##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
      Form 10-K
  þ


ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the Fiscal Year Ended
    December 31, 2006oro


TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to          .   Commission File Number: 0-25123
      P.F. Changs China Bistro,
    Inc.
 (Exact name of registrant as
    specified in its charter)
  Delaware

86-0815086(State or other jurisdiction
    of
    incorporation or organization)

(I.R.S. Employer
    Identification No.)7676 East Pinnacle Peak Road
    Scottsdale, AZ

85255(Zip Code)(Address of principal executive
    offices)    Registrants
    telephone number, including area code:
 (480) 888-3000
 Securities registered pursuant to Section 12(b) of the
    Act:
  Title of Each Class

Name of Each Exchange on Which
    RegisteredCommon Stock, $0.001 par
    Value

NASDAQ Global Select
    Market   Securities registered pursuant to Section 12(g) of the
    Act:
 NONE
  þ o
  o o
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
 þ o o
 Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE
    (to the extent indicated herein)




---



##### 



TABLE OF
    CONTENTS
  Item



PagePART I1.

Business


31A.

Risk Factors


71B.

Unresolved Staff Comments


122.

Properties


133.

Legal
    Proceedings


144.

Submission of
    Matters to a Vote of Security Holders


14PART II5.

Market for the
    Registrants Common Stock and Related Stockholder
    Matters


156.

Selected Financial
    Data


167.

Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


177A.

Quantitative and
    Qualitative Disclosures About Market Risks


368.

Financial
    Statements and Supplementary Data


379.

Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosure


679A.

Controls and
    Procedures


67PART III10.

Directors and
    Executive Officers of the Registrant


7011.

Executive
    Compensation


7012.

Security Ownership
    of Certain Beneficial Owners and Management and Related
    Stockholder Matters


7013.

Certain
    Relationships and Related Transactions


7114.

Principal
    Accountant Fees and Services


71PART IV15.

Exhibits, Financial
    Statement Schedules


71EX-21.1EX-23.1EX-23.2EX-31.1EX-31.2EX-32.1EX-32.2   2




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##### Table of Contents



PART I  Item 1.
    Business  General
          Concept
    and Strategy
    Menu
  Bistro
  fan tsai. Fan tsai
 3




---



##### Table of Contents



Pei
    Wei
  made-to-order
    Taneko
      Operations
  Bistro
  day-to-day
 4




---



##### Table of Contents



Pei
    Wei
  day-to-day
      Partnership
    Structure
      Marketing
  word-of-mouth word-of-mouth
   5




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##### Table of Contents



Competition
      Management
    Information Systems
  point-of-sales point-of-sales
  Supply
    Chain Management
      Employees
   6




---



##### Table of Contents



Unit
    Economics
    Access to
    Information
  www.pfcb.com. Form 10-K, Form 10-Q, Form 8-K
  Item 1A.
    Risk
    Factors  Failure
    of our existing or new restaurants to achieve predicted results
    could have a negative impact on our revenues and performance
    results.
    The
    inability to develop and construct our restaurants within
    projected budgets and time periods will adversely affect our
    business and financial condition.
    
    landlord delays;
    labor disputes;
    shortages of materials and skilled labor;
    weather interference;
    unforeseen engineering problems;
    environmental problems;
    construction or zoning problems;
    local government regulations;
    modifications in design to the size and scope of the
    projects; and
    other unanticipated increases in costs, any of which could give
    rise to delays or cost overruns.   7




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##### Table of Contents



Development
    is critical to our success.
    
    identification and availability of suitable locations;
    competition for restaurant sites;
    negotiation of favorable lease arrangements;
    timely development of commercial, residential, street or highway
    construction near our restaurants;
    management of the costs of construction and development of new
    restaurants;
    securing required governmental approvals and permits;
    recruitment of qualified operating personnel, particularly
    managers and chefs;
    weather conditions;
    competition in new markets; and
    general economic conditions.    Increases
    in the minimum wage may have a material adverse effect on our
    business and financial results.
    Changes
    in general economic and political conditions affect consumer
    spending and may harm our revenues and operating
    results.
    Intense
    competition in the restaurant industry could prevent us from
    increasing or sustaining our revenues and
    profitability.
   8




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##### Table of Contents



Our
    inability to retain key personnel could negatively impact our
    business.
    Implementing
    our growth strategy may strain our management resources and
    negatively impact our competitive position.
    Potential
    labor shortages may delay planned openings or damage customer
    relations.
    Changes
    in food costs could negatively impact our revenues and results
    of operations.
    Litigation
    could have a material adverse effect on our
    business.
   9




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##### Table of Contents



Our
    federal, state and local tax returns may, from time to time, be
    selected for audit by the taxing authorities, which may result
    in tax assessments or penalties that could have a material
    adverse impact on our results of operations and financial
    position.
    Fluctuating
    insurance requirements and costs could negatively impact
    profitability and projections.
      Our
    operating expenses may increase in the future and may negatively
    impact our profitability.
    Fluctuations
    in operating results may negatively impact our stock
    price.
    
    general economic conditions;
    consumer confidence in the economy;
    changes in consumer preferences;
    competitive factors, including the performance of restaurant
    stocks;
    weather conditions;
    timing of new restaurant openings and related expenses;
    revenues contributed by new restaurants; and
    increases or decreases in comparable restaurant revenues. 10




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##### Table of Contents



Failure
    to comply with governmental regulations could harm our business
    and our reputation.
    
    the environment;
    building construction;
    zoning requirements;
    the preparation and sale of food and alcoholic
    beverages; and
    employment.             11




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##### Table of Contents



Our
    financial results may also fluctuate significantly as a result
    of our accounting for certain aspects of our partnership
    program.
      Future
    changes in financial accounting standards may affect our
    reported results of operations.
      Compliance
    with changing regulation of corporate governance and public
    disclosure may result in additional expenses.
    Special
    Note Regarding Forward-Looking Statements
  Form 10-K Form 10-K,
  Item 1B.
    Unresolved
    Staff comments   12




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##### Table of Contents



Item 2.
    Properties    State

Bistro


Pei Wei


Taneko


TotalAlabama


1











1Arizona


7



17



1



25Arkansas


2



1







3California


31



10







41Colorado


7



6







13Florida


11



4







15Georgia


4











4Idaho


1











1Illinois


5











5Indiana


2











2Iowa


1











1Kansas


1



2







3Kentucky


2











2Louisiana


2











2Massachusetts


1











1Maryland


2



2







4Michigan


3











3Minnesota


2



4







6Missouri


3



1







4Nebraska


1











1Nevada


5



3







8New Jersey


4











4New Mexico


1



2







3New York


3











3North Carolina


4



4







8Ohio


6











6Oklahoma


2



5







7Oregon


3











3Pennsylvania


2











2South Carolina


1











1Tennessee


5



3







8Texas


14



39







53Utah


2



3







5Virginia


5



1







6Washington


4











4Wisconsin


2











2152



107



1



260    13




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##### Table of Contents



10-K,
  Expansion
    Strategy and Site Selection
              Item 3.
    Legal
    Proceedings    Item 4.
    Submission
    of Matters to a Vote of Security Holders   14




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##### Table of Contents



PART II  Item 5.
    Market
    for the Registrants Common Stock and Related Stockholder
    Matters      Quarter Ended

High


LowApril 3, 2005

$
60.34


$
52.25July 3, 2005

$
62.30


$
52.90October 2, 2005

$
65.12


$
43.25January 1, 2006

$
53.90


$
42.92April 2, 2006

$
54.93


$
46.25July 2, 2006

$
49.58


$
36.17October 1, 2006

$
38.81


$
28.09December 31, 2006

$
43.32


$
34.00       Issuer
    Purchases of Equity Securities
  12-month
    (c) Total Number of


(d) Maximum Dollar(a) Total





Shares Purchased as


Value of SharesNumber of


(b) Average


Part of Publicly


that May Yet BeShares


Price Paid


Announced


Purchased Under thePeriod

Purchased(1)


per Share


Programs(1)


