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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 2002. Commission File Number 1-9720
OR
[ ] TRANSITION REPORT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From __________ to __________
Commission File Number __________
PAR TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 16-1434688
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
PAR Technology Park
8383 Seneca Turnpike
New Hartford, NY 13413-4991
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (315) 738-0600
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 number of shares outstanding of registrant's common stock, as of
October 31, 2002 - 7,932,360 shares.
PAR TECHNOLOGY CORPORATION
TABLE OF CONTENTS
FORM 10-Q
PART 1
FINANCIAL INFORMATION
Item Number
-----------
Item 1. Financial Statements
- Consolidated Statement of Income for
the Three and Nine Months Ended September 30, 2002 and 2001
- Consolidated Statement of Comprehensive Income for
the Three and Nine Months Ended September 30, 2002 and 2001
- Consolidated Balance Sheet at
September 30, 2002 and December 31, 2001
- Consolidated Statement of Cash Flows
for the Nine Months Ended September 30, 2002 and 2001
- Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II
OTHER INFORMATION
Item 4. Controls and Procedures
Item 6. Exhibits and Reports on Form 8-K
Signatures
Certifications
Exhibit Index
Item 1.
Financial Statements
PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(In Thousands Except Per Share Amounts)
(Unaudited)
For the three months For the nine months
ended September 30, ended September 30,
---------------------- ----------------------
2002 2001 2002 2001
--------- --------- --------- ---------
Net revenues:
Product ................................ $ 14,694 $ 11,371 $ 46,217 $ 35,264
Service ................................ 9,222 8,522 27,666 25,071
Contract ............................... 9,403 7,681 28,019 22,535
--------- --------- --------- ---------
33,319 27,574 101,902 82,870
--------- --------- --------- ---------
Costs of sales:
Product ................................ 9,703 7,848 31,341 23,974
Service ................................ 7,296 7,070 22,669 20,011
Contract ............................... 8,599 7,255 26,029 21,247
--------- --------- --------- ---------
25,598 22,173 80,039 65,232
--------- --------- --------- ---------
Gross margin ..................... 7,721 5,401 21,863 17,638
--------- --------- --------- ---------
Operating expenses:
Selling, general and administrative .... 5,082 3,483 13,823 11,122
Research and development ............... 1,226 1,059 3,992 4,104
--------- --------- --------- ---------
6,308 4,542 17,815 15,226
--------- --------- --------- ---------
Income from operations ...................... 1,413 859 4,048 2,412
Other income, net ........................... 255 210 565 760
Interest expense ............................ (235) (214) (660) (894)
--------- --------- --------- ---------
Income before provision for
income taxes ........................... 1,433 855 3,953 2,278
Provision for income taxes .................. (537) (280) (1,312) (834)
--------- --------- --------- ---------
Income from continuing operations ........... 896 575 2,641 1,444
--------- --------- --------- ---------
Discontinued operations:
Loss from operations of
discontinued segment (including
loss on disposal of $830,000 in 2002) (1,329) (737) (2,448) (1,716)
Income tax benefit ..................... 498 242 812 628
--------- --------- --------- ---------
Loss on discontinued operations ........ (831) (495) (1,636) (1,088)
--------- --------- --------- ---------
Net income .................................. $ 65 $ 80 $ 1,005 $ 356
========= ========= ========= =========
Item 1.
