Acquisitions and Purchase Accounting

The Transactions

On November 6, 2011, NPC Holdings, or Purchaser, entered into a Purchase and Sale Agreement (the “Purchase Agreement”), pursuant to which Purchaser acquired all of the outstanding membership interests of Holdings, which owns all of the outstanding capital stock of NPC, for approximately $755.0 million, plus post-closing purchase price adjustments as outlined in the Purchase Agreement, (the “Acquisition”). The closing of the Acquisition occurred on December 28, 2011.

In connection with the Acquisition, Purchaser repaid or caused to be repaid, on behalf of NPC, all of the outstanding borrowings of NPC under its then-existing senior secured credit facilities which consisted of a term loan (the “Old Term Loan”) and a $75.0 million revolving credit facility (the “Old Revolving Facility” and together with the Old Term Loan, the “Old Senior Secured Credit Facilities”). In addition, NPC completed, at Purchaser’s request pursuant to the Purchase Agreement, a cash tender offer (the “Tender Offer”) for NPC’s then-outstanding 9 1/2% Senior Subordinated Notes due 2014 (the “Old Senior Subordinated Notes”) and redeemed the remaining Old Senior Subordinated Notes not tendered in the Tender Offer.

To consummate the Acquisition, the Company entered into new debt financing consisting of (i) a $375.0 million term loan (the “Term Loan”), (ii) a five-year senior secured revolving credit facility that provides for aggregate borrowings of up to $100.0 million (the “Revolving Facility” and together with the Term Loan, the “Senior Secured Credit Facilities”) and (iii) $190.0 million of Senior Notes (the “Senior Notes”) (collectively, all of the transactions described in this paragraph, the “Financing Transactions”). In June 2012 the Company completed an exchange offer which allowed the holders of Senior Notes to exchange those notes for an equal principal amount of Senior Notes that are registered under the Securities Act of 1933.

For ease of reference, the Company refers to the following collectively as the “Transactions” in this filing: (i) the Acquisition; (ii) the related repayment of then-existing indebtedness, including the consummation of the Tender Offer and related consent solicitation and the repayment of the Old Senior Secured Credit Facilities; (iii) the Financing Transactions; (iv) the establishment of the Senior Secured Credit Facilities; and (v) the payment of fees and expenses related thereto.

Transaction Expenses

The Purchaser incurred approximately $12.4 million of expenses, net of tax, in connection with the Transactions, consisting of financing commitment fees, other Transactions related legal, accounting and professional fees and a transaction

fee paid to the Sponsor on the closing date pursuant to the management advisory agreement. These costs were funded by NPC and recorded in the Successor period (as defined below) as a reduction to the member’s capital at closing of $235.3 million. Additionally, the bond consent and pre-payment penalty for the Tender Offer were paid at closing by NPC on behalf of the sellers and such costs were recorded, net of tax, at NPC Holdings.

During fiscal 2011, NPC recorded $26.6 million for costs incurred by the sellers in connection with the Transactions. These costs consisted largely of stock and other compensation expense, broker fees and legal and professional fees and were expensed in the Predecessor period (as defined below).

Purchase Accounting

As a result of the Transactions, purchase accounting adjustments were made by management to underlying assets and liabilities utilizing a third party valuation. The purchase accounting adjustments did not impact net cash flow. The primary changes to the income statement as a result of the application of purchase accounting includes an increase in the amortization and depreciation expense associated with the adjustments to franchise rights, leasehold interests 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 Transactions resulted in higher debt levels and higher interest rates which resulted in higher interest accruals and increased capitalized debt issue costs which resulted in higher interest expense during the post-Transactions period. Due to the impact of the change of control that occurred in conjunction with the Transactions and the changes resulting from the purchase accounting adjustments described above, the income statement and statement of cash flows presentation separates the operating results of the Company into two accounting periods; (1) the period prior to December 27, 2011, the day preceding consummation of the Transactions (“Predecessor”), and (2) the period beginning December 28, 2011 and thereafter 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.

As a result of the consummation of the Transactions, the consolidated financial statements for the period after December 27, 2011, are presented on a different basis than that for the periods before December 28, 2011, as a result of the application of purchase accounting as of December 28, 2011, and therefore are not comparable.

At December 25, 2012, total consideration includes approximately $13.9 million for contingent consideration representing amounts due to the sellers for future tax refunds which the Company expects to receive over the next three years. Such amounts were included in accrued liabilities and other deferred liabilities in the Consolidated Balance Sheet at December 25, 2012. The purchase price allocation recorded in connection with the Transactions is presented below (in thousands):




Cash and cash equivalents	11,962
Accounts receivable	8,537
Inventories	7,296
Prepaid expenses and other current assets	3,399
Income taxes receivable	698
Deferred income tax asset	7,385
Facilities and equipment	138,952
Franchise rights	627,000
Goodwill	289,446
Other assets	24,686
Accounts payable	(24,631		)
Other accrued liabilities	(59,940		)
Other deferred items	(41,402		)
Insurance reserves	(13,969		)
Deferred income tax liability	(211,786		)
Total consideration	$	767,633

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



	Years
Franchise rights	41
Favorable leasehold interests	15
Unfavorable leasehold interests	9

Additionally, on February 20, 2012 the Company closed on an Asset Purchase Agreement with Pizza Hut, Inc. (“PHI”) pursuant to which the Company agreed to purchase 36 units from PHI in and around Jacksonville, Florida ("Jacksonville Acquisition") for $18.8 million plus an additional $0.5 million for inventory, prepaid expenses and store cash. The purchase price, net of cash acquired, was allocated as follows (in thousands):



Franchise rights	$	10,164
Fixed assets	7,495
Goodwill	1,056
Other	656
Total purchase price	$	19,371

The goodwill recorded reflects the Company’s ability to synergize acquired units with its existing operations. All of the goodwill recognized for this acquisition will be deductible for income tax purposes. The weighted average amortization period assigned to the franchise rights acquired during 2012 was approximately 41 years . This acquisition was funded from available cash on hand and borrowings on the Company’s $100.0 million Revolving Facility.

The pro forma impact of the Transactions and the asset acquisition on the results of operations is included in the below table for periods prior to the acquisition dates 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.



	unaudited, (in thousands)
	52 Weeks Ended
	Dec. 25, 2012		Dec. 27, 2011
Total sales	$	1,053,760	$	1,012,411
Net income	15,098		7,001

The Consolidated Statement of Income for the 52 weeks ended December 25, 2012 included $28.9 million of total sales related to the units acquired in the asset acquisition. It is impracticable to disclose earnings for the post-acquisition period for these acquired units as earnings of such units are not tracked on an individual basis.