Programs(2)October 2, 2006 
    November 5, 2006


197,000


$
35.02



197,000


$
3,627,182November 6, 2006 
    December 3, 2006





$







$
3,627,182December 4, 2006 
    December 31, 2006





$







$
3,627,182Total


197,000







197,000


$
3,627,182    15




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##### Table of Contents



Item 6.
    Selected
    Financial Data    Fiscal Year2006


2005


2004(1)


2003


2002(In thousands, except per share amounts)Statement of Income
    Data:Revenues

$
937,606


$
809,153


$
706,941


$
539,917


$
406,609Costs and expenses:Cost of sales


256,582



224,634



200,736



152,788



112,571Labor


310,113



266,243



231,930



175,256



133,973Operating


146,409



122,247



99,231



73,403



55,168Occupancy


52,457



42,793



37,693



28,914



24,129General and administrative


56,911



41,117



36,369



30,166



21,430Depreciation and amortization


44,863



36,950



29,155



21,817



15,847Preopening expense


12,713



9,245



7,980



8,745



6,391Partner investment expense(2)


4,371



4,800



17,671



4,196



5,798Total costs and expenses


884,419



748,029



660,765



495,285



375,307Income from operations


53,187



61,124



46,176



44,632



31,302Interest income and other income,
    net


1,315



1,841



612



466



41Income before minority interest
    and provision for income taxes


54,502



62,965



46,788



45,098



31,343Minority interest


(8,116
)


(8,227
)


(10,078
)


(7,887
)


(5,243
)Income before provision for income
    taxes


46,386



54,738



36,710



37,211



26,100Provision for income taxes


(13,133
)


(16,942
)


(10,656
)


(12,424
)


(8,875
)Net income

$
33,253


$
37,796


$
26,054


$
24,787


$
17,225Net income per share:Basic

$
1.28


$
1.44


$
1.01


$
0.98


$
0.70Diluted

$
1.24


$
1.40


$
0.98


$
0.94


$
0.66Weighted average shares used in
    computation:Basic


26,075



26,271



25,727



25,345



24,688Diluted


26,737



27,000



26,575



26,250



25,924   As of


As of


As of


As of


As ofDecember 31,


January 1,


January 2,


December 28,


December 29,2006


2006


2005


2003


2002(In thousands)Balance Sheet Data:Cash and cash equivalents

$
31,589


$
31,948


$
66,409


$
45,478


$
39,089Short-term investments (including
    restricted short-term investments)






42,410



5,000



5,000



3,800Total assets


514,045



474,859



390,492



306,109



242,797Long-term debt


13,723



5,360



545



136



1,441Common stockholders equity


289,525



293,898



244,957



204,332



168,019  16




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##### Table of Contents



(1)
    
    We operate on a
    52/53-week
    year, with the fiscal year ending on the Sunday closest to
    December 31. Fiscal years 2006, 2005, 2003 and 2002 each
    were comprised of 52 weeks. Fiscal year 2004 was comprised
    of 53 weeks.(2)
    
    Partner investment expense increased during 2004 as a result of
    a $12.5 million modification of certain partnership
    agreements as discussed in Note 1 to our consolidated
    financial statements.    Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Overview
    Our
    restaurants
          Our
    strategy
       17




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##### Table of Contents



Our
    challenges
        Our
    Financial Results
    
    Consolidated revenue growth of $128.5 million or
    15.9 percent to $937.6 million, driven primarily by
    new restaurant openings, offset by a decline in comparable store
    sales at both the Bistro and Pei Wei;
    Consolidated net income decline of $4.5 million or
    12.0 percent to $33.3 million and a decrease in
    diluted earnings per share of $0.16 or 11.4 percent to
    $1.24, primarily due to lower income from operations resulting
    from the recognition of $6.4 million after-tax in
    share-based compensation expense and $1.3 million after-tax
    in preopening rent during the construction period during 2006;
    and
    20 new Bistro openings, 30 new Pei Wei openings, one joint
    venture Bistro opening and the first Taneko opening.      Share-Based
    Compensation
  Accounting for Stock Issued to
    Employees
  Share-Based Payment
 18




---



##### Table of Contents



Share-Based Payment
        Preopening
    Expense
  No. 13-1, Accounting for Rental Costs Incurred During a Construction
    Period
  Unit
    Economics
    New
    Development
   19




---



##### Table of Contents



Change
    in Partnership Structure
      Critical
    Accounting Policies
    Partnership
    Structure
     20




---



##### Table of Contents



Lease
    Obligation
    No. 13-1, Accounting for Rental Costs Incurred During a Construction
    Period.
      and/or
  Share-Based
    Compensation
   21




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##### Table of Contents



Impairment
    of Long-Lived Assets
    Self
    Insurance
    Income
    Taxes
        Results
    of Operations
  52/53-week
 22




---



##### Table of Contents



Fiscal
    2006 compared to Fiscal 2005
    Fiscal Year% of





% of2006


Revenues


2005


Revenues


Change


% ChangeRevenues

$
937,606



100.0
%

$
809,153



100.0
%

$
128,453



15.9
%Costs and expenses:Cost of sales


256,582



27.4
%


224,634



27.8
%


31,948



14.2
%Labor


310,113



33.1
%


266,243



32.9
%


43,870



16.5
%Operating


146,409



15.6
%


122,247



15.1
%


24,162



19.8
%Occupancy


52,457



5.6
%


42,793



5.3
%


9,664



22.6
%General and administrative


56,911



6.1
%


41,117



5.1
%


15,794



38.4
%Depreciation and amortization


44,863



4.8
%


36,950



4.6
%


7,913



21.4
%Preopening expense


12,713



1.4
%


9,245



1.1
%


3,468



37.5
%Partner investment expense


4,371



0.5
%


4,800



0.6
%


(429
)


(8.9
)%Total costs and expenses


884,419



94.3
%


748,029



92.4
%


136,390



18.2
%Income from operations


53,187



5.7
%


61,124



7.6
%


(7,937
)


(13.0
)%Interest and other income, net


1,315



0.1
%


1,841



0.2
%


(526
)


(28.6
)%Minority interest


(8,116
)


(0.9
)%


(8,227
)


(1.0
)%


111



(1.3
)%Income before provision for income
    taxes


46,386



4.9
%


54,738



6.8
%


(8,352
)


(15.3
)%Provision for income taxes


(13,133
)


(1.4
)%


(16,942
)


(2.1
)%


3,809



(22.5
)%Net income

$
33,253



3.5
%

$
37,796



4.7
%

$
(4,543
)


(12.0
)%    23




---



##### Table of Contents



Fiscal Year% of





% of2006


Revenues


2005


Revenues


Change


% ChangeRevenues

$
756,634



100.0
%

$
675,204



100.0
%

$
81,430



12.1
%Costs and expenses:Cost of sales


206,567



27.3
%


187,073



27.7
%


19,494



10.4
%Labor


247,097



32.7
%


221,126



32.7
%


25,971



11.7
%Operating


115,465



15.3
%


100,199



14.8
%


15,266



15.2
%Occupancy


40,683



5.4
%


34,700



5.1
%


5,983



17.2
%General and administrative


20,503



2.7
%


15,512



2.3
%


4,991



32.2
%Depreciation and amortization


34,451



4.6
%


30,093



4.5
%


4,358



14.5
%Preopening expense


8,004



1.1
%


6,028



0.9
%


1,976



32.8
%Partner investment expense


3,475



0.5
%


3,526



0.5
%


(51
)


(1.4
)%Total costs and expenses


676,245



89.4
%


598,257



88.6
%


77,988



13.0
%Income from operations


80,389



10.6
%


76,947



11.4
%


3,442



4.5
%Interest and other income, net


(255
)


(0.0
)%


251



0.0
%


(506
)


(201.6
)%Minority interest


(6,993
)


(0.9
)%


(7,118
)


