0000950153-01-501188.txt : 20011029 0000950153-01-501188.hdr.sgml : 20011029 ACCESSION NUMBER: 0000950153-01-501188 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011024 FILER: COMPANY DATA: COMPANY CONFORMED NAME: P F CHANGS CHINA BISTRO INC CENTRAL INDEX KEY: 0001039889 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 860815086 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-25123 FILM NUMBER: 1765550 BUSINESS ADDRESS: STREET 1: 5090 N 40TH ST STE 160 CITY: PHOENIX STATE: AZ ZIP: 85018 MAIL ADDRESS: STREET 1: 5090 N. 40TH ST STREET 2: SUITE 160 CITY: PHOENIX STATE: AZ ZIP: 85018 10-Q 1 p65712e10-q.htm 10-Q e10-q
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


Form 10-Q

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

For the quarterly period ended September 30, 2001

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
(State or other jurisdiction of
incorporation or organization)
  86-0815086
(I.R.S. Employer
Identification No.)
15210 N. Scottsdale Rd., Ste. 300,
Scottsdale, Arizona
(Address of principal executive offices)
  85254
(Zip Code)

Registrant’s telephone number, including area code: (602) 957-8986

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

Securities registered pursuant to Section 12(g) of the Act

Common Stock, $.001 par value

      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 report(s), and (2) has been subject to such filing requirements for the past 90 days. Yes     x        No      o

      Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

      As of September 30, 2001, there were outstanding 11,944,477 shares of the Registrant’s Common Stock.




PART I FINANCIAL INFORMATION
Item 1.Unaudited Condensed Financial Statements
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF INCOME
CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.Quantitative and Qualitative Disclosures about Market Risks
PART II OTHER INFORMATION
Item 1.Legal Proceedings
Item 2.Changes in Securities and Use of Proceeds
Item 3.Defaults Upon Senior Securities
Item 4.Submission of Matters to a Vote of Security Holders
Item 5.Other Information
Item 6.Exhibits and Reports on Form 8-K
SIGNATURES
INDEX TO EXHIBITS
EX-3.2


Table of Contents

TABLE OF CONTENTS

             
Item Page


PART I FINANCIAL INFORMATION
1.
  Unaudited Condensed Financial Statements     2  
    Consolidated Balance Sheets as of December 31, 2000 and September 30, 2001     2  
    Consolidated Statements of Income for the Three Months Ended October 1, 2000 and September 30, 2001 and for the Nine Months Ended October 1, 2000 and September 30, 2001     3  
    Consolidated Statements of Cash Flows for the Nine Months Ended October 1, 2000 and September 30, 2001     4  
    Notes to Unaudited Condensed Financial Statements     5  
2.
  Management’s Discussion and Analysis of Financial Condition and Results of Operations     6  
3.
  Quantitative and Qualitative Disclosures About Market Risk     16  
PART II OTHER INFORMATION
1.
  Legal Proceedings     17  
2.
  Changes in Securities and Use of Proceeds     17  
3.
  Defaults upon Senior Securities     17  
4.
  Submission of Matters to a Vote of Security Holders     17  
5.
  Other Information     17  
6.
  Exhibits and Reports on Form 8-K     17  

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PART I FINANCIAL INFORMATION

Item 1.      Unaudited Condensed Financial Statements

P.F. CHANG’S CHINA BISTRO, INC.

 
CONSOLIDATED BALANCE SHEETS
                     
Note 1 Unaudited
December 31, September 30,
2000 2001


(In Thousands)
ASSETS
               
Current assets:
               
 
Cash and cash equivalents
  $ 6,390     $ 33,569  
 
Receivables
    1,671       934  
 
Inventories
    1,683       1,819  
 
Current portion of notes receivable from related parties
    72       188  
 
Prepaids and other current assets
    2,161       2,191  
     
     
 
Total current assets
    11,977       38,701  
Construction-in-progress
    2,213       5,090  
Property and equipment, net
    92,284       107,495  
Goodwill, net
    7,386       8,471  
Notes receivable from related parties, less current portion
    20       100  
Other assets
    2,046       2,591  
     
     
 
   
Total assets
  $ 115,926     $ 162,448  
     
     
 
LIABILITIES AND COMMON STOCKHOLDERS’ EQUITY
Current liabilities:
               
 
Accounts payable — trade
  $ 3,128     $ 5,642  
 
Construction payable
    2,356       1,721  
 
Accrued payroll
    3,269       4,323  
 
Sales and use tax payable
    1,792       1,829  
 
Property tax payable
    1,474       2,029  
 
Other accrued expenses
    3,711       5,193  
 
Income tax liability
          1,380  
 
Unearned revenue
    2,793       2,205  
 
Current portion of long-term debt
    207       307  
     
     
 
Total current liabilities
    18,730       24,629  
Long-term debt
    1,485       1,771  
Short-term credit facility expected to be refinanced
    15,000        
Deferred income tax liability
    2,318       3,361  
Interests of minority members and partners in consolidated limited liability companies and partnerships
    1,051       1,402  
Common stockholders’ equity:
               
 
Common stock, $0.001 par value, 20,000,000 shares authorized: 10,453,144 shares issued and outstanding at December 31, 2000 and 11,944,477 at September 30, 2001.
    10       12  
 
Additional paid-in capital
    66,757       109,846  
 
Retained earnings
    10,575       21,427  
     
     
 
Total common stockholders’ equity
    77,342       131,285  
     
     
 
Total liabilities and common stockholders’ equity
  $ 115,926     $ 162,448  
     
     
 

See accompanying notes to unaudited condensed consolidated financial statements.

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P.F. CHANG’S CHINA BISTRO, INC.

 
CONSOLIDATED STATEMENTS OF INCOME
                                     
Three Months Ended Nine Months Ended


October 1, September 30, October 1, September 30,
2000 2001 2000 2001




(In Thousands, Except Per Share Data)
(Unaudited)
Revenues
  $ 61,179     $ 80,555     $ 166,088     $ 229,432  
Costs and expenses:
                               
Restaurant operating costs:
                               
 
Cost of sales
    16,996       21,774       45,806       62,674  
 
Labor
    18,118       24,492       48,988       69,637  
 
Operating
    10,696       13,875       28,615       39,122  
 
Occupancy
    3,798       5,118       10,411       14,429  
     
     
     
     
 
   
Total restaurant operating costs
    49,608       65,259       133,820       185,862  
 
General and administrative
    3,042       4,121       8,892       11,869  
 
Depreciation and amortization
    2,011       2,816       5,473       7,981  
 
Preopening
    2,021       1,657       4,187       3,662  
     
     
     
     
 
Income from operations
    4,497       6,702       13,716       20,058  
Interest income, net
    33       169       98       823  
     
     
     
     
 
Income before elimination of minority members’ and partners’ interests and provision for income taxes
    4,530       6,871       13,814       20,881  
Elimination of minority members’ and partners’ interests
    (1,105 )     (1,339 )     (3,084 )     (3,929 )
     
     
     
     
 
Income before provision for income taxes
    3,425       5,532       10,730       16,952  
Provision for income taxes
    (1,305 )     (1,964 )     (4,093 )     (6,104 )
     
     
     
     
 
Net income
  $ 2,120     $ 3,568     $ 6,637     $ 10,848  
     
     
     
     
 
Net income per share:
                               
 
Basic
  $ 0.20     $ 0.30     $ 0.64     $ 0.92  
     
     
     
     
 
 
Diluted
  $ 0.19     $ 0.28     $ 0.59     $ 0.86  
     
     
     
     
 
Weighted average shares used in computation:
                               
 
Basic
    10,400       11,930       10,356       11,835  
     
     
     
     
 
 
Diluted
    11,344       12,805       11,324       12,687  
     
     
     
     
 

See accompanying notes to unaudited condensed consolidated financial statements.

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P.F. CHANG’S CHINA BISTRO, INC.

 
CONSOLIDATED STATEMENTS OF CASH FLOWS
                     
Nine Months Ended

October 1, September 30,
2000 2001


(In Thousands)
(Unaudited)
OPERATING ACTIVITIES:
               
Net income
  $ 6,637     $ 10,848  
Adjustments to reconcile net income to net cash provided by operating activities:
               
 
Depreciation and amortization
    5,142       7,608  
 
Amortization of goodwill
    331       373  
 
Deferred income taxes
    570       1,043  
 
Minority members’ and partners’ interests
    3,084       3,929  
 
Changes in operating assets and liabilities:
               
   
Receivables
    (2,452 )     737  
   
Inventories
    (409 )     (136 )
   
Prepaids and other current assets
    (1,037 )     (1,033 )
   
Other assets
    (821 )     (545 )
   
Accounts payable — trade
    1,560       2,514  
   
Accrued payroll
    1,293       1,054  
   
Sales and use tax payable
    290       37  
   
Property tax payable
    653       555  
   
Other accrued expenses
    353       1,368  
   
Unearned revenue
    (327 )     (588 )
   
Income tax liability
    (1,214 )     3,123  
     
     
 
Net cash provided by operating activities
    13,653       30,887  
INVESTING ACTIVITIES:
               
Capital expenditures
    (29,862 )     (26,331 )
Decrease (increase) in notes receivable from related parties
    482       (146 )
Purchase of minority interests
    102       (759 )
     
     
 
Net cash used in investing activities
    (29,278 )     (27,236 )
FINANCING ACTIVITIES:
               
Proceeds from credit facility
    15,000        
Repayments on credit facility
          (15,000 )
Repayments of long-term debt
    (233 )     (136 )
Net proceeds from sale of common stock
          40,768  
Proceeds from stock options exercised and employee stock Purchases
    1,095       1,583  
Proceeds from minority partners contributions
    390       335  
Distributions to minority members and partners
    (3,275 )     (4,022 )
     
     
 
Net cash provided by financing activities
    12,977       23,528  
     
     
 
Net (decrease) increase in cash and cash equivalents
    (2,648 )     27,179  
Cash and cash equivalents at the beginning of the period
    5,333       6,390  
     
     
 
Cash and cash equivalents at the end of the period
  $ 2,685     $ 33,569  
     
     
 
Supplemental disclosure of cash flow information:
               
Cash paid for interest
    494       275  
Cash paid for income taxes
    5,637       1,972  
Benefit from disqualifying stock option dispositions credited to equity
    473       740  
Purchase of minority interests through issuance of debt and conversion to members’ capital
    346       649  

See accompanying notes to unaudited condensed consolidated financial statements.

