SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2004.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From __________ to __________
Commission File Number 1-9720
PAR TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 16-1434688
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
PAR Technology Park
8383 Seneca Turnpike
New Hartford, New York 13413-4991
(Address of principal executive offices) (Zip Code)
(315) 738-0600
(Registrant's Telephone number, including area code)
Securities registered pursuant to Section 12(g) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
Common Stock, $.02 par value New York Stock Exchange
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934).
Yes [ ] No [ X ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant based on the average price as of February 28, 2005 - $60,044,017.
..
The number of shares outstanding of registrant's common stock, as of
February 28, 2005 - 8,951,206 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's proxy statement in connection with its 2005
annual meeting of stockholders are incorporated by reference into Part III.
PAR TECHNOLOGY CORPORATION
TABLE OF CONTENTS
FORM 10-K
Item Number
- -----------
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for the Registrant's Common Stock, Related
Stockholder Matters and Issuer Purchases of
Equity Securities
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions
Item 14. Principal Accountant Fees and Services
PART IV
Item 15. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K
Signatures
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
Information provided by the Company, including information contained in
this Annual Report, or by its spokespersons from time to time may contain
forward-looking statements. Forward-looking statements are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that all forward-looking statements involve risks and
uncertainties, including without limitation, 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 Hospitality 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.
Actual future results may vary materially from those projected, anticipated, or
indicated in any forward-looking statements as a result of certain risk factors.
Readers should pay particular attention to the considerations described in the
sections of this report entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Quantitative and Qualitative
Disclosures about Market Risk."
PAR TECHNOLOGY CORPORATION
PART I
Item 1: Business
PAR Technology Corporation ("PAR" or the "Company") is the parent company
of wholly-owned subsidiary businesses. PAR's largest subsidiary, ParTech, Inc.
is a provider of management technology solutions, including hardware, software,
and professional services to businesses in the hospitality and retail
industries. The Company is a leading supplier of hospitality technology systems
with nearly 40,000 systems installed in over 100 countries. PAR's hospitality
management software technology assists in the operation of hospitality
businesses and enterprises by managing data from end-to-end and improving
profitability through more efficient operations. Our professional services'
mission is to assist businesses in achieving the full potential of their
hospitality technology systems.
PAR is a provider of professional services and enterprise business
intelligence applications with long-term relationships with the restaurant
industry's two largest corporations - McDonald's Corporation and Yum! Brands
Inc.. McDonald's has over 30,000 restaurants in 119 countries and PAR has been a
selected provider of restaurant management technology systems and lifecycle
support services to McDonald's since 1980. Yum! Brands (which includes Taco
Bell, KFC and Pizza Hut) has been a PAR customer since 1983. Yum! has nearly
33,000 units globally and PAR is the sole approved supplier of restaurant
management technology systems to Taco Bell as well as the Point-of-Sale vendor
of choice to KFC. Other significant chains where PAR is the POS vendor of choice
are: Boston Market, Chick-fil-A, CKE Restaurants (including Hardees and Carl's
Jr.), Carnival Cruise Lines, Loews Cineplex and large franchisees of each of the
foregoing brands.
In the fourth quarter 2004 PAR acquired Springer-Miller Systems, a leading
provider of hospitality management solutions that meet/exceed the technology
needs of all types of Hospitality enterprises including city-center hotels,
destination spa and golf properties, timeshare properties and casino resorts
worldwide, setting the pace as a pioneer in the hospitality industry. PAR's SMS
|Host Hospitality Management System is distinguished from other property
management systems with its integrated design and unique approach to guest
service. The SMS |Host product suite, that includes more than 20 seamlessly
integrated, guest-centric application modules, provides hotel/resort staff with
the tools they need to personalize service, exceed guest expectations, and
increase property revenues. PAR maintains a distinctive customer list in this
business including Pebble Beach Resorts, The Four Seasons, Hard Rock Hotel &
Casino, the Mandarin Oriental Hotel Group, and Destination Hotels & Resorts.
PAR is also the parent of PAR Government Systems Corporation and Rome
Research Corporation, both government contractors. As a long-standing Government
contractor, PAR develops advanced technology systems for the Department of
Defense and other Governmental agencies. Additionally, PAR provides information
technology and communications support services to the U.S. Navy, U.S. Air Force
and U.S. Army. PAR focuses its computer-based system design services on
providing high quality technical products and services, ranging from
experimental studies to advanced operational systems, within a variety of areas
of research, including radar, image and signal processing, logistics management
systems, and geospatial services and products. With more than 36 years
experience in this sector, PAR's Government engineering service business
provides management and engineering services that include facilities operation
and management. In addition, through Government-sponsored research and
development, PAR has developed technologies with relevant commercial uses. A
prime example of this "technology transfer" is the Company's point-of-sale
technology, which was derived from research and development involving microchip
processing technology sponsored by the Department of Defense.
Information concerning the Company's industry segments for the three years
ended December 31, 2004 is set forth in Note 12 to the Consolidated Financial
Statements included elsewhere herein.
The Company's common stock is traded on the New York Stock Exchange under
the symbol "PTC." Our corporate headquarters offices are located at PAR
Technology Park, 8383 Seneca Turnpike, New Hartford, New York 13413-4991;
telephone number (315) 738-0600. Our website address is http://www.partech.com.
Information contained on our website is not part of this prospectus.
Unless the context otherwise requires, the term "PAR" or "Company" as used
herein, means PAR Technology Corporation and its wholly-owned subsidiaries.
Hospitality Technology Segment
PAR operates two wholly-owned subsidiaries in the Hospitality business
segment, ParTech, Inc. and PAR Springer-Miller Systems, Inc. PAR is a provider
of integrated enterprise solutions to the hospitality industry. The Company's
Point-of-Sale (POS) restaurant management technology integrates both
cutting-edge software applications and the Company's Pentium(R)-based hardware
platform. PAR's restaurant management system can host fixed as well as wireless
order-entry terminals, may include kitchen printers or video monitors and/or
third-party supplied peripherals networked via an Ethernet LAN, and is
accessible to enterprise-wide network configurations. In addition, PAR is a
leading provider of hospitality management solutions that meet the property
management technology needs of an array of hospitality enterprises, including
city-center hotels, destination Spa and golf properties, timeshare properties
and casino resorts worldwide. PAR also provides extensive systems integration
and professional service capabilities to design, tailor and implement solutions
that enable its customers to manage all aspects of data collection and
processing for single or multiple site enterprises from a central location.
Products
The technology requirements of the major hospitality organizations include
rugged, reliable, management systems capable of receiving, transmitting and
coordinating large numbers of transactions that require a quick and accurate
response. The Company's integrated hospitality management software applications
permit its customers to configure their hospitality technology systems to meet
their order entry, menu, food preparation, delivery and property management
coordination needs while capturing all pertinent data concerning the
transactions at the specific location. PAR's hospitality management systems are
the result of more than 25 years of experience and knowledge combined with an
in-depth understanding of the hospitality marketplace. This knowledge and
expertise is reflected in the product design, implementation capability and
systems integration skills.
Software. PAR's latest generation of restaurant management software, the
InFusion Suite, is comprised of InTouch(TM)?POS, InForm(TM)?Back Office,
InSynch(TM) Enterprise Configuration and InQuire(TM) Enterprise Reporting.
InTouch is a multi-brand, multi-concept application, containing rich features
and functions such as real-time mirror imaging of critical data, on-line
graphical help and interactive diagnostics, all presented with intuitive
graphical user interfaces. In addition, PAR's back office management software,
InForm, allows restaurant owners to control critical food and labor costs using
intuitive tools for forecasting, labor scheduling and inventory management. The
InSynch Enterprise Configuration manager provides business-wide management of
diverse concept menus, security settings and system parameters all from one
central location. InQuire Enterprise Reporting offers a web-based hosted
reporting service leveraging the latest technology from Microsoft's .Net
platform. InQuire's Executive Dashboard provides proactive business intelligence
for the entire organization, as well as automated management reporting and
process integration. In addition, the Company offers streamlined POS software,
GT/Exalt(TM), which is the predominant software in the Quick Service Restaurant
industry. GT/Exalt provides restaurant owners with increased cash security,
improved customer service and highly flexible kitchen and drive-thru
functionality.
PAR is also a provider of software to the hotel/resort industry. Today,
more and more hospitality-oriented businesses are managing information and
leveraging their relationships with customers through integrated technology
systems. There are two key and complementary aspects to system integration. One
is to provide a seamless user interface to manage all aspects of the customer
experience. The other is to be certain all aspects of customer activity become
part of a single database. To accomplish this, every point of guest contact and
every interaction with the customer must be managed within the same software.
PAR's SMS|Host Hospitality Management System provides the most efficient
automation process to handle business functions within a hotel/resort--a
check-in, a spa appointment, or a retail purchase for instance. PAR's SMS|Host
Hospitality Management System is distinguished from other property management
systems by its truly integrated design and unique approach to guest service. The
SMS|Host product suite, including over 20 seamlessly integrated, guest-centric
modules, provides resort staff with the tools they need to personalize service,
anticipate needs, and consistently exceed guest expectations. PAR SMS also
offers SpaSoft and SMS|Touch Fine Dining, two stand-alone applications. SpaSoft
is designed to suit the unique needs of the spa industry. Focusing on activity
scheduling, resource management, inventory management, point-of-sale and
reporting, SpaSoft assists in the total management of hotel/resort spas and day
spas. Because SpaSoft was specifically designed for the unique needs of the spa
industry, it assists the spa staff in providing the individualized, impeccable
guest service that their most important clients desire and expect. The SMS|Touch
Fine Dining product suite is a robust fine dining point-of-sale system designed
to increase revenue in the property's food and beverage outlets.
Hardware. The Company's hardware platform systems, ViGo(TM) and POS4XP(TM),
are Pentium(R)-designed systems developed to host the most powerful
point-of-sale software applications in the hospitality industry. ViGo(TM) offers
the hospitality, retail and entertainment industries a new scalable solution
combining a multitude of peripheral devices into one compact package. Both
ViGo(TM) and POS4XP(TM) designs utilize open architecture with industry standard
components and are compatible with the most popular operating systems. The
hardware platforms support a distributed processing environment and incorporate
an advanced hospitality management technology system, utilizing Intel
microprocessors, standard PC expansion slots, Ethernet LAN, standard Centronics
printer ports as well as USB ports. The hardware systems supply their
industry-standard components with features for hospitality applications such as
multiple video ports. The POS systems utilize distributed processing
architecture to integrate a broad range of PAR and third-party peripherals and
are designed to withstand the harsh hospitality environments. Both hardware
platforms have a favorable price-to-performance ratio over the life of the
system as a result of their PC compatibility, ease of expansion and high
reliability design.
Systems Integration and Professional Services. PAR's ability to offer the
full spectrum of integration, implementation, installation, maintenance, and
support services is one of the Company's key differentiators. PAR continues to
work in unison with its customers to identify and address the latest hospitality
technology requirements by creating interfaces to equipment, including
innovations such as automated cooking and drink-dispensing devices,
customer-activated terminals and order display units located inside and outside
of the customer's business site. The Company provides its systems integration
expertise to interface specialized components, such as video monitors, coin
dispensers and non-volatile memory for journalizing transaction data, as is
required in some international applications. PAR is comprised of experienced
individuals with diverse hospitality backgrounds in both hotels/resorts and
restaurants. PAR has the knowledge and expertise to recommend property
management solutions which can be used most effectively in hotels and
restaurants, with emphasis on maximizing return on investment. In addition, the
Company has secured strategic partnerships with third-party organizations to
offer a variety of credit, debit and gift card payment options that allow quick
service restaurants, convenience stores, gasoline stations and drugstores to
process cashless payments quickly and efficiently. The Company's Technical
Services department continuously evaluates new technologies as they surface and
adopts those that allow PAR to provide significant improvements in customer's
day-to-day systems. From hand-held wireless devices to advances in internet
performance, the technical staff is available for consultation on a wide variety
of topics including network infrastructures, system functionality, operating
system platforms, and hardware expandability.
Installation and Training
In the United States, Canada, Europe, South Africa, the Middle East,
Australia and Asia, PAR personnel provide installation, training and integration
services on a fixed-fee basis as a normal part of the equipment purchase
agreement. In certain areas of North and South America, Europe and Asia, the
Company provides these integration services through third parties. Prior to
system installation and user training, hotel/resort operators can attend a
configuration seminar, during which attendees review internal policies and
procedures, establish a software configuration and receive an overview of the
PAR SMS|Host product suite. PAR provides complete application training for a
site's staff as well as technical instruction for Information Systems personnel.
The PAR training team is composed of experienced individuals with diverse
hospitality and technical backgrounds.