Financial Statements
PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(In Thousands Except Per Share Amounts)
(Unaudited)
For the three months For the nine months
ended September 30, ended September 30,
---------------------- ----------------------
2002 2001 2002 2001
--------- --------- --------- ---------
Earnings per share:
Basic:
Income from continuing operations ...... $ .11 $ .07 $ .33 $ .19
Loss from discontinued operations ...... $ (.11) $ (.06) $ (.21) $ (.14)
Net income .......................... $ .01 $ .01 $ .13 $ .05
Diluted:
Income from continuing operations ...... $ .11 $ .07 $ .32 $ .19
Loss from discontinued operations ...... $ (.10) $ (.06) $ (.20) $ (.14)
Net income .......................... $ .01 $ .01 $ .12 $ .05
Weighted average shares outstanding
Diluted ................................ 8,328 7,846 8,216 7,789
========= ========= ========= =========
Basic .................................. 7,901 7,723 7,891 7,723
========= ========= ========= =========
PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(In Thousands)
(Unaudited)
For the three months For the nine months
ended September 30, ended September 30,
---------------------- ----------------------
2002 2001 2002 2001
--------- --------- --------- ---------
Net income .................................. $ 65 $ 80 $1,005 $ 356
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments 22 72 435 (296)
------ ------ ------ ------
Comprehensive income ........................ $ 87 $ 152 $1,440 $ 60
====== ====== ====== ======
PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In Thousands Except Share Amounts)
September 30,
2002 December 31,
Assets (Unaudited) 2001
-------- --------
Current Assets:
Cash ...................................... $ 992 $ 879
Accounts receivable-net ................... 29,198 36,934
Inventories ............................... 29,131 24,469
Income tax refund claims .................. -- 95
Deferred income taxes ..................... 3,262 2,883
Other current assets ...................... 3,233 3,315
Total assets of discontinued operation .... 430 --
-------- --------
Total current assets .................. 66,246 68,575
Property, plant and equipment - net ............ 8,953 9,471
Deferred income taxes .......................... 7,057 7,774
Other assets ................................... 2,791 3,204
-------- --------
$ 85,047 $ 89,024
======== ========
Liabilities and Shareholders' Equity
Current Liabilities:
Notes payable ............................. $ 12,828 $ 14,686
Accounts payable .......................... 6,693 11,290
Accrued salaries and benefits ............. 4,511 4,580
Accrued expenses .......................... 2,833 2,274
Deferred service revenue .................. 6,226 6,339
Total liabilities of discontinued operation 656 --
-------- --------
Total current liabilities ............. 33,747 39,169
-------- --------
Long-term debt ................................. 2,224 2,268
-------- --------
Shareholders' Equity:
Preferred stock, $.02 par value,
1,000,000 shares authorized ............. -- --
Common stock, $.02 par value,
19,000,000 shares authorized;
9,694,466 and 9,674,466 shares issued
7,900,760 and 7,880,760 outstanding ..... 194 193
Capital in excess of par value ............ 28,589 28,541
Retained earnings ......................... 30,268 29,263
Accumulated comprehensive loss ............ (1,006) (1,441)
Treasury stock, at cost, 1,793,706 shares . (8,969) (8,969)
-------- --------
Total shareholders' equity ............ 49,076 47,587
-------- --------
$ 85,047 $ 89,024
======== ========
PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands)
(Unaudited)
For the nine months
ended September 30,
--------------------
2002 2001
------- -------
Cash flows from operating activities:
Net income ....................................... $ 1,005 $ 356
Adjustments to reconcile net income to net cash
provided by operating activities:
Net loss from discontinued operations ......... 1,636 1,088
Depreciation and amortization .................. 2,176 2,270
Provision for bad debts ........................ 1,041 360
Provision for obsolete inventory ............... 1,728 838
Deferred income taxes .......................... 338 137
Increase (decrease) from changes in:
Accounts receivable .......................... 6,695 (149)
Inventories .................................. (6,390) 1,940
Income tax refund claims ..................... 95 656
Other current assets ......................... 82 (1,037)
Other assets ................................. (200) --
Accounts payable ............................. (4,597) (1,731)
Accrued salaries and benefits ................ (69) (185)
Accrued expenses ............................. 559 (871)
Income taxes payable ......................... -- (79)
Deferred service revenue ..................... (113) 425
------- -------
Net cash provided by continuing
operating activities ...................... 3,986 4,018
Net cash used in discontinued operations .... (932) (1,156)
------- -------
Net cash provided by operating activities ... 3,054 2,862
------- -------
Cash flows from investing activities:
Capital expenditures ........................... (977) (430)
Capitalization of software costs ............... (546) (590)
------- -------
Net cash used in investing activities ....... (1,523) (1,020)
------- -------
Cash flows from financing activities:
Net payments under line-of-credit agreements ... (1,858) (1,342)
Payments on long-term debt obligations ......... (44) (41)
Proceeds from the exercise of stock options .... 49 --
------- -------
Net cash used in financing activities ...... (1,853) (1,383)
------- -------
Effect of exchange rate changes on cash
and cash equivalents .......................... 435 (296)
------- -------
Net increase in cash and cash equivalents ....... 113 163
Cash and cash equivalents at beginning of year .. 879 1,199
------- -------
Cash and cash equivalents at end of period ...... $ 992 $ 1,362
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest ....................................... $ 656 $ 833
Income taxes, net of refunds ................... 66 (488)
PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The statements for the three and nine months ended September 30, 2002 and
2001 are unaudited; in the opinion of the Company such unaudited statements
include all adjustments (which comprise only normal recurring accruals)
necessary for a fair presentation of the results for such periods. The
consolidated financial statements for the year ending December 31, 2002 are
subject to adjustment at the end of the year when they will be audited by
independent accountants. The results of operations for the three and nine
months ended September 30, 2002 are not necessarily indicative of the
results of operations to be expected for the year ending December 31, 2002.
