Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999.
OR
[ ] 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 1-9720
PAR TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 16-1434688
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
PAR Technology Park
8383 Seneca Turnpike
New Hartford, New York 13413-4991
(Address of principal executive offices) (Zip Code)
(315) 738-0600
(Registrant's Telephone number, including area code)
Securities registered pursuant to Section 12(g) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
Common Stock, $.02 par value New York Stock Exchange
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
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 X No
The aggregate market value of the voting stock held by non-affiliates of
the registrant based on the average price as of March 10, 2000 - $18,634,000
million.
The number of shares outstanding of registrant's common stock, as of March
10, 2000 - 8,008,605 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's proxy statement in connection with its 2000
annual meeting of stockholders are incorporated by reference into Part III.
PAR TECHNOLOGY CORPORATION
TABLE OF CONTENTS
FORM 10-K
Item Number
-----------
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
PART III
Item 10. Directors, Executive Officers and Other
Significant Employees of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K
Signatures
PAR TECHNOLOGY CORPORATION
PART I
Item 1: Business
PAR Technology Corporation ("PAR" or the "Company") is a leading provider
of professional services and enterprise business intelligence software. PAR
develops, markets and supports software products that improve the ability of
business professionals to make timely, fact-based business decisions, and is the
world's largest supplier of Point-of-Sale systems to the quick service
restaurant market with over 25,000 systems installed in 95 countries. PAR also
focuses on the design, development, manufacture, sales and support of Enterprise
Application Integration (EAI) solutions to Fortune 500 manufacturing, retailing
and distribution concerns.
The Company is also a leading provider of computer based system design and
engineering services to the Department of Defense and Federal Government
Agencies. Through its government-sponsored development work, PAR has generated
significant technologies with commercial applications, from the transaction
information processing capability underlying its primary business, to advanced
vision technology currently being implemented in the Company's proprietary
Automatic On-Line X-Ray Inspection System for use in the food packaging
processes. PAR Technology Corporation's stock is traded on the New York Stock
Exchange under the symbol PTC.
Information concerning the Company's industry segments for the three years
ended December 31, 1999 is set forth in Note 11 to the Consolidated Financial
Statements included elsewhere herein.
The Company's corporate headquarters offices are located at PAR Technology
Park, 8383 Seneca Turnpike, New Hartford, New York 13413-4991, telephone number
(315) 738-0600. Unless the context otherwise requires, the term "PAR" or
"Company" as used herein, means PAR Technology Corporation and its wholly-owned
Subsidiaries.
Transaction Processing Segment
PAR, through its wholly owned subsidiary ParTech, Inc., is a leading
provider of integrated solutions to the quick service restaurant industry and
also provides industrial solutions for Fortune 500 Corporations. The Company's
Point-of-Sale (POS) restaurant management technology integrates both cutting
edge software applications and the Company's industry leading Pentium(R) based
hardware platform. This restaurant management system can host fixed as well as
wireless order-entry terminals and may include video monitors, third party
supplied peripherals networked via an Ethernet LAN and is accessible to
enterprise-wide network configurations. For Fortune 500 industrial concerns, PAR
designs and implements complex integrated transaction processing solutions
incorporating its data collection and management software that provide real-time
connectivity with multiple host computers, diverse legacy applications software
and "best-of-breed" software and data input hardware technologies. PAR further
provides extensive systems integration and professional service capabilities to
design, tailor and implement solutions that enable its customers to manage, from
a central location, all aspects of data collection and processing for single or
multiple site enterprises.
Products
The industry requirements of the major quick service chains include rugged,
reliable point of sale systems capable of recording, transmitting and
coordinating large numbers of orders for quick delivery. The Company's
integrated management systems permit its Quick Service Restaurant (QSR)
customers to configure their restaurant technology systems to meet their
order-entry, menu, food preparation and delivery coordination requirements while
retaining all pertinent data concerning the transactions at the respective
restaurant. PAR's restaurant systems are the result of over 20 years of
experience and an in-depth understanding of the restaurant market. This
knowledge and expertise is reflected in its product architectural design,
development capability and systems integration skills.
Software. PAR's most recent software applications are included in the
iN.fusion suite, consisting of three separate applications- iNtouch, iNform and
iNsite. The iNtouch(TM) product which contains rich features and functions such
as real time mirror imaging of critical data, on-line graphical help,
interactive diagnostics including real time monitoring of restaurant operations
through user defined parameters as well as intuitive graphical user interfaces.
In addition, iNform(TM), PAR's backoffice or management software, offers a
manager's station application that includes such functionality as labor
scheduling and inventory management. The software also maintains in-store
communications between PAR's hardware terminals, remote printers and displays,
and back office PCs through an Ethernet LAN. The Company's newest software
application, iNsite(TM), is operational Decisionware for the entire enterprise
and provides automation of management reporting and process integration. The
Company's other POS software, GT, is the predominant software in the quick
service restaurant industry, installed in over 25,000 restaurants in 95
countries. The features and functions of GT are extensive and integrate a high
degree of flexibility for the transport and display of orders in real-time and
for the design and integration of the Company's display data-entry hardware
terminals.
Hardware. The Company's hardware platform system, POS 4, is a
state-of-the-art 64 bit Pentium(R) designed system, engineered to handle the
most powerful applications of the restaurant industry. POS 4 is an open
architecture hardware platform with industry standard components, is compatible
with the most popular operating systems, and is the first POS hardware system to
be certified by Microsoft(R) as Windows(R) NT Compliant(R). The POS hardware
supports a distributed processing environment and incorporates an advanced
restaurant technology system, utilizing Intel microprocessors, standard PC
expansion slots, Ethernet LAN and standard Centronics printer ports. The system
increases its industry standard components with features for restaurant
applications such as multiple video ports. The POS system utilizes distributed
processing architecture to integrate a broad range of PAR and third-party
peripherals and is designed to withstand the harsh restaurant environment. The
hardware platform has a favorable price-to-performance ratio over the life of
the system as a result of its PC compatibility, ease of expansion and use and
high reliability design.
Display terminals process and track customer orders, process employee
timekeeping records, and provide on-screen production and labor scheduling.
Terminals are designed with a touch screen rather than a fixed position
keyboard, allowing greater flexibility in menu design. The POS touch screen
configuration allows a restaurant manager to easily reconfigure or alter the
Menus to add new food items or provide combination meals without reprogramming
the system. Wireless hand-held terminals permit restaurant employees to take
orders while customers are waiting or in drive-thru lines, thus increasing the
speed of service, as the customer's food order is complete by the time he or she
reaches the counter and pays for the order. This system also utilitizes video
monitors, printers and various other devices that can be added to a LAN. The
manager can use a standard microcomputer to collect and report on
store-generated data.
Systems Integration and Professional Services. The Company utilizes its
systems integration and engineering expertise in developing functions and
interfaces for its restaurant technology products to meet diverse customer
requirements. The Company works in unison with its customers to identify and
address the latest developments in restaurant technology by creating interfaces
to equipment, including innovations such as automated cooking and drink
dispensing devices, customer-activated terminals and order display units located
inside and outside of the restaurant. The Company provides its systems
integration expertise to interface specialized components, such as television
monitors, coin dispensers and non-volatile memory for journalizing transaction
data, as may be required in some international applications. Through its
Professional Services organization, the Company also integrates the restaurant
manager's back office computer, as well as corporate home office computers, as
management information requirements dictate.
Manufacturing/Warehousing Transaction Processing Systems
The Company's manufacturing/warehousing automated data collection business
provides enabling and applications software and systems integration services to
a diverse customer base that includes: process manufacturing; discrete
manufacturing; gaming industry; and warehousing end users through distributed
enterprise networks. The Company's primary industrial product offering is its
Transaction Processing System data collection enabling software package
(available for both Windows NT and IBM OS/2). The Transaction Processing System
product is an open platform, middleware application that provides connectivity
across multiple non-compatible host computers, including those manufactured by
International Business Machines Corporation, Hewlett-Packard Company, and Compaq
Corporation. PAR's Transaction Processing System software also provides
connectivity among diverse MRP II, MES, and ERP programs (such as SAP, J.D.
Edwards and PRISM) and fixed-base and handheld RF data collection terminals,
including those sold by Intermec Corporation, Percon, Inc., Symbol Technologies,
Inc. and Telxon Corporation. PAR's middleware offers simplified system use and
operations while maintaining system speed in complex transaction processing
environments. This software package provides a flexible and highly functional
platform for on-line transaction processing applications such as distribution
time and attendance, inventory control, warehousing, job status, scheduling and
quality control. Data can be directly read from and written to host databases,
as well as forwarded to managers, who can respond quickly to production
deviations based on real-time information. PAR has also partnered with Compaq
Computer Corp. to provide a business solution that integrates radio-frequency
and fixed-base data collection into the SAP R/3 ERP package. PAR is the first
company in North America to be CA-ADC (Cross Application-Automated Data
Collection) certified for the most current SAP R/3 release, 4.0B. This
certification includes a demonstrated interface to three widely used SAP modules
- - Material Management, Human Resources, and Warehouse Management - as well as
extensive demonstrated used of the ALE (application link enabling) interface.
The Company offers professional services for implementing data collection
hardware and its software for its clients. PAR's team of systems engineers,
application developers, and product support personnel have experience in
providing optimal system integration solutions, and work closely with customer
personnel to define requirements, identify solutions, and implement solutions
based on the customer's needs. PAR's services include site surveys, radio
frequency surveys, project management, LAN support services, installation and
training.
Installation and Training
In the U.S., Canada, Europe, South Africa, Australia and Asia, PAR
personnel provide installation, training, and integration services, on a
fixed-fee basis, as a normal part of the equipment purchase agreement. In
certain areas of North and South America, Europe and Asia, the Company provides
these integration services through third parties.
Maintenance and Service
The Company offers a range of maintenance and support services as part of
its total solutions for its targeted transaction processing markets. In the
North American restaurant technology market, the Company provides comprehensive
maintenance and integration services for its own and third-party equipment and
systems through a 24-hour central telephone customer support and diagnostic
service in Boulder, Colorado and a field service network consisting of 60
locations offering factory, on-site, and depot maintenance and spare unit
rentals. When a restaurant technology system is installed, PAR employees train
the restaurant employees and managers to ensure efficient use of the system. If
a problem occurs, PAR's current software products allow a service technician to
diagnose the problem by telephone, greatly reducing the need for on-site service
calls.
The Company also maintains service centers in Europe, South Africa,
Australia and Asia. The Company believes that its ability to address all support
and maintenance requirements for a customer's restaurant technology network
provides it with a competitive advantage.
In the manufacturing/warehousing market, the Company offers technical
support through an experienced product support staff available in the field or
by telephone. The Company also provides training classes, led by experienced and
highly qualified personnel, on its products and integration services, including
both hands-on experience with use of software and operation of hardware. The
Company offers ongoing maintenance and enhancements.
