Attached files
file | filename |
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EX-32.2 - EXHIBIT 32.2 - P F CHANGS CHINA BISTRO INC | c07258exv32w2.htm |
EX-32.3 - EXHIBIT 32.3 - P F CHANGS CHINA BISTRO INC | c07258exv32w3.htm |
EX-31.1 - EXHIBIT 31.1 - P F CHANGS CHINA BISTRO INC | c07258exv31w1.htm |
EX-31.2 - EXHIBIT 31.2 - P F CHANGS CHINA BISTRO INC | c07258exv31w2.htm |
EX-31.3 - EXHIBIT 31.3 - P F CHANGS CHINA BISTRO INC | c07258exv31w3.htm |
EX-32.1 - EXHIBIT 32.1 - P F CHANGS CHINA BISTRO INC | c07258exv32w1.htm |
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended October 3, 2010
or
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission file number: 0-25123
P.F. Changs China Bistro, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 86-0815086 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) | |
7676 East Pinnacle Peak Road | 85255 | |
Scottsdale, Arizona | (Zip Code) | |
(Address of principal executive offices) |
Registrants telephone number, including area code:
(480) 888-3000
(480) 888-3000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports, and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post
such files).* Yes o No o
* | The registrant has not yet been phased into the interactive data requirements. |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No þ
As of October 3, 2010, there were 22,965,415 outstanding shares of the registrants Common Stock.
TABLE OF CONTENTS
Table of Contents
PART I
FINANCIAL INFORMATION
FINANCIAL INFORMATION
Item 1. Financial Statements
P.F. CHANGS CHINA BISTRO, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
(In thousands)
October 3, | January 3, | |||||||
2010 | 2010 | |||||||
(Unaudited) | (Note 1) | |||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 47,161 | $ | 63,499 | ||||
Inventories |
5,329 | 5,291 | ||||||
Other current assets |
40,372 | 38,449 | ||||||
Total current assets |
92,862 | 107,239 | ||||||
Property and equipment, net |
469,838 | 497,928 | ||||||
Goodwill |
6,819 | 6,819 | ||||||
Intangible assets, net |
20,532 | 22,241 | ||||||
Other assets |
22,753 | 17,923 | ||||||
Total assets |
$ | 612,804 | $ | 652,150 | ||||
LIABILITIES AND EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 18,173 | $ | 19,825 | ||||
Construction payable |
2,859 | 1,600 | ||||||
Accrued expenses |
66,073 | 77,088 | ||||||
Unearned revenue |
25,233 | 35,844 | ||||||
Current portion of long-term debt, including $976 due to related parties
at January 3, 2010 |
63 | 41,236 | ||||||
Total current liabilities |
112,401 | 175,593 | ||||||
Lease obligations |
115,762 | 116,547 | ||||||
Long-term debt |
1,184 | 1,212 | ||||||
Other liabilities |
22,701 | 18,488 | ||||||
Total liabilities |
252,048 | 311,840 | ||||||
Commitments and contingencies (Note 12) |
| | ||||||
Equity: |
||||||||
PFCB common stockholders equity: |
||||||||
Common stock, $0.001 par value, 40,000,000 shares authorized: 22,965,415
shares and 22,911,054 shares issued and outstanding at October 3, 2010
and January 3, 2010, respectively |
23 | 28 | ||||||
Additional paid-in capital |
242,734 | 217,181 | ||||||
Treasury stock, at cost, 5,667,223 shares and 5,064,733 shares at
October 3, 2010 and January 3, 2010, respectively |
(172,217 | ) | (146,022 | ) | ||||
Accumulated other comprehensive loss |
| (294 | ) | |||||
Retained earnings |
286,694 | 264,456 | ||||||
Total PFCB common stockholders equity |
357,234 | 335,349 | ||||||
Noncontrolling interests |
3,522 | 4,961 | ||||||
Total equity |
360,756 | 340,310 | ||||||
Total liabilities and equity |
$ | 612,804 | $ | 652,150 | ||||
See accompanying notes to unaudited consolidated financial statements.
2
Table of Contents
P.F. CHANGS CHINA BISTRO, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
October 3, | September 27, | October 3, | September 27, | |||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Revenues |
$ | 308,410 | $ | 290,329 | $ | 931,619 | $ | 901,526 | ||||||||
Costs and expenses: |
||||||||||||||||
Cost of sales |
78,380 | 76,364 | 244,110 | 239,093 | ||||||||||||
Labor |
101,620 | 95,713 | 308,390 | 294,531 | ||||||||||||
Operating |
52,058 | 50,883 | 156,408 | 150,383 | ||||||||||||
Occupancy |
18,504 | 17,566 | 54,951 | 52,347 | ||||||||||||
General and administrative |
23,226 | 20,408 | 62,044 | 60,745 | ||||||||||||
Depreciation and amortization |
19,318 | 19,055 | 57,654 | 56,126 | ||||||||||||
Preopening expense |
572 | 1,550 | 1,537 | 2,499 | ||||||||||||
Partner investment expense |
(147 | ) | 18 | (271 | ) | (537 | ) | |||||||||
Total costs and expenses |
293,531 | 281,557 | 884,823 | 855,187 | ||||||||||||
Income from operations |
14,879 | 8,772 | 46,796 | 46,339 | ||||||||||||
Interest and other income (expense), net |
175 | 85 | (905 | ) | (1,292 | ) | ||||||||||
Income from continuing operations before taxes |
15,054 | 8,857 | 45,891 | 45,047 | ||||||||||||
Provision for income taxes |
(4,417 | ) | (2,477 | ) | (13,349 | ) | (12,538 | ) | ||||||||
Income from continuing operations, net of tax |
10,637 | 6,380 | 32,542 | 32,509 | ||||||||||||
Income (loss) from discontinued operations, net of tax |
| (17 | ) | 6 | (534 | ) | ||||||||||
Net income |
10,637 | 6,363 | 32,548 | 31,975 | ||||||||||||
Less: Net income attributable to noncontrolling interests |
172 | 155 | 619 | 813 | ||||||||||||
Net income attributable to PFCB |
$ | 10,465 | $ | 6,208 | $ | 31,929 | $ | 31,162 | ||||||||
Basic income per share: |
||||||||||||||||
Income from continuing operations attributable to
PFCB common stockholders |
$ | 0.46 | $ | 0.27 | $ | 1.41 | $ | 1.38 | ||||||||
Income (loss) from discontinued operations, net of tax,
attributable to PFCB common stockholders |
0.00 | 0.00 | 0.00 | (0.03 | ) | |||||||||||
Net income attributable to PFCB common stockholders |
$ | 0.46 | $ | 0.27 | $ | 1.41 | $ | 1.35 | ||||||||
Diluted income per share: |
||||||||||||||||
Income from continuing operations attributable to PFCB
common stockholders |
$ | 0.45 | $ | 0.27 | $ | 1.38 | $ | 1.35 | ||||||||
Income (loss) from discontinued operations, net of tax,
attributable to PFCB common stockholders |
0.00 | 0.00 | 0.00 | (0.03 | ) | |||||||||||
Net income attributable to PFCB common stockholders |
$ | 0.45 | $ | 0.27 | $ | 1.38 | $ | 1.32 | ||||||||
Weighted average shares used in computation: |
||||||||||||||||
Basic |
22,697 | 22,810 | 22,719 | 23,103 | ||||||||||||
Diluted |
23,070 | 23,285 | 23,150 | 23,535 | ||||||||||||
Cash dividends declared per share |
$ | 0.21 | $ | | $ | 0.63 | $ | | ||||||||
Amounts attributable to PFCB: |
||||||||||||||||
Income from continuing operations, net of tax |
$ | 10,465 | $ | 6,225 | $ | 31,923 | $ | 31,696 | ||||||||
Income (loss) from discontinued operations, net of tax |
| (17 | ) | 6 | (534 | ) | ||||||||||
Net income attributable to PFCB |
$ | 10,465 | $ | 6,208 | $ | 31,929 | $ | 31,162 | ||||||||
See accompanying notes to unaudited consolidated financial statements.
3
Table of Contents
P.F. CHANGS CHINA BISTRO, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(In thousands)
(Unaudited)
PFCB Common Stockholders | ||||||||||||||||||||||||||||||||
Accumulated other | ||||||||||||||||||||||||||||||||
Common Stock | Additional | Treasury | comprehensive | Retained | Noncontrolling | |||||||||||||||||||||||||||
Shares | Amount | paid-in capital | stock | loss | earnings | interests | Total | |||||||||||||||||||||||||
Balances, December 28, 2008 |
24,114 | $ | 27 | $ | 206,667 | $ | (106,372 | ) | $ | (755 | ) | $ | 221,259 | $ | 8,581 | $ | 329,407 | |||||||||||||||
Issuance of common stock
under stock option plans |
155 | 1 | 1,365 | | | | | 1,366 | ||||||||||||||||||||||||
Issuance of common stock under
employee stock purchase plan |
34 | | 774 | | | | | 774 | ||||||||||||||||||||||||
Shares withheld for taxes on restricted
stock, net of forfeitures |
(44 | ) | | (633 | ) | | | | | (633 | ) | |||||||||||||||||||||
Purchases of treasury stock |
(1,119 | ) | | | (29,174 | ) | | | | (29,174 | ) | |||||||||||||||||||||
Share-based compensation expense (1) |
| | 5,787 | | | | | 5,787 | ||||||||||||||||||||||||
Tax benefit from share-based
compensation, net |
| | 1,077 | | | | | 1,077 | ||||||||||||||||||||||||
Unrealized gain on derivatives |
| | | | 283 | | | 283 | ||||||||||||||||||||||||
Distributions to noncontrolling
interest partners |
| | | | | | (1,475 | ) | (1,475 | ) | ||||||||||||||||||||||
Contributions from noncontrolling
interest partners |
| | | | | | 30 | 30 | ||||||||||||||||||||||||
Purchases of noncontrolling interests |
| | (1,030 | ) | | | | (2,345 | ) | (3,375 | ) | |||||||||||||||||||||
Partner investment expense |
| | | | | | (537 | ) | (537 | ) | ||||||||||||||||||||||
Partner bonus expense, imputed |
| | | | | | 352 | 352 | ||||||||||||||||||||||||
Net income |
| | | | | 31,162 | 813 | 31,975 | ||||||||||||||||||||||||
Balances, September 27, 2009 |
23,140 | $ | 28 | $ | 214,007 | $ | (135,546 | ) | $ | (472 | ) | $ | 252,421 | $ | 5,419 | $ | 335,857 | |||||||||||||||
Balances, January 3, 2010 |
22,911 | $ | 28 | $ | 217,181 | $ | (146,022 | ) | $ | (294 | ) | $ | 264,456 | $ | 4,961 | $ | 340,310 | |||||||||||||||
Issuance of common stock
under stock option plans |
660 | | 18,310 | | | | | 18,310 | ||||||||||||||||||||||||
Issuance of common stock under
employee stock purchase plan |
56 | | 2,185 | | | | | 2,185 | ||||||||||||||||||||||||
Shares withheld for taxes on restricted
stock, net of forfeitures |
(59 | ) | | (1,169 | ) | | | | | (1,169 | ) | |||||||||||||||||||||
Purchases of treasury stock |
(603 | ) | (5 | ) | | (26,195 | ) | | | | (26,200 | ) | ||||||||||||||||||||
Share-based compensation expense (1) |
| | 4,049 | | | | | 4,049 | ||||||||||||||||||||||||
Tax benefit from share-based
compensation, net |
| | 2,440 | | | | | 2,440 | ||||||||||||||||||||||||
Unrealized gain on derivatives |
| | | | 294 | | | 294 | ||||||||||||||||||||||||
Distributions to noncontrolling
interest partners |
| | | | | | (1,013 | ) | (1,013 | ) | ||||||||||||||||||||||
Contributions from noncontrolling
interest partners |
| | | | | | 10 | 10 | ||||||||||||||||||||||||
Purchases of noncontrolling interests |
| | (277 | ) | | | | (1,086 | ) | (1,363 | ) | |||||||||||||||||||||
Partner investment expense |
| | | | | | (271 | ) | (271 | ) | ||||||||||||||||||||||
Partner bonus expense, imputed |
| | | | | | 302 | 302 | ||||||||||||||||||||||||
Cash dividends paid |
| | 15 | | | (9,691 | ) | | (9,676 | ) | ||||||||||||||||||||||
Net income |
| | | | | 31,929 | 619 | 32,548 | ||||||||||||||||||||||||
Balances, October 3, 2010 |
22,965 | $ | 23 | $ | 242,734 | $ | (172,217 | ) | $ | | $ | 286,694 | $ | 3,522 | $ | 360,756 | ||||||||||||||||
(1) | Share-based compensation expense includes equity-classified awards only. |
See accompanying notes to unaudited consolidated financial statements.