The consolidated financial statements and notes thereto should be read in
conjunction with the financial statements and notes for the years ended in
December 31, 2001 and 2000 included in the Company's December 31, 2001
Annual Report to the Securities and Exchange Commission on Form 10-K.
2. During the third quarter of 2002, the Company recorded an after tax loss of
$831,000 or $.10 per diluted share resulting from the discontinuance of its
Industrial segment. The Company's decision to close down its unprofitable
Industrial Software business unit, Ausable Solutions, Inc., followed a
trend of continuous losses over the past 18 months, which resulted from an
economic downturn in the IT software market with corresponding delays of
anticipated contracts. This decision will allow the Company to focus on its
two core businesses, Restaurant and Government.
A summary of net revenues and pre-tax operating results and total assets
and liabilities of discontinued operations are detailed below (in
thousands):
For the three months For the nine months
ended September 30, ended September 30,
------------------- ------------------
2002 2001 2002 2001
-------- -------- -------- --------
Net revenues ............. $ 239 $ 617 $ 1,366 $ 1,982
Pre-tax loss from
discontinued operations $(1,329) $ (737) $(2,448) $(1,716)
September 30,
2002
(Unaudited)
-----------
Discontinued Assets:
Cash ................................................ $ 87
Accounts receivable-net ............................. 288
Other current assets ................................ 55
----
Total assets of discontinued operations .... $430
====
Discontinued Liabilities:
Accounts payable .................................... $ 68
Accrued salaries and benefits ....................... 327
Other current liabilities ........................... 261
----
Total liabilities of discontinued operations $656
====
PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3. Inventories are primarily used in the manufacture and service of Restaurant
products. The components of inventory, net of related reserves, consist of
the following:
(In Thousands)
September 30, December 31,
2002 2001
-------- --------
Finished goods ............... $ 6,091 $ 5,414
Work in process .............. 1,714 1,868
Component parts .............. 4,962 3,602
Service parts ................ 16,364 13,585
------- -------
$29,131 $24,469
======= =======
At September 30, 2002 and December 31, 2001, the Company had recorded
reserves for obsolete inventory of $4,428,000 and $3,253,000, respectively.
4. In June 2001, the Financial Accounting Standards Board approved Statement
of Financial Accounting Standards No. 142 "Goodwill and Other Intangible
Assets", ("SFAS 142"). The Company adopted SFAS 142 effective January 1,
2002. Under this standard, amortization of goodwill and certain intangible
assets, including certain intangibles recorded as a result of past business
combinations, is to be discontinued upon adoption of SFAS 142. Instead, all
goodwill with indefinite lives will be tested for impairment annually, or
more frequently if circumstances indicate potential impairment, through a
comparison of fair value to its carrying amount. The net book value of
goodwill of continuing operations was $598,000 at September 30, 2002.
SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets,"
was issued in August 2001. SFAS No. 144 provides new guidance on the
recognition of impairment and losses on long-lived assets to be held and
used or to be disposed of and also broadens the definition of what
constitutes a discontinued operation and how the results of discontinued
operations are to be measured and presented. SFAS No. 144 supersedes SFAS
121, "Accounting for the Impairment of Long-Lived Assets to be Disposed
Of," and a portion of Accounting Principle Board (APB) No. 30, "Reporting
the Results of Operations-Reporting the Effects of Disposal of Segment of a
Business," while retaining many of the requirements of these two
statements. Under SFAS No. 144, discontinued operations are no longer
measured on a net realizable value basis, and future operating losses are
no longer recognized before they occur.