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P.F. CHANG’S CHINA BISTRO, INC.

 
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

1.     Basis of Presentation

      P.F. Chang’s China Bistro, Inc. owned and operated 62 full service restaurants (as of September 30, 2001) throughout the United States under the name of “P.F. Chang’s China Bistro.” We also owned and operated two limited service restaurants under the name of “Pei Wei Asian Diner.”

      The accompanying condensed financial statements have been prepared by P.F. Chang’s without audit and reflect all adjustments, consisting of normal recurring adjustments, which are, in the opinion of management, necessary for a fair statement of financial position and the results of operations for the interim periods. The statements have been prepared in accordance with generally accepted accounting principles and with the regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures, normally included in financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted pursuant to such SEC rules and regulations. Operating results for the nine month period ended September 30, 2001 are not necessarily indicative of the results that may be expected for the year ending December 30, 2001.

      The balance sheet at December 31, 2000 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the financial statements and notes thereto for the fiscal year ended December 31, 2000 included in our Form 10-K.

2.     Net Income Per Share

      Net income per share is computed in accordance with SFAS No. 128, “Earnings per Share.” Basic net income per share is computed based on the weighted average of common shares outstanding during the period. Diluted net income per share is computed based on the weighted average number of common shares and common stock equivalents, which includes options outstanding under our stock option plans and outstanding warrants.

3.     Credit Facility

      In December of 1999, P.F. Chang’s entered into a revolving credit facility with a commercial lending institution. The credit facility allowed for borrowings up to $15 million at an interest rate ranging from 150 to 225 basis points over the applicable London Interbank Offered Rate. In June of 2000, the credit facility was amended to allow for borrowings up to a total of $45 million at an interest rate ranging from 100 to 225 basis points over the applicable London Interbank Offered Rate. The revolving credit facility expires on November 30, 2002. All of the borrowings under this facility are short-term in nature and have maturity dates ranging from one to six months. The credit facility contains certain restrictions and conditions which require the Company to: maintain a minimum tangible net worth, a maximum leverage ratio of 3.75:1.00 and a minimum fixed-charge ratio of 1.25:1.00. The credit facility has been collateralized by a portion of the assets of P.F. Chang’s. The Company had borrowings totaling $15 million under the credit facility as of December 31, 2000, all of which were repaid during the first quarter of 2001. Since all borrowings under the credit facility have been to fund the construction of new restaurants, interest incurred to date on the credit facility has been capitalized to the extent allowable in accordance with generally accepted accounting principles. Interest paid under the credit facility for the nine months ended September 30, 2001 was $139,000.

4.     Equity Transactions

      On January 11, 2001, P.F. Chang’s sold 1.25 million shares of its common stock at a price of $32.667 per share. Net proceeds from the transaction amounted to $40.8 million. Of this $40.8 million, $15 million was used to pay all of the outstanding borrowings under its credit facility. The remaining proceeds will be used to fund future development of both P.F. Chang’s China Bistro and Pei Wei Asian Diner.

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P.F. CHANG’S CHINA BISTRO, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS — (Continued)

      In connection with the original capitalization of the Company, a warrant to purchase 124,380 shares of preferred stock, convertible into 62,190 shares of common stock with an exercise price of $4.00 per common share, was issued to an investment bank. This warrant was exercised in the first quarter of 2001 in accordance with the cashless exercise provision contained therein for an aggregate of 55,545 shares of common stock.

5.     Recent Pronouncements

      In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards (FAS) No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets, effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives. For fiscal 2001, the amortization provisions of FAS No. 142 apply to goodwill and other intangible assets acquired after June 30, 2001. For fiscal 2002, the provision will apply to all goodwill and other intangible assets.

      The Company will apply the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of 2002. Application of the nonamortization provisions of the Statements is expected to total, after tax, approximately $320,000 in additional net income in fiscal year 2002. Also during 2002, the Company will perform the required impairment tests of goodwill and indefinite lived intangible assets recorded as of January 1, 2002 and is currently evaluating the effect, if any, of these tests on the consolidated net income and financial position of the Company.

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

      The following section contains forward-looking statements concerning P.F. Chang’s which involve risks and uncertainties. Such forward-looking statements may be deemed to include those regarding anticipated restaurant openings, anticipated costs and sizes of future restaurants and the adequacy of anticipated sources of cash to fund our future capital requirements. P.F. Chang’s actual results may differ materially from those discussed in the forward-looking statements. Factors that might cause actual events or results to differ materially from those indicated by such forward-looking statements may include matters noted elsewhere in this Form 10-Q, such as development and construction risks, potential labor shortages, fluctuations in operating results, and changes in food costs. Words such as “believes,” “anticipates,” “expects,” “intends,” “plans” and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements.

Overview

      As of September 30, 2001, we owned and operated 62 full service restaurants, or Bistros, that combine a distinctive blend of high quality, traditional Chinese cuisine and American hospitality in a sophisticated, contemporary bistro setting. P.F. Chang’s was formed in early 1996 with the acquisition of the four original P.F. Chang’s restaurants and the hiring of an experienced management team, led by Richard Federico and Robert Vivian, P.F. Chang’s Chief Executive Officer and Chief Financial Officer, respectively, to support P.F. Chang’s founder, Paul Fleming. Utilizing a partnership management philosophy, we embarked on a strategic expansion of the concept targeted at major metropolitan areas throughout the United States and opened three additional restaurants in 1996, six in 1997, 10 in 1998, 13 in 1999 and 16 in 2000. We intend to open 13 new Bistros in 2001, ten of which were open as of September 30, 2001. The full service units developed in 2001 will be located in both existing markets as well as approximately seven new cities across the United States.

      We also owned and operated two limited service restaurants as of September 30, 2001. We believe that there is an opportunity to leverage our knowledge and expertise in Chinese and Asian cuisine. Accordingly, we

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have developed Pei Wei Asian Diner, or Pei Wei, a new concept that will cater to a quicker, more casual dining experience as compared to that of P.F. Chang’s China Bistro. Pei Wei opened its first unit in July 2000 in the Phoenix, Arizona area and opened another unit in the Phoenix area in April of 2001. We have committed to opening three additional Pei Wei units in 2001, two in the Phoenix area and one in the Dallas, Texas area. We have begun to add additional resources and infrastructure to Pei Wei in recent months and we will continue to add more resources as we prepare to push forward with the development of the Pei Wei concept.

      In 2002, we intend to develop 13-15 Bistros and 8-10 Pei Wei Asian Diners. We have signed lease agreements or letters of intent for all of our development planned for fiscal year 2002. We intend to continue to develop full service restaurants that typically range in size from 6,000 square feet to 7,000 square feet, and that require, on average, a total cash investment of approximately $2.2 million and total invested capital of approximately $3.4 million per restaurant. Preopening expenses are expected to average approximately $325,000 per restaurant. This total capitalized investment includes the capitalized lease value of the property, which can vary greatly depending on the specific trade area. Capital required for the Pei Wei units will approximate $700,000 each and we expect preopening expenses for these units to approximate $100,000 each. See “Risk Factors — Development and Construction Risks.”

      Elimination of minority interests represents the portion of our net earnings or losses which is attributable to the collective ownership interests of our partners. P.F. Chang’s has entered into a series of partnership agreements with each of our regional managers, certain general managers and certain executive chefs. These partnership agreements typically provide that the regional manager partner is entitled to a specified percentage of the cash flows from the restaurants that partner has invested in, developed and oversees as the regional manager. Similarly, the general manager partners and executive chef partners receive a percentage of the cash flows from the restaurant in which they invest and work.

Results of Operations

      The following table sets forth certain unaudited quarterly information for the three months ended October 1, 2000 and September 30, 2001 and for the nine months ended October 1, 2000 and September 30, 2001, expressed as a percentage of revenues, except for revenues which are expressed in thousands. This quarterly information has been prepared on a consistent basis 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. P.F. Chang’s 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.

      Historically, we have experienced variability in the amount and percentage of revenues attributable to preopening expenses. We typically incur the most significant portion of preopening expenses associated with a given restaurant within the two months immediately preceding and the month of the opening of the restaurant. In addition, our experience to date has been that labor and operating costs associated with a newly opened restaurant (for approximately its first four to six months of operation) are materially greater than what can be expected after that time, both in aggregate dollars and as a percentage of revenues. Accordingly, the volume and timing of new restaurant openings has had, and is expected to continue to have, a meaningful impact on preopening expenses, labor and operating costs until such time as a larger base of restaurants in operation mitigates such impact.