Maintenance and Service
The Company offers a wide range of maintenance and support services as part
of its total solution for its targeted hospitality technology markets. In the
North American region, the Company provides comprehensive maintenance and
integration services for the Company's equipment and systems, as well as those
of third parties, through a 24-hour central telephone customer support and
diagnostic service in Boulder, Colorado, as well as service centers in Europe,
South Africa, the Middle East, Australia and Asia. The Company believes that its
ability to address all support and maintenance requirements for a customer's
hospitality technology network provides it with a clear competitive advantage.
PAR also maintains regional support centers in three additional locations
worldwide including Las Vegas, Nevada in the US, Kuala Lumpur in Malaysia, and
Kettering in the UK, that focus upon servicing and maintaining of PAR systems to
the hotel/resort markets 24 hours a day, seven days a week. The Company
maintains a field service network consisting of nearly 100 locations offering
on-site service and repair, as well as depot repair, overnight unit replacements
and spare unit rentals. At the time a hospitality technology system is
installed, PAR trains customer employees and managers to ensure efficient and
effective use of the system. If a problem occurs within the Company's
manufactured technology system (hardware and software), PAR's current service
management software products allow a service technician to diagnose the problem
by telephone or by remotely dialing-in to the system, thus greatly reducing the
need for on-site service calls.
The Company's service organization utilizes a suite of software
applications from Clarify, Inc. (Clarify) as its Customer Resource Management
tool. Clarify allows PAR to demonstrate compelling value and differentiation to
its customers through the utilization of its extensive and ever-growing
knowledge base to efficiently diagnose and resolve customer-service issues.
Clarify also enables PAR to compile the kind of in-depth information it needs to
spot trends and identify opportunities. A second software suite is a call center
knowledge base known as Customer Care. Customer Care allows PAR to maintain a
profile on each customer, their background, hardware and software details,
client service history, and a problem-resolution database. Analysis of this data
allows the Company to optimize customer service by identifying trends in calls,
and to work with customers to quickly resolve issues. The same system is used by
the PAR SMS Research and Development team as a real-time communications tool
between these technical departments to coordinate software change management.
Sales & Marketing
Sales in the hospitality technology market are often generated by initially
obtaining the acceptance of the corporate chain as an approved vendor. Upon
approval, marketing efforts are then directed to franchisees of the chain. Sales
efforts are also directed toward franchisees of chains for which the Company is
not an approved corporate vendor. The Company employs direct sales personnel in
several sales groups. The Major Accounts Group works with large chain corporate
customers typically operating more than 75 locations. The Domestic Sales Group
targets franchisees of the major chain customers, as well as smaller chains
within the United States. The International Sales Group seeks sales to major
customers with locations overseas and to international chains that do not have a
presence in the United States. The Company's Business Partner Development Sales
Group targets non-foodservice markets such as retail, convenience, amusement
parks, movie theaters, cruise lines, spas and other ticketing and entertainment
venues. This group also works with third-party resellers and value-added
resellers throughout the country. New sales in the hotel/resort technology
market are often generated by leads, be it by word of mouth, internet searches
or trade show presence. Marketing efforts are used in the form of direct mail
campaigns, advertising and targeted telesales calls. The Company employs direct
sales personnel in several sales groups. The Domestic Sales Group targets
independent, high end hotels and resorts in the United States, Canada and the
Caribbean. The International Sales Group seeks sales to independent hotels
outside of the United States. The Corporate Accounts Group works with high
profile corporate customers such as Mandarin Oriental, Destination Hotels and
Resorts and Intrawest. The Company's Installed Accounts Group works solely with
clients who have already installed the SMS|Host product suite.
Competition
The competitive landscape in the hospitality market is driven primarily by
functionality, reliability, quality, pricing, service and support. The Company
believes that its principal competitive advantages include its focus on an
integrated technology solution offering, advanced development capabilities,
in-depth industry knowledge and expertise, excellent product reliability, a
direct sales force organization, and the quality of its support and quick
service response. The markets in which the Company transacts business are highly
competitive. Most of our major customers have approved several suppliers who
offer some form of sophisticated hospitality technology system similar to the
Company's. Major competitors include Panasonic, IBM Corporation, Radiant
Systems, NCR, Hotel Information Systems, Visual One, Agilysis and Micros
Systems.
Backlog
At December 31, 2004, the Company's backlog of unfilled orders for the
Hospitality segment was approximately $18,534,000 compared to $9,800,000 a year
ago. All of the present orders are expected to be delivered in 2005. The
Hospitality segment orders are generally of a short-term nature and are usually
booked and shipped in the same fiscal year.
Research and Development
The highly technical nature of the Company's hospitality products requires
a significant and continuous research and development effort. Ongoing product
research and quality development efforts are an integral part of all activities
within the Company. Functional and technical enhancements are actively being
made to our products to increase customer satisfaction and maintain the high
caliber of our software. Research and development expenses were approximately
$6,015,000 in 2004, $4,779,000 in 2003 and $5,400,000 in 2002. The Company
capitalizes certain software costs in accordance with Statement of Financial
Accounting Standards No. 86, Accounting for the Costs of Computer Software to be
Sold, Leased or Otherwise Marketed. See Note 1 to the Consolidated Financial
Statements included in Item 15 for further discussion.
Manufacturing and Suppliers
The Company assembles its products from standard components such as
integrated circuits and fabricated parts such as printed circuit boards, metal
parts and castings, most of which are manufactured by others to the Company's
specifications. The Company depends on outside suppliers for the continued
availability of its components and parts. Although most items are generally
available from a number of different suppliers, the Company purchases certain
components from only one supplier. Items purchased from only one supplier
include certain printers, base castings and electronic components. If such a
supplier should cease to supply an item, the Company believes that new sources
could be found to provide the components. However, added cost and manufacturing
delays could result and adversely affect the business of the Company. The
Company has not experienced significant delays of this nature in the past, but
there can be no assurance that delays in delivery due to supply shortages will
not occur in the future.
Intellectual Property
The Company owns or has rights to certain patents, copyrights and
trademarks, but believes none of these intellectual property rights provides a
material competitive advantage. The Company relies upon non-disclosure
agreements, license agreements and applicable domestic and foreign patent,
copyright and trademark laws for protection of its intellectual property. To the
extent such protective measures are unsuccessful, or the Company needs to enter
into protracted litigation to enforce such rights the Company's business could
be adversely impacted. Similarly there is no assurance that the Company's
products will not become the subject of a third party claim of infringement or
misappropriation. To the extent such claims result in costly litigation or force
the Company to enter into royalty or license agreements rather than enter into a
prolonged dispute the Company's business could be adversely impacted. The
Company also licenses certain third party software with its products. While the
Company has maintained a strong relationship with its licensors, there is no
assurance that such relationship will continue or that the licenses will be
continued under fees and terms acceptable to the Company.
Government Segment
PAR operates two wholly-owned subsidiaries in the Government business
segment, PAR Government Systems Corporation (PGSC) and Rome Research Corporation
(RRC). These companies provide the U.S. Department of Defense (DoD) and other
federal and state government organizations with a wide range of technical
services and products. Significant areas in which the Company is involved
include: design, development, and integration of state-of-the-art imagery
intelligence systems for information archive, retrieval, and processing;
advanced research and development for imaging sensors; development and
operations of logistics management systems; and engineering and support services
for Government information technology and communications facilities.
The Company's offerings cover the entire development cycle for Government
systems, including requirements analysis, design specification, development,
implementation, installation, test and evaluation.
Information Systems and Technology
The Information Systems and Technology (IS&T) business sector develops
integrated systems for imaging information archiving, processing, exploitation,
and visualization. IS&T is the system integrator for the Multi-Sensor
Integration facility at the Air Force Research Laboratory-Rome Research Site and
is a key developer of the National Geospatial-Intelligence Agency (NGA) Image
Product Library (IPL). The IPL provides access to a virtual network of archives
in support of the operational users of imagery. The Company has a substantial
systems integration contract to support interoperability of new and emerging
commercial imagery exploitation and data management systems for U.S. Air Force
(USAF) operations. Since 1986, the Company has been a key contributor to the
full-scale engineering development for the Joint Surveillance Target Attack
Radar System (Joint STARS) and more recently, for the Affordable Moving Surface
Target Engagement (AMSTE) program. The Company provides systems engineering and
software development for radar technologies that detect, track and target ground
vehicles.
Signal & Image Processing
The Signal and Image Processing (SIP) business sector supports the
development and implementation of complex sensor systems including the
collection and analysis of sensor data. The SIP group has developed sensor
concepts, algorithms, and real-time systems to address the difficult problems of
finding low-contrast targets against clutter background (e.g., finding cruise
missiles, fighter aircraft, and personnel against heavy terrain backgrounds),
detecting man-made objects in dense foliage, and performing humanitarian efforts
in support of the removal of land mines with ground penetrating radar. The
Company also supports numerous technology demonstrations for the DoD, including
a multi-national NATO exercise of wireless communications interoperability. As
part of this demonstration, the Company designed and built the Software Radio
Development System (SoRDS) for test and evaluation of communications waveforms.
The Company has extended this technology into public safety and law enforcement
via the Software Adaptive Advanced Communications (SAAC)(TM) system, a
multi-channel communications gateway intended to solve the problem of wireless
communications interoperability. The Company also supports Navy airborne
infrared surveillance systems through the development of advanced optical
sensors.
Geospatial Software and Modeling
The Geospatial Software and Modeling (GS&M) business sector performs water
resources modeling; Geographic Information Systems (GIS) based data management,
and geospatial information technology development. In particular, the Company's
Flood*WareTM software tool and methodology is being employed by New York State
in support of Federal Emergency Management Agency's Map Modernization Program.
Similar technologies are used in support of water quality modeling and
assessment applications for the NYC Watershed Protection Program.
Logistics Management Systems
The Logistics Management Systems (LMS) business sector focuses on the
design, development, deployment and commercialization of the Cargo*Watch(TM)
Logistics Information Management System. Cargo*Watch(TM) is a comprehensive,
end-to-end solution for the monitoring and management of transport assets and
cargo throughout the intermodal (i.e., port, highway, rail, and ocean)
transportation lifecycle. The Cargo*Watch(TM) system is being implemented under
a multi-year Cooperative Agreement with the U.S. Department of
Transportation/Federal Highway Administration (DOT/FHWA) with funds specifically
authorized by Congress for Cargo*Watch(TM) under the Transportation Equity Act
for the 21st Century (TEA-21) in 1998. Cargo*Watch(TM) uses state-of-the-art
technology to acquire Global Positioning System (GPS) location and equipment
status data. Wireless communication networks then transmit the data to the LMS
Operations Center, and a powerful geospatial database customizes the data to
meet the needs of each customer and provide it to the customer over the Internet
or via direct linkage to existing ("back-office") information systems.
Information Technology and Communications Support Services
The Company provides a wide range of technical and support services to
sustain mission critical components of the Department of Defense Global
Information Grid. These services include continuous operations, system
enhancements and maintenance of very low frequency (VLF), high frequency (HF)
and very high frequency (VHF) radio transmitter/receiver facilities, and
extremely high frequency (EHF) and super high frequency (SHF) satellite
communication heavy earth terminal facilities. The Company supports these DoD
communications facilities, as well as other telecommunications equipment and
information systems, at customer locations in and outside of the continental
United States. The various facilities, operating 24 hours a day, are integral to
the command and control of the nation's air, land and naval forces, and those of
United States coalition allies.
Test Laboratory and Range Operations
The Company provides management, engineering, and technical services under
several contracts with the U.S. Air Force and the U.S. Navy. These services
include the planning, execution, and evaluation of tests at Government ranges
and laboratories operated and maintained by the Company. Test activities include
unique components, specialized equipment, and advanced systems for radar,
communications, electronic counter-measures, and integrated weapon systems. The
Company also develops complex measurement systems in several defense-related
areas of technology.
Government Contracts
The Company performs work for U.S. Government agencies under firm
fixed-price, cost-plus-fixed-fee, time-and-material, and incentive-type prime
contracts and subcontracts. The majority of its contracts are for one-year to
five-year terms. The Company also has been awarded Task Order/Support contracts.
There are several risks associated with Government contracts. For example,
contracts may be terminated for the convenience of the Government any time the
Government believes that such termination would be in its best interests. In
this circumstance, the Company is entitled to receive payments for its allowable
costs and, in general, a proportionate share of its fee or profit for the work
actually performed. The Company's business with the U.S. Government is also
subject to other risks unique to the defense industry, such as reduction,
modification, or delays of contracts or subcontracts if the Government's
requirements, budgets, or policies or regulations change. The Company may also
perform work prior to formal authorization or prior to adjustment of the
contract price for increased work scope, change orders and other funding
adjustments. Additionally, the Defense Contract Audit Agency on a regular basis
audits the books and records of the Company. Such audits can result in
adjustments to contract costs and fees. Audits have been completed through the
Company's fiscal year 2002 and have not resulted in any material adjustments.