Marketing
Restaurant Technology. Sales in the restaurant technology market are
usually generated by first obtaining the acceptance of the restaurant chain as
an approved vendor. Upon approval, marketing efforts are then directed to
franchisees of the chain. Sales efforts are also directed toward franchisees of
chains for which the Company is not an approved vendor. The Company employs
direct sales personnel in five sales groups. The National Accounts Group works
with major restaurant chain customers. The North and South American Sales Group
targets franchisees of the major restaurant chain customers, franchisees of
other major chains, as well as smaller chains. The International Sales Group
seeks sales to major customers with restaurants overseas and to international
chains that do not have a presence in the United States. The New Accounts Group
seeks sales to major new corporate accounts. The Company's Reseller network
works exclusively with third party dealers and value added resellers throughout
the country.
Industrial Software. The Company's direct sales efforts in the industrial
software market is generally focused on the highest level of the customer's
executive management. Substantial lead-time is required in sales efforts due to
the fact that automation equipment is normally fitted into the manufacturing or
warehousing environment as a plant is constructed. The Company has also entered
into strategic marketing relationships with several companies, including
Intermec Corporation, Telxon Corporation, Symbol Technologies, Inc., and
Intelligent Instrumentation Co. PAR has also partnered with Compaq Computer
Corp. to provide software products that target the rapidly growing SAP
marketplace.
Competition
Competition in the transaction processing market is based primarily on
functionality, reliability, quality, performance, price of products, and service
and support. The Company believes that its principal competitive advantages
include its focus on a total restaurant management solution offering, advanced
development capabilities, industry knowledge and expertise, product reliability,
a direct sales force and the quality of its support and quick service response.
The markets in which the Company competes are highly competitive. In most of our
major accounts there are currently several approved suppliers who offer some
form of sophisticated restaurant technology system similar to the Company's.
With respect to Taco Bell Corp. however, PAR has had an exclusive relationship
since 1985 with PAR systems currently installed in approximately 90% of Taco
Bell corporate and franchise restaurants. Over the last few years the franchisee
ownership percentage within the Taco Bell organization has increased and now
approximately 80 % of the stores are owned by franchisees. With this change in
ownership there are now some franchisees who would like the corporation to
approve one or more additional vendors for both service and equipment thereby
allowing them a possible alternative to PAR.
Major competitors include Panasonic, International Business Machines
Corporation, Radiant Systems, Inc., NCR, Micros Systems Inc. and Aspeon, Inc.
The Company believes that the manufacturing/warehousing data collection market
is highly fragmented.
Backlog
At December 31, 1999, the Company's backlog of unfilled orders for the
Transaction Processing segment was approximately $6,900,000 compared to
$13,100,000 a year ago. Most of the present orders will be delivered in 2000.
Transaction Processing segment orders are generally of a short-term nature and
are usually booked and shipped in the same fiscal year.
Research and Development
The highly technical nature of the Company's transaction processing
products requires a significant and continuous research and development effort.
Research and development expenses on internally funded projects were
approximately $7,743,000 in 1999, $5,526,000 in 1998 and $3,854,000 in 1997. See
Note 1 to the Consolidated Financial Statements incorporated herein by reference
for discussion on Statement of Financial Accounting Standards No. 86, Accounting
for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed.
Manufacturing and Suppliers
The Company assembles its products from standard components, such as
integrated circuits, and fabricated parts such as printed circuit boards, metal
parts and castings, most of which are manufactured by others to the Company's
specifications. The Company depends on outside suppliers for the continued
availability of its components and parts. Although most items are generally
available from a number of different suppliers, the Company purchases certain
components from only one supplier. Items purchased from only one supplier
include certain printers, base castings and electronic components. If such a
supplier should cease to supply an item, the Company believes that new sources
could be found to provide the components. However, added cost and manufacturing
delays could result and adversely affect the business of the Company. The
Company has not experienced significant delays of this nature in the past, but
there can be no assurance that delays in delivery due to supply shortages will
not occur in the future.
Government Segment
PAR has two wholly owned subsidiaries in the government business segment,
PAR Government Systems Corporation (PGSC) and Rome Research Corporation (RRC).
These companies provide the U.S. Department of Defense (DoD) and other federal
and state government organizations, with a wide range of technical products and
services. Some of the more significant areas that the Company is involved with
include design, development and systems integration of state-of-the-art data
processing systems, advanced research and development for high-technology
projects, software development/testing, engineering services, and operation and
maintenance for government facilities. The Company's offerings cover the entire
development cycle for Government systems - requirements analysis, design
specification, development, implementation, installation, test and evaluation.
Signal & Image Processing (SIP)
SIP deals with the development and implementation of complex sensor systems
and the collection and analysis of sensor data. The group leads in developing
and implementing target detection and tracking algorithms for radar, infrared,
electro-optical, multispectral, and hyperspectral sensor systems. It has
developed sensor concepts, algorithms, and real-time systems to address the
difficult problems of finding low-contrast targets against clutter background
(e.g., finding cruise missiles, fighter aircraft, and personnel against heavy
terrain backgrounds) and detecting man-made objects in dense foliage. Through
key contracts from the Defense Advanced Research Project Agency (DARPA), the
U.S. Army, and the U.S. Navy, the Company creates real-time data collection and
analysis systems including the development and deployment of multispectral and
hyperspectral sensors.
Geospatial Software and Modeling (GS&M)
The GS&M business sector performs water resources modeling, Geographic
Information Systems (GIS) database management, and geospatial information
technology development. An advanced GIS-based environmental modeling and mapping
capability supports flood mapping and water quality applications. In particular,
the Company's Flood*Ware(TM) software tool and methodology is being employed in
New York State in support of Federal Emergency Management Agency's flood map
modernization program. Also, similar GIS software tools and data integration
techniques are used in support of water quality modeling and assessment
applications. Under a series of contracts and task orders sponsored by various
DoD agencies, this group provides engineering services in the areas of digital
topographic data evaluations, geospatial data modeling, software prototyping,
and software engineering.
Information Systems and Technology (IS&T)
IS&T researches, develops and applies advanced technology solutions
addressing specific problems in the area of multi-sensor information processing
and exploitation. This includes the development and integration of algorithms,
advanced prototype applications, and systems that process and exploit imagery,
Electro-Optical/Infrared, radar, video, and multi-hyperspectral data. IS&T is
the system integrator for the Image Exploitation 2000 facility at the Air Force
Research Laboratory-Rome Research Site; a key developer of the National Imagery
and Mapping Agency's Image Product Library that provides access to a "virtual"
network of archives/libraries in support of the operational users of imagery.
Since 1986, the Company has been a key contributor to the full-scale engineering
development for the Joint Surveillance Target Attack Radar System (Joint STARS)
program, providing systems engineering algorithm and software development and
data handling for both moving target indicator and synthetic aperture radar
technologies that detect track and target ground vehicles.
Logistics Management Systems (LMS)
LMS is focused on the design, development, and deployment of the
Cargo*Mate(TM) intermodeal Logistics Information Management Systems, a solution
for the monitoring and management of transport assets and cargo throughout the
intermodal (i.e., port, highway, rail, air, and ocean) transportation lifecycle.
The Cargo*Mate system is being developed under a multi-year Cooperative
Agreement with the U.S. Department of Transportation/Federal Highway
Administration, which resulted from funds specifically authorized for the
development and deployment of Cargo*Mate by Congress's Transportation Equity
Act-21 in 1998. The system utilizes advanced sensor technology to acquire
asset/cargo location, associated transaction/events, and system status; wireless
communication networks to consolidate and transmit the data to the PAR
Operations Center; and transaction based software applications in the Operations
Center to customize the data for each intermodal customer in a format that has
financial value to the enterprise.
Test Laboratory and Range Operations
The Company provides management, engineering, and technical services under
several contracts with the U.S. Air Force and the U.S. Navy. These services
include the planning, execution, and evaluation of tests at government ranges
and laboratories operated and maintained by the Company. Test activities
encompass unique components, specialized equipment, and advanced systems for
radar, communications, electronic countermeasures, and integrated weapon
systems. The Company also develops complex measurement systems in several
defense-related areas of technology. These systems are computer-based and have
led to the development by the Company of a significant software capability,
which provides the basis for competing in new markets.
Software Test and Validation
The Company supports the Joint STARS program, in the area of software
verification and validation, with Company engineers embedded in the customers
test organization for formal qualification of the entire Joint STARS suite. The
Company participates in all phases of the test process, from initial analysis to
government acceptance. The ability to provide a wide range of software
technology is particularly important during a period when almost all engineering
efforts require the application of complex software and hardware in support of a
given task.
Communications Support Services
The Company provides a wide range of support services to sustain mission
critical Department of Defense communications facilities. These services include
continuous operations, system enhancements and maintenance of very low frequency
(VLF), high frequency (HF) and very high frequency (VHF) radio transmitter
facilities, super high frequency (SHF), and extremely high frequency (EHF)
satellite communication earth terminals, as well as other telecommunications
equipment and information systems. The Company provides communications support
services to customer locations both in and outside of the continental Unites
States.
Facility Management
In 1998, the Company received a contract from Oneida County to maintain and
operate the airfield and related facilities at the former Griffiss Air Force
Base in Rome, NY. The Company is involved in assisting the conversion of this
former military airfield to private commercial use.
Advanced Research and Development
The Company supports numerous technology demonstrations for the DoD,
including the Discriminating Interceptor Technology Program (DITP), dedicated to
national and theater ballistic missile defense. The Company supports the
development of sensor and fusion processor systems programs for the DITP. The
Company also supports Navy airborne infrared surveillance systems through the
development of advanced optical sensors. Technology efforts include optical
materials characterization, laser design and analysis, image and signal
processing, optical pointing and stabilization, and aircraft systems
integration.
Government Contracts
The Company performs work for U.S. Government agencies under firm
fixed-price, cost-plus fixed fee, time-and-material, and incentive-type prime
contracts and subcontracts. Most of its contracts are for one-year to five-year
terms. The Company also has been awarded Task Order/Support contracts. There are
several risks associated with Government contracts. For example, contracts may
be terminated for the convenience of the Government any time the Government
believes that such termination would be in its best interests. Under contracts
terminated for the convenience of the Government, the Company is entitled to
receive payments for its allowable costs and, in general, a proportionate share
of its fee or profit for the work actually performed. The Company's business
with the U.S. Government is also subject to other risks unique to the defense
industry, such as reduction, modification, or delays of contracts or
subcontracts if the Government's requirements, budgets, or policies or
regulations change. The Company may also perform work prior to formal
authorization or to adjustment of the contract price for increased work scope,
change orders and other funding adjustments. Additionally, the Defense Contract
Audit Agency on a regular basis audits the books and records of the Company.