4
Table of Contents
P.F. CHANGS CHINA BISTRO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(In thousands)
(Unaudited)
Nine Months Ended | ||||||||
October 3, | September 27, | |||||||
2010 | 2009 | |||||||
Operating Activities: |
||||||||
Net income |
$ | 32,548 | $ | 31,975 | ||||
Adjustments to reconcile net income to net cash provided
by operating activities: |
||||||||
Depreciation and amortization |
57,654 | 56,126 | ||||||
Share-based compensation |
10,081 | 7,821 | ||||||
Net lease termination charges in discontinued operations |
35 | 706 | ||||||
Partner investment expense |
(271 | ) | (537 | ) | ||||
Partner bonus expense, imputed |
302 | 352 | ||||||
Deferred income taxes |
(3,991 | ) | 3,330 | |||||
Tax benefit from share-based compensation, net |
(2,555 | ) | (1,077 | ) | ||||
Other |
153 | 92 | ||||||
Changes in operating assets and liabilities: |
||||||||
Inventories |
(38 | ) | (82 | ) | ||||
Other current assets |
163 | 11,958 | ||||||
Other assets |
(370 | ) | (1,031 | ) | ||||
Accounts payable |
(1,652 | ) | 1,902 | |||||
Accrued expenses |
(10,580 | ) | (7,419 | ) | ||||
Unearned revenue |
(10,611 | ) | (7,106 | ) | ||||
Lease obligations |
(637 | ) | (54 | ) | ||||
Other liabilities |
2,175 | 1,186 | ||||||
Net cash provided by operating activities |
72,406 | 98,142 | ||||||
Investing Activities: |
||||||||
Capital expenditures |
(26,657 | ) | (38,859 | ) | ||||
Receivable under loan facility (Note 12) |
(4,282 | ) | | |||||
Capitalized interest |
(60 | ) | (198 | ) | ||||
Net cash used in investing activities |
(30,999 | ) | (39,057 | ) | ||||
Financing Activities: |
||||||||
Repayments of long-term debt |
(41,236 | ) | (45,424 | ) | ||||
Proceeds from net share issuances |
19,326 | 1,507 | ||||||
Purchases of treasury stock |
(26,200 | ) | (29,174 | ) | ||||
Payments of cash dividends |
(9,676 | ) | | |||||
Distributions to noncontrolling interest partners |
(1,013 | ) | (1,475 | ) | ||||
Purchases of noncontrolling interests |
(1,363 | ) | (3,375 | ) | ||||
Payments of capital lease obligations |
(148 | ) | (137 | ) | ||||
Contributions from noncontrolling interest partners |
10 | 30 | ||||||
Tax benefit from share-based compensation, net |
2,555 | 1,077 | ||||||
Net cash used in financing activities |
(57,745 | ) | (76,971 | ) | ||||
Net decrease in cash and cash equivalents |
(16,338 | ) | (17,886 | ) | ||||
Cash and cash equivalents at the beginning of the period |
63,499 | 40,951 | ||||||
Cash and cash equivalents at the end of the period |
$ | 47,161 | $ | 23,065 | ||||
Supplemental Disclosure of Cash Flow Information: |
||||||||
Cash paid for income taxes, net of refunds |
$ | 24,684 | $ | 10,798 | ||||
Cash paid for interest |
$ | 1,658 | $ | 2,870 |
See accompanying notes to unaudited consolidated financial statements.
5
Table of Contents
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Business and Basis of Presentation
As of October 3, 2010, P.F. Changs China Bistro, Inc. (the Company or PFCB) owned and operated
200 full service restaurants throughout the United States under the name P.F. Changs China Bistro
(the Bistro). The Company also owned and operated 168 quick casual restaurants under the name Pei
Wei Asian Diner (Pei Wei). Additionally, there are six Bistro restaurants in international
markets that are operated by business partners under licensing agreements, and two Bistro
restaurants operated in Hawaii under a joint venture arrangement in which the Company owns a
noncontrolling interest. Beginning fiscal 2010, the Company has also expanded its brand to retail products.
The accompanying unaudited consolidated financial statements have been prepared in accordance with
U.S. generally accepted accounting principles (GAAP) for interim financial information and with
the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by GAAP for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring adjustments) considered
necessary for a fair presentation have been included. Operating results for the three and nine
month periods ended October 3, 2010 are not necessarily indicative of the results that may be
expected for the year ending January 2, 2011.
The consolidated balance sheet at January 3, 2010 has been derived from the audited consolidated
financial statements at that date, but does not include all of the information and footnotes
required by GAAP for complete financial statements. For further information, refer to the
consolidated financial statements and notes thereto included in the Companys Annual Report on Form
10-K for the fiscal year ended January 3, 2010.
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Actual results could differ from those estimates.
Principles of Consolidation and Presentation
The Companys consolidated financial statements include the accounts and operations of the Company
and its majority-owned subsidiaries. All material balances and transactions between the
consolidated entities have been eliminated. Noncontrolling interests are reported below net income
under the heading Net income attributable to noncontrolling interests in the consolidated income
statements and shown as a component of equity in the consolidated balance sheets.
Recent Accounting Literature
Consolidation of Variable Interest Entities Amended
(Included in ASC 810 Consolidation, SFAS No. 167 Amendments to FASB Interpretation No. 46(R))
SFAS No. 167 amends FASB Interpretation No. 46(R) Consolidation of Variable Interest Entities
regarding certain guidance for determining whether an entity is a variable interest entity and
modifies the methods allowed for determining the primary beneficiary of a variable interest entity.
The amendments include: (1) the elimination of the exemption for qualifying special purpose
entities, (2) a new approach for determining who should consolidate a variable-interest entity, and
(3) changes to when it is necessary to reassess who should consolidate a variable-interest entity.
SFAS No. 167 is effective for the first annual reporting period beginning after November 15, 2009,
with earlier adoption prohibited. The adoption of SFAS No. 167 in fiscal 2010 did not have a
material impact on the Companys consolidated financial statements.
6
Table of Contents
Improving Disclosures about Fair Value Measurements (ASU No. 2010-06)
(Included in ASC 820 Fair Value Measurements and Disclosures)
Accounting Standards Update (ASU) No. 2010-06 requires new disclosures regarding recurring or
nonrecurring fair value measurements. Entities will be required to separately disclose significant
transfers into and out of Level 1 and Level 2 measurements
in the fair value hierarchy and describe the reasons for the transfers. Entities will also be
required to provide information on purchases, sales, issuances and settlements on a gross basis in
the reconciliation of Level 3 fair value measurements. In addition, entities must provide fair
value measurement disclosures for each class of assets and liabilities, and disclosures about the
valuation techniques used in determining fair value for Level 2 or Level 3 measurements. ASU
2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009,
except for the gross basis reconciliation for the Level 3 fair value measurements, which is
effective for fiscal years beginning after December 15, 2010. The adoption of ASU 2010-06 did not
have a material impact on the Companys consolidated financial statements. There were no transfers
between Level 1 and Level 2 measurements in the fair value hierarchy during the three and nine
months ended October 3, 2010.
2. Discontinued Operations
Discontinued operations include results attributable to 10 Pei Wei restaurants that were closed
during the fourth quarter of 2008. Income (loss) from discontinued operations includes both the
historical results of operations as well as estimated and actual lease termination costs associated
with the 10 closed Pei Wei restaurants.
Income (loss) from discontinued operations, net of tax is comprised of the following (in
thousands):
Three Months Ended | Nine Months Ended | |||||||||||||||
October 3, | September 27, | October 3, | September 27, | |||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Revenues |
$ | | $ | | $ | | $ | | ||||||||
Income (loss) from discontinued operations before
income tax benefit(1) |
| (28 | ) | 10 | (876 | ) | ||||||||||
Income tax benefit (expense) |
| 11 | (4 | ) | 342 | |||||||||||
Income (loss) from discontinued operations, net of tax |
$ | | $ | (17 | ) | $ | 6 | $ | (534 | ) | ||||||
(1) | Includes lease termination charges, deferred rent write-offs upon lease termination
and deferred rent amortization. |
Lease termination agreements for seven of the ten locations have been executed as of October
3, 2010. A sublease agreement for one of the ten locations has been executed as of October 3, 2010.
The Company continues to pursue lease termination agreements as well as potential sub-tenant
agreements for the remaining closed locations.
Activity associated with the lease termination accrual is summarized below (in thousands):
October 3, | September 27, | |||||||
2010 | 2009 | |||||||
Beginning balance |
$ | 1,416 | $ | 2,379 | ||||
Cash payments |
(310 | ) | (1,957 | ) | ||||
Charges |
35 | 1,402 | ||||||
Ending balance |
$ | 1,141 | $ | 1,824 | ||||
Charges include additional amounts recognized based on availability of new information, which led
to updated estimates of anticipated lease termination costs for certain closed locations where the
accrual recorded at the time of lease termination was insufficient. Cash payments include
settlement payments as well as ongoing rent and other property-related payments. From store closure
date through October 3, 2010, the Company has recognized and reported in discontinued operations a
total of $4.1 million in lease termination charges for the closed Pei Wei locations. The lease
termination accrual is included in other liabilities at October 3, 2010 and in accrued expenses at
September 27, 2009 on the consolidated balance sheets with the timing of payments uncertain.
3. Income from Continuing Operations Attributable to PFCB per Share
Basic income from continuing operations attributable to PFCB per share is computed based on the
weighted average number of common shares outstanding during the period. Diluted income from
continuing operations attributable to PFCB per share is computed based on the weighted average
number of shares of common stock and potentially dilutive securities, which includes options,
restricted stock and restricted stock units (RSUs) outstanding under the Companys equity plans
and employee stock purchase plan.
For the three months ended October 3, 2010 and September 27, 2009, 1.2 million and 1.7 million,
respectively, of the Companys options were excluded from the calculation due to their
anti-dilutive effect. For the nine months ended October 3, 2010 and September 27, 2009, 1.2 million
and 2.2 million, respectively, of the Companys shares were excluded from the calculation due to
their anti-dilutive effect.
7
Table of Contents
The Company began paying quarterly variable cash dividends to its shareholders during the second
quarter of 2010. The Companys restricted stock awards are considered participating securities as
the awards include non-forfeitable rights to dividends with respect to unvested shares and, as
such, must be included in the computation of earnings per share pursuant to the two-class method.
Under the two-class method, a portion of net income is allocated to participating securities, and
therefore is excluded from the calculation of earnings per share allocated to common shares. For
the three and nine months ended October 3, 2010, the calculation of basic and diluted earnings per
share pursuant to the two-class method resulted in an immaterial difference from the amounts
displayed in the consolidated income statements.
