to the prior year. The favorable variance was primarily due to the sales leveraging impact on fixed and semi-fixed labor costs, improved productivity and decreased health insurance costs (approximately 30 basis points) due to favorable claims experience as compared to the prior year which were partially offset by increased average wage rates (approximately 30 basis points) related to the July 2009 minimum wage increase.

Other Restaurant Operating Expenses.  Other restaurant operating expenses for fiscal 2010 were $299.7 million compared to $291.6 million for the prior year, an increase of $8.1 million or 2.8%. Other restaurant operating expenses decreased 240 bps as a percent of net product sales, to 32.1% for fiscal 2010 compared to 34.5% for the prior year.

The changes in 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 52 weeks ended December 29, 2009	34.5%
Depreciation expense	(1.1)
Rent and occupancy costs	(0.9)
Advertising expense	(0.3)
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	(0.3)
Other restaurant operating expenses as a percentage of net product sales for the 52 weeks ended December 28, 2010	32.1%

The favorable variance was largely due to the sales leveraging impact on fixed and semi-fixed costs, primarily depreciation, occupancy costs and advertising, 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 and increased delivery driver reimbursement expenses due to increased delivery transactions and higher fuel costs.

Depreciation expense for store operations was $32.7 million or 3.5% of net product sales for the 52 weeks ended December 28, 2010 compared to $39.1 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 (“G&A”) expenses for fiscal 2010 were $51.0 million compared to $48.9 million for the prior year, an increase of $2.1 million or 4.2%.

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The changes in general and administrative expenses as compared to the prior year are explained as follows, (in millions):

G&A expenses for the 52 weeks ended December 29, 2009	$48.9
Bonus expense	2.3
Credit card transaction fees	1.5
Profit sharing expense	0.5
Salaries expense	(1.2)
Acquisition integration costs	(0.6)
Other, net	(0.4)
G&A expenses for the 52 weeks ended December 28, 2010	$51.0

The increase was largely due to discretionary bonus and certain profit sharing contributions reinstated as a result of improved 2010 operating results and increased credit card transaction fees from higher sales volume in fiscal 2010. These increases were partially offset by lower salaries expense as a result of targeted headcount reductions and non-recurring acquisition integration costs incurred in the first half of 2009.

Corporate Depreciation and Amortization.  Corporate depreciation and amortization costs for both fiscal 2010 and fiscal 2009 were $11.8 million.

Other.  We recorded $1.7 million and $2.0 million for other expenses for the fiscal periods of 2010 and 2009, respectively. Included in this category for fiscal 2010 were facility impairment charges of $1.8 million compared to charges of $1.4 million for the same period of the prior year. The prior year also included direct acquisition costs of $0.6 million.

Interest Expense.  Interest expense was $29.3 million for fiscal 2010 compared to $31.3 million for the prior year, a decrease of $2.0 million, largely due to lower average outstanding debt balances as compared to the prior year. Our average outstanding debt balance decreased $35.5 million to $410.2 million in 2010 as compared to the prior year, while our average cash borrowing rate remained flat. Interest expense included $2.6 million and $2.1 million for amortization of deferred debt issuance costs for fiscal 2010 and fiscal 2009, respectively.

Income Taxes.  For fiscal 2010, we recorded income tax expense of $5.7 million or 20.9% compared to a tax benefit of $2.5 million or (30.8)% for the prior year. For fiscal 2010, the lower than statutory rate was primarily attributable to tax credits and the net tax benefit of $1.1 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 $0.6 million of income tax benefit related to state tax rate changes. Excluding the favorable impact of these items our effective tax rate would have been 0.5% for fiscal 2009. In addition to these items the significantly lower than statutory rate is related to the impact of higher jobs related tax credits in 2009 in relation to net income.

Income from Continuing Operations, net of taxes.  Income from continuing operations for fiscal 2010 was $21.5 million, compared to $10.4 million for the prior year. The increase was primarily due to the benefit of a 10.6% increase in net product sales, increased customer delivery charge income and lower interest expense. These increases were partially offset by increases in cost of sales, restaurant operating expenses, direct labor and G&A expense and higher income tax expense.

Fiscal 2009 Compared to Fiscal 2008-Adjusted for Discontinued Operations

Net Product Sales.  Net product sales for the 52 weeks ended December 29, 2009 compared to the 53 weeks ended December 30, 2008 were $845.1 million and $666.8 million, respectively, an increase of $178.3 million or 26.7% resulting largely from a 41.7% increase in equivalent units due to acquisitions and development which was partially offset by a decrease in comparable store sales of 10.2%, while rolling over last year’s comparable store sales increase of 2.0%. We believe that the decline in comparable store sales was largely due to the impact of the recession and the resulting negative impact on consumer discretionary spending priorities.

Fiscal 2009 included 52 weeks of operations as compared with 53 weeks for fiscal 2008. We estimate that the additional, or 53^rd week, added approximately $14.5 million of net product sales in 2008.

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Fees and Other Income.  Fees and other income were $37.4 million for the 52 weeks ended December 29, 2009, compared to $22.9 million for the 53 weeks ended December 30, 2008, for an increase of 63.6%. The increase was primarily due to higher customer delivery charge income as a result of delivery transactions in our acquisition units.

Cost of Sales.  Cost of sales was $226.7 million for the 52 weeks ended December 29, 2009, compared to $188.7 million for the 53 weeks ended December 30, 2008, for an increase of $38.0 million or 20.1%. Cost of sales decreased 150 basis points (“bps”), as a percentage of net product sales, to 26.8%, compared to 28.3% in the prior year. This decrease was primarily due to a 9% decrease in cheese costs (net of UFPC hedging effect) and a 14% decrease in dough costs. These decreases were partially offset by a 20% increase in packaging costs and a 5% increase in meat ingredient costs (primarily due to the 2009 Pizza Hut package design changes and ingredient reformulation) compared to the prior year. A modest shift in product mix accounted for the remainder of the overall reduction in cost of sales as a percentage of net product sales versus the prior year.

Direct Labor.  Direct labor costs were $262.3 million for the 52 weeks ended December 29, 2009, compared to $189.0 million for the 53 weeks ended December 30, 2008, an increase of $73.3 million or 38.8%. Direct labor costs as a percentage of net product sales were 31.0% for fiscal 2009, a 270 basis point increase compared to the prior year. Labor costs as a percent of net product sales increased by approximately 220 bps primarily due to the de-leveraging impact on fixed and semi-fixed labor costs as a result of the comparable store sales decline and to a lesser extent federal minimum wage increases (190 bps) and increased health insurance costs due to adverse claims development (30 bps). The remaining 50 bps increase was primarily due to higher acquisition-unit labor costs which were a result of higher delivery sales mix in these units which is more labor intensive than other occasions, higher average wage rates and general labor inefficiencies due to acquisition integration and training.

Other Restaurant Operating Expenses.  Other restaurant operating expenses for the 52 weeks ended December 29, 2009 were $291.6 million compared to $216.5 million for the 53 weeks ended December 30, 2008, an increase of $75.1 million or 34.7%. Other restaurant operating expenses increased 200 bps as a percent of net product sales, to 34.5% for fiscal 2009 compared to 32.5% for the prior year.

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 52 weeks ended December 30, 2008	32.5%
Variances due to acquisition unit economics:
Royalty expense	0.4
Depreciation expense	0.4
Delivery driver reimbursements	0.3
Outsourced call center costs	0.2
Other	(0.1)
Variances for comparable stores:
Rent and occupancy costs	0.9
Depreciation expense	0.5
Advertising expense	0.2
Delivery driver reimbursements	(0.3)
Restaurant manager bonuses	(0.3)
Delivery driver insurance costs	(0.2)
Other restaurant operating expenses as a percentage of net product sales for the 52 weeks ended December 29, 2009	34.5%

Approximately 120 bps of the increase was due to the economics of the acquisition units, which caused an increase in our royalty expense, higher depreciation expense associated with purchase accounting asset values, higher delivery driver reimbursement expenses due to a higher delivery mix and outsourced call center expenses for a certain acquisition market. The remaining net variance of 80 bps was largely due to the de-leveraging impact on fixed and semi-fixed costs due to the comparable store sales decline consisting primarily of occupancy costs, depreciation and advertising. These increases were partially offset by a decline in delivery driver reimbursement expenses for comparable stores due to lower fuel prices, lower store level bonuses and lower delivery driver insurance costs.

Depreciation expense for store operations was $39.1 million or 4.6% of net product sales for the year-to-date period of 2009 compared to $24.8 million or 3.7% of net product sales for the prior year.

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General and Administrative Expenses.  General and administrative expenses for the 52 weeks ended December 29, 2009 were $48.9 million compared to $41.0 million for the prior year, an increase of $7.9 million or 19.3%.

The changes in general and administrative expenses as compared to the prior year are explained as follows, (in millions):

G&A expenses for the 53 weeks ended December 30, 2008	$41.0
Variances due to the 2008 and 2009 acquisitions:
Field supervisory personnel costs	6.1
Credit card transaction fees	4.0
Acquisition integration costs	0.6
Variances for comparable stores:
Extra week expenses fiscal 2008 53-week year	(0.8)
Profit sharing	(0.8)
Training	(0.6)
Other, net	(0.6)
G&A expenses for the 52 weeks ended December 29, 2009	$48.9

Corporate Depreciation and Amortization.  Corporate depreciation and amortization costs for the 52 weeks ended December 29, 2009 were $11.8 million compared to $9.8 million for the prior year. The increase over the prior year is largely due to increased franchise rights amortization as a result of the 2008 and 2009 acquisitions which was partially offset by decreased pre-opening expenses related to 41 WingStreet™ product line conversions in 2009 as compared to 153 during 2008.

Other.  We recorded expense of $2.0 million and $0.8 million for other expenses for the fiscal periods of 2009 and 2008, respectively. Included in this category were facility impairment charges of $1.4 million and direct acquisition costs of $0.6 million which are required to be expensed under accounting guidance for business combinations effective for fiscal year 2009.

Interest Expense.  Interest expense was $31.3 million for the 52 weeks ended December 29, 2009 compared to $33.8 million for the prior year, a decrease of $2.5 million. The decrease is largely due to lower interest rates as compared to the prior year, despite higher average debt levels and the extra week in fiscal 2008. Lower interest rates decreased our cash borrowing rate by 0.9% to 6.5% during fiscal 2009 compared to fiscal 2008 and our average outstanding debt balance increased $18.4 million to $445.7 million in 2009 as compared to the prior year. Interest expense included $2.1 million and $1.8 million for amortization of deferred debt issuance costs for fiscal 2009 and fiscal 2008, respectively.

Income Taxes.  For the 52 weeks ended December 29, 2009, we recorded an income tax benefit of $2.5 million or (30.8)% compared to tax expense of $2.6 million or 25.9% for the prior year. 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 $0.6 million of income tax benefit related to state tax rate changes. Excluding the favorable impact of these items our effective tax rate would have been 0.5%. In addition to these items the decline in rate from 2008 is related to the impact of higher jobs related tax credits in 2009 in relation to net income.

Income from Continuing Operations, net of taxes.  Income from continuing operations for the 52 weeks ended December 29, 2009 was $10.4 million, compared to $7.5 million for the prior year. The increase was primarily due to the benefit of a 26.7% increase in net product sales, increased customer delivery charge income, lower commodity costs, an income tax benefit and lower interest expense, which were partially offset by increases in restaurant operating expenses, direct labor and general and administrative expenses.

Loss from Discontinued Operations, net of taxes.  Loss from discontinued operations was $0.1 million in fiscal 2009 compared to $25.6 million in 2008. In December 2008, we completed the sale of 70 units to PHI for $18.8 million in cash. As a result of this sale, we recognized a pre-tax loss included in discontinued operations of $27.4 million in 2008. Also, in December 2008, we entered into an agreement to sell 42 units to PHI for $19.0 million in cash. The sale of these units was completed in January 2009. These units were classified as held for sale at December 30, 2008 and we recorded a $17.2 million pre-tax loss to reduce the carrying amount of these units to fair value. The total after-tax loss on the sale of these units was $30.3 million and was included in discontinued operations. Net income related to these units was $4.7 million for fiscal 2008.

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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.

Our $75.0 million revolving credit facility is due May 3, 2012 and our $300.0 million term loan notes are due May 3, 2013. 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. Although we do not currently anticipate any problems in obtaining financing due to our historical results of operations and our generation of free cash flow, adverse changes in business or credit market conditions in the future could materially adversely affect our ability to refinance the existing indebtedness on reasonable terms. 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 $40.2 million at December 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 December 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. Although not required, we currently pay the next day for certain of our supply purchases in order to take advantage of a prompt-payment discount from our distributor. If we were to utilize the 30 day term of trade credit, it would increase our cash position by approximately $20.0 million but would have no impact on our working capital.

Cash flows from operating activities, inclusive of discontinued operations

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 $76.2 million for fiscal year 2010, $62.7 million for fiscal year 2009, and $72.9 million for fiscal year 2008. Cash flows from operations during the 52 weeks ended December 28, 2010 were positively impacted by an $11.7 million increase in after tax cash flows from operations (after adding back non-cash items to net income) and positive changes in working capital of $3.7 million as compared to fiscal 2009.

Cash flows from operations during the 52 weeks ended December 29, 2009 were positively impacted by a $3.8 million increase in after tax cash flows from operations (after adding back non-cash items to net income), which was more than offset by negative changes in working capital of $12.8 million related to timing of payments for accrued liabilities as compared to fiscal 2008.

Cash flows from investing activities

Cash flows used in investing activities were $16.2 million during the 52 weeks ended December 28, 2010 compared to $37.8 million for the 52 weeks ended December 29, 2009. For the 52 weeks ended December 28, 2010, we invested $18.3 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 in which we purchased 55 units for $18.7 million and sold 42 units for $19.5 million, and also completed an acquisition of 50 units for $14.1 million. During 2009 we invested $25.5 million in capital expenditures, consisting of approximately $19.9 million invested in our existing operations (including approximately $1.9 million for WingStreet^™ development at 41 units) and $5.6 million invested for acquisition related information technology (“IT”) equipment. During fiscal 2008, we completed an acquisition of 99 units, including nine fee owned properties, for $36.1 million and an acquisition of 88 units, including one fee owned property, for $28.2 million. We

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also completed an asset purchase and sale transaction in which we purchased 101 units for $27.0 million and sold 70 stores for $18.8 million. During fiscal 2008 we invested $33.9 million in capital expenditures, consisting of approximately $32.3 million in our existing operations (including approximately $9.3 million for WingStreet^™ development at 178 units) and $1.6 million for acquisition related IT equipment. Proceeds from asset sales were $1.0 million for both fiscal 2009 and 2008.

Additionally, during the third quarter 2008 we purchased 13 formerly leased properties for $6.9 million with the intent to sell and leaseback the properties. Eleven of these properties were sold for $7.0 million (and are included in financing activities below) resulting in a deferred gain of approximately $0.9 million and the remaining two properties were included in fixed assets for approximately $0.8 million. These properties were subsequently sold in the first quarter of 2009 for $0.9 million.

Our franchise agreements require us to perform asset actions consisting of three activity classes: (i) partial re-image, (ii) full-re-image, and (iii) rebuild, remodel or relocate. The required asset action (rebuild/remodel vs. re-image) for each dine-in asset was determined based on each asset’s historical sales volume and trade area population. A remodel of an existing asset entails a total interior and exterior refurbishment, completely upgrading the asset to the latest PHI standards. The re-image of an asset entails limited exterior refurbishment (paint, parking lot, etc.) and significant restaurant interior upgrades. We signed a WingStreet™ agreement with PHI that was effective on December 25, 2007. This agreement permits the development of the less costly WingStreet™ Lite format, as defined in accordance with PHI specifications, to an existing dine-in asset to constitute an approved re-image under the existing franchise agreements. Under our 2003 franchise agreements, all partial and full re-images were completed by September 30, 2009 and all rebuild, remodel and relocation activities must be completed by the extended deadline of December 31, 2015. We expect to incur capital expenditures of approximately $19.9 million over the remaining 5 years to meet these requirements in addition to normal recurring maintenance capital expenditures.

Additionally, as part of our 2008 location and territory franchise agreements that were effective with the December 2008 and first quarter 2009 acquisitions of units from PHI, we are required to complete certain major asset actions (as defined as a rebuild, relocate, or remodel) within 11 years of the acquisition date, or by December 2019 through February 2020. We expect to incur approximately $10.8 million over the next 9 years to meet these requirements.

We are significantly ahead of schedule on our asset re-image, rebuild/remodel requirements and have the option to reduce capital expenditures at management’s discretion to increase free cash flow and remain comfortably in compliance with our franchise agreements.

We currently expect our capital expenditure investment to be approximately $27.0 million to $29.0 million in fiscal 2011. This estimate includes the development of 16 Delco units for $4.6 million.

Cash flows from financing activities

Net financing cash outflows were $30.5 million for fiscal 2010 compared to $15.5 million for fiscal 2009 and inflows of $37.1 million for fiscal 2008. During fiscal 2010 we paid our mandatory excess cash flow prepayment of $31.3 million on our senior secured credit facility utilizing cash reserves. This compares to $17.1 million in fiscal 2009 and $4.2 million in fiscal 2008. We had no net activity on our revolving credit facility during the 52 weeks ended December 28, 2010. Net repayments under the revolving credit facility were $3.0 million for the 52 weeks ended December 29, 2009 despite borrowing approximately $14.2 million to fund our acquisition of 50 units in February 2009 and $15.0 million to partially fund our mandatory excess cash flow prepayment during the second quarter of 2009, compared to $12.5 million in net repayments during fiscal 2008.

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. During the first half of fiscal 2008 we completed six sale-leaseback transactions on assets principally constructed during 2007 for approximately $6.9 million. During the last half of 2008, we completed sale-leaseback transactions on 11 formerly leased properties for approximately $7.0 million.

During fiscal 2008, we borrowed $40.0 million pursuant to an incremental term loan which we entered into under the existing credit facility’s $100.0 million term accordion feature to fund the 99-unit fourth quarter 2008 acquisition and to augment cash reserves. During 2009, we paid debt issue costs of $1.9 million for legal and recording fees for leasehold mortgages as required by our credit agreement.

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As part of the 2006 Transaction, our debt structure consists of the following sources of financing:

• Senior Secured Credit Facility.  Our senior secured credit facility was entered into May 3, 2006 and consists of a $75.0 million revolving credit facility and $300.0 million in term loan notes. Interest is paid at LIBOR, the money market rate, or the base rate (as defined), plus an applicable margin based upon a leverage ratio as defined in the credit agreement. We had no borrowings outstanding under the revolving credit facility at December 28, 2010. Availability under this facility is reduced by letters of credit, of which $16.9 million were issued at December 28, 2010. Commitment fees are paid based upon the unused balance of the facility and the fees are determined based upon the aforementioned leverage ratio and were 0.5% at December 28, 2010. Commitment fees and letter of credit fees are reflected as interest expense. The facility is secured by substantially all of the Company’s assets and is due May 3, 2012.

Under our $300.0 million term loan notes, interest is paid at LIBOR plus 1.75%, or the base rate (as defined), plus 0.75%. On October 8, 2008, we borrowed $40.0 million pursuant to an incremental term loan which we entered into under the existing credit facility’s $100.0 million term accordion feature, reducing our available term loan accordion capacity to $60.0 million. Under the $40.0 million incremental term loan, interest is paid at LIBOR plus 2.25%, or the base rate (as defined) plus 1.25%. The combined rate was 2.1% (not including the effect of interest rate swaps) at December 28, 2010. These notes contain scheduled principal payments outlined below and may be prepaid at any time without penalty. The facility is secured by substantially all of the Company’s assets and is due May 3, 2013.

• Senior Subordinated Notes.  The Notes bear interest at the rate of 9.5% payable semi-annually in arrears on May 1 and November 1 until maturity of the Notes on May 1, 2014. These Notes are unsecured and are subordinated to the $375.0 million senior secured credit facility and other senior indebtedness, as defined. Effective May 1, 2010, these Notes may be redeemed at a redemption price of 104.750% plus accrued and unpaid interest until May 1, 2011, when the redemption price becomes 102.375% and remains such until May 1, 2012, when these Notes can be redeemed at the face amount, plus accrued and unpaid interest. The issuance of these Notes was registered under the Securities Act of 1933.

Our ability to satisfy our financial covenants under our senior secured credit facility, meet our debt service obligations and reduce our debt will be dependent on our future performance, which in turn, will be subject to general economic conditions and to financial, business, and other factors, including factors beyond our control. We believe that our ability to repay amounts outstanding under our senior secured credit facility and the Notes at maturity will likely require additional financing, which may not be available to us on acceptable terms, if at all. As of December 28, 2010, we had $227.4 million in funded floating rate debt outstanding under our senior secured credit facility. Of this amount, we entered into floating-to-fixed interest rate swaps with notional amounts totaling $150.0 million with expirations ranging from December 31, 2010 to November 18, 2011, leaving us with $77.4 million of floating rate debt at December 28, 2010.

The excess cash flow mandatory prepayment is an annual requirement under the credit agreement and is due the earlier of 30 days after we file our Form 10-K for our current fiscal year or 120 days after the end of our current fiscal year. The mandatory prepayment based on 2010 results will be approximately $29.7 million based upon the amount of excess cash flow generated during the fiscal year and our leverage at fiscal year-end, each of which is defined in the credit agreement. We currently expect to pay this amount utilizing cash reserves in late February 2011.

During fiscal 2010, we made all scheduled principal and interest payments. As of December 28, 2010, the Company was in compliance with all of the debt financial covenants.

