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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 March 31, 2003. 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 April
30, 2003 - 8,418,250 shares.
PAR TECHNOLOGY CORPORATION
TABLE OF CONTENTS
FORM 10-Q
PART 1
FINANCIAL INFORMATION
Item Number
-----------
Item 1. Financial Statements
- Consolidated Statements of Income for
the three months ended March 31, 2003 and 2002
- Consolidated Statements of Comprehensive Income for
the three months ended March 31, 2003 and 2002
- Consolidated Balance Sheet at
March 31, 2003 and December 31, 2002
- Consolidated Statements of Cash Flows
for the three months ended March 31, 2003 and 2002
- Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Signatures
Certifications
Exhibit Index
Item 1. Financial Statements
PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Amounts)
(Unaudited)
For the three months
ended March 31,
-----------------------
Restated
2003 2002
-------- ---------
Net revenues:
Product ....................................... $ 12,353 $ 15,416
Service ....................................... 8,469 8,800
Contract ...................................... 9,720 9,499
-------- --------
30,542 33,715
-------- --------
Costs of sales:
Product ....................................... 8,062 10,699
Service ....................................... 7,167 7,207
Contract ...................................... 9,272 8,991
-------- --------
24,501 26,897
-------- --------
Gross margin ............................ 6,041 6,818
-------- --------
Operating expenses:
Selling, general and administrative ........... 4,411 4,188
Research and development ...................... 1,159 1,429
-------- --------
5,570 5,617
-------- --------
Operating income from continuing operations ........ 471 1,201
Other income, net .................................. 76 129
Interest expense ................................... (143) (217)
-------- --------
Income from continuing operations
before provision for income taxes ................ 404 1,113
Provision for income taxes ......................... (148) (281)
-------- --------
Income from continuing operations .................. 256 832
-------- --------
Discontinued operations:
Loss from operations of
discontinued component ..................... (42) (430)
Income tax benefit ............................ 15 109
-------- --------
Loss on discontinued operations ............... (27) (321)
-------- --------
Net income ......................................... $ 229 $ 511
======== ========
PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Continued)
(In Thousands Except Per Share Amounts)
(Unaudited)
For the three months
ended March 31,
------------------------
Restated
2003 2002
--------- ---------
Basic:
Income from continuing operations .......... $ .03 $ .11
Loss from discontinued operations .......... $ -- $ (.04)
Net income .............................. $ .03 $ .06
Diluted:
Income from continuing operations .......... $ .03 $ .10
Loss from discontinued operations .......... $ -- $ (.04)
Net income .............................. $ .03 $ .06
Weighted average shares outstanding
Basic ...................................... 8,373 7,881
========= =========
Diluted .................................... 8,767 7,998
========= =========
PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
(Unaudited)
For the three months
ended March 31,
------------------------
Restated
2003 2002
--------- ---------
Net income ....................................... $ 229 $ 511
Other comprehensive income net of tax:
Foreign currency translation adjustments .... 106 37
--------- ---------
Comprehensive income ............................. $ 335 $ 548
========= =========
PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In Thousands Except Share Amounts)
(Unaudited)
March 31, December 31,
2003 2002
Assets -------- --------
Current Assets:
Cash ............................................ $ 1,578 $ 490
Accounts receivable-net ......................... 24,242 25,843
Inventories-net ................................. 33,641 34,274
Deferred income taxes ........................... 5,883 5,766
Other current assets ............................ 2,506 2,638
Total assets of discontinued operation .......... 26 59
-------- --------
Total current assets ........................ 67,876 69,070
Property, plant and equipment - net .................. 8,089 8,455
Deferred income taxes ................................ 4,272 4,386
Other assets ......................................... 3,150 3,211
-------- --------
$ 83,387 $ 85,122
======== ========
Liabilities and Shareholders' Equity
Current Liabilities:
Notes payable ................................... $ 10,145 $ 9,634
Accounts payable ................................ 5,853 8,371
Accrued salaries and benefits ................... 4,054 4,615
Accrued expenses ................................ 2,163 2,077
Deferred service revenue ........................ 7,122 6,704
Total liabilities of discontinued operation ..... 290 342
-------- --------
Total current liabilities ................... 29,627 31,743
-------- --------
Long-term debt ....................................... 2,159 2,181
-------- --------
Shareholders' Equity:
Preferred stock, $.02 par value,
1,000,000 shares authorized ................... -- --
Common stock, $.02 par value,
19,000,000 shares authorized;
9,791,187 and 9,770,262 shares issued
8,380,500 and 8,359,575 outstanding ........... 196 195
Capital in excess of par value .................. 28,993 28,926
