10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

For the quarterly period ended April 4, 2010

or

o 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: 0-25123

P.F. Chang’s China Bistro, Inc.

(Exact name of registrant as specified in its charter)

Delaware	86-0815086
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
7676 East Pinnacle Peak Road	85255
Scottsdale, Arizona	(Zip Code)
(Address of principal executive offices)

Registrant’s telephone number, including area code:
(480) 888-3000

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 þ No o

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No þ

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 o	Accelerated filer þ	Non-accelerated filer o	Smaller reporting company o
		(Do not check if 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 o No þ

As of April 4, 2010, there were 23,156,663 outstanding shares of the registrant’s Common Stock.

TABLE OF CONTENTS

Item		Page
PART I FINANCIAL INFORMATION
1.	Financial Statements		2
	Consolidated Balance Sheets at April 4, 2010 and January 3, 2010		2
	Consolidated Statements of Income for the Three Months Ended April 4, 2010 and March 29, 2009		3
	Consolidated Statement of Equity for the Three Months Ended April 4, 2010 and March 29, 2009		4
	Consolidated Statements of Cash Flows for the Three Months Ended April 4, 2010 and March 29, 2009		5
	Notes to Unaudited Consolidated Financial Statements		6
2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		14
3.	Quantitative and Qualitative Disclosures About Market Risk		22
4.	Controls and Procedures		23
PART II OTHER INFORMATION
1.	Legal Proceedings		24
1A.	Risk Factors		24
2.	Unregistered Sales of Equity Securities and Use of Proceeds		24
3.	Defaults Upon Senior Securities		24
4.	Removed and Reserved		24
5.	Other Information		24
6.	Exhibits		25
	Signatures		26
	Index to Exhibits		27
Exhibit 10.38
Exhibit 31.1
Exhibit 31.2
Exhibit 31.3
Exhibit 32.1
Exhibit 32.2
Exhibit 32.3

1

PART I
FINANCIAL INFORMATION

Item 1. Financial Statements

P.F. CHANG’S CHINA BISTRO, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands)

	April 4,			January 3,
	2010			2010
	(Unaudited)			(Note 1)
ASSETS
Current assets:
Cash and cash equivalents	$	71,544		$	63,499
Inventories		5,489			5,291
Other current assets		34,272			38,449
Total current assets		111,305			107,239
Property and equipment, net		487,492			497,928
Goodwill		6,819			6,819
Intangible assets, net		21,681			22,241
Other assets		18,793			17,923
Total assets	$	646,090		$	652,150
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	20,162		$	19,825
Construction payable		2,736			1,600
Accrued expenses		61,354			77,088
Unearned revenue		29,649			35,844
Current portion of long-term debt, including $314 and $976 due to related parties at April 4, 2010 and January 3, 2010, respectively		40,521			41,236
Total current liabilities		154,422			175,593
Lease obligations		114,728			116,547
Long-term debt		1,223			1,212
Other liabilities		18,847			18,488
Total liabilities		289,220			311,840
Commitments and contingencies (Note 12)		—			—
Equity:
PFCB common stockholders’ equity:
Common stock, $0.001 par value, 40,000,000 shares authorized: 23,156,663 shares and 22,911,054 shares issued and outstanding at April 4, 2010 and January 3, 2010, respectively		23			28
Additional paid-in capital		227,124			217,181
Treasury stock, at cost, 5,113,533 shares and 5,064,733 shares at April 4, 2010 and January 3, 2010, respectively		(148,122	)		(146,022	)
Accumulated other comprehensive loss		(132	)		(294	)
Retained earnings		273,147			264,456
Total PFCB common stockholders’ equity		352,040			335,349
Noncontrolling interests		4,830			4,961
Total equity		356,870			340,310
Total liabilities and equity	$	646,090		$	652,150

See accompanying notes to unaudited consolidated financial statements.

2

P.F. CHANG’S CHINA BISTRO, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended
	April 4,			March 29,
	2010			2009
Revenues	$	310,371		$	309,837
Costs and expenses:
Cost of sales		84,013			83,072
Labor		104,475			100,707
Operating		52,753			50,691
Occupancy		17,838			17,378
General and administrative		19,053			19,814
Depreciation and amortization		19,001			18,496
Preopening expense		133			488
Partner investment expense		11			(464	)
Total costs and expenses		297,277			290,182
Income from operations		13,094			19,655
Interest and other income (expense), net		(415	)		(940	)
Income from continuing operations before taxes		12,679			18,715
Provision for income taxes		(3,788	)		(4,953	)
Income from continuing operations, net of tax		8,891			13,762
Income (loss) from discontinued operations, net of tax		6			(43	)
Net income		8,897			13,719
Less: Net income attributable to noncontrolling interests		206			370
Net income attributable to PFCB	$	8,691		$	13,349
Basic income per share:
Income from continuing operations attributable to PFCB common stockholders	$	0.38		$	0.57
Income (loss) from discontinued operations, net of tax, attributable to PFCB common stockholders		0.00			(0.00	)
Net income attributable to PFCB common stockholders	$	0.38		$	0.57
Diluted income per share:
Income from continuing operations attributable to PFCB common stockholders	$	0.38		$	0.56
Income (loss) from discontinued operations, net of tax, attributable to PFCB common stockholders		0.00			(0.00	)
Net income attributable to PFCB common stockholders	$	0.38		$	0.56
Weighted average shares used in computation:
Basic		22,631			23,442
Diluted		23,104			23,795
Amounts attributable to PFCB:
Income from continuing operations, net of tax	$	8,685		$	13,392
Income (loss) from discontinued operations, net of tax		6			(43	)
Net income attributable to PFCB	$	8,691		$	13,349

See accompanying notes to unaudited consolidated financial statements.

3

P.F. CHANG’S CHINA BISTRO, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(In thousands)

(Unaudited)

	PFCB Common Stockholders
													Accumulated
													other
	Common Stock						Additional			Treasury			comprehensive			Retained		Noncontrolling
	Shares			Amount			paid-in capital			stock			loss			earnings		interests			Total
Balances, December 28, 2008		24,114		$	27		$	206,667		$	(106,372	)	$	(755	)	$	221,259	$	8,581		$	329,407
Issuance of common stock under stock option plans		66			1			773			—			—			—		—			774
Issuance of common stock under employee stock purchase plan		21			—			349			—			—			—		—			349
Issuance of restricted stock under incentive plans, net of forfeitures		(11	)		—			—			—			—			—		—			—
Purchases of treasury stock		(479	)		—			—			(9,364	)		—			—		—			(9,364	)
Share-based compensation expense (1)		—			—			2,113			—			—			—		—			2,113
Tax benefit from share-based compensation, net		—			—			74			—			—			—		—			74
Unrealized gain on derivatives		—			—			—			—			56			—		—			56
Distributions to noncontrolling interest partners		—			—			—			—			—			—		(601	)		(601	)
Contributions from noncontrolling interest partners		—			—			—			—			—			—		10			10
Purchases of noncontrolling interests		—			—			(428	)		—			—			—		(1,279	)		(1,707	)
Partner investment expense		—			—			—			—			—			—		(464	)		(464	)
Partner bonus expense, imputed		—			—			—			—			—			—		141			141
Net income		—			—			—			—			—			13,349		370			13,719
Balances, March 29, 2009		23,711		$	28		$	209,548		$	(115,736	)	$	(699	)	$	234,608	$	6,758		$	334,507
Balances, January 3, 2010		22,911		$	28		$	217,181		$	(146,022	)	$	(294	)	$	264,456	$	4,961		$	340,310
Issuance of common stock under stock option plans		279			—			6,289			—			—			—		—			6,289
Issuance of common stock under employee stock purchase plan		27			—			984			—			—			—		—			984
Shares withheld for taxes on restricted stock, net of forfeitures		(11	)		—			—			—			—			—		—			—
Purchases of treasury stock		(49	)		(5	)		—			(2,100	)		—			—		—			(2,105	)
Share-based compensation expense (1)		—			—			1,148			—			—			—		—			1,148
Tax benefit from share-based compensation, net		—			—			1,606			—			—			—		—			1,606
Unrealized gain on derivatives		—			—			—			—			162			—		—			162
Distributions to noncontrolling interest partners		—			—			—			—			—			—		(372	)		(372	)
Contributions from noncontrolling interest partners		—			—			—			—			—			—		10			10
Purchases of noncontrolling interests		—			—			(84	)		—			—			—		(90	)		(174	)
Partner investment expense		—			—			—			—			—			—		11			11
Partner bonus expense, imputed		—			—			—			—			—			—		104			104
Net income		—			—			—			—			—			8,691		206			8,897
Balances, April 4, 2010		23,157		$	23		$	227,124		$	(148,122	)	$	(132	)	$	273,147	$	4,830		$	356,870

See accompanying notes to unaudited consolidated financial statements.

(1) Share-based compensation expense includes equity-settled awards only.

4

P.F. CHANG’S CHINA BISTRO, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Three Months Ended
	April 4,			March 29,
	2010			2009
Operating Activities:
Net income	$	8,897		$	13,719
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		19,001			18,496
Share-based compensation		2,965			2,328
Partner investment expense		11			(464	)
Partner bonus expense, imputed		104			141
Deferred income taxes		(2,198	)		(837	)
Tax (benefit) shortfall from share-based compensation, net		(1,668	)		(74	)
Other		39			38
Changes in operating assets and liabilities:
Inventories		(198	)		98
Other current assets		5,566			19,074
Other assets		(529	)		(963	)
Accounts payable		337			(4,158	)
Accrued expenses		(15,464	)		(9,759	)
Unearned revenue		(6,195	)		(7,113	)
Lease obligations		(1,771	)		(55	)
Other liabilities		701			766
Net cash provided by operating activities		9,598			31,237
Investing Activities:
Capital expenditures		(6,741	)		(8,186	)
Receivable under Loan Facility (Note 12)		(330	)		—
Capitalized interest		(19	)		(39	)
Net cash used in investing activities		(7,090	)		(8,225	)
Financing Activities:
Proceeds from stock options exercised and employee stock purchases		7,273			1,122
Purchases of treasury stock		(2,105	)		(9,364	)
Repayments of long-term debt		(715	)		(12,461	)
Distributions to noncontrolling interest partners		(372	)		(601	)
Purchases of noncontrolling interests		(174	)		(1,707	)
Payments of capital lease obligations		(48	)		(44	)
Contributions from noncontrolling interest partners		10			10
Tax benefit (shortfall) from share-based compensation, net		1,668			74
Net cash provided by (used in) financing activities		5,537			(22,971	)
Net increase in cash and cash equivalents		8,045			41
Cash and cash equivalents at the beginning of the period		63,499			40,951
Cash and cash equivalents at the end of the period	$	71,544		$	40,992
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest	$	706		$	1,095
Cash paid for income taxes, net of refunds	$	8,196		$	117
Supplemental Disclosure of Non-Cash Items:
Change in construction payable	$	1,136		$	(1,306	)

See accompanying notes to unaudited consolidated financial statements.