4. Other Current Assets
Other current assets consist of the following (in thousands):
October 3, | January 3, | |||||||
2010 | 2010 | |||||||
Income taxes receivable |
$ | 11,777 | $ | 2,388 | ||||
Current portion of deferred tax asset |
10,567 | 11,036 | ||||||
Receivables |
6,616 | 15,752 | ||||||
Prepaid rent |
5,678 | 5,508 | ||||||
Other |
5,734 | 3,765 | ||||||
Total other current assets |
$ | 40,372 | $ | 38,449 | ||||
5. Other Assets
Other assets consist of the following (in thousands):
October 3, | January 3, | |||||||
2010 | 2010 | |||||||
Liquor licenses, net |
$ | 6,752 | $ | 6,836 | ||||
Software, net |
5,698 | 5,459 | ||||||
Restoration Plan investments |
4,475 | 3,454 | ||||||
Receivable under loan facility(1) |
4,282 | | ||||||
Deposits |
989 | 1,411 | ||||||
Other assets, net |
557 | 763 | ||||||
Total other assets |
$ | 22,753 | $ | 17,923 | ||||
(1) | See Note 12 for further details on the receivable under the loan facility. |
6. Accrued Expenses
Accrued expenses consist of the following (in thousands):
October 3, | January 3, | |||||||
2010 | 2010 | |||||||
Accrued payroll |
$ | 20,668 | $ | 26,262 | ||||
Accrued insurance |
17,494 | 17,426 | ||||||
Sales and use tax payable |
6,222 | 7,104 | ||||||
Property tax payable |
3,503 | 3,638 | ||||||
Accrued rent |
3,503 | 3,730 | ||||||
Derivative liability |
| 471 | ||||||
Other accrued expenses |
14,683 | 18,457 | ||||||
Total accrued expenses |
$ | 66,073 | $ | 77,088 | ||||
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7. Long-Term Debt
Credit Facility
The senior credit facility (Credit Facility) allows for borrowings of up to $75.0 million and
expires on August 30, 2013. The Credit Facility contains customary representations, warranties,
negative and affirmative covenants, including a requirement to maintain a maximum leverage ratio,
as defined, of 2.5:1 and a minimum fixed charge coverage ratio, as defined, of 1.25:1, as well as
customary events of default and certain default provisions that could result in acceleration of the
Credit Facility. The Company was in compliance with these restrictions and conditions as of October 3, 2010 as the Companys leverage ratio was 0.92:1 and the fixed charge coverage ratio was 2.39:1.
The Credit Facility is guaranteed by the Companys material existing and future domestic
subsidiaries. The Company fully repaid total outstanding borrowings of $40.0 million under the
Credit Facility during the first half of fiscal 2010. As of October 3, 2010, the Company had $14.1
million committed for the issuance of letters of credit, which are required by insurance companies
for the Companys workers compensation and general liability insurance programs. Available
borrowings under the Credit Facility were $60.9 million at October 3, 2010.
Interest Rate Swap
During the second quarter of fiscal 2008, the Company entered into an interest rate swap with a
notional amount of $40.0 million. The purpose of this transaction was to provide a hedge against
the effects of changes in interest rates on a portion of the Companys current variable rate
borrowings. The Company had designated the interest rate swap as a cash flow hedge of its exposure
to variability in future cash flows attributable to interest payments on a $40.0 million tranche of
floating rate debt.
Under the terms of the interest rate swap, the Company paid a fixed rate of 3.32% on the $40.0
million notional amount and received payments from its counterparty based on the 1-month LIBOR rate
for a term which ended on May 20, 2010. Interest rate differentials paid or received under the swap
agreement were recognized as adjustments to interest expense. The interest rate swap expired on May
20, 2010.
8. Other Liabilities
Other liabilities consist of the following (in thousands):
October 3, | January 3, | |||||||
2010 | 2010 | |||||||
Performance units |
$ | 5,952 | $ | 2,402 | ||||
Deferred income tax liability |
5,267 | 9,436 | ||||||
Deferred compensation |
4,873 | 3,653 | ||||||
Cash-settled awards |
3,938 | 1,453 | ||||||
Other |
2,671 | 1,544 | ||||||
Total other liabilities |
$ | 22,701 | $ | 18,488 | ||||
9. Fair Value Measurements
The Companys financial assets and financial liabilities measured at fair value at October 3, 2010
and January 3, 2010 are summarized below (in thousands):
Quoted Prices in | ||||||||||||||||||||
Active Markets | ||||||||||||||||||||
for Identical | Significant Other | Significant | ||||||||||||||||||
Assets/Liabilities | Observable Inputs | Unobservable Inputs | Valuation | |||||||||||||||||
October 3, 2010 | (Level 1) | (Level 2) | (Level 3) | Technique | ||||||||||||||||
Money markets |
$ | 41,683 | $ | | $ | 41,683 | $ | | market approach |
|||||||||||
Restoration Plan investments |
4,475 | | 4,475 | | market approach |
|||||||||||||||
Total |
$ | 46,158 | $ | | $ | 46,158 | $ | | ||||||||||||
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Quoted Prices in | ||||||||||||||||||||
Active Markets | ||||||||||||||||||||
for Identical | Significant Other | Significant | ||||||||||||||||||
Assets/Liabilities | Observable Inputs | Unobservable Inputs | Valuation | |||||||||||||||||
January 3, 2010 | (Level 1) | (Level 2) | (Level 3) | Technique | ||||||||||||||||
Money markets |
$ | 54,655 | $ | | $ | 54,655 | $ | | market approach |
|||||||||||
Restoration Plan investments |
3,454 | | 3,454 | | market approach |
|||||||||||||||
Interest rate swap liability |
(471 | ) | | (471 | ) | | income approach |
|||||||||||||
Total |
$ | 57,638 | $ | | $ | 57,638 | $ | | ||||||||||||
The Company invests excess cash in money market funds and reflects these amounts within cash
and cash equivalents in the consolidated balance sheets at a net value of 1:1 for each dollar
invested. Money market investments held by the Company were invested primarily in government backed
securities at October 3, 2010 and January 3, 2010.
The Companys Restoration Plan investments are considered trading securities and are reported at
fair value based on third party broker statements. Such amounts are reflected within other assets
in the consolidated balance sheets. The realized and unrealized holding gains and losses related to
these investments are recorded in interest and other income (expense), net in the consolidated
income statements.
The fair value of the Companys interest rate swap was estimated using the net present value of a
series of cash flows on both the fixed and floating legs of the swap and was reflected within
accrued expenses in the consolidated balance sheets. These cash flows were based on yield curves
which took into account the contractual terms of the derivative, including the period to maturity
and market-based parameters such as interest rates and volatility. The yield curves used in the
valuation model were based on published data for counterparties with an AA rating. Market practice
in pricing derivatives initially assumes all counterparties have the same credit quality. The
Company mitigated derivative credit risk by transacting with highly-rated counterparties. The
interest rate swap expired on May 20, 2010. See Note 7 for a discussion of the Companys interest
rate swap.
10. Share-Based Compensation
The Company has granted equity-classified awards in the form of stock options, restricted stock and
restricted stock units (RSUs), and liability-classified awards in the form of performance units,
cash-settled stock appreciation rights (SARs) and cash-settled stock-based awards (restricted
cash units or RCUs) to certain employees and directors.
Equity-Classified Awards
Stock options were granted for a fixed number of shares with an exercise price equal to or greater
than the fair value of the shares at the date of grant. Restricted stock and RSUs were granted with
the fair value determined based on the Companys closing stock price on the date of grant.
Share-based compensation expense for equity-classified awards is amortized to expense over the
vesting period. During the second quarter of fiscal 2010, the Company issued RSUs to members of
its board of directors in accordance with the non-employee director compensation plan.
Liability-Classified Awards
Performance Units
The cash value of the performance units will be equal to the amount, if any, by which the Companys
final average stock price as defined in the agreements, exceeds the strike price. The total value
of the performance units is subject to a maximum value of $12.50 per unit. The fair value of the
performance units is remeasured at each reporting period until the awards are settled. At October
3, 2010 and January 3, 2010, the fair value per performance unit was $8.76 and $6.54, respectively,
calculated using a Monte-Carlo simulation model which incorporates the historical performance,
volatility and correlation of the Companys stock price and the Russell 2000 Index. At October 3,
2010 and January 3, 2010, the recorded liability of the performance units, reflected in other
liabilities in the consolidated balance sheets, was $6.0 million and $2.4 million, respectively.
There were no performance unit awards granted during the nine months ended October 3, 2010.
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Total cumulative expense recognized for the performance units from date of grant through October 3,
2010 was $6.0 million based on the current estimated fair value of $8.76 per unit. If the value of
the performance units at settlement date is $12.50, the maximum value per unit, the Company would
recognize total additional share-based compensation expense of $9.0 million over the remaining term
of the award agreements ending January 1, 2012. The amount and timing of the recognition of
additional expense will be dependent on the estimated fair value at each quarterly reporting date.
Any increases in fair value may not occur ratably over the remaining five quarters of the award
term; therefore, share-based compensation expense related to the performance units could vary
significantly in future periods.
Cash-Settled Awards
The cash value of SARs will be based on the appreciation, if any, of the Companys stock price on
the date of settlement compared to the Companys stock price on the date of grant, and the cash
value of RCUs will be based on the Companys stock price on the date of settlement. The fair value
of SARs is equal to the value calculated per the Black-Scholes model and the fair value of RCUs is
equal to the sum of the value calculated per the Black-Scholes model and the Companys stock price
at the reporting date. The fair value of SARs and RCUs is remeasured at each reporting period
until the awards are settled. At October 3, 2010 and January 3, 2010, the recorded liability of
cash-settled awards, reflected in other liabilities in the consolidated balance sheets, was $3.9
million and $1.5 million, respectively.
SARs were granted to a member of the Board of Directors who joined the Board during the first
quarter of fiscal 2010. During the third quarter of fiscal 2010, the Company granted RCUs to
eligible employees in conjunction with its annual long-term incentive award grant.
The fair value of the SARs and RCUs was estimated using a Black-Scholes option pricing model with
the following weighted average assumptions:
Three and Nine Months Ended | Three and Nine Months Ended | |||||||||||||||
October 3, 2010 | September 27, 2009 | |||||||||||||||
RCUs | SARs | RCUs | SARs | |||||||||||||
Weighted average risk-free interest rate |
0.5 | % | 0.9 | % | 1.6 | % | 1.9 | % | ||||||||
Expected life of cash-settled awards (years) |
2.5 | 3.9 | 3.5 | 4.0 | ||||||||||||
Expected stock volatility |
47.0 | % | 46.8 | % | 48.3 | % | 45.2 | % | ||||||||
Expected dividend yield(1) |
0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % |
(1) | Unvested SARs and RCUs are eligible to receive dividend-equivalents in the form of
cash or additional awards during the vesting period, and as such, no expected dividend yield is
included in the fair value assumptions for these awards. |
Share-based compensation expense for performance units, SARs and RCUs is recognized over the
service period with the impact of updated fair values recognized as cumulative adjustments to
share-based compensation expense at the end of each reporting period.
Share-Based Compensation Expense
Share-based compensation expense for equity and liability-classified awards is classified as
follows (in thousands):
Three Months Ended | Nine Months Ended | |||||||||||||||
October 3, | September 27, | October 3, | September 27, | |||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Equity-classified awards: |
||||||||||||||||
Labor |
$ | 23 | $ | 68 | $ | 100 | $ | 259 | ||||||||
General and administrative |
1,342 | 1,607 | 3,949 | 5,528 | ||||||||||||
Liability-classified awards: |
||||||||||||||||
General and administrative |
3,176 | 1,088 | 6,133 | 2,034 | ||||||||||||
Total share-based compensation(1) |
4,541 | 2,763 | 10,182 | 7,821 | ||||||||||||
Less: tax benefit |
(1,348 | ) | (786 | ) | (3,002 | ) | (2,217 | ) | ||||||||
Total share-based compensation, net of tax |
$ | 3,193 | $ | 1,977 | $ | 7,180 | $ | 5,604 | ||||||||
(1) | Share-based compensation expense includes expense related to the cash payment of
dividend equivalent units on unvested RCUs and expense related to the payment of cash dividends on
unvested restricted stock awards that are not expected to ultimately vest. |
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Unvested Share-Based Compensation Expense
At October 3, 2010, unvested share-based compensation for equity-classified awards, net of
forfeitures, totaled $1.8 million for stock options and $2.2 million for restricted stock and RSUs.
This expense will be recognized over the remaining weighted average vesting period, which is
approximately 1.4 years for stock options and 1.0 years for restricted stock and RSUs.