Marketing and Competition
Marketing begins with collecting information from a variety of sources
concerning the present and future requirements of the Government and other
potential customers for the types of technical expertise provided by the
Company. Although the Company believes it is positioned well in its chosen areas
of image and signal processing, information technology/communications and
engineering services, competition for Government contracts is intense. Many of
the Company's competitors are major corporations, or their subsidiaries, such as
Lockheed-Martin, Raytheon, Northrop-Grumman, BAE, Harris, and SAIC that are
significantly larger and have substantially greater financial resources than the
Company. The Company also competes with many smaller companies that target
particular segments of the Government market. Contracts are obtained principally
through competitive proposals in response to solicitations from Government
agencies and prime contractors. The principal competitive factors are past
performance, the ability to perform, price, technological capabilities,
management capabilities and service. In addition, the Company sometimes obtains
contracts by submitting unsolicited proposals. Many of the Company's DoD
customers are now migrating to commercial software standards, applications, and
solutions. In that manner, the Company is utilizing its Internal Research and
Development to migrate existing solutions into software product lines that will
support the DoD geospatial community (i.e., NGA, USAF, etc.).
Backlog
The dollar value of existing Government contracts at December 31, 2004, net
of amounts relating to work performed to that date, was approximately
$111,793,000 (backlog), of which $35,107,000 was funded. At December 31, 2003,
the comparable amount was approximately $116,694,000, of which $31,894,000 was
funded. Funded amounts represent those amounts committed under contract by
Government agencies and prime contractors. The December 31, 2004 Government
contract backlog of $111,793,000 represents firm, existing contracts.
Approximately $49,098,000 of this amount is expected to be completed in calendar
year 2005, as funding is committed.
Employees
As of December 31, 2004, the Company had 1,411 employees, approximately 57%
of whom are engaged in the Company's Hospitality segment, 39% of whom are in the
Government segment, and the remainder are corporate employees.
Due to the highly technical nature of the Company's business, the Company's
future can be significantly influenced by its ability to attract and retain its
technical staff. The Company believes that it will be able to fulfill its
near-term needs for technical staff.
Approximately 20% of the Company's employees are covered by collective
bargaining agreements. The Company considers its employee relations to be good.
Item 2: Properties
The following are the principal facilities (by square footage) of the
Company:
Industry Floor Area Number of
Location Segment Principal Operations Sq. Ft.
-------- ------- -------------------- ----------
New Hartford, NY Hospitality Principal executive offices, 138,500
Government manufacturing, research and
development laboratories,
computing facilities
Stowe, VT Hospitality Sales, service and research
and development 26,000
Rome, NY Government Research and development 23,400
Boulder, CO Hospitality Service 20,500
Sydney, Australia Hospitality Sales and service 9,100
Las Vegas, NV Hospitality Service 8,800
Boca Raton, FL Hospitality Research and development 8,700
Toronto, Canada Hospitality Sales, service and research and
development 7,700
La Jolla, CA Government Research and development 3,800
The Company's headquarters and principal business facility is located in
New Hartford, New York, which is near Utica, located in Central New York State.
The Company owns its principal facility and adjacent space in New Hartford,
N.Y. All of the other facilities are leased for varying terms. Substantially all
of the Company's facilities are fully utilized, well maintained, and suitable
for use. The Company believes its present and planned facilities and equipment
are adequate to service its current and immediately foreseeable business needs.
Item 3: Legal Proceedings
The Company is subject to legal proceedings which arise in ordinary course
of business. In the opinion of management, the ultimate liability, if any, with
respect to these actions will not materially affect the financial position,
results of operations or cash flows of the Company.
Item 4: Submission of Matters to a Vote of Security Holders
None
PART II
Item 5: Market for the Registrant's Common Stock, Related Stockholder Matters
and Issuer Purchases of Equity Securities
The Company's Common Stock, par value $.02 per share, trades on the New
York Stock Exchange (NYSE symbol - PTC). At December 31, 2004, there were
approximately 599 owners of record of the Company's Common Stock, plus those
owners whose stock certificates are held by brokers.
The following table shows the high and low stock prices for the two years
ended December 31, 2004 as reported by New York Stock Exchange:
2004 2003
-------------------------- ------------------------
Period Low High Low High
- ------------------ ----------- ----------- ---------- ----------
First Quarter $7.78 $11.20 $4.42 $7.07
Second Quarter $9.65 $12.35 $4.70 $6.23
Third Quarter $8.20 $10.77 $5.87 $7.15
Fourth Quarter $8.85 $11.85 $6.30 $8.39
The Company has not paid cash dividends on its Common Stock, and its Board
of Directors presently intends to continue to retain earnings for reinvestment
in growth opportunities. Accordingly, it is anticipated that no cash dividends
will be paid in the foreseeable future.
Item 6: Selected Financial Data
SELECTED CONSOLIDATED STATEMENT OF INCOME DATA
(In thousands, except per share amounts)
The following selected historical consolidated financial data should be
read in conjunction with the Consolidated Financial Statements and the related
notes and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Annual Report on Form 10-K.
Year ended December 31,
--------------------------------------------------------------------
2004 2003 2002 2001 2000
--------------------------------------------------------------------
Net revenues $ 174,884 $ 139,770 $ 133,681 $ 114,354 $ 101,463
Cost of sales $ 137,738 $ 110,777 $ 105,225 $ 89,001 $ 86,647
Gross margin $ 37,146 $ 28,993 $ 28,456 $ 25,353 $ 14,816
Selling, general & administrative $ 22,106 $ 19,340 $ 19,540 $ 16,774 $ 23,937
(Provision) benefit for
income taxes $ (3,729) $ (1,593) $ (884) $ (621) $ 6,800
Income (loss) from
continuing operations $ 5,635 $ 2,792 $ 2,623 $ 2,080 $ (10,961)
Basic earnings (loss) per share
from continuing operations $ .65 $ .33 $ .33 $ .27 $ (1.40)
Diluted earnings (loss) per share
from continuing operations $ .61 $ .32 $ .32 $ .27 $ (1.40)
SELECTED CONSOLIDATED BALANCE SHEET DATA
(In thousands)
December 31,
----------------------------------------------------
2004 2003 2002 2001 2000
----------------------------------------------------
Current assets .......... $ 77,696 $ 74,195 $ 69,070 $ 67,795 $ 64,009
Current liabilities ..... $ 45,159 $ 29,816 $ 31,743 $ 39,118 $ 36,434
Total assets ............ $111,752 $ 87,147 $ 85,122 $ 88,915 $ 85,771
Long-term debt .......... $ 2,005 $ 2,092 $ 2,181 $ 2,268 $ 2,323
Shareholders' equity .... $ 63,574 $ 55,239 $ 51,198 $ 47,529 $ 47,012
Item 7: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward-Looking Statement
This document contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934. Any statements in this document that do not
describe historical facts are forward-looking statements. Forward-looking
statements in this document (including forward-looking statements regarding the
continued health of the Hospitality industry, future information technology
outsourcing opportunities, an expected increase in funding by the U.S.
Government relating to the Company's logistics management contracts, the impact
of current world events on our results of operations, the effects of inflation
on our margins, and the effects of interest rate and foreign currency
fluctuations on our results of operations) are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. When we use
words such as "intend," "anticipate," "believe," "estimate," "plan," "will," or
"expect", we are making forward-looking statements. We believe that the
assumptions and expectations reflected in such forward-looking statements are
reasonable, based on information available to us on the date hereof, but we
cannot assure you that these assumptions and expectations will prove to have
been correct or that we will take any action that we presently may be planning.
We have disclosed certain important factors that could cause our actual future
results to differ materially from our current expectation, including a decline
in the volume of purchases made by one or a group of our major customers; risks
in technology development and commercialization; risks of downturns in economic
conditions generally, and in the quick-service sector of the hospitality market
specifically; risks associated with government contracts; risks associated with
competition and competitive pricing pressures; and risks related to foreign
operations. Forward-looking statements made in connection with this report are
necessarily qualified by these factors. We are not undertaking to update or
revise publicly any forward-looking statement if we obtain new information or
upon the occurrence of future events or otherwise.
Overview
We are the parent company of four wholly-owned subsidiary businesses:
ParTech, Inc., PAR Springer-Miller Systems, Inc., PAR Government Systems
Corporation and Rome Research Corporation.
Hospitality Segment
PAR's largest subsidiary, ParTech, Inc. is a provider of management
technology solutions, including hardware, software and professional services to
hospitality businesses including restaurants, hotels/resorts, and retail
industries. The Company is a leading supplier of hospitality technology systems
with nearly 40,000 systems installed in over 100 countries. PAR's hospitality
management software technology assists in the operation of hospitality
businesses by managing data from end-to-end and improving profitability through
more efficient operations. The Company's professional services mission is to
assist businesses in achieving the full potential of their hospitality
technology systems.
PAR is a provider of professional services and enterprise business
intelligence applications, with long-term relationships with the restaurant
industry's two largest corporations - McDonald's Corporation and Yum! Brands
Inc. McDonald's has over 30,000 restaurants in 119 countries and PAR has been a
selected provider of restaurant management technology systems and lifecycle
support services to McDonald's since 1980. Yum! Brands (which includes Taco
Bell, KFC and Pizza Hut) has been a PAR customer since 1983. Yum! has nearly
33,000 units globally and PAR is the sole approved supplier of restaurant
management technology systems to Taco Bell as well as the Point-of-Sale vendor
of choice to KFC. Other significant chains where PAR is the POS vendor of choice
are: Boston Market, Chick-fil-A, CKE Restaurants (including Hardees, Carl's
Jr.), Carnival Cruise Lines, Loews Cineplex and large franchisees of each of the
foregoing brands.
In the fourth quarter 2004 PAR acquired Springer-Miller Systems, a leading
provider of hospitality management solutions that meet/exceed the technology
needs of a wide variety of hotel/resort enterprises including city-center
hotels, destination spa and golf properties, timeshare properties and casino
resorts worldwide. PAR's SMS|Host Hospitality Management System is distinguished
from other property management systems with its truly integrated design and
unique approach to guest service. The SMS|Host product suite, that includes more
than 20 seamlessly integrated, guest-centric application modules, provides
hotel/resort staff with the necessary tools they need to personalize service,
exceed guest expectations, and increase revenue. PAR maintains a distinguished
customer list in this business including: Pebble Beach Resorts, The Four
Seasons, Hard Rock Hotel & Casino, the Mandarin Oriental Hotel Group, and
Destination Hotels & Resorts.
Government Segment
PAR is also the parent of PAR Government Systems Corporation and Rome
Research Corporation, both of whom are Government contractors. As a
long-standing Government contractor, PAR develops advanced technology systems
for the Department of Defense and other Governmental agencies. Additionally, PAR
provides information technology and communications support services to the U.S.
Navy, U.S. Air Force and U.S. Army. PAR focuses its computer-based system design
services on providing high quality technical products and services, ranging from
experimental studies to advanced operational systems, within a variety of areas
of research, including radar, image and signal processing, logistics management
systems, and geospatial services and products. PAR's Government engineering
service business provides management and engineering services that include
facilities operation and management. In addition, through Government-sponsored
research and development, PAR has developed technologies with relevant
commercial uses. A prime example of this "technology transfer" is the Company's
point-of-sale technology, which was derived from research and development
involving microchip processing technology sponsored by the Department of
Defense.
Summary
During 2004, the Quick-Service Restaurant market continued to perform well
as evidenced by reported improved results from the Company's major customers
including McDonald's and Yum! Brands. In 2004, the Company acquired
Springer-Miller Systems and significantly added to PAR's software product
offerings in the hospitality market.
The Company's Government business continued to win contracts in 2004
associated with I/T outsourcing for the U.S. Military. The Company performs
outsourcing for the three main branches of the military.
In 2005, the Company anticipates the continued health of the hospitality
technology market and additional I/T outsourcing opportunities. Over the years,
PAR has sought to be a leader in its two businesses through the utilization of
several Company strengths including market leadership, technological innovation,
customer focus, global reach and employee initiative. By focusing on these
strengths, PAR is able to help shape the marketplace, increase the Company's
customer base and continue to allow the Company to expand worldwide.
The following table sets forth the Company's revenues by reportable segment
for the year ended December 31 (in thousands):
2004 2003 2002
---------- ----------- -----------
Revenues:
Hospitality $ 124,969 $ 98,088 $ 95,706
Government 49,915 41,682 37,975
---------- ----------- -----------
Total consolidated revenue $ 174,884 $ 139,770 $ 133,681
========== =========== ===========
The following discussion and analysis highlights items having a significant
effect on operations during the three year period ended December 31, 2004. This
discussion may not be indicative of future operations or earnings. It should be
read in conjunction with the audited annual consolidated financial statements
and notes thereto and other financial and statistical information included in
this report.