5

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Business and Basis of Presentation

As of April 4, 2010, P.F. Chang’s China Bistro, Inc. (the “Company” or “PFCB”) owned and operated 197 full service restaurants throughout the United States under the name of P.F. Chang’s China Bistro (the “Bistro”). The Company also owned and operated 167 quick casual restaurants under the name of Pei Wei Asian Diner (“Pei Wei”). Additionally, there are two Bistro restaurants in international markets that are operated by business partners under licensing agreements, and two Bistro restaurants operated in Hawaii under a joint venture arrangement in which we own a noncontrolling interest.

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three month period ended April 4, 2010 are not necessarily indicative of the results that may be expected for the year ending January 2, 2011.

The consolidated balance sheet at January 3, 2010 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2010.

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Principles of Consolidation and Presentation

The Company’s consolidated financial statements include the accounts and operations of the Company and its majority-owned subsidiaries. All material balances and transactions between the consolidated entities have been eliminated. Noncontrolling interests are reported below net income under the heading “Net income attributable to noncontrolling interests” in the consolidated income statements and shown as a component of equity in the consolidated balance sheets.

Recent Accounting Literature

Consolidation of Variable Interest Entities — Amended
(Included in ASC 810 “Consolidation”, SFAS No. 167 “Amendments to FASB Interpretation No. 46(R)”)

SFAS No. 167 amends FASB Interpretation No. 46(R) “Consolidation of Variable Interest Entities” regarding certain guidance for determining whether an entity is a variable interest entity and modifies the methods allowed for determining the primary beneficiary of a variable interest entity. The amendments include: (1) the elimination of the exemption for qualifying special purpose entities, (2) a new approach for determining who should consolidate a variable-interest entity, and (3) changes to when it is necessary to reassess who should consolidate a variable-interest entity. SFAS No. 167 is effective for the first annual reporting period beginning after November 15, 2009, with earlier adoption prohibited. The adoption of SFAS No. 167 in fiscal 2010 did not have a material impact on the Company’s consolidated financial statements.

Improving Disclosures about Fair Value Measurements (ASU No. 2010-06)
(Included in ASC 820 “Fair Value Measurements and Disclosures”)

Accounting Standards Update (“ASU”) No. 2010-06 requires new disclosures regarding recurring or nonrecurring fair value measurements. Entities will be required to separately disclose significant transfers into and out of Level 1 and Level 2 measurements in the fair value hierarchy and describe the reasons for the transfers. Entities will also be required to provide information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of Level 3 fair value measurements. In addition, entities must provide fair value measurement disclosures for each class of assets and liabilities, and disclosures about the valuation techniques used in determining fair value for Level 2 or Level 3 measurements. ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009, except for the gross basis reconciliation for the Level 3 fair value measurements, which is effective for fiscal years beginning after December 15, 2010. The adoption of ASU 2010-06 did not have a material impact on the Company’s consolidated financial statements. There were no transfers between Level 1 and Level 2 measurements in the fair value hierarchy during the three months ended April 4, 2010.

6

2. Discontinued Operations

Discontinued operations include results attributable to 10 Pei Wei restaurants that were closed during the fourth quarter of 2008. Income (loss) from discontinued operations includes both the historical results of operations as well as estimated and actual lease termination costs associated with the 10 closed Pei Wei restaurants.

Income (loss) from discontinued operations, net of tax is comprised of the following (in thousands):

	Three Months Ended
	April 4,			March 29,
	2010			2009
Revenues	$	—		$	—
Income (loss) from discontinued operations before income tax benefit(1)		10			(70	)
Income tax benefit (expense)		(4	)		27
Income (loss) from discontinued operations, net of tax	$	6		$	(43	)

⁽¹⁾ Includes lease termination charges, deferred rent write-offs upon lease termination and deferred rent amortization

The Company is pursuing lease termination agreements with each of the closed Pei Wei restaurants’ landlords as well as potential sub-tenant agreements. Lease termination agreements for seven of the ten locations have been executed as of April 4, 2010.

Activity associated with the lease termination accrual is summarized below (in thousands):

	April 4, 2010			March 29, 2009
Beginning balance	$	1,416		$	2,379
Cash payments		(118	)		(1,023	)
Charges		—			492
Ending balance	$	1,298		$	1,848

Charges include additional amounts recognized based on availability of new information, which led to updated estimates of anticipated lease termination costs for certain closed locations where the accrual recorded at the time of lease termination was insufficient. Cash payments include settlement payments as well as ongoing rent and other property-related payments. From store closure date through April 4, 2010, the Company has recognized and reported in discontinued operations a total of $4.0 million in lease termination charges for the closed Pei Wei locations. The lease termination accrual is included in accrued expenses on the consolidated balance sheets with the timing of payments uncertain.

3. Income from Continuing Operations Attributable to PFCB per Share

Basic income from continuing operations attributable to PFCB per share is computed based on the weighted average number of common shares outstanding during the period. Diluted income from continuing operations attributable to PFCB per share is computed based on the weighted average number of shares of common stock and potentially dilutive securities, which includes options, restricted stock and restricted stock units (“RSUs”) outstanding under the Company’s equity plans and employee stock purchase plan. For the three months ended April 4, 2010 and March 29, 2009, 1.2 million and 2.3 million, respectively, of the Company’s options were excluded from the calculation due to their anti-dilutive effect.

7

4. Other Current Assets

Other current assets consist of the following (in thousands):

	April 4, 2010		January 3, 2010
Receivables	$	5,603	$	15,752
Current portion of deferred tax asset		10,757		11,036
Prepaid rent		5,525		5,508
Income taxes receivable		6,162		2,388
Other		6,225		3,765
Total other current assets	$	34,272	$	38,449

5. Other Assets

Other assets consist of the following (in thousands):

	April 4, 2010		January 3, 2010
Software, net	$	5,392	$	5,459
Liquor licenses, net		6,805		6,836
Restoration Plan investments		4,273		3,454
Deposits		1,335		1,411
Other assets, net		988		763
Total other assets	$	18,793	$	17,923

6. Accrued Expenses

Accrued expenses consist of the following (in thousands):

	April 4, 2010		January 3, 2010
Accrued payroll	$	15,933	$	26,262
Accrued insurance		17,466		17,426
Sales and use tax payable		7,052		7,104
Property tax payable		3,221		3,638
Accrued rent		2,070		3,730
Derivative liability		201		471
Other accrued expenses		15,411		18,457
Total accrued expenses	$	61,354	$	77,088

7. Long-Term Debt

Credit Facility

On August 31, 2007, the Company entered into a senior credit facility (“Credit Facility”) with several commercial financial institutions, which allowed for borrowings of up to $150.0 million. On December 15, 2009, the Company amended the Credit Facility which reduced the borrowings allowed to $75.0 million and modified certain restrictive language regarding restricted payments such as dividends and share repurchases. The Credit Facility expires on August 30, 2013 and contains customary representations, warranties, negative and affirmative covenants, including a requirement to maintain a maximum leverage ratio, as defined, of 2.5:1 and a minimum fixed charge coverage ratio, as defined, of 1.25:1, as well as customary events of default and certain default provisions that could result in acceleration of the Credit Facility. The Company was in compliance with these restrictions and conditions as of April 4, 2010 as the Company’s leverage ratio was 1.27:1 and the fixed charge coverage ratio was 2.25:1.

8

The Credit Facility is guaranteed by the Company’s material existing and future domestic subsidiaries. As of April 4, 2010, the Company had borrowings outstanding under the Credit Facility totaling $40.0 million as well as $14.1 million committed for the issuance of letters of credit, which is required by insurance companies for the Company’s workers’ compensation and general liability insurance programs. Available borrowings under the Credit Facility were $20.9 million at April 4, 2010.

Interest Rate Swap

During the second quarter of fiscal 2008, the Company entered into an interest rate swap with a notional amount of $40.0 million. The purpose of this transaction is to provide a hedge against the effects of changes in interest rates on a portion of the Company’s current variable rate borrowings. The Company has designated the interest rate swap as a cash flow hedge of its exposure to variability in future cash flows attributable to interest payments on a $40.0 million tranche of floating rate debt.

Under the terms of the interest rate swap, the Company pays a fixed rate of 3.32% on the $40.0 million notional amount and receives payments from its counterparty based on the 1-month LIBOR rate for a term ending on May 20, 2010, effectively resulting in a fixed rate on the LIBOR component of the $40.0 million notional amount. Interest rate differentials paid or received under the swap agreement are recognized as adjustments to interest expense.

At April 4, 2010 and January 3, 2010, the recorded fair value of the interest rate swap was a liability of $0.2 million and $0.5 million, respectively ($0.1 million and $0.3 million, net of tax, respectively). The interest rate swap is reported in the consolidated balance sheets within accrued expenses and is offset by a corresponding amount in equity, representing net unrealized losses included in accumulated other comprehensive loss. Such amounts will be recognized in the consolidated income statement over the remainder of the term ending on May 20, 2010. During the three months ended April 4, 2010 and March 29, 2009, unrealized gains of $0.2 million and $0.1 million, respectively, are included within other comprehensive loss. There was no hedge ineffectiveness recognized during the three month periods ended April 4, 2010 and March 29, 2009.