At October 3, 2010, unvested share-based compensation for liability-classified awards totaled $4.6
million for performance units and $8.9 million for RCUs and SARs. This expense will be recognized
over the remaining weighted average vesting period, which is approximately 1.2 years for
performance units and 2.4 years for RCUs and SARs.
11. Segment Reporting
The Company operates primarily in the United States food-service industry and has determined that
its reportable segments are those that are based on the Companys methods of internal reporting and
management structure. The Companys reportable segments are Bistro and Pei Wei. Additionally,
licensing fees related to Bistro restaurants operated by business partners pursuant to development
and licensing agreements and licensing fees related to a premium line of frozen entrées operated
under a licensing agreement are both reported within Shared Services and Other. There were no
material amounts of revenues or transfers among reportable segments.
The following table presents information about reportable segments (in thousands):
Shared | ||||||||||||||||
Services | ||||||||||||||||
Total | and Other | Bistro | Pei Wei | |||||||||||||
For the Three Months Ended October 3, 2010: |
||||||||||||||||
Revenues |
$ | 308,410 | $ | 911 | $ | 231,309 | $ | 76,190 | ||||||||
Segment profit |
38,358 | 383 | 30,765 | 7,210 | ||||||||||||
Capital expenditures |
8,352 | 364 | 6,119 | 1,869 | ||||||||||||
Depreciation and amortization |
19,318 | 528 | 14,018 | 4,772 | ||||||||||||
For the Three Months Ended September 27, 2009: |
||||||||||||||||
Revenues |
$ | 290,329 | $ | | $ | 217,093 | $ | 73,236 | ||||||||
Segment profit (loss) |
30,593 | (508 | ) | 25,372 | 5,729 | |||||||||||
Capital expenditures |
18,086 | 554 | 12,948 | 4,584 | ||||||||||||
Depreciation and amortization |
19,055 | 508 | 13,900 | 4,647 | ||||||||||||
For the Nine Months Ended October 3, 2010: |
||||||||||||||||
Revenues |
$ | 931,619 | $ | 2,376 | $ | 695,441 | $ | 233,802 | ||||||||
Segment profit |
109,487 | 818 | 85,627 | 23,042 | ||||||||||||
Capital expenditures |
26,657 | 2,006 | 19,779 | 4,872 | ||||||||||||
Depreciation and amortization |
57,654 | 1,558 | 41,915 | 14,181 | ||||||||||||
For the Nine Months Ended September 27, 2009: |
||||||||||||||||
Revenues |
$ | 901,526 | $ | | $ | 679,378 | $ | 222,148 | ||||||||
Segment profit (loss) |
108,233 | (1,415 | ) | 89,711 | 19,937 | |||||||||||
Capital expenditures |
38,859 | 2,517 | 27,738 | 8,604 | ||||||||||||
Depreciation and amortization |
56,126 | 1,415 | 41,274 | 13,437 | ||||||||||||
As of October 3, 2010: |
||||||||||||||||
Total assets |
$ | 612,804 | $ | 22,000 | $ | 491,386 | $ | 99,418 | ||||||||
Goodwill |
6,819 | | 6,566 | 253 | ||||||||||||
As of January 3, 2010: |
||||||||||||||||
Total assets |
$ | 652,150 | $ | 20,293 | $ | 522,940 | $ | 108,917 | ||||||||
Goodwill |
6,819 | | 6,566 | 253 |
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In addition to using consolidated results in evaluating the Companys financial results, a
primary measure used by executive management in assessing the performance of existing restaurant
concepts is segment profitability (sometimes referred to as restaurant operating income). Segment
profitability is defined as income from operations before general and administrative, preopening
and partner investment expenses, but including a deduction for net income attributable to
noncontrolling interests. Because preopening and partner investment expenses are associated with
expansion of the Companys business and vary in timing and magnitude, they make an accurate
assessment of ongoing operations more difficult and are therefore excluded. Additionally, general
and administrative expenses are only included in the Companys consolidated financial results as
they are generally not specifically identifiable to individual business units as these costs relate
to support of both restaurant businesses, the extension of the Companys brands into international
markets and retail products. As the Companys expansion is funded entirely from its ongoing
restaurant operations, segment profitability is one consideration when determining whether and when
to open additional restaurants.
Reconciliation of Segment profit to Income from continuing operations before taxes (in
thousands):
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
October 3, | September 27, | October 3, | September 27, | |||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Segment profit |
$ | 38,358 | $ | 30,593 | $ | 109,487 | $ | 108,233 | ||||||||
Less: General and administrative |
(23,226 | ) | (20,408 | ) | (62,044 | ) | (60,745 | ) | ||||||||
Less: Preopening expense |
(572 | ) | (1,550 | ) | (1,537 | ) | (2,499 | ) | ||||||||
Less: Partner investment expense |
147 | (18 | ) | 271 | 537 | |||||||||||
Less: Interest and other income
(expense), net |
175 | 85 | (905 | ) | (1,292 | ) | ||||||||||
Add: Net income attributable to
noncontrolling interests |
172 | 155 | 619 | 813 | ||||||||||||
Income from continuing
operations before taxes |
$ | 15,054 | $ | 8,857 | $ | 45,891 | $ | 45,047 | ||||||||
12. Commitments and Contingencies
The Company is engaged in various legal actions which arise in the ordinary course of its
business. The Company is also currently under examination by various taxing authorities for years
not closed by the statute of limitations. Although there can be no assurance as to the ultimate
disposition of these matters, it is the opinion of the Companys management, based upon the
information available at this time, that the outcome of these matters, individually or in the
aggregate, will not have a material adverse effect on the results of operations, liquidity or
financial condition of the Company.
During 2009, the Company entered into an agreement with FRC Balance LLC, d/b/a True Food Kitchen,
to provide debt capital for the early-stage development of True Food Kitchen restaurants. The
agreement provides for a $10.0 million loan facility to develop True Food Kitchen restaurants and
can, under certain conditions, be converted by P.F. Changs into a majority equity position in True
Food Kitchen. As of October 3, 2010, the Company had advanced $4.3 million under the loan facility
to True Food Kitchen.
13. Subsequent Events
Cash Dividends
During February 2010, the Board of Directors approved the initiation of a quarterly variable cash
dividend based on the Companys desire to consistently return excess cash flow to its shareholders.
The amount of the cash dividend will be computed based on 45% of the Companys quarterly net
income. Based on seasonal fluctuations in the Companys quarterly net income, the amount of cash
dividend payments, which are based on a fixed percentage of net income, may fluctuate between
quarters.
Based on the Board of Directors authorization, on October 27, 2010 the Company announced a cash
dividend of $0.21 per share which will be paid November 22, 2010 to all shareholders of record at
the close of business on November 8, 2010. Based on shares outstanding at October 3, 2010, the
total dividend payment will approximate $4.8 million during the fourth quarter of fiscal 2010.
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
This information should be read in conjunction with the consolidated financial statements and notes
thereto included in Item 1 of Part I of this Quarterly Report and the audited consolidated
financial statements and notes thereto and Managements Discussion and Analysis of Financial
Condition and Results of Operations for the year ended January 3, 2010 contained in our 2009 Annual
Report on Form 10-K.
Some of the statements in this section contain forward-looking statements, which involve risks and
uncertainties. In some cases, forward-looking statements can be identified by terms such as may,
will, should, expect, plan, intend, forecast, anticipate, believe, estimate,
predict, potential, continue or the negative of these terms or other comparable terminology.
The forward-looking statements contained in this section involve known and unknown risks,
uncertainties and situations that may cause our or our industrys actual results, level of
activity, performance or achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by these statements. Factors that might
cause actual events or results to differ materially from those indicated by these forward-looking
statements may include the matters listed under Risk Factors in Item 1A (a detailed description
of which can be found under the caption Risk Factors in our most recently filed Form 10-K) and
elsewhere in this Form 10-Q, including, but not limited to, failure of our existing or new
restaurants to achieve predicted results; changes in general economic and political conditions that
affect consumer spending; changes in government legislation may increase our labor costs; our
dependence on the financial performance of restaurants concentrated in certain geographic areas;
and intense competition in the restaurant industry. Because we cannot guarantee future results,
levels of activity, performance or achievements, undue reliance should not be placed on these
forward-looking statements.
Overview
We own and operate two restaurant concepts in the Asian niche: P.F. Changs China Bistro (Bistro)
and Pei Wei Asian Diner (Pei Wei). Additionally, under Global Brand Development we have extended our brand to international markets and retail products that are operated under licensing agreements.
Bistro
As of October 3, 2010, we owned and operated 200 full service Bistro restaurants that feature a
blend of high quality, Chinese-inspired cuisine and attentive service in a high energy contemporary
bistro setting. P.F. Changs was formed in early 1996 with the acquisition of the four original
Bistro restaurants and the hiring of an experienced management team. Utilizing a partnership
management philosophy, we embarked on a strategic expansion of the concept targeted at major
metropolitan areas throughout the United States. We own and operate all of our restaurants in the
continental U.S.
We intend to open four new Bistro restaurants during fiscal 2010, three of which were open by the
end of the third quarter of 2010. Our Bistro restaurants typically range in size from 6,000 to
7,500 square feet, and require an average total invested capital of approximately $3.5 million to
$4.0 million per restaurant (net of estimated tenant incentives). This total capitalized investment
includes the capitalized lease value of the property, which can vary greatly depending on the
specific trade area. We expect that our planned future restaurants will require, on average, a
total cash investment per restaurant of approximately $2.5 million to $3.0 million (net of
estimated tenant incentives). Preopening expenses typically average approximately $350,000 to
$400,000 per restaurant.
Pei Wei
As of October 3, 2010, we owned and operated 168 quick casual Pei Wei restaurants that serve
freshly prepared, wok-seared, contemporary pan-Asian cuisine in a relaxed, warm environment with
friendly, attentive counter service and take-out flexibility. We opened our first Pei Wei
restaurant in July 2000 in the Phoenix, Arizona area and have expanded the concept significantly
since that time.
We opened two new Pei Wei restaurants during fiscal 2010. Our Pei Wei restaurants are generally
2,800 to 3,400 square feet in size and require an average total invested capital of approximately
$1.5 million per restaurant (net of estimated tenant incentives). This total capitalized investment
includes the capitalized lease value of the property, which can vary greatly depending on the
specific trade area. We expect that our planned future restaurants will require, on average, a
total cash investment per restaurant of approximately $750,000 to $850,000 (net of estimated tenant
incentives). Preopening expenses typically average approximately $140,000 to $160,000 per
restaurant.
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Global Brand Development
International
We are selectively pursuing international expansion of our Bistro restaurants. During fiscal 2009,
we signed two development and licensing agreements with partners who will develop and operate
Bistro restaurants in international markets. We also signed two development and licensing agreement
with new partners during the first three quarters of fiscal 2010. Our license agreements typically
provide for us to receive an initial territory fee, store opening fees and ongoing royalty revenues
based on a percentage of international restaurant sales. Our partners collectively expect to open
five restaurants during fiscal 2010, four of which were open as of the end of the third quarter of
2010. As of October 3, 2010, six Bistro restaurants that are operated under
international development and licensing agreements were open in Mexico and the Middle East.
We continue to engage in discussions with additional potential partners regarding
expansion of the Companys brands into various international markets and other venues.
Additionally, there are two Bistro restaurants located in Hawaii which are operated under a joint venture
arrangement in which we own a noncontrolling interest.
Retail
During 2009, we entered into an exclusive licensing agreement with Unilever to develop and launch a
new premium line of frozen Asian-style entrées in the U.S. under the P.F. Changs brand. During the
second quarter of 2010, the new product line became available in numerous retail outlets. We
receive ongoing royalty revenues based on a percentage of product sales, with such percentages
escalating over the first three years of the agreement. We began recognizing retail royalty
revenues during the second quarter of 2010.