As further described in Note 2, the Company has announced the
discontinuation of its Industrial Segment and has adopted the provisions of
SFAS 144 regarding the measurement, recognition and disclosure of this
discontinued operation.
5. The Company's reportable segments are strategic business units that have
separate management teams and infrastructures that offer different products
and services.
PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The Company has two reportable segments, Restaurant and Government. The
Restaurant Segment offers integrated solutions to the restaurant industry.
These offerings include industry leading hardware and software applications
utilized at the point-of-sale, back of store and corporate office. 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
communication and test sites, and for planning, executing and evaluating
experiments involving new or advanced radar systems. It is also involved in
developing technology to track mobile chassis. As discussed in Note 2, the
Company discontinued its Industrial segment in the third quarter of 2002.
Inter-segment sales and transfers are not material.
Information as to the Company's operations in its segments is set forth
below (in thousands):
For the three months For the nine months
ended September 30, ended September 30,
--------------------- ---------------------
2002 2001 2002 2001
--------- --------- --------- ---------
Revenues:
Restaurant .............. $ 23,916 $ 19,893 $ 73,883 $ 60,335
Government .............. 9,403 7,681 28,019 22,535
--------- --------- --------- ---------
Total ............. $ 33,319 $ 27,574 $ 101,902 $ 82,870
========= ========= ========= =========
Income (loss) from
continuing operations:
Restaurant .............. $ 681 $ 492 $ 2,191 $ 1,308
Government .............. 732 410 1,882 1,161
Other ................... -- (43) (25) (57)
--------- --------- --------- ---------
1,413 859 4,048 2,412
Other income, net ............ 255 210 565 760
Interest expense ............. (235) (214) (660) (894)
--------- --------- --------- ---------
Income before provision
for income taxes ........ $ 1,433 $ 855 $ 3,953 $ 2,278
========= ========= ========= =========
Depreciation and amortization:
Restaurant .............. $ 538 $ 625 $ 1,701 $ 1,773
Government .............. 22 26 76 76
Other ................... 163 162 399 421
--------- --------- --------- ---------
Total ............. $ 723 $ 813 $ 2,176 $ 2,270
========= ========= ========= =========
Capital expenditures:
Restaurant .............. $ 356 $ 57 $ 784 $ 235
Government .............. -- 41 35 83
Other ................... 43 32 158 112
--------- --------- --------- ---------
Total ............. $ 399 $ 130 $ 977 $ 430
========= ========= ========= =========
The following table presents revenues by geographic area based on the
location of the use of the product or services.
For the three months For the nine months
ended September 30, ended September 30,
--------------------- ---------------------
2002 2001 2002 2001
--------- --------- --------- ---------
United States ................ $ 29,713 $ 24,116 $ 91,442 $ 71,207
Other Countries .............. 3,606 3,458 10,460 11,663
-------- -------- -------- ---------
Total .................. $ 33,319 $ 27,574 $101,902 $ 82,870
======== ======== ======== =========
Customers comprising 10% or more of the Company's total revenues are
summarized as follows:
For the three months For the nine months
ended September 30, ended September 30,
---------------- ----------------
2002 2001 2002 2001
------ ------ ------ -----
Restaurant Segment:
McDonald's Corporation ....... 33% 30% 31% 31%
YUM! Brands Inc. ............. 23% 18% 22% 23%
Government Segment:
Department of Defense ........ 28% 28% 27% 27%
All Others ........................ 16% 24% 20% 19%
--- --- --- ---
100% 100% 100% 100%
=== === === ===
September 30, December 31,
2002 2001
------------ -----------
Identifiable assets:
Restaurant .............. $71,912 $75,309
Government .............. 6,651 7,700
Industrial .............. 430 2,777
Other ................... 6,054 3,238
------- -------
Total ............. $85,047 $89,024
======= =======
The following table presents property by geographic area based on the
location of the asset.