8. Other Liabilities

Other liabilities consist of the following (in thousands):

	April 4, 2010		January 3, 2010
Deferred income tax liability	$	7,129	$	9,436
Deferred compensation		4,547		3,653
Performance units		3,408		2,402
Cash-settled awards		2,264		1,453
Other		1,499		1,544
Total other liabilities	$	18,847	$	18,488

9. Fair Value Measurements

The Company’s financial assets and financial liabilities measured at fair value at April 4, 2010 and January 3, 2010 are summarized below (in thousands):

				Quoted Prices in
				Active Markets					Significant
				for Identical		Significant Other			Unobservable
				Assets/Liabilities		Observable Inputs			Inputs
	April 4, 2010			(Level 1)		(Level 2)			(Level 3)		Valuation Technique
Money markets	$	66,565		$	—	$	66,565		$	—	market approach
Restoration Plan investments		4,273			—		4,273			—	market approach
Interest rate swap liability		(201	)		—		(201	)		—	income approach
Total	$	70,637		$	—	$	70,637		$	—

9

				Quoted Prices in
				Active Markets					Significant
				for Identical		Significant Other			Unobservable
				Assets/Liabilities		Observable Inputs			Inputs
	January 3, 2010			(Level 1)		(Level 2)			(Level 3)		Valuation Technique
Money markets	$	54,655		$	—	$	54,655		$	—	market approach
Restoration Plan investments		3,454			—		3,454			—	market approach
Interest rate swap liability		(471	)		—		(471	)		—	income approach
Total	$	57,638		$	—	$	57,638		$	—

The Company invests excess cash in money market funds and reflects these amounts within cash and cash equivalents on the consolidated balance sheet at a net value of 1:1 for each dollar invested. Money market investments held by the Company were invested primarily in government backed securities at April 4, 2010.

The Company’s Restoration Plan investments are considered trading securities and are reported at fair value based on third party broker statements. Such amounts are reflected within other assets in the consolidated balance sheets. The realized and unrealized holding gains and losses related to these investments are recorded in interest and other income (expense), net in the consolidated income statements.

The fair value of the Company’s interest rate swap is estimated using the net present value of a series of cash flows on both the fixed and floating legs of the swap and is reflected within accrued expenses in the consolidated balance sheets. These cash flows are based on yield curves which take into account the contractual terms of the derivative, including the period to maturity and market-based parameters such as interest rates and volatility. The yield curves used in the valuation model are based on published data for counterparties with an AA rating. Market practice in pricing derivatives initially assumes all counterparties have the same credit quality. The Company mitigates derivative credit risk by transacting with highly rated counterparties. Management has evaluated credit and nonperformance risks and believes them to be insignificant and not warranting a credit adjustment at April 4, 2010. See Note 7 for a discussion of the Company’s interest rate swap.

10. Share-Based Compensation

The Company has granted equity-classified awards in the form of stock options, restricted stock and restricted stock units (“RSUs”), and has issued liability-classified awards in the form of performance units, cash-settled stock appreciation rights (“SARs”) and cash-settled stock-based awards (restricted cash units or “RCUs”) to certain employees and directors.

Equity-Classified Awards

Stock options were granted for a fixed number of shares with an exercise price equal to or greater than the fair value of the shares at the date of grant. Restricted stock and RSUs were granted with the fair value determined based on the Company’s closing stock price on the date of grant. Share-based compensation expense for equity-classified awards is amortized to expense over the vesting period. There were no equity-classified awards granted during the three month periods ended April 4, 2010 and March 29, 2009.

Liability-Classified Awards

Performance Units

The cash value of the performance units will be equal to the amount, if any, by which the Company’s final average stock price as defined in the agreements, exceeds the strike price. The fair value of the performance units is remeasured at each reporting period until the awards are settled. At April 4, 2010 and March 29, 2009, the fair value per performance unit was $7.23 and $4.58, respectively, calculated using a Monte-Carlo simulation model which incorporates the historical performance, volatility and correlation of the Company’s stock price and the Russell 2000 Index. At April 4, 2010 and January 3, 2010, the recorded liability of the performance units was $3.4 million and $2.4 million, respectively. There were no performance unit awards granted during the three months ended April 4, 2010.

10

Cash-Settled Awards

The cash value of the SARs will be based on the appreciation of the Company’s stock price on the date of settlement compared to the Company’s stock price on the date of grant, and the cash value of the RCUs will be based on the Company’s stock price on the date of settlement. The fair value of SARs is equal to the value calculated per the Black-Scholes model and the fair value of RCUs is equal to the sum of the value calculated per the Black-Scholes model and the Company’s stock price at the reporting date. The fair value of SARs and RCUs is remeasured at each reporting period until the awards are settled. At April 4, 2010 and January 3, 2010, the recorded liability of cash-settled awards was $2.3 million and $1.5 million, respectively.

SARs were awarded/granted to a member of the Board of Directors who joined the Board during the first quarter of fiscal 2010. No RCUs were granted during the three months ended April 4, 2010. No RCUs or SARs were granted during the three months ended March 29, 2009.

Share-based compensation expense for performance units, SARs and RCUs is recognized ratably over the service period with the impact of updated fair value recognized as cumulative adjustments to share-based compensation expense at the end of each reporting period.

The fair value of the SARs and RCUs was estimated using a Black-Scholes option pricing model with the following weighted average assumptions:

	Three Months Ended
	April 4, 2010
	RCUs			SARs
Weighted average risk-free interest rate		1.4	%		2.3	%
Expected life of cash-settled awards (years)		2.9			4.4
Expected stock volatility		51.8	%		44.7	%
Expected dividend yield		0.0	%		0.0	%

Share-Based Compensation Expense

Share-based compensation expense from continuing operations for equity and liability-classified awards is classified as follows (in thousands):

	Three Months Ended
	April 4, 2010			March 29, 2009
Equity-classified awards:
Labor	$	45		$	103
General and administrative		1,103			2,010
Liability-classified awards:
General and administrative		1,817			215
Total share-based compensation		2,965			2,328
Less: tax benefit		(901	)		(629	)
Total share-based compensation, net of tax	$	2,064		$	1,699

Non-Vested Share-Based Compensation Expense

At April 4, 2010, non-vested share-based compensation for equity-classified awards (net of actual forfeitures for options and estimated forfeitures for restricted stock), totaled $3.3 million for stock options and $2.7 million for restricted stock. This expense will be recognized over the remaining weighted average vesting period, which is approximately 1.6 years for stock options and 1.4 years for restricted stock.

At April 4, 2010, non-vested share-based compensation for liability-classified awards (based on current fair value, which is updated each reporting period), totaled $5.3 million for performance units and $5.1 million for RCU and SAR awards. This expense will be recognized over the remaining weighted average vesting period, which is approximately 1.7 years for performance units and 2.3 years for RCU and SAR awards.

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11. Segment Reporting

The Company operates primarily in the United States food-service industry and has determined that its reportable segments are those that are based on the Company’s methods of internal reporting and management structure. The Company’s reportable segments are Bistro and Pei Wei. Additionally, royalty fees related to Bistro restaurants operated by business partners pursuant to development and licensing agreements are reported within Shared Services and Other. There were no material amounts of revenues or transfers among reportable segments.

The following table presents information about reportable segments (in thousands):

			Shared Services
	Total		and Other			Bistro		Pei Wei
For the Three Months Ended April 4, 2010:
Revenues	$	310,371	$	129		$	230,767	$	79,475
Segment profit (loss)		32,085		(371	)		24,753		7,703
Capital expenditures		6,741		449			5,263		1,029
Depreciation and amortization		19,001		500			13,854		4,647
For the Three Months Ended March 29, 2009:
Revenues	$	309,837	$	—		$	235,141	$	74,696
Segment profit (loss)		39,123		(418	)		32,806		6,735
Capital expenditures		8,186		1,622			5,296		1,268
Depreciation and amortization		18,496		418			13,728		4,350
As of April 4, 2010:
Total assets	$	646,090	$	21,905		$	519,848	$	104,337
Goodwill		6,819		—			6,566		253
As of January 3, 2010:
Total assets	$	652,150	$	20,293		$	522,940	$	108,917
Goodwill		6,819		—			6,566		253

In addition to using consolidated results in evaluating the Company’s financial results, a primary measure used by executive management in assessing the performance of existing restaurant concepts is segment profitability (sometimes referred to as restaurant operating income). Segment profitability is defined as income from operations before general and administrative, preopening and partner investment expenses, but including a deduction for net income attributable to noncontrolling interests. Because preopening and partner investment expenses are associated with expansion of the Company’s business and vary in timing and magnitude, they make an accurate assessment of ongoing operations more difficult and are therefore excluded. Additionally, general and administrative expenses are only included in the Company’s consolidated financial results as these costs relate to support of both restaurant businesses and are generally not specifically identifiable to individual restaurant operations. As the Company’s expansion is funded entirely from its ongoing restaurant operations, segment profitability is one consideration when determining whether and when to open additional restaurants.

Reconciliation of Segment profit to Income from continuing operations before taxes (in thousands):

	For the Three Months Ended
	April 4,			March 29,
	2010			2009
Segment profit	$	32,085		$	39,123
Less: General and administrative		(19,053	)		(19,814	)
Less: Preopening expense		(133	)		(488	)
Less: Partner investment expense		(11	)		464
Less: Interest and other income (expense), net		(415	)		(940	)
Add: Net income attributable to noncontrolling interests		206			370
Income from continuing operations before taxes	$	12,679		$	18,715

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12. Commitments and Contingencies

The Company is engaged in various legal actions, which arise in the ordinary course of its business. The Company is also currently under examination by various taxing authorities for years not closed by the statute of limitations. Although there can be no assurance as to the ultimate disposition of these matters, it is the opinion of the Company’s management, based upon the information available at this time, that the outcome of these matters, individually or in the aggregate, will not have a material adverse effect on the results of operations, liquidity or financial condition of the Company.

In August 2009, the Company entered into an agreement with FRC Balance LLC, d/b/a True Food Kitchen, to provide debt capital for the early-stage development of True Food Kitchen restaurants. The agreement provides for up to a $10.0 million loan facility to develop True Food Kitchen restaurants and can, under certain conditions, be converted by P.F. Chang’s into a majority equity position in True Food Kitchen. As of April 4, 2010, $0.3 million in borrowings was outstanding under the loan facility.

13. Subsequent Event

Cash Dividends

During February 2010, the Board of Directors approved the initiation of a quarterly variable cash dividend based on the Company’s desire to consistently return excess cash flow to its shareholders. The amount of the cash dividend will be computed based on 45% of the Company’s quarterly net income and is expected to total approximately $0.90 per share during fiscal 2010. Based on seasonal fluctuations in the Company’s quarterly net income, the amount of cash dividend payments, which are based on a fixed percentage of net income, may fluctuate between quarters.

Based on the Board of Directors authorization, on April 28, 2010 the Company announced a cash dividend of $0.17 per share to be paid May 19, 2010 to all shareholders of record at the close of business on May 5, 2010. Based on shares outstanding at April 4, 2010, total dividend payments paid during the second quarter of fiscal 2010 will approximate $3.9 million.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This information should be read in conjunction with the consolidated financial statements and notes thereto included in Item 1 of Part I of this Quarterly Report and the audited consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended January 3, 2010 contained in our 2009 Annual Report on Form 10-K.