Other Ventures
During 2009, we entered into an agreement with FRC Balance LLC, d/b/a True Food Kitchen, to provide
debt capital for the early-stage development of True Food Kitchen restaurants. The agreement
provides a $10.0 million loan facility to develop True Food Kitchen restaurants that we can, under
certain conditions, convert into a majority equity position in True Food Kitchen. As of October 3,
2010, we had advanced $4.3 million under the loan facility to True Food Kitchen.
Change in Partnership Structure Pei Wei
We utilize a partnership philosophy to facilitate the development, leadership and operation of our
Pei Wei restaurants. Historically, this philosophy was embodied in a traditional legal partnership
structure, which included capital contributions from our partners in exchange for an ownership
stake in the profits and losses of our restaurants. Effective April 2010 for new store openings,
Pei Wei began employing a different structure to achieve the same goal. Our Market Partners and
Regional Vice Presidents (still partners in the philosophical, but not legal sense) no longer
have a direct ownership stake in the profits and losses of restaurants, but are instead eligible to
receive monthly incentive payments based upon the profitability of the restaurants in their region,
as well as participate in an incentive program that rewards improvements in the operating
performance of the restaurants in their market or region. As a result of these changes, incentive
payments made to the individuals participating in the new plan are classified as compensation
rather than as net income attributable to noncontrolling interests. Accordingly, compensation
expense is reflected in the consolidated income statement as general and administrative expense for
these Pei Wei operators. Partner investment expense will no longer be recognized for new Pei Wei
restaurant openings beginning April 2010 as a result of this change. The Bistro has been operating
under this structure since the beginning of fiscal 2007.
Critical Accounting Policies
Our critical accounting policies are those that require significant judgment. There have been no
material changes to the critical accounting policies previously reported in our 2009 Annual Report
on Form 10-K other than an update to the following.
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Table of Contents
Share-Based Compensation
We account for share-based compensation based on fair value measurement guidance. We use the
Black-Scholes option pricing model, which requires the input of subjective assumptions, for our
options and cash-settled liability awards, with the exception of performance units. These
assumptions include estimating 1) expected term, 2) common stock price volatility over the expected
term and 3) the number of awards that will ultimately not vest (expected forfeiture rate). For
performance units, fair value is calculated using a Monte Carlo simulation model which incorporates
the historical performance, volatility and correlation of our stock price and the Russell 2000
Index.
The cash value of the performance units will be equal to the amount, if any, by which our final
average stock price, as defined in the agreements, exceeds the strike price. The strike price will
be adjusted, either up or down, based on the percentage change in the Russell 2000 Index during the
performance period, as defined in the agreements, which approximates three years. The performance
units were granted in February 2009, and since the grant date, the Russell 2000 Index has increased
47% while our stock has appreciated 150% over the same time period.
Total cumulative expense recognized for the performance units from date of grant through October 3,
2010 was $6.0 million based on the estimated fair value as of October 3, 2010 of $8.76 per unit. As
of October 3, 2010 if the value of the performance units at settlement date is $12.50, the maximum
value per unit, we would recognize total additional share-based compensation expense of $9.0
million over the remaining term of the award agreements ending January 1, 2012. The amount and
timing of the recognition of additional expense will be dependent on the estimated fair value at
each quarterly reporting date. Any increases in fair value may not occur ratably over the remaining
five quarters of the award term; therefore, share-based compensation expense related to the
performance units could vary significantly in future periods.
Additionally, we use assumptions to estimate the expected forfeiture rate related to restricted
stock and cash-settled liability awards in determining the share-based compensation for these
awards. Changes in these assumptions can materially affect fair value and our estimates of
share-based compensation. Consequently, the related amount recognized in the consolidated
statements of income could vary significantly in future periods.
Results of Operations
The following tables set forth certain unaudited quarterly information for the three and nine month
periods ended October 3, 2010 and September 27, 2009, respectively. This quarterly information has
been prepared on a basis consistent with the audited financial statements and, in the opinion of
management, includes all adjustments, consisting only of normal recurring adjustments, necessary
for a fair presentation of the information for the periods presented. Our quarterly operating
results may fluctuate significantly as a result of a variety of factors, and operating results for
any quarter are not necessarily indicative of results for a full fiscal year.
16
Table of Contents
Results for the three month periods ended October 3, 2010 and September 27, 2009
Our consolidated operating results were as follows (dollars in thousands):
Three Months Ended | ||||||||||||||||||||||||
October 3, | % of | September 27, | % of | % | ||||||||||||||||||||
2010 | Revenues | 2009 | Revenues | Change | Change | |||||||||||||||||||
Revenues |
$ | 308,410 | 100.0 | % | $ | 290,329 | 100.0 | % | $ | 18,081 | 6.2 | % | ||||||||||||
Costs and expenses: |
||||||||||||||||||||||||
Cost of sales |
78,380 | 25.4 | % | 76,364 | 26.3 | % | 2,016 | 2.6 | % | |||||||||||||||
Labor |
101,620 | 32.9 | % | 95,713 | 33.0 | % | 5,907 | 6.2 | % | |||||||||||||||
Operating |
52,058 | 16.9 | % | 50,883 | 17.5 | % | 1,175 | 2.3 | % | |||||||||||||||
Occupancy |
18,504 | 6.0 | % | 17,566 | 6.1 | % | 938 | 5.3 | % | |||||||||||||||
General and administrative |
23,226 | 7.5 | % | 20,408 | 7.0 | % | 2,818 | 13.8 | % | |||||||||||||||
Depreciation and amortization |
19,318 | 6.3 | % | 19,055 | 6.6 | % | 263 | 1.4 | % | |||||||||||||||
Preopening expense |
572 | 0.2 | % | 1,550 | 0.5 | % | (978 | ) | (63.1 | )% | ||||||||||||||
Partner investment expense |
(147 | ) | 0.0 | % | 18 | 0.0 | % | (165 | ) | | ||||||||||||||
Total costs and expenses |
293,531 | 95.2 | % | 281,557 | 97.0 | % | 11,974 | 4.3 | % | |||||||||||||||
Income from operations |
14,879 | 4.8 | % | 8,772 | 3.0 | % | 6,107 | 69.6 | % | |||||||||||||||
Interest and other income (expense), net |
175 | 0.1 | % | 85 | 0.0 | % | 90 | | ||||||||||||||||
Income from continuing operations before taxes |
15,054 | 4.9 | % | 8,857 | 3.1 | % | 6,197 | 70.0 | % | |||||||||||||||
Provision for income taxes |
(4,417 | ) | (1.4 | )% | (2,477 | ) | (0.9 | )% | (1,940 | ) | 78.3 | % | ||||||||||||
Income from continuing operations, net of tax |
10,637 | 3.4 | % | 6,380 | 2.2 | % | 4,257 | 66.7 | % | |||||||||||||||
Loss from discontinued operations, net of tax |
| 0.0 | % | (17 | ) | (0.0 | )% | 17 | 100.0 | % | ||||||||||||||
Net income |
10,637 | 3.4 | % | 6,363 | 2.2 | % | 4,274 | 67.2 | % | |||||||||||||||
Less: Net income attributable to
noncontrolling interests |
172 | 0.1 | % | 155 | 0.1 | % | 17 | 11.0 | % | |||||||||||||||
Net income attributable to PFCB |
$ | 10,465 | 3.4 | % | $ | 6,208 | 2.1 | % | $ | 4,257 | 68.6 | % | ||||||||||||
Certain percentage amounts may not sum due to rounding. Percentages over 100% are not
displayed.
Selected operating statistics for the Bistro were as follows (dollars in thousands):
Three Months Ended | ||||||||||||||||||||||||
October 3, | % of | September 27, | % of | % | ||||||||||||||||||||
2010 | Revenues | 2009 | Revenues | Change | Change | |||||||||||||||||||
Revenues |
$ | 231,309 | 100.0 | % | $ | 217,093 | 100.0 | % | $ | 14,216 | 6.5 | % | ||||||||||||
Costs and expenses: |
||||||||||||||||||||||||
Cost of sales |
58,135 | 25.1 | % | 56,624 | 26.1 | % | 1,511 | 2.7 | % | |||||||||||||||
Labor |
76,533 | 33.1 | % | 71,216 | 32.8 | % | 5,317 | 7.5 | % | |||||||||||||||
Operating |
38,554 | 16.7 | % | 37,487 | 17.3 | % | 1,067 | 2.8 | % | |||||||||||||||
Occupancy |
13,242 | 5.7 | % | 12,390 | 5.7 | % | 852 | 6.9 | % | |||||||||||||||
Depreciation and amortization |
14,018 | 6.1 | % | 13,900 | 6.4 | % | 118 | 0.8 | % | |||||||||||||||
Preopening expense |
411 | 0.2 | % | 1,004 | 0.5 | % | (593 | ) | (59.1 | )% | ||||||||||||||
Partner investment expense |
| 0.0 | % | | 0.0 | % | | | ||||||||||||||||
Net income attributable to
noncontrolling interests |
62 | 0.0 | % | 104 | 0.0 | % | (42 | ) | (40.4 | )% |
17
Table of Contents
Selected operating statistics for Pei Wei were as follows (dollars in thousands):
Three Months Ended | ||||||||||||||||||||||||
October 3, | % of | September 27, | % of | |||||||||||||||||||||
2010 | Revenues | 2009 | Revenues | Change | % Change | |||||||||||||||||||
Revenues |
$ | 76,190 | 100.0 | % | $ | 73,236 | 100.0 | % | $ | 2,954 | 4.0 | % | ||||||||||||
Costs and expenses: |
||||||||||||||||||||||||
Cost of sales |
20,245 | 26.6 | % | 19,740 | 27.0 | % | 505 | 2.6 | % | |||||||||||||||
Labor |
25,087 | 32.9 | % | 24,497 | 33.4 | % | 590 | 2.4 | % | |||||||||||||||
Operating |
13,504 | 17.7 | % | 13,396 | 18.3 | % | 108 | 0.8 | % | |||||||||||||||
Occupancy |
5,262 | 6.9 | % | 5,176 | 7.1 | % | 86 | 1.7 | % | |||||||||||||||
Depreciation and amortization |
4,772 | 6.3 | % | 4,647 | 6.3 | % | 125 | 2.7 | % | |||||||||||||||
Preopening expense |
161 | 0.2 | % | 546 | 0.7 | % | (385 | ) | (70.5 | )% | ||||||||||||||
Partner investment expense |
(147 | ) | (0.2 | )% | 18 | 0.0 | % | (165 | ) | | ||||||||||||||
Net income attributable to
noncontrolling interests |
110 | 0.1 | % | 51 | 0.1 | % | 59 | |
Percentages over 100% are not displayed.
Revenues
Our revenues are derived primarily from food and beverage sales. Each segment contributed as
follows:
Bistro: The increase in revenues was primarily attributable to incremental new store revenues
of $9.2 million, comprised of a full quarter of revenues from the seven new stores that opened
the last two quarters of fiscal 2009 and revenues generated by the three new Bistro restaurants
that opened during 2010. The increase was also attributable to a $5.0 million increase in
revenues for stores open prior to the third quarter of 2009 due to an increase in overall guest
traffic partially offset by a slight decrease in the average ticket, which includes the benefit
of a one to two percent price increase which went into effect during the second quarter of 2010.
Pei Wei: The increase in revenues was primarily attributable to incremental new store revenues
of $1.8 million, comprised of a full quarter of revenues from the five new stores that opened
the last two quarters of fiscal 2009 and revenues generated by the two new Pei Wei restaurants
that opened during 2010. The increase was also attributable to a $1.2 million increase in
revenues for stores open prior to the third quarter of 2009 due to an increase in the average
ticket, which includes incremental sales of small plate menu items and, to a lesser extent, the
benefit of an approximate one percent price increase which went into effect during the second
quarter of 2010. The increase was partially offset by a decrease in overall guest traffic.
Costs and Expenses
Cost of Sales
Cost of sales is comprised of the cost of food and beverages. Each segment contributed as follows:
Bistro: Cost of sales as a percentage of revenues decreased primarily due to the benefit of
menu price increases, favorable wok oil and beef pricing and the net favorable impact of product
mix shifts. These decreases were partially offset by the impact of greater sales discounts,
including happy hour menu pricing.