Such audits can result in adjustments to contract costs and fees. Audits have
been completed through the Company's fiscal year 1997 and have not resulted in
any material adjustments.
Marketing and Competition
Primarily senior and middle management and technical staff members conduct
the Company's marketing activities in the Government sector. Marketing begins
with collecting information from a variety of sources concerning the present and
future requirements of the Government and other potential customers for the
types of technical expertise provided by the Company. A proven approach is for
the Company to enter into teaming arrangements with other contractors. Teaming
arrangements allow the contractors to complement the unique capabilities of each
other and to offer the Government the best combination of capabilities to
achieve the performance, cost, and delivery schedule desired for the system
being procured. Structuring the right teaming arrangement can significantly
enhance a contractor's competitive position. Some of the contractors that the
Company has previously, or is presently, teamed with are BAI Systems, Raytheon,
Lockheed-Martin, Northrop Grumman, and TASC. Although the Company believes it is
positioned well in its chosen areas of image and signal processing,
telecommunications and engineering services, competition for Government
contracts is intense. Many of the Company's competitors are, or are controlled
by, companies such as Lockheed-Martin, Raytheon, Litton-PRC, SAIC and Hughes
that are larger and have substantially greater financial resources. The Company
also competes with many smaller companies that target particular segments of the
Government market. Typically, seven or more companies will compete for each
contract and, as previously discussed, the Company sometimes bids as part of a
team with other companies. Contracts are obtained principally through
competitive proposals in response to requests for bids from Government agencies
and prime contractors. The principal competitive factors are past performance,
the ability to perform, price, technological capabilities, management
capabilities and service. In addition, the Company sometimes obtains contracts
by submitting unsolicited proposals.
Backlog
The dollar value of existing Government contracts at December 31, 1999, net
of amounts relating to work performed to that date, was approximately
$46,500,000, of which $9,400,000 was funded. At December 31, 1998, the
comparable amount was approximately $30,000,000, of which $5,700,000 was funded.
Funded represents amounts committed under contract by Government agencies and
prime contractors. The December 31, 1999 Government contract backlog of
$46,500,000 represents firm, existing contracts. Approximately $16,100,000 of
this amount will be completed in calendar year 2000 as funding is committed.
Vision Segment
The Company's wholly owned subsidiary, PAR Vision Systems Corporation has
developed the Qscan(R) Automatic On-Line X-Ray Inspection System. Qscan is the
result of a five-year development by PAR, utilizing the company's considerable
expertise in image processing gained through relationships with the United
States Government. Qscan inspects filled and sealed containers for contaminants
such as glass, metal (ferrous and nonferrous), stones, bone and other foreign
objects. It can inspect glass jars, metal cans, boxes, foil or plastic pouches.
A fully automated system, Qscan does not require any personnel during operation.
If a contaminant is detected, the system automatically removes it from the
production line, at line speeds. Qscan system's inspection algorithms have been
tested extensively in the plant environment and have achieved probability of
detection up to 99% with false reject rate under 1%.
The Company currently utilizes a direct sales force to market Qscan(R). The
Company also has created an international dealer network in Europe and Australia
in order to address the wide geographical scope of the market.
Company personnel provides installation and training as a normal part of
the equipment purchase agreement. The Company also provides field service and
twenty-four hour telephone support.
Employees
As of December 31, 1999, the Company had 965 employees, approximately 71%
of whom are engaged in the Company's Transaction Processing segment, 23% are in
the Government segment, and the remainder are in the Vision segment or are
corporate employees.
Due to the highly technical nature of the Company's business, the Company's
future can be significantly influenced by its ability to attract and retain its
technical staff. The Company believes that it will be able to fulfill its
near-term needs for technical staff.
None of the Company's employees are covered by collective bargaining
agreements. The Company considers its employee relations to be good.
Item 2: Properties
The following are the principal facilities (by square footage) of the
Company:
Industry Floor Area Number of
Location Segment Principal Operations Sq. Ft.
-------- ------- -------------------- -------
New Hartford, NY Transaction Processing Principal executive offices 137,000
Government manufacturing, research and
Vision development laboratories,
computing facilities
Boulder, CO Transaction Processing Service 17,500
Rome, NY Government Research and Development 18,000
Norcross, GA Transaction Processing Research and Development 9,200
Sydney, Australia Transaction Processing Sales and Service 8,800
La Jolla, CA Government Research and Development 7,100
Boca Raton Transaction Processing Research and Development 7,300
The Company's headquarters and principal business facility is located in
New Hartford, New York, which is near Utica, located in Central New York State.
The Company owns its principal facility and adjacent space in New Hartford,
N.Y. All of the other facilities are leased for varying terms. Substantially all
of the Company's facilities are fully utilized, well maintained, and suitable
for use. The Company believes its present and planned facilities and equipment
are adequate to service its current and immediately foreseeable business needs.
Item 3: Legal Proceedings
The Company is subject to legal proceedings which arise in ordinary course
of business. In the opinion of Management, the ultimate liability, if any, with
respect to these actions will not materially affect the financial position of
the Company.
Item 4: Submission of Matters to a Vote of Security Holders
None
PART II
Item 5: Market for the Registrant's Common Stock and Related Stockholder Matters
The Company's Common Stock, par value $.02 per share, trades on the New
York Stock Exchange (NYSE symbol - PTC). AtDecember 31, 1999, there were
approximately 756 owners of record of the Company's Common Stock, plus those
owners whose stock certificates are held by brokers.
The following table shows the high and low stock prices for the two years
ended December 31, 1999 as reported by New York Stock Exchange:
1999 1998
---- ----
Period Low High Low High
------ --- ---- --- ----
First Quarter 5 1/4 7 3/8 6 9/16 9 3/8
Second Quarter 5 3/8 7 3/8 6 9 7/16
Third Quarter 6 7/8 9 3/4 5 1/8 7 15/16
Fourth Quarter 4 1/8 7 3/16 5 1/4 7 5/16
The Company has not paid cash dividends on its common stock, and its Board
of Directors presently intends to continue to retain earnings for reinvestment
in growth opportunities for the Company. Accordingly, it is anticipated that no
cash dividends will be paid in the foreseeable future.
Item 6: Selected Financial Data
SELECTED CONSOLIDATED STATEMENT OF INCOME DATA
(In thousands, except per share amounts)
Year ended December 31,
-----------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Total revenues .................. $ 144,806 $ 122,280 $ 100,020 $ 117,661 $ 107,394
========= ========= ========= ========= =========
Net income (loss) ............... $ 1,969 $ 1,262 $ (8,719) $ 5,947 $ 4,658
========= ========= ========= ========= =========
Diluted earnings (loss) per share $ .23 $ .14 $ (.99) $ .69 $ .58
========= ========= ========= ========= =========
SELECTED CONSOLIDATED BALANCE SHEET DATA
(In thousands)
Year ended December 31,
-----------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Working capital .... $46,665 $50,287 $53,382 $62,107 $42,976
Total assets ....... $88,107 $93,426 $83,204 $86,758 $68,073
Long-term debt ..... -- -- -- -- --
Shareholders' equity $62,143 $62,826 $63,417 $72,602 $53,132
Item 7: Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis highlights items having a significant
effect on operations during the three-year period ended December 31, 1999. It
may not be indicative of future operations or earnings. It should be read in
conjunction with the Consolidated Financial Statements and Notes thereto and
other financial and statistical information appearing elsewhere in this report.
Results of Operations - 1999 Compared to 1998
The Company reported revenues of $144.8 million for the year ended 1999, an
increase of 18% from the $122.3 million reported in 1998. Net income was $2.0
million in 1999, an increase of 56% from the $1.3 million reported in 1998.
Diluted earnings per share were $.23 for 1999, an increase of 64% from the $.14
per share in 1998.
On February 1, 2000 AmeriServe Food Distribution, Inc. a large distributor
to fast-food restaurants, filed for protection under Chapter 11 of the U.S.
Bankruptcy Code. During 1999, equipment sold by the Company for use in certain
Tricon restaurants was purchased through AmeriServe. As a result, at December
31, 1999, the Company was owed $1.7 million in trade accounts receivable.
Accordingly, due to this uncertainty, the Company recorded a one-time after tax
charge to earnings of $1.1 million ($0.13 loss per share) in the fourth quarter
of 1999.
The 1998 results include an after tax benefit of $645,000, or $.07 diluted
earnings per share relating to the partial recovery of accounts receivable from
Phoenix Systems & Technologies, Inc. (Phoenix). See Note 2 to the Consolidated
Financial Statements for further discussion.
Product revenues reached $88.8 million in 1999, an increase of 33% from the
$66.9 million recorded in 1998. The Company's domestic product revenue increased
34% in 1999 compared to 1998. An increase in sales to Tricon Corporation (Taco
Bell, KFC and Pizza Hut) was the primary reason for this growth. The Company
also expanded its sales through its domestic reseller channel. International
product revenue increased 33% in 1999 due to sales in France, Mexico, Canada and
Australia. McDonald's, Tricon and Burger King accounted for this increase
abroad. The Company also experienced a 63% increase in sales of its integrated
solutions to manufacturing/warehousing customers. Raytheon and Boeing were major
customers in 1999.
Customer service revenues rose to $36 million in 1999, an increase of 15%
over the $31.4 million in 1998. The Company's service offerings include
installation, twenty-four hour call center support and various field and on-site
service options. In 1999, the Company increased its worldwide installation
revenue, which is directly related to the higher product revenue discussed
above. Revenue generated from the Company's call center increased as its
contract base expanded.
Contract revenues were $20 million in 1999, a decrease of 17% when compared
to the $24.1 million recorded in the same period in 1998. This decrease was due
to the completion of a major airfield management contract in the third quarter
of 1998. This decrease was partially offset by increased efforts on the
Company's Cargo*Mate contract. This contract, with the Department of
Transportation, involves the adaptation and deployment of a cargo identification
and monitoring system to address the requirement of the National Intelligent
Transportation Systems. The Company also began work on a multi-year, $24 million
contract to support the Worldwide Naval Communication Systems for the U.S. Navy.
With this contract, and other anticipated awards, the Company expects its
Government segment to return to growth in 2000.
Product margins were 37% for 1999 compared to 32% for the same period in
1998. The improved margins were largely the result of higher software content in
1999 and the Company's efforts to reduce manufacturing costs of its hardware
products.
Customer service margins were 3% in 1999 compared to 9% for the same period
in 1998. During the fourth quarter annual physical inventory of its service
parts in 1999, the Company discovered unreconciled differences between the
physical count and the perpetual inventory records. As a result, the Company
recorded an after tax charge of $1.7 million or $.20 per share. This situation
was caused by implementation and process issues related to the Company's new
service management system. The Company anticipates that the remaining issues
with respect to the service management system will be resolved in the second
quarter of 2000.