Some of the statements in this section contain forward–looking statements, which involve risks and uncertainties. In some cases, forward-looking statements can be identified by terms such as “may”, “will”, “should”, “expect”, “plan”, “intend”, “forecast”, “anticipate”, “believe”, “estimate”, “predict”, “potential”, “continue” or the negative of these terms or other comparable terminology. The forward-looking statements contained in this section involve known and unknown risks, uncertainties and situations that may cause our or our industry’s actual results, level of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these statements. Factors that might cause actual events or results to differ materially from those indicated by these forward-looking statements may include the matters listed under “Risk Factors” in Item 1A (a detailed description of which can be found under the caption “Risk Factors” in our most recently filed Form 10-K) and elsewhere in this Form 10-Q, including, but not limited to, failure of our existing or new restaurants to achieve predicted results, changes in general economic and political conditions that affect consumer spending; changes in government legislation may increase our labor costs; our dependence on the financial performance of restaurants concentrated in certain geographic areas; and intense competition in the restaurant industry. Because we cannot guarantee future results, levels of activity, performance or achievements, undue reliance should not be placed on these forward-looking statements.

Overview

We own and operate two restaurant concepts in the Asian niche: P.F. Chang’s China Bistro (“Bistro”) and Pei Wei Asian Diner (“Pei Wei”).

Bistro

As of April 4, 2010, we owned and operated 197 full service Bistro restaurants that feature a blend of high quality, Chinese-inspired cuisine and attentive service in a high energy contemporary bistro setting. P.F. Chang’s was formed in early 1996 with the acquisition of the four original Bistro restaurants and the hiring of an experienced management team. Utilizing a partnership management philosophy, we embarked on a strategic expansion of the concept targeted at major metropolitan areas throughout the United States. We own and operate all of our restaurants in the U.S. with the exception of two Bistro restaurants located in Hawaii which are operated under a joint venture arrangement in which we own a noncontrolling interest. Additionally, two international Bistro restaurants were opened in Mexico City and Kuwait City during fiscal 2009 under international development and licensing agreements.

We intend to open four new Bistro restaurants during fiscal 2010, none of which were open by the end of the first quarter of 2010. Our Bistro restaurants typically range in size from 6,000 to 7,500 square feet, and require an average total invested capital of approximately $3.5 million to $4.0 million per restaurant (net of estimated tenant incentives). This total capitalized investment includes the capitalized lease value of the property, which can vary greatly depending on the specific trade area. We expect that our planned future restaurants will require, on average, a total cash investment per restaurant of approximately $2.5 million to $3.0 million (net of estimated tenant incentives). Preopening expenses are expected to average approximately $350,000 to $400,000 per restaurant during fiscal 2010.

Pei Wei

As of April 4, 2010, we owned and operated 167 quick casual Pei Wei restaurants that serve freshly prepared, wok-seared, contemporary pan-Asian cuisine in a relaxed, warm environment with friendly, attentive counter service and take-out flexibility. We opened our first Pei Wei restaurant in July 2000 in the Phoenix, Arizona area and have expanded the concept significantly since that time.

We intend to open three new Pei Wei restaurants during fiscal 2010, one of which was open by the end of the first quarter of 2010. Our Pei Wei restaurants are generally 2,800 to 3,400 square feet in size and require an average total invested capital of approximately $1.5 million per restaurant (net of estimated tenant incentives). This total capitalized investment cost includes the capitalized lease value of the property, which can vary greatly depending on the specific trade area. We expect that our planned future restaurants will require, on average, a total cash investment per restaurant of approximately $750,000 to $850,000 (net of estimated tenant incentives). Preopening expenses are expected to average approximately $140,000 to $160,000 per restaurant during fiscal 2010.

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Global Brand Development

International

We are selectively pursuing international expansion of our Bistro restaurants. During fiscal 2009, we signed two development and licensing agreements with partners who will develop and operate Bistro restaurants in international markets. We also signed one development and licensing agreement with a new partner in early fiscal 2010. Our license agreements typically provide for us to receive an initial territory fee, store opening fees and ongoing royalty revenues based on a percentage of international restaurant sales. Our partners collectively expect to open four to six restaurants during fiscal 2010.

We continue to engage in discussions with additional potential partners regarding expansion of the Bistro into various international markets.

Retail

During 2009, we entered into an exclusive licensing agreement with Unilever to develop and launch a new premium line of frozen Asian-style entrées in the U.S., under the P.F. Chang’s brand. The new products will be available in retail outlets during the first half of fiscal 2010. We will receive ongoing royalty revenues based on a percentage of product sales. These percentages will escalate over the first three years of the agreement.

Other Ventures

During 2009, we entered into an agreement with FRC Balance LLC, d/b/a True Food Kitchen, to provide debt capital for the early-stage development of True Food Kitchen restaurants. The agreement provides for up to a $10.0 million loan facility to develop True Food Kitchen restaurants and can, under certain conditions, be converted by us into a majority equity position in True Food Kitchen. As of April 4, 2010, $0.3 million in borrowings was outstanding under the loan facility.

Critical Accounting Policies

Our critical accounting policies are those that require significant judgment. There have been no material changes to the critical accounting policies previously reported in our 2009 Annual Report on Form 10-K.

Results of Operations

The following tables set forth certain unaudited quarterly information for the three month periods ended April 4, 2010 and March 29, 2009, respectively. This quarterly information has been prepared on a basis consistent with the audited financial statements and, in the opinion of management, includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the information for the periods presented. Our quarterly operating results may fluctuate significantly as a result of a variety of factors, and operating results for any quarter are not necessarily indicative of results for a full fiscal year.

15

Results for the three month periods ended April 4, 2010 and March 29, 2009

Our consolidated operating results were as follows (dollars in thousands):

	Three Months Ended
				% of						% of						%
	April 4, 2010			Revenues			March 29, 2009			Revenues			Change			Change
Revenues	$	310,371			100.0	%	$	309,837			100.0	%	$	534			0.2	%
Costs and expenses:
Cost of sales		84,013			27.1	%		83,072			26.8	%		941			1.1	%
Labor		104,475			33.7	%		100,707			32.5	%		3,768			3.7	%
Operating		52,753			17.0	%		50,691			16.4	%		2,062			4.1	%
Occupancy		17,838			5.7	%		17,378			5.6	%		460			2.6	%
General and administrative		19,053			6.1	%		19,814			6.4	%		(761	)		(3.8	%)
Depreciation and amortization		19,001			6.1	%		18,496			6.0	%		505			2.7	%
Preopening expense		133			0.0	%		488			0.2	%		(355	)		(72.7	%)
Partner investment expense		11			0.0	%		(464	)		(0.1	%)		475			—
Total costs and expenses		297,277			95.8	%		290,182			93.7	%		7,095			2.4	%
Income from operations		13,094			4.2	%		19,655			6.3	%		(6,561	)		(33.4	%)
Interest and other income (expense), net		(415	)		(0.1	%)		(940	)		(0.3	%)		525			(55.9	%)
Income from continuing operations before taxes		12,679			4.1	%		18,715			6.0	%		(6,036	)		(32.3	%)
Provision for income taxes		(3,788	)		(1.2	%)		(4,953	)		(1.6	%)		1,165			(23.5	%)
Income from continuing operations, net of tax		8,891			2.9	%		13,762			4.4	%		(4,871	)		(35.4	%)
Income (loss) from discontinued operations, net of tax		6			0.0	%		(43	)		(0.0	%)		49			—
Net income		8,897			2.9	%		13,719			4.4	%		(4,822	)		(35.1	%)
Less: Net income attributable to noncontrolling interests		206			0.1	%		370			0.1	%		(164	)		(44.3	%)
Net income attributable to PFCB	$	8,691			2.8	%	$	13,349			4.3	%	$	(4,658	)		(34.9	%)

Certain percentage amounts may not sum due to rounding. Percentages over 100% are not displayed.

Selected operating statistics for the Bistro were as follows (dollars in thousands):

	Three Months Ended
			% of						% of						%
	April 4, 2010		Revenues			March 29, 2009			Revenues			Change			Change
Revenues	$	230,767		100.0	%	$	235,141			100.0	%	$	(4,374	)		(1.9	%)
Costs and expenses:
Cost of sales		62,711		27.2	%		62,963			26.8	%		(252	)		(0.4	%)
Labor		78,192		33.9	%		76,051			32.3	%		2,141			2.8	%
Operating		38,546		16.7	%		36,973			15.7	%		1,573			4.3	%
Occupancy		12,640		5.5	%		12,441			5.3	%		199			1.6	%
Depreciation and amortization		13,854		6.0	%		13,728			5.8	%		126			0.9	%
Preopening expense		26		0.0	%		294			0.1	%		(268	)		(91.2	%)
Partner investment expense		—		0.0	%		(148	)		-0.1	%		148			(100.0	%)
Net income attributable to noncontrolling interests		71		0.0	%		179			0.1	%		(108	)		(60.3	%)

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Selected operating statistics for Pei Wei were as follows (dollars in thousands):

	Three Months Ended
			% of						% of						%
	April 4, 2010		Revenues			March 29, 2009			Revenues			Change			Change
Revenues	$	79,475		100.0	%	$	74,696			100.0	%	$	4,779			6.4	%
Costs and expenses:
Cost of sales		21,302		26.8	%		20,109			26.9	%		1,193			5.9	%
Labor		26,283		33.1	%		24,656			33.0	%		1,627			6.6	%
Operating		14,207		17.9	%		13,718			18.4	%		489			3.6	%
Occupancy		5,198		6.5	%		4,937			6.6	%		261			5.3	%
Depreciation and amortization		4,647		5.8	%		4,350			5.8	%		297			6.8	%
Preopening expense		107		0.1	%		194			0.3	%		(87	)		(44.8	%)
Partner investment expense		11		0.0	%		(316	)		(0.4	%)		327			—
Net income attributable to noncontrolling interests		135		0.2	%		191			0.3	%		(56	)		(29.3	%)

Percentages over 100% are not displayed.

Revenues

Our revenues are derived primarily from food and beverage sales. Each segment contributed as follows:

Bistro: The decrease in revenues was primarily attributable to a $13.3 million decline in revenues for stores that opened prior to the first quarter of 2009 driven by a decline in the average check and partially offset by a slight increase in overall guest traffic. The decrease was also partially offset by incremental new store revenues of $8.9 million, comprised of a full quarter of revenues from the eight new stores that opened during fiscal 2009.