Retained earnings ............................... 30,175 29,946
Accumulative other comprehensive loss ........... (710) (816)
Treasury stock, at cost, 1,410,687 shares ....... (7,053) (7,053)
-------- --------
Total shareholders' equity .................. 51,601 51,198
-------- --------
$ 83,387 $ 85,122
======== ========
PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
For the three months
ended March 31,
-------------------
Restated
2003 2002
------- --------
Cash flows from operating activities:
Net income .......................................... $ 229 $ 511
Adjustments to reconcile net income to net
cash provided by operating activities:
Net loss from discontinued operations ............ 27 321
Depreciation and amortization .................... 666 773
Provision for bad debts .......................... 191 254
Provision for obsolete inventory ................. 480 446
Increase (decrease) from changes in:
Accounts receivable ............................ 1,410 5,496
Inventories .................................... 153 (3,271)
Income tax refund claims ....................... -- 95
Other current assets ........................... 132 750
Accounts payable ............................... (2,518) (1,304)
Accrued salaries and benefits .................. (561) (774)
Accrued expenses ............................... 86 (186)
Deferred service revenue ....................... 418 309
Deferred income taxes .......................... (3) 86
------- -------
Net cash provided by continuing
operating activities ......................... 710 3,506
Net cash used in discontinued operations ...... (46) (679)
------- -------
Net cash provided by operating activities ..... 664 2,827
------- -------
Cash flows from investing activities:
Capital expenditures ................................ (53) (230)
Capitalization of software costs .................... (186) (110)
------- -------
Net cash used in investing activities ......... (239) (340)
------- -------
Cash flows from financing activities:
Net borrowings (payments) under
line-of-credit agreements ......................... 511 (2,550)
Payments on long-term debt obligations .............. (22) (15)
Proceeds from the exercise of stock options ......... 68 --
------- -------
Net cash provided (used) by
financing activities ......................... 557 (2,565)
------- -------
PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In Thousands)
(Unaudited)
For the three months
ended March 31,
-------------------
Restated
2003 2002
------- --------
Effect of exchange rate changes on cash and
cash equivalents .................................. 106 37
------ ------
Net increase (decrease) in cash
and cash equivalents .............................. 1,088 (41)
Cash and cash equivalents at
beginning of year ................................. 490 879
------ ------
Cash and cash equivalents at
end of period ..................................... $1,578 $ 838
====== ======
Supplemental disclosures of cash flow information: Cash paid during the year
for:
Interest .......................................... $ 118 $ 243
Income taxes paid, net of refunds ................. -- (22)
PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The statements for the three months ended March 31, 2003 and 2002 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 consoli-dated
financial statements for the year ending December 31, 2003 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 months ended March 31,
2003 are not necessarily indicative of the results of opera-tions to be
expected for the year ending December 31, 2003. 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, 2002 and
2001 included in the Company's December 31, 2002 Annual Report to the
Securities and Exchange Commission on Form 10-K.
2. As discussed in the Company's Annual Report on Form 10-K for the year ended
December 31, 2002, the results for the first quarter of 2002 have been
restated to reflect the change in the Company's revenue recognition policy.
3. During the third quarter of 2002, the Company decided to close down its
unprofitable Industrial Software business unit, Ausable Solutions, Inc.,
following a trend of continuous losses. 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
ended March 31,
-------------------
Restated
2003 2002
------- --------
Net revenues ........................................... $ -- $ 797
Loss from operations of discontinued component ......... $ (42) $(430)
March 31,
2003
(Unaudited)
-----------
Discontinued Assets:
Cash ........................................................... $ 8
Other current assets ........................................... 18
----
Total assets of discontinued operation ................ $ 26
====
Discontinued Liabilities:
Accrued salaries and benefits .................................. 90
Other current liabilities ...................................... 200
----
Total liabilities of discontinued operation ........... $290
4. 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)
March 31, December 31,
2003 2002
-------- --------
Finished goods ......................... $ 9,571 $10,892
Work in process ........................ 1,355 1,700
Component parts ........................ 5,016 4,923
Service parts .......................... 17,699 16,759
------- -------
$33,641 $34,274
======= =======
At March 31, 2003 and December 31, 2002, the Company had recorded reserves
for shrinkage, excess and obsolete inventory of $3,547,000 and $4,094,000,
respectively.