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Three Months Ended Nine Months Ended


October 1, September 30, October 1, September 30,
2000 2001 2000 2001




STATEMENTS OF OPERATIONS DATA:
                               
Revenues (in thousands)
  $ 61,179     $ 80,555     $ 166,088     $ 229,432  
Costs and expenses:
                               
 
Restaurant operating costs:
                               
   
Cost of sales
    27.8 %     27.0 %     27.6 %     27.3 %
   
Labor
    29.6       30.4       29.5       30.3  
   
Operating
    17.5       17.2       17.2       17.1  
   
Occupancy
    6.2       6.4       6.3       6.3  
     
     
     
     
 
     
Total restaurant operating costs
    81.1       81.0       80.6       81.0  
 
General and administrative
    5.0       5.1       5.4       5.2  
 
Depreciation and amortization
    3.3       3.5       3.3       3.5  
 
Preopening expense
    3.3       2.1       2.5       1.6  
     
     
     
     
 
Income from operations
    7.3       8.3       8.2       8.7  
Interest income
    0.0       0.2       0.1       0.4  
Elimination of minority interests
    (1.8 )     (1.7 )     (1.8 )     (1.7 )
     
     
     
     
 
Income before provision for income taxes
    5.5       6.8       6.5       7.4  
Provision for income taxes
    (2.1 )     (2.4 )     (2.5 )     (2.7 )
     
     
     
     
 
Net income
    3.4 %     4.4 %     4.0 %     4.7 %
     
     
     
     
 

     Revenues

      P.F. Chang’s revenues are derived entirely from food and beverage sales. Revenues increased by $19.4 million, or 32%, to $80.6 million in the three months ended September 30, 2001 from $61.2 million in the three months ended October 1, 2000. Revenues increased by $63.3 million, or 38%, to $229.4 million in the nine months ended September 30, 2001 from $166.1 million in the nine months ended October 1, 2000. The increase in third quarter 2001 revenues compared to third quarter 2000 revenues was primarily attributable to revenues of $12.1 million generated by new restaurants (both Bistro and Pei Wei) opened subsequent to October 1, 2000 and a $7.3 million increase in revenues in the three months ended September 30, 2001 for existing restaurants (both Bistro and Pei Wei). The increase in revenues for the nine months ended September 30, 2001 compared to the nine months ended October 1, 2000 was primarily attributable to revenues of $24.8 million generated by new restaurants (both Bistro and Pei Wei) opened subsequent to October 1, 2000 and a $38.5 million increase in revenues in the nine months ended September 30, 2001 for existing restaurants (both Bistro and Pei Wei). Increased customer visits as well as a modest price increase in the fourth quarter of 2000 and the last half of the second quarter of 2001 produced comparable restaurant sales gains of 3.2% in the three months ended September 30, 2001 and 3.9% in the nine months ended September 30, 2001.

     Costs and expenses

      Cost of sales. Cost of sales is composed of the cost of food and beverages. Cost of sales decreased as a percentage of revenues to 27.0% in the three months ended September 30, 2001 compared to 27.8% for the three months ended October 1, 2000. Cost of sales decreased to 27.3% for the nine months ended September 30, 2001 as compared to 27.6% for the nine months ended October 1, 2000. The decrease in cost of sales in 2001 for both periods is due primarily to a decrease in commodity prices in the areas of seafood and dry food, offset by a slight increase in beef prices.

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      Labor. Labor expenses consist of restaurant management salaries, hourly staff payroll costs and other payroll-related items. Labor expenses as a percentage of revenues increased to 30.4% in the three months ended September 30, 2001 from 29.6% in the three months ended October 1, 2000. Labor expenses increased to 30.3% in the nine months ended September 30, 2001 from 29.5% in the nine months ended October 1, 2000. The increase in labor expenses was primarily due to higher wage rates in general across the system as well as an increase in California’s hourly minimum wage from $5.75 to $6.25 effective January 1, 2001 and higher workers compensation and health insurance costs.

      Operating. Operating expenses consist primarily of various fixed and variable restaurant-level costs. Our experience to date has been that operating costs during the first four to six months of operation of a newly opened restaurant are materially greater than what can be expected after that time, both in aggregate dollars and as a percentage of revenues. Operating expenses decreased as a percentage of revenues to 17.2% in the three months ended September 30, 2001 from 17.5% in the three months ended October 1, 2000. Operating expenses decreased nominally as a percentage of revenues to 17.1% in the nine months ended September 30, 2001 from 17.2% in the nine months ended October 1, 2000. The decrease in operating expenses as a percentage of revenues for the three months ended September 30, 2001 as compared to the three months ended October 1, 2000 is due primarily to the fact that we opened five Bistros during the three month period as compared to seven Bistros in the same period in 2000. The decrease in operating expenses as a percentage of revenues for the nine months ended September 30, 2001 as compared to the nine months ended October 1, 2000 is due to the fact that we opened 10 Bistros and one Pei Wei to date in 2001 as compared to 13 Bistros and one Pei Wei in the same period in 2000. While utility costs, a component of operating expenses, remain at a premium, our strong revenue performance thus far in 2001 has allowed us to leverage some of those costs.

      Occupancy. Occupancy costs include both fixed and variable portions of rent, common area maintenance charges, property insurance and property taxes. Occupancy costs as a percentage of revenues increased to 6.4% in the three months ended September 30, 2001 from 6.2% in the three months ended October 1, 2000. Occupancy costs remained consistent at 6.3% in the nine months ended September 30, 2001 compared to the nine months ended October 1, 2000.

      General and administrative. General and administrative expenses are composed of expenses associated with corporate and administrative functions that support development and restaurant operations and provide an infrastructure to support future growth, including management and staff salaries, employee benefits, travel, legal and professional fees, technology and market research. General and administrative expenses increased to $4.1 million (5.1% of revenues) in the three months ended September 30, 2001 from $3.0 million (5.0% of revenues) in the three months ended October 1, 2000. General and administrative expenses increased to $11.9 million (5.2% of revenues) in the nine months ended September 30, 2001 from $8.9 million (5.4% of revenues) in the nine months ended October 1, 2000. The increase was due primarily to the addition of corporate management personnel for both the Bistro and Pei Wei which resulted in approximately $884,000 and $2.4 million of additional compensation and benefits expense for the three months ended September 30, 2001 and the nine months ended September 30, 2001, respectively. The decrease as a percentage of revenues for the nine month period was due primarily to our expanding revenue base and our ability to leverage the duties and responsibilities of our regional manager partners (See “Elimination of minority interests” below).

      Depreciation and amortization. Depreciation and amortization expenses include the depreciation of fixed assets and the amortization of goodwill costs associated with the acquisition of minority ownership interests. Depreciation and amortization increased to $2.8 million in the three months ended September 30, 2001 from $2.0 million in the three months ended October 1, 2000. Depreciation and amortization increased to $8.0 million in the nine months ended September 30, 2001 from $5.5 million in the nine months ended October 1, 2000. The increase was primarily due to depreciation and amortization on fixed assets purchased for new restaurants opened subsequent to October 1, 2000 totaling $490,000 and $1.0 million for the three months ended September 30, 2001 and the nine months ended September 30, 2001, respectively; as well as a full three and nine months’ worth of depreciation and amortization on fixed assets in restaurants opened during the first nine months of 2000. The implementation of FAS No. 142, Goodwill and Other Intangible Assets, did not have a significant impact on amortization expense for the three and nine months ended September 30, 2001.

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      Preopening. Preopening costs, which are expensed as incurred, consist of expenses incurred prior to opening a new restaurant and are comprised principally of manager salaries and relocation expenses, employee payroll and related training costs. Preopening expenses in the three months ended September 30, 2001 decreased to $1.7 million from $2.0 million in the three months ended October 1, 2000 and decreased to $3.7 million in the nine months ended September 30, 2001 from $4.2 million in the nine months ended October 1, 2000. The decrease in dollars for the three months ended September 30, 2001 as compared to the three months ended October 1, 2000 is due to the fact that we opened five Bistros during the three month period as compared to seven Bistros in the same period in 2000. The decrease in dollars for the nine months ended September 30, 2001 as compared to the nine months ended October 1, 2000 is due to the fact that we opened 10 Bistros and one Pei Wei to date in 2001 as compared to 13 Bistros and one Pei Wei in the same period in 2000.

      Interest income. Interest income increased to $169,000 in the three months ended September 30, 2001 from $33,000 in the three months ended October 1, 2000. Interest income increased to $823,000 in the nine months ended September 30, 2001 from $98,000 in the nine months ended October 1, 2000. The increase was due to the interest earned on cash proceeds from the private equity placement that occurred in January of 2001. In addition, part of this cash was used to pay off the borrowings under our credit facility, thereby decreasing our interest expense.

     Elimination of minority interests

      Elimination of minority interests represents the portion of P.F. Chang’s net earnings which are attributable to the collective ownership interests of our partners. We have provided for a partnership management structure in which P.F. Chang’s has entered into a series of partnership agreements with our regional managers (“Market Partners”), certain of our general managers (“Operating Partners”) and certain of our executive chefs (“Culinary Partners”). Elimination of minority interests increased to $1.3 million for the three months ended September 30, 2001 from $1.1 million for the three months ended October 1, 2000. Elimination of minority interests increased to $3.9 million for the nine months ended September 30, 2001 from $3.1 million for the nine months ended October 1, 2000. The increase was due primarily to the addition of new restaurants and an increase in the operating profit of those restaurants.

     Provision for income taxes

      The provision for income taxes increased to $2.0 million (approximately 36% of pre-tax income) for the three months ended September 30, 2001 from $1.3 million (approximately 38% of pre-tax income) for the three months ended October 1, 2000 and increased to $6.1 million (approximately 36% of pre-tax income) for the nine months ended September 30, 2001 from $4.1 million (approximately 38% of pre-tax income) for the nine months ended October 1, 2000. The dollar increase in the tax provision was due primarily to higher profitability of our current restaurants. The decrease in the tax rates as a percentage of pre-tax income and the variance from the expected provision for income taxes derived by applying the statutory income tax rate is due primarily to state income tax benefits and wage related tip credits for both periods.

Liquidity and Capital Resources

      P.F. Chang’s has funded its capital requirements since its inception through sales of equity securities, debt financing and cash flows from operations. Net cash provided by operating activities was $30.9 million and $13.7 million for the nine months ended September 30, 2001 and October 1, 2000, respectively. Net cash provided by operating activities exceeded net income for the nine months ended September 30, 2001 due principally to the effect of minority interest and depreciation and amortization as well as an increase in income tax liability and accounts payable. Net cash provided by operating activities exceeded net income for the nine months ended October 1, 2000 due principally to the effect of minority interest, depreciation and amortization offset by an increase in receivables (amounts due from landlords for tenant improvements).