(1.1
)%


125



(1.8
)%Income before provision for income
    taxes

$
73,141



9.7
%

$
70,080



10.4
%

$
3,061



4.4
%       Fiscal Year% of





% of2006


Revenues


2005


Revenues


Change


% ChangeRevenues

$
180,230



100.0
%

$
133,949



100.0
%

$
46,281



34.6
%Costs and expenses:Cost of sales


49,692



27.6
%


37,561



28.0
%


12,131



32.3
%Labor


62,677



34.8
%


45,117



33.7
%


17,560



38.9
%Operating


30,782



17.1
%


22,048



16.5
%


8,734



39.6
%Occupancy


11,725



6.5
%


8,093



6.0
%


3,632



44.9
%General and administrative


9,387



5.2
%


6,907



5.2
%


2,480



35.9
%Depreciation and amortization


9,205



5.1
%


5,977



4.5
%


3,228



54.0
%Preopening expense


4,283



2.4
%


3,217



2.4
%


1,066



33.1
%Partner investment expense


896



0.5
%


1,274



1.0
%


(378
)


(29.7
)%Total costs and expenses


178,647



99.1
%


130,194



97.2
%


48,453



37.2
%Income from operations


1,583



0.9
%


3,755



2.8
%


(2,172
)


(57.8
)%Interest and other income, net


(15
)


(0.0
)%


15



0.0
%


(30
)


(200.0
)%Minority interest


(1,123
)


(0.6
)%


(1,109
)


(0.8
)%


(14
)


1.3
%Income before provision for income
    taxes

$
445



0.2
%

$
2,661



2.0
%

$
(2,216
)


(83.3
)%    24




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##### Table of Contents



Revenues
    Bistro:
  Pei Wei:
    Costs
    and Expenses
  Cost of
    Sales
    Bistro:
  Pei Wei:
  Labor
    Bistro:
  Pei Wei:
  Operating
   25




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##### Table of Contents



Bistro:
  Pei Wei:
  Occupancy
    Bistro:
  Pei Wei:
  General
    and Administrative
    Bistro:
  Pei Wei:
  Shared Services and Other:
 26




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##### Table of Contents



Depreciation
    and Amortization
    Bistro:
  Pei Wei:
  Preopening
    Expense
    Bistro:
  Pei Wei:
  Partner
    Investment Expense
    Bistro:
  Pei Wei:
 27




---



##### Table of Contents



Interest
    and Other Income (Expense), Net
  year-over-year
  Minority
    Interest
    Bistro:
  Pei Wei:
  Provision for Income Taxes
  Interim Financial
    Reporting
 28




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##### Table of Contents



Fiscal
    2005 compared to Fiscal 2004
    Fiscal Year% of





% of2005


Revenues


2004


Revenues


$ Change


% ChangeRevenues

$
809,153



100.0
%

$
706,941



100.0
%

$
102,212



14.5
%Costs and expenses:Cost of sales


224,634



27.8
%


200,736



28.4
%


23,898



11.9
%Labor


266,243



32.9
%


231,930



32.8
%


34,313



14.8
%Operating


122,247



15.1
%


99,231



14.0
%


23,016



23.2
%Occupancy


42,793



5.3
%


37,693



5.3
%


5,100



13.5
%General and administrative


41,117



5.1
%


36,369



5.1
%


4,748



13.1
%Depreciation and amortization


36,950



4.6
%


29,155



4.1
%


7,795



26.7
%Preopening expense


9,245



1.1
%


7,980



1.1
%


1,265



15.9
%Partner investment expense


4,800



0.6
%


17,671



2.5
%


(12,871
)


(72.8
)%Total costs and expenses


748,029



92.4
%


660,765



93.5
%


87,264



13.2
%Income from operations


61,124



7.6
%


46,176



6.5
%


14,948



32.4
%Interest and other income, net


1,841



0.2
%


612



0.1
%


1,229



200.8
%Minority interest


(8,227
)


(1.0
)%


(10,078
)


(1.4
)%


1,851



(18.4
)%Income before provision for income
    taxes


54,738



6.8
%


36,710



5.2
%


18,028



49.1
%Provision for income taxes


(16,942
)


(2.1
)%


(10,656
)


(1.5
)%


(6,286
)


59.0
%Net income

$
37,796



4.7
%

$
26,054



3.7
%

$
11,742



45.1
%       Fiscal Year% of





% of2005


Revenues


2004


Revenues


Change


% ChangeRevenues

$
675,204



100.0
%

$
611,468



100.0
%

$
63,736



10.4
%Costs and expenses:Cost of sales


187,073



27.7
%


173,128



28.3
%


13,945



8.1
%Labor


221,126



32.7
%


200,157



32.7
%


20,969



10.5
%Operating


100,199



14.8
%


84,781



13.9
%


15,418



18.2
%Occupancy


34,700



5.1
%


31,896



5.2
%


2,804



8.8
%General and administrative


15,512



2.3
%


30,051



4.9
%


(14,539
)


(48.4
)%Depreciation and amortization


30,093



4.5
%


24,778



4.1
%


5,315



21.5
%Preopening expense


6,028



0.9
%


5,843



1.0
%


185



3.2
%Partner investment expense


3,526



0.5
%


15,075



2.5
%


(11,549
)


(76.6
)%Total costs and expenses


598,257



88.6
%


565,709



92.5
%


32,548



5.8
%Income from operations


76,947



11.4
%


45,759



7.5
%


31,188



68.2
%Interest and other income, net


251



0.0
%


612



0.1
%


(361
)


(59.0
)%Minority interest


(7,118
)


(1.1
)%


(9,177
)


(1.5
)%


2,059



(22.4
)%Income before provision for income
    taxes

$
70,080



10.4
%

$
37,194



6.1
%

$
32,886



88.4
%    29




---



##### Table of Contents



Fiscal Year% of





% of2005


Revenues


2004


Revenues


Change


% ChangeRevenues

$
133,949



100.0
%

$
95,473



100.0
%

$
38,476



40.3
%Costs and expenses:Cost of sales


37,561



28.0
%


27,608



28.9
%


9,953



36.1
%Labor


45,117



33.7
%


31,773



33.3
%


13,344



42.0
%Operating


22,048



16.5
%


14,450



15.1
%


7,598



52.6
%Occupancy


8,093



6.0
%


5,797



6.1
%


2,296



39.6
%General and administrative


6,907



5.2
%


6,318



6.6
%


589



9.3
%Depreciation and amortization


5,977



4.5
%


4,377



4.6
%


1,600



36.6
%Preopening expense


3,217



2.4
%


2,137



2.2
%


1,080



50.5
%Partner investment expense


1,274



1.0
%


2,596



2.7
%


(1,322
)


(50.9
)%Total costs and expenses


130,194



97.2
%


95,056



99.6
%


35,138



37.0
%Income from operations


3,755



2.8
%


417



0.4
%


3,338



800.5
%Interest and other income, net


15



0.0
%






0.0
%


15



0.0
%Minority interest


(1,109
)


(0.8
)%


(901
)


(0.9
)%


(208
)


23.1
%Income before provision for income
    taxes

$
2,661



2.0
%

$
(484
)


(0.5
%)

$
3,145



(649.8
)%     Revenues
    Bistro:
  Pei Wei:
  Costs
    and Expenses
  Cost of
    Sales
    Bistro:
  Pei Wei:
 30




---



##### Table of Contents



Labor
    Bistro:
  Pei Wei:
  Operating
    Bistro:
  Pei Wei:
  Occupancy
    Bistro:
  Pei Wei:
  General
    and Administrative
    Depreciation
    and Amortization
    Bistro:
 31




---



##### Table of Contents



Pei Wei:
  Preopening
    Expense
    Bistro:
  Pei Wei:
  Partner
    Investment Expense
    Bistro:
  Pei Wei:
  Interest
    and Other Income (Expense), Net
    Minority
    Interest
    Bistro:
  Pei Wei:
 32




---



##### Table of Contents



Provision
    for Income Taxes
  Interim Financial Reporting
  Quarterly
    Results
    Fiscal 2006