Pei Wei: Cost of sales as a percentage of revenues decreased primarily due to favorable wok
oil, beef and rice pricing partially offset by the net impact of product mix shifts.
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Table of Contents
Labor
Labor expenses consist of restaurant management salaries, hourly staff payroll costs, other
payroll-related items and imputed partner bonus expense. Imputed partner bonus expense represents
the portion of restaurant-level operating results that is allocable to certain noncontrolling
partners, but is presented as bonus expense for accounting purposes. Each segment contributed as
follows:
Bistro: Labor expenses as a percentage of revenues increased primarily due to higher management
incentive accruals and the impact of greater sales discounts (principally related to happy hour
menu pricing). These increases were partially offset by the benefit of menu price increases and
improved operational efficiencies.
Pei Wei: Labor expenses as a percentage of revenues decreased primarily due to lower manager
salaries, the benefit of improved leverage from higher average weekly sales and improved
operational efficiencies.
Operating
Operating expenses consist primarily of various restaurant-level costs such as repairs and
maintenance, utilities and marketing, certain of which are variable and may fluctuate with
revenues. Also, expenditures associated with marketing programs are discretionary in nature and
the timing and amount of marketing spend will vary. Each segment contributed as follows:
Bistro: Operating expenses as a percentage of revenues decreased primarily due to the benefit
of improved leverage from higher average weekly sales, lower repairs and maintenance expense and
lower restaurant supplies costs.
Pei Wei: Operating expenses as a percentage of revenues decreased primarily due to lower
marketing spend and, to a lesser extent, the benefit of improved leverage from higher average
weekly sales.
Occupancy
Occupancy costs include both fixed and variable portions of rent, common area maintenance charges,
property and general liability insurance and property taxes. Each segment contributed as follows:
Bistro: Occupancy costs as a percentage of revenues were consistent primarily due to higher
property tax expense offset by the benefit of improved leverage from higher average weekly sales
and lower general liability insurance costs.
Pei Wei: Occupancy costs as a percentage of revenues decreased primarily due to the benefit of
improved leverage from higher average weekly sales and lower general liability insurance costs
partially offset by higher property tax expense.
General and Administrative
General and administrative expenses are comprised of costs associated with corporate and
administrative functions that support restaurant development and operations and provide
infrastructure to support future growth including, but not limited to, management and staff
compensation, employee benefits, travel, legal and professional fees, technology and market
research. Realized and unrealized holding gains and losses related to investments in the
Restoration Plan, a nonqualified deferred compensation plan, are included within general and
administrative expense, with a corresponding offset in interest and other income (expense), net.
Consolidated general and administrative costs increased primarily due to higher share-based
compensation expense principally resulting from an increase in the fair value of the performance
units and other cash-settled awards and, to a lesser extent, higher excise tax expense resulting
from a multi-year state tax audit of the Companys partnership returns and higher management
incentive accruals. These increases were partially offset by lower health insurance costs.
Depreciation and Amortization
Depreciation and amortization expenses include the depreciation of fixed assets, gains and losses
on disposal of assets and the amortization of intangible assets, software and non-transferable
liquor license fees. Each segment contributed as follows:
Bistro: Depreciation and amortization increased primarily due to additional depreciation on
restaurants that opened during the last two quarters of fiscal 2009 and the first three quarters
of 2010. As a percentage of revenues, depreciation and amortization decreased primarily due to
the benefit of improved leverage from higher average weekly sales, a decrease in current year
retirements and smallwares assets whose costs have been fully expensed.
Pei Wei: Depreciation and amortization increased primarily due to additional depreciation on
restaurants that opened during the last two quarters of fiscal 2009 and the first three quarters
of 2010. As a percentage of revenues, depreciation and amortization was consistent primarily due
to the benefit of improved leverage from higher average weekly sales and smallwares assets whose
costs have been fully expensed. These decreases were partially offset by additional depreciation
related to new digital menu boards installed during fiscal 2009.
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Table of Contents
Preopening Expense
Preopening expenses, which are expensed as incurred, consist of expenses incurred prior to opening
a new restaurant and are comprised principally of manager salaries, employee payroll and related
training costs. Preopening expenses also include straight-line rent expense for the period between
the possession date of leased premises and the restaurant opening date. Each segment contributed
as follows:
Bistro: Preopening expense decreased primarily due to the timing of expenses for new restaurant
openings scheduled for the fourth quarter of 2010 compared to fiscal 2009 and the impact of one
new restaurant opening during the third quarter of 2010 compared to two new restaurant openings
during the third quarter of 2009.
Pei Wei: Preopening expense decreased primarily due to expenses related to no new restaurant
openings scheduled for the remainder of fiscal 2010 compared to two new restaurant openings
during the fourth quarter of fiscal 2009. The decrease was also due to the impact of one new
restaurant opening during the third quarter of 2010 compared to three new restaurant openings
during the third quarter of 2009.
Partner Investment Expense
Partner investment expense represents the difference between the imputed fair value of
noncontrolling interests at the time our partners invested in our restaurants and our partners
cash contributions for those ownership interests. Additionally, for those interests that are bought
out prior to the restaurant reaching maturity (typically after five years of operation), partner
investment expense includes a reversal of previously recognized expense for the difference between
the fair value of the noncontrolling interest at inception date and the fair value at the date of
repurchase, to the extent that the former is greater.
Due to the change in the partnership structure beginning the second quarter of fiscal 2010, partner
investment expense is no longer recognized at the time a new restaurant opens compared to the third
quarter of 2009 when partner investment expense was recorded for two new restaurant openings. The
decrease is also due to the impact of a greater number of early buyouts during the third quarter of
2010 compared to the third quarter of 2009.
Interest and Other Income (Expense), Net
Interest expense primarily consists of interest costs in excess of amounts capitalized related to
our outstanding credit line (to the extent balances are outstanding) and other borrowings, as well
as accretion expense related to our conditional asset retirement obligations. Interest income
earned primarily relates to interest-bearing overnight deposits for fiscal 2009 and 2010. During
fiscal 2010, interest income also relates to interest from our loan facility to True Food Kitchen.
Realized and unrealized holding gains and losses related to investments in the Restoration Plan are
included within other income (expense), with a corresponding offset in general and administrative
expense.
The change in consolidated interest and other income (expense), net was primarily due to lower
interest expense resulting from the repayment of the entire $40.0 million in outstanding credit
line borrowings during the second quarter of 2010.
Provision for Income Taxes
Our effective tax rate from continuing operations, including discrete items and deduction for
noncontrolling interests, was 29.7% for the third quarter of 2010 compared to 28.5% for the third
quarter of 2009. The income tax rate for both fiscal 2010 and fiscal 2009 differed from the
expected provision for income taxes, which is derived by applying the statutory income tax rate,
primarily as a result of FICA tip credits. Our effective tax rate for 2010 is expected to be higher
than our historic rate due to the impact of income from continuing operations from our non-tipped
concept as well as higher anticipated income from operations. Because there are no tipped employees
at Pei Wei, as Pei Wei contributes more net income, and if Bistros income from operations grows at
a rate greater than revenue growth, the impact of Bistros tip credit on the companys effective
tax rate will continue to decrease.
20
Table of Contents
Management has evaluated all positive and negative evidence concerning the realizability of
deferred tax assets and has determined that, with the exception of a small amount of state net
operating losses, we will recognize sufficient future taxable income to realize the benefit of our
deferred tax assets.
Net Income Attributable to Noncontrolling Interests
Net income attributable to noncontrolling interests represents the portion of our net income which
is attributable to the collective ownership interests of our noncontrolling partners. In certain of
our restaurants, we employ a partnership management structure whereby we have entered into a series
of partnership agreements with our regional managers, certain of our general managers and certain
of our executive chefs. Each segment contributed as follows:
Bistro: The change in net income attributable to noncontrolling interests was primarily due to
the full year impact of noncontrolling interest buyouts that occurred during fiscal 2009 and, to
a lesser extent, the impact of noncontrolling interest buyouts occurring during fiscal 2010.
These buyouts reduced the number of noncontrolling interests from 40 at the beginning of fiscal
2009 to 14 as of October 3, 2010.
Pei Wei: The change in net income attributable to noncontrolling interests was primarily due to
the impact of higher restaurant net income offset by the impact of 112 noncontrolling interest
buyouts occurring since the beginning of fiscal 2009.
Results for the nine month periods ended October 3, 2010 and September 27, 2009
Our consolidated operating results were as follows (dollars in thousands):
Nine Months Ended | ||||||||||||||||||||||||
October 3, | % of | September 27, | % of | % | ||||||||||||||||||||
2010 | Revenues | 2009 | Revenues | Change | Change | |||||||||||||||||||
Revenues |
$ | 931,619 | 100.0 | % | $ | 901,526 | 100.0 | % | $ | 30,093 | 3.3 | % | ||||||||||||
Costs and expenses: |
||||||||||||||||||||||||
Cost of sales |
244,110 | 26.2 | % | 239,093 | 26.5 | % | 5,017 | 2.1 | % | |||||||||||||||
Labor |
308,390 | 33.1 | % | 294,531 | 32.7 | % | 13,859 | 4.7 | % | |||||||||||||||
Operating |
156,408 | 16.8 | % | 150,383 | 16.7 | % | 6,025 | 4.0 | % | |||||||||||||||
Occupancy |
54,951 | 5.9 | % | 52,347 | 5.8 | % | 2,604 | 5.0 | % | |||||||||||||||
General and administrative |
62,044 | 6.7 | % | 60,745 | 6.7 | % | 1,299 | 2.1 | % | |||||||||||||||
Depreciation and amortization |
57,654 | 6.2 | % | 56,126 | 6.2 | % | 1,528 | 2.7 | % | |||||||||||||||
Preopening expense |
1,537 | 0.2 | % | 2,499 | 0.3 | % | (962 | ) | (38.5 | )% | ||||||||||||||
Partner investment expense |
(271 | ) | 0.0 | % | (537 | ) | (0.1 | )% | 266 | (49.5 | )% | |||||||||||||
Total costs and expenses |
884,823 | 95.0 | % | 855,187 | 94.9 | % | 29,636 | 3.5 | % | |||||||||||||||
Income from operations |
46,796 | 5.0 | % | 46,339 | 5.1 | % | 457 | 1.0 | % | |||||||||||||||
Interest and other income (expense), net |
(905 | ) | (0.1 | )% | (1,292 | ) | (0.1 | )% | 387 | (30.0 | )% | |||||||||||||
Income from continuing operations before taxes |
45,891 | 4.9 | % | 45,047 | 5.0 | % | 844 | 1.9 | % | |||||||||||||||
Provision for income taxes |
(13,349 | ) | (1.4 | )% | (12,538 | ) | (1.4 | )% | (811 | ) | 6.5 | % | ||||||||||||
Income from continuing operations, net of tax |
32,542 | 3.5 | % | 32,509 | 3.6 | % | 33 | 0.1 | % | |||||||||||||||
Income (loss) from discontinued operations, net of tax |
6 | 0.0 | % | (534 | ) | (0.1 | )% | 540 | | |||||||||||||||
Net income |
32,548 | 3.5 | % | 31,975 | 3.5 | % | 573 | 1.8 | % | |||||||||||||||
Less: Net income attributable to noncontrolling
interests |
619 | 0.1 | % | 813 | 0.1 | % | (194 | ) | (23.9 | )% | ||||||||||||||
Net income attributable to PFCB |
$ | 31,929 | 3.4 | % | $ | 31,162 | 3.5 | % | $ | 767 | 2.5 | % | ||||||||||||
Certain percentage amounts may not sum due to rounding. Percentages over 100% are not
displayed.