Our ratios under the foregoing financial covenants in our credit agreement as of December 28, 2010 are as follows:

	Actual	Covenant Requirement
Maximum total leverage ratio	3.80x	Not more than 4.75
Minimum interest coverage ratio	2.03x	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 29, 2010 - December 27, 2011	4.25x
December 28, 2011 and thereafter	4.00x
Minimum interest coverage ratio	Coverage Ratio
June 30, 2010 and thereafter	1.75x

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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 flow 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 December 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 Transaction 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).

	52 Weeks Ending Dec. 28, 2010		52 Weeks Ending Dec. 29, 2009
Net income from continuing operations	$	21,464	$	10,449
Adjustments:
Interest expense		29,283		31,266
Income tax expense (benefit)		5,665		(2,463)
Depreciation and amortization		46,221		51,916
Net facility impairment charges		1,753		1,368
Pre-opening expenses and other		1,075		1,957
Adjusted EBITDA from continuing operations		105,461		94,493
Adjusted EBITDA from discontinued operations		—		142
Non-GAAP adjusted EBITDA	$	105,461	$	94,635

⁽¹⁾ The Company defines Non-GAAP Adjusted EBITDA as consolidated net income plus interest, income taxes, depreciation and amortization, facility impairment charges and pre-opening expenses. Non-GAAP Adjusted EBITDA is not a measure of financial performance under generally accepted accounting principles. Non-GAAP 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. Non-GAAP Adjusted EBITDA as defined above may not be similar to EBITDA measures of other companies.

33

Contractual Obligations and Off Balance Sheet Arrangements

The following table discloses aggregate information about our contractual cash obligations as of December 28, 2010 and the periods in which payments are due:

	Payments due by period
	Total		Less than     1 Year		1-3     Years		3-5     Years		More     than  5     Years		Other
	(in millions)
Long-term debt	$	402.4	$	29.7	$	197.7	$	175.0	$	—	$	—
Operating leases(1)		285.8		45.5		78.5		61.6		100.2		—
Interest payments(2)		66.6		22.1		39.0		5.5		—		—
Facility upgrades(3)		30.7		0.3		10.9		11.0		8.5		—
Unrecognized tax benefits(4)		9.0		—		—		—		—		9.0
Purchase and other obligations(5)		5.2		4.6		0.6		—		—		—
	$	799.7	$	102.2	$	326.7	$	253.1	$	108.7	$	9.0

⁽¹⁾ The majority of our leases contain renewal options for one to five years. The remaining leases may be renewed upon negotiations, which could increase total lease payments. The above table does not include amounts related to unexercised lease renewal option periods. Total minimum lease payments have been reduced by aggregate minimum sublease rentals of $0.8 million under operating leases due in the future under non-cancelable subleases.

⁽²⁾ The Company obtained a four and one half year amortizing floating-to-fixed rate interest rate swap agreement on June 6, 2006 at a fixed rate of 5.39%. The outstanding notional amount was $20.0 million at December 28, 2010 and fully amortized effective December 31, 2010. During 2008, the Company entered into three three-year floating-to-fixed rate interest rate swap agreements for the following fixed rates and notional amounts: 3.16% on January 31 for $50.0 million; 2.79% on April 7 for $50.0 million and 2.81% on November 18 for $30.0 million. Interest payments are calculated on debt outstanding at December 28, 2010 at rates in effect at the end of the year, including the effect of the swaps.

⁽³⁾ Includes capital expenditure requirements under our franchise agreements for remodeling and re-imaging our assets, as well as WingStreet™ conversion and development requirements (see “Business—Franchise Agreements”). Amounts are presented under the timeline as currently planned by us, however, we have the discretion to apportion these expenditures into future years at a slower rate and remain in compliance.

⁽⁴⁾ The amount and timing of liabilities for unrecognized tax benefits cannot be reasonably estimated and is shown in the “Other” column.

⁽⁵⁾ Purchase and other obligations primarily include amounts for obligations under service agreements.

Based on current unit counts, we expect to incur between $10.0 million and $12.0 million in annual capital expenditures to maintain the Company’s assets in accordance with our standards. These amounts are not included in the above table.

Certain members of management and certain members of our Board of Directors have membership interests in Holdings. The total membership interests not owned by MLGPE are $3.3 million as of December 28, 2010. Under the terms of the Amended and Restated Limited Liability Company Agreement of Holdings (“LLC Agreement”), the membership interests are mandatorily redeemable units, which are required to be repurchased by Holdings upon the resignation of the member. However, the value of this liability is subject to a formula as defined within the LLC Agreement based upon the terms of the member’s resignation. The Company does not have a contractual obligation to fund the purchase of the mandatorily redeemable units; however, the Company may be required to provide a distribution to Holdings in the event of a member’s resignation from the Company. The value of this liability is subject to a formula as defined within the LLC Agreement. Based on the financial results for fiscal 2010, we estimate the membership interests to have a combined value of approximately $3.3 million to $5.6 million, of which the value varies based upon the terms of the member’s resignation, as defined within the LLC Agreement.

Letters of Credit. As of December 28, 2010, we had letters of credit, in the amount of $16.9 million, issued under our existing credit facility primarily in support of self-insured risks.

34

Item 7A. 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 December 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 LIBOR on the following notional amounts of floating rate debt:

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 for fiscal year 2011 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 fiscal 2010 and $0.13 per pound for fiscal 2009) would have been approximately $7.4 million and $5.1 million for the 52 weeks ended December 28, 2010 and December 29, 2009, respectively, without giving effect to the UFPC directed hedging programs.

35

Item 8. Financial Statements and Supplementary Data.

NPC INTERNATIONAL, INC.

YEARS ENDED DECEMBER 28, 2010, DECEMBER 29, 2009 AND DECEMBER 30, 2008

INDEX TO FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm	38-39
Consolidated Financial Statements:
Consolidated Balance Sheets	40
Consolidated Statements of Income (Loss)	41
Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss)	42
Consolidated Statements of Cash Flows	43
Notes to Consolidated Financial Statements	44-59

36

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of NPC International, Inc.:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income (loss), stockholders’ equity and comprehensive income (loss) and cash flows present fairly, in all material respects, the financial position of NPC International, Inc. (“the Company”) at December 28, 2010 and December 29, 2009, and the results of its operations and its cash flows for each of the two years in the period ended December 28, 2010 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/ PRICEWATERHOUSECOOPERS LLP

Kansas City, Missouri

February 21, 2011

37

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

NPC International, Inc.

Overland Park, Kansas

We have audited the accompanying consolidated statements of loss, stockholders’ equity and comprehensive (loss), and cash flows of NPC International, Inc. (the “Company”) for the 53 week period ended December 30, 2008. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the results of operations and cash flows of NPC International, Inc. for the 53 week period ended December 30, 2008, in conformity with accounting principles generally accepted in the United States of America.

DELOITTE & TOUCHE LLP

Kansas City, Missouri

March 25, 2009

38

NPC INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

	December 28,     2010		December 29,     2009
Assets
Current assets:
Cash and cash equivalents	$	44,159	$	14,669
Accounts receivable		4,464		4,897
Inventories		7,163		7,019
Prepaid expenses and other current assets		3,867		4,415
Assets held for sale		799		1,010
Deferred income taxes		5,434		2,801
Income taxes receivable		—		2,703
Total current assets		65,886		37,514
Facilities and equipment, less accumulated depreciation of $129,566 and $105,891, respectively		143,713		164,413
Franchise rights, less accumulated amortization of $41,014 and $31,509, respectively		399,248		408,714
Goodwill		191,701		191,701
Other assets, net		24,680		26,982
Total assets	$	825,228	$	829,324
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	22,722	$	25,936
Accrued liabilities		39,384		34,484
Accrued interest		4,386		4,936
Income taxes payable		389		—
Current portion of insurance reserves		9,523		9,056
Current portion of debt		29,670		31,340
Total current liabilities		106,074		105,752
Long-term debt		372,700		402,370
Other deferred items		30,831		36,841
Insurance reserves		12,840		12,313
Deferred income taxes		120,451		113,473
Total long-term liabilities		536,822		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 December 28, 2010 and December 29, 2009)		—		—
Paid-in-capital		163,443		163,325
Accumulated other comprehensive loss		(1,197)		(3,372)
Retained earnings (deficit)		20,086		(1,378)
Total stockholders’ equity		182,332		158,575
Total liabilities and stockholders’ equity	$	825,228	$	829,324

See accompanying notes to the consolidated financial statements.

39

NPC INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(in thousands)

	52 Weeks         Ended Dec. 28, 2010		52 Weeks         Ended Dec. 29, 2009		53 Weeks         Ended Dec. 30, 2008
Sales:
Net product sales	$	934,807	$	845,074	$	666,829
Fees and other income		43,477		37,391		22,860
Total sales		978,284		882,465		689,689
Costs and expenses:
Cost of sales		277,027		226,676		188,703
Direct labor		280,690		262,298		189,002
Other restaurant operating expenses		299,721		291,640		216,465
General and administrative expenses		50,960		48,883		40,991
Corporate depreciation and amortization of intangibles		11,809		11,761		9,753
Other		1,665		1,955		773
Total costs and expenses		921,872		843,213		645,687
Operating income		56,412		39,252		44,002
Interest expense		(29,283)		(31,266)		(33,850)
Income before income taxes		27,129		7,986		10,152
Income tax expense (benefit)		5,665		(2,463)		2,628
Income from continuing operations		21,464		10,449		7,524
Loss from discontinued operations, net of taxes		—		(59)		(25,578)
Net income (loss)	$	21,464	$	10,390	$	(18,054)

See accompanying notes to the consolidated financial statements.

40

NPC INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

AND COMPREHENSIVE INCOME (LOSS)

(in thousands, except per share data)

	Shares     of common     stock		Common stock		Paid-in capital		Retained earnings (deficit)			Accumulated other comprehensive income (loss)			Treasury stock, at cost		Total         stockholders’         equity
Balance at December 25, 2007		1,000	$	—	$	163,325	$	6,286		$	(1,271	)	$	—	$	168,340
Comprehensive loss:
Net loss		—		—		—		(18,054	)		—			—		(18,054)
Net unrealized change in cash flow hedging derivatives		—		—		—		—			(4,362	)		—		(4,362)
Reclassification adjustment into income for derivatives used in cash flow hedges		—		—		—		—			1,508			—		1,508
Total comprehensive loss																(20,908)
Balance at December 30, 2008		1,000	$	—	$	163,325	$	(11,768	)	$	(4,125	)	$	—	$	147,432
Comprehensive income:
Net income		—		—		—		10,390			—			—		10,390
Net unrealized change in cash flow hedging derivatives		—		—		—		—			(4,114	)		—		(4,114)
Reclassification adjustment into income for derivatives used in cash flow hedges		—		—		—		—			4,867			—		4,867
Total comprehensive income																11,143
Balance at December 29, 2009		1,000	$	—	$	163,325	$	(1,378	)	$	(3,372	)	$	—	$	158,575
Restricted common units						118										118
Comprehensive income:
Net income		—		—		—		21,464			—			—		21,464
Net unrealized change in cash flow hedging derivatives		—		—		—		—			(2,263	)		—		(2,263)
Reclassification adjustment into income for derivatives used in cash flow hedges		—		—		—		—			4,438			—		4,438
Total comprehensive income																23,639
Balance at December 28, 2010		1,000	$	—	$	163,443	$	20,086		$	(1,197	)	$	—	$	182,332

See accompanying notes to the consolidated financial statements.

41

NPC INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	52 Weeks Ended     December 28,     2010		52 Weeks Ended     December 29,     2009		53 Weeks Ended     December 30,     2008
Operating activities
Net income (loss)	$	21,464	$	10,390	$	(18,054)
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation and amortization		46,221		51,926		41,678
Amortization of debt issuance costs		2,568		2,098		1,750
Net facility impairment charges		1,753		1,368		631
Loss from discontinued operations		—		—		44,599
Deferred income taxes		2,950		(2,544)		(11,285)
Net (gain) loss on disposition of assets		(120)		(3)		142
Other		118		—		—
Changes in assets and liabilities, excluding effects from purchase of companies:
Accounts receivable		316		(758)		1,611
Inventories		(144)		560		(287)
Prepaid expenses and other current assets		215		105		(115)
Accounts payable		(3,214)		2,938		(274)
Accrued liabilities		3,127		(2,658)		8,755
Income taxes		3,092		(617)		808
Accrued interest		(550)		(1,381)		93
Insurance reserves		994		1,996		2,439
Other deferred items		(2,035)		(574)		(1,487)
Other assets		(577)		(172)		1,902
Net cash provided by operating activities		76,178		62,674		72,906
Investing activities
Capital expenditures		(18,331)		(25,457)		(33,908)
Purchase of formerly leased properties for sale-leaseback		—		—		(6,907)
Purchase of business assets, net of cash acquired		—		(32,804)		(91,327)
Net proceeds from sale of units		—		19,463		18,841
Proceeds from sale or disposition of assets		2,118		1,009		1,015
Net cash used in investing activities		(16,213)		(37,789)		(112,286)
Financing activities
Borrowings under revolving credit facility		13,105		260,882		213,700
Payments under revolving credit facility		(13,105)		(263,882)		(226,200)
Issuance of term loans		—		—		40,000
Payment on term loans		(31,340)		(17,094)		(4,196)
Debt issue costs		—		(1,851)		(126)
Proceeds from sale-leaseback transactions		865		5,500		6,896
Proceeds from sale-leaseback transactions on formerly leased properties		—		902		7,024
Net cash (used in) provided by financing activities		(30,475)		(15,543)		37,098
Net change in cash and cash equivalents		29,490		9,342		(2,282)
Beginning cash and cash equivalents		14,669		5,327		7,609
Ending cash and cash equivalents	$	44,159	$	14,669	$	5,327
Supplemental disclosures of cash flow information:
Net cash paid for interest	$	27,264	$	30,549	$	32,000
Net cash paid (received) for income taxes	$	448	$	2,607	$	(524)

See accompanying notes to the consolidated financial statements.

42

NPC INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Summary of Significant Accounting Policies

Description of Business.  NPC International, Inc., is referred to herein as “NPC” and “the Company.” NPC Acquisition Holdings, LLC, its ultimate parent company, is referred to herein as “Holdings.” On May 3, 2006, all of NPC’s outstanding stock was acquired by Holdings, a company controlled by Merrill Lynch Global Private Equity (“MLGPE”), (now known as BAML Capital Partners) and certain of its affiliates, herein referred to as the “2006 Transaction.”

In January 2009, Bank of America Corporation, or “Bank of America,” acquired Merrill Lynch & Co., Inc., the parent company of MLGPE. Accordingly, Bank of America is now an indirect beneficial owner of our common stock held by MLGPE and certain of its affiliates.

NPC is the largest Pizza Hut franchisee and the largest franchisee of any restaurant concept in the United States. The Company was founded in 1962 and, as of December 28, 2010 operated 1,136 Pizza Hut units in 28 states with significant presence in the Midwest, South and Southeast. As of the end of fiscal 2010, the Company’s 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 markets.

Basis of Presentation.  The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The Company operates one operating segment. The Company believes this information includes all adjustments, consisting of normal recurring accruals, necessary to fairly present the financial condition, statements of income and cash flows for the periods then ended.

Fiscal Year.  The Company operates on a 52- or 53-week fiscal year ending the last Tuesday in December. The fiscal year ended December 28, 2010 and December 29, 2009 each contained 52 weeks. The fiscal year ended December 30, 2008 contained 53 weeks. For convenience, fiscal years ended December 28, 2010, December 29, 2009 and December 30, 2008 are referred to as fiscal 2010, fiscal 2009 and fiscal 2008, respectively.

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.

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

Cash Equivalents.  Cash and cash equivalents of the Company are composed of demand deposits with banks and short-term cash investments with maturities of three months or less from the date of purchase by the Company. Periodically, the Company has outstanding checks that are written in excess of the cash balances at its bank that create a book overdraft, which the Company records as a liability.

Inventories.  Inventories of food and supplies are carried at the lower of cost (first-in, first-out method) or market.

Revenue Recognition.  The Company recognizes revenue when products are delivered to the customer or meals are served. The Company presents sales in the Consolidated Statements of Income (Loss) net of sales taxes.

Facilities and Equipment.  Facilities and equipment are recorded at either cost or fair value as a result of the 2006 Transaction. Depreciation is charged on the straight-line basis for buildings, furniture, and equipment. Leasehold improvements are amortized on the straight-line basis over the shorter of the estimated economic life of the improvements or the term of the lease.

The Company reviews long-lived assets related to each unit quarterly for impairment or whenever events or changes in circumstances indicate that the carrying amount of a unit’s leasehold improvements may not be recoverable. Based on the best information available, impaired leasehold improvements are written down to estimated fair market value, which becomes the new cost basis. Personal property is reviewed for impairment using the closure of the unit as an indicator of impairment. Additionally, when a commitment is made to close a unit beyond the quarter, any remaining leasehold improvements and all personal property are reviewed for impairment and depreciable lives are adjusted.

43

Business Combinations.  In accordance with accounting guidance for business combinations, the Company allocates the purchase price of an acquired business to its identifiable assets and liabilities based on estimated fair values. The excess of the purchase price over the amount allocated to the assets and liabilities, if any, is recorded as goodwill.

The Company uses all available information to estimate fair values including the fair value determination of identifiable intangible assets such as franchise rights, and any other significant assets or liabilities. The Company adjusts the preliminary purchase price allocation, as necessary, up to one year after the acquisition closing date when information that is known to be available or obtainable is obtained.

The Company’s purchase price allocation methodology contains uncertainties because it requires management to make assumptions and to apply judgment to estimate the fair value of acquired assets and liabilities. Management estimates the fair value of assets and liabilities based upon quoted market prices, the carrying value of the acquired assets and widely accepted valuation techniques, including discounted cash flows. Unanticipated events or circumstances may occur which could affect the accuracy of its fair value estimates, including assumptions regarding industry economic factors and business strategies.

Assets Held for Sale.  In December 2008, the Company entered into an agreement with Pizza Hut, Inc. (“PHI”) to sell 42 units in 2009 and presented the results of operations for these units as discontinued operations for the fiscal year ended December 30, 2008 in accordance with the accounting guidance for impairment or disposal of long-lived assets. The Company also recorded a loss of $17.2 million (pre-tax) to write-down the net assets for these 42 units to their estimated fair value less cost to sell at December 30, 2008, which was included in the loss from discontinued operations in the Consolidated Statements of Income (Loss) for fiscal 2008.

The Company also sells units that have been closed due to underperformance and land parcels that it does not intend to develop in the future. The Company classifies an asset as held for sale in the period during which each of the following conditions is met: (a) management has committed to a plan to sell the asset; (b) the asset is available for immediate sale in its present condition; (c) an active search for a buyer has been initiated; (d) completion of the sale of the asset within one year is probable; (e) the asset is being marketed at a reasonable price; and (f) no significant changes to the plan of sale are expected. Assets held for sale were $0.8 million at December 28, 2010 and $1.0 million at December 29, 2009.

Pizza Hut Franchise Agreements.  Effective January 1, 2003, the Company began operating under new franchise agreements with PHI. The franchise agreements have an initial term of 30 years and a 20-year renewal term. Certain of the franchise agreements contain perpetual 20-year renewal terms subject to certain criteria. The amortization of all franchise rights conclude at the end of this initial term plus one renewal term (or December 31, 2053).

Royalty expense was included in other restaurant operating expenses and totaled $47.7 million for fiscal year 2010 (4.9% of total sales), $41.9 million for fiscal year 2009 (4.8% of total sales), and $30.4 million for fiscal year 2008 (4.4% of total sales).

Lease Accounting.  Certain of the Company’s lease agreements provide for scheduled rent increases during the lease term, as well as provisions for renewal options. Rent expense is recognized on a straight-line basis over the lease term. Lease terms are determined based upon management’s estimate of the commercial viability of the location. In addition, landlord-provided tenant improvement allowances are recorded in other deferred items and amortized as a credit to rent expense over the term of the lease. Favorable lease amounts are amortized to expense over the remaining life of the lease including options. Unfavorable lease amounts are amortized to expense over the remaining life of the current contractual lease term.

Intangible Assets.  Franchise rights and other intangible assets with finite lives are amortized over their useful lives using the straight-line method. Each reporting period the Company evaluates whether events and circumstances warrant a revision to the remaining estimated useful life of each intangible asset. If it was determined that events and circumstances warrant a change to the estimate of an intangible asset’s remaining useful life, then the remaining carrying amount of the intangible asset would be amortized prospectively over that revised remaining useful life.

If an indicator of impairment exists, the results of the designated marketing area (DMA) that supports the franchise rights are reviewed to determine whether the carrying amount of the asset is recoverable based on an undiscounted cash flow method.

Accounting for Goodwill.  The Company assesses goodwill, which is not subject to amortization, for impairment annually in its second quarter, and also at any other date when events or changes in circumstances indicate that the carrying value of these assets may exceed their fair value. The Company develops an estimate of the fair value using a discounted income approach. In connection with the Company’s annual test in the second quarter, no impairment has been identified.

44

Fees and Other Income.  Fees and other income are comprised primarily of delivery fees charged to customers and vending receipts.

Advertising Costs.  Advertising costs are expensed as incurred. The total amounts charged to advertising expense were $55.6 million, $52.6 million and $40.5 million, for fiscal 2010, 2009 and 2008, respectively.

Pre-opening Expenses.  Costs associated with the opening of new units and WingStreet™ unit conversions are expensed as incurred and are included with corporate depreciation and amortization expenses. Pre-opening expenses were $0.1 million, $0.5 million and $1.6 million for fiscal 2010, 2009 and 2008, respectively.