      We use cash primarily to fund the development and construction of new restaurants. Net cash used in investing activities for the nine months ended September 30, 2001 and October 1, 2000 was $27.2 million and

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$29.3 million, respectively. Capital expenditures made up the majority of our investing activities in both periods. We intend to open 13 new Bistros in 2001, 10 of which were open as of September 30, 2001. We also intend to open four new Pei Wei restaurants in 2001, one of which was open as of September 30, 2001. We expect that our planned future Bistro restaurants will require, on average, a total cash investment per restaurant of approximately $2.2 million. Preopening expenses are expected to average approximately $325,000 per Bistro restaurant, however, any unexpected delays in construction, labor shortages, or other factors could result in higher than anticipated preopening costs. We anticipate that each Pei Wei restaurant will require, on average, a total cash investment of $700,000 and will incur preopening costs of approximately $100,000.

      Net cash provided by financing activities for the nine months ended September 30, 2001 was $23.5 million compared to net cash provided by financing activities for the nine months ended October 1, 2000 of $13.0 million. Financing activities in the first nine months of 2001 consisted principally of net proceeds from the $40.8 million private equity placement that took place in January of 2001 as well as the repayment of our $15.0 million in borrowings on our credit facility and distributions to minority partners. Financing activities in the first nine months of 2000 consisted principally of borrowings of $15.0 million on our credit facility and distributions to minority partners.

      In December of 1999, P.F. Chang’s entered into a revolving credit facility with a commercial lending institution. The credit facility allowed for borrowings up to $15 million at an interest rate ranging from 150 to 225 basis points over the applicable London Interbank Offered Rate. In June of 2000, the credit facility was amended to allow for borrowings up to a total of $45 million at an interest rate ranging from 100 to 225 basis points over the applicable London Interbank Offered Rate. The revolving credit facility expires on November 30, 2002. All of the borrowings under this facility are short-term in nature and have maturity dates ranging from one to six months. The credit facility contains certain restrictions and conditions which require us to: maintain a minimum tangible net worth, a maximum leverage ratio of 3.75:1.00 and a minimum fixed-charge ratio of 1.25:1.00. The credit facility has been collateralized by a portion of the assets of P.F. Chang’s. We had borrowings totaling $15 million under the credit facility as of December 31, 2000, all of which was repaid during the first quarter of 2001.

      On January 11, 2001, P.F. Chang’s sold 1.25 million shares of our common stock at a price of $32.667 per share. Net proceeds from the transaction amounted to $40.8 million. Of this $40.8 million, $15.0 million was used to pay all of the outstanding borrowings under our credit facility. The remaining proceeds will be used to fund future development of both P.F. Chang’s China Bistro and Pei Wei Asian Diner.

      Our capital requirements, including development costs related to the opening of additional restaurants, have been and will continue to be significant. Our future capital requirements and the adequacy of its available funds will depend on many factors, including the pace of expansion, real estate markets, site locations and the nature of the arrangements negotiated with landlords. We believe that our cash flow from operations together with our current cash reserves and borrowings available under our credit facility will be sufficient to fund our capital requirements through 2002. In the event that additional capital is required, we may seek to raise such capital through public or private equity or debt financings. Future capital funding transactions may result in dilution to current shareholders. We can not assure you that such capital will be available on favorable terms, if at all.

Risk Factors

 
Failure of our existing or new restaurants to achieve predicted results could have a negative impact on our revenues and performance results.

      We operated 62 full service, or Bistro, restaurants and two limited service, or Pei Wei, restaurants, as of September 30, 2001, 14 of which have been opened within the last twelve months. The results achieved by these restaurants may not be indicative of longer term performance or the potential market acceptance of restaurants in other locations. We can’t assure you that any new restaurant which we open will have similar operating results to those of prior restaurants. We anticipate that our new restaurants will commonly take several months to reach planned operating levels due to inefficiencies typically associated with new

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restaurants, including lack of market awareness, inability to hire sufficient staff and other factors. The failure of our existing or new restaurants to perform as predicted could negatively impact our revenues and results of operations.
 
If we do not expand our restaurant operations, our operating revenue could decline.

      Critical to our future success is our ability to successfully expand our operations. We have expanded from seven restaurants at the end of 1996 to 64 restaurants as of September 30, 2001. We expect to open 13 Bistros and four Pei Wei restaurants in 2001. Our ability to expand successfully will depend on a number of factors, including:

  •  identification and availability of suitable locations;
 
  •  competition for restaurant sites;
 
  •  negotiation of favorable lease arrangements;
 
  •  timely development of commercial, residential, street or highway construction near our restaurants;
 
  •  management of the costs of construction and development of new restaurants;
 
  •  securing required governmental approvals and permits;
 
  •  recruitment of qualified operating personnel, particularly managers and chefs;
 
  •  weather conditions;
 
  •  competition in new markets; and
 
  •  general economic conditions.

      The opening of additional restaurants in the future will depend in part upon our ability to generate sufficient funds from operations or to obtain sufficient equity or debt financing on favorable terms to support our expansion. We may not be able to open our planned new operations on a timely basis, if at all, and, if opened, these restaurants may not be operated profitably. We have experienced, and expect to continue to experience, delays in restaurant openings from time to time. Delays or failures in opening planned new restaurants could have an adverse effect on our business, financial condition, results of operations or cash flows.

 
Implementing our growth strategy may strain our management resources and negatively impact our competitive position.

      Our growth strategy may strain our management, financial and other resources. We must maintain a high level of quality and service at our existing and future restaurants, continue to enhance our operational, financial and management capabilities and locate, hire, train and retain experienced and dedicated operating personnel, particularly managers and chefs. We may not be able to effectively manage these and other factors necessary to permit us to achieve our expansion objectives, and any failure to do so could negatively impact our competitive position.

 
The inability to develop and construct our restaurants within projected budgets and time periods will adversely affect our business and financial condition.

      Each P.F. Chang’s full service and limited service restaurant is distinctively designed to accommodate particular characteristics of each location and to blend local or regional design themes with our principal trade dress and other common design elements. This presents each location with its own development and construction risks. Many factors may affect the costs associated with the development and construction of our restaurants, including:

  •  labor disputes;
 
  •  shortages of materials and skilled labor;

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  •  weather interference;
 
  •  unforeseen engineering problems;
 
  •  environmental problems;
 
  •  construction or zoning problems;
 
  •  local government regulations;
 
  •  modifications in design to the size and scope of the projects; and
 
  •  other unanticipated increases in costs, any of which could give rise to delays or cost overruns.

      If we are not able to develop additional P.F. Chang’s and Pei Wei restaurants within anticipated budgets or time periods, our business, financial condition, results of operations or cash flows will be adversely affected.

 
Potential labor shortages may delay planned openings or damage customer relations.

      Our success will continue to be dependent on our ability to attract and retain a sufficient number of qualified employees, including kitchen staff and waitstaff, to keep pace with our expansion schedule. Qualified individuals needed to fill these positions are in short supply in certain areas. Our inability to recruit and retain qualified individuals may delay the planned openings of new restaurants while high employee turnover in existing restaurants may negatively impact customer service and customer relations, resulting in an adverse effect on our revenues or results of operations.

 
Changes in general economic and political conditions affect consumer spending and may harm our revenues and operating results.

      We believe that there currently is a weakening of general economic conditions. As the economy weakens we are concerned that our customers may lose confidence in the economy and reduce their level of discretionary spending. We believe that a decrease in discretionary spending could impact the frequency with which our customers choose to dine out or the amount they spend on their meals while dining out, thereby decreasing our revenues. Additionally, the recent terrorist attacks on the United States, possible military responses to the attacks and possible future attacks may exacerbate current economic conditions and lead to further weakening in the economy. Adverse economic conditions and any related decrease in discretionary spending by our customers could have an adverse effect on our revenues and operating results.

 
Fluctuations in operating results may cause the market price of our common stock to decline.

      Our operating results may fluctuate significantly as a result of a variety of factors, including:

  •  general economic conditions;
 
  •  consumer confidence in the economy;
 
  •  changes in consumer preferences;
 
  •  competitive factors;
 
  •  weather conditions;
 
  •  timing of new restaurant openings and related expenses;
 
  •  revenues contributed by new restaurants; and
 
  •  increases or decreases in comparable restaurant revenues.

      Historically, we have experienced variability in the amount and percentage of revenues attributable to preopening expenses. We typically incur the most significant portion of preopening expenses associated with a given restaurant within the two months immediately preceding and the month of the opening of the restaurant. Our experience to date has been that labor and operating costs associated with a newly opened restaurant for

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the first several months of operation are materially greater than what can be expected after that time, both in aggregate dollars and as a percentage of revenues. Accordingly, the volume and timing of new restaurant openings has had, and is expected to continue to have, a meaningful impact on preopening expenses and labor and operating costs. Therefore, results for any one quarter are not necessarily indicative of results to be expected for any other quarter or for a full fiscal year, and, from time to time in the future, our results of operations may be below the expectations of public market analysts and investors. This discrepancy could cause the market price of our common stock to decline. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
 
Intense competition in the restaurant industry could prevent us from increasing or sustaining our revenues and profitability.

      The restaurant industry is intensely competitive with respect to food quality, price-value relationships, ambiance, service and location, and many restaurants compete with us at each of our locations. Our competitors include mid-price, full-service casual dining restaurants and locally owned and operated Chinese restaurants. There are many well-established competitors with substantially greater financial, marketing, personnel and other resources than ours, and many of our competitors are well established in the markets where we have restaurants, or in which we intend to locate restaurants. Additionally, other companies may develop restaurants that operate with similar concepts.