Pei Wei: The increase in revenues was primarily attributable to incremental new store revenues of $3.2 million, comprised of a full quarter of revenues from the seven new stores that opened during fiscal 2009 and revenues generated by the one new Pei Wei restaurant that opened during 2010. The increase was also due to a $1.4 million increase in revenues for stores that opened prior to the first quarter of 2009 driven by an increase in overall guest traffic and a slight increase in the average check.

Costs and Expenses

Cost of Sales

Cost of sales is comprised of the cost of food and beverages. Each segment contributed as follows:

Bistro: Cost of sales as a percentage of revenues increased primarily due to the impact of greater sales discounts, including a new happy hour rollout, and, to a lesser extent, unfavorable product yields on lettuce due to first quarter of fiscal 2010 weather impacts. These increases were slightly offset by the net impact of product mix shifts and favorable beef and produce pricing.

Pei Wei: Cost of sales as a percentage of revenues decreased slightly primarily due to favorable beef and produce pricing as well as the net impact of product mix shifts, partially offset by the impact of higher costs related to limited time offer menu items.

Labor

Labor expenses consist of restaurant management salaries, hourly staff payroll costs, other payroll-related items and imputed partner bonus expense. Imputed partner bonus expense represents the portion of restaurant level operating results that is allocable to certain noncontrolling partners, but is presented as bonus expense for accounting purposes. Each segment contributed as follows:

Bistro: Labor expenses as a percentage of revenues increased primarily due to higher hourly wage rates, the impact of greater sales discounts and additional hospitality labor costs (principally related to a new happy hour rollout) and higher state unemployment taxes. These increases were partially offset by improved operational efficiencies and lower management incentive costs.

Pei Wei: Labor expenses as a percentage of revenues increased slightly primarily due to higher culinary labor costs.

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Operating

Operating expenses consist primarily of various restaurant-level costs such as repairs and maintenance, utilities and marketing, certain of which are variable and may fluctuate with revenues. Also, expenditures associated with marketing programs are discretionary in nature and the timing and amount of marketing spend will vary. Each segment contributed as follows:

Bistro: Operating expenses as a percentage of revenues increased primarily due to increased marketing spend, the impact of decreased leverage on lower average weekly sales on the portion of operating costs that is fixed in nature, higher menu printing costs and higher repairs and maintenance expense. These increases were partially offset by lower utilities costs resulting from lower usage.

Pei Wei: Operating expenses as a percentage of revenues decreased primarily due to lower facilities costs and increased leverage on higher average weekly sales, partially offset by increased marketing spend.

Occupancy

Occupancy costs include both fixed and variable portions of rent, common area maintenance charges, property and general liability insurance and property taxes. Each segment contributed as follows:

Bistro: Occupancy costs as a percentage of revenues increased primarily due to the impact of decreased leverage on lower average weekly sales, partially offset by lower contingent rent expense resulting from lower sales.

Pei Wei: Occupancy costs as a percentage of revenues decreased slightly primarily due to the impact of increased leverage on higher average weekly sales.

General and Administrative

General and administrative expenses are comprised of costs associated with corporate and administrative functions that support restaurant development and operations and provide infrastructure to support future growth including, but not limited to, management and staff compensation, employee benefits, travel, legal and professional fees, technology and market research.

Consolidated general and administrative costs decreased primarily due to lower management incentive accruals, partially offset by higher share-based compensation expense principally resulting from our liability-classified awards.

Depreciation and Amortization

Depreciation and amortization expenses include the depreciation of fixed assets, gains and losses on disposal of assets and the amortization of intangible assets, software and non-transferable liquor license fees. Each segment contributed as follows:

Bistro: Depreciation and amortization increased primarily due to additional depreciation on restaurants that opened during fiscal 2009. The increase, as a percentage of revenues, was driven by the impact of decreased leverage resulting from lower average weekly sales.

Pei Wei: Depreciation and amortization increased primarily due to additional depreciation on restaurants that opened during fiscal 2009 and the first quarter of 2010. As a percentage of revenues, depreciation and amortization remained consistent with prior year primarily due to the impact of increased leverage resulting from higher average weekly sales offset by additional depreciation related to new digital menu boards installed during fiscal 2009.

Preopening Expense

Preopening expenses, which are expensed as incurred, consist of expenses incurred prior to opening a new restaurant and are comprised principally of manager salaries, employee payroll and related training costs. Preopening expenses also include straight-line rent expense for the period between the possession date of leased premises and the restaurant opening date. Each segment contributed as follows:

Bistro: Preopening expense decreased primarily due to the impact of no new restaurant openings during the first quarter of 2010 compared to one new restaurant opening during the first quarter of 2009.

Pei Wei: Preopening expense decreased primarily due to the timing of expenses for new restaurant openings scheduled for fiscal 2010 compared to fiscal 2009.

18

Partner Investment Expense

Partner investment expense represents the difference between the imputed fair value of noncontrolling interests at the time our partners invest in our restaurants and our partners’ cash contributions for those ownership interests. Additionally, for those interests that are bought out prior to the restaurant reaching maturity (typically after five years of operation), partner investment expense includes a reversal of previously recognized expense for the difference between the fair value of the noncontrolling interest at inception date and the fair value at the date of repurchase, to the extent that the former is greater. Each segment contributed as follows:

Bistro: All partner investment expense activity for the Bistro is related to early buyouts of noncontrolling interests. The change in partner investment expense resulted from having fewer early buyouts of noncontrolling interests during the first quarter of 2010 compared to the first quarter of 2009.

Pei Wei: Partner investment expense increased primarily due to the impact of fewer buyouts during the first quarter of 2010 compared to the first quarter of 2009.

Interest and Other Income (Expense), Net

Interest expense primarily consists of interest costs in excess of amounts capitalized related to our outstanding credit line and other borrowings, as well as accretion expense related to our conditional asset retirement obligations. Interest income earned primarily relates to interest-bearing overnight deposits. Realized and unrealized holding gains (losses) related to investments in the Restoration Plan are included within other income (expense), with a corresponding offset in general and administrative expense.

The change in consolidated interest and other income (expense), net was primarily due to lower interest expense resulting from the repayment of $40.0 million of our outstanding credit line borrowings during fiscal 2009. Additionally, unrealized holding gains during the current year compared to unrealized holding losses in the prior year associated with investments in the Restoration Plan, and to a lesser extent, lower interest income also contributed to the change. We expect to continue to recognize net interest expense until such time as we further lower our outstanding debt levels or increase our development.

Provision for Income Taxes

Our effective tax rate from continuing operations, including discrete items and deduction for noncontrolling interests, was 30.4% for the first quarter of 2010 compared to 27.0% for the first quarter of 2009. The income tax rate for both fiscal 2010 and fiscal 2009 differed from the expected provision for income taxes, which is derived by applying the statutory income tax rate, primarily as a result of FICA tip credits. Our effective tax rate for 2010 is expected to be higher than our historic rate due to the impact of income from continuing operations from non-tipped concepts as well as higher anticipated income from operations. Because there are no tipped employees at Pei Wei, as Pei Wei contributes more net income, and if Bistro’s income from operations grows at a rate greater than revenue growth, the impact of Bistro’s tip credit on the company’s effective tax rate will continue to decrease.

Management has evaluated all positive and negative evidence concerning the realizability of deferred tax assets and has determined that, with the exception of a small amount of state net operating losses, we will recognize sufficient future taxable income to realize the benefit of our deferred tax assets.

Net Income Attributable to Noncontrolling Interests

Net income attributable to noncontrolling interests represents the portion of our net income which is attributable to the collective ownership interests of our noncontrolling partners. In certain of our restaurants, we employ a partnership management structure whereby we have entered into a series of partnership agreements with our regional managers, certain of our general managers and certain of our executive chefs. Each segment contributed as follows:

Bistro: The change in net income attributable to noncontrolling interests was primarily due to the full year impact of noncontrolling interest buyouts that occurred during fiscal 2009 and, to a lesser extent, the impact of noncontrolling interest buyouts occurring during fiscal 2010. These buyouts reduced the number of noncontrolling interests from 40 at the beginning of fiscal 2009 to 18 as of April 4, 2010.

Pei Wei: Net income attributable to noncontrolling interests as a percentage of revenues decreased from the prior year primarily due to the impact of 78 noncontrolling interest buyouts occurring since the beginning of fiscal 2009.

19

Liquidity and Capital Resources

Cash Flow

Our primary sources of liquidity are cash provided by operations and borrowings under our credit facility. Historically, our need for capital resources has been driven by our construction of new restaurants. More recently, our need for capital resources has also been driven by repayments of long-term debt, repurchases of our common stock, and purchases of noncontrolling interests.

The following table presents a summary of our cash flows for the three months ended April 4, 2010 and March 29, 2009 (in thousands):

	April 4, 2010			March 29, 2009
Net cash provided by operating activities	$	9,598		$	31,237
Net cash used in investing activities		(7,090	)		(8,225	)
Net cash provided by (used in) financing activities		5,537			(22,971	)
Net increase in cash and cash equivalents	$	8,045		$	41

Operating Activities

Our funding requirements since inception have been met through sales of equity securities, debt financing and cash flows from operations. Net cash provided by operating activities exceeded net income for the periods shown principally due to the effect of depreciation and amortization, a net increase in operating liabilities and share-based compensation expense as well as lease termination charges. The change in operating activities is primarily due to lower net income, cash paid for income taxes, change in incentive compensation balances and timing of rent payments.

Investing Activities

We have historically used cash primarily to fund the development and construction of new restaurants. Investment activities were primarily related to capital expenditures of $6.7 million and $8.2 million during the first quarter of fiscal years 2010 and 2009, respectively. Capital expenditures were relatively lower compared to the prior year quarter primarily due to the number of new restaurant openings in the first quarter (one new restaurant during fiscal 2010 compared to two new restaurants during the first quarter 2009).

We intend to open four new Bistro restaurants and three new Pei Wei restaurants in fiscal year 2010, of which one Pei Wei restaurant was open by the end of the first quarter of 2010. We expect that our planned future Bistro restaurants will require, on average, a total cash investment per restaurant of approximately $2.5 million to $3.0 million (net of estimated tenant incentives). We expect to spend approximately $350,000 to $400,000 per restaurant for preopening costs. Total cash investment per each Pei Wei restaurant is expected to average $750,000 to $850,000 (net of estimated tenant incentives) and we expect to spend $140,000 to $160,000 per restaurant for preopening costs. We expect total gross capital expenditures for fiscal 2010 to approximate $30.0 million to $40.0 million ($25.0 million to $35.0 million, net of tenant incentives).