September 30, December 31,
2002 2001
---------- ----------
United States ........... $78,329 $80,231
Other Countries ......... 6,718 8,793
------- -------
Total ............ $85,047 $89,024
======= =======
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 30, 2002
COMPARED WITH
QUARTER ENDED SEPTEMBER 30, 2001
Information provided by the Company, including information contained in
this report or by its spokespersons from time to time might 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, and other
risks detailed in the Company's filings with the Securities and Exchange
Commission.
The following discussion and analysis highlights items having a significant
effect on operations during the quarter ended September 30, 2002. 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.
For the third quarter ended September 30, 2002, PAR Technology Corporation
reported revenues from continuing operations of $33.3 million compared to $27.6
million in the third quarter 2001, an increase of 21%. Income from continuing
operations was $896,000, a 56% increase over the $575,000 earned in the third
quarter one year ago. The Company reported diluted net income per share from
continuing operations of $0.11 for this quarter, a 57% increase over the $0.07
reported for the same period a year earlier.
The Company's net income for the third quarter of 2002 was $65,000, or
$0.01 diluted net income per share, compared to net income of $80,000 and $0.01
per diluted share for the same period in 2001.
Product revenues were $14.7 million in 2002, an increase of 29% from the
$11.4 million recorded in 2001. The Company's restaurant products are being
favorably received in the market place. In particular, sales increased to
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 30, 2002
COMPARED WITH
QUARTER ENDED SEPTEMBER 30, 2001
certain of the Company's traditional customers including McDonald's and YUM!
Brands, Inc. YUM! Brands, Inc. includes KFC, Taco Bell and Pizza Hut. Also
contributing to the revenue growth were sales to several new accounts.
Customer service revenues were $9.2 million in 2002, an increase of 8% from
the $8.5 million in 2001. Higher installation, call center and field service
revenues in support of an expanded installed base were responsible for the
increase. The Company's service offerings include installation, twenty-four hour
help desk support and various field and on-site service options.
Contract revenues were $9.4 million in 2002, an increase of 22% when
compared to the $7.7 million recorded in the same period in 2001. This increase
resulted from the expanded scope of our I/T outsourcing contracts for facility
operations at strategic U.S. Navy Telecommunication sites across the globe.
These outsourcing operations provided by the Company directly support the Navy's
fleet operations. The Company has become a recognized leader in the conversion
of military I/T communications facilities to contractor operations.
Additionally, contract revenues grew as a result of our emerging logistics
management business, which involves the tracking of mobile chassis under the
Company's Cargo*Mate(TM) contracts.
Product margins were 34% for 2002 compared to 31% for the same period in
2001. Margins improved due to favorable product mix. In addition, during the
third quarter of 2001, the Company offered a special promotion to certain
customers that was discontinued in 2002.
Customer service margins were 21% in 2002 compared to 17% for the same
period in 2001. This increase resulted from a more favorable mix on certain
service offerings.
Contract margins were 9% in 2002 versus 6% for the same period in 2001.
Margins improved due to higher than expected profitability on certain
fixed-price contracts that are close to completion. Margins on the Company's
government contract business historically run between 5% and 6%.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 30, 2002
COMPARED WITH
QUARTER ENDED SEPTEMBER 30, 2001
Selling, general and administrative expenses were $5.1 million in 2002
versus $3.5 million for the same period in 2001, an increase of 46%. This
increase is primarily the result of some executive salary adjustments. Last
year, as part of the Company's plan to return to profitability following losses
incurred in 2000, a salary reduction program was initiated. This program was
terminated in the fourth quarter of 2001 and normal pay was reinstated
reflecting the return to profitability of the business. Additionally, sales and
marketing expenses of the Restaurant business increased which is directly
related to the growth in product revenue.
Research and development expenses were $1.2 million in 2002, an increase of
16% from the $1.1 million recorded for the same period in 2001. This increase is
due to continuing development of the Company's restaurant products. Research and
development costs attributable to government contracts are included in cost of
contract revenues.
Interest expense represents interest charged on the Company's short-term
borrowing requirements from banks and from long-term debt. The 10% increase to
$235,000 in 2002 was primarily due to a higher average balance outstanding in
2002 partially offset by a lower interest rate in 2002 than in 2001.