5. The Company's products are sold with a standard warranty for defects in
material and workmanship. The standard warranty offered by the Company is
for one year. The Company establishes an accrual for estimated warranty
costs at the time revenue is recognized on the sale. This estimate is based
on projected product reliability using historical performance data.
The changes in the product warranty liability for the three months ended
March 31, 2003 are summarized as follows: (in thousands)
Dollar Amount of
Liability
Debit/(Credit)
--------------
Balance at December 31, 2002 ...................................... $(560)
Accruals for warranties issued during the period .................. (231)
Settlements made (in cash or in kind) during the period ........... 252
-----
Balance at March 31, 2003 ......................................... $(539)
=====
6. The Company accounts for its stock-based compensation plan under the
provisions of Accounting Principles Board Opinion ("APB") No. 25,
"Accounting for Stock Issued to Employees". No compensation expense has
been recognized in the accompanying financial statements relative to the
Company's stock option plan. Pro forma information regarding net income and
earnings per share is required by Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("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 weighted
average fair value of options granted in the three months ended March 31,
2002 was $1.10. The fair value of these options was estimated at the date
of grant using a Black-Scholes options pricing model with the following
weighted-average assumptions; risk-free interest rates of 4.2%; volatility
factors of the expected market price of the Company's common stock of 44%;
a weighted-average expected life of the option of six years and would be
paid on common stock. There were no options granted in the first quarter of
2003.
For purposes of the pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows:
For the three months
ended March 31,
-----------------------
Restated
2003 2002
------ ------
Net income ............................. $ 229 $ 511
Compensation benefit (expense) ......... (26) 29
----- -----
Proforma net income .................... $ 203 $ 540
===== =====
Earnings per share:
As reported -- Basic .................. $ .03 $ .06
-- Diluted ................ $ .03 $ .06
Proforma -- Basic .................. $ .02 $ .07
-- Diluted ................ $ .02 $ .07
7. 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 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 3, 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
ended March 31,
----------------------
Restated
2003 2002
-------- --------
Revenues:
Restaurant .................................... $ 20,822 $ 24,216
Government .................................... 9,720 9,499
-------- --------
Total ................................... $ 30,542 $ 33,715
======== ========
Operating income from continuing operations:
Restaurant .................................... $ 100 $ 717
Government .................................... 371 484
-------- --------
471 1,201
Other income, net .................................. 76 129
Interest expense ................................... (143) (217)
-------- --------
Income before provision
for income taxes ................................ $ 404 $ 1,113
======== ========
Depreciation and amortization:
Restaurant .................................... $ 525 $ 611
Government .................................... 40 28
Other ......................................... 101 134
-------- --------
Total ................................... $ 666 $ 773
======== ========
Capital expenditures:
Restaurant .................................... $ 22 $ 110
Government .................................... 4 35
Other ......................................... 27 85
-------- --------
Total ................................... $ 53 $ 230
======== ========
The following table presents revenues by geographic area based on the
location of the use of the product or services.
For the three months
ended March 31,
------------------------
Restated
2003 2002
------- --------
United States ......................... $27,630 $30,446
Other Countries ....................... 2,912 3,269
------- -------
Total ........................... $30,542 $33,715
======= =======
March 31, December 31,
2003 2002
-------- -----------
Identifiable assets:
Restaurant ............................ $68,628 $71,725
Government ............................ 7,796 6,568
Industrial ............................ 26 59
Other ................................. 6,937 6,770
------- -------
Total ........................... $83,387 $85,122
======= =======
The following table presents property by geographic area based on the
location of the asset.
March 31, December 31,
2003 2002
-------- -----------
United States .......................... $76,544 $75,640
Other Countries ........................ 6,843 9,482
------- -------
Total ........................... $83,387 $85,122
======= =======
Customers comprising 10% or more of the Company's total revenues are
summarized as follows:
For the three months
ended March 31,
----------------------
Restated
2003 2002
-------- --------
Restaurant Segment:
McDonald's Corporation ...................... 24% 22%
YUM! Brands, Inc. ........................... 18% 20%
Government Segment:
Department of Defense ....................... 28% 28%
All Others ....................................... 30% 30%
--- ---
100% 100%
=== ===
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
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 March 31, 2003. 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.