Self-insurance Accruals.  The Company operates with a significant self-insured retention of expected losses under its workers’ compensation, employee medical, general liability, auto, and non-owned auto programs. The Company purchases third party coverage for losses in excess of the normal expected levels. Accrued liabilities have been recorded based on the Company’s estimates of the ultimate costs to settle incurred claims, both reported and incurred but unreported, subject to the Company’s retentions. Provisions for losses expected under the workers’ compensation, general liability and auto programs are recorded based upon estimates of the aggregate liability for claims incurred, net of expected recoveries from third party carriers for claims in excess of self-insured retention, utilizing independent actuarial calculations based on historical claims experience. In the event the Company’s insurance carriers are unable to pay claims submitted to them, in excess of its self-insured retention, the Company would record a liability for such estimated payments expected to be incurred.

Fair Value Measurements.  The Company performs fair value measurements of certain assets and liabilities, including derivatives and investment balances as described in Note 9, Note 12 and Note 13, respectively. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. The three-level fair value hierarchy that prioritizes the source of inputs used in measuring fair value is as follows:

Level 1	–	Unadjusted quoted prices available in active markets for identical assets or liabilities.
Level 2	–	Pricing inputs, other than Level 1 quoted prices, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data. These inputs are frequently utilized in pricing models, discounted cash flow techniques and other widely accepted valuation methodologies.
Level 3	–	Unobservable inputs in which there is little or no market data, which requires the Company to develop its own assumptions.

Accounting for Derivatives.  The Company participates in interest rate related derivative instruments to manage its exposure on its debt instruments. These derivative contracts are entered into with financial institutions. The Company records all derivative instruments on the balance sheet as either assets or liabilities measured at fair value. The calculation of the fair value of the interest rate related derivative instruments is based on estimates of future interest rates and consideration of risk of nonperformance, which may change based on economic or other factors. Changes in the fair value of these derivative instruments are recorded either through current earnings or as other comprehensive income, depending on the type of hedge designation. 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.

Income Taxes.  Deferred taxes are provided for items whose financial and tax bases differ. A valuation allowance is provided against deferred tax assets when it is expected that it is more likely than not that the related asset will not be fully realized.

Certain tax authorities periodically audit the Company. Reserve balances have been established for potential exposures when it is probable that a taxing authority may take a sustainable position on a matter contrary to the Company’s filed position. The Company evaluates these issues on a quarterly basis to adjust for events, such as court rulings or audit settlements that may impact its ultimate payment for such exposures.

Debt Issuance Costs.  Costs related to the issuance of debt are capitalized and amortized to interest expense using the straight line method over the period the debt is outstanding, which approximates amounts expected to be amortized using the effective interest method.

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The Company issued a Senior Secured Credit Facility dated May 3, 2006 for $375.0 million, consisting of term notes and a revolving credit facility, which resulted in debt issuance costs. Similarly, in fiscal 2009, the Company filed certain regulatory documents in accordance with its credit agreement which resulted in $1.9 million of debt issuance costs. These costs are being amortized over the life of the related debt instruments. Amortization of $2.6 million, $2.1 million, and $1.8 million was charged to interest expense during the fiscal years ended 2010, 2009 and 2008, respectively, related to these costs. The Company had unamortized costs of $6.3 million and $8.8 million for the fiscal years ended December 28, 2010 and December 29, 2009, respectively.

Stock Based Compensation.  In May 2006, Holdings agreed to establish a new stock incentive plan (“the Plan”), which governs, among other things, (i) the issuance of matching options on purchased membership interests and (ii) the grant of options with respect to the membership interests.

Options may be granted under the Plan with respect to a maximum of 8% of the membership interests of Holdings as of the closing date of the 2006 Transaction calculated on a fully diluted basis (subject to required capital adjustments). Each grant of options under the Plan will specify the applicable option exercise period, option exercise price, vesting schedules and conditions and such other terms and conditions as deemed appropriate. Three types of options may be granted under the plan. First, Holdings may grant “non-time vesting” options, with respect to up to 1.0% of the interests, to selected participants, which will be vested at grant. Second, Holdings may grant “time vesting” options, with respect to up to 2.0% of the interests, which will vest ratably over a five-year period and subject to the option holders’ continued service. Third, Holdings may grant options, as to the remaining interests, which vest only upon the occurrence of a change of control on or prior to the expiration of the option, and also require continued service through the vesting date. All options granted under the Plan will expire ten years from the date of grant, but generally expire earlier upon resignation of the member.

Recent 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.

Note 2 – Business Combinations and Acquisitions

Between September 2008 and February 2009, the Company acquired 393 Pizza Hut units, including 294 units from PHI and 99 units from another franchisee. These acquisitions were funded through the issuance of a $40.0 million term loan under the Company’s Senior Secured Credit Facility, proceeds from the sale of units to PHI, proceeds drawn on the Company’s revolving credit facility and cash on hand. The acquisitions were accounted for using the purchase method of accounting. Accordingly, net assets were recorded at their estimated fair values. As the purchase price exceeded the fair value of the assets, including identified intangible assets, goodwill associated with this transaction was recorded in the Consolidated Balance Sheets. The goodwill recorded reflects the Company’s ability to synergize acquired units with its existing operations. All of the goodwill recognized for these acquisitions will be deductible for income tax purposes.

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Identification and allocation of values assigned to the intangible assets are based on fair value, which was estimated by performing the generally accepted valuation income approach. The income approach is predicated upon the value of the discounted future cash flows that an asset will generate over its remaining useful life, which is consistent with how purchase price is typically determined for purchases such as these. The purchase price allocations, net of cash acquired, as adjusted, were as follows:

(Dollars in thousands)
	2009				2008
Acquired from		PHI		PHI		Franchisee			PHI		PHI
Date acquired		1/20/09		2/17/09		9/30/08			12/9/08		12/9/08
Number of units		55		50		99			88		101
Fee owned properties		—		—		9			1		—
Market locations		CO		MO, IL		VA, WV, MD			FL, IA		MO, KS,        GA
Purchase price allocation:
Franchise rights	$	8,655	$	1,938	$	18,950		$	9,318	$	12,111
Goodwill		1,077		970		2,290			3,043		1,309
Fixed assets		8,621		10,753		15,490			14,996		12,850
(Unfavorable) favorable leases, net		142		215		(487	)		104		(221)
Other		182		200		(50	)		717		924
Total purchase price	$	18,677	$	14,076	$	36,193		$	28,178	$	26,973

The above purchase price allocations for 2008 were adjusted during fiscal 2009 to reflect an increase of approximately $1.1 million to goodwill with offsetting decreases of $0.7 million to fixed assets, $0.3 million to franchise rights and $0.1 million to other.

The weighted average amortization period assigned to the franchise rights acquired during 2009 was 44 years.

The unaudited pro forma impact on the results of operations was included in the below table for periods prior to the acquisition date in which the acquisitions were not previously consolidated. The pro forma results of operations are not necessarily indicative of the results that would have occurred had these acquisitions been consummated at the beginning of the periods presented, nor are they necessarily indicative of future operating results.

	Pro forma Years Ended (unaudited) (in thousands)
	December 29,     2009		December 30,     2008
Total sales	$	891,455	$	1,023,649
Income before income taxes		7,858		12,139
Income from continuing operations	$	10,372	$	8,716

The Consolidated Statements of Income for the 52 weeks ended December 29, 2009 included $301.5 million of total sales related to the above acquired units. It is impracticable to disclose earnings for these acquired units as earnings of such units are not tracked on an individual basis. For the fiscal 2009 acquisitions, direct acquisition-related costs of $0.6 million were included in other expense for the 52 weeks ended December 29, 2009.

Note 3 – Discontinued Operations

In December 2008, the Company completed the sale of 70 units to PHI for $18.8 million in cash. As a result of this sale, the Company recognized a pre-tax loss included in discontinued operations of $27.4 million in 2008. Also, in December 2008, the Company entered into an agreement to sell 42 units to PHI for $19.0 million in cash. The sale of these units was completed in January 2009. These units were classified as held for sale at December 30, 2008 and the Company recorded a $17.2 million pre-tax loss to reduce the carrying amount of these units to fair value. This loss was included in discontinued operations.

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Summarized financial information for discontinued operations on units sold is shown below (in thousands):

	52 Weeks Ended   Dec. 29, 2009		53 Weeks Ended   Dec. 30, 2008
Total sales	$	2,009	$	93,001
(Loss) income before income taxes		(84)		6,245
Income tax (benefit) expense		(25)		1,544
(Loss) income from discontinued operations, net of taxes		(59)		4,701
Loss		—		(44,599)
Income tax benefit		—		(14,320)
Loss, net of taxes		—		(30,279)
Loss from discontinued operations, net of taxes	$	(59)	$	(25,578)

The following table reconciles the sales price to the loss at December 30, 2008:

	Units Sold   December 2008		Units Sold   January 2009		Combined
Sale price	$	18,841	$	19,045	$	37,886
Asset values prior to sale or held for sale
Franchise rights, net		31,315		25,067		56,382
Facilities and equipment, net		9,655		5,490		15,145
Goodwill		4,381		4,429		8,810
Other, net		871		1,277		2,148
Loss	$	(27,381)	$	(17,218)	$	(44,599)

Note 4 – Facilities and Equipment

Net facilities and equipment consists of the following (in thousands):

	Estimated   depreciable  life		December 28,   2010		December 29,   2009
Land			$	4,597	$	3,915
Buildings and leasehold/land improvements		5-40 years		126,290		123,855
Furniture and equipment		3-10 years		140,762		140,157
Construction in progress				1,630		2,377
				273,279		270,304
Less accumulated depreciation and amortization				(129,566)		(105,891)
Net facilities and equipment			$	143,713	$	164,413

Depreciation expense is included in other restaurant operating expense and corporate depreciation and amortization. Depreciation expense totaled $34.6 million, $40.5 million and $26.1 million in fiscal 2010, 2009 and 2008, respectively.

Note 5 – Goodwill and Other Intangible Assets

Changes in goodwill are summarized below (in thousands):

Balance December 30, 2008	$	188,530
Acquisitions		3,171
Balance December 29, 2009		191,701
Activity		—
Balance December 28, 2010	$	191,701

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Goodwill increased $3.2 million during 2009, approximately $2.1 million as a result of the acquisition of 105 units in January and February of 2009 and $1.1 million for items related to the 2008 acquisitions.

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. The weighted average amortization period for all intangible assets is as follows:

	Years
Franchise rights	46
Favorable leasehold interests	15
Unfavorable leasehold interests	14
Internally developed software	5
Non-compete agreements	5

Intangible assets subject to amortization are summarized below (in thousands):

	December 28, 2010
	Gross Carrying     Amount		Accumulated      Amortization		Net Book     Value
Amortizable intangible assets:
Franchise rights	$	440,262	$	(41,014)	$	399,248
Favorable leasehold interests		10,071		(3,022)		7,049
Unfavorable leasehold interests		(4,327)		1,797		(2,530)
Internally developed software		1,069		(998)		71
Non-compete		1,925		(1,797)		128
	$	449,000	$	(45,034)	$	403,966
	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
	$	448,906	$	(34,698)	$	414,208

Annual amortization during the next five fiscal years is expected to be as follows: $10.1 million in fiscal 2011; $10.0 million in fiscal 2012; $9.9 million in fiscal 2013; $10.0 million in fiscal 2014; and $10.0 million in fiscal 2015.

Note 6 – Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

	December 28,     2010		December 29,     2009
Payroll and vacation	$	17,686	$	14,354
Real estate tax		4,039		3,983
Sales tax		4,133		3,630
Other		13,526		12,517
	$	39,384	$	34,484

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Note 7 – Senior Secured Credit Facility and Senior Subordinated Debt

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

	December 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		29,670		31,340
	$	372,700	$	402,370

The Company’s Senior Secured Credit Facility was dated May 3, 2006 and consisted of a $75.0 million revolving credit facility and a $300.0 million term loan note. There were no borrowings outstanding under the revolving credit facility as of December 28, 2010. Interest is paid at LIBOR, the money market rate, or the base rate (as defined), plus an applicable margin based upon a leverage ratio as defined in the credit agreement. Availability under this facility is reduced by letters of credit, of which $16.9 million were issued at December 28, 2010. Commitment fees are paid based upon the unused balance of the facility and the fees are determined based upon the aforementioned leverage ratio and were 0.5% at December 28, 2010. Commitment fees and letter of credit fees are reflected as interest expense. The revolving credit facility is secured by substantially all of the Company’s assets and is due May 3, 2012.

Under the Company’s $300.0 million term loan note, interest is paid at LIBOR plus 1.75%, or the base rate (as defined), plus 0.75%. On October 8, 2008 the Company borrowed $40.0 million pursuant to an incremental term loan entered into by the Company under the existing credit facility’s $100.0 million term accordion feature, reducing the Company’s remaining available term loan accordion capacity to $60.0 million. The proceeds were primarily used to pay down borrowings on the Company’s revolving credit facility as a result of the September 2008 99-unit acquisition and to fund a portion of the purchase price paid for the acquisition of 294 units from PHI between December 2008 and February 2009. Under the $40.0 million incremental term loan, interest is paid at LIBOR plus 2.25%, or the base rate (as defined) plus 1.25%. The combined weighted average rate was 2.1% at December 28, 2010, not including the impact of interest rate swap agreements. These notes contain scheduled principal payments outlined below and may be prepaid at any time without penalty. The term loan note is secured by substantially all of the Company’s assets and is due May 3, 2013.

The Senior Subordinated Notes (“Notes”) bear interest at the rate of 9.5% payable semi-annually in arrears on May 1 and November 1 until maturity of the Notes on May 1, 2014. These Notes are unsecured and are subordinated to the Senior Secured Credit Facility and other senior indebtedness, as defined. Effective May 1, 2010, these Notes may be redeemed at a redemption price of 104.750% plus accrued and unpaid interest until May 1, 2011, when the redemption price becomes 102.375% and remains such until May 1, 2012, when these Notes can be redeemed at the face amount, plus accrued and unpaid interest. The issuance of these Notes was registered under the Securities Act of 1933.

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 December 28, 2010, the Company was in compliance with all of its debt financial covenants.

Based upon the provisions of the Senior Secured Credit Facility, the Company will be required to make an excess cash flow mandatory prepayment on the term loan notes the earlier of 30 days following the filing of the Form 10-K or 120 days after the Company’s fiscal year ended December 28, 2010. This mandatory prepayment will be approximately $29.7 million based upon the amount of excess cash flow generated during fiscal 2010 and the Company’s leverage at fiscal year end, each of which is defined in the credit agreement.

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The estimated fair value of the Company’s debt facilities was as follows (in thousands):

	December 28, 2010		December 29, 2009
Senior Secured Term Loan Note	$	225,096	$	242,541
Senior Subordinated Notes		178,728		172,375
Senior Secured Revolving Credit Facility		—		—
	$	403,824	$	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 debtholders could realize in a current market exchange.

Maturities of long-term debt are as follows (in thousands):

Fiscal year ended:
2011	$	29,670
2012(1)		1,046
2013(1)		196,654
2014		175,000
	$	402,370
(1)  Future anticipated excess cash flow mandatory prepayments on the term loan are contingent upon excess cash flow generated and the Company’s leverage at each respective fiscal year end and are not reflected in these amounts. The payments have historically ranged from $4.2 million to $31.3 million.

Note 8 – Income Taxes

The provision (benefit) for income taxes for the fiscal years ended December 28, 2010, December 29, 2009 and December 30, 2008 consisted of the following (in thousands):

	December 28, 2010				December 29, 2009				December 30, 2008
Current:
Federal		$	790			$	(193	)		$	(1,408	)
State			1,925				274				(214	)
Deferred:
Federal			2,859				(1,785	)			3,125
State			91				(759	)			1,125
Income tax (benefit) expense		$	5,665			$	(2,463	)		$	2,628
Items of reconciliation to the statutory rate:
	December 28,     2010				December 29,     2009				December 30,     2008
Tax computed at U.S. federal statutory rate			35.0	%			34.0	%			34.0	%
State and local income taxes (net of federal benefit)			3.6				3.4				3.7
Permanent book/tax differences			(2.3	)			(4.7	)			(2.7	)
Tax credits			(11.3	)			(31.4	)			(16.9	)
FIN 48 (release) accrual			(4.1	)			(23.6	)			5.9
Change in deferred tax rate			—				(7.7	)			—
Other			—				(0.8	)			1.9
Income tax expense (benefit)			20.9	%			(30.8	)%			25.9	%

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During 2010, the Company generated $5.0 million of jobs related tax credits from continuing operations compared to $4.1 million in 2009 and $2.5 million in 2008. Also during 2009 the Company recorded $0.6 million of income tax benefit related to state tax rate changes.

Significant components of the Company’s deferred tax assets and liabilities are as follows (in thousands):

	December 28,     2010		December 29,     2009
Assets:
Insurance reserves	$	7,395	$	6,961
Deferred gains		1,770		1,873
Profit sharing and vacation		5,849		4,833
FIN 48 tax benefit		3,273		2,964
General business credit carryforwards		1,219		3,076
Other		2,311		2,358
Interest rate swaps		769		2,164
Total deferred tax assets		22,586		24,229
Liabilities:
Depreciation and amortization		(135,602)		(133,192)
Other		(2,000)		(1,709)
Total deferred tax liabilities		(137,602)		(134,901)
Net deferred tax liability	$	(115,016)	$	(110,672)
Current asset	$	5,434	$	2,801
Non-current liability	$	(120,451)	$	(113,473)

The liability for uncertain tax positions which was $9.0 million as of December 28, 2010, is considered long term and is included in other deferred items in the Consolidated Balance Sheet. The $9.0 million liability includes $5.8 million for interest and penalties. Interest and penalties related to unrecognized tax benefits are included in the provision for income taxes in the Consolidated Statements of Income (Loss). The Company recorded a deferred tax asset related to total state tax exposures of $3.3 million.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	Fiscal years ended
	December 28,     2010		December 29,     2009		December 30,     2008
Beginning balance	$	9,799	$	11,752	$	10,847
Additions based on tax positions related to the current year		42		179		43
Additional interest / penalties accrued		890		975		999
Lapse of applicable statute of limitations		(1,682)		(3,107)		(137)
Ending balance	$	9,049	$	9,799	$	11,752

The net impact on the effective tax rate from the release of the unrecognized tax benefits would be $5.8 million including consideration of the indirect tax benefits established with regard to such reserves. The Company has a liability established with regard to uncertain areas of tax law that could be released in the next 12 months, to the extent the statute of limitations with regard to this item expires.

The Company files income tax returns in the U.S. and various state jurisdictions. As of December 28, 2010, the Company is subject to examination in the U.S. federal tax jurisdiction for the 2007-2009 tax years. The Company is also subject to examination in various state jurisdictions for the 2003-2009 tax years, none of which was individually material.

At December 28, 2010, the Company had U.S. general business credit carryforwards of $1.2 million which expire in 2030.

Note 9 – 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. The Company records all derivative instruments on the balance sheet as either assets or liabilities measured at fair value. Gains and losses on derivative instruments designated as cash flow hedges

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are reported in other comprehensive income and reclassified into earnings in the periods in which earnings are impacted by the hedged item. The following swap agreements 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 December 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 December 28, 2010 and December 29, 2009 (in thousands):

Liability Derivatives
Balance Sheet Location	Fair Value
	Dec. 28, 2010		Dec. 29, 2009
Accrued liabilities	$	1,966	$	—
Other deferred items		—		5,536

The effect of the derivative instruments on the consolidated financial statements was as follows (in thousands):

	Loss Recognized in OCI on Derivative (Effective Portion)					Loss Reclassified from Accumulated OCI into Income (Effective Portion)
		52 Weeks ended Dec. 28, 2010		52 Weeks ended Dec. 29, 2009			Location	52 Weeks ended Dec. 28, 2010		52 Weeks ended Dec. 29, 2009
Interest rate contracts		$	(2,263)	$	(4,114)		Interest expense	$	(4,438)	$	(4,867)

The Company currently estimates that earnings will be negatively impacted by approximately $1.1 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 measures the fair value of its interest rate swap contracts under 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 fiscal 2010 and fiscal 2009, there was virtually no ineffectiveness related to cash flow hedges.

Note 10 – Comprehensive Income

Comprehensive income is comprised of the following (in thousands):

	52 Weeks Ended
	Dec. 28, 2010		Dec. 29, 2009
Net income	$	21,464	$	10,390
Change in valuation of interest rate swap agreements, net of tax		2,175		753
	$	23,639	$	11,143

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Note 11 – Commitments and Contingencies

The Company leases certain restaurant equipment and buildings under operating leases. The majority of the Company’s leases contain renewal options for one to five years. The remaining leases may be renewed upon negotiation, however the table below does not include amounts related to unexercised lease renewal option periods. Future minimum lease payments, including non-operating assets, at December 28, 2010 consisted of (in thousands):

Fiscal year
2011	$	45,455
2012		41,593
2013		36,929
2014		32,650
2015		28,906
Thereafter		100,215
Total minimum lease commitments(1)	$	285,748

⁽¹⁾ Minimum lease payments have been reduced by aggregate minimum non-cancelable sublease rentals of $0.8 million.