Fiscal 2005First


Second


Third


Fourth


First


Second


Third


FourthQuarter


Quarter


Quarter


Quarter


Quarter


Quarter


Quarter


QuarterRevenues, in thousands

$
228,613


$
225,981


$
231,024


$
251,988


$
194,214


$
198,056


$
203,049


$
213,834Costs and expenses:Cost of sales


27.7
%


27.1
%


27.2
%


27.3
%


27.8
%


27.5
%


27.6
%


28.1
%Labor


33.7



33.4



33.0



32.4



32.7



32.7



33.4



32.8Operating


15.2



16.0



15.7



15.5



14.5



14.9



15.5



15.4Occupancy


5.5



5.6



5.8



5.5



5.3



5.4



5.5



4.9General and administrative


5.8



6.2



6.3



5.9



5.4



5.3



4.8



4.8Depreciation and amortization


4.5



4.7



5.0



4.9



4.2



4.3



4.6



5.2Preopening expense


0.7



1.2



1.6



1.8



0.7



1.3



1.3



1.3Partner investment expense


0.1



0.4



0.6



0.7



0.1



0.8



0.7



0.7Total costs and expenses


93.3



94.7



95.4



94.0



90.8



92.2



93.4



93.2Income from operations


6.7



5.3



4.6



6.0



9.2



7.8



6.6



6.8Interest and other income, net


0.2



0.3



0.1



(0.0
)


0.2



0.2



0.3



0.2Minority interest


(0.9
)


(0.9
)


(0.8
)


(0.8
)


(1.2
)


(1.1
)


(1.0
)


(0.8
)Income before provision for income
    taxes


6.1



4.7



3.9



5.1



8.3



6.9



5.9



6.1Provision for income taxes


(1.8
)


(1.1
)


(1.0
)


(1.7
)


(2.7
)


(2.2
)


(1.7
)


(1.8
)Net income


4.3
%


3.6
%


2.9
%


3.5
%


5.6
%


4.7
%


4.2
%


4.3
%      33




---



##### Table of Contents



Liquidity
    and Capital Resources
      2006


2005


2004Net cash provided by operating
    activities

$
123,404


$
108,517


$
109,505Net cash used in investing
    activities


(75,065
)


(140,683
)


(84,741
)Net cash used in financing
    activities


(48,698
)


(2,295
)


(3,833
)Net increase (decrease) in cash
    and cash equivalents

$
(359
)

$
(34,461
)

$
20,931   Operating
    Activities
    Investing
    Activities
       34




---



##### Table of Contents



Financing
    Activities
    Future
    capital requirements
    Credit
    Facility
    Share
    Repurchase Program
    Partnership
    Activities
     35




---



##### Table of Contents



Form 10-K,
  Minority
    Interest Purchase
    Purchase
    Commitments
    Payments Due by periodLess








GreaterThan


1-3


3-5


ThanTotal


1 Year


Years


Years


5 YearsLong-Term Debt

$
19,210


$
5,487


$
1,660


$
12,006


$
57Operating Leases


336,100



17,913



74,804



74,409



168,974Capital Leases


4,646



416



832



832



2,566Purchase Obligations


111,480



86,181



25,299







Total

$
471,436


$
109,997


$
102,595


$
87,247


$
171,597     New
    Accounting Standards
    Item 7A.
    Quantitative
    and Qualitative Disclosures about Market Risks   36




---



##### Table of Contents



Item 8.
    Financial
    Statements and Supplementary Data  P.F.
    CHANGS CHINA BISTRO, INC.
  INDEX TO
    CONSOLIDATED FINANCIAL STATEMENTS
  PageConsolidated Financial Statements:Reports of
    Independent Registered Public Accounting Firms


38Consolidated
    Balance Sheets at December 31, 2006 and January 1,
    2006


40Consolidated
    Statements of Income for the Years Ended December 31, 2006,
    January 1, 2006 and January 2, 2005


41Consolidated
    Statements of Common Stockholders Equity for the Years
    Ended December 31, 2006, January 1, 2006 and
    January 2, 2005


42Consolidated
    Statements of Cash Flows for the Years Ended December 31,
    2006, January 1, 2006 and January 2, 2005


43Notes to
    Consolidated Financial Statements


44  37




---



##### Table of Contents



Report
    of Independent Registered Public Accounting Firm           ,
  Share-Based Payments.
      38




---



##### Table of Contents



Report
    of Independent Registered Public Accounting Firm
           
    39




---



##### Table of Contents



P.F.
    CHANGS CHINA BISTRO, INC.
  CONSOLIDATED BALANCE SHEETS
  December 31,


January 1,2006


2006(In thousands)ASSETSCurrent assets:Cash and cash equivalents

$
31,589


$
31,948Short-term investments






34,150Restricted short-term investments






8,260Inventories


4,232



3,461Prepaids and other current assets


28,995



26,092Total current assets


64,816



103,911Property and equipment, net


421,770



345,864Goodwill


6,819



6,819Intangible assets, net


12,644



10,543Other assets


7,996



7,722Total assets

$
514,045


$
474,859LIABILITIES AND COMMON
    STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
15,255


$
13,850Construction payable


9,075



6,463Accrued expenses


55,848



40,864Unearned revenue


18,226



15,281Current portion of long-term debt,
    including $3,542,000 and $3,503,000 due to related parties at
    December 31, 2006 and January 1, 2006, respectively


5,487



5,110Total current liabilities


103,891



81,568Long-term debt, including $588,000
    and $3,503,000 due to related parties at December 31, 2006
    and January 1, 2006, respectively


13,723



5,360Lease obligations


71,682



55,991Other liabilities


1,909



8,197Minority interests


33,315



29,845Commitments and contingencies
    (Note 14)






Common stockholders equity:Common stock, $0.001 par
    value, 40,000,000 shares authorized: 25,373,019 shares
    and 26,397,366 shares issued and outstanding at
    December 31, 2006 and January 1, 2006, respectively


27



26Additional paid-in capital


174,101



165,355Treasury stock, at cost,
    1,397,261 shares and zero shares outstanding at
    December 31, 2006 and January 1, 2006, respectively


(46,373
)


Retained earnings


161,770



128,517Total common stockholders
    equity


289,525



293,898Total liabilities and common
    stockholders equity

$
514,045


$
474,859    40




---



##### Table of Contents



P.F.
    CHANGS CHINA BISTRO, INC.
  CONSOLIDATED STATEMENTS OF INCOME
  Year EndedDecember 31,


January 1,


January 2,2006


2006


2005(In thousands, except per share amounts)Revenues

$
937,606


$
809,153


$
706,941Costs and expenses:Cost of sales


256,582



224,634



200,736Labor


310,113



266,243



231,930Operating


146,409



122,247



99,231Occupancy


52,457



42,793



37,693General and administrative


56,911



41,117



36,369Depreciation and amortization


44,863



36,950



29,155Preopening expense


12,713



9,245



7,980Partner investment expense


4,371



4,800



17,671Total costs and expenses


884,419



748,029



660,765Income from operations


53,187



61,124



46,176Interest and other income, net


1,315



1,841



612Income before minority interest
    and provision for income taxes


54,502



62,965



46,788Minority interest


(8,116
)


(8,227
)


(10,078
)Income before provision for income
    taxes


46,386



54,738



36,710Provision for income taxes


(13,133
)


(16,942
)


(10,656
)Net income

$
33,253


$
37,796


$
26,054Net income per share:Basic

$
1.28


$
1.44


$
1.01Diluted

$
1.24


$
1.40


$
0.98Weighted average shares used in
    computation:Basic


26,075



26,271



25,727Diluted


26,737



27,000



26,575    41




---



##### Table of Contents



P.F.
    CHANGS CHINA BISTRO, INC.
  CONSOLIDATED STATEMENTS OF COMMON
    STOCKHOLDERS EQUITY
  AdditionalCommon Stock


Paid-In


Treasury


RetainedShares


Amount


Capital


Stock


Earnings


Total(In thousands)Balances, December 28,
    2003


25,518


$
26


$
139,639


$



$
64,667


$
204,332Issuance of common stock under
    stock option plans


510







5,911











5,911Issuance of common stock under
    employee stock purchase plan


40







1,548











1,548Issuance of common stock of Pei
    Wei subsidiary under stock option plan










76











76Tax benefit from disqualifying
    stock option dispositions










7,036











7,036Net income


















26,054



26,054Balances, January 2,
    2005


26,068



26



154,210







90,721



244,957Issuance of common stock under
    stock option plans


285







6,075











6,075Issuance of common stock under
    employee stock purchase plan


44







1,891











1,891Tax benefit from disqualifying
    stock option dispositions










3,179











3,179Net income


















37,796



37,796Balances, January 1,
    2006


26,397



26



165,355







128,517



293,898Issuance of common stock under
    stock option plans


210



1



3,071











3,072Issuance of common stock under
    employee stock purchase plan


67







2,142











2,142Issuance of restricted shares
    under incentive plans, net of forfeitures


96







383











383Purchase of treasury stock


(1,397
)