21
Table of Contents
Selected operating statistics for the Bistro were as follows (dollars in thousands):
Nine Months Ended | ||||||||||||||||||||||||
October 3, | % of | September 27, | % of | % | ||||||||||||||||||||
2010 | Revenues | 2009 | Revenues | Change | Change | |||||||||||||||||||
Revenues |
$ | 695,441 | 100.0 | % | $ | 679,378 | 100.0 | % | $ | 16,063 | 2.4 | % | ||||||||||||
Costs and expenses: |
||||||||||||||||||||||||
Cost of sales |
181,760 | 26.1 | % | 179,336 | 26.4 | % | 2,424 | 1.4 | % | |||||||||||||||
Labor |
231,494 | 33.3 | % | 220,553 | 32.5 | % | 10,941 | 5.0 | % | |||||||||||||||
Operating |
115,283 | 16.6 | % | 110,833 | 16.3 | % | 4,450 | 4.0 | % | |||||||||||||||
Occupancy |
39,136 | 5.6 | % | 37,243 | 5.5 | % | 1,893 | 5.1 | % | |||||||||||||||
Depreciation and amortization |
41,915 | 6.0 | % | 41,274 | 6.1 | % | 641 | 1.6 | % | |||||||||||||||
Preopening expense |
1,202 | 0.2 | % | 1,578 | 0.2 | % | (376 | ) | (23.8 | )% | ||||||||||||||
Partner investment expense |
| 0.0 | % | (168 | ) | (0.0 | )% | 168 | 100.0 | % | ||||||||||||||
Net income attributable to
noncontrolling interests |
226 | 0.0 | % | 428 | 0.1 | % | (202 | ) | (47.2 | )% |
Selected operating statistics for Pei Wei were as follows (dollars in thousands):
Nine Months Ended | ||||||||||||||||||||||||
October 3, | % of | September 27, | % of | % | ||||||||||||||||||||
2010 | Revenues | 2009 | Revenues | Change | Change | |||||||||||||||||||
Revenues |
$ | 233,802 | 100.0 | % | $ | 222,148 | 100.0 | % | $ | 11,654 | 5.2 | % | ||||||||||||
Costs and expenses: |
||||||||||||||||||||||||
Cost of sales |
62,350 | 26.7 | % | 59,757 | 26.9 | % | 2,593 | 4.3 | % | |||||||||||||||
Labor |
76,896 | 32.9 | % | 73,978 | 33.3 | % | 2,918 | 3.9 | % | |||||||||||||||
Operating |
41,125 | 17.6 | % | 39,550 | 17.8 | % | 1,575 | 4.0 | % | |||||||||||||||
Occupancy |
15,815 | 6.8 | % | 15,104 | 6.8 | % | 711 | 4.7 | % | |||||||||||||||
Depreciation and amortization |
14,181 | 6.1 | % | 13,437 | 6.0 | % | 744 | 5.5 | % | |||||||||||||||
Preopening expense |
335 | 0.1 | % | 921 | 0.4 | % | (586 | ) | (63.6 | )% | ||||||||||||||
Partner investment expense |
(271 | ) | (0.1 | )% | (369 | ) | (0.2 | )% | 98 | (26.6 | )% | |||||||||||||
Net income attributable to
noncontrolling interests |
393 | 0.2 | % | 385 | 0.2 | % | 8 | 2.1 | % |
Revenues
Each segment contributed as follows:
Bistro: The increase in revenues was primarily attributable to incremental new store revenues
of $25.4 million, comprised of a full nine months of revenues from the seven new stores that
opened the last two quarters of fiscal 2009 and revenues generated by the three new Bistro
restaurants that opened during 2010. The increase was partially offset by a $9.3 million
decrease in revenues for stores open prior to the third quarter of 2009 due to a decline in the
average ticket, which includes the benefit of a one to two percent price increase which went
into effect during the second quarter of 2010, partially offset by an increase in overall guest
traffic.
Pei Wei: The increase in revenues was primarily attributable to incremental new store revenues
of $7.4 million, comprised of a full nine months of revenues from the five new stores that
opened the last two quarters of fiscal 2009 and revenues generated by the two new Pei Wei
restaurants that opened during 2010. The increase was also attributable to a $4.3 million
increase in revenues for stores open prior to the third quarter of 2009 due to an increase in
the average ticket, which includes the benefit of an approximate one percent price increase
which went into effect during the second quarter of 2010, combined with an increase in overall
guest traffic.
22
Table of Contents
Costs and Expenses
Cost of Sales
Each segment contributed as follows:
Bistro: Cost of sales as a percentage of revenues decreased primarily due to the benefit of
menu price increases, favorable beef and wok oil pricing and the net impact of product mix
shifts. These decreases were partially offset by the impact of greater sales discounts,
including happy hour menu pricing.
Pei Wei: Cost of sales as a percentage of revenues decreased primarily due to favorable wok oil
and beef pricing partially offset by the net impact of product mix shifts.
Labor
Each segment contributed as follows:
Bistro: Labor expenses as a percentage of revenues increased primarily due to the impact of
greater sales discounts (principally related to the happy hour menu pricing), increase in
management incentive accruals, higher hourly wage rates and higher payroll taxes. These
increases were partially offset by the benefit of menu price increases.
Pei Wei: Labor expenses as a percentage of revenues decreased primarily due to lower manager
salaries and the benefit of improved leverage from higher average weekly sales partially offset
by higher hourly wage rates.
Operating
Each segment contributed as follows:
Bistro: Operating expenses as a percentage of revenues increased primarily due to higher
marketing spend, the impact of decreased leverage on lower average weekly sales and higher menu
printing costs.
Pei Wei: Operating expenses as a percentage of revenues decreased primarily due to lower
restaurant supplies costs and the benefit of improved leverage from higher average weekly sales.
Occupancy
Each segment contributed as follows:
Bistro: Occupancy costs as a percentage of revenues increased primarily due to the impact of
decreased leverage on lower average weekly sales and higher property tax expense.
Pei Wei: Occupancy costs as a percentage of revenues were consistent primarily due to the
benefit of improved leverage from higher average weekly sales offset by higher property tax
expense.
General and Administrative
Consolidated general and administrative costs increased primarily due to higher share-based
compensation expense principally resulting from an increase in fair value of the performance units
and other cash-settled awards and, to a lesser extent, higher health insurance costs. These
increases were partially offset by lower management salaries and incentive accruals, decrease in
legal costs and lower compensation expense resulting from lower unrealized holding gains associated
with investments in the Restoration Plan.
23
Table of Contents
Depreciation and Amortization
Each segment contributed as follows:
Bistro: Depreciation and amortization increased primarily due to additional depreciation on
restaurants that opened during the last two quarters of fiscal 2009 and the first three quarters
of 2010. As a percentage of revenues, depreciation and amortization decreased primarily due to
smallwares assets whose costs have been fully expensed partially offset by the impact of
decreased leverage on lower average weekly sales.
Pei Wei: Depreciation and amortization increased primarily due to additional depreciation on
restaurants that opened during the last two quarters of fiscal 2009 and the first three quarters
of 2010. As a percentage of revenues, depreciation and amortization increased primarily due to
additional depreciation related to new digital menu boards installed during fiscal 2009
partially offset by the benefit of improved leverage from higher average weekly sales and
smallwares assets whose costs have been fully expensed.
Preopening Expense
Each segment contributed as follows:
Bistro: Preopening expense decreased primarily due to one new restaurant opening scheduled for
the remainder of 2010 compared to five new restaurant openings during the fourth quarter of
fiscal 2009.
Pei Wei: Preopening expense decreased primarily due to two new restaurant openings during the
first three quarters of 2010 compared to five new restaurant openings during the first three
quarters of 2009. The decrease was also due to no scheduled restaurant openings during the
remainder of fiscal 2010 compared to two new restaurant openings during the fourth quarter of
fiscal 2009.
Partner Investment Expense
Each segment contributed as follows:
Bistro: All partner investment expense activity for the Bistro is related to early buyouts of
noncontrolling interests. The change in partner investment expense resulted from having fewer
early buyouts of noncontrolling interests during the first three quarters of 2010 compared to
the first three quarters of 2009.
Pei Wei: Partner investment expense increased primarily due to the impact of fewer early
buyouts during the first three quarters of 2010 compared to the first three quarters of 2009.
The increase is partially offset by the change in the partnership structure beginning the
second quarter of fiscal 2010. As a result, partner investment expense is no longer recognized
at the time a new restaurant opens.
Interest and Other Income (Expense), Net
The change in consolidated interest and other income (expense), net was primarily due to lower
interest expense resulting from the repayment of the entire $40.0 million in outstanding credit
line borrowings during the second quarter of 2010 partially offset by $0.2 million of unrealized
holding gains during the current year compared to $0.6 million of unrealized holding gains in the
prior year associated with investments in the Restoration Plan.
Provision for Income Taxes
Our effective tax rate from continuing operations, including discrete items and deduction for
noncontrolling interests, was 29.5% for the first three quarters of 2010 compared to 28.3% for the
first three quarters of 2009. The income tax rate for both fiscal 2010 and fiscal 2009 differed
from the expected provision for income taxes, which is derived by applying the statutory income tax
rate, primarily as a result of FICA tip credits. Our effective tax rate for 2010 is expected to be
higher than our historic rate due to the impact of income from continuing operations from our
non-tipped concept as well as higher anticipated income from operations. Because there are no
tipped employees at Pei Wei, as Pei Wei contributes more net income, and if Bistros income from
operations grows at a rate greater than revenue growth, the impact of Bistros tip credit on the
companys effective tax rate will continue to decrease.
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Management has evaluated all positive and negative evidence concerning the realizability of
deferred tax assets and has determined that, with the exception of a small amount of state net
operating losses, we will recognize sufficient future taxable income to realize the benefit of our
deferred tax assets.
Net Income Attributable to Noncontrolling Interests
Each segment contributed as follows:
Bistro: The change in net income attributable to noncontrolling interests was primarily due to
the full year impact of noncontrolling interest buyouts that occurred during fiscal 2009 and, to
a lesser extent, the impact of noncontrolling interest buyouts occurring during fiscal 2010.
These buyouts reduced the number of noncontrolling interests from 40 at the beginning of fiscal
2009 to 14 as of October 3, 2010.
Pei Wei: The change in net income attributable to noncontrolling interests was primarily due to
the impact of higher restaurant net income partially offset by the impact of 112 noncontrolling
interest buyouts occurring since the beginning of fiscal 2009.
Liquidity and Capital Resources
Cash Flow
Our primary sources of liquidity are cash provided by operations and borrowings under our credit
facility. Historically, our need for capital resources has been driven by our construction of new
restaurants. More recently, our need for capital resources has also been driven by repayments of
long-term debt, repurchases of our common stock and payments of cash dividends.
The following table presents a summary of our cash flows for the nine months ended October 3, 2010
and September 27, 2009 (in thousands):
October 3, | September | |||||||
2010 | 27, 2009 | |||||||
Net cash provided by operating activities |
$ | 72,406 | $ | 98,142 | ||||
Net cash used in investing activities |
(30,999 | ) | (39,057 | ) | ||||
Net cash used in financing activities |
(57,745 | ) | (76,971 | ) | ||||
Net decrease in cash and cash equivalents |
$ | (16,338 | ) | $ | (17,886 | ) | ||
Operating Activities
Our funding requirements since the inception have been met through sales of equity securities, debt
financing and cash flows from operations. Net cash provided by operating activities exceeded net
income for the periods shown principally due to the effect of depreciation and amortization and
share-based compensation expense partially offset by a net decrease in operating liabilities in the
current year. The change in operating activities is primarily due to higher cash paid for income
taxes and the timing of rent payments.
Investing Activities
We have historically used cash primarily to fund the development and construction of new
restaurants. Investing activities were primarily related to capital expenditures of $26.7 million
and $38.9 million during the first three quarters of fiscal years 2010 and 2009, respectively, and
payments under the loan facility to True Food Kitchen of $4.3 million during the first three
quarters of fiscal 2010. Capital expenditures declined compared to the prior year primarily due to
the impact of opening three new Bistro and two new Pei Wei restaurants the first three quarters of
2010 compared to three new Bistro and five new Pei Wei restaurants in the first three quarters of
fiscal 2009. The decline was also due to fewer new restaurant openings at the beginning of the
fourth quarter of 2010 compared to the beginning of the fourth quarter of 2009.