Contract margins were 6% in 1999 compared to 9% for the same period in
1998. This decrease is primarily due to a retroactive fee adjustment in
connection with the completion of certain contracts in 1998. Margins on the
Company's government contract business typically run between 5% and 6%.
Selling, general and administrative expenses were $23.5 million in 1999
versus $20 million for the same period in 1998, an increase of 18%. This
increase was due to investments made in the Company's Transaction Processing
segment. The Company expanded its sales force and increased its marketing
efforts. Service administration costs also increased to support the
implementation and training of the service management system.
Research and development expenses were $8.1 million in 1999, an increase of
34% from the $6 million recorded for the same period in 1998. The Company is
actively increasing its investment in POS software development, including
applications for the front and back of the store and for interfacing store
information to the home office. The Company is also investing in software
products for interface with SAP enterprise solutions for its
manufacturing/warehouse customers. Research and development costs attributable
to government contracts are included in cost of contract revenues.
Other income includes rental income and foreign currency gains and losses.
There were no significant variations in 1999 when compared to 1998.
Interest expense was $531,000, an increase of $407,000 from 1998. This
represents interest charged on the Company's short-term borrowings from banks.
The average amount of outstanding borrowings was higher during 1999 than in
1998.
In 1999, the Company's effective tax rate was a 4% benefit. The variance
from the statutory rate was primarily due to favorable adjustments to prior
years accruals and the benefit recognized on the Company's foreign sales through
its Foreign Sales Corporation.
Results of Operations - 1998 Compared to 1997
The Company reported revenues of $122.3 million for the year ended 1998, an
increase of 22% from the $100 million reported in 1997. Net income was $1.3
million or diluted earnings per share of $.14 for 1998. This compares to a net
loss of $8.7 million or a diluted loss per share of $.99 for 1997.
The 1998 results include an after tax benefit of $645,000, or $.07 diluted
earnings per share relating to the partial recovery of accounts receivable from
Phoenix Systems & Technologies, Inc. (Phoenix). The 1997 year end results
included non-recurring after tax charges of $2.3 million or a $.26 diluted loss
per share relating to receivables from Phoenix and to the Company's Vision
business. See Note 2 to the Consolidated Financial Statements for further
discussion. The 1997 results also included an after tax charge of $2 million or
a $.22 diluted loss per share relating to receivables from the Company's
Government segment and product, and inventory charges relating to the
Transaction Processing segment.
Product revenues were $66.9 million in 1998, an increase of 42% from the
$47 million recorded in 1997. This growth was led by increased domestic sales to
McDonald's Corporation. The Company's POS 4 hardware products have been approved
and accepted by this major customer and meet the POS requirements of their "Made
for You" initiative. Higher sales to Chick-fil-A and Pizza Hut also contributed
to this increase. The Company also recorded a 10% increase in international
product revenue with growth in Europe, South America and the Middle East, where
the Company's major customers include McDonald's, Tricon, Burger King and
Wendy's. The increase was partially offset by lower domestic sales to Burger
King as the Company completed delivery of POS systems in 1997 under its
corporate contract with this customer.
Customer service revenues were $31.4 million in 1998, an increase of 13%
from the $27.8 million in 1997. The Company's service offerings include
installation, twenty-four hour call center support and various field and on-site
service options. In 1998, the Company increased its installation revenue, which
is directly related to the higher product revenue discussed above. The Company
also recorded increases in field service and call center revenues as its
customer base expands.
Contract revenues were $24.1 million in 1998, a decrease of 4% when
compared to the $25.2 million recorded in the same period in 1997. This decrease
was due to certain contract delays relating to software development and
integration. In addition, the Company completed a major airfield management
contract in the third quarter of 1998. This decrease was partially offset by
growth in the Company's efforts in the Joint STARS Program as a subcontractor to
Northrup Grumman and the recently awarded $9 million multi-year contract for our
Cargo*Mate identification and monitoring system from the Department of
Transportation.
Product margins were 32% for 1998 compared to 29% for the same period in
1997. This improvement was due to favorable product mix, particularly in the
fourth quarter of 1998, as the software content of Transaction Processing
products increased. Additionally, 1997 included new product start up costs and a
higher level of obsolescence on older product lines.
Customer service margins were 9% in 1998 compared to 10% for the same
period in 1997. The decline in margin was primarily due to an increase in
personnel as the Company upgraded its integration and service capabilities. The
Company completed several new service initiatives including expansion of its
full service and call center capabilities. This, coupled with the installation
of a new service management system, will result in lower costs and improved
customer satisfaction in the future.
Contract margins were 9% in 1998 compared to 5% for the same period in
1997. This increase is primarily due to a retroactive fee adjustment in
connection with the completion of certain contracts in 1998 and will not be a
continuing trend. Margins on the Company's government contract business
typically run between 5% and 6%.
Selling, general and administrative expenses were $20 million in 1998
versus $23 million for the same period in 1997, a decrease of 14%. This decrease
was primarily due to a higher provision for bad debts in 1997 related to the
Company's government business. Additionally in 1998, the Company reduced its
investment in its Corneal Topography (CTS) business. These declines were
partially offset by higher POS sales and marketing expenses, including increased
sales commission as a result of the increase in product sales.
Research and development expenses were $6 million in 1998, an increase of
15% from the $5.3 million recorded for the same period in 1997. The Company
increased its investment in POS software development, including applications for
the front and back of the store and for interfacing store information to the
home office. The Company also increased its investment in software products for
interface with SAP enterprise solutions. Partially offsetting the increase was
the reduction in the CTS business discussed above. Research and development
costs attributable to government contracts are included in cost of contract
revenues.
Other income, net increased primarily as a result of more favorable foreign
currency transactions during the year. Interest expense represents interest
charged on the Company's short-term borrowing requirements from banks.
In 1998, the Company's effective tax rate was 32%. The variance from the
statutory rate was primarily due to favorable adjustments to prior years
accruals and the benefit recognized on the Company's foreign sales through its
Foreign Sales Corporation.
Liquidity and Capital Resources
The Company's primary source of liquidity has been from operations. Cash
provided by operating activities was $10 million in 1999 compared to cash used
of $3.6 million in 1998. In 1999, cash flow benefited from the reduction in
accounts receivable as a result of improved collections. This was partially
offset by a reduction in accounts payable due to the timing of vendor payments.
In 1998, the Company experienced an increase in accounts receivable due to the
growth in product revenues. This was partially offset by the receipt of a $2.5
million federal tax refund pertaining to utilization of 1997's net operating
loss.
Cash used in investing activities was $5.5 million in 1999 versus $4.3
million for 1998. In 1999, capital expenditures were primarily for internal use
software and the construction of a corporate wellness center. In 1998, capital
expenditures were primarily for upgrades to the Company's customer service
center and for manufacturing equipment.
Cash used in financing activities was $4.8 million in 1999 compared to cash
provided of $5.2 million in 1998. In 1999, the Company reduced its
line-of-credit borrowings by $2.4 million and acquired 492,000 shares of
treasury stock for $2.5 million. In 1998, the Company increased its net
borrowings under its line-of-credit agreements by $7.2 million. Additionally,
the Company received $176,000 from the exercise of employee stock options. These
activities were partially offset by the acquisition of 362,400 shares of
treasury stock at a cost of $2.2 million.
The Company has line-of-credit agreements, which aggregate $35 million with
certain banks, of which $5 million was outstanding at December 31, 1999. The
Company believes that it has adequate financial resources to meet its future
liquidity and capital requirements.
Year 2000 Disclosure - The Company recently completed extensive work to
assure that our operations were not impacted by the century date change as of
January 1, 2000.
These efforts focused on information system modification or replacement, as
well as a review of all other areas of our business operations that might be
impacted by this event. Business contingency and continuity plans were
developed, and a command center was established to monitor and react to critical
business interruptions, if any, either prior or subsequent to the millennium
date change.
There were no material issues relating to the millennium date change on
January 1, 2000. Based on this experience and the amount of work and testing
previously performed, the Company believes the likelihood of a year 2000 issue
that would have a material effect on the results of operations, liquidity, or
financial condition continues to be remote.
Other Matters
Inflation had little effect on revenues and related costs during 1999.
Management anticipates that margins will be maintained at acceptable levels to
minimize the effects of inflation, if any.
The Company has a total interest bearing short-term debt of approximately
$5 million. Management believes that increases in short-term rates could have an
adverse effect on the Company's 2000 results.
Management believes that foreign currency fluctuations should not have a
significant impact on gross margins due to the low volume of business affected
by foreign currencies.
Important Factors Regarding Future Results
Information provided by the Company, including information contained in
this Annual Report, or by its spokespersons from time to time may contain
forward-looking statements. Forward-looking statements are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that all forward-looking statements involve risks and
uncertainties, including, without limitation, further delays in new product
introduction, risks in technology development and commercialization, risks in
product development and market acceptance of and demand for the Company's
products, risks of downturns in economic conditions generally, and in the quick
service sector of the restaurant market specifically, risks of intellectual
property rights associated with competition and competitive pricing pressures,
risks associated with foreign sales and high customer concentration, Year 2000
compliance risks and other risks detailed in the Company's filings with the
Securities and Exchange Commission.
Item 8: Financial Statements and Supplementary Data
The Company's 1999 Financial Statements, together with the report thereon
of PricewaterhouseCoopers LLP dated February 11, 2000, are included elsewhere
herein. See Item 14 for a list of Financial Statements and Financial Statement
Schedules.
Item 9: Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
- --------------------------------------------------------------------------------
PART III
- --------------------------------------------------------------------------------
Item 10: Directors, Executive Officers and Other Significant Employees of the
Registrant
The directors and executive officers of the Company and their respective
ages and positions are:
Name Age Position
---- --- --------
Dr. John W. Sammon, Jr. 60 Chairman of the Board, President and
Director
Charles A. Constantino 60 Executive Vice President and Director
J. Whitney Haney 65 Director
Sangwoo Ahn 61 Director
Dr. James C. Castle 63 Director
Albert Lane, Jr. 58 President, PAR Government Systems
Corporation and Rome Research Corporation
Ronald J. Casciano 46 Vice President, C.F.O. and Treasurer
Other senior officers and significant employees of the Company and their
respective ages and positions are:
<
Name Age Position
---- --- --------
Raymond E. Barnes 52 Vice President, POS Systems Development,
ParTech, Inc.
Robert Bianchi 42 Vice President, Sales and Marketing,
ParTech, Inc.