(46,373
)






(46,373
)Purchase of subsidiary stock










(7,345
)










(7,345
)Equity-based compensation expense










8,558











8,558Tax benefit from disqualifying
    stock option dispositions










1,937











1,937Net income


















33,253



33,253Balances, December 31,
    2006


25,373


$
27


$
174,101


$
(46,373
)

$
161,770


$
289,525    42




---



##### Table of Contents



P.F.
    CHANGS CHINA BISTRO, INC.
  CONSOLIDATED STATEMENTS OF CASH FLOWS
  Year EndedDecember 31,


January 1,


January 2,2006


2006


2005(In thousands)Operating Activities:Net income

$
33,253


$
37,796


$
26,054Adjustments to reconcile net income
    to net cash provided by operating activities:Depreciation and amortization


44,863



36,950



29,155Equity-based compensation


8,941







Partner investment expense


4,371



4,800



17,195Partner bonus expense, imputed


1,999



1,808



1,750Deferred income taxes


(6,175
)


1,817



(195
)Tax benefit from disqualifying
    stock option dispositions credited to equity


(1,937
)


3,179



7,036Minority interest


8,116



8,227



10,078Other


294







Changes in operating assets and
    liabilities:Inventories


(771
)


(510
)


(40
)Prepaids and other current assets


(2,257
)


(6,186
)


(3,561
)Other assets


(2,464
)


(1,042
)


(1,110
)Accounts payable


1,405



(163
)


5,646Accrued expenses


14,984



8,566



4,380Lease obligation


15,837



10,453



10,509Unearned revenue


2,945



2,822



2,608Net cash provided by operating
    activities


123,404



108,517



109,505Investing Activities:Capital expenditures


(114,330
)


(93,792
)


(84,088
)Purchase of short-term investments


(12,660
)


(48,180
)


Capitalized interest


(1,003
)


(3,396
)


(58
)Purchase of minority interests


(2,142
)


(6,085
)


(595
)Sale of short-term investments


55,070



10,770



Net cash used in investing
    activities


(75,065
)


(140,683
)


(84,741
)Financing Activities:Purchases of treasury stock


(46,373
)






Borrowings on credit facility


12,000







Distributions to minority members
    and partners


(10,080
)


(10,774
)


(11,161
)Purchase of subsidiary common stock


(7,345
)






Proceeds from stock options
    exercised and employee stock purchases


5,214



7,966



7,459Repayments of long-term debt


(5,110
)


(672
)


(1,382
)Tax benefit from disqualifying
    stock option dispositions credited to equity


1,937







Proceeds from minority
    investors contributions


1,205



1,320



1,175Payments of capital lease obligation


(146
)


(135
)


Proceeds from sale of subsidiary
    common stock










76Net cash used in financing
    activities


(48,698
)


(2,295
)


(3,833
)Net increase (decrease) in cash and
    cash equivalents


(359
)


(34,461
)


20,931Cash and cash equivalents at the
    beginning of the period


31,948



66,409



45,478Cash and cash equivalents at the
    end of the period

$
31,589


$
31,948


$
66,409Supplemental Disclosure of Cash
    Flow Information:Cash paid for interest

$
915


$
429


$
104Cash paid for income taxes, net of
    refunds

$
12,616


$
15,116


$
11,144Supplemental Disclosure of
    Non-Cash Items:Purchase of minority interests
    through issuance of long-term-debt and conversion to
    members capital

$
1,851


$
3,756


$
355Change in construction payable

$
2,612


$
2,564


$
(2,560
)Capital lease adjustment

$



$
1,737


$
    43




---



##### Table of Contents



P.F.
    CHANGS CHINA BISTRO, INC.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS
 December 31, 2006
  1.
    Summary
    of Significant Accounting Policies  Organization
    and Nature of Operations
    Fiscal
    Year
    Use of
    Estimates
    Principles
    of Consolidation and Presentation
    Cash
    and Cash Equivalents
    Short-term
    and Restricted Short-term Investments
     44




---



##### Table of Contents



P.F.
    CHANGS CHINA BISTRO, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Receivables
    Inventories
  first-in,
  Property
    and Equipment
          Goodwill
    and Intangibles
    Goodwill
   45




---



##### Table of Contents



P.F.
    CHANGS CHINA BISTRO, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Intangibles
      Accrued
    Insurance
    Lease
    Obligations
         46




---



##### Table of Contents



P.F.
    CHANGS CHINA BISTRO, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  No. 13-1, Accounting for Rental Costs Incurred During a Construction
    Period.
  Other
    Liabilities
  Accounting for Conditional Asset Retirement Obligations.
    Unearned
    Revenue
    Revenue
    Recognition
      Advertising
   47




---



##### Table of Contents



P.F.
    CHANGS CHINA BISTRO, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Partner
    Bonus Expense, Imputed
    Preopening
    Expense
  No. 13-1, Accounting for Rental Costs Incurred During a Construction
    Period
  Partner
    Investment Expense
  ,
    Income
    Taxes
  Accounting for
    Income Taxes.
   48




---



##### Table of Contents



P.F.
    CHANGS CHINA BISTRO, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Share-Based
    Compensation
  Accounting for
    Stock Issued to Employees
  Share-Based Payment Share-Based Payment
  Accounting for Stock-Based Compensation
  Year Ended


Year EndedJanuary 1,


January 2,2006


2005(In thousands, except per share amounts)Net income, as reported

$
37,796


$
26,054Deduct: Fair value based
    compensation expense, net of related tax effects


(6,160
)


(5,074
)Pro forma net income

$
31,636


$
20,980Net income per share:Basic, as reported

$
1.44


$
1.01Basic, pro forma

$
1.20


$
0.82Diluted, as reported

$
1.40


$
0.98Diluted, pro forma

$
1.17


$
0.79Weighted average shares used in
    computation:Basic


26,271



25,727Diluted


27,000



26,575     Year EndedDecember 31,


January 1,


January 2,2006


2006


2005Weighted average risk-free
    interest rate


4.9
%


4.1
%


3.6
%Expected life of options (years)


5.6



5.0



5.0Expected stock volatility


35.0
%


38.9
%


43.7
%Expected dividend yield


0.0
%


0.0
%


0.0
%  49




---



##### Table of Contents



P.F.
    CHANGS CHINA BISTRO, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Transition Election Related to Accounting
    for the Tax Effects of Share-Based Payment Awards FAS 123R-3.
  Net
    Income per Share
  Earnings per Share.
    Year EndedDecember 31,


January 1,


January 2,2006


2006


2005(In thousands, except per share amounts)Numerator:Net income

$
33,253


$
37,796


$
26,054Denominator:Basic: Weighted-average shares
    outstanding during the year


26,075



26,271



25,727Add: Dilutive effect of employee
    and director stock options


662



729



848Diluted


26,737



27,000



26,575Net income per share:Basic

$
1.28


$
1.44


$
1.01Diluted

$
1.24


$
1.40


$
0.98   Fair
    Value of Financial Instruments
    Concentrations
    of Credit Risk
   50




---



##### Table of Contents



P.F.
    CHANGS CHINA BISTRO, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Reclassifications
    Recent
    Accounting Pronouncements
  Considering the Effects of Prior
    Year Misstatements when quantifying Misstatements in Current
    Year Financial Statements
  Fair Value Measurements
  Accounting for Uncertainty in
    Income Taxes  an interpretation of FASB Statement
    No. 109
  06-3 06-3), How Sales Taxes Collected From Customers and Remitted to
    Governmental Authorities Should Be Presented in the Income
    Statement. 06-3. 06-3
 51




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##### Table of Contents



P.F.
    CHANGS CHINA BISTRO, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   2.
    Prepaids
    and Other Current Assets    December 31,