During the third quarter of 2002, the Company recorded an after tax loss of
$831,000 or $.10 per diluted share resulting from the discontinuance of its
Industrial segment. The Company's decision to close down its unprofitable
Industrial Software business unit, Ausable Solutions, Inc., followed a trend of
continuous losses over the past 18 months, which resulted from an economic
downturn in the IT software market with corresponding delays of anticipated
contracts. This decision will allow the Company to focus on its two core
businesses, Restaurant and Government, which are both growing and profitable.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2002
COMPARED WITH
NINE MONTHS ENDED SEPTEMBER 30, 2001
For the nine months ended September 30, 2002, PAR Technology Corporation
reported revenues from continuing operations of $101.9 million, a 23% increase
from the $82.9 million reported one year ago. The Company also reported income
from continuing operations of $2.6 million for the first nine months of 2002
versus $1.4 million for the same period in 2001, an increase of 83%. Diluted net
income per share from continuing operations was $0.32 for the first nine months
of 2002, an increase of 68% when compared to diluted net income per share of
$0.19 for the same period in 2001.
The Company's net income for the nine months of 2002 was $1 million or
$0.12 diluted net income per share, compared to net income of $356,000 and $0.05
per diluted share for the same period in 2001.
Product revenues were $46.2 million in 2002, an increase of 31% from the
$35.3 million recorded in 2001. This is attributable to increased sales to the
Company's traditional customers including McDonald's and YUM! Brands, Inc. Sales
to several new customers, including Carnival Cruise Lines, also contributed to
this increase.
Customer service revenues were $27.7 million in 2002, an increase of 10%
from the $25.1 million in 2001. This increase was attributable to revenue
derived from the installation of equipment as product sales rose. An increase in
the number of service contracts also contributed to this revenue growth.
Contract revenues were $28 million in 2002, an increase of 24% when
compared to the $22.5 million recorded for the same period in 2001. This
increase is primarily due to the increase in scope of the Company's I/T
outsourcing contracts for strategic U.S. Navy Telecommunication sites. The
increase in revenue is also attributable to a floodplain-mapping contract with
the New York State Department of Environment Conservation. Additionally,
contract revenues grew as a result of the Company's Cargo*Mate(TM) contracts.
Product margins were 32% for 2002 consistent with the same period in 2001.
This was due to more favorable pricing in 2002 offset by a change in product mix
in 2002 compared to 2001.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2002
COMPARED WITH
NINE MONTHS ENDED SEPTEMBER 30, 2001
Customer service margins were 18% in 2002 compared to 20% for the same
period in 2001. This margin decrease resulted from field service startup
expenses related to the support of the Company's Boston Market account and
increased use of third parties for certain installation activities.
Contract margins were 7% in 2002 compared to 6% in 2001. Margins improved
due to higher than expected profitability on certain fixed-price contracts that
are close to completion. Margins on the Company's government contract business
historically run between 5% and 6%.
Selling, general and administrative expenses were $13.8 million in 2002
versus $11.1 million for the same period in 2001, an increase of 24%. This
increase is primarily the result of the executive salary adjustments. There were
also increases in sales and marketing expenses related to the higher sales
volume.
Research and development expenses were $4 million in 2002, a decrease of 3%
from the $4.1 million recorded for the same period in 2001. This minor decrease
occurred in the first half of the year due to the timing of certain restaurant
development projects.
Interest expense represents interest charged on the Company's short-term
borrowing requirements from banks and from long-term debt. Interest expense
declined 26% to $660,000 in 2002 primarily due to a lower interest rate in 2002
than in 2001.
Liquidity and Capital Resources
The Company's primary source of liquidity has been from operations and
lines of credit with various banks. The Company generated cash flow from
continuing operating activities of $4 million in 2002 and in 2001. The primary
factors contributing to the 2002 positive cash flow were to operating profits
for the period and a reduction in accounts receivable. This was partially offset
by an increase in inventory to meet current demand. A reduction in inventory and
cost cutting measures taken by the Company in the fourth quarter of 2000 all
contributed to the positive cash flow in 2001.