      The restaurant business is often affected by changes in:

  •  consumer tastes;
 
  •  national, regional or local economic conditions;
 
  •  demographic trends;
 
  •  consumer confidence in the economy;
 
  •  discretionary spending priorities;
 
  •  weather conditions;
 
  •  tourist travel;
 
  •  traffic patterns; and
 
  •  the type, number and location of competing restaurants.

      Changes in these factors could prevent us from increasing or sustaining our revenues and profitability and result in a material adverse effect on our business, financial condition, results of operations or cash flows. We may also need to modify or refine elements of our restaurant system to evolve our concept in order to compete with popular new restaurant formats or concepts that develop from time to time. We cannot assure you that we will be successful in implementing these modifications.

 
Increases in the minimum wage may have a material adverse effect on our business and financial results.

      A number of our employees are subject to various minimum wage requirements. The federal minimum wage has remained at $5.15 per hour since September 1, 1997. However, many of our employees work in restaurants located in California and receive salaries equal to the California minimum wage, which rose from $5.75 per hour effective March 1, 1998 to $6.25 per hour effective January 1, 2001. There may be similar increases implemented in other jurisdictions in which we operate or seek to operate. The possibility exists that the federal minimum wage will be increased within the next 12 months. These minimum wage increases may have a material adverse effect on our business, financial condition, results of operations or cash flows.

 
Our inability to retain key personnel could negatively impact our business.

      Our success will continue to be highly dependent on our key operating officers and employees, including Richard Federico, our Chief Executive Officer, Robert Vivian, our President and Chief Financial Officer,

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Russell Owens, President of Pei Wei Asian Diner, and Frank Ziska, our Chief Development Officer. We must continue to attract, retain and motivate a sufficient number of qualified management and operating personnel, including regional managers (market partners), general managers (operating partners) and executive chefs (chef partners), to keep pace with an aggressive expansion schedule. Individuals of this caliber are historically in short supply and this shortage may limit our ability to effectively penetrate new market areas. Additionally, the ability of these key personnel to maintain consistency in the quality and atmosphere of our restaurants is a critical factor in our success. Any failure to do so may harm our reputation and result in a loss of business.
 
Changes in food costs could negatively impact our revenues and results of operations.

      Our profitability is dependent in part on our ability to anticipate and react to changes in food costs. Other than for produce, which is purchased locally by each restaurant, we rely on Distributors Marketing Alliance as the primary distributor of our food. Distributors Marketing Alliance is a cooperative of multiple food distributors located throughout the nation. We have a non-exclusive, short-term, renewable contract with Distributors Marketing Alliance on terms and conditions which we believe are consistent with those made available to similarly situated restaurant companies. Although we believe that alternative distribution sources are available, any increase in distribution prices or failure to perform by the Distributors Marketing Alliance could cause our food costs to fluctuate. Additional factors beyond our control, including adverse weather conditions and governmental regulation, may affect our food costs. We may not be able to anticipate and react to changing food costs through our purchasing practices and menu price adjustments in the future, and failure to do so could negatively impact our revenues and results of operations.

 
Rising energy costs in several of our significant markets may continue to affect profitability.

      Our success depends in part on our ability to absorb increase in utility costs. Several regions of the United States in which we operate multiple restaurants, particularly California, have recently experienced significant increase in utility prices. If these increases continue, this will have an adverse effect on our profitability.

 
Failure to comply with governmental regulations could harm our business and our reputation.

      We are subject to regulation by federal agencies and to licensing and regulation by state and local health, sanitation, building, zoning, safety, fire and other departments relating to the development and operation of restaurants. These regulations include matters relating to:

  •  environment;
 
  •  building construction;
 
  •  zoning requirements; and
 
  •  the preparation and sale of food and alcoholic beverages.

      Our facilities are licensed and subject to regulation under state and local fire, health and safety codes. The development and construction of additional restaurants will be subject to compliance with applicable zoning, land use and environmental regulations. We may not be able to obtain necessary licenses or other approvals on a cost-effective and timely basis in order to construct and develop restaurants in the future. Various federal and state labor laws govern our operations and our relationship with our employees, including minimum wage, overtime, working conditions, fringe benefit and citizenship requirements. In particular, we are subject to the regulations of the INS. Given the location of many of our restaurants, even if we operate those restaurants in strict compliance with INS requirements, our employees may not all meet federal citizenship or residency requirements, which could lead to disruptions in our work force.

      Approximately 18% of our revenues at the Bistro and 5% at Pei Wei are attributable to the sale of alcoholic beverages. We are required to comply with the alcohol licensing requirements of the federal government, states and municipalities where our restaurants are located. Alcoholic beverage control regulations require applications to state authorities and, in certain locations, county and municipal authorities for a license and permit to sell alcoholic beverages. Typically, licenses must be renewed annually and may be

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revoked or suspended for cause at any time. Alcoholic beverage control regulations relate to numerous aspects of the daily operations of the restaurants, including minimum age of guests and employees, hours of operation, advertising, wholesale purchasing, inventory control and handling, storage and dispensing of alcoholic beverages. If we fail to comply with federal, state or local regulations our licenses may be revoked and we may be forced to terminate the sale of alcoholic beverages at one or more of our restaurants.

      The federal Americans with Disabilities Act prohibits discrimination on the basis of disability in public accommodations and employment. We are required to comply with the Americans with Disabilities Act and regulations relating to accommodating the needs of the disabled in connection with the construction of new facilities and with significant renovations of existing facilities.

      Failure to comply with these regulations could negatively impact our business and our reputation.

 
Litigation could have a material adverse effect on our business.

      We are from time to time the subject of complaints or litigation from guests alleging illness, injury or other food quality, health or operational concerns. We may be adversely affected by publicity resulting from such allegations, regardless of whether such allegations are valid or whether we are liable. We are also subject to complaints or allegations from former or prospective employees from time to time. A lawsuit or claim could result in an adverse decision against us that could have a materially adverse effect on our business.

      We are subject to state “dram shop” laws and regulations, which generally provide that a person injured by an intoxicated person may seek to recover damages from an establishment that wrongfully served alcoholic beverages to such person. While we carry liquor liability coverage as part of our existing comprehensive general liability insurance, we may still be subject to a judgment in excess of our insurance coverage and we may not be able to obtain or continue to maintain such insurance coverage at reasonable costs, or at all.

Recent Pronouncements

      In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards (FAS) No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets, effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives. For fiscal 2001, the amortization provisions of FAS No. 142 apply to goodwill and other intangible assets acquired after June 30, 2001. For fiscal 2002, the provision will apply to all goodwill and other intangible assets.

      The Company will apply the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of 2002. Application of the nonamortization provisions of the Statements is expected to total, after tax, approximately $320,000 in additional net income in fiscal year 2002. Also during 2002, the Company will perform the required impairment tests of goodwill and indefinite lived intangible assets recorded as of January 1, 2002 and is currently evaluating the effect, if any, of these tests on the consolidated net income and financial position of the Company.

Item 3.      Quantitative and Qualitative Disclosures about Market Risks

      We believe that the market risk associated with our market risk sensitive instruments as of September 30, 2001 is not material, and therefore, disclosure is not required.

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PART II OTHER INFORMATION

Item 1.      Legal Proceedings

      We were not involved in any material legal proceedings as of September 30, 2001.

Item 2.      Changes in Securities and Use of Proceeds

      None

Item 3.      Defaults Upon Senior Securities

      None

Item 4.      Submission of Matters to a Vote of Security Holders

      The Company’s Annual Meeting of Stockholders was held on April 25, 2001. There were two proposals up for approval. The results of voting are as follows:

           1)  The election of the entire Board of Directors:

                 
Total
Votes For Abstain


Richard L. Federico
    7,879,777       1,157,270  
Paul M. Fleming
    9,030,411       6,636  
Kenneth J. Wessels
    9,029,236       7,811  
R. Michael Welborn
    9,030,411       6,636  
James G. Shennan, Jr. 
    9,030,336       6,711  
F. Lane Cardwell, Jr. 
    9,030,411       6,636  

           2)  The ratification of the appointment of Ernst & Young as the Company’s independent auditors:

             
Total
Total Votes
Votes For Against Abstain



8,057,072
  979,785     190  

Item 5.      Other Information

      None

Item 6.      Exhibits and Reports on Form 8-K

      (a)  Exhibits:

         
Exhibit
Number Description Document


  3.1*     Certificate of Incorporation of the Company
  3.2     Amended and Restated By-laws


Incorporated by reference to the Company’s Form 10-K for the year 2000 filed on March 6, 2001

      (b)  Report on Form 8-K

        No reports on Form 8-K have been filed by the Company during the nine months ended September 30, 2001.

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SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on October 24, 2001.

  P.F. CHANG’S CHINA BISTRO, INC.
 