The Company’s rent expense, including contingent rent based on a percentage of sales when applicable, is comprised of the following (in thousands):

	Fiscal years ended
	December 28,     2010		December 29,     2009		December 30,     2008
Minimum rents	$	49,919	$	49,768	$	34,501
Contingent rents		1,344		1,016		1,663
	$	51,263	$	50,784	$	36,164

Under the Company’s franchise agreements, the Company is required to rebuild or re-image a substantial number of restaurants, depending upon certain criteria as defined in the franchise agreements. Certain of the assets to be rebuilt are currently paying royalties of 6.5% of sales, as defined in the franchise agreements, and will qualify for a reduction in royalty rate of up to 2.5% of sales depending upon the timing and nature of the asset action. The Company expects to incur capital expenditures of approximately $19.9 million over the remaining 5 years to meet this requirement. As part of its 2008 location franchise agreement that was effective with the December 2008 and January and February 2009 acquisitions of Pizza Hut units from PHI, the Company is required to complete certain major asset actions within 11 years of the acquisition date, or December 2019 through February 2020 and expects to incur approximately $10.8 million over the next 9 years to meet these requirements.

Concurrently with the closing of the 2006 Transaction, certain members of management purchased membership interests in Holdings for $3.3 million. Additionally, in September 2006, certain members of its Board of Directors purchased de minimis membership interests in Holdings. The total membership interests not owned by MLGPE are $3.3 million as of December 28, 2010. Under the terms of the Amended and Restated Limited Liability Company Agreement of Holdings (“LLC Agreement”), the membership interests are mandatorily redeemable units, which are required to be repurchased by Holdings upon the resignation of the member. However, the value of this liability is subject to a formula as defined within the LLC Agreement based upon the terms of the member’s resignation. The Company does not have a contractual obligation to fund the purchase of the mandatorily redeemable units; however, the Company may be required to provide a distribution to Holdings in the event of a member’s resignation from the Company. The value of this contingent obligation is subject to a formula as defined within the LLC Agreement. Based on the financial results for fiscal 2010, the Company estimates the membership interests to have a combined value of approximately $3.3 million to $5.6 million, of which the value varies based upon the terms of the member’s resignation, as defined within the LLC Agreement.

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

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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. On January 21, 2011, Plaintiffs filed their motion for conditional certification under FLSA. NPC is currently preparing its Opposition. Because the motion is pending, NPC is not able to predict its outcome at this time. The Company believes the lawsuit is wholly without merit and will defend itself from all claims vigorously.

Note 12 – Insurance Reserves

The Company operates with a significant self-insured retention of expected losses under its workers’ compensation, employee medical, general liability, auto, and non-owned auto programs up to certain individual and aggregate reinsurance levels. Losses are accrued based upon the Company’s estimates of the ultimate costs to settle incurred claims, both reported and incurred but unreported using certain third-party actuarial projections and the Company’s claims loss experience. The estimated insurance claims losses could vary significantly should the frequency or ultimate cost of the claims significantly differ from historical trends used to estimate the insurance reserves recorded by the Company. In the event the Company’s insurance carriers are unable to pay claims submitted to them, the Company would record a liability for such estimated payments expected to be incurred.

The Company recorded estimated liabilities for claims loss reserves of $22.4 million and $21.4 million at December 28, 2010 and December 29, 2009, respectively. These estimates are recorded net of amounts expected to be recovered from the third party insurance carrier for claims in excess of self-insured retentions of $4.4 million and $5.0 million at December 28, 2010 and December 29, 2009, respectively.

Note 13 – Employee Benefit Plans

The Company has benefit plans that include: a) a qualified retirement plan, b) a non-qualified Deferred Compensation Plan, and c) a non-qualified Profit Sharing Plan (“POWR Plan”). In addition, Holdings has granted restricted common units (“RSUs”) in Holdings to a management level employee of the Company.

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In May 2006, Holdings agreed to establish a new stock incentive plan (“the Plan”), which governs, among other things, (i) the issuance of matching options on purchased membership interests and (ii) the grant of options with respect to the membership interests.

	Number of Options   (in thousands)		Weighted     Average Exercise Price		Weighted Average Remaining      Contractual     Term (in years)
Outstanding at December 29, 2009		13,874	$	1.66		6.8
Granted		—		—
Exercised		—		—
Forfeited or expired		—		—
Outstanding at December 28, 2010		13,874	$	1.66		5.8
Exercisable at December 28, 2010		4,014	$	1.01		5.6

Options may be granted under the Plan with respect to a maximum of 8.0% of the membership interests of Holdings as of the closing date of the 2006 Transaction calculated on a fully diluted basis (subject to required capital adjustments). Each grant of options under the Plan will specify the applicable option exercise period, option exercise price, vesting schedules and conditions and such other terms and conditions as deemed appropriate. Three types of options may be granted under the plan. First, Holdings may grant “non-time vesting” options, with respect to up to 1.0% of the interests, to selected participants, which will be vested at grant. Second, Holdings may grant “time vesting” options, with respect to up to 2.0% of the interests, which will vest ratably over a five-year period or immediately upon occurrence of a change of control and subject to the option holders’ continued service. Third, Holdings may grant options, as to the remaining interests, which vest only upon the occurrence of a change of control on or prior to the expiration of the option, and also require continued service through the vesting date. All options granted under the Plan will expire ten years from the date of grant, but generally expire earlier upon termination of service by the member. At December 28, 2010, there were 0.2 million shares available for future grants under the Plan.

Under their respective employment agreements, the following options have been granted to certain members of management (in thousands):

	As of     December 28, 2010		As of     December 29, 2009
Non-time vesting options		1,625		1,625
Time vesting options		3,583		3,583
Change of control options		8,666		8,666
Total options granted		13,874		13,874
Total options exercisable		4,014		3,298

The exercise price of the non-time vesting and time vesting options for those options issued in conjunction with the 2006 Transaction was established based on the aggregate equity investment in Holdings at the time of closing of the 2006 Transaction divided by the number of outstanding membership interests, or $1.00. Similarly, the exercise price of the change of control options was established as twice the exercise price of the non-time vesting and time vesting options granted, or $2.00. The exercise price of options granted since the 2006 Transaction was determined at the discretion of the Compensation Committee of Holdings. The exercise price for all options granted was equal to or greater than the fair market value of the option on the date of grant.

The Company considers these options to be liability awards. The compensation cost for the portion of awards that are outstanding for which the requisite service has not been rendered, or the performance condition has not been achieved, will be recognized as the requisite service is rendered (subject to the occurrence of a triggering event becoming probable as described below) and/or performance condition achieved. Further, all options granted under the Plan are subject to a mandatory call provision with a defined value, as stated in the LLC Agreement and described as follows: (1) for a “Good Leaver” event (defined as termination of employment due to death, disability, retirement, termination without cause (as defined)) or resignation with good reason (as defined), each common unit covered by such options will be called at a price calculated as the difference between the greater of $1.00 or the fair value price (“FVP”) as of the termination date, less the exercise price; and, (2) for a “Bad Leaver” event (defined as termination of employment for any other reason (such as termination for cause or resignation by an employee without good reason)), each common unit covered by such options will be called at a price calculated as the difference between the lesser of $1.00 or the FVP as of the termination date, less the

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exercise price. The Company does not have a contractual obligation to fund the mandatory call of these units; however, the Company may be called upon to provide a distribution to Holdings upon such time a triggering event should occur that would require a mandatory call of outstanding units.

As of December 28, 2010, no options had been exercised by management. Based on the provisions of the Plan, all options granted have clearly defined and limited scenarios in which the option has value to the option holder. Specifically, Holdings is not publicly traded so there is no market for units acquired upon exercise of options. In addition, the LLC Agreement prohibits the transfer of units in Holdings without the prior approval of the Managing Member of Holdings, except for certain permitted affiliate transfers. Further, there are no provisions in place under which an employee may sell the units back to the Company absent the occurrence of a triggering event (a mandatory call event, as described above, or change of control). Therefore, the holder of options or units acquired upon exercise of such options can generally only cash-out the options and/or sell the underlying units upon occurrence of a mandatory call event, and upon the occurrence of such an event the options granted have the potential to yield value to each option holder (Good Leaver scenario) or in the event of a change in control. Additionally, due to the fact that an option holder would have no value for termination of employment for any other reason (Bad Leaver scenario), and currently the Good Leaver scenario and change in control are not deemed probable, the Company has concluded a 100% forfeiture rate is appropriate as there is no assurance that these options will achieve any value under these conditions prior to forfeiture or expiration. As no triggering events have been deemed probable as of December 28, 2010, the Company has recorded no compensation expense for options granted in fiscal years 2010, 2009 and 2008.

RSUs are awards that are granted to employees and entitle the holder to membership interests as the awards vest, including the right to receive dividends on all vested units and accruable for units not vested at the grant date. Dividends accrued on non-vested RSUs will be paid to the employee once the underlying RSU becomes vested. The RSUs were granted at the fair market value of the membership interests of Holdings on the date of grant. RSU distributions will be in membership interests of Holdings after the end of the vesting period, generally vesting ratably at the end of each fiscal years 2010, 2011 and 2012. Membership interests issued under an RSU award are nontransferable and are mandatorily redeemable units, which are required to be repurchased by Holdings upon the mandatory call events described above or in the event of a change in control. Total pretax share based compensation cost recorded for RSU’s in fiscal 2010 was $0.1 million. No share-based compensation cost was recorded in fiscal 2009 and 2008. At December 28, 2010, there was $0.2 million of total pretax unrecognized compensation expense related to non-vested RSU awards to be recognized over a weighted average period of 2 years.

The Company has adopted the NPC International, Inc. 401(k) and Deferred Compensation Plan, to which the Company provides matching contributions. Contributions by the Company to these plans were $0.0 million, $0.7 million and $0.8 million during fiscal years 2010, 2009 and 2008, respectively. Additionally, the Company has adopted the POWR Plan, to which contributions are based on certain financial targets set by the Company’s Board of Directors each year. Under this plan, the Company accrued $1.1 million for fiscal 2010, had no accrual for fiscal 2009 and accrued $0.7 million in fiscal 2008, respectively. Generally, each of these accruals was paid during the first quarter of the following fiscal year. Annual contributions to these plans are net of employee forfeitures for that respective year. Contributions to these plans by the Company are maintained in a rabbi trust held with a third party administrator. The Company records the plan assets of these funds at the fair market value of the underlying investments at each reporting period. Investments held within the rabbi trust were $8.9 million and $8.0 million as of December 28, 2010 and December 29, 2009, respectively. The fair market value of the underlying investment was based upon independent market data considered to be a Level 2 observable input.

Note 14 – Related-Party Transactions

MLGPE Advisory Agreement.  Upon completion of the 2006 Transaction, 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 paid $1.0 million to MLGPE for the fee during each of the fiscal years ended 2010, 2009 and 2008.

Merrill Lynch & Company Investments Derivative Transaction.  On June 6, 2006, the Company entered into an amortizing floating-to-fixed rate interest rate swap agreement expiring December 31, 2010, the notional amount of this swap was $20.0 million at fiscal year end 2010. Merrill Lynch Capital Services, Inc. (“MLCS”), was the counterparty on $10.0 million of the total notional amount, and JPMorgan Chase Bank, N.A. (“JPMCB”), an unrelated party, was the counterparty on the residual $10.0 million. Under this swap, the Company will pay both counterparties 5.39% and receive the three-month LIBOR rate as determined on the reset dates. These swaps were entered into to provide a hedge against the effects of rising interest rates on a portion of the $300.0 million term loan notes under the Senior Secured Credit Facility. The Company has recognized $0.3 million ($0.2 million after tax) for fiscal 2010 and $1.6 million ($1.0 million after tax) for fiscal 2009 of other comprehensive losses related to the fair market value of these interest rate swaps.

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Effective April 7, 2008, the Company entered into a floating-to-fixed rate interest rate swap agreement expiring April 7, 2011, on a notional amount of $50.0 million with MLCS as the counterparty to the transaction. Under this swap, the Company will pay MLCS 2.79% and receive the three-month LIBOR rate as determined on the reset dates. This swap was entered into as a hedge to fix a portion of the $300.0 million term loan notes under the Senior Secured Credit Facility. The Company has recognized $0.6 million ($0.4 million after tax) for fiscal 2010 and $1.5 million ($0.9 million after tax) for fiscal 2009 of other comprehensive losses related to the fair market value of this interest rate swap.

Bank of America Merchant Services.  In January 2009, Bank of America Corporation (“BOA”) acquired the parent company of MLGPE, Merrill Lynch & Co., Inc. During fiscal 2010 the Company paid Bank of America Merchant Services, affiliate of BOA, $0.4 million for credit card processing services.

Bank of America, N.A.  In December 2009, the Company opened a money market account with BOA to invest any excess cash balances on hand. As of December 28, 2010, the Company had $39.6 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.  BOA and Merrill Lynch Capital Corporation (“MLCC”), an affiliate of MLGPE, were active participants in the Company’s Senior Secured Credit Facility. As of December 28, 2010, BOA 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. 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 December 28, 2010.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures.

As of the end of the period covered by this Form 10-K for fiscal 2010, 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 the design and operation 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.

Management’s Report on Internal Control over Financial Reporting.

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. With the participation of the Chief Executive Officer and the Chief Financial Officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework and criteria established in Internal Control — Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management has concluded that our internal control over financial reporting was effective as of December 28, 2010.

Changes in Internal Control over Financial Reporting.

There has been no change in our internal control over financial reporting that occurred during the quarter ended December 28, 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Item 9B. Other Information.

Effective February 16, 2011, the Company and each of James K. Schwartz, President, Chief Executive Officer and Chief Operating Officer, and Troy D. Cook, Executive Vice President – Finance, Chief Financial Officer, Secretary and Treasurer entered into an Amended and Restated Employment Agreement (collectively, the “Amended and Restated Agreements”) amending and superseding their existing Employment Agreements with the Company and NPC Acquisition Holdings, LLC (collectively, the “Original Agreements”).

The changes made to the Original Agreements in each of the Amended and Restated Agreements include without limitation the following: (1) extension of the initial term of the agreements until January 1, 2014, (2) amendments to Section 4.2 to change the bonus structure for each executive and (3) amendments to the salary provisions to reflect current salary amounts.

The description of the terms and conditions of the Amended and Restated Agreements, the rights and obligations of the Company and executives in connection therewith and the changes from the Original Agreements are qualified by reference in their entirety to the definitive terms and conditions of the Amended and Restated Agreements, the forms of which are attached hereto as Exhibits 10.24 and 10.25, and the Original Agreements filed as Exhibits 10.18 and 10.19 on Form 8-K filed January 5, 2009.

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PART III

Item 10. Directors and Executive Officers and Corporate Governance of the Registrant.

The following table sets forth information with respect to the individuals that serve as our executive officers and directors.

Name	Age	Position
Brandon K. Barnholt	52		Director
Charles W. Peffer	63		Director
Christopher J. Birosak	56		Director
Jaideep Hebbar	31		Director
Robert F. End	55		Director
James K. Schwartz	49		Chairman of the Board of Directors, President, Chief Executive Officer and Chief Operating Officer
Troy D. Cook	48		Executive Vice President–Finance and Chief Financial Officer
D. Blayne Vaughn	54		Senior Vice President–Head of Operations
Linda L. Sheedy	42		Vice President of Marketing
Lavonne K. Walbert	47		Vice President of Human Resources
Michael J. Woods	49		Vice President of Information Technology
Susan G. Dechant	40		Vice President of Administration and Chief Accounting Officer
Kirby W. Mynier	53		Territory Vice President–East
Tracy A. Armentrout	50		Territory Vice President–West
Thomas D. White	51		Territory Vice President–South

Directors and Governance

The Company is not required to have and does not have a separate Nominating and Corporate Governance Committee. Accordingly, the nominees for election as directors are nominated by the Company’s Board of Directors (the “Board”). The current directors were nominated to serve as such by the Board because the Board believes they have the requisite business experience, judgment, skills, integrity and independence, as well as a willingness to devote appropriate time and attention to the Company’s affairs, work as a team, and represent the interests of all stockholders. In addition, the Board considered the interplay of each of the directors’ experience with that of the other Board members and believes that the directors possess, in the aggregate, the strategic, managerial and financial skills and experience necessary to fulfill the Board’s duties and fulfill its objectives. While the Board does not have a formal diversity policy, the Board believes that its deliberative process benefits from the diversity of backgrounds, experiences and perspectives represented by the current directors.

In nominating the current directors for re-election, the Board also took into consideration the experience, skills and qualifications of the individual directors which are described below in connection with the description of their prior business experience.

The Board has delegated to the Audit Committee the responsibility to oversee the assessment and management of the Company’s risks, including reviewing with management significant risk exposures potentially facing the Company and the policies and steps implemented by management to identify, assess, manage and monitor such exposures. The Company’s Compensation Committee is responsible for overseeing the assessment and management of any risks related to the Company’s compensation plans and arrangements. The Board is regularly informed through committee reports regarding the Company’s risks, and reviews and discusses such risks in overseeing the Company’s business strategy and risks.

The Board believes that having the Chief Executive Officer also serve as the Chairman of the Board is the best leadership structure for the Company. This structure provides unified leadership and direction for the Company and provides a single, clear focus for the execution of the Company’s strategy and business plans. The Board does not believe it is necessary to have a lead independent director in view of the following: the small size of the Board; five of the six directors are outside independent directors under NASDAQ Stock Market Rules; three of the directors are representatives of BAML Capital Partners, the private equity division of Bank of America Corporation, and related institutional investors which collectively own 90% of the Company’s common stock on a fully diluted basis; and the Board’s history of conducting its deliberations and taking actions in an independent manner.

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Brandon K. Barnholt became a director upon closing of the 2006 Transaction. Mr. Barnholt is President and CEO of KeHE Distributors one of the largest specialty food distributors in the U.S. Until September 2006, Mr. Barnholt was the President and CEO of White Hen Pantry, Inc., a convenience store chain. Prior to leading the management/private equity purchase of White Hen Pantry, Mr. Barnholt was the President and CEO of the 1,200 store retail gas and convenience store chain, Clark Retail Enterprises, Inc. On October 15, 2002, Clark Retail Enterprises filed for Chapter 11 bankruptcy protection. During his career, Mr. Barnholt has led numerous acquisitions and dispositions and has a solid depth of experience in the capital markets. Mr. Barnholt earned a B.S. degree in Finance and Economics from the University of Northern Colorado. The Board nominated Mr. Barnholt for re-election to the Board based on his extensive knowledge of the food and retail industry in general and his knowledge of the Company and its business in particular, his expertise and experience in management, finance, capital markets and acquisitions, and the fact that he qualifies as an independent director under the standards of the NASDAQ Global Market.

Charles W. Peffer became a director upon closing of the 2006 Transaction. Mr. Peffer was a partner in KPMG LLP from 1979 until his retirement in 2002. During that period, Mr. Peffer was the audit partner for many public and private companies and served as Managing Partner of KPMG LLP’s Kansas City office from 1993 to 2000. Mr. Peffer has been a Certified Public Accountant and member of the American Institute of Certified Public Accountants and Kansas and Missouri Societies of CPAs. Mr. Peffer is a director of the Commerce Funds, a family of six funds with approximately $1.2 billion in assets, Garmin Ltd, a NASDAQ 100 company in the technology and consumer electronics industries, and Sensata Technologies Holding N.V., a global industrial technology company specializing in sensors and controls. Mr. Peffer earned a B.S. in Business Administration from the University of Kansas and an M.B.A. from Northwestern University. The Board nominated Mr. Peffer for re-election to the Board based on his expertise and experience in financial and accounting matters, his knowledge of the Company’s business and its industry gained while previously serving as lead outside auditor for the Company and while subsequently serving as a director of the Company, the fact that he qualifies as an independent director under the standards of the NASDAQ Global Market, and that he possesses the qualifications and experience needed to constitute an Audit Committee Financial Expert.

Christopher J. Birosak became a director upon closing of the 2006 Transaction. Mr. Birosak is a Managing Director with BAML Capital Partners. BAML Capital Partners is the successor organization to Merrill Lynch Global Private Equity, which Mr. Birosak joined in 2004. From 1994 to 2004, Mr. Birosak worked in the Leveraged Finance division of Merrill Lynch in various capacities with particular emphasis on leveraged buyouts and merger and acquisition related financings. Mr. Birosak also serves on the Board of HCA, Inc. Mr. Birosak earned a B.A. degree in Economics from Wayne State University and an M.B.A. in Finance from the University of Detroit. The Board nominated Mr. Birosak for re-election to the Board based on his knowledge of the Company and its business and industry, his expertise and experience in finance, capital markets and acquisitions, and his designation to serve as a representative of Merrill Lynch Global Private Equity Fund, LP and its related institutional investors.

Jaideep Hebbar became a director in 2009. Mr. Hebbar is a Director with BAML Capital Partners. Mr. Hebbar joined Merrill Lynch Global Private Equity in 2003. Prior to this, Mr. Hebbar worked in the Mergers and Acquisitions division of Merrill Lynch, where he assisted clients in strategic planning and corporate mergers. Mr. Hebbar has B.S. degrees in Finance and Systems Engineering from the University of Pennsylvania (Wharton). The Board nominated Mr. Hebbar for re-election to the Board based on his knowledge of the Company and its business and industry, his expertise and experience in finance, capital markets and acquisitions, and his designation to serve as a representative of BAML Capital Partners and its related institutional investors.

Robert F. End became a director upon closing of the 2006 Transaction. Mr. End is currently a Managing Director of Transportation Resource Partners, a private equity firm. Prior to joining Transportation Resource Partners in 2009, Mr. End was a Managing Director of BAML Capital Partners where he also served as U.S. Region Head. Prior to rejoining Merrill Lynch Global Private Equity in 2004, Mr. End was a founding Partner and Director of Stonington Partners Inc., a private equity firm established in 1994. Prior to leaving Merrill Lynch in 1994, Mr. End was a Managing Director of Merrill Lynch Capital Partners, the firm’s private equity group. Mr. End joined Merrill Lynch in 1986 and worked in the Investment Banking Division before joining the private equity group in 1989. Mr. End serves on the Board of Directors of The Hertz Corporation and several privately held companies. Mr. End earned an A.B. degree in Government from Dartmouth College and an M.B.A. from the Amos Tuck School of Business Administration at Dartmouth College. The Board nominated Mr. End for re-election to the Board based on his knowledge of the Company and its business and industry, his expertise and experience in finance, capital markets and acquisitions, and his designation to serve as a representative of BAML Capital Partners and its related institutional investors.