Results of Operations -- 2004 Compared to 2003
The Company reported revenues of $174.9 million for the year ended December
31, 2004, an increase of 25% from the $139.8 million reported for the year ended
December 31, 2003. The Company's net income for the year ended December 31, 2004
was $5.6 million, or $.61 diluted net income per share, compared to net income
of $2.4 million and $.27 per diluted share for the same period in 2003.
Product revenues from the Company's Hospitality segment were $77.5 million
for the year ended December 31, 2004, an increase of 29% from the $60.2 million
recorded in 2003. The primary factor contributing to the increase was sales to
McDonald's which increased 75% or $14.9 million over 2003. Due to its recent
strong financial performance, McDonald's is investing in capital equipment to
upgrade its restaurants, triggering increased sales of the Company's products.
An additional factor contributing to the increase in product revenues was a $4.2
million increase in sales to CKE Restaurants. Software revenue from the
Company's new resort and spa customers also contributed to this growth. A
partially offsetting factor was a $2.3 million decline in sales to Loews Complex
due to the timing of customer requirements.
Customer Service revenues are also generated by the Company's Hospitality
segment. The Company's service offerings include system integration,
installation, training, twenty-four hour help desk support and various depot and
on-site service options. Customer Service revenues were $47.5 million for the
year ended December 31, 2004, an increase of 25% from the $37.9 million for the
same period in 2003. This increase was due primarily to a 52% or $3.9 million
increase in installation revenue that is directly related to the growth in the
Company's product revenue. Additionally, service revenues associated with the
Company's new resort and spa customers accounted for 8% of this increase. All
other service area revenues increased 7% primarily due to increased support
contracts and maintenance service activity relating to the continued expansion
of the Company's customer base.
Contract revenues from the Company's Government segment were $49.9 million
for the year ended December 31, 2004, an increase of 20% when compared to the
$41.7 million recorded in the same period in 2003. Contributing to this growth
was a $5.5 million or 24% increase in information technology outsourcing revenue
from contracts for facility operations at critical U.S. Department of Defense
telecommunication sites across the globe. These outsourcing operations provided
by the Company directly support U.S. Navy, Air Force and Army operations as they
seek to convert their military information technology communications facilities
into contractor-run operations and to meet new requirements with contractor
support. Also contributing to this increase was a $2.6 million or 48% increase
in revenue from research contracts involving Imagery Information Technology.
Product margins for the year ended December 31, 2004 were 33.8%, a decline
from 35.2% for the year ended December 31, 2003. This decrease was the result of
a large integration project for a major customer during 2004 that involved lower
margin peripheral hardware products. This decline was partially offset by
increased absorption of fixed manufacturing costs as production volume
increased. Also partially offsetting this decline was an increase in higher
margin software revenue from the Company's resort and spa customers.
Customer Service margins were 16.2% for the year ended December 31, 2004
compared to 15.1% for the same period in 2003. This increase was due to service
integration and software maintenance revenue associated with the Company's
resort and spa products. This was partially offset by increased use of third
parties (which results in lower margins than installations performed by internal
personnel) to assist the Company with the major integration project discussed
above.
Contract margins were 6.5% for the year ended December 31, 2004 versus 5.0
% for the same period in 2003. The increase in contract margins is primarily
attributable to a higher than anticipated performance-based award fee on an
imagery information technology contract. Additionally, the Company received a
favorable contract modification on a particular information technology
outsourcing contract. This was partially offset by start up costs and certain
new awards in 2004. The most significant components of contract costs in 2004
and 2003 were labor and fringe benefits. For the year ended December 31, 2004
labor and fringe benefits were $35.9 million or 77% of contract costs compared
to $30.5 million or 77% of contract costs for the same period in 2003.
Selling, general and administrative expenses are virtually all related to
the Company's Hospitality segment. Selling, general and administrative expenses
for the year ended December 31, 2004 were $22.1 million, an increase of 14% from
the $19.3 million expended for the same period in 2003. The increase was
primarily attributable to a rise in selling and marketing expenses due to sales
of the Company's new resort and spa software products and the Company's
traditional hardware products.
Research and development expenses relate primarily to the Company's
Hospitality segment. However in 2004 and 2003, approximately 4% and 10%,
respectively, of these expenses related to the Company's Logistics Management
Program. Research and development expenses were $6.3 million for the year ended
December 31, 2004, an increase of 18% from the $5.3 million recorded in 2003.
The increase was primarily attributable to the Company's investment in its newly
acquired resort and spa products. The Company also increased its investment in
its hardware products.
Other income, net, was $1.1 million for the year ended December 31, 2004
compared to $582,000 for the same period in 2003. Other income primarily
includes rental income and foreign currency gains and losses. The increase in
2004 resulted primarily from a rise in foreign currency gains when compared to
2003.
Interest expense represents interest charged on the Company's short-term
borrowing requirements from banks and from long-term debt. Interest expense
declined 45% to $295,000 for the year ended December 31, 2004 as compared to
$540,000 in 2003 primarily due to a lower average amount outstanding in 2004 as
compared to 2003.
For the year ended December 31, 2004, the Company's effective tax rate was
39.8%, compared to 36.3% in 2003. The variance from the federal statutory rate
in 2004 was due to state and foreign income taxes. The variance from the federal
statutory rate in 2003 was due to state income taxes partially offset by a
decrease in the valuation allowance for certain tax credits.
Results of Operations -- 2003 Compared to 2002
The Company reported revenues of $139.8 million for the year ended December
31, 2003, an increase of 5% from the $133.7 million reported for the year ended
December 31, 2002. Income from continuing operations for the year ended December
31, 2003 was $2.8 million, a 6% increase from the $2.6 million earned in 2002.
The Company reported diluted net income per share from continuing operations for
the year ended December 31, 2003 of $.32, unchanged from the year ended December
31, 2002. Basic net income per share from continuing operations for the year
ended December 31, 2003 was $.33 also unchanged as compared to the corresponding
period in 2002. The Company's net income for the year ended December 31, 2003
was $2.4 million, or $.27 diluted net income per share, compared to net income
of $741,000 and $.09 per diluted share for 2002.
Product revenues from the Company's Hospitality segment were $60.2 million
for the year ended December 31, 2003, an increase of 2% from the $59.2 million
recorded in 2002. The primary reason for this increase was a 23% or $3.6 million
growth in sales to Yum! Brands, as a result of the Company being selected as
this customer's primary supplier of Restaurant systems to KFC Corporate stores
in 2003. Yum! Brands includes five major restaurant chains. Sales to other major
accounts including Chick-fil-A, CKE and Loew's Cineplex increased 10% or $2
million reflecting an improving hospitality market. Partially offsetting these
increases was an 18% or $4.5 million decline in sales to McDonald's due to
delays in buying decisions experienced in the first half of 2003 as McDonald's
transitioned to a new strategy under its new management team.
Customer Service revenues are also generated by the Company's Hospitality
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 $37.9 million for the year ended
December 31, 2003, an increase of 4% from $36.6 million in 2002. This increase
was primarily due to a 9% or $514,000 increase in call center revenue as the
number of contracts increased relating to the growth in customer base. All other
service areas increased 3% or $798,000, due to general business growth.
Contract revenues from the Company's Government segment were $41.7 million
for the year ended December 31, 2003, an increase of 10% when compared to the
$38 million recorded in the same period in 2002. This increase primarily
resulted from a $4.7 million or 26% increase in information technology
outsourcing revenue for 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 U.S. Navy, Army
and Air Force operations as they seek to convert their military information
technology communications facilities into contractor-run operations. Also
contributing to this growth was a $1.3 million or 39% increase in revenue from
research contracts involving Imagery Information Technology. This was partially
offset by a $2.1 million or a 64% decline in the Company's Logistic Management
Program, due to reduced funding from the Government. This program involves the
tracking of mobile chassis under the Company's Cargo*Mate(R) contracts.
Product margins for the year ended December 31, 2003 were 35.2%, an
increase from 32.9% for the year ended December 31, 2002. In 2003, margins
benefited from higher software content in product sales when compared to 2002.
Software sales of the Company's InFusion and Exalt products both contributed to
this increase. This was offset by lower absorption of fixed manufacturing costs
due to reduced production volume experienced in the first half of 2003.
Customer service margins were 15.1% for the year ended December 31, 2003
compared to 17.7% for the same period in 2002. The decline is primarily the
result of increased employee benefit costs and an increase in the provision for
excess and obsolete service inventory in 2003 when compared to 2002. The
increase in benefit costs relates primarily to the Company's contribution to the
defined profit sharing retirement plan and higher performance bonuses based on
improved overall Company results. The increased inventory provision was
necessary due to a voluntary termination of an unprofitable service contract.
Contract margins were 5% for the year ended December 31, 2003 versus 6.5%
for 2002. In 2002, the Company recognized additional profit on certain fixed
price contracts that were completed in the period. The Company's fixed price
contracts generally span multiple years, sometimes extending for as long as four
to five years. The Company sometimes recognizes an additional profit on these
fixed price contracts as the contracts near completion, when the Company
determines that its contract expenditures will be less than it had previously
estimated. In 2002, the primary reason for cost under- runs was lower than
anticipated overhead rates. In this instance, during 2002, the Company won
several new contracts that resulted in an increase in the base of direct labor
and a corresponding decline in the Company's overhead rates. The most
significant components of contract costs in 2003 and 2002 were labor and fringe
benefits. For the year ended December 31, 2003, labor and fringe benefits were
$30.5 million or 77% of contract costs compared to $25.8 million or 73% of
contract costs for the same period in 2002.
Selling, general and administrative expenses are virtually all related to
the Company's Hospitality segment. Selling, general and administrative expenses
for the year ended December 31, 2003 were $19.3 million, a decline of 1% from
the $19.5 million expended in 2002. The decline was due to a reduction in
selling expenses as a result of improved efficiencies and a reduced provision
for doubtful accounts. This was partially offset by increases in benefit costs
and legal and accounting fees.
Research and development expenses relate primarily to the Company's
Hospitality segment. However in 2003, approximately 10% of these expenses
related to the Company's Logistics Management program. Research and development
expenses were $5.3 million for the year ended December 31, 2003, a decline of 2%
from the $5.4 million recorded in 2002. This decline was primarily due to a
small reduction in the development staff as a result of certain efficiency
improvements. This was partially offset by the Company's investment in Logistics
Management program. The Company was investing in this technology during a
temporary funding hiatus from the U.S. Government.
Other income, net, was $582,000 in 2003 compared to $815,000 in 2002. Other
income primarily includes rental income and foreign currency gains and losses.
In 2002, the Company sold a patent that it obtained relating to former research
done by the Company involving the cornea of the eye.
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 $540,000 for the year ended December 31, 2003 as compared to
$824,000 in 2002 due to a reduced interest rate and lower average amount
outstanding in 2003 as compared to 2002.
For the year ended December 31, 2003, the Company's effective tax rate was
36.3%, compared to 25.2% in 2002. The variance from the federal statutory rate
in 2003 was due to state income taxes partially offset by a decrease in the
valuation allowance for certain tax credits. The variance from the federal
statutory rate in 2002 was due to the extraterritorial income exclusion and the
favorable resolution of certain tax matters with taxing authorities. These items
were offset by a $329,000 valuation allowance recorded in 2002 against certain
foreign tax credits, due to the fact that the Company anticipated that these
foreign tax credits would expire prior to utilization.
For the year ended December 31, 2003, the Company recorded an after tax
loss of $363,000 compared to $1.9 million in 2002 from the discontinued
operation of its Industrial segment. In 2003 the Company determined that they
would not be able to sub-lease the Industrial business real estate operating
leases and accordingly recorded a provision of $570,000. In 2002, the Company
decided to close down its unprofitable Industrial business unit, Ausable
Solutions, Inc., due to substantial continuing losses, an inability to penetrate
the market and a long sales cycle. The overall downturn in the global economy
and specifically in the manufacturing and warehousing industries, coupled with
the diminishing capital expenditures of the Company's industrial customers,
prevented the Company from being profitable in this particular business segment.
As a result, the Company concluded that it would be prudent to take decisive
action and return the Company's focus to its core businesses of hospitality
technology and Government services and research and development. The Company
believes that the decision to exit the Industrial segment will not have a
negative impact on the Company's continuing operations. The Company notes that
its Industrial business did not have common customers with its Hospitality or
Government Contract businesses.
Liquidity and Capital Resources
The Company's primary sources of liquidity have been cash flow from
operations and lines of credit with various banks. Cash provided by continuing
operations was $19.7 million for the year ended December 31, 2004 compared to
$3.5 million for 2003. In 2004, cash flow benefited from operating profits for
the period, a reduction in inventory, and timing of salary and benefit payments.