The Company reported revenues from continuing operations of $30.5 million
for the quarter ended March 31, 2003, a decrease of 9% from the $33.7 million
reported in 2002. Income from continuing operations was $256,000 in 2003, a 69%
decrease from the $832,000 earned in 2002. The Company reported diluted net
income per share from continuing operations of $.03 for 2003, a 70% decrease
from the $.10 reported for the same period a year earlier. Basic net income per
share from continuing opera-tions was $.03 in 2003 compared to $.11 in 2002. The
Company's net income for the quarter ended March 31, 2003 was $229,000 or $.03
diluted net income per share, compared to net income of $511,000 and $.06 per
diluted share for the same period in 2002.
Product revenues from the Company's Restaurant segment were $12.4 million
in 2003, a decrease of 20% from the $15.4 million recorded in 2002. This decline
was primarily due to reduced sales to McDonald's and YUM! Brands, Inc. The
McDonald's slowdown was attributed to delayed capital expenditures by
franchisees while the Corporation is reviewing its strategic options relating to
the upgrading of franchise stores. The Company anticipates a McDonald's
corporate decision in the near future and expects an increase in orders over the
remainder of the year. The YUM! Brands decline was the result of a significant
sale to the largest KFC franchisee in the first quarter of 2002. The Company
also recorded a large sale to Boston Market in the first quarter of 2002.
Offsetting some of these declines were increased sales to several new and
existing customers including Loew's Cineplex, Rare Hospitality, Bojangles and
Sierra Design Group.
Customer service revenues are also generated by the Company's Restaurant
segment. The Company's service offerings include installation, training,
twenty-four hour help desk support and various field and on-site service
options. Customer service revenues were $8.5 million in 2003, a decrease of 4%
from the $8.8 million in 2002. This decline was caused primarily by lower
installation revenue associated with fewer new system installs in 2003 compared
to 2002. This decrease was partially offset by increased field service and call
center revenue.
Contract revenues from the Company's Government segment were $9.7 million
in 2003, an increase of 2% when compared to the $9.5 million recorded in the
same period in 2002. The principal area contributing to the increase was the
Company's I/T outsourcing contracts for facility operations at strategic U.S.
Department of Defense Telecommunication sites across the globe. These
outsourcing operations provided by the Company directly support the U.S. Navy
and Air Force operations. The Company has become a recognized leader in the
conversion of military I/T communications facilities to contractor operations.
This was partially offset by reduced funding for the Company's logistics
management business, which involves the tracking of mobile chassis under the
Company's Cargo*Mate(TM) contracts.
Product margins were 34.7% for 2003 compared to 30.6% for the same period
in 2002. This improvement was due to higher software content in product sales
for 2003 when compared to 2002. This was partially offset by lower absorption of
fixed manufacturing costs due to reduced volume in 2003.
Customer service margins were 15.4% in 2003 compared to 18.1% for the same
period in 2002. This decline can be attributed to a decrease in utilization of
the Company's installation team resulting from fewer installation requirements
in the first quarter of 2003 compared to the same quarter in 2002.
Contract margins were 4.6% in 2003 versus 5.3% for the same period in 2002.
This minor decline was due to slightly lower profit margins on certain recently
awarded fixed-price contracts in 2003 when compared to 2002. The primary
elements of contract costs are direct and indirect labor, related fringe
benefits, materials, subcontract costs, and travel expenses. Margins on the
Company's government contract business historically run between 5% and 6%.
Selling, general and administrative expenses are virtually all related to
the Company's Restaurant segment. Selling, general and administrative expenses
were $4.4 million in 2003 versus $4.2 million for the same period in 2002, an
increase of 5%. This increase was due to minor increases in the Company's sales
force in certain foreign and domestic markets. Sales expenses also increased due
to planned wage increases that occurred in the fourth quarter of 2002.
Research and development expenses are from the Company's Restaurant
segment. Research and development expenses were $1.2 million in 2003, a decrease
of 19% from the $1.4 million recorded for the same period in 2002. This decrease
was due to a small reduction in the development staff as a result of certain
efficiency improvements. 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. Interest expense
declined 34% to $143,000 in 2003 due to a reduced interest rate and lower
average amount outstanding in 2003 compared to 2002.
In 2003, the Company's effective tax rate was 36.7%, compared to 25.2% in
2002. The variance from the statutory rate in 2002 was due to the
extraterritorial income exclusion and an adjustment to prior year's accruals.