Cash used in investing activities was $1.5 million in 2002 versus $1
million in 2001. In 2002, capital expenditures were primarily for improvements
to the Company's headquarter facility and for normal operational needs in the
restaurant segment. In addition, the Company capitalized $546,000 of
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2002
COMPARED WITH
NINE MONTHS ENDED SEPTEMBER 30, 2001
software costs. In 2001, capital expenditures were primarily for manufacturing
equipment and for improvements to the Company's customer service facility in
Boulder, Colorado. The Company also capitalized $590,000 of software costs.
Cash used in financing activities was $1.9 million in 2002 compared to $1.4
million in 2001. The Company reduced its line-of-credit borrowings by $1.9
million in 2002 and by $1.3 million in 2001.
The Company currently has two line-of-credit agreements, which aggregate
$20 million with certain banks. At September 30, 2002, $12.8 million was
outstanding under these agreements. The Company continues to review its existing
debt structure and credit availability. Both lines expire on April 30, 2003. The
Company believes that it has adequate financial resources to meet its future
liquidity and capital requirements in 2002.
Critical Accounting Policies
The Company's consolidated financial statements are based on the
application of generally accepted accounting principles (GAAP). GAAP requires
the use of estimates, assumptions, judgments and subjective interpretations of
accounting principles that have an impact on the assets, liabilities, revenue
and expense amounts reported. The Company believes its use of estimates and
underlying accounting assumptions adhere to GAAP and are consistently applied.
Valuations based on estimates are reviewed for reasonableness and adequacy on a
consistent basis throughout the Company. Primary areas where financial
information of the Company is subject to the use of estimates, assumptions and
the application of judgment include revenues, receivables, inventories,
intangible assets and taxes.
Revenues from product sales are recorded as the products are shipped,
provided that no significant vendor or post-contract support obligations remain
and the collection of the related receivable is probable. 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2002
COMPARED WITH
NINE MONTHS ENDED SEPTEMBER 30, 2001
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 contract amounts retained by the government as a
current asset.
Allowances for doubtful accounts are based on estimates of losses related
to customer receivable balances. The establishment of reserves requires the use
of judgment and assumptions regarding the potential for losses on receivable
balances.
The Company's inventories are valued at the lower of cost or market. The
Company uses certain estimates and judgments and considers several factors
including product demand and changes in technology to provide for excess and
obsolescence reserves to properly value inventory.
The Company has intangible assets on its balance sheet that includes
computer software costs and goodwill related to acquisitions. The valuation of
these assets and the assignment of useful amortization lives involve significant
judgments and the use of estimates. The testing of these intangibles for
impairment under established accounting guidelines also requires significant use
of judgment and assumptions. Changes in business conditions could potentially
require future adjustments to these assets.
The Company has significant amounts of deferred tax assets that are
reviewed for recoverability and valued accordingly. These assets are evaluated
by using estimates of future taxable income streams and the impact of tax
planning strategies. Valuations related to tax accruals and assets can be
impacted by changes to tax codes, changes in statutory tax rates and the
Company's future taxable income levels.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2002
COMPARED WITH
NINE MONTHS ENDED SEPTEMBER 30, 2001
Quantitative and Qualitative Disclosures about Market Risk
Inflation had little effect on revenues and related costs during the first
nine months of 2002. Management anticipates that margins will be maintained at
acceptable levels to minimize the effects of inflation, if any.
The Company has total interest bearing short-term debt of approximately
$12.8 million at September 30, 2002. Management believes that increases in
short-term rates could have an adverse effect on the Company's future 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.
Item 4. Controls and Procedures
During the 90-day period prior to the filing date of this report,
management, including the Corporation's Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of the design and operation of
the Corporation's disclosure controls and procedures. Based upon, and as of the
date of that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the disclosure controls and procedures were effective, in all
material respects, to ensure that information required to be disclosed in the
reports the Corporation files and submits under the Exchange Act is recorded,
processed, summarized and reported as and when required.
There have been no significant changes in the Corporation's internal
controls or in other factors which could significantly affect internal controls
subsequent to the date the Corporation carried out its evaluation. There were no
significant deficiencies or material weaknesses identified in the evaluation
and, therefore, no corrective actions were taken.