We intend to open four new Bistro restaurants and two new Pei Wei restaurants in fiscal 2010, of
which three Bistros and both Pei Wei restaurants were open by the end of the third quarter of 2010.
We expect that our planned future Bistro restaurants will require, on average, a total cash
investment per restaurant of approximately $2.5 million to $3.0 million (net of estimated tenant
incentives). We typically expect to spend approximately $350,000 to $400,000 per restaurant for
preopening costs. Total cash investment per Pei Wei restaurant is expected to average $750,000 to
$850,000 (net of estimated tenant incentives) and we typically expect to spend $140,000 to
$160,000 per restaurant for preopening costs. We expect total gross capital expenditures for fiscal
2010 to approximate $30.0 million to $40.0 million ($25.0 million to $35.0 million, net of tenant
incentives).
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Financing Activities
Financing activities during the first three quarters of fiscal 2010 and 2009 included $41.2 million
and $45.4 million, respectively, in debt repayments and $26.2 million and $29.2 million,
respectively, in repurchases of common stock. Additionally, financing activities included proceeds
from stock options exercised and employee stock purchases of $19.3 million and $1.5 million during
the first three quarters of fiscal 2010 and 2009, respectively, and payment of cash dividends
totaling $9.7 million during the first three quarters of fiscal 2010. Financing activities also
included purchases of noncontrolling interests, distributions to noncontrolling interest partners
and the tax benefit from share-based compensation.
Future Capital Requirements
Our capital requirements, including development costs related to the opening of additional
restaurants, have historically been significant. Our future capital requirements and the adequacy
of our available funds will depend on many factors, including the operating performance of our
restaurants, the pace of expansion, real estate markets, site locations and the nature of the
arrangements negotiated with landlords. During fiscal 2010, we are returning excess capital to our
shareholders in the form of repurchases of our common stock and payments of cash dividends.
In the longer term, in the unlikely event that additional capital is required, we may seek to raise
such capital through public or private equity or debt financing. Future capital funding
transactions may result in dilution to current shareholders. We cannot ensure that such capital
will be available on favorable terms, if at all.
Credit Facility
The senior credit facility (Credit Facility) allows for borrowings of up to $75.0 million and
expires on August 30, 2013. The Credit Facility contains customary representations, warranties,
negative and affirmative covenants, including a requirement to maintain a maximum leverage ratio,
as defined, of 2.5:1 and a minimum fixed charge coverage ratio, as defined, of 1.25:1, as well as
customary events of default and certain default provisions that could result in acceleration of the
Credit Facility. We were in compliance with these restrictions and conditions as of October 3, 2010
as the leverage ratio was 0.92:1 and the fixed charge coverage ratio was 2.39:1.
During the first half of fiscal 2010, we fully repaid total outstanding borrowings of $40.0 million
under the Credit Facility and currently have $14.1 million committed for the issuance of letters of
credit, which are required by insurance companies for our workers compensation and general
liability insurance programs. Available borrowings under the Credit Facility were $60.9 million at
October 3, 2010.
Cash Dividends
During February 2010, the Board of Directors approved the initiation of a quarterly variable cash
dividend based on our desire to consistently return excess cash flow to our shareholders. The
amount of the cash dividend will be computed based on 45% of our quarterly net income and is
expected to approximate $0.89 per share related to fiscal 2010. Cash dividends are paid quarterly in arrears. Based on seasonal fluctuations in
quarterly net income, the amount of cash dividend payments, which are based on a fixed percentage
of net income, may fluctuate between quarters.
Based on the Board of Directors authorization, on October 27, 2010 we announced a cash dividend of
$0.21 per share which will be paid November 22, 2010 to all shareholders of record at the close of
business on November 8, 2010. Based on shares outstanding at October 3, 2010, the total dividend
payment will approximate $4.8 million during the fourth quarter of fiscal 2010.
Share Repurchase Program
Under share repurchase programs authorized by our Board of Directors, we have repurchased a total
of 5.7 million shares of our common stock for $172.2 million at an average price of $30.39 since
July 2006. Included in this total are 0.6 million shares of common stock repurchased during the
first three quarters of 2010 for $26.2 million at an average price of $43.49. At October 3, 2010,
there remains $74.1 million available under our current share repurchase authorization of $100.0
million, which expires December 2011.
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Purchases of Noncontrolling Interests
As of October 3, 2010, there were 29 partners within our partnership system representing 100
partnership interests. During the first three quarters of fiscal 2010, we had the opportunity to
purchase nine noncontrolling interests which had reached the five-year threshold period during the
year, as well as 34 additional noncontrolling interests which (i) had reached the end of their
initial five-year term in prior years (ii) related to partners who left the Company prior to the
initial five-year term or (iii) related to partners who requested an early buyout of their
interest. We purchased these 43 noncontrolling interests in their entirety for a total of $1.4
million, all of which was paid in cash.
During the remainder of fiscal 2010, we will have the opportunity to purchase two additional
noncontrolling interests which will reach their five-year anniversary. If both of those interests
are purchased, the total purchase price will approximate less than $0.1 million based upon the
estimated fair value of the respective interests at October 3, 2010.
New Accounting Standards
See Recent Accounting Literature section of Note 1 to our consolidated financial statements for a
summary of new accounting standards.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risk primarily from changes in commodities prices as well as fluctuations
in the fair value of our cash-settled awards.
Commodities Prices
We purchase certain commodities such as beef, pork, poultry, seafood and produce. These commodities
are generally purchased based upon market prices established with vendors. These purchase
arrangements may contain contractual features that fix the price paid for certain commodities.
Historically, we have not used financial instruments to hedge commodity prices because these
purchase arrangements help control the ultimate cost paid and any significant commodity price
increases have historically been relatively short-term in nature.
Cash-Settled Awards
We issued cash-settled awards during fiscal 2009 and fiscal 2010, including performance units,
cash-settled stock appreciation rights and cash-settled stock-based awards. The fair value of these
awards is remeasured at each reporting period until the awards are settled and is affected by
market changes in our stock price and, in the case of performance units, the relative performance
of our stock to the performance of the Russell 2000 Index. Fair value fluctuations are recognized
as cumulative adjustments to share-based compensation expense and can vary significantly in future
periods. See Note 10 to our consolidated financial statements for further discussion of the fair
value calculations and fluctuations of our cash-settled awards.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal
executive officers and principal financial officer, we conducted an evaluation of our disclosure
controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the
Securities Exchange Act of 1934, as amended (the Exchange Act). Based on this evaluation, our
principal executive officers and principal financial officer concluded that our disclosure controls
and procedures were effective as of the end of the period covered by this report. This conclusion
was communicated to the Audit Committee.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Companys internal control over financial reporting that occurred
during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or
are reasonably likely to materially affect, our internal control over financial reporting. These
conclusions were communicated to the Audit Committee.
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PART II
OTHER INFORMATION
OTHER INFORMATION
Item 1. Legal Proceedings
We are engaged in legal actions arising in the ordinary course of our business and believe that the
ultimate outcome of these actions will not have a material adverse effect on our results of
operations, liquidity or financial position.
Item 1A. Risk Factors
Risks that could have a negative impact on our business, revenues and performance results include
risks associated with the following: failure of our existing or new restaurants to achieve
expected results; changes in general economic and political conditions that affect consumer
spending; changes in government legislation that may increase labor costs; the dependency of sales
concentrated in certain geographic areas or generated by corporate spending; intense competition in
the restaurant industry; Global Brand Development initiatives that may impact our brand; damage to
our brands or reputation; litigation; adverse public or medical opinions about the health effects
of consuming our products; failure to comply with governmental regulations; changes in food costs;
the inability to retain key personnel; development is critical to our long-term success; federal,
state and local tax rules; fluctuating insurance requirements and costs; marketing programs may not
be successful; potential labor shortages that may delay planned openings; the inability to develop
and construct our restaurants within projected budgets and time periods; the seasonality of our
business.
A more detailed description of each of these risk factors can be found under the caption Risk
Factors in our most recent Form 10-K, filed on February 17, 2010.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Under share repurchase programs authorized by our Board of Directors, we have repurchased a total
of 5.7 million shares of our common stock for $172.2 million at an average price of $30.39 since
July 2006. Included in this total are 0.6 million shares of common stock repurchased during the
first three quarters of 2010 for $26.2 million at an average price of $43.49. At October 3, 2010,
there remains $74.1 million available under our current share repurchase authorization of $100.0
million, which expires December 2011.
The following table sets forth our share repurchases of common stock during each period in the
third quarter of fiscal 2010:
Total | Total Number of | |||||||||||||||
Number of | Average | Shares Purchased as | Maximum Dollar Value of | |||||||||||||
Shares | Price Paid | Part of Publicly | Shares that May Yet Be | |||||||||||||
Period | Purchased | per Share | Announced Programs | Purchased Under the Programs | ||||||||||||
July 5, 2010 August 8, 2010 |
140,500 | $ | 41.29 | 140,500 | $ | 83,324,373 | ||||||||||
August 9, 2010 September 5, 2010 |
109,950 | $ | 42.11 | 109,950 | $ | 78,694,379 | ||||||||||
September 6, 2010 October 3, 2010 |
99,600 | $ | 46.47 | 99,600 | $ | 74,065,967 | ||||||||||
Total |
350,050 | 350,050 | $ | 74,065,967 | ||||||||||||
Item 3. Defaults Upon Senior Securities
None
Item 4. (Removed and Reserved)
Item 5. Other Information
None
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Item 6. Exhibits
Exhibit | |||
Number | Description Document | ||
3(i)(1) | Amended and Restated Certificate of Incorporation. |
||
3(ii)(2) | Amended and Restated Bylaws. |
||
4.1(3) | Specimen Common Stock Certificate. |
||
4.2(3) | Amended and Restated Registration Rights Agreement dated May 1, 1997. |
||
31.1 | Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for
Richard L. Federico. |
||
31.2 | Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Robert
T. Vivian. |
||
31.3 | Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Mark
D. Mumford. |
||
32.1 | Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for
Richard L. Federico. |
||
32.2 | Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Robert
T. Vivian. |
||
32.3 | Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Mark
D. Mumford. |
(1) | Incorporated by reference to the Registrants Quarterly Report on Form 10-Q filed on April 25, 2002. | |
(2) | Incorporated by reference to the Registrants Form 8-K filed on August 14, 2009. | |
(3) | Incorporated by reference to the Registrants Registration Statement on Form S-1 (File No. 333-59749). |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized, on
October 27, 2010.
P.F. CHANGS CHINA BISTRO, INC. |
||||
By: | /s/ RICHARD L. FEDERICO | |||
Richard L. Federico | ||||
Chairman and Co-Chief Executive Officer | ||||
By: | /s/ ROBERT T. VIVIAN | |||
Robert T. Vivian | ||||
Co-Chief Executive Officer | ||||
By: | /s/ MARK D. MUMFORD | |||
Mark D. Mumford | ||||
Chief Financial Officer |
Date: October 27, 2010
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INDEX TO EXHIBITS
Exhibit | |||
Number | Description Document | ||
3(i)(1) | Amended and Restated Certificate of Incorporation. |
||
3(ii)(2) | Amended and Restated Bylaws. |
||
4.1(3) | Specimen Common Stock Certificate. |
||
4.2(3) | Amended and Restated Registration Rights Agreement dated May 1, 1997. |
||
31.1 | Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for
Richard L. Federico. |
||
31.2 | Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Robert
T. Vivian. |
||
31.3 | Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Mark
D. Mumford. |
||
32.1 | Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for
Richard L. Federico. |
||
32.2 | Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Robert
T. Vivian. |
||
32.3 | Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Mark
D. Mumford. |
(1) | Incorporated by reference to the Registrants Quarterly Report on Form 10-Q filed on
April 25, 2002. |
|
(2) | Incorporated by reference to the Registrants Form 8-K filed on August 14, 2009. |
|
(3) | Incorporated by reference to the Registrants Registration Statement on Form S-1 (File
No. 333-59749). |
31