James K. Schwartz joined us in late 1991 as Vice President of Accounting and Administration. He was promoted to Vice President Finance, Treasurer and Chief Financial Officer in 1993. In January 1995, he was promoted to President and

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Chief Operating Officer and then to Chief Executive Officer in December 2004. Upon the 2006 Transaction, he was given the additional responsibility of Chairman of the Board of Directors. Mr. Schwartz is a Director of the Unified Foodservice Purchasing Co-op Board and served as its Chairman since 2004. He is actively involved in the Pizza Hut system and is serving on the Pizza Hut Advertising Committee and was Chairman of the Franchisee Board in 2009. In 2004, Mr. Schwartz was inducted into the Pizza Hut Franchisee Hall of Fame. Mr. Schwartz is a certified public accountant and earned a B.S. in Accounting and Business Administration from the University of Kansas in 1984. The Board nominated Mr. Schwartz for re-election to the Board based on his extensive knowledge of the Company’s business and its industry, his management and financial experience and his proven track record of effective leadership of the Company’s business.

Troy D. Cook joined us in February 1995 as Vice President Finance and Chief Financial Officer. He was promoted to Executive Vice President and Chief Financial Officer in January 2007. Mr. Cook is a member of the UFPC cheese task force. Mr. Cook is a certified public accountant and earned his B.S. in Accounting and Business Administration from the University of Kansas in 1985.

D. Blayne Vaughn joined us in November 1985 as an Area General Manager. He was promoted to Regional Manager in 1990 and then Regional Vice President in 1993. In May 1997 he was promoted to Vice President of Pizza Hut operations for the Western Division and in January 2003, Mr. Vaughn became Vice President Operations for the Northern Territory. In January 2007, he was promoted to Senior Vice President of Operations of the Northern Territory and to his current position of Senior Vice President Head of Operations in March of 2008. Mr. Vaughn serves on the PHI System Restaurant Readiness Team (SRRT) Committee. Mr. Vaughn has over thirty-six years of experience in the food service industry.

Linda L. Sheedy joined us in January 1998 as Vice President Marketing. Mrs. Sheedy serves on various Pizza Hut committees including the Beverage Committee and Marketing Advisory Council. Mrs. Sheedy has twenty years of marketing experience, with eighteen of those years in the food service industry. Mrs. Sheedy earned a Bachelor of Journalism degree from the University of Missouri in 1990.

Lavonne K. Walbert joined us in February 1999 as Vice President Human Resources. Ms. Walbert serves on various PHI system committees. She is Chairman of the People Capability and Training Committee and is a member of the Government and Political Affairs Committee. Ms. Walbert has twenty-four years of human resources experience in the sales and services industry. Ms. Walbert earned her B.S. in Human Resources Management from the University of Kansas in 1986 and an M.B.A. from Rockhurst in 1999. Ms. Walbert is also affiliated with the National Society of Human Resource Management.

Michael J. Woods joined us in April 2003 as Chief Information Officer (CIO). Mr. Woods holds an Associate of Arts Degree from the University of Maryland and served in the United States Army from 1981 through 1985.

Susan G. Dechant joined us in August 1996 as Corporate Controller. In June 2000, she was promoted to Chief Accounting Officer and Director of Restaurant Services. In August 2006, she was promoted to Vice President of Administration and Chief Accounting Officer and Assistant Secretary. Ms. Dechant earned her B.A. in Accounting from Pittsburg State University in 1992.

Kirby W. Mynier joined NPC in 2002 as a Region Manager and then to his current position as Vice President for the Eastern Territory in 2008. Mr. Mynier has thirty-four years of experience in the food service industry. Mr. Mynier has a B.S. from Conrad Hilton School of Hotel/Restaurant Management, University of Houston and an M.B.A. in Accounting and Finance from the University of Texas.

Tracy A. Armentrout joined us in 2000 as an Area General Manager as a result of an acquisition of units from PHI. He was promoted to Regional Manager in 2004 and then to his current position as Vice President for the Western Territory in 2008. Mr. Armentrout serves on the PHI CHAMPS advisory board. He has over thirty years of experience in the food service industry. Mr. Armentrout earned his B.S. in Criminal Justice and Law Enforcement from Northeast Missouri State in 1983.

Thomas D. White joined us in 2008 as Vice President-Southern Territory. Prior to joining us, he was Regional Vice President of Jack in the Box from 1997 to 2008 with accountability for 179 units where he developed numerous operations improvements in retention and training. Mr. White has over twenty-five years in the food service and retail industry and earned a B.S. in Business Administration from the University of Rhode Island in 1981.

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Mr. Barnholt and Mr. Peffer are the sole members of the Audit Committee of our Board of Directors. Mr. Peffer has been designated by the Board of Directors as an audit committee financial expert.

Code of Ethics

We have adopted a Code of Business Conduct and Ethics which applies to all of our employees, including our executive officers and directors. A copy of the Company’s Code of Business Conduct and Ethics will be made available to any person, without charge, by contacting the Executive Vice President – Finance and Chief Financial Officer, Troy D. Cook, at 913-327-3109, or through a written request to 7300 W. 129^th Street, Overland Park, Kansas 66213.

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Item 11. Executive Compensation.

Compensation Discussion and Analysis

Background of Compensation Program

On May 3, 2006, our former stockholders completed the sale of all our outstanding shares of capital stock to NPC Acquisition Holdings, LLC, or “Holdings,” a company controlled by BAML Capital Partners, or “BAML,” (formerly Merrill Lynch Global Private Equity) and its affiliates. In this Annual Report on Form 10-K, we refer to the acquisition of all of our capital stock by Holdings and related financings, as the “2006 Transaction.” The term “Named Executive Officer” used in this discussion refers to James Schwartz, our principal executive officer, Troy Cook, our principal financial officer, and our three other most highly compensated executive officers during 2010. These other Named Executive Officers include Blayne Vaughn, Senior Vice President – Head of Operations, Lavonne K. Walbert, Vice President – Human Resources and Mike Woods, Vice President—Information Technology and Chief Information Officer.

The following discussion of our compensation philosophy and policies reflects the views of our current Compensation Committee, which is composed solely of three independent directors (as defined under NASDAQ Stock Market Rules). Under its Charter, the Compensation Committee determines the amount and elements of compensation of our Chief Executive Officer, subject to ratification by the Board of Directors, and recommends to the Board of Directors, the amount and elements of compensation of our other executive officers.

The definitive stock purchase, or the “Purchase Agreement,” between our former stockholders and Holdings, dated May 3, 2006, included a condition to the 2006 Transaction that we enter into employment agreements with each of Mr. Schwartz, our President, Chief Executive Officer and Chief Operating Officer, and Mr. Cook, our Executive Vice President – Finance and Chief Financial Officer. The terms of these employment agreements were negotiated at arm’s length, following the negotiation of the terms of the Purchase Agreement but before the closing of the 2006 Transaction, by Mr. Schwartz and Mr. Cook and their counsel, on the one hand, and Holdings and its counsel, on the other hand. These employment agreements were amended on December 29, 2008, effective for fiscal 2009 (collectively, the “2009 Employment Agreements”), and were subsequently amended on February 16, 2011, effective for fiscal 2011 (collectively, the “Amended and Restated Agreements”). The Amended and Restated Agreements include a term of three years from the effective date of the Amended and Restated Agreement with successive two year renewal periods. Based on the terms of the Amended and Restated Agreements, the Compensation Committee has discretion to vary the amount and elements of compensation received by Mr. Schwartz and Mr. Cook only to the extent of increasing the minimum levels of such compensation beyond those specified in their respective employment agreements, which are described below.

Compensation Philosophy and Objectives

The Compensation Committee believes that the most effective executive compensation program is one that is designed to reward the achievement of specific short-term and long-term goals by the Company, and which aligns executives’ interests with those of the stockholders by rewarding performance above established goals, with the ultimate objective of improving stockholder value. The Compensation Committee evaluates both performance and compensation, as well as the amount and structure of the compensation elements constituting our compensation program, in order to ensure that the Company maximizes financial performance within an appropriate risk tolerance, maintains its ability to attract, motivate and retain highly qualified and highly performing employees in key positions and that compensation provided to key employees remains competitive relative to the compensation paid to similarly situated executives of our peer companies. To that end, the Compensation Committee believes that the compensation packages provided by the Company to its executives, including the Named Executive Officers, should include both cash and stock-based compensation that reward performance. Such performance is measured against established goals, except in those rare instances where the Committee, in its business judgment, determines that a discretionary retrospective view of performance is warranted.

In order to ensure that the compensation program is structured to remain competitive, the Compensation Committee reviews and takes into account competitive compensation data gathered by the Vice President – Human Resources regarding the elements of compensation and the amount of each element paid by comparable competitors for executives in positions that are similar to our executive officer positions. For fiscal 2011, the Compensation Committee engaged the Hay Group, an independent consulting firm to conduct a competitive market analysis for the top six executive positions at the Company. The Hay Group analysis focused on the elements of total direct compensation (i.e., base salary, bonus and long-term incentives) and did not include health and welfare benefits or deferred compensation/retirement benefits (e.g., POWR Plan/Deferred Compensation Plan) offered to the Company’s executives.

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Individual executive officer compensation levels and incentives were compared to a peer group of restaurant and retail companies. In setting compensation levels and changes in the Company’s incentive compensation programs for 2011, the Hay Group’s evaluation included the following “Peer Companies:” Bob Evans Farms, Boddie-Noell Enterprises, Boston Market, Buffalo Wild Wings, Buffets, Carrols Restaurant Group, Cato Corporation, CEC Entertainment, Checkers Drive-In Restaurants, Chipotle Mexican Grill, Einstein Noah Restaurant Group, Hibbett Sports, Hot Topic, Little Caesar, O’Charley’s, Panda Restaurant Group, Red Robin, Ruby Tuesday, Tuesday Morning, Whataburger, and White Castle System.

In connection with awarding any element of the compensation program, the Compensation Committee reviews comprehensive tally sheets for each of the executive officers, which provide the amount of compensation to be received with respect to each element of compensation during the relevant time period. The Compensation Committee considers the competitiveness of each element of the compensation package, as well as the competitiveness of total cash compensation comparisons and total compensation comparisons. However, for competitive and retention reasons, the Compensation Committee believes it is desirable to retain flexibility and nimbleness and has therefore not adopted any policies regarding allocating between long-term and currently-paid-out compensation, or between cash and non-cash forms of compensation. The Compensation Committee reviews the alignment between executive compensation and performance on an annual basis and designs the compensation elements to ensure a balance of both short-term and long-term interests.

2010 Elements of Compensation

The principal components of compensation for the Named Executive Officers for the 2010 fiscal year are described below.

Annual Base Salary

Executive officers are paid a base salary as compensation for performance of their primary duties and responsibilities. The annual base salaries for Mr. Schwartz and Mr. Cook were initially set by their 2009 Employee Agreements. The annual base salary of the Senior Vice President – Head of Operations and Vice President – Human Resources is recommended by the Chief Executive Officer to the Compensation Committee. The salary of the Vice President – Information Technology is recommended by the Chief Financial Officer to the Chief Executive Officer, who, in turn, recommends such compensation to the Compensation Committee. Recommendations for salary include consideration of the following:

• the level of salary needed to remain competitive with executives with similar positions by restaurant and retail companies with comparable dollar volume and numbers of units;

• the nature and responsibility of the position;

• the achievement of objective performance criteria specific to each position; and

• subjective leadership criteria.

There were no merit increases for the 2010 fiscal year, as determined and approved by the Compensation Committee primarily as a result of the general economic slowdown and the financial performance challenges faced by the Company in 2009 as well as the economic uncertainties entering fiscal 2010.

Bonus and Performance-Based Cash Incentive Compensation

Annual cash incentive compensation is designed to motivate and reward executive officers for their contributions. This objective is accomplished by making a large portion of cash compensation dependent upon our financial performance and, in the case of Named Executive Officers other than the Chief Executive Officer and Chief Financial Officer, additional specific performance measures related to their particular responsibilities.

We believe that growth in Adjusted EBITDA is the measure of financial performance that best reflects the increase in stockholder value. “Adjusted EBITDA” for an applicable fiscal year shall mean the consolidated net income plus interest, income taxes, depreciation and amortization, facility impairment charges, pre-opening expenses, transaction costs incurred for acquisitions (expensed in accordance with ASC 805), non-cash membership unit compensation (expensed in accordance with ASC 718), and an add back of the annual BAML Capital Partners management fee of the Company and its subsidiaries on a consolidated basis for that fiscal year. Adjusted EBITDA is also a principal focus of our performance because it improves our debt service coverage and financial covenant compliance; in addition, Adjusted EBITDA is a performance

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measure that yields cash to pay down our debt more quickly, which is a primary objective as we are a highly leveraged entity. As described below under “Changes for the 2011 Performance Period”, we recognize that future compensation determinations would benefit from a broader set of performance measures that will take account growth and other objectives that are part of our strategic plan.

In light of the Company’s financial performance in 2009, it was determined that the decision whether to pay incentive compensation, and the payout threshold upon which any such payment would be based, would be made at the sole discretion of the Compensation Committee. Retaining this discretion gave the Compensation Committee the flexibility to evaluate 2010 performance in light of prevailing trends in the business, broader economic conditions and prospective covenant compliance. These considerations, among others, were used by the Compensation Committee to determine all cash compensation based on a retrospective view of financial performance, including merit increases for all employees, cash incentive compensation, contributions to the Deferred Compensation and Retirement Plan and the POWR Plan.

At the beginning of fiscal 2010, the Company refocused its efforts on building its core pizza business by altering its marketing strategy to bring unique attractive value to the category on an everyday basis. This change in strategy along with excellent operational controls changed the trajectory of our operating performance from fiscal 2009, resulting in significant same store sales growth (+10.1%), record Adjusted EBITDA performance, significant free cash flow generation, and substantially improved credit statistics. The fiscal 2010 record Adjusted EBITDA of $106.5 million exceeded the prior year’s performance by $10.2 million or 9.5% allowing the Company to reduce leverage from 4.51X at fiscal year-end 2009 to 3.80X at fiscal year-end 2010 while increasing cash balances by $29.5 million. Based upon this exceptional financial performance, the Compensation Committee elected to pay Adjusted EBITDA bonuses at the maximum payout threshold, with the amount thereof determined separately for each officer based on individualized criteria which were the same as those used in 2009 and are described below.

For fiscal 2010, the 2009 Employment Agreements with Mr. Schwartz and Mr. Cook provided them with the opportunity to earn annual cash incentive compensation of up to the following percentages of their annual base salary if the specified percentage of the Adjusted EBITDA Target was achieved: (i) 25% of base salary if at least 95% of the Adjusted EBITDA Target was achieved; (ii) 50% of base salary if at least 100% of the Adjusted EBITDA Target was achieved; and (iii) 75% of base salary if 105% or more of the Adjusted EBITDA Target was achieved; however, (i) if Adjusted EBITDA was greater than 95%, but less than 100%, of the Adjusted EBITDA Target, the incentive compensation paid would equal 50% of base salary minus the Adjustment Amount and (ii) if Adjusted EBITDA was greater than 100% of the Adjusted EBITDA Target, the incentive compensation would equal 50% of base salary plus the Adjustment Amount, up to a maximum of 75% of base salary. The term “Adjustment Amount” is defined in their respective employment agreements and generally provides for an incremental adjustment in the amount of bonus between the threshold, target and maximum bonus amounts based on the difference between actual Adjusted EBITDA and the Adjusted EBITDA Target. Mr. Schwartz and Mr. Cook also had the opportunity to earn additional cash bonus compensation each year in recognition of outstanding performance as determined by the Board of Directors in its sole discretion. Based upon the Company’s aforementioned exceptional financial performance in fiscal 2010, the Compensation Committee awarded Mr. Schwartz and Mr. Cook performance based compensation at the maximum target equivalent to 75% of base salary, or $513,750 and $345,431, respectively.

Mr. Vaughn, Sr. Vice President – Head of Operations, is responsible for the operations performance of our restaurants. Historically, Mr. Vaughn has been eligible to receive performance based compensation of 50% of base salary, which was based upon (i) Adjusted EBITDA Target achieved (60% weight); (ii) Leadership Goals achieved based on specific operational metrics (20% weight); and, (iii) Restaurant Operations roll-up bonus achieved (20% weight). For fiscal 2010, based upon the Company’s aforementioned exceptional financial performance in fiscal 2010, the Compensation Committee awarded Mr. Vaughn performance based compensation at the maximum target, or $89,856. Similarly, the Compensation Committee awarded Mr. Vaughn $25,000 for achievement of his leadership goals, which was tied to financial performance and was determined based on specified operational metrics, such as restaurant general manager turnover, comparable store sales, food safety, CHAMPS scores and delivery metrics. Finally, Mr. Vaughn was also eligible for incentive compensation targeted to be approximately $24,960, the specific amount of which was determined primarily based on a pyramidal bonus structure involving each level of restaurant management on a system wide basis that was designed to align Mr. Vaughn’s incentives with each territory and ensure that each level of management within each respective territory is working together effectively to accomplish financial and other performance goals of the Company. This restaurant operations bonus is calculated based upon the aggregate cash incentive compensation payable to each Territory Vice President who reports to the Senior Vice President – Head of Operations, which, in turn, is based on the amount of cash incentive compensation payable to all of the regional managers who report to the respective Territory Vice President, which in turn, is based on the amount of cash incentive compensation payable to area general managers who report to the respective regional managers, which, in turn, is based on the amount of the cash incentive compensation payable to restaurant general managers who report to the respective area general managers. Mr. Vaughn earned $21,155 related to this incentive compensation for fiscal 2010.

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Ms. Walbert, Vice President – Human Resources, is responsible for all human resource functions and growing the capability of our employees. Historically, Ms. Walbert has been eligible to receive performance based compensation of 40% of base salary, which was based upon (i) Adjusted EBITDA Target achieved (60% weight); and (ii) Leadership Goals achieved (40% weight). For fiscal 2010, based upon the Company’s aforementioned exceptional financial performance in fiscal 2010, the Compensation Committee awarded Ms. Walbert performance based compensation at the maximum target, or $49,363. Similarly, Ms. Walbert was awarded $20,000, based upon the successful completion of certain projects. Both the achievement and payout of the Leadership Goals was determined at the discretion of the President, Chief Executive Officer and Chief Operating Officer.

As the officer with principal supervisory responsibility over our information systems, Mr. Wood’s role has a significant impact on our operational efficiency and effectiveness. Historically, Mr. Woods has been eligible to receive performance based compensation of 40% of base salary, which was based upon (i) Adjusted EBITDA Target achieved (60% weight); and (ii) specified technology projects achieved (40% weight). For fiscal 2010, based upon the Company’s aforementioned exceptional financial performance in fiscal 2010, the Compensation Committee awarded Mr. Woods performance based compensation at the maximum target, or $44,702. Additionally, Mr. Woods was awarded $19,867 based upon the successful completion of specified information technology projects. Both the achievement and payout of the assimilation goals and completion of certain projects was determined at the discretion of the Executive Vice President – Finance and CFO.

Similarly, each Named Executive Officer has participated in the POWR Plan, and prior Company contributions have historically been reported as Non-Equity Incentive Plan Compensation. However, for the considerations noted above, the Compensation Committee determined that all contributions to be made to this plan would be made on a discretionary basis for fiscal 2010. Due to the Company’s aforementioned exceptional financial performance in fiscal 2010, the Compensation Committee determined that all POWR Plan participants were to receive a contribution at the maximum threshold. This resulted in payments to the Named Executive Officers as follows: Mr. Schwartz, $126,725; Mr. Cook, $85,206; Mr. Vaughn, $46,176; Ms. Walbert, $31,709; and Mr. Woods, $20,954.

Changes for the 2011 Performance Period

As described above, the Compensation Committee engaged the Hay Group to conduct a competitive market analysis of total direct compensation for the top six executive positions at the Company. In order to better align the Company’s compensation structure to that of its peer companies, the Hay Group made recommendations on the structure and overall amount of total direct compensation for these positions but did not recommend the specific amount of such compensation for these positions. Based on that evaluation, there were fundamental changes made to the performance-based incentive compensation programs which will be effective for fiscal 2011.

For fiscal 2011, the Amended and Restated Agreements with Mr. Schwartz and Mr. Cook will provide them with the opportunity to earn annual cash incentive compensation based on certain bonus objectives.

Mr. Schwartz is eligible to receive incentive cash compensation equal to up to 100% of his base salary, which will be based upon (i) Adjusted EBITDA Target achieved (50% weight); (ii) Revenue Target achieved (20% weight); (iii) Free Cash Flow Target achieved (20% weight); and, (iv) certain Company objectives achieved that are the collective result of Non-EBITDA bonus objectives achieved by the executive management team (10% weight).

Mr. Cook is eligible to receive incentive cash compensation equal to up to 60% of his base salary, which will be based upon (i) Adjusted EBITDA Target achieved (50% weight); (ii) Revenue Target achieved (20% weight); (iii) Free Cash Flow Target achieved (20% weight); and, (iv) the direct report departmental bonus objectives (10% weight).