Brian J. Bluff 37 Vice President, Logistics Management
Systems, PAR Technology Corporation
Edward Bohling 40 Vice President, Information Systems and
Technology, PAR Government Systems
Corporation
Gregory T. Cortese 50 Vice President, Law and Strategic
Development, General Counsel and Secretary
Name Age Position
---- --- --------
William J. Francis 48 Vice President, Finance, PTI Services
Division, McDonald's Domestic Sales,
ParTech, Inc.
Michael Gutschick 48 Vice President, McDonald's Account,
ParTech, Inc.
Sam Y. Hua 38 Vice President and Chief Technical Officer,
ParTech, Inc.
F. Tibertus Lenz 49 Vice President, Manufacturing/Warehousing
Systems, ParTech, Inc.
Fred A. Matrulli 54 Vice President, Operations/Logistics
Management Systems,
PAR Technology Corporation
Roger P. McReynolds 55 Vice President, Operations,
ParTech, Inc.
Victor Melnikow 42 Vice President, Finance,
Rome Research Corporation
E. John Mohler 56 Vice President, Marketing/Logistics
Management Systems,
PAR Government Systems Corporation
Samuel S. Talaba 43 Controller, ParTech, Inc.
F. Gregory Talomie, Jr. 55 President,
PAR Vision Systems Corporation
Jerry F. Weimar 43 Vice President, Professional Services,
ParTech, Inc.
Ben F. Williams 58 Vice President, Business Development,
PAR Technology Corporation
William J. Williams 38 Vice President, Manufacturing,
ParTech, Inc.
Bradley F. Winne 40 Acting Vice Presidnet, Service Operations,
ParTech, Inc.
Alexander J. Zanon 61 Senior Vice President Operations,
PAR Government Systems Corporation
The Company's Directors are elected in classes with staggered three-year
terms with one class being elected at each annual meeting of shareholders. The
Directors serve until the next election of their class and until their
successors are duly elected and qualified. The Company's officers are appointed
by the Board of Directors and hold office at the will of the Board of Directors.
The principal occupations for the last five years of the directors,
executive officers, and other significant employees of the Company are as
follows:
Dr. John W. Sammon, Jr. is the founder of the Company and has been the
Chairman of the Board, President and Director since its incorporation in 1968.
Mr. Charles A. Constantino has been a Director of the Company since 1971
and Executive Vice President since 1974.
Mr. J. Whitney Haney has been a Director of the Company and President of
ParTech, Inc. since April, 1988. He retired in 1997 as President of ParTech,
Inc.
Mr. Sangwoo Ahn was appointed a Director of the Company in March, 1986. He
has been a partner of Morgan, Lewis, Githens & Ahn (investment banking) since
1982.
Dr. James C. Castle was appointed a Director of the Company in December,
1989. Dr. Castle has been the Chairman and CEO of U.S.C.S. International
(previously U.S. Computer Services Corporation) since August, 1992.
Mr. Albert Lane, Jr. was appointed to President, Rome Research Corporation
in 1988. He was additionally appointed President of PAR Government Systems
Corporation in 1997.
Mr. Raymond E. Barnes was promoted to Vice President, Systems Development
of ParTech, Inc. in 1998. Prior to this position, he was the Director of Next
Generation Hardware and Software.
Mr. Robert Bianchi joined PAR in 1999 as Vice President, Sales and
Marketing of ParTech, Inc. Prior to joining the Company, Mr. Bianchi was
President of Productivity Partners.
Mr. Brian J. Bluff was promoted to Vice President of Logistics Management
Systems in 1998. Previously, Mr. Bluff was Vice President of Business
Development for Rome Research Corporation.
Mr. Edward Bohling was promoted to Vice President, Information Systems and
Technology of PAR Government Systems Corporation in 1998. Previously, he was
Director of Special Projects.
Mr. Ronald J. Casciano, CPA, was promoted to Vice President, C.F.O.,
Treasurer in June, 1995. Mr. Casciano had been Vice President and Treasurer
since 1994.
Mr. Gregory T. Cortese was named Vice President, Law and Strategic
Development in 1998. Previously, he was the Vice President, Business and Legal
Affairs.
Mr. William J. Francis was named Vice President, Finance, PTI Services
Division. He recently held the position of Vice President, Customer Service.
Operations.
Mr. Michael Gutschick was promoted to Vice President, McDonald's Account of
ParTech, Inc. in 1997. Previously, he was an Account Manager with the Company.
Mr. Sam Y. Hua was promoted to Vice President and Chief Technical Officer
in 1998. He joined the Company in 1997 as Vice President of Product Planning. He
previously was President of ISSI Corporation.
Mr. F. Tibertus Lenz was promoted to Vice President,
Manufacturing/Warehousing Systems, ParTech, Inc. in 1989.
Mr. Fred A. Matrulli was named Vice President, Operations/Logistics
Management Systems, in 1998. Previously, he was Vice President, Operations of
PAR Visions Systems Corporation.
Mr. Roger P. McReynolds was promoted in 1998 to Vice President, Operations
of ParTech, Inc. Previously, he held the position of Director of Total Quality
Management.
Mr. Victor Melnikow was promoted to Vice President, Finance of Rome
Research Corporation in July, 1995. Previously, he held the position of
Controller.
Mr. E. John Mohler was promoted to Vice President, Marketing/Logistics
Management Systems in 1997. He joined the Company in 1994 as Vice President,
Telecommunications Programs for PAR Government Systems Corporation.
Mr. Samuel Talaba was named Controller of ParTech, Inc. in 1997. Prior to
that, Mr. Talaba was Cost Accounting Manager.
Mr. F. Gregory Talomie, Jr. was named President of PAR Vision Systems
Corporation in 1999. Previously, Mr. Talomie was Program Director for the
Company's Logistics Management Systems.
Mr. Jerry F. Weimar was promoted to Vice President, Professional Services
of ParTech, Inc. in 1998. He joined PAR in 1997 as a Senior Technical Staff.
Previously, Mr. Weimar was a partner with Questra Consulting. Mr. Ben F.
Williams was appointed Vice President, Business Development in 1986.
Mr. William J. Williams was promoted to Vice President, Manufacturing of
ParTech, Inc. in February 1998. Prior to this position, Mr. Williams was the
Vice President, Operations.
Mr. Alexander J. Zanon was promoted to Senior Vice President, Operations of
PAR Government Systems Corporation in 1986.
Item 11: Executive Compensation
The information required by this item will appear under the caption
"Executive Compensation" in the Company's 1999 definitive proxy statement for
the annual meeting of stockholders on May 24, 2000 and is incorporated herein by
reference.
Item 12: Security Ownership Of Certain Beneficial Owners
The information required by this item will appear under the caption
"Security Ownership Of Management And Certain Beneficial Owners" in the
Company's 1999 definitive proxy statement for the annual meeting of stockholders
on May 24, 2000 and is incorporated herein by reference.
Item 13: Certain Relationships and Related Transactions
The information required by this item will appear under the caption
"Executive Compensation" in the Company's 1999 definitive proxy statement for
the annual meeting of stockholders on May 24, 2000 and is incorporated herein by
reference.
PART IV
Item 14: Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Documents filed as a part of the Form 10-K
(1) Financial Statements:
Report of Independent Accountants
Consolidated Balance Sheet at December 31, 1999 and 1998
Consolidated Statement of Income for the three
years ended December 31, 1999
Consolidated Statement of Comprehensive Income
for the three years ended December 31, 1999
Consolidated Statement of Changes in Shareholders' Equity for
the three years ended December 31, 1999
Consolidated Statement of Cash Flows for the three years
ended December 31, 1999
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules:
Valuation and Qualifying Accounts and Reserves (Schedule II)
(b) Reports on Form 8-K
None
(c) Exhibits
See list of exhibits on page 55
(d) Financial statement schedules
See (a)(2) above.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of PAR Technology Corporation
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a) (1) on page 32 present fairly, in all material
respects, the financial position of PAR Technology Corporation and its
subsidiaries at December 31, 1999 and December 31, 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States. In addition, in our opinion, the financial
statement schedules listed in the index appearing under Item 14(a) (2) on page
32 present fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
These financial statements and financial statement schedules are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and financial statement schedules based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Syracuse, New York
February 11, 2000
CONSOLIDATED BALANCE SHEET
(In Thousands Except Share Amounts) December 31,
----------------
1999 1998
---- ----
Assets
Current Assets:
Cash .................................. $ 953 $ 1,298
Accounts receivable-net (Note 3) ...... 37,436 47,137
Inventories (Note 4) .................. 28,164 27,260
Income tax refund claims .............. 133 -
Deferred income taxes (Note 8) ........ 3,442 3,208
Other current assets .................. 2,042 1,367
-------- --------
Total current assets .............. 72,170 80,270
Property, plant and equipment - net (Note 5) 11,470 8,465
Other assets ............................... 4,467 4,691
-------- --------
$ 88,107 $ 93,426
======== ========
Liabilities and Shareholders' Equity
Current Liabilities:
Notes payable (Note 6) ................ $ 4,984 $ 7,387
Accounts payable ...................... 7,800 10,226
Accrued salaries and benefits ......... 4,746 4,731
Accrued expenses ...................... 2,497 2,990
Income taxes payable .................. - 273
Deferred service revenue .............. 5,478 4,376
-------- --------
Total current liabilities ......... 25,505 29,983
-------- --------
Deferred income taxes (Note 8) ............. 459 617
-------- --------
Shareholders' Equity (Note 7):
Common stock, $.02 par value,
19,000,000 shares authorized;
9,516,711 and 9,513,571 shares issued;
8,059,805 and 8,548,665 outstanding . 190 190
Preferred stock, $.02 par value,
1,000,000 shares authorized ......... - -
Capital in excess of par value ........ 28,071 28,050
Retained earnings ..................... 42,191 40,222
Accumulative comprehensive income ...... (764) (547)
Treasury stock, at cost, 1,456,906 and
964,906 shares ...................... (7,545) (5,089)
-------- --------
Total shareholders' equity ........ 62,143 62,826
-------- --------
Contingent liabilities (Note 10)
-------- --------
$ 88,107 $ 93,426
======== ========
The Accompanying Notes are an Integral Part of the Financial Statements
CONSOLIDATED STATEMENT OF INCOME
(In Thousands Except Per Share Amounts) Year ended December 31,
-----------------------
1999 1998 1997
---- ---- ----
Net revenues:
Product ................................ $ 88,784 $ 66,854 $ 47,019
Service ................................ 35,990 31,357 27,833
Contract ............................... 20,032 24,069 25,168
--------- --------- ---------
144,806 122,280 100,020
--------- --------- ---------
Costs of sales:
Product ................................ 55,912 45,446 33,267
Service ................................ 34,982 28,518 24,948
Contract ............................... 18,834 21,892 23,884
--------- --------- ---------
109,728 95,856 82,099
--------- --------- ---------
Gross margin ..................... 35,078 26,424 17,921
--------- --------- ---------
Operating expenses:
Selling, general and administrative .... 23,455 19,955 23,122
Research and development ............... 8,078 6,040 5,265
Non-recurring charges (benefit) (Note 2) 1,700 (1,016) 3,535
--------- --------- ---------
33,233 24,979 31,922
--------- --------- ---------
Income (loss) from operations ............... 1,845 1,445 (14,001)
Other income, net ........................... 578 529 333
Interest expense ............................ (531) (124) -
--------- --------- ---------
Income (loss) before provision for
income taxes .............................. 1,892 1,850 (13,668)
Provision (benefit) for income taxes (Note 8) (77) 588 (4,949)
--------- --------- ---------