In 2003, cash flow was primarily generated from operating profits. However, this
was partially offset by an increase in accounts receivable due to the revenue
growth experienced in the fourth quarter of 2003.
Cash used in investing activities was $15.8 million for the year ended
December 31, 2004 versus $1.2 million for the same period in 2003. In 2004,
capital expenditures were $1.6 million and were primarily for manufacturing
equipment and information technology equipment and software for internal use.
Capitalized software costs relating to software development of Hospitality
segment products were $804,000 in 2004. For the same period in 2003, capital
expenditures were $415,000 and were primarily for improvements to the Company's
headquarter facility, internal use software and upgrades to the Company's
service facility. Capitalized software costs were $809,000 for the corresponding
period of 2003. In 2004, cash used for the acquisition of Springer-Miller
Systems, Inc. was $13.4 million.
Cash provided by financing activities was $3.8 million for the year ended
December 31, 2004 versus $2.0 million of cash used for the same period in 2003.
During 2004, the Company increased its short-term bank borrowings by $3.3
million and received $585,000 from the exercise of employee stock options. In
2003, the Company reduced its short-term bank borrowings by $2.6 million, and
received $678,000 from the exercise of employee stock options.
The Company has an aggregate of $30,000,000 in bank lines of credit. One
line totaling $17,500,000 bears interest at the bank borrowing rate (4.67% at
December 31, 2004) and is subject to loan covenants including a debt to tangible
net worth ratio of 1.4 to 1; a minimum working capital requirement of at least
$25 million; and a debt coverage ratio of 4 to 1. The total amount of credit
available under this facility at a given time is based on (a) 80% of the
Company's accounts receivable under 91 days outstanding attributable to the
Company's Hospitality segment and (b) 40% of the Company's inventory, excluding
work in process. A portion of this line, $5,000,000, will expire on March 31,
2005 and the remaining $12,500,000, expires on April 30, 2006. The second line
of $12,500,000 allows the Company, at its option, to borrow funds at the LIBOR
rate plus the applicable interest rate spread or at the bank's prime lending
rate (4.65% at December 31, 2004). This facility contains certain loan covenants
including a leverage ratio of not greater than 4 to 1 and a fixed charge
coverage ratio of not less than 4 to 1. A portion of this line, $5,000,000 will
expire on March 31, 2005 and the remaining $7,500,000 expires on October 30,
2006. Both lines are collateralized by certain accounts receivable and
inventory. The Company was in compliance with all loan covenants on December 31,
2004. At December 31, 2004, there were borrowings under these lines of
$10,246,000 and an aggregate of $19,754,000 was available under these lines.
The Company has a $2.1 million mortgage loan on certain real estate. The
Company's future principal payments under this mortgage are as follows (in
thousands):
2005 $ 90
2006 92
2007 98
2008 103
2009 108
Thereafter 1,604
--------
$ 2,095
========
The Company future minimum obligations under non-cancelable operating
leases are as follows (in thousands):
2005 $ 1,967
2006 1,543
2007 888
2008 803
2009 634
Thereafter 271
--------
$ 6,106
========
During fiscal year 2005, the Company anticipates that its capital
requirements will be less than $2 million. The Company does not usually enter
into long term contracts with its major Hospitality segment customers. The
Company commits to purchasing inventory from its suppliers based on a
combination of internal forecasts and the actual orders from customers. This
process, along with good relations with suppliers, minimizes the working capital
investment required by the Company. Although the Company lists two major
customers, McDonald's and Yum! Brands, it sells to hundreds of individual
franchisees of these corporations, each of which is individually responsible for
its own debts. These broadly made sales substantially reduce the impact on the
Company's liquidity if one individual franchisee reduces the volume of its
purchases from the Company in a given year. The Company, based on internal
forecasts, believes its existing cash, line of credit facilities and its
anticipated operating cash flow will be sufficient to meet its cash requirements
through at least the next twelve months. However, the Company may be required,
or could elect, to seek additional funding prior to that time. The Company's
future capital requirements will depend on many factors including its 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 its
products. The Company cannot assure that additional equity or debt financing
will be available on acceptable terms or at all. The Company's sources of
liquidity beyond twelve months, in management's opinion, will be its cash
balances on hand at that time, funds provided by operations, funds available
through its lines of credit and the long-term credit facilities that it can
arrange.
Critical Accounting Policies
The Company's consolidated financial statements are based on the
application of accounting principles generally accepted in the United States of
America (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 revenue
recognition, accounts receivable, inventories, intangible assets and taxes.
Revenue Recognition Policy
The Company recognizes revenue generated by the Hospitality segment using
the guidance from SEC Staff Accounting Bulletin No. 104, "Revenue Recognition"
and the AICPA Statement of Position (SOP) 97-2, "Software Revenue Recognition,"
and other applicable revenue recognition guidance and interpretations. Product
revenue consists of sales of the Company's standard point-of-sale and property
management systems of the Hospitality 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 or upon
installation for certain software products. 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. 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 recognizes revenue in its Government segment using the guidance
from SEC Staff Accounting Bulletin No. 104, "Revenue Recognition." The Company's
contract revenues generated by the Government segment result primarily from
contract services performed for the U.S. Government under a variety of cost-plus
fixed fee, time-and-material and fixed-price contracts. Revenue on cost-plus
fixed fee contracts is recognized based on allowable costs for labor hours
delivered, as well as other allowable costs plus the applicable fee. Revenue on
time and material contracts is recognized by multiplying the number of direct
labor-hours delivered in the performance of the contract by the contract billing
rates and adding other direct costs as incurred. Revenue from fixed price
contracts is recognized primarily on a straight-line basis over the life of the
fixed-price contract. The Company's obligation under these contracts is simply
to provide labor hours to conduct research or to staff facilities with no other
deliverables or performance obligations. Anticipated losses on all contracts are
recorded in full when identified. Unbilled accounts receivable are stated in the
Company's consolidated financial statements at their estimated realizable value.
Contract costs, including indirect expenses, are subject to audit and adjustment
through negotiations between the Company and U.S. Government representatives.
Accounts receivable
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. We continuously monitor collections and payments from our
customers and maintain a provision for estimated credit losses based on our
historical experience and any specific customer collection issues that we have
identified. While such credit losses have historically been within our
expectations and appropriate reserves have been established, we cannot guarantee
that we will continue to experience the same credit loss rates that we have
experienced in the past. Thus, if the financial condition of our customers were
to deteriorate, our actual losses may exceed our estimates, and additional
allowances would be required.
Inventories
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.
Capitalized software development costs
The Company capitalizes certain costs related to the development of
computer software used in its Hospitality segment under the requirements of
Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed". Software
development costs incurred prior to establishing technological feasibility are
charged to operations and included in research and development costs. Software
development costs incurred after establishing feasibility are capitalized and
amortized when the product is available for general release to customers.
Goodwill
In July 2001, the Financial Accounting Standards Board issued 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 intangible assets recorded as a result of past business combinations,
was discontinued upon the adoption of SFAS 142. Instead, all goodwill is tested
for impairment annually, or more frequently if circumstances indicate potential
impairment, through a comparison of fair value to its carrying amount. The
Company has elected to test for impairment annually at December 31. There was no
impairment of goodwill in 2004.
Taxes 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 estimates of its future taxable income levels.
Factors that could affect future results
A DECLINE IN THE VOLUME OF PURCHASES MADE BY ANY ONE OF THE COMPANY'S MAJOR
CUSTOMERS WOULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS.
A small number of related customers have historically accounted for a
majority of the Company's net revenues in any given fiscal period. For the
fiscal years ended December 31, 2004, 2003 and 2002, aggregate sales to our top
two Hospitality segment customers, McDonald's and Yum! Brands, amounted to 51%,
50% and 51%, respectively, of total revenues. Most of the Company's customers
are not obligated to provide us with any minimum level of future purchases or
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 affect the Company's 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 INABILITY 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 changes in
technology. Our competitors offer products that have an increasingly wider range
of features and capabilities. We believe that in order to compete effectively we
must provide 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
that the Company 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 also can 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, nor to the
revenue or profit margins realized by the Company 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 amount to $4.2 million as of December 31,
2004.
WE GENERATE MUCH OF OUR REVENUE FROM THE HOSPITALITY INDUSTRY AND THEREFORE ARE
SUBJECT TO DECREASED REVENUES IN THE EVENT OF A DOWNTURN EITHER IN THAT INDUSTRY
OR IN THE ECONOMY AS A WHOLE.
For the fiscal years ended December 31, 2004, 2003 and 2002, we derived
71%, 70% and 72%, respectively, of our total revenues from the Hospitality
industry, primarily the quick service restaurant marketplace. Consequently, our
Hospitality technology product sales are dependent in large part on the health
of the Hospitality industry, which in turn is dependent on the domestic and
international economy, as well as factors such as consumer buying preferences
and weather conditions. Instabilities or downturns in the Hospitality market
could disproportionately impact our revenues, as clients may either exit the
industry or delay, cancel or reduce planned expenditures for our products.
Although we believe we can assist the quick service sector of the Hospitality
industry in a competitive environment, given the cyclical nature of that
industry, there can be no assurance that our profitability and growth will
continue.
WE DERIVE A PORTION OF OUR REVENUE FROM GOVERNMENT CONTRACTS, WHICH CONTAIN
PROVISIONS UNIQUE TO PUBLIC SECTOR CUSTOMERS, INCLUDING THE GOVERNMENT'S RIGHT
TO MODIFY OR TERMINATE THESE CONTRACTS AT ANY TIME.
For the fiscal years ended December 31, 2004, 2003 and 2002, we derived
29%, 30% and 28%, respectively, of our total revenues from contracts to provide
technical services to U.S. Government agencies and defense contractors.
Contracts with U.S. Government agencies typically provide that such contracts
are terminable at the convenience of the U.S. Government. If the U.S. 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 changes in scope of work. 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.
We perform work for various U.S. Government agencies and departments
pursuant to firm fixed-price, cost-plus fixed fee and time-and-material, prime
contracts and subcontracts. The majority of our government contracts are either
firm fixed-price/time-and-material, or cost-plus fixed fee contracts.
Approximately 64% of the revenue that we derived from government contracts for
the year ended December 31, 2004 came from firm fixed-price or time-and-material
contracts. The balance of the revenue that we derived from government contracts
in 2004 primarily came from cost-plus fixed fee contracts. Most of our contracts
are for one-year to five-year terms.
While firm fixed-price contracts allow us to benefit from cost savings,
they also expose us to the risk of cost overruns. If the initial estimates we
use for calculating the contract price are incorrect, we can incur losses on
those contracts. In addition, some of our governmental contracts have provisions
relating to cost controls and audit rights and, if we fail to meet the terms
specified in those contracts, then we may not realize their full benefits. Lower
earnings caused by cost overruns would have an adverse effect on our financial
results.
Under time-and-materials contracts, we are paid for labor at negotiated
hourly billing rates and for certain expenses. Under cost-plus fixed fee
contracts, we are reimbursed for allowable costs and paid a fixed fee. However,
if our costs under either of these types of contract exceed the contract ceiling
or are not allowable under the provisions of the contract or applicable
regulations, we may not be able to obtain reimbursement for all of our costs.
If we are unable to control costs incurred in performing under each type of
contract, inability to control costs could have a material adverse effect on our
financial condition and operating results. Cost over-runs also may adversely
affect our ability to sustain existing programs and obtain future contract
awards.
WE FACE EXTENSIVE COMPETITION IN THE MARKETS IN WHICH WE OPERATE, AND OUR
FAILURE TO COMPETE EFFECTIVELY COULD RESULT IN PRICE REDUCTIONS AND/OR DECREASED
DEMAND FOR OUR PRODUCTS AND SERVICES.
There are several suppliers who offer Hospitality management systems
similar to ours. Some of these competitors are larger than PAR and have access
to substantially greater financial and other resources and, consequently, may be
able to obtain more favorable terms than we can for components and subassemblies
incorporated into these Hospitality technology products. The rapid rate of
technological change in the hospitality industry makes it likely that we will
face competition from new products designed by companies not currently competing
with us. These new products may have features not currently available on our
Hospitality 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
hospitality technology market in the future.
Our Government contracting business has been focused on niche offerings,
primarily signal and image processing, information technology outsourcing and
engineering services. Many of our competitors are, or are subsidiaries of,
companies such as Lockheed-Martin, Raytheon, Northrop-Grumman, BAE, Harris,
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 fiscal years ended December 31, 2004, 2003 and 2002, our net
revenues from sales outside the United States were 9%, 11% and 11%,
respectively, of the Company's total revenues, respectively, of the Company's
total 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.
Item 7A: Quantitative and Qualitative Disclosures about Market Risk
INFLATION
Inflation had little effect on revenues and related costs during 2004.