This adjustment was due to the favorable completion of federal tax audits
through the year 2000. These items were partially offset by a $329,000 valuation
allowance recorded against certain foreign tax credits, due to the fact that the
Company anticipates these foreign tax credits will expire prior to utilization.
The Company recorded an after tax loss of $27,000 in 2003 and $321,000 in
2002 from the discontinued operation of its Industrial segment. In 2002, the
Company decided to close down its unprofitable Industrial business unit, Ausable
Solutions, Inc., following a trend of continuous losses.
Liquidity and Capital Resources
The Company's primary source of liquidity has been from operations and
lines of credit with various banks. Cash provided by continuing operations was
$710,000 in 2003 compared to $3.5 million in 2002. In 2003 cash flow was
generated by operating profits and a reduction in accounts receivable partially
offset by the timing of vendor payments. In 2002, cash flow benefited from a
reduction in accounts receivable and the operating profits for the period. This
was partially offset by an increase in customer service inventory requirements
to support the Company's newest product line and expanded customer base.
Cash used in investing activities was $239,000 in 2003 versus $340,000 for
2002. In 2003, capital expenditures were $53,000 primarily for normal
operational needs of the Restaurant and Government business. Capitalized
software costs relating to software development of restaurant products were
$186,000 in 2003. In 2002, capital expenditures were $230,000 and were primarily
for improvements to the Company's headquarter facility and for normal
operational needs in the restaurant segment. Capitalized software costs were
$110,000 in 2002.
Cash provided by financing activities was $557,000 in 2003 compared to cash
used of $2.6 million in 2002. In 2003 the Company increased its short-term bank
borrowings by $511,000 and received $68,000 from the exercise of employee stock
options. In 2002, the Company reduced its short-term bank borrowings by $2.6
million.
The Company has an aggregate of $20,000,000 in bank lines of credit. One
line totaling $12,500,000 bears interest at the prime rate (4.25% at March 31,
2003) and is subject to loan covenants involving working capital and debt
coverage ratios. The Company is in compliance with these covenants as of March
31, 2003. The availability of this facility is determined based on the amount of
certain receivables and inventory. This line expires on July 31, 2003. The
remaining line of $7,500,000 bears interest at the prime rate, and expires on
January 1, 2004. Both lines are collateralized by certain accounts receivable
and inventory. At March 31, 2003, $10,059,000 was outstanding and $9,941,000 was
available under these lines. The Company has ongoing discussions with its
lenders and expects to be able to renew these lines at similar terms to meet its
ongoing needs.
The Company is continuing to look at various alternatives to further
increase its credit availability. We believe our existing cash, line of credit
facilities and our anticipated operating cash flow will be sufficient to meet
our cash requirements at least through the next twelve months. However, we may
be required, or could elect, to seek additional funding prior to that time. Our
future capital requirements will depend on many factors, including our rate of
revenue growth, the timing and extent of spending to support product development
efforts, expansion of sales and marketing, the timing of introductions of new
products and enhancements to existing products, and market acceptance of our
products. We cannot assure you that additional equity or debt financing will be
available on acceptable terms or at all. Our sources of liquidity beyond twelve
months, in management's opinion, will be our cash balances on hand at that time,
funds provided by operations and whatever long-term credit facilities we can
arrange.
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.
The Company recognizes revenue generated by the Restaurant segment using
the guidance from SEC Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements" and the AICPA Statement of Position (SOP) 97-2, "Software
Revenue Recognition," and other applicable revenue recognition guidance and
interpretations. Product revenue consists of the Company's standard
Point-of-Sale systems of the Restaurant segment. The Company recognizes revenue
from the sale of complete restaurant systems (which primarily includes hardware
or hardware and software) upon delivery to the customer site. For restaurant
systems that are self-installed by the customer or an unrelated third party and
for component sales or supplies, the Company recognizes revenue at the time of
shipment. The Company records a provision for returns and allowances when the
sale is recognized. In addition to product sales, the Company may provide
installation and training services, and also offers maintenance contracts to its
customers. Installation and training service revenues are recognized as the
services are performed. The Company's other service revenues, consisting of
support, field and depot repair, are provided to customers either on a time and
materials basis or under its maintenance contracts. Services provided on a time
and materials basis are recognized as the services are performed. Service
revenues from maintenance contracts are deferred when billed and recognized
ratably over the related contract period.