  By: /s/ RICHARD FEDERICO
 
  Richard Federico
  Chairman and Chief Executive Officer

      Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

             
Signature Title Date



/s/ RICHARD L. FEDERICO

Richard L. Federico
  Chairman and Chief Executive Officer (Principal Executive)   October 24, 2001
 
/s/ ROBERT T. VIVIAN

Robert T. Vivian
  President and Chief Financial Officer (Principal Financial and
Accounting Officer)
  October 24, 2001

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INDEX TO EXHIBITS

         
Exhibit
Number Description Document


  3.1*     Certificate of Incorporation of the Company
  3.2     Amended and Restated By-laws


Incorporated by reference to the Company’s Form 10-K for the year 2000 filed on March 6, 2001

19 EX-3.2 3 p65712ex3-2.txt EX-3.2 Exhibit 3.2 AMENDED AND RESTATED BYLAWS OF P.F. CHANG'S CHINA BISTRO, INC. TABLE OF CONTENTS -----------------
Page ---- ARTICLE I STOCKHOLDERS.................................................................................1 Section 1.2 Special Meetings................................................................1 Section 1.3 Notice of Meetings..............................................................1 Section 1.4 Quorum..........................................................................1 Section 1.5 Conduct of the Stockholders' Meeting............................................2 Section 1.6 Conduct of Business.............................................................2 Section 1.7 Notice of Stockholder Business..................................................2 Section 1.8 Proxies and Voting..............................................................3 Section 1.9 Stock List......................................................................3 Section 1.10 Action by Written Consent......................................................4 ARTICLE II BOARD OF DIRECTORS..........................................................................4 Section 2.1 Number and Term of Office.......................................................4 Section 2.2 Vacancies and Newly Created Directorships.......................................4 Section 2.3 Removal.........................................................................5 Section 2.4 Regular Meeting.................................................................5 Section 2.5 Special Meetings................................................................5 Section 2.6 Quorum..........................................................................5 Section 2.7 Participation in Meetings by Conference Telephone...............................5 Section 2.8 Conduct of Business.............................................................5 Section 2.9 Powers..........................................................................5 Section 2.10 Compensation of Directors......................................................6 Section 2.11 Nomination of Director Candidates..............................................6 ARTICLE III COMMITTEES.................................................................................7 Section 3.1 Committees of the Board of Directors............................................7 Section 3.2 Conduct of Business.............................................................8 ARTICLE IV OFFICERS....................................................................................8 Section 4.1 Generally.......................................................................8 Section 4.2 Chairman of the Board...........................................................8 Section 4.3 President.......................................................................8 Section 4.4 Vice President..................................................................9 Section 4.5 Treasurer.......................................................................9 Section 4.6 Secretary.......................................................................9 Section 4.7 Delegation of Authority.........................................................9 Section 4.8 Removal.........................................................................9 Section 4.9 Action With Respect to Securities of Other Corporations.........................9
i TABLE OF CONTENTS ----------------- (Continued)
Page ---- ARTICLE V STOCK........................................................................................9 Section 5.1 Certificates of Stock...........................................................9 Section 5.2 Transfers of Stock.............................................................10 Section 5.3 Record Date....................................................................10 Section 5.4 Lost, Stolen or Destroyed Certificates.........................................10 Section 5.5 Regulations....................................................................10 ARTICLE VI NOTICES....................................................................................10 Section 6.1 Notices........................................................................10 Section 6.2 Waivers........................................................................10 ARTICLE VII MISCELLANEOUS.............................................................................11 Section 7.1 Facsimile Signatures...........................................................11 Section 7.2 Corporate Seal.................................................................11 Section 7.3 Reliance Upon Books, Reports and Records.......................................11 Section 7.4 Fiscal Year....................................................................11 Section 7.5 Time Periods...................................................................11 ARTICLE VIII INDEMNIFICATION OF DIRECTORS AND OFFICERS................................................11 Section 8.1 Right to Indemnification.......................................................11 Section 8.2 Right of Claimant to Bring Suit................................................12 Section 8.3 Non-Exclusivity of Rights......................................................13 Section 8.4 Indemnification Contracts......................................................13 Section 8.5 Insurance......................................................................13 Section 8.6 Effect of Amendment............................................................13 ARTICLE IX AMENDMENTS.................................................................................13 Section 9.1 Amendment of Bylaws............................................................13
ii P.F. CHANG'S CHINA BISTRO, INC. A DELAWARE CORPORATION AMENDED AND RESTATED BYLAWS ARTICLE I STOCKHOLDERS ------------ Section 1.1 Annual Meeting. An annual meeting of the stockholders, for the election of directors to succeed those whose terms expire and for the transaction of such other business as may properly come before the meeting, shall be held at such place, on such date, and at such time as the Board of Directors shall each year fix, which date shall be within thirteen months subsequent to the later of the date of incorporation or the last annual meeting of stockholders. Section 1.2 Special Meetings. Special meetings of the stockholders, for any purpose or purposes prescribed in the notice of the meeting, may be called only by the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exists any vacancies in previously authorized directorships at the time any such resolution is presented to the Board of Directors for adoption). Business transacted at special meetings shall be confined to the purpose or purposes stated in the notice. Section 1.3 Notice of Meetings. Written notice of the place, date, and time of all meetings of the stockholders shall be given, not less than ten (10) nor more than sixty (60) days before the date on which the meeting is to be held, to each stockholder entitled to vote at such meeting, except as otherwise provided herein or required by law (meaning, here and hereinafter, as required from time to time by the Delaware General Corporation Law or the Certificate of Incorporation of the Corporation). When a meeting is adjourned to another place, date or time, written notice need not be given of the adjourned meeting if the place, date and time thereof are announced at the meeting at which the adjournment is taken; provided, however, that if the date of any adjourned meeting is more than thirty (30) days after the date for which the meeting was originally noticed, or if a new record date is fixed for the adjourned meeting, written notice of the place, date, and time of the adjourned meeting shall be given in conformity herewith. At any adjourned meeting, any business may be transacted which might have been transacted at the original meeting. Section 1.4 Quorum. At any meeting of the stockholders, the holders of a majority of all of the shares of the stock entitled to vote at the meeting, present in person or by proxy, shall constitute a quorum for all purposes, unless or except to the extent that the presence of a larger number may be required by law. 1 If a quorum shall fail to attend any meeting, the chairman of the meeting or the holders of a majority of the shares of stock entitled to vote who are present, in person or by proxy, may adjourn the meeting to another place, date, or time. If a notice of any adjourned special meeting of stockholders is sent to all stockholders entitled to vote thereat, stating that it will be held with those present constituting a quorum, then except as otherwise required by law, those present at such adjourned meeting shall constitute a quorum, and all matters shall be determined by a majority of the votes cast at such meeting. Section 1.5 Conduct of the Stockholders' Meeting. At every meeting of the stockholders, the Chairman, if there is such an officer, or if not, the President of the Corporation, or in his absence the Vice President designated by the President, or in the absence of such designation any Vice President, or in the absence of the President or any Vice President, a chairman chosen by the majority of the voting shares represented in person or by proxy, shall act as Chairman. The Secretary of the Corporation or a person designated by the Chairman shall act as Secretary of the meeting. Unless otherwise approved by the Chairman, attendance at the stockholders' meeting is restricted to stockholders of record, persons authorized in accordance with Section 8 of these Bylaws to act by proxy, and officers of the Corporation. Section 1.6 Conduct of Business. The Chairman shall call the meeting to order, establish the agenda, and conduct the business of the meeting in accordance therewith or, at the Chairman's discretion, it may be conducted otherwise in accordance with the wishes of the stockholders in attendance. The date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at the meeting shall be announced at the meeting. The Chairman shall also conduct the meeting in an orderly manner, rule on the precedence of and procedure on, motions and other procedural matters, and exercise discretion with respect to such procedural matters with fairness and good faith toward all those entitled to take part. The Chairman may impose reasonable limits on the amount of time taken up at the meeting on discussion in general or on remarks by any one stockholder. Should any person in attendance become unruly or obstruct the meeting proceedings, the Chairman shall have the power to have such person removed from participation. Notwithstanding anything in the Bylaws to the contrary, no business shall be conducted at a meeting except in accordance with the procedures set forth in this Section 1.6 and Section 1.7, below. The Chairman of a meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting and in accordance with the provisions of this Section 1.6 and Section 1.7, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Section 1.7 Notice of Stockholder Business. At an annual or special meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before a meeting, business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) properly brought before the meeting by or at the direction of the Board of Directors, (c) properly brought before an annual meeting by a stockholder, or (d) properly brought before a special meeting by a stockholder, but if, and only if, the notice of a special 2 meeting provides for business to be brought before the meeting by stockholders. For business to be properly brought before a meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder proposal to be presented at an annual meeting shall be received at the Corporation's principal executive offices not less than 120 calendar days in advance of the date that the Corporation's (or the Corporation's predecessor's) proxy statement was released to stockholders in connection with the previous year's annual meeting of stockholders, except that if no annual meeting was held in the previous year or the date of the annual meeting has been changed by more than 30 calendar days from the date contemplated at the time of the previous year's proxy statement, or in the event of a special meeting, notice by the stockholder to be timely must be received not later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual or special meeting (a) a brief description of the business desired to be brought before the annual or special meeting and the reasons for conducting such business at the special meeting, (b) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business, (c) the class and number of shares of the Corporation which are beneficially owned by the stockholder, and (d) any material interest of the stockholder in such business. Section 1.8 Proxies and Voting. At any meeting of the stockholders, every stockholder entitled to vote may vote in person or by proxy authorized by an instrument in writing or by a transmission permitted by law filed in accordance with the procedure established for the meeting. No stockholder may authorize more than one proxy for his shares. Each stockholder shall have one vote for every share of stock entitled to vote which is registered in his or her name on the record date for the meeting, except as otherwise provided herein or required by law. All voting, including on the election of directors but excepting where otherwise