These changes to annual cash incentive compensation for Mr. Schwartz and Mr. Cook maintained the primary focus on achievement of Adjusted EBITDA, which the Company believes is the measure of financial performance that best reflects the increase in stockholder value. Adjusted EBITDA is also a principal focus of our performance because it improves our debt service coverage and financial covenant compliance and yields cash to pay down our debt more quickly. Therefore, consistent with prior years, this bonus objective was given the most significant weighting of all objectives established and will be applied as the primary bonus objective for all executive officers. Mr. Schwartz and Mr. Cook both play a significant role in promoting organic and strategic external growth of the Company, as well as development of territories currently under

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operation. This type of development is best measured by growth in revenues achieved in a given year, which resulted in a Revenue Target assigned in the performance based compensation program. Mr. Schwartz and Mr. Cook also have considerable influence over the policy and spending decisions made by the Company in any fiscal year. In order to promote optimal use of cash flows derived from EBITDA performance, a Free Cash Flow Target was established, which is intended to measure the strategic use of cash and improves our debt service coverage and financial covenant compliance. As growth in revenues and free cash flow both have consequences that will significantly increase stockholder value, an equal weighting will be applied to determine the incentive compensation paid to Mr. Schwartz and Mr. Cook for these bonus objectives in fiscal 2011. Finally, Mr. Schwartz and Mr. Cook also have responsibility for the various departments that report to them. Therefore, a bonus objective was established to ensure that each level of management is working together effectively to accomplish financial and other performance goals of the Company. As Mr. Schwartz and Mr. Cook have an oversight role and can less directly influence the goals achieved by other departments, this bonus objective was assigned a lower weighting in consideration of their entire performance based compensation program.

A similar process was employed by the Compensation Committee with respect to the other Named Executive Officers. As noted above, we believe Adjusted EBITDA is the measure of financial performance that best reflects the increase in stockholder value, and as such will be assigned as the most heavily weighted bonus objective for all executive officers. However, it was determined that the remaining Named Executive Officers are less able to directly influence revenues and free cash flow achieved by the Company. Therefore, the Compensation Committee determined that bonus objectives tailored to achievement of key division/function initiatives applicable to the executive officers’ respective responsibilities would best accomplish the financial and other performance goals of the Company, which are further detailed below.

Mr. Vaughn is responsible with operational oversight of each of our territories. For fiscal 2011, Mr. Vaughn will be eligible to receive incentive cash compensation equal to up to 50% of his base salary, which will be based upon (i) Adjusted EBITDA Target achieved (60% weight); (ii) improvement in customer satisfaction survey ratings (15% weight); (iii) retention of Restaurant General Managers (15% weight); and, (iv) enhancement of productivity metrics achieved (10% weight).

Ms. Walbert is responsible for the training and human resource management of all of our stores in operation. For fiscal 2011, Ms. Walbert received a merit increase of 12% consistent with the increase in her responsibilities in connection with her promotion to Senior Vice President–Human Resources. Ms. Walbert will be eligible to receive incentive cash compensation equal to up to 40% of her base salary, which will be based upon (i) Adjusted EBITDA Target achieved (60% weight); (ii) retention of Restaurant General Managers (15% weight); (iii) training certification of restaurant management and crew (15% weight) and, (iv) achievement of certain projects related to organizational leadership development (10% weight).

As the officer with principal supervisory responsibility over our information systems, Mr. Wood’s role has a significant impact on our operational efficiency and effectiveness. For fiscal 2011, Mr. Woods will be eligible to receive incentive cash compensation equal to up to 40% of his base salary, which will be based upon (i) Adjusted EBITDA Target achieved (60% weight); (ii) execution of certain Information Technology objectives (20% weight); (iii) delivery of 3 customer innovation concepts (10% weight) and, (iv) delivery of 5 critical Information Technology objectives (10% weight).

Deferred Compensation and Retirement Plan

The Named Executive Officers are eligible to participate in our Deferred Compensation and Retirement Plan, or the “DCR Plan.” The objective of the DCR Plan is to provide deferred compensation and retirement income to a select group of management or highly compensated employees in years that such executives are not eligible to participate in the NPC International, Inc. Qualified Profit Sharing Plan (401(k) Plan). Most of our peer companies and companies with which we compete for executive-level talent provide similar plans for their executives. The DCR Plan is designed to replicate many of the features available under a tax-qualified retirement plan, including salary deferral features and opportunities to receive employer matching and profit sharing benefits without the tax benefits of a qualified plan. However, due to the non-qualified nature of the plan, any contributions from executive officers or the Company may be subject to the claims of creditors in the event that such claims should be made.

The DCR Plan affords participants the opportunity to make two types of compensation deferral elections. First, each such executive may elect to defer all or a portion of his or her base salary. Second, the plan allows each such executive the opportunity to separately elect to defer all or a portion of his or her bonus compensation. As an incentive to participate in the DCR Plan, we match executive contributions up to four percent of the sum of the executive’s salary and bonus compensation. We also may provide additional discretionary contributions as a means of rewarding participants for their efforts with us. The amount of any discretionary contribution may vary from year to year based upon our Board’s assessment of those efforts

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made by DCR Plan participants and our financial needs; however, no such discretionary contributions were awarded during any of the years presented in the Summary Compensation Table. For fiscal 2010, the Company elected to withhold its Company matching contributions for all executives participating in the DCR Plan as determined at the sole discretion of the Compensation Committee. We believe that both the level of employer-matching contribution and the level of discretionary contributions, if any, that we may contribute to the DCR Plan on behalf of our executive officers are comparable with other peer companies who provide similar plans for retirement benefits for their executives under qualified retirement plan arrangements. For fiscal 2011, the Compensation Committee has elected to reinstate matching contributions to the DCR Plan on a quarterly basis consistent with historical levels.

Participants in the plan may elect the time and manner in which they receive benefits under the plan, subject to requirements of Section 409A of the Internal Revenue Code of 1986, as amended.

POWR Plan

Our Named Executive Officers are eligible to participate in the NPC International, Inc. POWR Plan, which is a performance-based incentive plan providing deferred compensation for certain key management or highly compensated employees selected by our Compensation Committee. Payments out of the POWR Plan are made to participants following termination of their employment. Subject to a participant being terminated due to gross misconduct, in which case a participant forfeits all of his or her benefit under the POWR plan, all benefit payments under the Plan are made only following a participant’s termination of employment or disability. However, due to the non-qualified nature of the plan, any contributions from the Company may be subject to the claims of creditors in the event that such claims are successfully adjudicated by the creditors.

There are essentially two components to the POWR Plan. The first component provides participants with the opportunity to earn a contribution equal to a specified percentage of the participant’s annual base salary for that year if we meet the Adjusted EBITDA Target established by our Board of Directors. This percentage is the same for each Named Executive Officer but varies between a 0-13.5% payout depending on the threshold and target Adjusted EBITDA Targets achieved. Historically, EBITDA achievement less than the threshold Adjusted EBITDA Target, or 95% of the Adjusted EBITDA Target, would result in a 0% payout; EBITDA achievement greater than the threshold Adjusted EBITDA Target but less than the Adjusted EBITDA Target would result in a 9% payout; EBITDA achievement exceeding the Adjusted EBITDA Target would result in a 13.5% payout. All participants are also eligible to participate in a “Gain Sharing Pool” which represents 5% of our EBITDA that is in excess of a higher Adjusted EBITDA Target that is set at the discretion of our Board of Directors. Each participant’s share of this Gain Sharing Pool is based on the participant’s individual POWR Plan contribution amount, excluding any POWR Plan Plus contribution, compared to the total profit sharing contributions under the POWR Plan. Contributions made under this first component vest at a rate of 25% each year over a four year period beginning with the year for which the contribution is earned. Participants are considered fully vested in all POWR Plan contributions upon the earlier of achievement of 15 years service or age 60 with at least 5 years service.

The second component of the POWR Plan provides an additional contribution, referred to in the plan as the “POWR Plus Contribution” that rewards participants in the plan who have at least ten years of service with us if the Adjusted EBITDA Target, as defined above, is met. This additional contribution level for all years presented is 5% of annual base salary for each Named Executive Officer. Because POWR Plan Plus Contributions are designed to reward loyal and faithful key employees who provide valuable service to us over an extended period of time, they will vest only upon 20 years of employment with us.

For fiscal 2010, the Compensation Committee did not establish an EBITDA Target so as to allow the Company the flexibility to evaluate 2010 performance, as noted previously. Based on the Company’s exceptional fiscal 2010 operational performance, prevailing trends in the business, broader economic conditions and prospective covenant compliance, the Compensation Committee, in its sole discretion, granted contributions to the POWR Plan for all participants including the Named Executive Officers equivalent to the maximum threshold as follows: Mr. Schwartz, $126,725; Mr. Cook, $85,206; Mr. Vaughn, $46,176; Ms. Walbert, $31,709; and Mr. Woods, $20,954. There were no Gain Sharing Pool contributions made in fiscal 2010 because no Adjusted EBITDA Target was established for the current year.

Stock Options

In connection with the 2006 Transaction, Holdings agreed to establish a new stock option plan which governs, among other things, the issuance of matching options on purchased membership interests in Holdings, and the grant of options with respect to the membership interests in Holdings. The purpose of this plan, which has been established, are to: (i) attract and

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retain highly qualified employees for the Company; (ii) motivate them to exercise their best efforts on behalf of the Company and Holdings; (iii) allow participants in the plan to participate in equity value creation at Holdings; and (iv) align the incentives between the participants and Holdings as well as the Company.

Options may be granted under the plan with respect to a maximum of 8% of the membership interests of Holdings as of the closing date of the 2006 Transaction calculated on a fully diluted basis (subject to required capital adjustments). Each grant of options under the plan will specify the applicable option exercise period, option exercise price, vesting schedules and conditions and such other terms and conditions as deemed appropriate by the Compensation Committee or the Board of Holdings. Options with respect to 1.0% of the interests are “non-time vesting” options, which were vested at grant as a matching incentive based upon the level of equity investment made by the executive officer in connection with the 2006 Transaction. These options were made available to our Chief Executive Officer and Chief Financial Officer based upon their purchase of 1,950,000 units and 1,300,000 units of membership interests, at $1.00 per membership unit, in the Company on the date of the 2006 Transaction. Options with respect to 2.0% of the interests are to be “time vesting” options, which will vest ratably as to 20% of the interests subject to the option over a five-year period, subject to the option holders’ continued service. The options as to the remaining 5.0% of the interests vest only upon the occurrence of a change of control of Holdings or the Company on or prior to the expiration of the option, and also require continued service through the vesting date. All options granted under the Plan will expire ten years from the date of grant, but generally expire earlier upon or within 90 days after the termination of service by the member.

The exercise price of the non-time vesting and time vesting options for those options issued in conjunction with the 2006 Transaction was established based on the aggregate equity investment in Holdings at the time of closing of the 2006 Transaction divided by the number of outstanding membership interests, or $1.00. Similarly, the exercise price of the change of control options was established as twice the exercise price of the non-time vesting and time vesting options granted, or $2.00. No options were granted in fiscal 2010. The exercise price of options granted since the 2006 Transaction was determined at the discretion of the Compensation Committee of Holdings. The exercise price for all options granted was equal to or greater than the fair market value of the option on the date of grant.

Options grants will be made at the discretion and through approval of the Board of Holdings to ensure that compensation to our Named Executive Officers remains competitive and in-line with our peer companies.

Restricted Stock Units

In fiscal 2010, the Company granted 214,694 restricted stock units (“RSUs”) to Mr. Schwartz for his exceptional leadership, which resulted in much higher operational and financial performance in fiscal 2010 than was anticipated. RSUs are stock awards that are granted to employees and entitle the holder to membership interests as the awards vest, including the right to receive dividends on all vested units and accruable for units not vested at the grant date. Dividends accrued on non-vested RSUs will be paid to the employee once the underlying RSU becomes vested. The RSUs were granted at the fair market value of the membership interests on the date of grant. RSU distributions will be in membership interests of Holdings after the end of the vesting period, generally vesting ratably at the end of each fiscal years 2010, 2011 and 2012. Membership interests issued under an RSU award are nontransferable and are mandatorily redeemable units, which are required to be repurchased by Holdings upon the resignation of the member or in the event of a change in control.

Perquisites and Other Personal Benefits

The Company provides Named Executive Officers with perquisites and other personal benefits that the Company and the Compensation Committee believe are reasonable and consistent with its overall compensation program to better enable the Company to attract and retain highly qualified employees for key positions.

Under the Amended and Restated Agreements with Mr. Schwartz and Mr. Cook, they are each entitled to receive: (i) use of the Company airplane for up to 50 hours per year, (ii) matching gifts aggregating $10,000 annually to nontaxable charitable organizations of their choice, (iii) Mr. Schwartz is eligible for supplemental long-term disability coverage, and (iv) Mr. Schwartz and Mr. Cook are entitled to a reimbursement for out-of-pocket premiums paid for life insurance coverage, (v) a complete biannual medical examination and associated travel expenses, and (vi) tax, financial planning and legal services.

The incremental cost to the Company for personal use of the Company airplane is calculated based on the average variable operating costs to the Company. Variable operating costs include fuel, maintenance, landing/ramp fees, and other

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miscellaneous variable costs. The total annual variable costs are divided by the annual hours flown by the Company aircraft to derive an average variable cost per hour flown. This average variable cost per hour flown is then multiplied by the hours flown for personal use to derive the incremental cost. The methodology excludes fixed costs that do not change based on usage, such as pilots’ and other employees’ salaries, purchase costs of the aircraft and non-trip related hangar expenses. Incremental cost to the Company reported within the Summary Compensation Table was based on the hours flown for each personal trip taken by Mr. Schwartz and Mr. Cook.

Clawback Policy

In the event of a restatement of the Company’s financial statements resulting from misconduct by specified officers and employees, the Company’s clawback policy requires the reimbursement to the Company by the specified officer or employee engaging in such misconduct of all performance based compensation (i.e., bonus and POWR Plan awards) and all gains on stock sales during the twelve month period following the first public issuance or filing with the SEC (whichever first occurs) of the financial documents including the financial statements required to be restated. The specified officers and employees for this purpose include the Named Executive Officers and all other officers and employees that report to the Chief Executive Officer, the Chief Financial Officer or the Chief Accounting Officer.

The Compensation Committee has reviewed the design and operation of the Company’s compensation policies and practices for all employees, including executives, as they relate to risk management practices and risk-taking incentives. The Compensation Committee believes that the Company’s compensation policies and practices do not encourage unnecessary or excessive risk taking and that any risks arising from the Company’s compensation policies and practices for its employees are not reasonably likely to have a material adverse effect on the Company.

Summary Compensation Table

The following table summarizes the compensation of the Named Executive Officers for the fiscal years ended December 28, 2010, December 29, 2009, and December 30, 2008. The Named Executive Officers are the Company’s principal executive officer and principal financial officer, and the three other most highly compensated executive officers ranked by their total compensation in the table below:

Name and Principal Position	Year	Salary ($)	Bonus ($)	Stock Awards ($)	Option Awards ($)	Non-Equity Incentive Plan Compensation ($)	Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)	All Other Compensation	Total ($)
(a)	(b)	(c)(1)	(d)(2)	(e)(3)	(h)(4)	(g)(5)	(h)(6)	(i)(7)	(j)
James K. Schwartz   President, Chief  Executive Officer and  Chief Operating Officer	2010 2009 2008	694,539 683,670 661,853	640,475        —        —	249,045        —        —	— — 0	—        — 368,039	112,958 198,418        —	42,403 68,466 55,135		1,739,420   950,553   1,085,027
Troy D. Cook   Executive Vice President –  Finance and Chief  Financial Officer	2010 2009 2008	468,197 455,137 443,670	430,637        —        —	—        —        —	— — 0	—        — 246,221	79,156 123,868        —	23,540 73,743 54,696		1,001,530   652,748   744,587
D. Blayne Vaughn   Senior Vice President –  Head of Operations	2010 2009 2008	250,732 247,917 229,750	161,032   10,000        —	—        —        —	— — 0	21,155     9,401 107,411	104,361 152,934        —	— 12,376 11,860		537,280   432,628   349,020
Lavonne K. Walbert   Vice President – Human  Resources	2010 2009 2008	176,418 172,843 158,323	101,072   13,428     3,809	—        —        —	— — 0	—        —   41,712	31,638 48,772        —	—   8,220   6,918		309,128   243,262   210,762
Michael J. Woods   Vice President –   Information Technology   and Chief Information   Officer	2010 2009 2008	160,203 158,909 155,399	85,523     1,500   21,913	—        —        —	— — 0	—        —   24,984	48,788 70,298        —	—   7,391   7,322		294,514   238,098   209,618

⁽¹⁾ Amounts shown are the cumulative base compensation earned by the Named Executive Officer throughout fiscal years 2010, 2009 and 2008. These amounts are not reduced by any deferral of compensation for those individuals participating in the Deferred Compensation and Retirement Plan. Base salary was increased for fiscal 2011 to the following for each Named Executive Officer: Mr. Schwartz, $700,000; Mr. Cook, $470,000; Mr. Vaughn, $265,000; Ms. Walbert, $192,500; Mr. Woods, $160,000.

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⁽²⁾ For years prior to 2010, performance based compensation was reported in Column (g) as “Non-Equity Incentive Plan Compensation”. However, the Compensation Committee retained its discretion to make performance based compensation as described in “2010 Elements of Compensation” in Item 11. Compensation Discussion and Analysis and, therefore, amounts earned in fiscal 2010 are shown above in Column (d) as “Bonus”. Fiscal year 2010 earnings on the POWR Plan are as follows: Mr. Schwartz, $86,545; Mr. Cook, $54,204; Mr. Vaughn, $28,950; Ms. Walbert, $17,719; Mr. Woods, $12,600. POWR Plan earnings are not included in amounts reported in Column (d) as “Bonus;” however, any above market earnings on balances in the POWR Plan are reported in Column (h) as “Change in Pension Value and Nonqualified Deferred Compensation Earnings.” For fiscal 2009, bonuses include discretionary payments related to the 2009 and 2008 acquisition of 294 units from PHI of $10,000 for Mr. Vaughn and Ms. Walbert. Additionally, the remaining amounts for 2009 and 2008 represent a portion of the annual bonus program earned by Ms. Walbert and Mr. Woods that is made on a discretionary basis, which is determined by management and amounts were paid in each respective year. Amounts paid under the Company’s incentive plan are reported in Column (g) as “Non-Equity Incentive Plan Compensation.”

⁽³⁾ This column represents the value of restricted stock awards approved by the Compensation Committee in each of the fiscal years presented and is consistent with the grant date fair value of the award computed in accordance with FASB ASC Topic 718. These amounts do not necessarily represent the actual value realized by Mr. Schwartz during the respective year. For discussion of the assumptions used in these valuations, see “2010 Elements of Compensation” in Item 11. Compensation Discussion and Analysis. No stock awards were granted to any employee during fiscal years 2009 and 2008.

⁽⁴⁾ There were no options granted in fiscal 2010 and 2009. The Company is required to disclose the amount of the grant date fair value of options issued in each respective year. Per the terms of the NPC Acquisition Holdings, LLC Management Option Plan, these options have certain vesting conditions that trigger a fair value or formula valuation, depending on the performance condition. The Company has determined that none of these performance conditions was to be considered probable as of the grant date and at the end of all years presented; therefore, no value has been attributed to options granted during fiscal 2008. There can be no assurance that value related to these options will ever be realized. Additionally, even if the highest level of performance conditions is achieved, due to the restrictions on the options, the options would have no value on the date of grant.

⁽⁵⁾ Amounts represent incentive compensation earned by the Named Executive Officers based on specific performance criteria, which is described in further detail under “2010 Elements of Compensation” in Item 11. Compensation Discussion and Analysis, for fiscal years 2010, 2009 and 2008, respectively, as follows: Mr. Schwartz, $0, $0 and $275,975; Mr. Cook, $0, $0, and $184,675; Mr. Vaughn, $21,155, $9,401, and $75,394; Ms. Walbert, $0, $0, and $20,191; and Mr. Woods, $0, $0, and $11,413. In addition, amounts included above were contributions to the Company’s POWR Plan for each executive for fiscal year 2008 as follows: Mr. Schwartz, $92,064; Mr. Cook, $61,546; Mr. Vaughn, $32,017; Ms. Walbert, $21,521; and Mr. Woods, $13,571. No contributions were made to the POWR Plan for fiscal 2009. Fiscal years 2009 and 2008 earnings (losses), respectively, on the POWR Plan are as follows: Mr. Schwartz, $163,795, and ($143,386); Mr. Cook, $102,587, and ($88,957); Mr. Vaughn, $54,791, and ($47,698); Ms. Walbert, $33,535 and ($28,774); Mr. Woods, $23,846, and ($20,838). POWR Plan earnings (losses) are not included in amounts reported in Column (g) as “Non-Equity Incentive Plan Compensation;” however, any above market earnings on balances in the POWR Plan are reported in Column (h) as “Change in Pension Value and Nonqualified Deferred Compensation Earnings.”

⁽⁶⁾ Amounts represent above market earnings on compensation that is deferred outside of tax-qualified plans within the Company’s POWR Plan and the Deferred Compensation and Retirement Plan. Actual earnings for fiscal 2010 on the combined POWR Plan and Nonqualified Deferred Compensation Plan were as follows: Mr. Schwartz, $112,958; Mr. Cook, $79,156; Mr. Vaughn, $104,361; Ms. Walbert, $31,638; and Mr. Woods $48,788. Amounts reported were calculated as earnings on plan balances with returns exceeding 120% of the annual applicable federal rate, which was equal to 1.83%, 3.16%, and 3.43% for fiscal years 2010, 2009, and 2008, respectively.