Financing Activities

Financing activities during the first quarter of fiscal 2010 and 2009 included $0.7 million and $12.5 million, respectively, in debt repayments and $2.1 million and $9.4 million, respectively, in repurchases of common stock. Additionally, financing activities included proceeds from stock options exercised and employee stock purchases of $7.3 million and $1.1 million, respectively. Financing activities also included purchases of noncontrolling interests, distributions to noncontrolling interest partners, and the tax benefit from share-based compensation.

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Future Capital Requirements

Our capital requirements, including development costs related to the opening of additional restaurants, have historically been significant. Our future capital requirements and the adequacy of our available funds will depend on many factors, including the operating performance of our restaurants, the pace of expansion, real estate markets, site locations, the nature of the arrangements negotiated with landlords and any potential repurchases of our common stock.

For fiscal 2010, we believe that our cash flow from operations will significantly exceed our projected capital requirements. As a result, we plan to continue evaluating other uses of capital, including, but not limited to, debt repayment, cash dividends and repurchases of our common stock.

In the longer term, in the unlikely event that additional capital is required, we may seek to raise such capital through public or private equity or debt financing. Future capital funding transactions may result in dilution to current shareholders. We cannot ensure that such capital will be available on favorable terms, if at all.

Credit Facility

On August 31, 2007, we entered into a senior credit facility (“Credit Facility”) with several commercial financial institutions, which allowed for borrowings of up to $150.0 million. On December 15, 2009, we amended the Credit Facility which reduced the borrowings allowed to $75.0 million and modified certain restrictive language regarding restricted payments such as dividends and share repurchases. The Credit Facility is guaranteed by our material existing and future domestic subsidiaries. The Credit Facility expires on August 30, 2013 and contains customary representations, warranties, and negative and affirmative covenants, including a requirement to maintain a maximum leverage ratio, as defined, of 2.5:1 and a minimum fixed charge coverage ratio, as defined, of 1.25:1, as well as customary events of default and certain default provisions that could result in acceleration of the Credit Facility. We were in compliance with these restrictions and conditions as of April 4, 2010 as our leverage ratio was 1.27:1 and the fixed charge coverage ratio was 2.25:1.

As of April 4, 2010, we had borrowings outstanding under the Credit Facility totaling $40.0 million as well as $14.1 million committed for the issuance of letters of credit, which is required by insurance companies for our workers’ compensation and general liability insurance programs. We intend to fully repay the outstanding borrowings of $40.0 million under the Credit Facility during fiscal 2010. Available borrowings under the Credit Facility were $20.9 million at April 4, 2010. See Item 3 below for a discussion of interest rates and our interest rate swap.

Cash Dividends

During February 2010, the Board of Directors approved the initiation of a quarterly variable cash dividend based on the Company’s desire to consistently return excess cash flow to its shareholders. The amount of the cash dividend will be computed based on 45% of the Company’s quarterly net income and is expected to total approximately $0.90 per share during fiscal 2010. Based on seasonal fluctuations in the Company’s quarterly net income, the amount of cash dividend payments, which are based on a fixed percentage of net income, may fluctuate between quarters.

Based on the Board of Directors authorization, on April 28, 2010 the Company announced a cash dividend of $0.17 per share to be paid May 19, 2010 to all shareholders of record at the close of business on May 5, 2010. Based on shares outstanding at April 4, 2010, total dividend payments paid during the second quarter of fiscal 2010 will approximate $3.9 million.

Share Repurchase Program

Under share repurchase programs authorized by our Board of Directors, we have repurchased a total of 5.1 million shares of our common stock for $148.1 million at an average price of $28.97 since July 2006. Included in this total are 48,800 shares of our common stock repurchased during the first quarter of 2010 for $2.1 million at an average price of $43.15. At April 4, 2010, there remains $98.2 million available under our current share repurchase authorization of $100.0 million, which expires December 2011.

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Purchases of Noncontrolling Interests

As of April 4, 2010, there were 38 partners within our partnership system representing 138 partnership interests. During the first quarter of fiscal 2010, we had the opportunity to purchase five additional noncontrolling interests which (i) had reached the end of their initial five-year term in prior years (ii) related to partners who left the Company prior to the initial five-year term or (iii) related to partners who requested an early buyout of their interest. We purchased these five noncontrolling interests in their entirety for a total of $0.2 million, all of which was paid in cash.

During fiscal 2010, we will have the opportunity to purchase 11 additional noncontrolling interests which will reach their five-year anniversary. If all of those interests are purchased, the total purchase price will approximate less than $1.0 million based upon the estimated fair value of the respective interests at April 4, 2010.

New Accounting Standards

See Recent Accounting Literature section of Note 1 to our consolidated financial statements for a summary of new accounting standards.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risk primarily from fluctuations in interest rates on our revolving credit facility and other borrowings as well as from changes in commodities prices.

Interest Rates

We have exposure to interest rate risk related to our variable rate borrowings. Our revolving credit facility allows for borrowings of up to $75.0 million with outstanding amounts bearing interest at variable rates equal to LIBOR plus an applicable margin which is subject to change based on our leverage ratio. At April 4, 2010, we had borrowings of $40.0 million outstanding under our credit facility.

During the second quarter of fiscal 2008, we entered into an interest rate swap with a notional amount of $40.0 million to hedge a portion of the cash flows of our variable rate borrowings. We have designated the interest rate swap as a cash flow hedge of our exposure to variability in future cash flows attributable to interest payments on a $40.0 million tranche of floating rate debt borrowed under our revolving credit facility. Under the terms of the swap, we pay a fixed rate of 3.32% on the $40.0 million notional amount and receive payments from the counterparty based on the 1-month LIBOR rate for a term ending on May 20, 2010, effectively resulting in a fixed rate on the LIBOR component of the $40.0 million notional amount. The effective interest rate on the total borrowings outstanding under our revolving credit facility, including the impact of the interest rate swap agreement, was 4.8% as of April 4, 2010.

Additionally, by using a derivative instrument to hedge exposures to changes in interest rates, we expose ourselves to credit risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. We seek to minimize the credit risk by entering into transactions with high-quality counterparties whose credit rating is evaluated on a quarterly basis.

As of April 4, 2010, based on current interest rates and total borrowings outstanding, including the impact of our interest rate swap, a hypothetical 100 basis point increase in interest rates would have an insignificant pre-tax impact on our results of operations.

Commodities Prices

We purchase certain commodities such as beef, pork, poultry, seafood and produce. These commodities are generally purchased based upon market prices established with vendors. These purchase arrangements may contain contractual features that fix the price paid for certain commodities. Historically, we have not used financial instruments to hedge commodity prices because these purchase arrangements help control the ultimate cost paid and any significant commodity price increases have historically been relatively short-term in nature.

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Cash-settled Awards

We issued cash-settled awards during fiscal 2009 and fiscal 2010, including performance units, cash-settled stock appreciation rights and cash-settled stock-based awards. The fair value of these awards is remeasured at each reporting period until the awards are settled and is affected by market changes in our stock price and, in the case of performance units, the relative performance of our stock price to the performance of the Russell 2000 Index. Fair value fluctuations are recognized as cumulative adjustments to share-based compensation expense. See Note 10 to our consolidated financial statements for further discussion of the fair value calculations and fluctuations of our cash-settled awards.

Item 4. Controls and Procedures

An evaluation was performed under the supervision and with the participation of our management, including the Co-CEOs and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based on that evaluation, our Co-CEOs and CFO concluded that our disclosure controls and procedures were effective as of April 4, 2010. These conclusions were communicated to the Audit Committee.

23

PART II
OTHER INFORMATION

Item 1. Legal Proceedings

None

Item 1A. Risk Factors

Risks that could have a negative impact on our business, revenues and performance results include risks associated with the following: failure of our existing or new restaurants to achieve expected results; changes in general economic and political conditions that affect consumer spending; changes in government legislation that may increase labor costs; the dependency of sales concentrated in certain geographic areas or generated by corporate spending; intense competition in the restaurant industry; Global Brand Development initiatives that may impact our brand; damage to our brands or reputation; litigation; adverse public or medical opinions about the health effects of consuming our products; failure to comply with governmental regulations; changes in food costs; the inability to retain key personnel; development is critical to our long-term success; federal, state and local tax rules; fluctuating insurance requirements and costs; marketing programs may not be successful; potential labor shortages that may delay planned openings; the inability to develop and construct our restaurants within projected budgets and time periods; the seasonality of our business.

A more detailed description of each of these risk factors can be found under the caption “Risk Factors” in our most recent Form 10-K, filed on February 17, 2010.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Under share repurchase programs authorized by our Board of Directors, we have repurchased a total of 5.1 million shares of our common stock for $148.1 million at an average price of $28.97 since July 2006. Included in this total are 48,800 shares of our common stock repurchased during the first quarter of 2010 for $2.1 million at an average price of $43.15. At April 4, 2010, there remains $98.2 million available under our current share repurchase authorization of $100.0 million, which expires December 2011.

The following table sets forth our share repurchases of common stock during each period in the first quarter of fiscal 2010:

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Programs		Maximum Dollar Value of Shares that May Yet Be Purchased Under the Programs
January 4, 2010 – February 7, 2010 (1)		6,900	$	38.78		6,900	$	100,000,000
February 8, 2010 – March 7, 2010		4,000	$	42.98		4,000	$	99,828,080
March 8, 2010 – April 4, 2010		37,900	$	43.96		37,900	$	98,161,996
Total		48,800				48,800	$	98,161,996

⁽¹⁾ Our previous share repurchase program expired on December 31, 2009. Prior to program expiration, we repurchased an additional 6,900 shares at an average price of $38.78; however these shares did not settle until after January 3, 2010 and thus are included in the amounts shown in the January purchase period above.

Item 3. Defaults Upon Senior Securities

None

Item 4. (Removed and Reserved)

Item 5. Other Information

None

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Item 6. Exhibits

Exhibit
Number			Description Document
	3(	i)(1)	Amended and Restated Certificate of Incorporation.
	3(i	i)(2)	Amended and Restated Bylaws.
	4.	1(3)	Specimen Common Stock Certificate.
	4.	2(3)	Amended and Restated Registration Rights Agreement dated May 1, 1997.
	†10.	38	Amended and Restated Non-Employee Director Compensation Plan, effective April 22, 2010.
	31.	1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Richard L. Federico.
	31.	2	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Robert T. Vivian.
	31.	3	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Mark D. Mumford.
	32.	1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Richard L. Federico.
	32.	2	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Robert T. Vivian.
	32.	3	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Mark D. Mumford.