January 1,2006


2006(In thousands)Receivables

$
14,457


$
7,246Current portion of deferred tax
    asset


8,868



10,135Prepaid rent


3,623



2,948Other


2,047



5,763Total prepaids and other current
    assets

$
28,995


$
26,092     3.
    Property
    and Equipment    December 31,


January 1,2006


2006(In thousands)Land

$
3,681


$
3,681Building and improvements


15,237



15,188Leasehold improvements


413,529



330,500Furniture, fixtures and equipment


116,867



94,607China and smallwares


11,326



9,157560,640



453,133Less: accumulated depreciation and
    amortization


(159,288
)


(119,979
)401,352



333,154Add: Construction in progress


20,418



12,710Property and equipment, net

$
421,770


$
345,864   4.
    Intangible
    Assets    December 31,


January 1,2006


2006(In thousands)Intangible assets, gross

$
14,343


$
11,267Accumulated amortization


(1,699
)


(724
)Intangible assets, net

$
12,644


$
10,543    52




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##### Table of Contents



P.F.
    CHANGS CHINA BISTRO, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     2007

$
1,1052008


1,1052009


1,1052010


1,1052011


1,105Thereafter


7,119Total

$
12,644   5.
    Accrued
    Expenses    December 31,


January 1,2006


2006(In thousands)Accrued payroll

$
18,099


$
12,354Sales and use tax payable


6,531



5,405Property tax payable


3,159



2,301Accrued insurance


13,701



11,708Accrued rent


3,708



3,427Other accrued expenses


10,650



5,669Total accrued expenses

$
55,848


$
40,864   6.
    Credit
    Facility   53




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##### Table of Contents



P.F.
    CHANGS CHINA BISTRO, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   7.
    Long-Term
    Debt    December 31,


January 1,2006


2006(In thousands)Credit line borrowings

$
12,000


$
$4.1 million in unsecured
    promissory notes, payable to related parties from the sale of
    minority partner interests, with a rate of 50 - 225 basis points
    over LIBOR (5.31% at December 31, 2006), maturing January
    2007 through December 2008


4,130



7,006$3.0 million in unsecured
    promissory notes, payable to non-related parties from the sale
    of minority partner interests, with a rate of 50 -
    225 basis points over LIBOR (5.31% at December 31,
    2006), maturing January 2007 through August 2009


3,010



3,392Other


70



72Total debt


19,210



10,470Less: current portion


5,487



5,110Total long-term debt

$
13,723


$
5,360       2007

$
5,4872008


1,5862009


742010


32011


12,003Thereafter


57Total

$
19,210   Note:
  8.
    Leases    December 31,


January 1,2006


2006(In thousands)Capital lease assets, gross

$
4,494


$
4,494Accumulated amortization


(1,810
)


(1,589
)Capital lease assets, net

$
2,684


$
2,905  54




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##### Table of Contents



P.F.
    CHANGS CHINA BISTRO, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,


January 1,2006


2006(In thousands)Building

$
2,643


$
2,789Land


1,050



1,050Capital lease obligations

$
3,693


$
3,839       Year EndedDecember 31,


January 1,


January 2,2006


2006


2005(In thousands)Minimum rentals

$
25,680


$
20,819


$
19,227Contingent rentals


8,886



8,193



7,723Total rent expense

$
34,566


$
29,012


$
26,950       Capital


OperatingLeases


Leases


Total(In thousands)2007

$
416


$
17,913


$
18,3292008


416



37,079



37,4952009


416



37,725



38,1412010


416



37,480



37,8962011


416



36,929



37,345Thereafter


2,566



168,974



171,540Total minimum lease payments


4,646


$
336,100


$
340,746Less: Amount representing interest


2,117Present value of minimum lease
    payments

$
2,529  55




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##### Table of Contents



P.F.
    CHANGS CHINA BISTRO, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    9.
    Preferred
    Stock and Common Stockholders Equity  Preferred
    Stock
    Stock
    Option Plans
  1996
    and 1997 Plans
    1998
    Plan
    1999
    Plan
   56




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##### Table of Contents



P.F.
    CHANGS CHINA BISTRO, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2006
    Plan
    Option
    valuation
    Year EndedDecember 31,


January 1,


January 2,2006


2006


2005Weighted average fair value of
    stock options granted

$
13.77


$
22.54


$
19.59Intrinsic value of stock options
    exercised

$
6,322


$
10,216


$
18,827Tax deductions for non-qualified
    stock option exercises

$
1,937


$
3,179


$
7,036  57




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##### Table of Contents



P.F.
    CHANGS CHINA BISTRO, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Option
    activity
    Outstanding OptionsWeighted-AverageWeighted


Remaining


AggregateAverage


Contractual


IntrinsicShares


Exercise Price


Term


Value(1)(Per share)


(In years)


(In thousands)Outstanding at December 28,
    2003


2,428,194


$
22.46Granted


602,200



45.33Exercised


(509,833
)


11.59Forfeited (canceled)


(49,331
)


36.52Outstanding at January 2, 2005


2,471,230


$
29.92Granted


876,550



55.66Exercised


(285,269
)


21.30Forfeited (canceled)


(94,394
)


46.06Outstanding at January 1, 2006


2,968,117


$
37.84Granted


509,010



33.11Converted Pei Wei options


306,782



5.06Exercised


(211,318
)


14.54Forfeited (canceled)


(238,811
)


46.70Outstanding at December 31,
    2006


3,333,780


$
35.01



6.6


$
11,224Options exercisable at
    December 31, 2006


1,986,370


$
29.90



5.4


$
16,835     (1)
    
    The aggregate intrinsic value of stock options represents the
    closing market price on the last trading day of the quarter less
    the exercise price of each option multiplied by the number of
    in-the-money
    stock options.    Options OutstandingWeighted-





Options ExercisableAverage


Weighted-





Weighted-Remaining


Average





AverageNumber


Contractual


Exercise


Number


ExerciseRange of Exercise Prices

Outstanding


Life


Price


Exercisable


Price$ 1.20 - $10.00


366,752



3.5 years


$
4.85



329,483


$
4.54$10.01 - $15.00


253,153



3.3 years



13.19



243,771



13.13$15.01 - $20.00


311,748



4.3 years



18.69



311,748



18.69$20.01 - $25.00


6,085



5.0 years



24.39



5,875



24.39$25.01 - $30.00


16,367



5.7 years



29.14



9,793



29.08$30.01 - $35.00


684,761



7.8 years



30.70



256,889



31.58$35.01 - $40.00


91,449



6.6 years



38.51



74,929



38.92$40.01 - $45.00


466,635



7.9 years



43.75



189,917



43.83$45.01 - $50.00


344,879



6.9 years



46.55



197,337



46.36$50.01 - $59.11


791,951



8.2 years



55.74



366,628



54.41  58




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##### Table of Contents



P.F.
    CHANGS CHINA BISTRO, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Restricted
    stock
      Restricted Share AwardsWeighted-AverageGrant-DateShares


Fair Value(Per share)Restricted share awards
    outstanding at January 1, 2006





$
Granted


102,700



30.43Vested






Forfeited (canceled)


(6,300
)


30.05Restricted share awards
    outstanding at December 31, 2006


96,400


$
30.46     Share-based
    compensation
      Year EndedDecember 31,2006(In thousands)Labor

$
956General and administrative


7,985Total share-based compensation


8,941Less: tax benefit


(2,562
)Total share-based compensation,
    net of tax

$
6,379     2001
    Pei Wei Plan and minority interest purchase
   59




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##### Table of Contents



P.F.
    CHANGS CHINA BISTRO, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Key
    Employee Stock Purchase Plan
    Employee
    Stock Purchase Plan
    Share
    Repurchase Program
    10.
    Benefit
    Plan   60




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##### Table of Contents



P.F.
    CHANGS CHINA BISTRO, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    11.
    Employment
    Agreements        12.
    Partnership
    Structure     61




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##### Table of Contents



P.F.
    CHANGS CHINA BISTRO, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      December 31,