⁽⁷⁾ This amount represents (i) the Company contribution to the Deferred Compensation and Retirement Plan for all Named Executive Officers listed above (note: there was no Company contribution for fiscal 2010); and (ii) perquisites and other personal benefits. Under SEC Rules, companies are required to identify by type all perquisites and other benefits for a “named executive officer” if the total value for that individual equals or exceeds $10,000, and to report and quantify each perquisite or personal benefit that exceeds the greater of $25,000 or 10% of the total amount for that individual.

^(a) The aggregate value of perquisites and other personal benefits for Mr. Schwartz in fiscal 2010 was $42,403. This amount comprised: personal use of the Company aircraft; a matching gift contribution; reimbursement for tax, financial planning and legal services; reimbursement for long-term disability coverage; a biannual medical examination, and reimbursement for life insurance premiums.

^(b) The aggregate value of perquisites and other personal benefits for Mr. Cook in fiscal 2010 was $23,540. This amount comprised: a matching gift contribution, reimbursement for tax, financial planning and legal services; personal use of the Company aircraft and reimbursement for life insurance premiums.

^(c) No perquisites and other personal benefits were received by any other named executive officer that equals or exceeds $10,000. From time to time, members of management may have guests accompany them on business-related trips. Perquisites and other personal benefits are valued basis of the aggregate incremental cost to the Company. As business-related trips are not incremental to the Company, no amounts were reported with respect to these items. Further, executives are taxed on the imputed income attributable to personal use of the Company aircraft and do not receive tax assistance from the Company with respect to these amounts.

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Grants of Plan-Based Awards in Last Fiscal Year

The following table provides information on future payouts under the non-equity incentive plan awards and stock options granted in 2010 to each of the Company’s Named Executive Officers:

			Estimated Possible Payouts Under Non-Equity Incentive Plan Awards						Estimated Possible Payouts Under Equity Incentive Plan Awards						All Other Stock Awards: Number		Grant Date
Name	Grant Date		Threshold ($)		Target ($)		Maximum ($)		Threshold ($)		Target ($)		Maximum ($)		of Shares of Stock or Units (#)		Fair Value of Stock and Option Awards
(a)	(b)		(c)		(d)		(e)		(f)		(g)		(h)		(i)		(l)
James K. Schwartz   President, Chief Executive Officer and Chief Operating Officer		05/05/10		—(1)		— (1)		—(1)		—		—		—		214,694(3)	$	249,045(3)
Troy D. Cook   Executive Vice President – Finance and Chief Financial Officer				—(1)		— (1)		—(1)		—		—		—		—		—
D. Blayne Vaughn   Senior Vice President – Head of Operations		12/30/09		—(2)		24,960(2)		—(2)		—		—		—		—		—
Lavonne K. Walbert   Vice President – Human Resources				—(2)		— (2)		—(2)		—		—		—		—		—
Michael J. Woods   Vice President – Information Technology and Chief Information Officer				—(2)		— (2)		—(2)		—		—		—		—		—

⁽¹⁾ Amounts represent incentive compensation, which is defined by the 2009 Employment Agreements, signed by Mr. Schwartz and Mr. Cook, which equals a specified percentage for the threshold, target and maximum payout as 25%, 50% and 75% of base salary with a corresponding achievement of 95%, 100%, or 105% or more of the EBITDA Target, respectively, that is approved by the Board of Directors on an annual basis. For fiscal 2010, this was modified to a discretionary award, which is shown in Column (d) as “Bonus.”

⁽²⁾ Amounts represent the target incentive compensation for each of these Named Executive Officers for fiscal 2010. Actual incentive compensation earned based on fiscal 2010 results was as follows: Mr. Vaughn, $21,155.

⁽³⁾ Restricted Stock Units (RSUs) are shares of NPC Acquisition Holdings, LLC. that vest and are payable as units of Holdings Common Units after the Restricted Period—i.e. a three year ratable vest for each fiscal year ending 2010, 2011 and 2012 (or a change in control of the Company, if earlier). In the event that the Participant is involuntarily terminated by the Company without Cause prior to the third anniversary of the date of award, then the RSUs shall continue to vest under the terms of the agreement. If the Participant’s employment with the Company terminates prior to the lapse of restrictions on the RSUs for any other reason, the unvested RSUs are forfeited. Column (l) shows the full grant date fair value for the RSUs, as calculated in accordance with FASB ASC Topic 718. This amount does not necessarily represent the actual value that will be realized by Mr. Schwartz. See “2010 Elements of Compensation” in Item 11. Compensation Discussion and Analysis.

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Outstanding Equity Awards at Fiscal Year End

The following table shows the number of exercisable and unexercisable options granted and held by the Company’s Named Executive Officers as of December 28, 2010:

	Option Awards										Stock Awards
Name	Number of Securities Underlying Unexercised Options (#) Exercisable		Number of Securities Underlying Unexercised Options (#) Unexercisable		Equity Incentive Plan Awards: Number Of Securities Underlying Unexercised Unearned Options (#)		Option Exercise Price ($)		Option Expiration Date		Number of Shares or Units of Stock That Have Not Vested (#)		Market Value         of Shares or         Units of Stock         That Have         Not Vested     ($)
(a)	(b)		(c)		(d)		(e)		(f)		(g)		(h)
James K. Schwartz
President, Chief Executive Officer		1,826,200(1)		212,800(2)		—		$1.00		5/3/2016
and Chief Operating Officer		—		2,659,000(3)		—		$2.00		5/3/2016
												143,130(4)		$236,599(4)
Troy D. Cook
Executive Vice President – Finance and Chief Financial Officer		1,217,200(1)		141,800(2)		—		$1.00		5/3/2016
		—		1,773,000(3)		—		$2.00		5/3/2016
		163,076(2)		108,718(2)		—		$1.00		1/24/2017
D. Blayne Vaughn		—		665,423(3)		—		$2.00		1/24/2017
Senior Vice President – Head of Operations		20,000(2) —		30,000(2) 120,000(3)		—       —		$1.24     $2.24		4/2/2018   4/2/2018
Lavonne K. Walbert
Vice President – Human Resources		141,333(2)		94,222(2)		—		$1.00		1/24/2017
		—		576,700(3)		—		$2.00		1/24/2017
Michael J. Woods
Vice President – Information Technology and Chief Information Officer		119,590(2)		79,726(2)		—		$1.00		1/24/2017
		—		487,977(3)		—		$2.00		1/24/2017

⁽¹⁾ Options granted on May 3, 2006, in connection with the 2006 Transaction, of which 975,000 and 650,000 options for Mr. Schwartz and Mr. Cook, respectively, have a service period that allows for immediate vest. These options were a matching incentive for the purchase of membership interests in the Company at the time of the 2006 Transaction, which is described further in the “2010 Elements of Compensation” of Item 11. Compensation Discussion and Analysis. The remaining vested options for all Named Executive Officers, have a service period that vests ratably over a period of five years, but allow for accelerated vesting in the event of a change in control. Each of these options expires on the date shown in Column (f), which is ten years from the date of grant.

⁽²⁾ Options granted that have a service period that vests ratably over a period of five years, but allow for accelerated vesting in the event of a change in control. These options expire on the date shown in Column (f), which is ten years from the date of grant.

⁽³⁾ Options granted that vest only upon a change in control of the entity.

⁽⁴⁾ RSUs granted May 5, 2010, which vests and becomes exercisable in three equal installments for the fiscal years ending 2010, 2011 and 2012.

In addition to the service period vesting footnoted above, each option and common unit has a mandatory call provision, which results in a fair value or formula valuation depending on the performance condition, which is defined in the NPC Holdings, LLC Management Option Plan. These performance conditions have been determined by management not to be probable at the date of grant or at the end of fiscal 2010; therefore, no value has been attributed to these options. There can be no assurance that value related to these options will ever be realized. However, the expense and related reporting of these earnings will be reported in full at such time the value of options granted can be determined.

No options have been exercised by any named officer as of December 28, 2010.

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Stock Vested at Fiscal Year End

The following table shows the number of RSUs vested as common units by the Company’s Named Executive Officers as of December 28, 2010:

Stock Awards
Name	Number of Shares Acquired on Vesting (#)			Value Realized on Vesting ($)
(a)	(b)			(c)
James K. Schwartz
President, Chief Executive Officer and Chief Operating Officer		71,564	(1)		118,298	(1)

⁽¹⁾ RSU awards granted in 2010 that vested in 2010.

Nonqualified Deferred Compensation in Last Fiscal Year

The following table shows the executive contributions, earnings and account balances for the Deferred Compensation and Retirement Plan (“DCR Plan”) and the POWR Plan for all Named Executive Officers as of and for the fiscal year ended December 28, 2010:

Name	Plan Type		Executive Contributions in Last Fiscal Year ($)		Registrant Contributions in Last Fiscal Year ($)		Aggregate Earnings in Last Fiscal Year ($)		Aggregate Withdrawals/ Distributions ($)		Aggregate Balance at Last Fiscal Year End ($)
(a)				(b)		(c)		(d)		(e)		(f)
James K. Schwartz
President, Chief Executive Officer and Chief Operating Officer		DCR Plan		27,778(1)		—(1)		48,480(2)		—		345,664(1)
		POWR Plan		—		126,725(3)		86,545(2)		—		1,126,584(4)
Troy D. Cook
Executive Vice President – Finance and Chief Financial Officer		DCR Plan		18,724(1)		—(1)		39,131(2)		—		239,420(1)
		POWR Plan		—		85,206(3)		54,204(2)		—		711,432(4)
D. Blayne Vaughn
Senior Vice President – Head of Operations		DCR Plan		10,732(1)		—(1)		90,945(2)		—		603,245(1)
		POWR Plan		—		46,176(3)		28,950(2)		—		380,639(4)
Lavonne K. Walbert
Vice President – Human Resources		DCR Plan		7,053(1)		—(1)		19,181(2)		—		116,109(1)
		POWR Plan		—		31,709(3)		17,719(2)		—		236,417(4)
Michael J. Woods
Vice President – Information Technology and Chief Information Officer		DCR Plan		19,213(1)		—(1)		42,501(2)		—		252,514(1)
		POWR Plan		—		20,954(3)		12,600(2)		—		166,517(4)

⁽¹⁾ Amounts represent activity for participation in the Deferred Compensation and Retirement Plan. The Company will match up to 4% of base salary, bonus, and cash incentive compensation (excluding contributions to the POWR Plan) contributed by the participant to the plan. Company contributions shown in Column (c) are also included in Column (i) as “All Other Compensation” on the Summary Compensation Table. Of the aggregate balance shown above, registrant contributions included within the Summary Compensation Table for fiscal years 2009 and 2008 were as follows: Mr. Schwartz, $38,601 and $33,057; Mr. Cook, $25,873 and $22,065; Mr. Vaughn, $12,376 and $11,860; Ms. Walbert, $8,220 and $6,918; and Mr. Woods, $7,391 and $7,322. No contributions were made to the Deferred Compensation and Retirement Plan for fiscal 2010. There are no limits to the amount of contributions individuals are eligible to contribute to the plan.

⁽²⁾ Earnings on the Deferred Compensation and Retirement Plan and the POWR Plan that are considered to be above market earnings are included in Column (h) as a “Change in Pension Value and Nonqualified Deferred Compensation Earnings” in the Summary Compensation Table. Earnings on the POWR Plan are included in footnotes 2 and 5 of the Summary Compensation Table. Interest is considered to be above-market if the rate of interest exceeds 120% of the applicable federal long-term rate, with compounding. The investment gain or loss for each of these plans shall be allocated to a participant’s account in the ratio that the participant’s account balance as of the preceding valuation date, adjusted for all distributions and forfeitures occurring during the calendar year, bears to the total of all account balances as of the preceding valuation date, as adjusted for all distributions and forfeitures occurring during the calendar year. For purposes of this Section, a participant’s account balance as of such preceding valuation date shall include contributions credited as of such date (even if such contributions are actually made after such date).

⁽³⁾ Amounts represent the contribution to the POWR Plan for fiscal 2010 on each Named Executive Officer’s behalf. Contributions made by the Company were made on a discretionary basis in fiscal 2010 and determined by the Compensation Committee. Amounts contributed to this plan vest over a four-year period, 25% in the year of contribution and ratably thereafter over the next three years; however, participants are considered fully vested in all POWR Plan contributions upon the earlier of achievement of 15 years service or age 60 with at least 5 years service or achievement of 20 years service for all POWR Plan Plus contributions. The following table details current year vesting and aggregate vested balances from prior years for each Named Executive Officer:

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	FY 2010 Vested Contributions		Aggregate Vested Balances
James K. Schwartz President, Chief Executive Officer and Chief Operating Officer	$	158,259	$	852,484
Troy D. Cook Executive Vice President – Finance and Chief Financial Officer		106,332		572,299
D. Blayne Vaughn Senior Vice President – Head of Operations		75,126		380,639
Lavonne K. Walbert Vice President – Human Resources		29,686		195,626
Michael J. Woods Vice President – Information Technology and Chief Information Officer		24,860		146,276

⁽⁴⁾ Amounts represent the aggregate balance at the end of fiscal 2010 for participation in the Company’s POWR Plan. Company contributions shown in Column (c) are also included in Column (d) as “Bonus” on the Summary Compensation Table. Of the aggregate balance shown above, no contributions were made by the registrant to the Company’s POWR Plan in fiscal year 2009; therefore, no amounts were included within the Summary Compensation Table for that year. Registrant contributions included within the Summary Compensation Table for fiscal 2008 were as follows: Mr. Schwartz, $92,064; Mr. Cook, $61,546; Mr. Vaughn, $32,017; Ms. Walbert, $21,521; Mr. Woods, $13,571.

Employment Agreements and Potential Post Employment Matters

On May 3, 2006, we entered into employment agreements with Mr. Schwartz to serve as our President, Chief Executive Officer and Chief Operating Officer and Mr. Cook to serve as our Executive Vice President – Finance and Chief Financial Officer, both for a period of two years. These agreements are automatically renewed for successive one year periods, unless either the Company or Mr. Schwartz or Mr. Cook provides at least 90 days written notice of intent not to renew. These employment agreements were amended on December 29, 2008, effective for fiscal 2009 and were subsequently amended on February 16, 2011, effective for fiscal 2011. The Amended and Restated Agreements extend the term of previous employment agreement until January 1, 2014, with automatic successive renewals in two year increments, unless Mr. Schwartz or Mr. Cook provides the Company at least 90 days written notice of intent not to renew. These employment agreements are further described within Item 11. Compensation Discussion and Analysis. Under the terms of these agreements, Mr. Schwartz and Mr. Cook are entitled to certain post-employment payments, which are determined based on the terms of the termination with the Company, which are detailed as follows:

Reason for termination		Payment Obligations to the Employee
Termination without cause	Ÿ	Unpaid compensation at the date of termination
	Ÿ	Two times the sum of the base salary and bonus compensation earned in the year immediately preceding the year of termination
	Ÿ	A Pro Rata Bonus for the fiscal year in which termination occurs
	Ÿ	Unpaid accrued vacation earned and not taken through the date of termination
	Ÿ	Any other benefits to which he is entitled by any other benefit plan and by applicable law
Termination with good reason(1)	Ÿ	Unpaid compensation at the date of termination
	Ÿ	Two times the sum of the base salary and bonus compensation earned in the year immediately preceding the year of termination
	Ÿ	A Pro Rata Bonus for the fiscal year in which termination occurs
	Ÿ	Unpaid accrued vacation earned and not taken through the date of termination
	Ÿ	Any other benefits to which he is entitled by any other benefit plan and by applicable law
Voluntary termination	Ÿ	Unpaid base salary through the end of the month in which termination occurs

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Reason for termination		Payment Obligations to the Employee
	Ÿ	Unpaid bonus compensation for any fiscal year ended prior to the year in which termination occurs
	Ÿ	Unpaid accrued vacation earned and not taken through the date of termination
	Ÿ	Any other benefits to which he is entitled by any other benefit plan and by applicable law
Termination with cause	Ÿ	Unpaid base salary through the date of termination
	Ÿ	Unpaid bonus compensation for any fiscal year ended prior to the year in which termination occurs
	Ÿ	Unpaid accrued vacation earned and not taken through the date of termination
	Ÿ	Any other benefits to which he is entitled by any other benefit plan and by applicable law
Death	Ÿ	Unpaid base salary through the month in which death occurs
	Ÿ	Unpaid bonus compensation for any fiscal year which has ended as of the date of death
	Ÿ	The Pro Rata Bonus amount for the fiscal year in which the date of death occurs
	Ÿ	Unpaid accrued vacation earned and not taken through the date of death
Disability	Ÿ	Unpaid base salary through the month in which such termination occurs
	Ÿ	Unpaid bonus compensation for any fiscal year which has ended as of the date of termination
	Ÿ	The Pro Rata Bonus amount for the fiscal year in which the date of termination occurs
	Ÿ	Unpaid accrued vacation earned and not taken through the date of termination

    ⁽¹⁾ Termination with good reason is defined in the respective employment agreements for Mr. Schwartz and Mr. Cook as (i) employee duties assigned that are inconsistent with duties held by each of these executive members as of the date of the 2006 Transaction other than the hiring of a Chief Operating Officer, (ii) the relocation of the principal place of employment more than 35 miles from the current principal place of employment, and (iii) a significant reduction in the employee’s annual bonus opportunity. Under the 2009 Employment Agreements, effective fiscal 2009, this definition was amended to also include (i) any reduction in base salary or a 20% or more reduction in the employee’s annual bonus opportunity, other than a systemic reduction that is applicable to the entire management team, (ii) a material breach of a material provision of the respective employment agreement, or (iii) in the case of Mr. Schwartz, a requirement that he report to a Company officer instead of reporting directly to the Board of Directors of the Company. The Company has 30 days to cure any event that would otherwise constitute good reason for termination.

In addition to the above payments, per the terms of the NPC Acquisition Holdings LLC Agreement, the 1,950,000 and 1,300,000 units of membership interests held by Mr. Schwartz and Mr. Cook, respectively have a mandatory call provision

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that will require repurchase of their outstanding units at the date of termination. The Company does not have a contractual obligation to fund the purchase of the mandatorily redeemable units; however, the Company may be required to provide a distribution to NPC Holdings in the event of a member’s resignation from the Company. The payout of these interests vary based on the terms of the executives’ termination with the Company, and will result in either a fair value or formula valuation, which is defined within the NPC Acquisition Holdings LLC Agreement.

There are no post employment payment obligations to the remaining Named Executive Officers.

The tables below estimate amounts payable upon a separation as if the individuals were separated on December 28, 2010:

James K. Schwartz, our President, Chief Executive Officer and Chief Operating Officer:

Executive Benefits and Payments upon Separation	Termination without cause ($)		Termination with good reason ($)		Voluntary termination ($)		Termination with cause ($)		Death ($)		Disability ($)
Compensation:
Accrued Salary at 12/28/10(1)		14,749		14,749		14,749		14,749		14,749		14,749
Stock Options(2)		1,223,554(a)		1,223,554(a)		—(b)		—(b)		1,223,554(a)		1,223,554(a)
Accrued Incentive Compensation at 12/28/10(3)		513,750		513,750		513,750		513,750		513,750		513,750
Benefits and Perquisites:
Severance Payments(4)		2,397,500		2,397,500		—		—		—		—
Retirement Plans(5)		1,198,148		1,198,148		1,198,148		1,198,148		1,198,148		1,198,148
Membership Interests(6)		3,261,031(c)		3,261,031(c)		1,950,000(d)		1,950,000(d)		3,261,031(c)		3,261,031(c)
Restricted Units at 12/28/10(7)		118,298(c)		118,298(c)		83,014(d)		83,014(d)		118,298(c)		118,298(c)
Accrued Vacation at 12/28/10		52,692		52,692		52,692		52,692		52,692		52,692
Total Post-Employment Payments		8,779,722		8,779,722		3,812,353		3,812,353		6,382,222		6,382,222

⁽¹⁾ Amounts are salary earned and unpaid at year end due to the timing of payroll, which is paid on a one-week lag.

⁽²⁾ Options were priced using the formula calculation defined within the NPC Acquisition Holdings LLC Management Option Plan further described below, subject to certain adjustments that were within the terms of the agreement and were approved by the Company’s Board of Directors. This pricing assumes a mandatory call of units for all options that were vested and in-the-money as of December 28, 2010.

^(a) Upon the occurrence of these events, all of the options to purchase membership interests in Holdings are repurchased for aggregate consideration equal to the products of the number of units subject to all option being repurchase times the deemed purchase price unit. The deemed purchase price per unit is equal to the higher of $1.00 or a formula purchase price determined as of the date of separation from employment. The formula purchase price is determined in two steps. The first step is to determine the value of all units which is equal to (A) the product of (i) six, times (ii) consolidated EBITDA from continuing operations for the four full calendar quarters ending immediately preceding the date of determination, less (B) funded net debt, plus (C) proceeds from the exercise of options. The second step is to determine the deemed value of a particular unit which is equal to the quotient of the amount determined in the first step divided by the sum of the number of outstanding units and the number of units underlying options granted under the Option Plan.

^(b) Upon the occurrence of these events, all of the options to purchase membership interests in Holdings are repurchased for aggregate consideration equal to the product of the number of units subject to all options being repurchased times the deemed purchase price per unit. The deemed purchase price per unit is equal to the lower of $1.00 per unit or a formula purchase price determined as of the date of separation from employment. The formula purchase price is determined in the manner described in footnote (2)(a).

⁽³⁾ Amounts are incentive compensation earned and unpaid at year-end. Amounts were included in Column (d) as “Bonus” on the Summary Compensation Table.