†	Management Contract or Compensatory Plan.
(1)	Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed on April 25, 2002.
(2)	Incorporated by reference to the Registrant’s Form 8-K filed on August 14, 2009.
(3)	Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-59749).

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, on April 28, 2010.

P.F. CHANG’S CHINA BISTRO, INC.
By:	/s/ RICHARD L. FEDERICO Richard L. Federico
	Chairman and Co-Chief Executive Officer
By:	/s/ ROBERT T. VIVIAN Robert T. Vivian
	Co-Chief Executive Officer
By:	/s/ MARK D. MUMFORD Mark D. Mumford
	Chief Financial Officer

Date: April 28, 2010

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INDEX TO EXHIBITS

Exhibit
Number			Description Document
	3(	i)(1)	Amended and Restated Certificate of Incorporation.
	3(i	i)(2)	Amended and Restated Bylaws.
	4.	1(3)	Specimen Common Stock Certificate.
	4.	2(3)	Amended and Restated Registration Rights Agreement dated May 1, 1997.
	†10.	38	Amended and Restated Non-Employee Director Compensation Plan, effective April 22, 2010.
	31.	1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Richard L. Federico.
	31.	2	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Robert T. Vivian.
	31.	3	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Mark D. Mumford.
	32.	1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Richard L. Federico.
	32.	2	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Robert T. Vivian.
	32.	3	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Mark D. Mumford.

†	Management Contract or Compensatory Plan.
(1)	Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed on April 25, 2002.
(2)	Incorporated by reference to the Registrant’s Form 8-K filed on August 14, 2009.
(3)	Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-59749).

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EX-10.38

Exhibit 10.38

AMENDED AND RESTATED
P.F. CHANG’S CHINA BISTRO, INC.
NON-EMPLOYEE DIRECTOR COMPENSATION PLAN

1. Establishment and Objectives of the Plan

P.F. Chang’s China Bistro, Inc., a Delaware corporation (the “Company”), by action of its Board of Directors (the “Board”), adopted this P.F. Chang’s China Bistro, Inc. Non-Employee Director Compensation Plan (the “Plan”) for the benefit of Non-Employee Directors of the Company, effective April 17, 2008. The Plan was first amended and restated effective April 28, 2009, and is hereby amended and restated effective as of April 22, 2010. The Plan is a deferred compensation plan intended to advance the interests of the Company by providing the Company an advantage in attracting and retaining Non-Employee Directors and by providing Non-Employee Directors with additional incentive to serve the Company by increasing their proprietary interest in the success of the Company. All equity-based awards under this Plan shall be made pursuant to an Equity Plan.

2. Definitions

As used in the Plan, the following definitions apply to the terms indicated below.

(a) “Account” means a bookkeeping reserve account to which Restricted Stock Units and Stock-Based Awards are credited on behalf of Non-Employee Directors.

(b) “Affiliate” means any entity, whether now or hereafter existing, which controls, is controlled by, or is under common control with, the Company (including, but not limited to, joint ventures, limited liability companies and partnerships), as determined by the Board.

(c) “Annual Meeting” means the annual meeting of stockholders of the Company held on the relevant Annual Meeting Date.

(d) “Annual Meeting Date” means the date of the Company’s Annual Meeting for the relevant Plan Year.

(e) “Annual Retainer” means the retainer fee established by the Board in accordance with Section 4.1 and payable to a Non-Employee Director for services performed as a member of the Board of Directors.

(f) “Appointment Date” means the date that a New Director first joins the Board as a Non-Employee Director, provided such date is not an Annual Meeting Date.

(g) “Award” means a Restricted Stock Unit granted under the Equity Plan as provided in the Plan as set forth herein, and a Cash-Settled Stock Appreciation Right, Option, or Stock-Based Award granted under the Equity Plan as provided in the Plan prior to its amendment and restatement as set forth herein.

(h) “Board” or “Board of Directors” means the Board of Directors of the Company.

(i) “Cash-Settled Stock Appreciation Right” means a Stock Appreciation Right settled and paid in cash granted pursuant to the Equity Plan and the Plan prior to the amendment and restatement of the Plan as set forth herein.

(j) “Change in Control” means the occurrence of any of the following:

(1) an Ownership Change Event or a series of related Ownership Change Events (collectively, a “Transaction”) in which the stockholders of the Company immediately before the Transaction do not retain immediately after the Transaction, in substantially the same proportions as their ownership of shares of the Company’s voting stock immediately before the Transaction, direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the outstanding voting securities of the Company or, in the case of an Ownership Change Event, the entity to which the assets of the Company were transferred (the “Transferee”) as the case may be; or

(2) the liquidation of the Company.

For purposes of the preceding sentence, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting securities of one or more corporations or other business entities which own the Company or the Transferee, as the case may be, either directly or through one or more subsidiary corporations or other business entities. The Board shall have the right to determine whether multiple sales or exchanges of the voting securities of the Company or multiple Ownership Change Events are related, and its determination shall be final, binding and conclusive.

(k) “Change in Control Event” shall have the meaning ascribed thereto under Code Section 409A(a)(2)(A)(v) with respect to a change in the ownership or effective control of the Company, or in the ownership of a substantial portion of the assets of the Company.

(l) “Code” means the Internal Revenue Code of 1986, as amended, and the regulations and guidance promulgated thereunder.

(m) “Common Stock” means the Company’s common stock, par value $0.001 per share.

(n) “Company” means P.F. Chang’s China Bistro, Inc., a Delaware corporation.

(o) “Disability” or “Disabled” means the inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that is expected to result in death or last for a continuous period of not less than twelve months, as determined in accordance with Code Section 409A.

(p) “Dividend Equivalent” means a credit to the account of a Non-Employee Director in an amount equal to the cash dividends, declared and paid on one share of Common Stock for each share of Common Stock represented by an Award held by such Non-Employee Director to the extent provided in Section 6 of the Plan.

2

(q) “Elected Payment Date” means the date (if any) elected by a Non-Employee Director pursuant to Section 5 of this Plan for the payment of vested Restricted Stock Units or Stock-Based Awards.

(r) “Election Form” means the form approved by the Board for use by a Non-Employee Director to select the form of payment of the Annual Retainer and an Elected Payment Date, if applicable.

(s) “Election” mean a Non-Employee Director’s election as to the method of payment of the Annual Retainer and Payment Election, if applicable.

(t) “Equity Plan” means any equity compensation plan that has been approved by the Company’s stockholders, from time to time, provided that such equity compensation plan provides for the applicable Award.

(u) “Fair Market Value” means the closing price of a share of Common Stock as quoted on such national or regional securities exchange or market system constituting the primary market for the Common Stock on the last trading day prior to the day of determination, as reported in The Wall Street Journal or such other source as the Company deems reliable.

(v) “New Director” means a Non-Employee Director of the Company who first becomes a member of the Board of Directors on a date that is not an Annual Meeting Date.

(w) “Non-Employee Director” means a member of the Board who, at the time of his or her service, is not an employee of the Company or any Affiliate.

(x) “Option” means a nonstatutory stock option to purchase one share of Common Stock granted pursuant to the Equity Plan and the Plan prior to the amendment and restatement of the Plan as set forth herein.

(y) “Ownership Change Event” means any of the following which occurs with respect to the Company: (i) the direct or indirect sale or exchange in a single or series of related transactions by the stockholders of the Company of more than 50% of the voting stock of the Company; (ii) a merger or consolidation in which the Company is a party; or (iii) the sale, exchange or transfer of all or substantially all, as determined by the Board in its discretion, of the assets of the Company.

(z) “Payment Date” means the date on which the first of the events set forth in Section 4.3(b)(iii) shall occur.

(aa) “Payment Election” means a written election made in accordance with the provisions of Section 5 to select an Elected Payment Date with regard to an award of Restricted Stock Units or Stock-Based Awards.

(bb) “Plan” means this Amended and Restated P.F. Chang’s China Bistro, Inc. Non-Employee Director Compensation Plan.

(cc) “Plan Year” means the twelve-month period coinciding with the calendar year.

3

(dd) “Prorated Amount” means, with respect to a New Director, an amount equal to: (1) the Annual Retainer reduced by the product of (x) the quotient determined by dividing (i) the Annual Retainer by (ii) 365 days, multiplied by (y) the number of days between the Appointment Date and the Annual Meeting Date immediately preceding the New Director’s Appointment Date (excluding the Annual Meeting Date itself).

(ee) “Restricted Stock Unit” means a unit established on the Company’s books equivalent to one share of Common Stock, which unit was granted pursuant to the Equity Plan and the Plan. Restricted Stock Units are credited with Dividend Equivalents.

(ff) “Stock-Based Award” means a Stock-Based Award as defined under the Equity Plan; for purposes of this Plan, each Stock-Based Award shall represent a unit on the Company’s books which is equivalent to the Fair Market Value of one share of Common Stock and shall be settled and paid in cash as provided for under the Plan. Stock-Based Awards are credited with Dividend Equivalents.

(gg) “Termination Date” means the date on which the Non-Employee Director ceases to be a member of the Board of Directors of the Company.

(hh) “Vesting Date” means, with respect to each Award, the applicable date upon which such Award vests pursuant to Section 5.

3. Administration of the Plan

Except as otherwise provided herein, the Plan shall be administered by the Board. The Board shall have full authority to administer the Plan, including authority to interpret and construe any provision of the Plan and the terms of any Award granted under it and to adopt such rules and regulations for administering the Plan as it may deem necessary. Decisions of the Board shall be final and binding on all parties.

4. Annual Retainer

4.1 Amount of Annual Retainer. Until changed by resolution of the Board, the amount of the Annual Retainer will be $175,000 for each Non-Employee Director, plus $20,000 for the Lead Director, $20,000 for the Chair of the Audit Committee, and $10,000 for each of the Chairs of the Compensation and Executive Development Committee and the Nominating and Corporate Governance Committee.

4.2 Entitlement to Annual Retainer

(a) Each Non-Employee Director who is duly elected and qualified as such at the Annual Meeting or who is otherwise serving as a Non-Employee Director immediately following the Annual Meeting, shall receive an Annual Retainer, a portion of which may be paid in cash and a portion (or all) of which shall be paid in Restricted Stock Units, as provided in Section 4.3.