Item 6. Exhibits and Reports on Form 8-K
List of Exhibits
Exhibit
No. Description of Instrument
------- -------------------------
11 Statement re computation of per-share earnings
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Reports on Form 8-K
None during the third quarter of 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PAR TECHNOLOGY CORPORATION
--------------------------
(Registrant)
Date: November 14, 2002
/s/RONALD J. CASCIANO
------------------------------
Ronald J. Casciano
Vice President, Chief Financial Officer
and Treasurer
PAR TECHNOLOGY CORPORATION
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, John W. Sammon, certify that:
1. I have reviewed this quarterly report on Form 10-Q of PAR Technology
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared; b. evaluated the effectiveness of the
registrant's disclosure controls and procedures as of a date within 90
days prior to the filing date of this quarterly report (the
"Evaluation Date"); and c. presented in this quarterly report our
conclusions about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and b. any fraud, whether or not material, that
involves management or other employees who have a significant role in
the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
/s/John W. Sammon
-----------------
John W. Sammon
Chairman of the Board and Chief Executive Officer
Date: November 14, 2002
PAR TECHNOLOGY CORPORATION
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Ronald J. Casciano, certify that:
1. I have reviewed this quarterly report on Form 10-Q of PAR Technology
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared; b. evaluated the effectiveness of the
registrant's disclosure controls and procedures as of a date within 90
days prior to the filing date of this quarterly report (the
"Evaluation Date"); and c. presented in this quarterly report our
conclusions about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and b. any fraud, whether or not material, that
involves management or other employees who have a significant role in
the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
/s/Ronald J. Casciano
---------------------
Ronald J. Casciano
VP, C.F.O. & Treasurer
Date: November 14, 2002
Exhibit Index
Exhibit
-------
11 - Statement re computation
of per-share earnings
99.1 - Certification Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act
of 2002
99.2 - Certification Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act
of 2002
Exhibit 11
COMPUTATION OF WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK
(In Thousands)
For the three months
ended September 30,
--------------------
2002 2001
-------- --------
Diluted Earnings Per Share:
Weighted average shares of
Common stock outstanding:
Balance outstanding - beginning of period .............. 7,901 7,723
Incremental shares of common stock
outstanding giving effect to stock options ............. 427 123
----- -----
Weighted balance - end of period ....................... 8,328 7,846
===== =====
For the three months
ended September 30,
--------------------
2002 2001
-------- --------
Basic Earnings Per Share:
Weighted average shares of
Common stock outstanding:
Balance outstanding - beginning of period .............. 7,901 7,723
----- -----
Weighted balance - end of period ....................... 7,901 7,723
===== =====
Exhibit 11
COMPUTATION OF WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK
(In Thousands)
For the nine months
ended September 30,
-------------------
2002 2001
-------- --------
Diluted Earnings Per Share:
Weighted average shares of
Common stock outstanding:
Balance outstanding - beginning of period .............. 7,881 7,723
Weighted average shares issued ......................... 10 --
Incremental shares of common stock
outstanding giving effect to stock options ............. 325 66
----- -----
Weighted balance - end of period ....................... 8,216 7,789
===== =====
For the nine months
ended September 30,
-------------------
2002 2001
-------- --------
Basic Earnings Per Share:
Weighted average shares of
Common stock outstanding:
Balance outstanding - beginning of period .............. 7,881 7,723
Weighted average shares issued ......................... 10 --
----- -----
Weighted balance - end of period ....................... 7,891 7,723
===== =====
Exhibit 99.1
PAR TECHNOLOGY CORPORATION
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of PAR Technology Corporation (the
Company) on Form 10-Q for the period ending Septmber 30, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the Report), I, John W.
Sammon, Chairman of the Board and Chief Executive Officer of the Company,
certify, pursuant to 18 U.S.C. ss. 1350 as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirement of section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
/s/ John W. Sammon
- ------------------
John W. Sammon
Chairman of the Board and Chief Executive Officer
November 14, 2002
Exhibit 99.2
PAR TECHNOLOGY CORPORATION
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of PAR Technology Corporation (the
Company) on Form 10-Q for the period ending September 30, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the Report), I, Ronald J.
Casciano, VP, C.F.O. & Treasurer of the Company, certify, pursuant to 18 U.S.C.
ss. 1350 as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirement of section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
/s/ Ronald J. Casciano
- ----------------------
Ronald J. Casciano
VP, C.F.O. & Treasurer
November 14, 2002