January 1,2006


2006(In thousands)Total number of partners


223



207Partnership interests purchased
    during the year


44



19Purchase price of partnership
    interests purchased:Cash

$
3,342


$
6,085Debt


1,875



10,087Total

$
5,217


$
16,172     Form 10-K,
  13.
    Income
    Taxes    Year EndedDecember 31,


January 1,


January 2,2006


2006


2005(In thousands)Federal:Current

$
15,628


$
12,230


$
8,539Deferred


(5,228
)


1,538



(165
)Total Federal

$
10,400


$
13,768


$
8,374State:Current

$
3,680


$
2,895


$
2,312Deferred


(947
)


279



(30
)Total State

$
2,733


$
3,174


$
2,282Total income tax expense

$
13,133


$
16,942


$
10,656  62




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##### Table of Contents



P.F.
    CHANGS CHINA BISTRO, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year EndedDecember 31,


January 1,


January 2,2006


2006


2005Income tax expense at federal
    statutory rate


35.0
%


35.0
%


35.0
%State taxes, net of federal expense


3.8
%


3.8
%


4.0
%Equity based compensation expense


0.5
%


0.0
%


0.0
%FICA tip credit


(10.2
)%


(7.7
)%


(10.0
)%Other, net


(0.8
)%


(0.1
)%


0.0
%Total effective rate


28.3
%


31.0
%


29.0
%     December 31,


January 1,2006


2006(In thousands)Deferred tax assets:Preopening expenses

$
1,842


$
1,302FICA tip and AMT credit
    carryforward


3,398



6,199Buyout intangible


4,980



5,228Unearned compensation


5,193



3,962Insurance


5,249



3,730Equity based compensation expense


3,102



Other


1,024



262Straight line rent


814



329Total deferred tax assets

$
25,602


$
21,012Deferred tax liabilities:Depreciation on property and
    equipment

$
20,851


$
19,943Goodwill amortization


(3,362
)


(869
)Total deferred tax liabilities

$
17,489


$
19,074Net deferred tax assets

$
8,113


$
1,938        63




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##### Table of Contents



P.F.
    CHANGS CHINA BISTRO, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    14.
    Commitments
    and Contingencies  Purchase
    Obligations
  12-month
  Litigation
    and other
    15.
    Segment
    Reporting   64




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##### Table of Contents



P.F.
    CHANGS CHINA BISTRO, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Shared ServicesTotal


and Other(1)


Bistro


Pei Wei(In thousands)Fiscal Year 2006Revenues

$
937,606


$
742


$
756,634


$
180,230Income (loss) before provision for
    income taxes


46,386



(27,200
)


73,141



445Capital expenditures


114,330



3,848



76,853



33,629Depreciation and amortization


44,863



1,207



34,451



9,205Total assets


514,045



29,755



395,263



89,027Goodwill


6,819







6,566



253Fiscal Year 2005Revenues

$
809,153


$



$
675,204


$
133,949Income (loss) before provision for
    income taxes


54,738



(18,003
)


70,080



2,661Capital expenditures


93,792



5,897



65,251



22,644Depreciation and amortization


36,950



880



30,093



5,977Total assets


474,859



18,384



393,913



62,562Goodwill


6,819







6,566



253Fiscal Year 2004Revenues

$
706,941






$
611,468


$
95,473Income (loss) before provision for
    income taxes


36,710







37,194



(484
)Capital expenditures


84,088







67,475



16,613Depreciation and amortization


29,155







24,778



4,377     (1)
    
    The Company did not segregate Shared Services and
    Other during fiscal year 2004. Prior to 2005, similar
    expenses were generally presented within Bistro. 65




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##### Table of Contents



P.F.
    CHANGS CHINA BISTRO, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   16.
    Interim
    Financial Results (Unaudited)  quarter-to-quarter
  Fiscal 2006


Fiscal 2005First


Second


Third


Fourth


First


Second


Third


FourthQuarter


Quarter


Quarter


Quarter


Quarter


Quarter


Quarter


QuarterRevenues

$
228,613


$
225,981


$
231,024


$
251,988


$
194,214


$
198,056


$
203,049


$
213,834Income before provision for income
    taxes


13,871



10,572



9,000



12,943



16,039



13,706



11,886



13,107Net income


9,813



8,089



6,586



8,765



10,826



9,252



8,439



9,279Basic net income per share


0.37



0.30



0.25



0.35



0.41



0.35



0.32



0.35Diluted net income per share


0.36



0.30



0.25



0.34



0.40



0.34



0.31



0.34Basic weighted average shares
    outstanding


26,485



26,546



26,000



25,269



26,117



26,221



26,359



26,385Diluted weighted average shares
    outstanding


27,239



27,258



26,558



25,893



26,893



26,977



27,073



27,058  66




---



##### Table of Contents



Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure          Item 9A.
    Controls
    and Procedures  Disclosure Controls and Procedures
  Form 10-K, Rule 13a-15(e)
  Managements Annual Report on Internal Control over
    Financial Reporting Rule 13a-15(f)
 67




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##### Table of Contents



Internal Control 
    Integrated Framework. Internal Control  Integrated
    Framework.
    Change in Internal Control Over Financial
    Reporting
  Item 9B.
    Other
    Information   68




---



##### Table of Contents



Report
    of Independent Registered Public Accounting Firm
     ,
          .
       69




---



##### Table of Contents



PART III  Item 10.
    Directors
    and Executive Officers of the Registrant    Item 11.
    Executive
    Compensation    Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters  Securities Authorized for Issuance Under Equity Compensation
    Plans.
  Number of SharesRemainingNumber of Shares


Weighted


Available forto Be Issued


Average Exercise


Future IssuanceUpon Exercise of


Price of


Under EquityOutstanding


Outstanding


CompensationPlan Category

Options


Options


Plans(1)Equity compensation plans approved
    by shareholders(a)


3,041,693


$
35.57



1,816,244
(c)Equity compensation plans not
    approved by shareholders(b)


292,087


$
29.23



22,849Total


3,333,780







1,839,093     (a)
    
    Consists of five P.F. Changs stock plans: 1996 Stock
    Option Plan, 1997 Restaurant Management Stock Option Plan,
    Second Amended and Restated 1998 Stock Option Plan, 1998
    Employee Stock Purchase Plan and 2006 Equity Incentive Plan.(b)
    
    Consists of P.F. Changs China Bistro 1999 Nonstatutory
    Stock Option Plan (the 1999 Plan), which provides
    for discretionary grants of nonqualified stock options to the
    Companys employees. The 1999 Plan prohibits grants to
    officers or directors. A total of 800,000 shares of common
    stock have been reserved for issuance under the 1999 Plan. The
    option price per share may not be less than 100 percent of
    the fair market value of a share of common stock on the grant
    date. The Companys Compensation Committee has the
    authority to, among other things; determine the vesting schedule
    for each option granted. All options expire within
    10 years. See Notes to Consolidated Financial
    Statements, Note 9  Stock Option Plans.(c)
    
    Includes 437,557 shares reserved for issuance under the
    1998 Employee Stock Purchase Plan.    2006


2005


2004Net grants during the period as a
    % of outstanding shares


1.1
%


3.0
%


2.1
%Grants to named executive
    officers* as a % of total options granted


68.1
%


23.8
%


23.2
%Grants to named executive
    officers* as a % of outstanding shares


1.4
%


0.8
%


0.5
%Cumulative options held by named
    executive officers* as a % of total options outstanding


40.3
%


37.8
%


37.9
%  70




---



##### Table of Contents



*
    
    Named executive officers are defined by the SEC for inclusion in
    the Proxy Statement. Named executive officers include our Chief
    Executive Officer (CEO), our Chief Financial Officer and each of
    the three other most highly compensated executive officers
    serving at the end of the fiscal year ended December 31,
    2006 and one additional individual for whom disclosure would
    have been provided but for the fact that she was not serving as
    an executive officer at the end of fiscal 2006. Fiscal 2005
    includes our CEO and each of the four other most highly
    compensated executive officers and one additional individual for
    whom disclosure would have been provided but for the fact that
    he was not serving as an executive officer at the end of fiscal
    2005. Fiscal 2004 includes our CEO and each of the four other
    most highly compensated executive officers.  Regulation S-K
  Item 13.
    Certain
    Relationships and Related Transactions    Item 14.
    Principal
    Accountant Fees and Services   PART IV  Item 15.
    Exhibits,
    Financial Statement Schedules    Form 10-K:
                Form 10-K.
 71