(b) Each New Director shall receive an Annual Retainer equal to the Prorated Amount on his or her Appointment Date, a portion of which may be paid in cash and a portion of which shall be paid in Restricted Stock Units, as provided in Section 4.3.

4

4.3 Payment of Annual Retainer in Cash and/or Restricted Stock Units. Each Non-Employee Director shall receive payment of 50% of the Annual Retainer in the form of cash and 50% in the form of Restricted Stock Units, provided that each Non-Employee Director may make an Election in accordance with Section 5 to have all or a specified percentage of the cash portion of the Annual Retainer payable in Restricted Stock Units.

(a) The portion of the Annual Retainer that is paid in cash, if any, shall be paid in accordance with the Company’s policies for payment of cash retainers.

(b) The portion of the Annual Retainer payable in Restricted Stock Units shall consist of the number of Restricted Stock Units (rounded down to the nearest whole number) determined by dividing (i) the amount of the Annual Retainer payable in Restricted Stock Units by (ii) the Fair Market Value of one share of Common Stock on the Annual Meeting Date or the Appointment Date, as applicable. Such Restricted Stock Units shall (i) be granted and credited to the Non-Employee Director’s Account (in addition to Restricted Stock Units previously granted and credited to the Non-Employee Director’s Account) on the Annual Meeting Date or the Appointment Date, as applicable; (ii) vest on the earliest of (I) the next Annual Meeting Date after the date on which the Restricted Stock Units are credited to the Non-Employee Director’s Account, (II) the Non-Employee Director’s death or Disability or (III) a Change in Control; (iii) be settled in shares of Common Stock if and to the extent vested no later than 30 days following the earlier of (I) the Elected Payment Date, or (II) the effective date of a Change in Control Event; and (iv) be subject to the terms and conditions of the applicable Equity Plan under which the Restricted Stock Units are granted.

5. Elections

5.1 Election Rules. Elections shall be made by filing an Election Form with the Secretary of the Company in accordance with the following rules.

(a) Elections must be made by December 31^st of the Plan Year immediately preceding the Plan Year for which such Election is effective, provided, however, that Elections by a New Director may be made prior to the Appointment Date.

(b) Subject to the rules set forth herein for making Elections, a Non-Employee Director may elect the following Elected Payment Dates for vested Restricted Stock Units: (i) the Non-Employee Director’s Termination Date, or (ii) the earlier of the date that is the third anniversary of the date on which the Restricted Stock Units are credited to the Non-Employee Director’s Account or the Non-Employee Director’s Termination Date. In the absence of a valid election, the Elected Payment Date for vested Restricted Stock Units is the earlier of the date that is the third anniversary of the date on which the Restricted Stock Units are credited to the Non-Employee Director’s Account or the Non-Employee Director’s Termination Date.

(c) Elections may not be revoked or modified with respect to the Annual Retainer payable during any Plan Year for which the Elections are effective, except to the extent permitted under Section 409A of the Code. Elections will remain in effect from Plan Year to Plan Year unless modified prospectively by the Non-Employee Director for a subsequent Plan Year. Modifications to a Non-Employee Director’s current Elections for any subsequent Plan Year may be made by filing a new Election Form by December 31^st of the Plan Year preceding the Plan Year for which the modified Elections are to become effective.

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5.2 Change of Elected Payment Date. An Elected Payment Date with regard to an Award of Stock-Based Awards or Restricted Stock Units may be changed only if the following are satisfied: (i) the subsequent election shall not take effect until at least 12 months after the date on which the subsequent election is made; (ii) the Elected Payment Date under the subsequent Payment Election must be at least five years after the Elected Payment Date of the current Payment Election; and (iii) the subsequent Payment Election is made at least 12 months prior to the Elected Payment Date under the current Payment Election.

6. Dividend Equivalent Rights

A Non-Employee Director shall be entitled to receive Dividend Equivalents with respect to the payment of cash dividends on Common Stock on or after April 22, 2010, if the cash-dividend record date precedes the date on which outstanding Restricted Stock Units or Stock-Based Awards, as applicable, held by such Non-Employee Directors are settled. Such Dividend Equivalents shall be paid by crediting the Non-Employee Director with additional whole Restricted Stock Units or whole Stock-Based Award units, as applicable, as of the cash-dividend payment date. The number of additional Restricted Stock Units or Stock-Based Award units, as applicable, (rounded to the nearest whole number) to be so credited shall be determined by dividing (a) the amount of cash dividends paid on the cash-dividend payment date with respect to the number of shares of Common Stock represented by the Restricted Stock Units or Stock-Based Award units, as applicable, previously credited to the Non-Employee Director by (b) the Fair Market Value per share of Common Stock on the cash-dividend payment date. Such additional Restricted Stock Units or Stock-Based Award units, as applicable, shall be subject to the same terms and conditions and shall be settled in the same manner and at the same time (or as soon thereafter as practicable) as the Restricted Stock Units or Stock-Based Award units, as applicable, originally subject to the Award.

7. Adjustments for Changes in Capital Structure, Etc.

The provisions of the Equity Plan governing changes in capital structure, etc., shall apply to Awards granted pursuant to the Equity Plan as provided under this Plan.

8. Modification and Termination

The Board may at any time and from time to time, alter, amend, modify or terminate the Plan in whole or in part.

9. Successors

All obligations of the Company under the Plan will be binding on any successor to the Company, whether the existence of the successor is the result of a direct or indirect purchase of all or substantially all of the business and/or assets of the Company, or a merger, consolidation, or otherwise.

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10. Reservation of Rights

Nothing in this Plan or in any Award provided under this Plan will be construed to limit in any way the right of the Board or the stockholders to remove a Non-Employee Director from the Board of Directors.

11. Miscellaneous

11.1 Gender and Number. Except where otherwise indicated by the context, any masculine term used herein will also include the feminine; the plural will include the singular and the singular will include the plural.

11.2 Requirements of Law. The issuance of payments under the Plan will be subject to all applicable laws, rules, and regulations.

11.3 Tax Law Compliance. To the extent any provision of the Plan or action by the Board or Plan Administrator would subject any Non-Employee Director to liability for interest or additional taxes under Code Section 409A, it will be deemed null and void, to the extent permitted by law and deemed advisable by the Board. It is intended that the Plan and all Awards granted thereunder will comply with Section 409A of the Code and any regulations and guidelines issued thereunder, and the Plan and all Award agreements shall be interpreted and construed on a basis consistent with such intent. The Plan and all Award agreements may be amended in any respect deemed necessary (including retroactively) by the Board in order to preserve compliance with Section 409A of the Code.

11.4 Unfunded Status of the Plan. The Plan is intended to constitute and at all times shall be interpreted and administered so as to qualify as an unfunded deferred compensation plan. To the extent that any Non-Employee Director or other person acquires a right to receive payments from the Company pursuant to the Plan or any Award made under the Plan, such right shall be no greater than the right of any unsecured general creditor of the Company. The Company may (but shall have no obligation to) establish a grantor trust in accordance with Revenue Procedure 92-64, 1992-2 C.B. 422 (1992) to which it may contribute shares of Common Stock to meet the Company’s obligations to deliver such shares upon the Elected Payment Date with respect to vested Restricted Stock Units.

11.5 Governing Law. The validity, construction and effect of the Plan, of Award agreements entered into pursuant to the Plan, and of any rules, regulations, determinations or decisions made by the Plan Administrator relating to the Plan or such Award agreements, and the rights of any and all persons having or claiming to have any interest herein or hereunder, shall be determined exclusively in accordance with applicable federal laws and the laws of the State of Delaware, without regard to its conflict of laws principles.

11.6 Nontransferability. A Non-Employee Director’s Account and Awards may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. All rights with respect to an Account and other Awards will be available during the Non-Employee Director’s lifetime only to the Non-Employee Director or the Non-Employee Director’s guardian or legal representative. The Board of Directors may, in its discretion, require a Non-Employee Director’s guardian or legal representative to supply it with evidence the Board of Directors deems necessary to establish the authority of the guardian or legal representative to act on behalf of the Non-Employee Director.

* * * * *

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EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Richard L. Federico, certify that:

1. I have reviewed this quarterly report on Form 10-Q of P.F. Chang’s China Bistro, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of the internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting;

By:	/s/ RICHARD L. FEDERICO
	Richard L. Federico
	Chairman and Co-Chief Executive Officer

Date: April 28, 2010

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Robert T. Vivian, certify that:

1. I have reviewed this quarterly report on Form 10-Q of P.F. Chang’s China Bistro, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of the internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting;

By:	/s/ ROBERT T. VIVIAN
	Robert T. Vivian
	Co-Chief Executive Officer

Date: April 28, 2010

EX-31.3

Exhibit 31.3

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Mark D. Mumford, certify that:

1. I have reviewed this quarterly report on Form 10-Q of P.F. Chang’s China Bistro, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of the internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting;

By:	/s/ MARK D. MUMFORD
	Mark D. Mumford
	Chief Financial Officer

Date: April 28, 2010

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

In connection with the Quarterly Report of P.F. Chang’s on Form 10-Q for the quarter ended April 4, 2010, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I Rick L. Federico, Co-Chief Executive Officer of P.F. Chang’s China Bistro, Inc. (the “Registrant”), certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

1) The Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and

2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

	/s/ RICHARD L. FEDERICO
	Richard L. Federico
April 28, 2010	Chairman & Co-Chief Executive Officer

EX-32.2

EXHIBIT 32.2

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

In connection with the Quarterly Report of P.F. Chang’s on Form 10-Q for the quarter ended April 4, 2010, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I Robert T. Vivian, Co-Chief Executive Officer of P.F. Chang’s China Bistro, Inc. (the “Registrant”), certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

1) The Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and

2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

	/s/ ROBERT T. VIVIAN
	Robert T. Vivian
April 28, 2010	Co-Chief Executive Officer

EX-32.3

EXHIBIT 32.3

CERTIFICATION OF CHIEF FINANCIAL OFFICER

In connection with the Quarterly Report of P.F. Chang’s on Form 10-Q for the quarter ended April 4, 2010, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I Mark D. Mumford, Chief Financial Officer of P.F. Chang’s China Bistro, Inc. (the “Registrant”), certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

1) The Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and

2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

	/s/ MARK D. MUMFORD
	Mark D. Mumford
April 28, 2010	Chief Financial Officer