Net income (loss) ........................... $ 1,969 $ 1,262 $ (8,719)
========= ========= =========
Earnings (loss) per share
Diluted ................................ $ .23 $ .14 $ (.99)
========= ========= =========
Basic .................................. $ .23 $ .14 $ (.99)
========= ========= =========
Weighted average shares outstanding
Diluted ................................ 8,522 8,954 8,846
========= ========= =========
Basic .................................. 8,388 8,819 8,846
========= ========= =========
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(In Thousands)
Year ended December 31,
-----------------------
1999 1998 1997
---- ---- ----
Net income (loss) ............................ $ 1,969 $ 1,262 $ (8,719)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments (217) 135 (615)
--------- --------- ---------
Comprehensive income (loss) .................. $ 1,752 $ 1,397 $ (9,334)
========= ========= =========
The Accompanying Notes are an Integral Part of the Financial Statements
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Capital in Accumulative
Common Stock excess of Retained Comprehensive Treasury Stock
(In Thousands) Shares Amount Par Value Earnings Income Shares Amount
------ ------ --------- -------- ------ ------ ------
Balance at
December 31, 1996 ............... 9,417 $ 188 $27,564 $47,679 $ (67) (590) $(2,762)
Net loss ........................... (8,719)
Issuance of common stock upon the
exercise of stock options (Note 7) 50 1 311
Translation adjustments ............ (615)
Acquisition of treasury stock ...... (13) (163)
----- ------- ------- ------- ------- ------- -------
Balance at
December 31, 1997 ............... 9,467 189 27,875 38,960 (682) (603) (2,925)
Net income ......................... 1,262
Issuance of common stock upon the
exercise of stock options (Note 7) 47 1 175
Translation adjustments ............ 135
Acquisition of treasury stock ...... (362) (2,164)
----- ------- ------- ------- ------- ------- -------
Balance at
December 31, 1998 ............... 9,514 190 28,050 40,222 (547) (965) (5,089)
Net income ......................... 1,969
Issuance of common stock upon the
exercise of stock options (Note 7) 3 21
Translation adjustments ............ (217)
Acquisition of treasury stock ...... (492) (2,456)
----- ------- ------- ------- ------- ------- -------
December 31, 1999 ............... 9,517 $ 190 $28,071 $42,191 $ (764) (1,457) $(7,545)
===== ======= ======= ======= ======= ======= =======
The Accompanying Notes are an Integral Part of the Financial Statements
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands) Year ended December 31,
-----------------------
1999 1998 1997
---- ---- ----
Cash flows from operating activities:
Net income (loss) ............................ $ 1,969 $ 1,262 $ (8,719)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ....... 2,862 2,405 2,282
Provision for obsolete inventory .... 3,770 3,162 4,595
Translation adjustments ............. (217) 135 (615)
Increase (decrease) from changes in:
Accounts receivable-net ............. 9,701 (17,199) 12,397
Inventories ......................... (4,674) 746 (13,775)
Income tax refund claims ............ (133) 214 8
Other current assets ................ (675) (27) (79)
Other assets ........................ (95) (605) 1,487
Accounts payable .................... (2,426) 1,562 3,537
Accrued salaries and benefits ....... 15 927 1,054
Accrued expenses .................... (493) (454) 561
Deferred service revenue ............ 1,102 1,352 783
Income taxes payable ................ (273) 273 -
Deferred income taxes ............... (392) 2,629 (5,094)
-------- -------- --------
Net cash provided (used) by operating activities .. 10,041 (3,618) (1,578)
-------- -------- --------
Cash flows from investing activities:
Capital expenditures ......................... (4,536) (3,177) (1,520)
Capitalization of software costs ............. (1,012) (1,088) (1,475)
-------- -------- --------
Net cash used in investing activities ............. (5,548) (4,265) (2,995)
-------- -------- --------
Cash flows from financing activities:
Net borrowings (payments) under
line-of-credit agreements .................. (2,403) 7,192 10
Proceeds from the exercise of stock options .. 21 176 312
Acquisition of treasury stock ................ (2,456) (2,164) (163)
-------- -------- --------
Net cash provided (used) by financing activities .. (4,838) 5,204 159
-------- -------- --------
Net decrease in cash
and cash equivalents ............................ (345) (2,679) (4,414)
Cash and cash equivalents at
beginning of year ............................... 1,298 3,977 8,391
-------- -------- --------
Cash and cash equivalents at
end of year ..................................... $ 953 $ 1,298 $ 3,977
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest ................................. $ 530 $ 121 $ 19
Income taxes, net of refunds ............. 655 (2,507) 94
The Accompanying Notes are an Integral Part of the Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
Basis of consolidation
The consolidated financial statements include the accounts of PAR
Technology Corporation and its wholly owned subsidiaries (ParTech, Inc., PAR
Government Systems Corporation, Rome Research Corporation and PAR Vision Systems
Corporation), collectively referred to as the "Company". All significant
intercompany transactions have been eliminated in consolidation.
Revenue recognition
Revenues from sales of products are generally recorded as the products are
shipped, provided that no significant vendor and post-contract support
obligations remain and the collection of the related receivable is probable.
Costs relating to any remaining insignificant vendor and post-contract
obligations are accrued. The Company's service revenues are recognized ratably
over the related contract period or as the services are performed. Billings in
advance of the Company's performance of such work are reflected as deferred
service revenue in the accompanying consolidated balance sheet.
The Company's contract revenues result primarily from contract services
performed for the United States Government under a variety of
cost-reimbursement, time-and-material and fixed-price contracts. Contract
revenues, including fees and profits, are recorded as services are performed
using the percentage-of-completion method of accounting, primarily based on
contract costs incurred to date compared with estimated costs at completion.
Anticipated losses on all contracts and programs in process are recorded in full
when identified. Unbilled accounts receivable are stated at estimated realizable
value. Contract costs, including indirect expenses, are subject to audit and
adjustment through negotiations between the Company and government
representatives. Contract revenues have been recorded in amounts that are
expected to be realized on final settlement. The Company follows accepted
industry practice and records amounts retained by the government on contracts as
a current asset.
Statement of cash flows
For purposes of reporting cash flows, the Company considers all highly
liquid investments, purchased with a remaining maturity of three months or less,
to be cash equivalents. The effect of changes in foreign-exchange rates on cash
balances is not material.
Inventories
Inventories are valued at the lower of cost or market, cost being
determined on the basis of the first-in, first-out (FIFO) method.
Property, plant and equipment
Property, plant and equipment are recorded at cost and depreciated using
the straight-line or an accelerated method over the estimated useful lives of
the assets, which range from three to twenty years. Expenditures for maintenance
and repairs are expensed as incurred.
Warranties
A majority of the Company's products are under warranty for defects in
material and workmanship for various periods of time. The Company establishes an
accrual for estimated warranty costs at the time of sale.
Income taxes
The provision for income taxes is based upon pretax earnings with deferred
income taxes provided for the temporary differences between the financial
reporting basis and the tax basis of the Company's assets and liabilities. The
Company believes it's more likely than not to realize the net deferred tax asset
and accordingly no valuation allowance has been provided.
Foreign currency
The assets and liabilities for the Company's international operations are
translated into U.S. dollars using year-end exchange rates. Income statement
items are translated at average exchange rates prevailing during the year. The
resulting translation adjustments are recorded as a separate component of
shareholders' equity under the heading Accumulated Comprehensive Income.
Exchange gains and losses on intercompany balances of a long-term investment
nature are also recorded as a translation adjustment. Foreign currency
transaction gains and losses, which historically have been immaterial, are
included in net income.
Research and development costs
The Company capitalizes certain costs related to the development of
computer software under the requirements of Statement of Financial Accounting
Standards No. 86, Accounting for the Costs of Computer Software to be Sold,
Leased, or Otherwise Marketed. Software development costs incurred prior to
establishing technological feasibility are charged to operations and included in
research and development costs. Software development costs incurred after
establishing feasibility are capitalized and amortized on a product-by-product
basis when the product is available for general release to customers. The
unamortized computer software costs included in other assets amounted to
$3,183,000 and $3,354,000 at December 31, 1999 and 1998, respectively. Annual
amortization, charged to cost of sales, is the greater of the amount computed
using the ratio that current gross revenues for a product bear to the total of
current and anticipated future gross revenues for that product, or the
straight-line method over the remaining estimated economic life of the product.
Amortization of capitalized software costs amounted to $1,183,000, $526,000 and
$501,000 in 1999, 1998, and 1997, respectively.
Stock-based compensation
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation (SFAS 123), encourages, but does not require companies
to record compensation cost for stock-based compensation plans at fair value.
The Company has elected to continue to account for stock-based compensation
using the intrinsic value method prescribed in Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations.
Earnings per share
Earnings per share are calculated in accordance with Statement of Financial
Accounting Standards No. 128 Earnings per Share (SFAS 128), which specifies the
computation, presentation, and disclosure requirements for earnings per share
(EPS). It requires the presentation of basic and diluted EPS. Basic EPS excludes
all dilution. It is based upon the weighted average number of common shares
outstanding during the period. Diluted EPS reflects the potential dilution that
would occur if securities or other contracts to issue common stock were
exercised or converted into common stock.
The following is a reconciliation of the weighted average shares
outstanding for the basic and diluted EPS computations (In Thousands Except Per
Share Data):
For the year ended 1999
-----------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic EPS $ 1,969 8,388 $ .23
Effect of Stock Options - 134 -
--------- ----- -------
Diluted EPS $ 1,969 8,522 $ .23
For the year ended 1998
-----------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic EPS $ 1,262 8,819 $ .14
Effect of Stock Options - 135 -
--------- ----- -------
Diluted EPS $ 1,262 8,954 $ .14
For the year ended 1997
-----------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic and Diluted EPS $ (8,719) 8,846 $ (.99)
========= ===== =======
The 1997 diluted EPS calculation excludes the effect of stock options, as
they would have been antidilutive.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates, judgments
and assumptions that affect the reported amounts of assets, liabilities, and
revenues and expenses (as well as disclosures of contingent liabilities) during
the reporting period. Actual results could differ from those estimates.