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##### Table of Contents



ExhibitNumber

Description Document3(i)(1)


Amended and Restated Certificate
    of Incorporation.3(ii)(2)


Amended and Restated By-laws.4
.1(3)

Specimen Common Stock Certificate.4
.2(3)

Amended and Restated Registration
    Rights Agreement dated May 1, 1997.10
.1(3)

Form of Indemnification Agreement
    for directors and executive officers.10
.2(3)

1998 Stock Option Plan and forms
    of agreement thereunder.10
.3(3)

1997 Restaurant Manager Stock
    Option Plan and forms of Agreement thereunder.10
.4(3)

1996 Stock Option Plan and forms
    of Agreement thereunder.10
.5(3)

1998 Employee Stock Purchase Plan.10
.13(4)

1999 Nonstatutory Stock Option
    Plan.10
.16(5)

Common Stock Purchase Agreement
    dated January 11, 2001.10
.17(6)

Pei Wei Asian Diner, Inc. 2001
    Stock Option Plan.10
.18(7)

Employment Agreement between
    Richard L. Federico and the Company, as amended, dated
    June 30, 2005.10
.19(7)

Employment Agreement between
    Robert T. Vivian and the Company, as amended, dated
    June 30, 2005.10
.20(7)

Employment Agreement by and among
    Russell Owens, Pei Wei Asian Diner, Inc. and the Company, as
    amended, dated June 30, 2005.10
.21(7)

Employment Agreement between R.
    Michael Welborn and the Company dated June 30, 2005.10
.23(8)

Key Employee Stock Purchase Plan
    and forms of Agreement thereunder.10
.24(9)

Employment Agreement between Mark
    Mumford and the Company dated May 5, 2006.10
.25(9)

2006 Equity Incentive Plan.10
.26(9)

Amended and Restated 1998 Stock
    Option Plan.16(10)


Letter regarding change in
    certifying accountant.21
.1

List of Subsidiaries.23
.1

Consent of KPMG LLP, Independent
    Registered Public Accounting Firm.23
.2

Consent of Ernst & Young
    LLP, Independent Registered Public Accounting Firm.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 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 Mark D.
    Mumford.     
    
    Management Contract or Compensatory Plan.(1)
    
    Incorporated by reference to the Registrants Quarterly
    Report on Form
    10-Q dated
    April 25, 2002.(2)
    
    Incorporated by reference to the Registrants
    Form 8-K
    dated December 4, 2006.(3)
    
    Incorporated by reference to the Registrants Registration
    Statement on
    Form S-1
    (File
    No. 333-59749).(4)
    
    Incorporated by reference to the Registrants Annual Report
    on
    Form 10-K
    dated March 6, 2001.(5)
    
    Incorporated by reference to the Registrants
    Form 10-Q,
    dated April 1, 2001.(6)
    
    Incorporated by reference to the Registrants Annual Report
    on
    Form 10-K
    dated February 19, 2002.(7)
    
    Incorporated by reference to the Registrants
    Form 8-K
    dated June 30, 2005.(8)
    
    Incorporated by reference to the Registrants
    Form S-8
    dated January 31, 2005.(9)
    
    Incorporated by reference to the Registrants
    Form 8-K
    dated May 4, 2006.(10)
    
    Incorporated by reference to the Registrants
    Form 8-K
    dated June 16, 2006. 72




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##### Table of Contents



SIGNATURES
      By:
    /s/  RICHARD
    L. FEDERICO   Chairman and Chief Executive Officer
  POWER OF
    ATTORNEY
  attorneys-in-fact attorneys-in-fact attorneys-in-fact
    Signature

Title

DateBy:

/s/  RICHARD
    L. FEDERICORichard
    L. Federico

Chairman, Chief Executive Officer
    and Director (Principal Executive Officer)

February 14, 2007By:

/s/  MARK
    D. MUMFORDMark
    D. Mumford

Chief Financial Officer (Principal
    Financial and Accounting Officer)

February 14, 2007By:

/s/  KENNETH
    J. WESSELSKenneth
    J. Wessels

Director

February 14, 2007By:

/s/  R.
    MICHAEL
    WELBORNR.
    Michael Welborn

Executive Vice President, Chief
    Administrative Officer and Director

February 14, 2007By:

/s/  JAMES
    G.
    SHENNAN, JR.James
    G. Shennan, Jr.

Director

February 14, 2007By:

/s/  F.
    LANE
    CARDWELL, JR.F.
    Lane Cardwell, Jr.

Director

February 14, 2007By:

M.
    Ann Rhoades

Director

February 14, 2007By:

/s/  LESLEY
    H. HOWELesley
    H. Howe

Director

February 14, 2007  73




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##### Table of Contents



EXHIBIT INDEX
  ExhibitNumber

Description Document3(i)(1)


Amended and Restated Certificate
    of Incorporation.3(ii)(2)


Amended and Restated By-laws.4
.1(3)

Specimen Common Stock Certificate.4
.2(3)

Amended and Restated Registration
    Rights Agreement dated May 1, 1997.10
.1(3)

Form of Indemnification Agreement
    for directors and executive officers.10
.2(3)

1998 Stock Option Plan and forms
    of agreement thereunder.10
.3(3)

1997 Restaurant Manager Stock
    Option Plan and forms of Agreement thereunder.10
.4(3)

1996 Stock Option Plan and forms
    of Agreement thereunder.10
.5(3)

1998 Employee Stock Purchase Plan.10
.13(4)

1999 Nonstatutory Stock Option
    Plan.10
.16(5)

Common Stock Purchase Agreement
    dated January 11, 2001.10
.17(6)

Pei Wei Asian Diner, Inc. 2001
    Stock Option Plan.10
.18(7)

Employment Agreement between
    Richard L. Federico and the Company, as amended, dated
    June 30, 2005.10
.19(7)

Employment Agreement between
    Robert T. Vivian and the Company, as amended, dated
    June 30, 2005.10
.20(7)

Employment Agreement by and among
    Russell Owens, Pei Wei Asian Diner, Inc. and the Company, as
    amended, dated June 30, 2005.10
.21(7)

Employment Agreement between R.
    Michael Welborn and the Company dated June 30, 2005.10
.23(8)

Key Employee Stock Purchase Plan
    and forms of Agreement thereunder.10
.24(9)

Employment Agreement between Mark
    Mumford and the Company dated May 5, 2006.10
.25(9)

2006 Equity Incentive Plan.10
.26(9)

Amended and Restated 1998 Stock
    Option Plan.16(10)


Letter regarding change in
    certifying accountant.21
.1

List of Subsidiaries.23
.1

Consent of KPMG LLP, Independent
    Registered Public Accounting Firm.23
.2

Consent of Ernst & Young
    LLP, Independent Registered Public Accounting Firm.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 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 Mark D
    Mumford.     
    
    Management Contract or Compensatory Plan.(1)
    
    Incorporated by reference to the Registrants Quarterly
    Report on Form
    10-Q dated
    April 25, 2002.(2)
    
    Incorporated by reference to the Registrants
    Form 8-K
    dated December 4, 2006.(3)
    
    Incorporated by reference to the Registrants Registration
    Statement on
    Form S-1
    (File
    No. 333-59749).(4)
    
    Incorporated by reference to the Registrants Annual Report
    on
    Form 10-K
    dated March 6, 2001.(5)
    
    Incorporated by reference to the Registrants
    Form 10-Q,
    dated April 1, 2001.(6)
    
    Incorporated by reference to the Registrants Annual Report
    on
    Form 10-K
    dated February 19, 2002.(7)
    
    Incorporated by reference to the Registrants
    Form 8-K
    dated June 30, 2005.(8)
    
    Incorporated by reference to the Registrants
    Form S-8
    dated January 31, 2005.(9)
    
    Incorporated by reference to the Registrants
    Form 8-K
    dated May 4, 2006.(10)
    
    Incorporated by reference to the Registrants
    Form 8-K
    dated June 16, 2006. 74