The Company's contract revenues generated by the Government segment result
primarily from contract services performed for the United States Government
under a variety of cost-reimbursement, time-and-material and fixed-price
contracts. The Company recognizes contract revenues using the guidance from SOP
81-1, "Accounting for Performance of Construction-Type and Certain
Production-Type 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.
Allowances for doubtful accounts are based on estimates of probable losses
related to accounts receivable balances. The establishment of allowances
requires the use of judgment and assumptions regarding probable 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 include
computer software costs and goodwill resulting from acquisitions. The valuation
of these assets and the assignment of useful amortization lives for the computer
software costs 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 asset
valuations.
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.
Item 3: Quantitative and Qualitative Disclosures About Market Risk
A CHANGE IN THE RELATIONSHIP WITH ANY ONE OF OUR MAJOR CUSTOMERS WOULD
MATERIALLY ADVERSELY AFFECT OUR BUSINESS.
A small number of customers has historically accounted for a majority of
our net revenues in any given fiscal period. For the fiscal years ended December
31, 2002, 2001 and 2000, aggregate sales to our top two Restaurant segment
customers, McDonald's and Yum!Brands, amounted to 51%, 51% and 56%,
respectively, of net revenues. For the quarters ended March 31, 2003 and 2002
sales to these customers were 42% of net revenues. No customer is obligated to
make any minimum level of future purchases from us or to provide us with binding
forecasts of product purchases for any future period. In addition, major
customers may elect to delay or otherwise change the timing of orders in a
manner that could adversely effect quarterly and annual results of operations.
There can be no assurance that our current customers will continue to place
orders with us, or that we will be able to obtain orders from new customers.
AN INABIILITY TO PRODUCE NEW PRODUCTS THAT KEEP PACE WITH TECHNOLOGICAL
DEVELOPMENTS AND CHANGING MARKET CONDITIONS COULD RESULT IN A LOSS OF MARKET
SHARE.
The products we sell are subject to rapid and continual technological
change. The products that are available from our competitors have increasingly
offered a wider range of features and capabilities. We believe that in order to
compete effectively we must provide compatible systems incorporating new
technologies at competitive prices. There can be no assurance that we will be
able to continue funding research and development at levels sufficient to
enhance our current product offerings, or will be able to develop and introduce
on a timely basis new products that keep pace with technological developments
and emerging industry standards and address the evolving needs of customers.
There can also be no assurance that we will not experience difficulties that
will result in delaying or preventing the successful development, introduction
and marketing of new products in our existing markets, or that our new products
and product enhancements will adequately meet the requirements of the
marketplace or achieve any significant degree of market acceptance. Likewise,
there can be no assurance as to the acceptance of our products in new markets,
nor can there be any assurance as to the success of our penetration of these
markets, or to the revenue or profit margins with respect to these products. If
any of our competitors were to introduce superior software products at
competitive prices, or if our software products no longer met the needs of the
marketplace due to technological developments and emerging industry standards,
our software products may no longer retain any significant market share. If this
were to occur, we could be required to record a charge against capitalized
software costs, which amounts to $2.1 million as of March 31, 2003.
WE DERIVE A PORTION OF OUR REVENUE FROM GOVERNMENT CONTRACTS, WHICH CONTAIN
PROVISIONS UNIQUE TO PUBLIC SECTOR CUSTOMERS.
For the fiscal years ended December 31, 2002, 2001 and 2000, we derived
28%, 27% and 25%, respectively, of our net revenues from contracts to provide
technical products and services to United States government agencies and defense
contractors. For the quarters ended March 31, 2003 and 2002 revenues from
contracts was 28% of net revenues. Contracts with United States government
agencies typically provide that such contracts are terminable at the convenience
of the government. If the government terminated a contract on this basis, we
would be entitled to receive payment for our allowable costs and, in general, a
proportionate share of our fee or profit for work actually performed. Most U.S.
government contracts are also subject to modification or termination in the
event of changes in funding. As such, we may perform work prior to formal
authorization, or the contract prices may be adjusted for increased work scope
or change orders. Termination or modification of a substantial number of our
U.S. government contracts could have a material adverse effect on our business,
financial condition and results of operations. The Company does not anticipate
any impact due to the current world crisis on our current contracts.
WE FACE EXTENSIVE COMPETITION IN THE MARKETS IN WHICH WE OPERATE, AND OUR
FAILURE TO COMPETE EFFECTIVELY COULD RESULT IN PRICE REDUCTIONS AND DECREASED
DEMAND FOR OUR PRODUCTS AND SERVICES.