Management anticipates that margins will be maintained at acceptable levels to
minimize the effects of inflation, if any.
INTEREST RATES
As of December 31, 2004, the Company has $2 million in variable long-term
debt and $10.3 million in variable short-term debt. The Company believes that an
adverse change in interest rates of 100 basis points 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 our
business, financial conditions, results of operations or cash flows due to the
low volume of business affected by foreign currencies.
Item 8: Financial Statements and Supplementary Data
The Company's 2004 Consolidated financial statements, together with the
report thereon of KPMG LLP dated February 25, 2005, and the report of
PricewaterhouseCoopers LLP dated March 28, 2003 are included elsewhere herein.
See Item 15 for a list of Financial Statements and Financial Statement Schedule.
Item 9: Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
Item 9A: Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures.
As of December 31, 2004, the Company carried out an evaluation, under the
supervision and with the participation of the Company's management, including
the Company's President and Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of the Company's disclosure
controls and procedures, as defined in Exchange Act Rule 15d-14(c). Based upon
the evaluation, the Company's President and Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure and procedures are
effective in enabling the Company to identify, process, record and report
information required to be included in the Company's periodic SEC filings within
the required time period.
(b) Changes in Internal Controls.
There was no significant change in the Company's internal controls over
financial reporting, as defined in Rule 13a-15(f) of the Exchange Act during the
year ended December 31, 2004 that has materially affected, or is reasonably
likely to materially affect, such internal controls over financial reporting.
Item 9B: Other Information
None.
PART III
Item 10: Directors and Executive Officers of the Registrant
The directors and executive officers of the Company and their respective ages
and positions are:
Name Age Position
- -------------------------- --- -------------------------------------------------
Dr. John W. Sammon, Jr. 65 Chairman, President and Chief Executive Officer,
PAR Technology Corporation
Charles A. Constantino 65 Executive Vice President and Director,
PAR Technology Corporation
Sangwoo Ahn 66 Director, PAR Technology Corporation
J. Whitney Haney 70 Director, PAR Technology Corporation
Kevin R. Jost 50 Director, PAR Technology Corporation
James A. Simms 45 Director, PAR Technology Corporation
Gregory T. Cortese 55 Chief Executive Officer & President ParTech, Inc.,
General Counsel and Secretary,
PAR Technology Corporation
Albert Lane, Jr. 63 President, PAR Government Systems Corporation
and Rome Research Corporation
Ronald J. Casciano 51 Vice President, Chief Financial Officer
and Treasurer, PAR Technology Corporation
The Company's directors are elected in classes with staggered three-year
terms with one class being elected at each annual meeting of shareholders. The
directors serve until the next election of their class and until their
successors are duly elected and qualified. The Company's officers are appointed
by the Board of Directors and hold office at the will of the Board of Directors.
The principal occupations for the last five years of the directors and
executive officers of the Company are as follows:
Dr. John W. Sammon, Jr. is the founder of the Company and has been the
Chairman, President and Chief Executive Officer since its incorporation in 1968.
Mr. Charles A. Constantino has been a director of the Company since 1971
and Executive Vice President since 1974.
Mr. Sangwoo Ahn was appointed a director of the Company in March, 1986. Mr.
Ahn is the Chairman of the Board, Quaker Fabric Corp. since 1993 and previously
was the partner of Morgan, Lewis, Githens & Ahn.
Mr. J. Whitney Haney retired as President of ParTech, Inc. in 1998. He has
been a director of the Company since 1988.
Mr. Kevin R. Jost was appointed a director of the Company in May, 2004. Mr.
Jost has been the President and Chief Executive Officer of Hand Held Products,
Inc. since 1999.
Mr. James A. Simms was appointed a director of the Company in October,
2001. Mr. Simms is currently a senior investment banker with
Janney,Montgomery,Scott.
Mr. Albert Lane, Jr. was appointed to President, Rome Research Corporation
in 1988. Mr. Lane was additionally appointed President of PAR Government Systems
Corporation in 1997.
Mr. Gregory T. Cortese was named President, ParTech, Inc. in June 2000 in
addition to General Counsel and Secretary of PAR Technology Corporation.
Previously, Mr. Cortese was the Vice President, Law and Strategic Development
since 1998.
Mr. Ronald J. Casciano, CPA, was promoted to Vice President, Chief
Financial Officer, Treasurer of PAR Technology Corporation in June, 1995.
Item 11: Executive Compensation
The information required by this item will appear under the caption
"Executive Compensation" in our 2004 definitive proxy statement for the annual
meeting of stockholders on May 2, 2005 and is incorporated herein by reference.
Item 12: Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
The information required by this item will appear under the caption
"Security Ownership Of Management And Certain Beneficial Owners" in our 2004
definitive proxy statement for the annual meeting of stockholders on May 2, 2005
and is incorporated herein by reference.
Item 13: Certain Relationships and Related Transactions
The information required by this item will appear under the caption
"Executive Compensation" in our 2004 definitive proxy statement for the annual
meeting of stockholders on May 2, 2005 and is incorporated herein by reference.
Item 14: Principal Accountant Fees and Services
The response to this item will appear under the caption "Principal
Accountant Fees and Services" in our 2004 definitive proxy statement for the
annual meeting of stockholders to be held on May 2, 2005 and is incorporated
herein by reference.
PART IV
Item 15: Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Documents filed as a part of the Form 10-K
(1) Financial Statements:
Reports of Independent Registered Public Accounting Firms
Consolidated Balance Sheets at December 31, 2004 and 2003
Consolidated Statements of Income for the three
years ended December 31, 2004
Consolidated Statements of Comprehensive Income
for the three years ended December 31, 2004 49
Consolidated Statements of Changes in Shareholders' Equity for
the three years ended December 31, 2004
Consolidated Statements of Cash Flows for the three years
ended December 31, 2004
Notes to Consolidated Financial Statements
(2) Financial Statement Schedule:
Valuation and Qualifying Accounts and Reserves
PART IV
Item 15: Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(Continued)
(b) Reports on Form 8-K
On October 7, 2004, PAR Technology Corporation filed a report on Form
8-K pursuant to Item 2.01 (Completion of Acquisition or Disposition of
Assets) and Item 9.01 (Financial Statements and Exhibits) of that Form
relating to the acquisition of Springer-Miller Systems, Inc.
On October 27, 2004, PAR Technology Corporation furnished a report on
Form 8-K pursuant to Item 2.02 (Results of Operations and Financial
Condition) of that Form relating to its financial information for the
quarter ended September 30, 2004, as presented in a press release October
27, 2004 and furnished thereto as an exhibit.
On December 17, 2004, PAR Technology Corporation filed an amended
report on Form 8-K/A pursuant to Item 2.01 (Completion of Acquisition or
Disposition of Assets) and Item 9.01 (Financial Statements and Exhibits) of
that Form relating to the acquisition of Springer-Miller Systems,
Inc.including in the filing the following financial statements:
(a) audited and unaudited consolidated financial statements of
Springer-Miller Systems, Inc. for the years ended December
31, 2003 and 2002, and for the periods ended September 30,
2004 and 2003, respectively;
(b) unaudited proforma Consolidated Statements of Income for
the year ended December 31, 2003 and the nine months ended
September 30, 2004; and
(c) unaudited pro forma Consolidated Balance Sheet dated
September 30, 2004.
(c) Exhibits
See list of exhibits on page 78
(d) Financial statement schedules
See (a)(2) above.
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
PAR Technology Corporation:
We have audited the consolidated financial statements of PAR Technology
Corporation and subsidiaries as of December 31, 2004 and 2003, and for each of
the years in the two-year period ended December 31, 2004, as listed in the
accompanying index. In connection with our audits of the consolidated financial
statements, we also have audited the financial statement schedule as of December
31, 2004 and 2003, and for each of the years in the two-year period ended
December 31, 2004, as listed in the accompanying index. These consolidated
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of PAR Technology
Corporation and subsidiaries as of December 31, 2004 and 2003, and the results
of their operations and their cash flows for each of the years in the two-year
period ended December 31, 2004 in conformity with U.S. generally accepted
accounting principles. Also in our opinion, the related financial statement
schedule referred to above, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
KPMG LLP
February 25, 2005
Syracuse, New York
Report of Independent Registered Public Accounting Firm
To The Board of Directors and Shareholders
of PAR Technology Corporation:
In our opinion, the consolidated statements of income, changes in shareholder's
equity, and cash flows listed in the index under Item 15(a)(1), for the year
ended December 31, 2002, present fairly, in all material respects, the results
of operations and cash flows of PAR Technology Corporation and its subsidiaries
for the year ended December 31, 2002, in conformity with accounting principles
generally accepted in the United States of America. In addition, in our opinion,
the financial statement schedules listed in the accompanying index appearing
under Item 15(a)(2), present fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements. These financial statements and financial statement
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedules based on our audits. We conducted our audits of these statements in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
March 28, 2003
CONSOLIDATED BALANCE SHEETS
(in thousands except share amounts)
December 31,
------------------------
Assets 2004 2003
---------- ----------
Current assets:
Cash and cash equivalents ..................... $ 8,696 $ 1,467
Accounts receivable-net ....................... 32,702 31,876
Inventories-net ............................... 27,047 31,894
Deferred income taxes ......................... 6,634 6,486
Other current assets .......................... 2,617 2,472
--------- ---------
Total current assets ...................... 77,696 74,195
Property, plant and equipment - net ................ 8,123 7,240
Deferred income taxes .............................. -- 2,857
Goodwill ........................................... 15,379 598
Intangible assets - net ............................ 9,235 1,772
Other assets ....................................... 1,319 485
--------- ---------
$ 111,752 $ 87,147
========= =========
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt ............. $ 90 $ 89
Borrowings under lines of credit .............. 10,246 6,989
Accounts payable .............................. 9,486 8,301
Accrued salaries and benefits ................. 8,072 5,461
Accrued expenses .............................. 2,998 2,471
Customer deposits ............................. 4,861 --
Deferred service revenue ...................... 9,083 5,947
Net liabilities of discontinued operation ..... 323 558
--------- ---------
Total current liabilities ................. 45,159 29,816
--------- ---------
Long-term debt ..................................... 2,005 2,092
--------- ---------
Deferred income taxes .............................. 194 --
--------- ---------
Other long-term liabilities ........................ 820 --
--------- ---------
Commitments and contingent liabilities
Shareholders' Equity:
Preferred stock, $.02 par value,
1,000,000 shares authorized ................. -- --
Common stock, $.02 par value,
19,000,000 shares authorized;
10,139,132 and 9,966,062 shares issued;
8,935,456 and 8,555,375 outstanding ......... 203 199
Capital in excess of par value ................ 31,560 29,761
Retained earnings ............................. 38,010 32,375
Accumulated other comprehensive loss .......... (181) (43)
Treasury stock, at cost, 1,203,676
and 1,410,687 shares ........................ (6,018) (7,053)
--------- ---------
Total shareholders' equity ................ 63,574 55,239
--------- ---------
$ 111,752 $ 87,147
========= =========
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share amounts)
Year ended December 31,
-----------------------------------
2004 2003 2002
--------- --------- ---------
Net revenues:
Product ...................................... $ 77,503 $ 60,223 $ 59,153
Service ...................................... 47,466 37,865 36,553
Contract ..................................... 49,915 41,682 37,975
--------- --------- ---------
174,884 139,770 133,681
--------- --------- ---------
Costs of sales:
Product ...................................... 51,287 39,024 39,643
Service ...................................... 39,769 32,140 30,081
Contract ..................................... 46,682 39,613 35,501
--------- --------- ---------
137,738 110,777 105,225
--------- --------- ---------
Gross margin ........................... 37,146 28,993 28,456
--------- --------- ---------
Operating expenses:
Selling, general and administrative .......... 22,106 19,340 19,540
Research and development ..................... 6,270 5,310 5,400
Amortization of identifiable intangible assets 245 -- --
--------- --------- ---------
28,621 24,650 24,940
--------- --------- ---------
Operating income .................................. 8,525 4,343 3,516
Other income, net ................................. 1,134 582 815
Interest expense .................................. (295) (540) (824)
--------- --------- ---------
Income from continuing operations
before provision for income taxes ............... 9,364 4,385 3,507
Provision for income taxes ........................ (3,729) (1,593) (884)
--------- --------- ---------
Income from continuing operations ................. 5,635 2,792 2,623
--------- --------- ---------
Discontinued operations:
Loss from operations of
discontinued component (including
loss on disposal of $830 in 2002) ......... -- (570) (2,516)
Income tax benefit ........................... -- 207 634
--------- --------- ---------
Loss from discontinued operations ............ -- (363) (1,882)
--------- --------- ---------
Net income ........................................ $ 5,635 $ 2,429 $ 741
========= ========= =========
Continued
CONSOLIDATED STATEMENTS OF INCOME (Continued)
(in thousands except per share amounts)
Year ended December 31,