Reclassification
Certain reclassifications have been made to prior year numbers to conform
to the current year presentations.
Note 2 - Nonrecurring Charges
On February 1, 2000 AmeriServe Food Distribution, Inc. a large distributor
to fast-food restaurants, filed for protection under Chapter 11 of the U.S.
Bankruptcy Code. During 1999 equipment sold by the Company for use in certain
Tricon restaurants was purchased through AmeriServe. As a result, at December
31, 1999, the Company was owed $1.7 million in trade accounts receivable.
Accordingly, due to this uncertainty, the Company recorded a one-time after tax
charge to earnings of $1.1 million ($0.13 loss per share) in the fourth quarter
of 1999.
In June 1992, the Company was approved under the Department of Defense
Mentor-Protege Program as a mentor for a minority-owned government contractor,
Phoenix Systems and Technologies, Inc. (Phoenix). The Company subsequently
became a subcontractor to Phoenix on certain engineering service contracts with
the United States Government. As a result of a default by Phoenix during 1997,
the Company recorded a non-recurring charge of $2.6 million ($1.7 million after
tax or $.19 loss per share) relating to amounts owed by Phoenix on these
subcontracts. During 1998, the Company recorded a nonrecurring benefit of
$1,016,000 ($645,000 after tax or $.07 earnings per share) relating to the
recovery of certain amounts owed by Phoenix. These subcontracts terminated in
1998 and the Company has no further ongoing contractual relationships with
Phoenix.
At December 31, 1999, Phoenix owes the Company $2.1 million, for which a
note was issued by Phoenix. This note bears interest at 8%, and is subordinate
to the third party lender. The note along with interest is payable in full on
July 30, 2000. This amount is fully reserved.
In 1997, the Company also recorded a charge of $900,000 ($580,000 after tax
or $.07 loss per share) pertaining to its CTS business. This charge is for
obsolete CTS inventory due to the development of a new product.
Note 3 - Accounts Receivable
The Company's net accounts receivable consist of:
December 31,
(In Thousands)
--------------
1999 1998
---- ----
Government segment:
United States Government -
Billed ............... $ 1,587 $ 1,313
Unbilled ............. 66 99
------- -------
1,653 1,412
------- -------
Other -
Billed ............... 1,480 2,071
Unbilled ............. 23 100
------- -------
1,503 2,171
------- -------
Other segments:
Trade accounts receivable 34,280 43,554
------- -------
$37,436 $47,137
======= =======
At December 31, 1999 and 1998, the Company had recorded a reserve for
doubtful accounts of $3,325,000 and $1,145,000, respectively, against trade
accounts receivable. Trade accounts receivable are primarily with major
fast-food corporations or their franchisees. At December 31, 1999 and 1998, the
Company had also recorded reserves of $90,000 and $50,000, respectively, against
government accounts receivable.
Note 4 - Inventories
Inventories are used primarily in the manufacture, maintenance, and service
of transaction processing systems. Inventories are net of related reserves. The
components of inventory are:
December 31,
(In Thousands)
--------------
1999 1998
---- ----
Finished goods $ 6,886 $ 7,377
Work in process 2,763 2,234
Component parts 6,001 7,342
Service parts 12,514 10,307
------- -------
$28,164 $27,260
======= =======
Note 5 - Property, Plant and Equipment
The components of property, plant and equipment are:
December 31,
(In Thousands)
--------------
1999 1998
---- ----
Land ........................ $ 253 $ 253
Buildings and improvements .. 11,258 8,479
Furniture and equipment ..... 24,327 23,227
------- -------
35,838 31,959
Less accumulated depreciation
and amortization ........... 24,368 23,494
------- -------
$11,470 $ 8,465
======= =======
The Company leases office space under various operating leases. Rental
expense on these operating leases was approximately $938,000, $919,000 and
$922,000 for the years ended December 31, 1999, 1998, and 1997, respectively.
Future minimum lease payments under all noncancelable operating leases are
(in thousands):
2000 $ 999
2001 605
2002 338
2003 43
2004 7
Thereafter -----------
$ 1,992
===========
Note 6 - Notes Payable
The Company has an aggregate of $35,000,000 in bank lines of credit.
Certain lines totalling $30,000,000 allow the Company to choose among unsecured
borrowings, which bear interest at the prime rate (8.5% at December 31, 1999),
banker's acceptance borrowings, which bear interest at a rate below the prime
rate, or other bank negotiated rates below prime. These lines are negotiated
annually. The remaining line of $5,000,000 is unsecured, bears interest at the
prime rate, requires a compensating balance and expires on April 30, 2000. At
December 31, 1999, $4,984,000 was outstanding under these lines at a weighted
average interest rate of 7.3%.
Note 7 - Common Stock
The Company has reserved 1,000,000 shares under its stock option plan.
Options under this Plan may be incentive stock options or nonqualified options.
Stock options are nontransferable other than upon death. Option grants become
exercisable no less than six months after the grant and typically expire ten
years after the date of the grant.
A summary of the stock options follows:
No. of Shares Weighted Average
(In Thousands) Exercise Price
-------------- --------------
Outstanding at December 31, 1996 .. 672 $ 5.50
Granted ...................... 5 9.28
Exercised .................... (50) 3.61
Forfeited .................... (48) 10.22
----- ---------
Outstanding at December 31, 1997 .. 579 5.31
Granted ...................... 143 6.51
Exercised .................... (47) 3.76
Forfeited .................... (6) 6.42
----- ---------
Outstanding at December 31, 1998 .. 669 5.67
Granted ...................... 469 4.87
Exercised .................... (3) 6.72
Forfeited .................... (164) 9.21
----- ---------
Outstanding at December 31, 1999 .. 971 $ 4.68
===== =========
Shares remaining
available for grant .......... 376
=====
Total shares vested and exercisable
as of December 31, 1999 ...... 484 $ 4.09
===== =========
During 1999, pursuant to the terms of the plan, grants of 154,000 incentive
stock options were cancelled at a price of $9.25 and replacement options granted
at a price of $4.75.
Stock options outstanding at December 31, 1999 are summarized as follows:
Range of Number Weighted Average Weighted Average
Exercise Prices Outstanding Remaining Life Exercise Price
--------------- ----------- -------------- --------------
$3.00 - $5.00 650 5.3 Years $ 3.91
$5.01 - $7.00 311 8.0 Years $ 6.13
$7.01 - $9.25 10 6.1 Years $ 9.25
-------------- --- ------------ --------
$3.00 - $9.25 971 6.1 Years $ 4.09
-------------- --- ------------ --------
Pro forma information regarding net income and earnings per share is
required by SFAS 123, and has been determined as if the Company had accounted
for its employee stock options under the fair value method of that Statement.
The fair value of these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions for 1999, 1998 and 1997:
1999 1998 1997
---- ---- ----
Risk-free interest rate ...... 5.9% 5.5% 6.4%
Dividend yield ............... N/A N/A N/A
Volatility factor ............ 39% 48% 52%
Weighted average expected life 6 Years 6 Years 6 Years
Had compensation cost for the Company's stock-based compensation plans and
other transactions been determined based on the fair values of the fiscal year
1999, 1998 and 1997 grant dates for those awards, consistent with the
requirements of SFAS No. 123, Accounting for Stock-Based Compensation, the
Company's net income and earnings per share would have been reduced to the pro
forma amounts indicated below (In thousands, except per share data):
1999 1998 1997
---- ---- ----
Net income (loss):
As reported $ 1,969 $ 1,262 $ (8,719)
Pro forma $ 1,492 $ 1,043 $ (8,900)
Earnings (loss) per share:
As reported -- Diluted $ .23 $ .14 $ (.99)
-- Basic $ .23 $ .14 $ (.99)
Proforma -- Diluted $ .18 $ .12 $ (1.01)
-- Basic $ .18 $ .12 $ (1.01)
Note 8 - Income Taxes
The provision (benefit) for income taxes consists of:
Year ended December 31,
(In Thousands)
----------------------
1999 1998 1997
---- ---- ----
Current tax expense:
Federal ............................... $ 321 $ (122) $ 135
State265 .............................. 161 91
Foreign ............................... 382 312 16
------- ------- -------
968 351 242
------- ------- -------
Deferred income tax:
Federal ............................... (1,084) 230 (4,736)
State ................................. 39 183 (272)
Foreign ............................... - (176) (183)
------- ------- -------
(1,045) 237 (5,191)
------- ------- -------
Provision (benefit) for income taxes ....... $ (77) $ 588 $(4,949)
======= ======= =======
Deferred tax liabilities (assets) are comprised of the following at:
December 31,
(In Thousands)
--------------
1999 1998
---- ----
Software development expense . $ 1,082 $ 1,140
Depreciation ................. 380 389
------- -------
Gross deferred tax liabilities 1,462 1,529
------- -------
Allowances for bad debts,
inventory and warranty ..... (3,205) (2,249)
Capitalized inventory costs .. (106) (69)
Wage and salary accruals ..... (321) (288)
Federal net operating loss ... - (887)
State net operating loss ..... (50) (89)
Foreign net operating loss ... (522) (522)
Foreign tax credit ........... (228) -
Other ........................ (13) (16)
------- -------
Gross deferred tax assets .... (4,445) (4,120)
------- -------
$(2,983) $(2,591)
======= =======
Total income tax provision differed from total tax expense as computed by
applying the statutory U.S. federal income tax rate to income before taxes. The
reasons were:
Year ended December 31,
-----------------------
1999 1998 1997
---- ---- ----
Statutory U.S. federal tax rate .. 34.0% 34.0% (34.0)%
State taxes net of federal benefit 1.6 15.6 .4
FSC benefit ...................... (30.1) (6.9) -
Prior years' adjustment .......... (9.4) (10.9) -
Non deductible expenses .......... 8.3 10.4 1.0
Research credit .................. (6.3) - -
Foreign income taxes ............. (2.8) (9.5) (1.4)
Other ............................ .6 (.9) (2.2)
---- ---- ----
(4.1)% 31.8% (36.2)%
==== ==== =====
The provision for income taxes is based on income (loss) before income
taxes as follows:
Year ended December 31,
(In Thousands)
--------------
1999 1998 1997
---- ---- ----
Domestic operations $ 1,465 $ 2,450 $(11,932)
Foreign operations 427 (600) (1,736)
-------- -------- --------
Total ........ $ 1,892 $ 1,850 $(13,668)
======== ======== ========
Note 9 - Employee Benefit Plans
The Company has a deferred profit-sharing retirement plan that covers
substantially all employees. The Company's annual contribution to the plan is
discretionary. The contributions to the plan in 1999, 1998 and 1997 were
approximately $1,030,000, $957,000 and $1,550,000, respectively. The plan also
contains a 401(K) provision that allows employees to contribute a percentage of
their salary.