There are currently five major suppliers who offer restaurant management
systems similar to ours. Some of these competitors are larger than we are and
have access to substantially greater financial and other resources than we do,
and consequently may be able to obtain more favorable terms than we can for
components and subassemblies incorporated into their restaurant technology
products. The rapid rate of technological change in the restaurant market makes
it likely that we will face competition from new products designed by companies
not currently competing with us. Such products may have features not currently
available on our restaurant products. We believe that our competitive ability
depends on our total solution offering, our product development and systems
integration capability, our direct sales force and our customer service
organization. There is no assurance, however, that we will be able to compete
effectively in the restaurant technology market in the future.
Our government contracting business has been focused on niche offerings,
primarily signal and image processing and engineering services. Many of our
competitors are, or are subsidiaries of, companies such as Lockheed-Martin,
Raytheon, Northrop-Grumman (which includes Litton-PRC-TASC), BAE, Boeing and
SAIC. These companies are larger and have substantially greater financial
resources than we do. We also compete with smaller companies that target
particular segments of the government market. These companies may be better
positioned to obtain contracts through competitive proposals. Consequently,
there are no assurances that we will continue to win government contracts as a
prime contractor or subcontractor.
WE MAY NOT BE ABLE TO MEET THE UNIQUE OPERATIONAL, LEGAL AND FINANCIAL
CHALLENGES THAT RELATE TO OUR INTERNATIONAL OPERATIONS, WHICH MAY LIMIT THE
GROWTH OF OUR BUSINESS.
For the years ended December 31, 2002, 2001 and 2000, our net revenues from
sales outside the United States were 11%, 14% and 19%, respectively, of the
Company's net revenues. For the quarters ended March 31, 2003 and 2002 sales
outside the United States were 10% of the Company's net revenues. We anticipate
that international sales will continue to account for a significant portion of
sales. We intend to continue to expand our operations outside the United States
and to enter additional international markets, which will require significant
management attention and financial resources. Our operating results are subject
to the risks inherent in international sales, including, but not limited to,
regulatory requirements, political and economic changes and disruptions,
geopolitical disputes and war, transportation delays, difficulties in staffing
and managing foreign sales operations, and potentially adverse tax consequences.
In addition, fluctuations in exchange rates may render our products less
competitive relative to local product offerings, or could result in foreign
exchange losses, depending upon the currency in which we sell our products.
There can be no assurance that these factors will not have a material adverse
effect on our future international sales and, consequently, on our operating
results. In 2002, less than 1% of the Company's revenues was from customers in
the Middle East. Therefore, the current world crisis is not expected to have a
material impact on the results of operations in 2003.
INFLATION
Inflation had little effect on revenues and related costs during the first
quarter of 2003. Manage-ment anticipates that margins will be maintained at
acceptable levels to minimize the effects of inflation, if any.
INTEREST RATES
As of March 31, 2003, the Company has $2.2 million in variable long-term
debt and $10.1 million in variable short-term debt. The Company believes that a
10% change in interest rates would not have a material impact on our business,
financial conditions, results of operations or cash flows.
FOREIGN CURRENCY
The Company's primary exposures relate to certain non-dollar denominated
sales and operating expenses in Europe and Asia. These primary currencies are
the Euro, the Australian dollar and the Singapore dollar. 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 first quarter of 2003.
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: May 15, 2003
/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 circum-stances 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 per-forming 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: May 15, 2003
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 circum-stances 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 per-forming 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: May 15, 2003
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 March 31,
--------------------
2003 2002
------- -------
Basic Earnings Per Share:
Weighted average shares of Common stock outstanding:
Balance outstanding - beginning of period .................. 8,360 7,881
Weighted average shares issued upon
Exercise of employee stock options ......................... 13 --
----- -----
Weighted balance - end of period ........................... 8,373 7,881
===== =====
For the three months
ended March 31,
--------------------
2003 2002
------- -------
Diluted Earnings Per Share:
Weighted average shares of Common stock outstanding:
Balance outstanding - beginning of period .................. 8,360 7,881
Weighted average shares issued upon
Exercise of employee stock options
13 --
Incremental shares of common stock
outstanding giving effect to stock options ................. 394 117
----- -----
Weighted balance - end of period ........................... 8,767 7,998
===== =====
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 March 31, 2003 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
May 15, 2003
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 March 31, 2003 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
May 15, 2003