-------------------------------------
2004 2003 2002
--------- ---------- ------------
Earnings per share:
Basic:
Income from continuing operations $ .65 $ .33 $ .33
Loss from discontinued operations $ -- $ (.04) $ (.24)
Net income ................ $ .65 $ .29 $ .09
Diluted:
Income from continuing operations $ .61 $ .32 $ .32
Loss from discontinued operations $ -- $ (.04) $ (.23)
Net income ................ $ .61 $ .27 $ .09
Weighted average shares outstanding
Basic ........................... 8,696 8,438 7,934
========= ========== ===========
Diluted ......................... 9,230 8,861 8,315
========= ========== ===========
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Year ended December 31,
-----------------------------
2004 2003 2002
-------- ------- -------
Net income $ 5,635 $ 2,429 $ 741
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments (138) 773 625
-------- -------- ------
Comprehensive income $ 5,497 $ 3,202 $1,366
======== ======== ======
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Accumulated
Capital in Other Total
Common Stock excess of Retained Comprehensive Treasury Stock Shareholders'
------------ --------------- -------------
(in thousands) Shares Amount Par Value Earnings Income (Loss) Shares Amount Equity
------ ------ --------- -------- ------------ ------ ------ ------
Balances at
December 31, 2001 9,674 $ 193 $ 28,541 $ 29,205 $ (1,441) (1,794) $ (8,969) $ 47,529
Net income 741 741
Sale of treasury stock, net 6 383 1,916 1,922
Issuance of common stock upon the
exercise of stock options 96 2 379 381
Translation adjustments 625 625
-------- ------- --------- --------- ----------- --------- -------- ---------
Balances at
December 31, 2002 9,770 195 28,926 29,946 (816) (1,411) (7,053) 51,198
Net income 2,429 2,429
Issuance of common stock upon the
exercise of stock options 196 4 835 839
Translation adjustments 773 773
-------- ------- --------- --------- ----------- --------- -------- ---------
Balances at
December 31, 2003 9,966 199 29,761 32,375 (43) (1,411) (7,053) 55,239
Net income 5,635 5,635
Issuance of common stock upon the
exercise of stock options 173 4 949 953
Issuance of treasury stock for
business acquisition 850 207 1,035 1,885
Translation adjustments (138) (138)
-------- ------- --------- --------- ----------- --------- -------- ---------
Balances at
December 31, 2004 10,139 $ 203 $ 31,560 $ 38,010 $ (181) (1,204) $ (6,018) $ 63,574
======== ======== ========= ========= =========== ========= ======== =========
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year ended December 31,
----------------------------------
2004 2003 2002
---------- ---------- ----------
Cash flows from operating activities:
Net income .................................... $ 5,635 $ 2,429 $ 741
Adjustments to reconcile net income to net
cash provided by operating activities:
Net loss from discontinued operations ...... -- 363 1,882
Depreciation and amortization .............. 2,812 2,815 2,894
Provision for bad debts .................... 689 968 1,491
Provision for obsolete inventory ........... 4,007 2,957 2,321
Tax benefit of stock option exercises ...... 368 161 71
Deferred income tax ........................ 3,014 809 544
Changes in operating assets and liabilities:
Accounts receivable ...................... 246 (7,001) 6,045
Inventories .............................. 1,046 (577) (10,454)
Income tax refund claims ................. -- -- 95
Other current assets ..................... 178 166 596
Other assets ............................. (825) (20) (24)
Accounts payable ......................... 567 (70) (2,611)
Accrued salaries and benefits ............ 2,119 846 292
Accrued expenses ......................... (43) 394 (197)
Customer deposits ........................ (132) -- --
Deferred service revenue ................. 42 (757) 493
-------- -------- --------
Net cash provided by continuing
operating activities ................... 19,723 3,483 4,179
Net cash used in discontinued operations (235) (88) (580)
-------- -------- --------
Net cash provided by operating activities 19,488 3,395 3,599
-------- -------- --------
Cash flows from investing activities:
Capital expenditures .......................... (1,598) (415) (916)
Capitalization of software costs .............. (804) (809) (790)
Acquisition of Springer-Miller Systems,
net of cash acquired ........................ (13,364) -- --
-------- -------- --------
Net cash used in investing activities ... (15,766) (1,224) (1,706)
-------- -------- --------
Cash flows from financing activities:
Net borrowings (payments) under
line-of-credit agreements ................... 3,257 (2,560) (5,082)
Payments of long-term debt .................... (86) (85) (57)
Net proceeds from the sale of treasury stock .. -- -- 1,922
Proceeds from the exercise of stock options ... 585 678 310
-------- -------- --------
Net cash provided (used) by
financing activities ................... 3,756 (1,967) (2,907)
-------- -------- --------
Continued
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(in thousands)
Year ended December 31,
-----------------------------
2004 2003 2002
--------- -------- --------
Effect of exchange rate changes on cash and
cash equivalents ............................. (249) 773 625
------- ------- -------
Net increase (decrease) in cash
and cash equivalents ......................... 7,229 977 (389)
Cash and cash equivalents at
beginning of year ............................ 1,467 490 879
------- ------- -------
Cash and cash equivalents at
end of year .................................. $ 8,696 $ 1,467 $ 490
======= ======= =======
Supplemental disclosures of cash flow information: Cash paid during the year
for:
Interest $ 280 $ 553 $ 848
Income taxes, net of refunds 537 291 101
See accompanying notes to consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 -- Summary of Significant Accounting Policies
Basis of consolidation
The consolidated financial statements include the accounts of PAR
Technology Corporation and its wholly owned subsidiaries (ParTech, Inc., PAR
Springer-Miller Systems, Inc., Ausable Solutions, Inc., PAR Government Systems
Corporation and Rome Research Corporation), collectively referred to as the
"Company." All significant intercompany transactions have been eliminated in
consolidation.
Revenue recognition
The Company recognizes revenue generated by the Hospitality segment using
the guidance from SEC Staff Accounting Bulletin No. 104, "Revenue Recognition"
and the AICPA Statement of Position (SOP) 97-2, "Software Revenue Recognition,"
and other applicable revenue recognition guidance and interpretations. Product
revenue consists of sales of the Company's standard point-of-sale and property
management systems of the Hospitality 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 or upon
installation for certain software products. 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. 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 recognizes revenue in its Government segment using the guidance
from SEC Staff Accounting Bulletin No. 104, "Revenue Recognition." The Company's
contract revenues generated by the Government segment result primarily from
contract services performed for the U.S. Government under a variety of cost-plus
fixed fee, time-and-material and fixed-price contracts. Revenue on cost-plus
fixed fee contracts is recognized based on allowable costs for labor hours
delivered, as well as other allowable costs plus the applicable fee. Revenue on
time and material contracts is recognized by multiplying the number of direct
labor-hours delivered in the performance of the contract by the contract billing
rates and adding other direct costs as incurred. Revenue from fixed price
contracts is recognized primarily on a straight-line basis over the life of the
fixed-price contract. The Company's obligation under these contracts is simply
to provide labor hours to conduct research or to staff facilities with no other
deliverables or performance obligations. Anticipated losses on all contracts are
recorded in full when identified. Unbilled accounts receivable are stated in the
Company's consolidated financial statements at their estimated realizable value.
Contract costs, including indirect expenses, are subject to audit and adjustment
through negotiations between the Company and U.S. Government representatives.
Statement of cash flows
For purposes of reporting cash flows, the Company considers all highly
liquid investments, purchased with a remaining maturity of three months or less,
to be cash equivalents. The effect of changes in foreign-exchange rates on cash
balances is not significant.
Accounts receivable - Allowance for doubtful accounts
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.
Inventories
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.
Property, plant and equipment
Property, plant and equipment are recorded at cost and depreciated using
the straight-line method over the estimated useful lives of the assets, which
range from three to twenty-five years. Expenditures for maintenance and repairs
are expensed as incurred.
Warranties
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, although certain sales have shorter warranty periods. 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.
Income taxes
The provision for income taxes is based upon pretax earnings with deferred
income taxes provided for the temporary differences between the financial
reporting basis and the tax basis of the Company's assets and liabilities. The
Company records a valuation allowance when necessary to reduce deferred tax
assets to their net realizable amounts. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
Other long-term liabilities
In connection with the acquisition of Springer-Miller Systems, Inc. in
2004, the Company assumed an obligation owed to a third party as a result of an
acquisition completed by Springer-Miller Systems, Inc. in 2002. The total
obligation at December 31, 2004 amounts to $1,251,000 of which $820,000 is in
long-term liabilities with the balance in accrued expenses.
Foreign currency
The assets and liabilities for the Company's international operations are
translated into U.S. dollars using year-end exchange rates. Income statement
items are translated at average exchange rates prevailing during the year. The
resulting translation adjustments are recorded as a separate component of
shareholders' equity under the heading Accumulated Other Comprehensive Loss.
Exchange gains and losses on intercompany balances of a long-term investment
nature are also recorded as a translation adjustment and are included in
Accumulated Other Comprehensive Income (Loss). Foreign currency transaction
gains and losses, are included in net income.
Other income
The components of other income for the three years ending December 31, are
as follows:
(in thousands)
2004 2003 2002
-------- --------- ---------
Currency gains .................... $ 502 $ 95 $ 108
Rental income-net ................. 349 441 543
Other ............................. 283 46 164
------ ------ ------
$1,134 $ 582 $ 815
====== ====== ======
Identifiable intangible assets
The Company capitalizes certain costs related to the development of
computer software used in its Hospitality products segment under the
requirements of Statement of Financial Accounting Standards No. 86, "Accounting
for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed".
Software development costs incurred prior to establishing technological
feasibility are charged to operations and included in research and development
costs. Software development costs incurred after establishing feasibility are
capitalized and amortized on a product-by-product basis when the product is
available for general release to customers. The net unamortized computer
software costs included in intangible assets, amounted to $1,580,000 and
$1,772,000 at December 31, 2004 and 2003, respectively. Annual amortization,
charged to cost of sales, is computed using the straight-line method over the
remaining estimated economic life of the product, generally three years.
Amortization of capitalized software costs amounted to $996,000, $1,185,000 and
$1,098,000 in 2004, 2003, and 2002, respectively.
The Company acquired identifiable intangible assets in connection with the
October 1, 2004 acquisition of Springer-Miller Systems, Inc. The net unamortized
intangible assets were $7,655,000 at December 31, 2004. Amortization of
identifiable intangible assets amounted to $245,000 in 2004. See Note 2 for
additional details.
The future amortization of these intangible assets is as follows (in
thousands):
2005 $ 981
2006 981
2007 974
2008 935
2009 758
Thereafter 928
--------
$ 5,557
========
Stock-based compensation
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123), encourages, but does not require companies
to record compensation cost for stock-based compensation plans at fair value.
The Company has elected to continue to account for stock-based compensation
using the intrinsic value method prescribed in Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees", and related
interpretations.
Had compensation cost for the Company's stock-based compensation plans and
other transactions been determined based on the fair values at the fiscal year
2004, 2003 and 2002 grant dates for those awards, consistent with the
requirements of SFAS 123, "Accounting for Stock-Based Compensation", the
Company's net income and earnings per share would have been adjusted to the
proforma amounts indicated below (in thousands, except per share data):
2004 2003 2002
---------- ---------- ---------
Net income $ 5,635 $ 2,429 $ 741
Proforma compensation benefit (expense) (354) (118) 117
--------- --------- -------
Proforma net income $ 5,281 $ 2,311 $ 858
========= ========= =======
Earnings per share:
As reported -- Basic $ .65 $ .29 $ .09
-- Diluted $ .61 $ .27 $ .09
Proforma -- Basic $ .61 $ .27 $ .11
-- Diluted $ .57 $ .26 $ .10
The estimated weighted average fair value of options granted is $2.85,
$1.52 and $1.10 for 2004, 2003 and 2002, respectively.
The fair value of these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions for 2004, 2003 and 2002:
2004 2003 2002
------ ------- -------
Risk-free interest rate 3.2% 2.0% 4.2%
Dividend yield N/A N/A N/A
Volatility factor 42.0% 44.0% 44.0%
Expected option life 5 Years 5 Years 6 Years
In management's opinion the existing models do not necessarily provide a
reliable measure of the fair value of its stock options because the Company's
stock options have characteristics significantly different from those of traded
options for which the Black-Scholes model was developed, and because changes in
the subjective assumptions can materially affect fair value estimate.
Earnings per share
Earnings per share are calculated in accordance with Statement of Financial
Accounting Standards No. 128 "Earnings per Share", which specifies the
computation, presentation, and disclosure requirements for earnings per share
(EPS). It requires the presentation of basic and diluted EPS. Basic EPS excludes
all dilution and is based upon the weighted average number of common shares
outstanding during the period. Diluted EPS reflects the potential dilution that
would occur if securities or other contracts to issue common stock were
exercised or converted into common stock.