⁽⁴⁾ Amount is the severance payment, to which Mr. Schwartz would be entitled based on the terms of Mr. Schwartz’s employment agreement, signed on May 3, 2006 and subsequently amended on December 29, 2008 and February 16, 2011. Amount determined as two times the sum of the base salary and bonus compensation earned in the year immediately preceding the year of termination.

⁽⁵⁾ Amounts represent the vested balances of the Deferred Compensation and Retirement Plan and the Company’s POWR Plan as of December 28, 2010. Amounts were included in the Nonqualified Deferred Compensation Table.

⁽⁶⁾ Membership interests of 1,950,000 units, with an original purchase price of $1.00, held by Mr. Schwartz were priced using the formula calculation defined within the NPC Acquisition Holdings LLC Agreement, subject to certain adjustments that were within the terms of the agreement and were approved by the Company’s Board of Directors.

^(c) Upon the occurrence of these events, all of the membership interests in Holdings are repurchased at a price per unit equal to the greater of the original purchase price for the applicable unit or a formula purchase price in each case determined as of the date of separation from employment. The formula purchase price is determined in the manner described in footnote (2)(a).

^(d) Upon the occurrence of these events, all of the membership interests in Holdings are repurchased at a price per unit equal to the lower of the original purchase price for the applicable unit or a formula purchase price determined as of the date of separation from employment. The formula purchase price is determined in the manner described in footnote (2)(a).

⁽⁷⁾ Restricted Units of 214,694 units granted held by Mr. Schwartz were priced using the formula calculation defined within the NPC Acquisition Holdings LLC Agreement, subject to certain adjustments that were within the terms of the agreement and were approved by the Company’s Board of Directors. In the event that the Participant is involuntarily terminated by the Company without Cause prior to the third anniversary of the date of award, then the RSUs shall continue to vest under the terms of the agreement. If the Participant’s employment with the Company terminates prior to the lapse of restrictions on the RSUs for any other reason, the unvested RSUs are forfeited.

^(c) Upon the occurrence of these events, all of the membership interests in Holdings are repurchased at a price per unit equal to the fair market value (as determined by the Board in its discretion) for the applicable unit as of the date of separation from employment.

^(d) Upon the occurrence of these events, all of the membership interests in Holdings are repurchased at a price per unit equal to the lower of the original purchase price for the applicable unit or a formula purchase price determined as of the date of separation from employment. The formula purchase price is determined in the manner described in footnote (2)(a).

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Troy D. Cook, our Executive Vice President – Finance and Chief Financial Officer:

Executive Benefits and Payments upon Separation	Termination without cause ($)		Termination with good reason ($)		Voluntary termination ($)		Termination with cause ($)		Death ($)		Disability ($)
Compensation:
Accrued Salary at 12/28/10(1)		9,214		9,214		9,214		9,214		9,214		9,214
Stock Options(2)		815,524(a)		815,524(a)		—(b)		—(b)		815,524(a)		815,524(a)
Accrued Incentive Compensation at 12/28/10(3)		345,431		345,431		345,431		345,431		345,431		345,431
Benefits and Perquisites:
Severance Payments(4)		1,612,012		1,612,012		—		—		—		—
Retirement Plans(5)		811,719		811,719		811,719		811,719		811,719		811,719
Membership Interests(6)		2,174,021(c)		2,174,021(c)		1,300,000(d)		1,300,000(d)		2,174,021(c)		2,174,021(c)
Accrued Vacation at 12/28/10		33,657		33,657		33,657		33,657		33,657		33,657
Total Post-Employment Payments		5,801,578		5,801,578		2,500,021		2,500,021		4,189,566		4,189,566

⁽¹⁾ Amounts are salary earned and unpaid at year end due to the timing of payroll, which is paid on a one-week lag.

⁽²⁾ Options were priced using the formula calculation defined within the NPC Acquisition Holdings Management Option Plan further described below, subject to certain adjustments that were within the terms of the agreement and were approved by the Company’s Board of Directors. This pricing assumes a mandatory call of units for all options that were vested and in-the-money as of December 28, 2010.

^(a) Upon the occurrence of these events, all of the options to purchase membership interests in Holdings are repurchased for aggregate consideration equal to the products of the number of units subject to all option being repurchase times the deemed purchase price unit. The deemed purchase price per unit is equal to the higher of $1.00 or a formula purchase price determined as of the date of separation from employment. The formula purchase price is determined in two steps. The first step is to determine the value of all units which is equal to (A) the product of (i) six, times (ii) consolidated EBITDA from continuing operations for the four full calendar quarters ending immediately preceding the date of determination, less (B) funded net debt, plus (C) proceeds from the exercise of options. The second step is to determine the deemed value of a particular unit which is equal to the quotient of the amount determined in the first step divided by the sum of the number of outstanding units and the number of units underlying options granted under the Option Plan.

^(b) Upon the occurrence of these events, all of the options to purchase membership interests in Holdings are repurchased for aggregate consideration equal to the product of the number of units subject to all options being repurchased times the deemed purchase price per unit. The deemed purchase price per unit is equal to the lower of $1.00 per unit or a formula purchase price determined as of the date of separation from employment. The formula purchase price is determined in the manner described in footnote (2)(a).

⁽³⁾ Amounts are incentive compensation earned and unpaid at year-end. Amounts were included in Column (d) as “Bonus” on the Summary Compensation Table.

⁽⁴⁾ Amount is the severance payment, to which Mr. Cook would be entitled based on the terms of Mr. Cook’s employment agreement, signed on May 3, 2006 and subsequently amended on December 29, 2008 and February 16, 2011. Amount determined as two times the sum of the base salary and bonus compensation earned in the year immediately preceding the year of termination.

⁽⁵⁾ Amounts represent the vested balances of the Deferred Compensation and Retirement Plan and the Company’s POWR Plan as of December 28, 2010. Amounts were included in the Nonqualified Deferred Compensation Table.

⁽⁶⁾ Membership interests of 1,300,000 units, with an original purchase price of $1.00, held by Mr. Cook were priced using the formula calculation defined within the NPC Acquisition Holdings LLC Agreement, subject to certain adjustments that were within the terms of the agreement and were approved by the Company’s Board of Directors.

^(c) Upon the occurrence of these events, all of the membership interests in Holdings are repurchased at a price per unit equal to the greater of the original purchase price for the applicable unit or a formula purchase price in each case determined as of the date of separation from employment. The formula purchase price is determined in the manner described in footnote (2)(a).

^(d) Upon the occurrence of these events, all of the membership interests in Holdings are repurchased at a price per unit equal to the lower of the original purchase price for the applicable unit or a formula purchase price determined as of the date of separation from employment. The formula purchase price is determined in the manner described in footnote (2)(a).

Director Compensation Table

The following table summarizes the annual cash compensation earned by the Company’s non-employee directors during 2010:

Name	Fees Earned or Paid in Cash ($)(1)		Stock Awards ($)	Option Awards ($)	Non-Equity Incentive Plan Compensation ($)	Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)	All Other Compensation ($)	Total ($)
Charles W. Peffer Audit Committee Chair		29,000	—	—	—	—	—		29,000
Brandon K. Barnholt		27,500	—	—	—	—	—		27,500

⁽¹⁾ The annual retainer paid to external directors is $17,500 with an additional annual retainer of $3,000 paid to the Audit Committee Chairman. Attendance at each Board and Audit Committee meeting was paid as $1,000 for in-person participation or $500 for teleconference participation. Compensation for directors for fiscal 2011 will increase to an annual retainer of $20,000 with an additional annual retainer of $3,500 paid to the Audit Committee Chairman. Attendance at each Board and Audit Committee meeting will increase to $1,250 for in-person participation and remain at $500 for teleconference participation.

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No compensation was paid for service to Mr. Birosak, Mr. End, or Mr. Hebbar, who represent BAML on our Board of Directors.

Compensation Committee Report

The Compensation Committee of our Board of Directors has reviewed and discussed with management the Compensation Discussion and Analysis set forth above which is required by Item 402(b) of Regulation S-K. Based on such review and discussion, we recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Annual Report on Form 10-K.

/s/ Christopher J. Birosak

Christopher J. Birosak

Chairman

/s/ Brandon K. Barnholt

Brandon K. Barnholt

/s/ Robert F. End

Robert F. End

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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The following table provides certain information as of December 28, 2010 with respect to beneficial ownership of the outstanding stock of the Company and the outstanding membership interests of Holdings by (i) each holder known by us who beneficially owns 5% or more of the outstanding voting interests of the Company or Holdings, (ii) each of the Company’s named executive officers, and (iii) each of the members of the Company’s Board of Directors. Unless otherwise indicated in a footnote, the business address of each person is our corporate address.

Beneficial Owner-NPC Acquisition Holdings, LLC	Membership interests		Percentage of     interests
NPC Acquisition Holdings, LLC		1,000		100.0%
Beneficial Owner-NPC Acquisition Holdings, LLC	Membership interests		Percentage of     interests
ML Global Private Equity Fund, L.P.		118,040		72.2%
Merrill Lynch Ventures, LLC		40,000		24.5%
ML NPC International Co-Invest, L.P.		1,960		1.2%
James K. Schwartz(1)		3,848		2.4%
Troy D. Cook(1)		2,517		1.5%
Charles W. Peffer(1)(2)		90		—%
Brandon K. Barnholt(1)(2)		45		—%
All managers and executive officers as a group (4 persons)(1)		6,500		4.0%

⁽¹⁾ The stock incentive plan, described within this document, pursuant to which Holdings, may from time to time issue and/or grant options to certain members of the Senior Management of the Company to acquire membership interests in Holdings up to a total of 8.0% of the fully-diluted equity interests in Holdings. The above table has been prepared including any options that are exercisable within 60 days from the period of presentation; however, there are options outstanding under the option program that have not vested or will not become exercisable within the near term, or 60 days, as of December 28, 2010.

⁽²⁾ Percentage of interest for each of these individuals is less than 1.0%.

NPC Acquisition Holdings, LLC (“Holdings”), the sole stockholder of the Company, maintains a stock incentive plan (“the Plan”), which governs, among other things, (i) the issuance of matching options on purchased membership interests and (ii) the grant of options with respect to the membership interests. Options may be granted under the Plan with respect to a maximum of 8.0% of the membership interests of Holdings as of the closing date for the acquisition calculated on a fully diluted basis (subject to required capital adjustments). Each grant of options under the Plan will specify the applicable option exercise period, option exercise price, vesting schedules and conditions and such other terms and conditions as deemed appropriate. Three types of options may be granted under the plan. First, Holdings may grant “non-time vesting” options, with respect to up to 1.0% of the interests, to selected participants, which will be vested at grant. Second, Holdings may grant “time vesting” options, with respect to up to 2.0% of the interests, which will vest ratably over a five-year period and subject to the option holders’ continued service. Third, Holdings may grant options, as to the remaining interests, which vest only upon the occurrence of a change of control on or prior to the expiration of the option, and also require continued employment through the vesting date. All options granted under the Plan will expire ten years from the date of grant, but generally expire earlier upon termination of service. Details of the option grants, as of December 28, 2010, are set forth in the table below (amounts in thousands):

	(A) Number of     securities to be issued     upon exercise of outstanding options, warrants and rights	Weighted-average exercise price  of outstanding options     warrants and rights	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (A))
Equity compensation plans approved by security holders	13,874	$        1.66	247
Equity compensation plans not approved by security holders	—	—	—
Total	13,874	$        1.66	247

The exercise price of the options is at the discretion of the Compensation Committee of Holdings; however, the exercise price for all options granted was equal to or greater than the fair market value of the option on the date of grant.

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Based upon the terms of options granted, the Company considers these options to be liability awards. The compensation costs for the portion of awards that are outstanding for which the requisite service has not been rendered, or the performance condition has not been achieved, will be recognized as the requisite service is rendered and/or performance condition achieved. Further, all options granted under the Plan are subject to a mandatory call provision with a defined value, as stated in the Amended and Restated Limited Liability Company Agreement of Holdings and described as follows: (1) for termination of employment due to death, disability, retirement, termination without cause (as defined) or resignation with good reason (as defined), each common unit covered by such options will be called at a price calculated as the difference between the greater of $1.00 or the fair value price (“FVP”) as of the termination date, less the exercise price; and, (2) for any other call event, each common unit covered by such options will be called at a price calculated as the difference between the lesser of $1.00 or the FVP as of the termination date, less the exercise price. The Company does not have a contractual obligation to fund the mandatory call of these units; however, we may be called upon to provide a distribution to Holdings upon such time a triggering event should occur that would require a mandatory call of outstanding units.

Item 13. Certain Relationships and Related Transactions and Director Independence.

Upon completion of the 2006 Transaction, 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. Pursuant to the advisory agreement, MLGPE was paid $3.0 million at the closing for the financial, investment banking, management advisory and other services performed in connection with the 2006 Transaction and reimbursed $0.9 million for certain expenses incurred in rendering those services. 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 paid $1.0 million to MLGPE for the fee during each of the fiscal years ended 2010 and 2009.

On June 6, 2006, the Company entered into an amortizing floating-to-fixed rate interest rate swap agreement expiring December 31, 2010, the notional amount of this swap was $20.0 million at fiscal year end 2010. Merrill Lynch Capital Services, Inc. (“MLCS”), was the counterparty on $10.0 million of the total notional amount, and JPMorgan Chase Bank, N.A. (“JPMCB”), an unrelated party, was the counterparty on the residual $10.0 million. Under this swap, the Company will pay both counterparties 5.39% and receive the three-month LIBOR rate as determined on the reset dates. These swaps were entered into to provide a hedge against the effects of rising interest rates on a portion of the $300.0 million term loan notes under the Senior Secured Credit Facility. As of December 28, 2010, the Company has recognized $0.3 million ($0.2 million after tax) of other comprehensive losses related to the fair market value of these interest rate swaps.

Effective April 7, 2008, the Company entered into a floating-to-fixed rate interest rate swap agreement expiring April 7, 2011, on a notional amount of $50.0 million with MLCS as the counterparty to the transaction. Under this swap, the Company will pay MLCS 2.79% and receive the three-month LIBOR rate as determined on the reset dates. This swap was entered into as a hedge to fix a portion of the $300.0 million term loan notes under the Senior Secured Credit Facility. As of December 28, 2010, the Company has recognized $0.6 million ($0.4 million after tax) of other comprehensive losses related to the fair market value of this interest rate swap.

In January 2009 Bank of America Corporation (“BOA”) acquired the parent company of MLGPE, Merrill Lynch & Co., Inc. During fiscal 2010 the Company paid Bank of America Merchant Services, affiliate of BOA, $0.4 million for credit card processing services.

In December 2009, the Company opened a money market account with BOA to invest any excess cash balances on hand. As of December 28, 2010, the Company had $39.6 million invested in this account. These investments are being reported as trading securities, as 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.

BOA is an active participant in the Company’s Senior Secured Credit Facility. As of December 28, 2010, BOA held $1.9 million, or 1.0%, of the term loan notes and $12.5 million, or 16.7% of the revolving credit facility. Merrill Lynch Capital Corporation 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 December 28, 2010. The loans were made in the ordinary course of business, were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans with persons not related to the lender, and did not involve more than the normal risk of collectability or present other unfavorable features.

The Charter of the Audit Committee directs the Audit Committee as follows. The Committee shall review with management and the independent auditor any material financial or other arrangements of the Company which are with related parties or any other transactions or courses of dealing with third parties that appear to involve terms or other aspects that

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differ from those that would likely be negotiated with independent parties, and which arrangements or transactions are relevant to an understanding of the Company’s financial statements. The Committee shall consult with counsel if, in the opinion of the Committee, any matter under consideration by the Committee has the potential for any conflict between the interests of the Company in order to ensure that appropriate procedures are established for addressing any such potential conflict and for ensuring compliance with all applicable laws.

All of the Company’s directors, except Mr. Schwartz, and each of the Audit Committee and Compensation Committee members, qualify as independent directors under the listing standards of the Nasdaq Global Market.

Item 14. Principal Accounting Fees and Services.

PricewaterhouseCoopers LLP, an independent registered public accounting firm, served as our auditors for the fiscal years ended December 28, 2010 and December 29, 2009 (amounts in thousands).

(in thousands) Type of Service	Fiscal Year Ended     2010		Fiscal Year Ended     2009
Audit fees		$            460		$            450
Audit-related fees		—		—
Tax fees		—		—
All other fees		—		—
Total		$            460		$            450

Audit Fees

Audit fees relate to the audit of our consolidated financial statements and regulatory filings, and the reviews of quarterly reports on Form 10-Q. It is the Audit Committee’s policy to review and approve in advance the Company’s independent auditor’s annual engagement letter, including the proposed fees contained therein, as well as all audit and permitted non-audit engagements and relationships between the Company and its independent auditors.

Audit-Related Fees

Audit-related fees primarily relate to consultations on accounting related matters.

Tax Fees

Tax fees relate to tax compliance, tax advice and tax planning services.

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PART IV

Item 15. 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 Annual Report on Form 10-K. 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 signatures page of this report).

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Supplemental Information to be furnished with reports filed pursuant to Section 15(d) of the Act by registrants which have not registered securities pursuant to Section 12 of the Act.

The registrant has not and will not provide an annual report for its last fiscal year to its security holders, other than this annual report on 10-K and has not and will not send to more than 10 of its security holders any proxy statement, form of proxy or other proxy soliciting material.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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 February 21, 2011.

NPC INTERNATIONAL, INC.
By:	/s/ James K. Schwartz
Name:	James K. Schwartz
Title:	President, Chief Executive Officer and Chief Operating Officer

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Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on February 21, 2011:

/s/ James K. Schwartz James K. Schwartz	Chairman of the Board of Directors, President, Chief Executive Officer and Chief Operating Officer
/s/ Troy D. Cook Troy D. Cook	Executive Vice President—Finance, Chief Financial Officer, Secretary and Treasurer
/s/ Susan G. Dechant Susan G. Dechant	Vice President—Administration and Chief Accounting Officer (Principal Accounting Officer)
/s/ Brandon K. Barnholt Brandon K. Barnholt	Director
/s/ Christopher J. Birosak Christopher J. Birosak	Director
/s/ Jaideep Hebbar Jaideep Hebbar	Director
/s/ Robert F. End Robert F. End	Director
/s/ Charles W. Peffer Charles W. Peffer	Director

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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. and 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 December 8, 2008)
2.4	Asset Purchase and Sale Agreement by and between NPC International, Inc. and 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 December 8, 2008)
2.5	Amendment to Asset Sale Agreement dated as of December 8, 2008 (incorporated herein by reference to Exhibit 2.3 to the Company’s Current Report on Form 8-K filed December 8, 2008)
2.6	Amendment to Asset Purchase and Sale Agreement dated as of December 8, 2008 (incorporated herein by reference to Exhibit 2.4 to the Company’s Current Report on Form 8-K filed December 8, 2008)
2.7	Asset Purchase and Sale Agreement by and between NPC International, Inc. and 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 January 20, 2009)
2.8	Asset Sale Agreement by and between NPC International, Inc. and 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 February 17, 2009)
2.9	Amendment to Asset Sale Agreement dated as of February 12, 2009 (incorporated herein by reference to Exhibit 2.7 to the Company’s Current Report on Form 8-K filed February 17, 2009)
2.10	Second Amendment to Asset Sale Agreement dated as of February 16, 2009 (incorporated herein by reference to Exhibit 2.8 to the Company’s Current Report on Form 8-K filed 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(1)
10.8*	NPC International, Inc. POWR Plan for Key Employees(1)
10.9*	Form of Location Franchise Agreement dated as of January 1, 2003 between Pizza Hut, Inc. and NPC Management, Inc.

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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 the Registrant’s Annual Report on Form 10-K filed with the Commission on May 28, 1999)
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 by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed January 25, 2007)
10.16	Amendment to Franchise Agreement dated as of December 25, 2007 between Pizza Hut, Inc. and NPC International, Inc. (incorporated by reference to Exhibit 10.16 to the Company’s Annual Report on Form 10-K filed 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(1) (incorporated herein by reference as Exhibit 10.17 to the Company’s Current Report on Form 8-K filed 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(1) (incorporated herein by reference as Exhibit 10.18 to the Company’s Current Report on Form 8-K filed January 5, 2009)
10.20	Amendment to Amended and Restated Employment Agreement, dated as of March 10, 2009 among NPC International, Inc., NPC Acquisition Holdings, LLC and James K. Schwartz(1) (incorporated herein by reference as Exhibit 10.19 to the Company’s Current Report on Form 8-K filed March 16, 2009)
10.21	Amendment to Amended and Restated Employment Agreement, dated as of March 10, 2009 among NPC International, Inc., NPC Acquisition Holdings, LLC and Troy D. Cook(1) (incorporated herein by reference to Exhibit 10.20 to the Company’s Current Report on Form 8-K filed March 16, 2009)
10.22	Restricted Common Unit Bonus Award Agreement dated May 5, 2010 between NPC Acquisition Holdings, LLC and James K. Schwartz(1) (incorporated herein by reference to Exhibit 10.22 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on August 6, 2010)
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 (incorporated herein by reference to Exhibit 10.23 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on November 8, 2010)
10.24***	Amended and Restated Employment Agreement, dated as of February 16, 2011 among NPC International, Inc., NPC Acquisition Holdings, LLC and James K. Schwartz(1)
10.25***	Amended and Restated Employment Agreement, dated as of February 16, 2011 among NPC International, Inc., NPC Acquisition Holdings, LLC and Troy D. Cook(1)
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)
31.1***	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for the year ended December 28, 2010

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Exhibit No.	Document Description
31.2***	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for the year ended December 28, 2010
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

** 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

⁽¹⁾ Management contracts and compensatory plans and arrangements required to be filed as Exhibits pursuant to Item 15(b) of this report.

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