required by law, may be by a voice vote; provided, however, that upon demand therefor by a stockholder entitled to vote or his or her proxy, a stock vote shall be taken. Every stock vote shall be taken by ballots, each of which shall state the name of the stockholder or proxy voting and such other information as may be required under the procedure established for the meeting. Every vote taken by ballots shall be counted by an inspector or inspectors appointed by the chairman of the meeting. All elections shall be determined by a plurality of the votes cast, and except as otherwise required by law, all other matters shall be determined by a majority of the votes cast. Section 1.9 Stock List. A complete list of stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order for each class of stock and showing the address of each such stockholder and the number of shares registered in his or her name, shall be open to the examination of any such stockholder, for any purpose germane to the meeting, during ordinary business hours for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held. 3 The stock list shall also be kept at the place of the meeting during the whole time thereof and shall be open to the examination of any such stockholder who is present. This list shall presumptively determine the identity of the stockholders entitled to vote at the meeting and the number of shares held by each of them. Section 1.10 Action by Written Consent. Unless otherwise provided in the Certificate of Incorporation, any action required to be taken at any annual or special meeting of stockholders of the Corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. This Section 1.10 shall cease to be effective at such time as the Corporation consummates a firm commitment underwritten public offering of its common stock pursuant to a registration statement pursuant to the Securities Act of 1933, as amended. ARTICLE II BOARD OF DIRECTORS Section 2.1 Number and Term of Office. The number of directors shall be not less than five (5) and not more than seven (7). The initial number of directors shall be seven and, thereafter, shall be fixed from time to time exclusively by the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board for adoption). A vacancy resulting from the removal of a director by the stockholders as provided in Article II, Section 2.3 below may be filled at special meeting of the stockholders held for that purpose. All directors shall hold office until the expiration of the term for which elected and until their respective successors are elected, except in the case of the death, resignation or removal of any director. Section 2.2 Vacancies and Newly Created Directorships. Subject to the rights of the holders of any series of Preferred Stock then outstanding, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification or other cause (other than removal from office by a vote of the stockholders) may be filled only by a majority vote of the directors then in office, though less than a quorum, and directors so chosen shall hold office for a term expiring at the next annual meeting of stockholders. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. Section 2.3 Removal. Subject to the rights of holders of any series of Preferred Stock then outstanding, any directors, or the entire Board of Directors, may be removed from office at any time, with or without cause, but only by the affirmative vote of the holders of at least sixty-six and two-thirds percent (66 2/3%) of the voting power of all of the then outstanding shares of 4 capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class. Vacancies in the Board of Directors resulting from such removal may be filled by a majority of the directors then in office, though less than a quorum, or by the stockholders as provided in Article II, Section 2.1 above. Directors so chosen shall hold office until the new annual meeting of stockholders. Section 2.4 Regular Meeting. Regular meetings of the Board of Directors shall be held at such place or places, on such date or dates, and at such time or times as shall have been established by the Board of Directors and publicized among all directors. A notice of each regular meeting shall not be required. Section 2.5 Special Meetings. Special meetings of the Board of Directors may be called by one-third of the directors then in office (rounded up to the nearest whole number) or by the chief executive officer and shall be held at such place, on such date, and at such time as they or he or she shall fix. Notice of the place, date, and time of each such special meeting shall be given each director by whom it is not waived by mailing written notice not fewer than five (5) days before the meeting or by telegraphing or personally delivering the same not fewer than twenty-four (24) hours before the meeting. Unless otherwise indicated in the notice thereof, any and all business may be transacted at a special meeting. Section 2.6 Quorum. At any meeting of the Board of Directors, a majority of the total number of authorized directors shall constitute a quorum for all purposes. If a quorum shall fail to attend any meeting, a majority of those present may adjourn the meeting to another place, date, or time, without further notice or waiver thereof. Section 2.7 Participation in Meetings by Conference Telephone. Members of the Board of Directors, or of any committee thereof, may participate in a meeting of such Board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other and such participation shall constitute presence in person at such meeting. Section 2.8 Conduct of Business. At any meeting of the Board of Directors, business shall be transacted in such order and manner as the Board may from time to time determine, and all matters shall be determined by the vote of a majority of the directors present, except as otherwise provided herein or requited by law. Action may be taken by the Board of Directors without a meeting if all members thereof consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors. Section 2.9 Powers. The Board of Directors may, except as otherwise required by law, exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, including, without limiting the generality of the foregoing, the unqualified power: (a) To declare dividends from time to time in accordance with law; (b) To purchase or otherwise acquire any property, rights or privileges on such terms as it shall determine; 5 (c) To authorize the creation, making and issuance, in such form as it may determine, of written obligations of every kind, negotiable or non-negotiable, secured or unsecured, and to do all things necessary in connection therewith; (d) To remove any officer of the Corporation with or without cause, and from time to time to devolve the powers and duties of any officer upon any other person for the time being; (e) To confer upon any officer of the Corporation the power to appoint, remove and suspend subordinate officers, employees and agents; (f) To adopt from time to time such stock, option, stock purchase, bonus or other compensation plans for directors, officers, employees and agents of the Corporation and its subsidiaries as it may determine; (g) To adopt from time to time such insurance, retirement, and other benefit plans for directors, officers, employees and agents of the Corporation and its subsidiaries as it may determine; and (h) To adopt from time to time regulations, not inconsistent with these bylaws, for the management of the Corporation's business and affairs. Section 2.10 Compensation of Directors. Directors, as such, may receive, pursuant to resolution of the Board of Directors, fixed fees and other compensation for their services as directors, including, without limitation, their services as members of committees of the Board of Directors. Section 2.11 Nomination of Director Candidates. Subject to the rights of holders of any class or series of Preferred Stock then outstanding, nominations for the election of Directors may be made by the Board of Directors or a proxy committee appointed by the Board of Directors or by any stockholder entitled to vote in the election of Directors generally. However, any stockholder entitled to vote in the election of Directors generally may nominate one or more persons for election as Directors at a meeting only if timely notice of such stockholder's intent to make such nomination or nominations has been given in writing to the Secretary of the Corporation. To be timely, a stockholder nomination for a director to be elected at an annual meeting shall be received at the Corporation's principal executive offices not less than 120 calendar days in advance of the date that the Corporation's (or the Corporation's Predecessor's) Proxy statement was released to stockholders in connection with the previous year's annual meeting of stockholders, except that if no annual meeting was held in the previous year or the date of the annual meeting has been changed by more than 30 calendar days from the date contemplated at the time of the previous year's proxy statement, or in the event of a nomination for director to be elected at a special meeting, notice by the stockholders to be timely must be received not later than the close of business on the tenth day following the day on which such notice of the date of the special meeting was mailed or such public disclosure was made. Each such notice shall set forth: (a) the name and address of the stockholder who intends to make the nomination and of the person or persons to be nominated; (b) a representation that the 6 stockholder is a holder of record of stock of the Corporation entitled to vote for the election of Directors on the date of such notice and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (c) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (d) such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission, had the nominee been nominated, or intended to be nominated, by the Board of Directors; and (e) the consent of each nominee to serve as a director of the Corporation if so elected. In the event that a person is validly designated as a nominee in accordance with this Section 2.11 and shall thereafter become unable or unwilling to stand for election to the Board of Directors, the Board of Directors or the stockholder who proposed such nominee, as the case may be, may designate a substitute nominee upon delivery, not fewer than five days prior to the date of the meeting for the election of such nominee, of a written notice to the Secretary setting forth such information regarding such substitute nominee as would have been required to be delivered to the Secretary pursuant to this Section 2.11 had such substitute nominee been initially proposed as a nominee. Such notice shall include a signed consent to serve as a director of the Corporation, if elected, of each such substitute nominee. If the chairman of the meeting for the election of Directors determines that a nomination of any candidate for election as a Director at such meeting was not made in accordance with the applicable provisions of this Section 2.11, such nomination shall be void; provided, however, that nothing in this Section 2.11 shall be deemed to limit any voting rights upon the occurrence of dividend arrearages provided to holders of Preferred Stock pursuant to the Preferred Stock designation for any series of Preferred Stock. ARTICLE III COMMITTEES Section 3.1 Committees of the Board of Directors. The Board of Directors, by a vote of a majority of the whole Board, may from time to time designate committees of the Board, with such lawfully delegable powers and duties as it thereby confers, to serve at the pleasure of the Board and shall, for those committees and any others provided for herein, elect a director or directors to serve as the member or members, designating, if it desires, other directors as alternate members who may replace any absent or disqualified member at any meeting of the committee. Any committee so designated may exercise the power and authority of the Board of Directors to declare a dividend, to authorize the issuance of stock or to adopt a certificate of ownership and merger pursuant to Section 253 of the Delaware General Corporation Law if the resolution which designates the committee or a supplemental resolution of the Board of Directors shall so provide. In the absence or disqualification of any member of any committee and any alternate member in his place, the member or members of the committee present at the meeting and not disqualified from voting, whether or not he or she or they constitute a quorum, may by 7 unanimous vote appoint another member of the Board of Directors to act at the meeting in the place of the absent or disqualified member. Section 3.2 Conduct of Business. Each committee may determine the procedural rules for meeting and conducting its business and shall act in accordance therewith, except as otherwise provided herein or required by law. Adequate provision shall be made for notice to members of all meetings; one-third of the authorized members shall constitute a quorum unless the committee shall consist of one or two members, in which event one member shall constitute a quorum; and all matters shall be determined by a majority vote of the members present. Action may be taken by any committee without a meeting if all members thereof consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of such committee. ARTICLE IV OFFICERS Section 4.1 Generally. The officers of the Corporation shall consist of a President, one or more Vice Presidents, a Secretary and a Treasurer. The Corporation may also have, at the discretion of the Board of Directors, a Chairman of the Board and such other officers as may from time to time be appointed by the Board of Directors. Officers shall be elected by the Board of Directors, which shall consider that subject at its first meeting after every annual meeting of stockholders. Each officer shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal. The Chairman of the Board, if there shall be such an officer, and the President shall each be members of the Board of Directors. Any number of offices may he held by the same person. Section 4.2 Chairman of the Board. The Chairman of the Board, if there shall be such an officer, shall, if present, preside at all meetings of the Board of Directors, and exercise and perform such other powers and duties as may be from time to time assigned to him by the Board of Directors or prescribed by these bylaws. Section 4.3 President. The President shall be the chief executive officer of the Corporation. Subject to the provisions of these bylaws and to the direction of the Board of Directors, he or she shall have the responsibility for the general management and control of the business and affairs of the Corporation and shall perform all duties and have all powers which are commonly incident to the office of chief executive or which are delegated to him or her by the Board of Directors. He or she shall have power to sign all stock certificates, contracts and other instruments of the Corporation which are authorized and shall have general supervision and direction of all of the other officers, employees and agents of the Corporation. Section 4.4 Vice President. Each Vice President shall have such powers and duties as may be delegated to him or her by the Board of Directors. One Vice President shall be designated by the Board to perform the duties and exercise the powers of the President in the event of the President's absence or disability. 