The Company also maintains an incentive-compensation plan. Participants in
the plan are key employees as determined by executive management. Compensation
under the plan is based on the achievement of predetermined financial
performance goals of the Company and its subsidiaries. Awards under the plan are
payable in cash. In 1999 and 1998, cash awards under the plan totaled $360,000
and $253,000, respectively. In 1997, there were no awards under the plan.
Note 10 - Contingencies
The Company is subject to legal proceedings which arise in the ordinary
course of business. Additionally, U.S. Government contract costs are subject to
periodic audit and adjustment. In the opinion of management, the ultimate
liability, if any, with respect to these actions will not materially affect the
financial position or results of operations of the Company.
Note 11 - Segment and Related Information
The Company's reportable segments are strategic business units that have
separate management teams and infrastructures that
offer different products and services.
The Company has three reportable segments. The Transaction Processing
segment offers integrated solutions to the restaurant and
manufacturing/warehousing industries. These offerings include industry leading
hardware and software applications utilized at the point-of-sale, back of store,
corporate office and in the manufacturing/warehousing environment. This segment
also offers customer support including field service, installation, twenty-four
hour telephone support and depot repair. The Government segment designs and
implements advanced technology computer software systems primarily for military
and intelligence agency applications. It provides services for operating and
maintaining certain U.S. Government-owned test sites, and for planning,
executing and evaluating experiments involving new or advanced radar systems.
The Vision segment designs, manufactures, sells, installs and services image
processing systems for the food-processing industry. Inter-segment sales and
transfers are not material.
Information as to the Company's operations in these three segments is set
forth below:
Year ended December 31,
(In Thousands)
--------------
1999 1998 1997
---- ---- ----
Revenues:
Transaction Processing ....... $ 124,019 $ 97,345 $ 73,820
Government ................... 20,032 24,069 25,168
Vision ....................... 755 866 1,032
-------- --------- ---------
Total .................. $ 144,806 $ 122,280 $ 100,020
========= ========= =========
Income (loss) from operations:
Transaction Processing ....... $ 2,617 $ (1,061) $ (6,772)
Government ................... 1,396 2,097 (1,007)
Vision ....................... (468) (607) (2,687)
Nonrecurring (charges) benefit (1,700) 1,016 (3,535)
--------- -------- ---------
1,845 1,445 (14,001)
Other income, net ................. 578 529 333
Interest expense .................. (531) (124) -
--------- -------- ---------
Income (loss) before provision
for income taxes ............. $ 1,892 $ 1,850 $ (13,668)
========= ========= =========
Identifiable assets:
Transaction Processing ....... $ 76,780 $ 83,569 $ 66,544
Government ................... 6,036 6,022 13,074
Vision ....................... 1,112 1,520 958
Corporate .................... 4,179 2,315 2,628
--------- -------- ---------
Total .................. $ 88,107 $ 93,426 $ 83,204
========= ========= =========
Depreciation and amortization:
Transaction Processing ....... $ 2,307 $ 1,636 $ 1,511
Government ................... 159 128 165
Vision ....................... 40 86 248
Corporate .................... 356 555 358
--------- -------- ---------
Total .................. $ 2,862 $ 2,405 $ 2,282
========= ========= =========
Capital expenditures:
Transaction Processing ....... $ 1,008 $ 2,912 $ 1,012
Government ................... 421 87 154
Vision ....................... 36 30 197
Corporate .................... 3,071 148 157
--------- -------- ---------
Total .................. $ 4,536 $ 3,177 $ 1,520
========= ========= =========
The following table presents revenues by country based on the location of
the use of the product or services.
1999 1998 1997
---- ---- ----
United States . $119,378 $102,468 $ 81,169
Other Countries 25,428 19,812 18,851
-------- -------- --------
Total ..... $144,806 $122,280 $100,020
======== ======== ========
The following table presents property by country based on the location of
the asset.
1999 1998 1997
---- ---- ----
United States . $77,438 $84,656 $76,241
Other Countries 10,669 8,770 6,963
------- ------- -------
Total ..... $88,107 $93,426 $83,204
======= ======= =======
Customers comprising 10% or more of the Company's total revenues are
summarized as follows:
1999 1998 1997
---- ---- ----
Transaction Processing segment:
McDonald's Corporation ...... 38% 40% 21%
Tricon Corporation .......... 27% 22% 26%
Burger King Corporation ..... 5% 4% 13%
Government segment:
Department of Defense ....... 14% 20% 25%
All Others .................... 16% 14% 15%
---- ---- ----
100% 100% 100%
==== ==== ====
Substantially all revenues derived by the Government segment arise from
Federal government contracts, or subcontracts related thereto, virtually all of
which are with the Department of Defense.
Note 12 - Fair Value of Financial Instruments
Financial instruments consist of the following:
December 31, 1999
(In Thousands)
--------------
Carrying Fair
Value Value
----- -----
Cash and cash equivalents $ 953 $ 953
Notes Payable ........... $4,984 $4,984
Fair value of financial instruments classified as current assets or
liabilities approximate carrying value due to the short-term maturity of the
instruments.
Note 13 - Selected Quarterly Financial Data (Unaudited)
Quarter ended
(In Thousands Except Per Share Amounts)
---------------------------------------
1999 March 31 June 30 September 30 December 31
---- -------- ------- ------------ -----------
Total revenues .............. $ 35,746 $ 38,951 $ 32,582 $ 37,527
Gross margin ................ 9,246 10,029 7,559 8,244
Net income (loss) ........... 766 1,174 753 (724)
Diluted and basic
Earnings (loss) per share $ .09 $ .14 $ .09 $ (.09)
======== ======== ======== ========
Quarter ended
(In Thousands Except Per Share Amounts)
---------------------------------------
1998 March 31 June 30 September 30 December 31
---- -------- ------- ------------------------
Total revenues ............. $ 21,181 $ 25,977 $ 33,463 $ 41,659
Gross margin ............... 3,158 4,501 7,668 11,097
Net income (loss) .......... (1,627) (445) 1,166 2,168
Diluted and basic
Earnings (loss) per share $ (.18) $ (.05) $ .13 $ .25
======== ======== ======== ========
On February 1, 2000 AmeriServe Food Distribution, Inc. a large distributor
to fast-food restaurants, filed for protection under Chapter 11 of the U.S.
Bankruptcy Code. During 1999 equipment sold by the Company for use in certain
Tricon restaurants was purchased through AmeriServe. As a result at December 31,
1999 the Company was owed $1.7 million in trade accounts receivable.
Accordingly, due to this uncertainty, the Company recorded a one-time after tax
charge to earnings of $1.1 million ($0.13 loss per share) in the fourth quarter
of 1999.
During the fourth quarter annual physical inventory of its service parts in
1999, the Company discovered unreconciled differences between the physical count
and the perpetual inventory records. As a result, the Company recorded a charge
of $2.6 million ($1.7 million after tax) or $.20 per share. The third and fourth
quarter of 1999 include tax benefits relating to adjustments of current and
prior years accruals of $500,000 ($.06 per share) and $290,000 ($.03 per share),
respectively.
During 1998, the Company recovered certain amounts relating to accounts
receivable from Phoenix, which were reserved in 1997. The benefit was $100,000
($64,000 after tax) or $.01 per share in the first quarter, $550,000 ($349,000
after tax) or $.04 per share in the second quarter, $157,000 ($100,000 after
tax) or $.01 per share in the third quarter and $209,000 ($132,000 after tax) or
$.02 per share in the fourth quarter.
SCHEDULE II - VALUATION AND QUALIFYING
ACCOUNTS AND RESERVES
(In Thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- ------------------------------------------------------------------------------------------------------------------------------------
Additions
---------
Balance at
beginning of Charged to Costs Charged to Balance at end
Description period and Expenses Other Accounts Deductions of period
- ------------------------------------------------------------------------------------------------------------------------------------
Allowance for Doubtful
Accounts - deducted from
Accounts Receivable in
the Balance Sheet
1999 $1,195 2,837 (617) (a) $3,415
1998 $2,362 394 (1,561) (b) $1,195
1997 $ 677 3,441 (1,756) (c) $2,362
(a) Uncollectible accounts written off during 1999.
(b) Uncollectible accounts written off during 1998.
(c) Uncollectible accounts written off during 1997.
- ------------------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- ------------------------------------------------------------------------------------------------------------------------------------
Additions
Balance at
beginning of Charged to Costs Charged to Balance at end
Description period and Expenses Other Accounts Deductions of period
- ------------------------------------------------------------------------------------------------------------------------------------
Inventory Reserves
- - deducted from Inventory
in the Balance Sheet
1999 $ 2,123 3,770 (3,685) $ 2,208
1998 $ 3,817 3,162 (4,856) $ 2,123
1997 $ 1,174 4,595 (1,952) $ 3,817
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PAR TECHNOLOGY CORPORATION
March 24, 2000 /s/John W. Sammon, Jr.
- -------------- ----------------------
John W. Sammon, Jr.
Chairman of Board and President
_________________________
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
- --------------------------------------------------------------------------------------------------------------
Signatures Title Date
- --------------------------------------------------------------------------------------------------------------
/s/John W. Sammon, Jr.
- ----------------------
John W. Sammon, Jr. Chairman of Board and March 24, 2000
President (Principal
Executive Officer)
and Director
/s/Charles A. Constantino
- -------------------------
Charles A. Constantino Executive Vice President March 24, 2000
and Director
/s/J. Whitney Haney
- -------------------
J. Whitney Haney Director March 24, 2000
/s/Ronald J. Casciano
- ---------------------
Ronald J. Casciano Vice President, Chief Financial March 24, 2000
Officer and Treasurer
List of Exhibits
Exhibit
No. Description of Instrument
- -----------------------------------------------------------------------------------------------------------
3.1 Certificate of Incorporation, as amended Filed as Exhibit 3.1 to Registration
Statement on Form S-2 (Registration
No. 333-04077) of PAR Technology
Corporation incorporated herein by
reference.
3.2 Certificate of Amendment to the Filed as Exhibit 3.1 to Registration
Certificate of Incorporation Statement on Form S-2 (Registration
No. 333-04077) of PAR Technology
Corporation incorporated herein by
reference.
3.3 By-laws, as amended. Filed as Exhibit 3.1 to Registration
Statement on Form S-2 (Registration
No. 333-04077) of PAR Technology
Corporation incorporated herein by
reference.
4 Specimen Certificate representing the Filed as Exhibit 3.1 to Registration
Common Stock. Statement on Form S-2 (Registration
No. 333-04077) of PAR Technology
Corporation incorporated herein by
reference.
11 Statement re computation of Earnings per
share.
22 Subsidiaries of the registrant
23 Consent of independent accountants
* Confidential treatment granted as to certain portions.