8 Section 4.5 Treasurer. Unless otherwise designated by the Board of Directors, the Chief Financial Officer of the Corporation shall be the Treasurer. The Treasurer shall have the responsibility for maintaining the financial records of the Corporation and shall have custody of all monies and securities of the Corporation. He or she shall make such disbursements of the funds of the Corporation as are authorized and shall render from time to time an account of all such transactions and of the financial condition of the Corporation. The Treasurer shall also perform such other duties as the Board of Directors may from time to time prescribe. Section 4.6 Secretary. The Secretary shall issue all authorized notices for, and shall keep, or cause to be kept, minutes of all meetings of the stockholders, the Board of Directors, and all committees of the Board of Directors. He or she shall have charge of the corporate books and shall perform such other duties as the Board of Directors may from time to time prescribe. Section 4.7 Delegation of Authority. The Board of Directors may from time to time delegate the powers or duties of any officer to any other officers or agents, notwithstanding any provision hereof. Section 4.8 Removal. Any officer of the Corporation may be removed at any time, with or without cause, by the Board of Directors. Section 4.9 Action With Respect to Securities of Other Corporations. Unless otherwise directed by the Board of Directors, the President or any officer of the Corporation authorized by the President shall have power to vote and otherwise act on behalf of the Corporation, in person or by proxy, at any meeting of stockholders of or with respect to any action of stockholders of any other corporation in which this Corporation may hold securities and otherwise to exercise any and all rights and powers which this Corporation may possess by reason of its ownership of securities in such other corporation. ARTICLE V STOCK Section 5.1 Certificates of Stock. Each stockholder shall be entitled to a certificate signed by, or in the name of the Corporation by, the President or a Vice President, and by the Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer, certifying the number of shares owned by him or her. Any of or all the signatures on the certificate may be facsimile. Section 5.2 Transfers of Stock. Transfers of stock shall be made only upon the transfer books of the Corporation kept at an office of the Corporation or by transfer agents designated to transfer shares of the stock of the Corporation. Except where a certificate is issued in accordance with Section 4 of Article V of these bylaws, an outstanding certificate for the number of shares involved shall be surrendered for cancellation before a new certificate is issued therefor. 9 Section 5.3 Record Date. The Board of Directors may fix a record date, which shall not be more than sixty (60) nor fewer than ten (10) days before the date of any meeting of stockholders, nor more than sixty (60) days prior to the time for the other action hereinafter described, as of which there shall be determined the stockholders who are entitled: to notice of or to vote at any meeting of stockholders or any adjournment thereof; to receive payment of any dividend or other distribution or allotment of any rights; or to exercise any rights with respect to any change, conversion or exchange of stock or with respect to any other lawful action. Section 5.4 Lost, Stolen or Destroyed Certificates. In the event of the loss, theft or destruction of any certificate of stock, another may be issued in its place pursuant to such regulations as the Board of Directors may establish concerning proof of such loss, theft or destruction and concerning the giving of a satisfactory bond or bonds of indemnity. Section 5.5 Regulations. The issue, transfer, conversion and registration of certificates of stock shall be governed by such other regulations as the Board of Directors may establish. ARTICLE VI NOTICES Section 6.1 Notices. Except as otherwise specifically provided herein or required by law, all notices required to be given to any stockholder, director, officer, employee or agent shall be in writing and may in every instance be effectively given by hand delivery to the recipient thereof, by depositing such notice in the mails, postage paid, or by sending such notice by prepaid telegram, mailgram, telecopy or commercial courier service. Any such notice shall be addressed to such stockholder, director, officer, employee or agent at his or her last known address as the same appears on the books of the Corporation. The time when such notice shall be deemed to be given shall be the time such notice is received by such stockholder, director, officer, employee or agent, or by any person accepting such notice on behalf of such person, if hand delivered, or the time such notice is dispatched, if delivered through the mails or be telegram or mailgram. Section 6.2 Waivers. A written waiver of any notice, signed by a stockholder, director, officer, employee or agent, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to the notice required to be given to such stockholder, director, officer, employee or agent. Neither the business nor the purpose of any meeting need be specified in such a waiver. ARTICLE VII MISCELLANEOUS 10 Section 7.1 Facsimile Signatures. In addition to the provisions for use of facsimile signatures elsewhere specifically authorized in these bylaws, facsimile signatures of any officer or officers of the Corporation may be used whenever and as authorized by the Board of Directors or a committee thereof. Section 7.2 Corporate Seal. The Board of Directors may provide a suitable seal, containing the name of the Corporation, which seal shall be in the charge of the Secretary. If and when so directed by the Board of Directors or a committee thereof, duplicates of the seal may be kept and used by the Treasurer or by an Assistant Secretary or Assistant Treasurer. Section 7.3 Reliance Upon Books, Reports and Records. Each director, each member of any committee designated by the Board of Directors, and each officer of the Corporation shall, in the performance of his duties, be fully protected in relying in good faith upon the books of account or other records of the Corporation, including reports made to the Corporation by any of its officers, by an independent certified public accountant, or by an appraiser selected with reasonable care. Section 7.4 Fiscal Year. The fiscal year of the Corporation shall be as fixed by the Board of Directors. Section 7.5 Time Periods. In applying any provision of these bylaws which require that an act be done or not done a specified number of days prior to an event or that an act be done during a period of a specified number of days prior to an event, calendar days shall be used, the day of the doing of the act shall be excluded, and the day of the event shall be included. ARTICLE VIII INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 8.1 Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative ("proceeding"), by reason of the fact that he or she or a person of whom he or she is the legal representative, is or was a director, officer or employee of the Corporation or is or was serving at the request of the Corporation as a director, officer or employee of another corporation, or of a Partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer or employee or in any other capacity while serving as a director, officer or employee, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by Delaware Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said Law permitted the Corporation to provide prior to such amendment) against all expenses, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties, amounts paid or to be paid in settlement and amounts expended in seeking indemnification granted to such person under applicable law, this bylaw or any agreement with the Corporation) reasonably incurred or 11 suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director, officer or employee and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that, except as provided in Section 8.2 of this Article VIII, the Corporation shall indemnify any such person seeking indemnity in connection with an action, suit or proceeding (or part thereof) initiated by such person only if (a) such indemnification is expressly required to be made by law, (b) the action, suit or proceeding (or part thereof) was authorized by the Board of Directors of the Corporation, (c) such indemnification is provided by the Corporation, in its sole discretion, pursuant to the powers vested in the Corporation under the Delaware General Corporation Law, or (d) the action, suit or proceeding (or part thereof) is brought to establish or enforce a right to indemnification under an indemnity agreement or any other statute or law or otherwise as required under Section 145 of the Delaware General Corporation Law. Such right shall be a contract right and shall include the right to be paid by the Corporation expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that, unless the Delaware General Corporation Law then so prohibits, the payment of such expenses incurred by a director or officer of the Corporation in his or her capacity as a director or officer (and not in any other capacity in which service was or is tendered by such person while a director or officer, including, without limitation. service to an employee benefit plan) in advance of the final disposition of such proceeding, shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it should be determined ultimately that such director or officer is not entitled to be indemnified under this Section or otherwise. Section 8.2 Right of Claimant to Bring Suit. If a claim under Section 1 of this Article VIII is not paid in full by the Corporation within ninety (90) days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if such suit is not frivolous or brought in bad faith, the claimant shall be entitled to be paid also the expense of prosecuting such claim. The burden of proving such claim shall be on the claimant. It shall be a defense to any such action (other then an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any, has been tendered to this Corporation) that the claimant has not met the standards of conduct which make it permissible under the Delaware General Corporation Law for the Corporation to indemnify the claimant for the amount claimed. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct. Section 8.3 Non-Exclusivity of Rights. The rights conferred on any person in Sections 1 and 2 shall not be exclusive of any other right which such persons may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, bylaw, agreement, vote of stockholders or disinterested directors or otherwise. 12 Section 8.4 Indemnification Contracts. The Board of Directors is authorized to enter into a contract with any director, officer, employee or agent of the Corporation, or any person serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including employee benefit plans, providing for indemnification rights equivalent to or, if the Board of Directors so determines, greater than, those provided for in this Article VIII. Section 8.5 Insurance. The Corporation shall maintain insurance to the extent reasonably available, at its expense, to protect itself and any such director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. Section 8.6 Effect of Amendment. Any amendment, repeal or modification of any provision of this Article VIII by the stockholders and the directors of the Corporation shall not adversely affect any right or protection of a director or officer of the Corporation existing at the time of such amendment, repeal or modification. ARTICLE IX AMENDMENTS Section 9.1 Amendment of Bylaws. The Board of Directors is expressly empowered to adopt, amend or repeal Bylaws of the Corporation. Any adoption, amendment or repeal of Bylaws of the Corporation by the Board of Directors shall require the approval of a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any resolution providing for adoption, amendment or repeal is presented to the Board). The stockholders shall also have power to adopt, amend or repeal the Bylaws of the Corporation. Any adoption, amendment or repeal of By-Laws of the Corporation by the stockholders shall require, in addition to any vote of the holders of any class or series of stock of the Corporation required by law or by this Certificate of Incorporation, the affirmative vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class. 13 CERTIFICATE OF SECRETARY I hereby certify that I am the duly elected and acting Secretary of P.F. Chang's China Bistro, Inc., a Delaware corporation (the "Corporation"), and that the foregoing Bylaws, comprising thirteen (13) pages, constitute the Bylaws of the Corporation as duly adopted at a meeting of the Board of Directors of the Corporation on August 6, 1998. IN WITNESS WHEREOF, I have hereunto subscribed my name on August 6, 1998. /s/ Robert T. Vivian ---------------------------------- Robert T. Vivian 14