The following is a reconciliation of the weighted average shares
outstanding for the basic and diluted EPS computations (in thousands except
share and per share data):
2004 2003 2002
-------- --------- -------
Net income $ 5,635 $ 2,429 $ 741
======== ========= =======
Basic:
Shares outstanding at beginning of year 8,555 8,360 7,881
Weighted shares issued during the year 141 78 53
-------- --------- -------
Weighted average common shares, basic 8,696 8,438 7,934
======== ========= =======
Earnings per common share, basic $ .65 $ .29 $ .09
======== ========= =======
Diluted:
Weighted average common shares, basic 8,696 8,438 7,934
Dilutive impact of stock options 534 423 381
-------- --------- -------
Weighted average common shares, diluted 9,230 8,861 8,315
======== ========= =======
Earnings per common share, diluted $ .61 $ .27 $ .09
======== ========= =======
Use of Estimates
The preparation of consolidated financial statements requires management of
the Company to make a number of estimates and assumptions relating to the
reported amount of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the consolidated financial statements and
the reported amounts of revenues and expenses during the period. Significant
items subject to such estimates and assumptions include: the carrying amount of
property, plant and equipment, identifiable intangible assets and goodwill,
warranty reserve, valuation allowances for receivables, inventories and deferred
income tax assets. Actual results could differ from those estimates.
Goodwill
Following Financial Accounting Standards Board issuance of Statement of
Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets",
(SFAS 142), the Company tests all goodwill for impairment annually, or more
frequently if circumstances indicate potential impairment, through a comparison
of fair value to its carrying amount. The Company has elected to annually test
for impairment at December 31. There was no impairment of goodwill in 2004, 2003
or 2002.
Accounting for Impairment or Disposal of Long-Lived Assets
In accordance with SFAS 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," we evaluate the accounting and reporting for the impairment
of long-lived assets and for long-lived assets to be disposed of. SFAS 144
requires recognition of impairment of long-lived assets if the net book value of
such assets exceeds the estimated future undiscounted cash flows attributable to
such assets. If the carrying value of a long-lived asset is considered impaired,
a loss is recognized based on the amount by which the carrying value exceeds the
fair market value of the long-lived asset for assets to be held and used, or the
amount by which the carrying value exceeds the fair market value less cost to
dispose for assets to be disposed. Fair market value is determined primarily
using the anticipated cash flows discounted at a rate commensurate with the risk
involved. No impairment was identified during 2004, 2003 or 2002.
As further described in Note 3, the Company decided to dispose of its
Industrial segment in August 2002 and has adopted the provisions of SFAS 144
regarding the measurement, recognition and disclosure of this discontinued
operation.
Reclassifications
Amounts in prior years' consolidated financial statements are reclassified
whenever necessary to conform with the current year's presentation.
New Accounting Pronouncements
In December 2004, Financial Accounting Standards Board ("FASB") published
Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based
Payment. Statement 123 (revised 2004) requires registrants to recognize the cost
of share-based payments, including previously issued share-based payments, in
the consolidated income statement and is effective for awards that are granted,
modified, or settled in cash in interim or annual periods beginning after June
15, 2005. Statement 123 (revised 2004) is effective for the Company's 2005
fiscal year and the Company is currently evaluating the expected impact on its
financial statements. See stock-based compensation above.
In November 2004, the FASB published Statement of Financial Accounting
Standards No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4.
Statement 151 amends the guidance in Chapter 4, "Inventory Pricing" of ARB No.
43 and clarifies the accounting for abnormal amounts of idle facility expense,
freight, handling costs, and wasted material (spoilage). Statement 151 requires
that those items be recognized as current-period charges. Statement 151 also
requires that allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production facilities.
Statement 151 is effective for inventory costs incurred during fiscal years
beginning after June 15, 2005. Statement 151 is effective for the Company's 2006
fiscal year and is not expected to have a material impact on the Company's
consolidated financial statements.
In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary
Assets. This Statement amends the guidance in APB Opinion No. 29, Accounting for
Nonmonetary Transactions. APB 29 provided an exception to the basic measurement
principle (fair value) for exchanges of similar assets, requiring that some
nonmonetary exchanges be recorded on a carryover basis. SFAS 153 eliminates the
exception to fair value for exchanges of similar productive assets and replaces
it with a general exception for exchange transactions that do not have
commercial substance, that is, transactions that are not expected to result in
significant changes in the cash flows of the reporting entity. The provisions of
SFAS 153 are effective for exchanges of nonmonetary assets occurring in fiscal
periods beginning after June 15, 2005. As of December 31, 2004, management
believes that SFAS 153 will have no significant effect on the consolidated
financial position, results of operations, or cash flows of the Company.
Note 2 -- Business Acquisition
On October 1, 2004, PAR Technology Corporation (the "Company") and its
wholly-owned subsidiary, PAR Springer-Miller Systems, Inc. (the "Subsidiary"),
completed their previously-announced transaction with Springer-Miller Systems,
Inc. ("Springer-Miller") and John Springer-Miller pursuant to which the
Subsidiary acquired substantially all of the assets (including the equity
interests in each of Springer-Miller International, LLC and Springer-Miller
Canada, ULC), and assumed certain liabilities, of Springer-Miller.
Springer-Miller, based in Stowe, Vermont, is a provider of hospitality
management solutions for all types of hospitality enterprises including resort
hotels, destination spa and golf properties, timeshare properties and casino
resorts worldwide.
The purchase price of the net assets acquired was $14,985,000 plus
approximately $3,227,000 (an amount equal to the cash and cash equivalents held
by Springer-Miller and its subsidiaries at the closing date of the acquisition,
October 1, 2004). The Company also incurred $264,000 in direct acquisition costs
relating to this purchase. The purchase price consisted of $1,885,000 worth of
Company common stock (207,011 shares of PAR Technology Corporation common stock
issued out of treasury) and the remainder in cash.
The total purchase price was allocated to the tangible and identifiable
intangible assets acquired and liabilities assumed by the Company based on their
estimated fair values as of the closing date of the acquisition. Identifiable
intangible assets recorded in the acquisition will be tested for impairment in
accordance with the provisions of SFAS 142. The following table presents the
estimated fair value of the assets acquired and liabilities assumed:
(in thousands)
--------------
Cash and cash equivalents $ 3,227
Other current assets 2,298
Property, plant and equipment 858
Intangible assets 7,900
Goodwill 14,781
--------
Total assets acquired 29,064
========
Deferred revenues and customer deposits 8,087
Other current liabilities 1,681
Long-term liabilities 820
--------
Total liabilities assumed 10,588
--------
Purchase price, including acquisition related costs $ 18,476
========
The identifiable intangible assets acquired and their estimated useful
lives (based on third party valuation) are as follows:
Estimated
(in thousands) Fair Value Useful Life
-------------- ---------- -----------
Software $ 2,800 5 Years
Customer relationships 2,700 8 Years
Trademarks and trade names 2,100 Indefinite
Others 300 3 - 4 Years
--------
$ 7,900
========
On an unaudited proforma basis, assuming the completed acquisition had
occurred as of the beginning of the periods presented, the consolidated results
of the Company would have been as follows (in thousands, except per share
amounts):
Year ended December 31,
----------------------------------------------
2004 2003
--------------- ----------------
Revenues $ 187,086 $ 153,733
=============== ================
Net income $ 5,507 $ 1,143
=============== ================
Earnings per share:
Basic $ .62 $ .13
=============== ===============
Diluted $ .59 $ .13
=============== ===============
The unaudited proforma financial information presented above gives effect
to purchase accounting adjustments which have resulted or are expected to result
from the acquisition. This proforma information is not necessarily indicative of
the results that would actually have been obtained had the companies been
combined for the periods presented.
Note 3 -- Business Operations
During the third quarter of 2002, the Company decided to close down its
unprofitable Industrial business unit, Ausable Solutions, Inc., following a
trend of continuous losses. The overall downturn in the global economy and
specifically the manufacturing and warehousing industries, coupled with the
diminishing capital expenditures of the Company's industrial customers,
prevented the Company from being profitable in this particular business segment.
The decision to shut down this unit has allowed the Company to focus on its two
core businesses, Hospitality and Government. The Company believes that the
decision to exit the Industrial segment will not have a negative impact on the
Company's continuing operations. The Company's Industrial business did not have
common customers with its Hospitality and Government contract businesses.
A summary of net revenues, net loss from operations of discontinued
component and total liabilities of discontinued operations are detailed below
(in thousands):
Year ended December 31,
----------------------------------------------
2004 2003 2002
---------- ------------ -------------
Net revenues $ -- $ -- $ 1,454
Net loss from operations of
discontinued component $ -- $ (363) $ (1,882)
December 31,
------------------------
2004 2003
----------- --------
Discontinued liabilities-other $ 323 $ 558
======== ========
Note 4 -- Accounts Receivable
The Company's net accounts receivable consist of:
December 31,
(in ihousands)
---------------------------
2004 2003
--------- ----------
Government segment:
Billed ................................ $ 8,376 $ 8,961
Advanced billings
(1,729) (1,214)
-------- --------
6,647 7,747
-------- --------
Hospitality segment:
Accounts receivable - net .................. 26,055 24,129
-------- --------
$ 32,702 $ 31,876
======== ========
At December 31, 2004 and 2003, the Company had recorded allowances for
doubtful accounts of $2,299,000 and $2,389,000, respectively, against
Hospitality accounts receivable.
Note 5 -- Inventories
Inventories are used primarily in the manufacture, maintenance, and
service of Hospitality systems. Inventories are net of related reserves. The
components of inventories-net are:
December 31,
(in thousands)
---------------------------
2004 2003
-------- --------
Finished goods .......... $ 4,745 $ 7,430
Work in process ......... 1,296 1,623
Component parts ......... 4,568 5,585
Service parts ........... 16,438 17,256
------- -------
$27,047 $31,894
======= =======
The Company records reserves for shrinkage, excess and obsolete inventory.
At December 31, 2004 and 2003, these amounts were $3,982,000 and $4,361,000,
respectively.
Note 6 -- Property, Plant and Equipment
The components of property, plant and equipment are:
December 31,
(in thousands)
--------------------------
2004 2003
--------- ---------
Land ........................ $ 253 $ 253
Buildings and improvements .. 7,501 7,108
Rental property ............. 3,490 3,490
Furniture and equipment ..... 26,860 25,719
------- -------
38,104 36,570
Less accumulated depreciation
and amortization ........... 29,981 29,330
------- -------
$ 8,123 $ 7,240
======= =======
The useful lives of buildings and improvements and rental property are
twenty to twenty-five years. The useful lives of furniture and equipment ranges
from three to eight years. Depreciation expense recorded was $1,571,000,
$1,630,000 and $1,802,000 for 2004, 2003 and 2002, respectively.
The Company subleases a portion of its headquarters facility to various
tenants. Rent received from these leases totaled $1,104,000, $1,114,000 and
$1,027,000 for 2004, 2003 and 2002, respectively.
Future minimum rent payments due to the Company under these leases are
as follows (in thousands):
2005 $ 828
2006 317
2007 101
---------
$ 1,246
=========
The Company leases office space under various operating leases. Rental
expense on these operating leases was approximately $1,527,000, $1,200,000 and
$1,228,000 for 2004, 2003, and 2002, respectively.
Future minimum lease payments under all noncancelable operating leases are
(in thousands):
2005 $ 1,967
2006 1,543
2007 888
2008 803
2009 634
Thereafter 271
-----------
$ 6,106
===========
Note 7 -- Debt
The Company has an aggregate of $30,000,000 in bank lines of credit. One
line totaling $17,500,000 bears interest at the bank borrowing rate (4.67% at
December 31, 2004) and is subject to loan covenants including a debt to tangible
net worth ratio of 1.4 to 1; a minimum working capital requirement of at least
$25 million; and a debt coverage ratio of 4 to 1. The total amount of credit
available under this facility at a given time is based on (a) 80% of the
Company's accounts receivable under 91 days outstanding attributable to the
Company's Hospitality segment and (b) 40% of the Company's inventory, excluding
work in process. A portion of this line, $5,000,000, will expire on March 31,
2005 and the remaining $12,500,000, expires on April 30, 2006. The second line
of $12,500,000 allows the Company, at its option, to borrow funds at the LIBOR
rate plus the applicable interest rate spread or at the bank's prime lending
rate (4.65% at December 31, 2004). This facility contains certain loan covenants
including a leverage ratio of not greater than 4 to 1 and a fixed charge
coverage ratio of not less than 4 to 1. A portion of this line, $5,000,000 will
expire on March 31, 2005 and the remaining $7,500,000 expires on October 30,
2006. Both lines are collateralized by certain accounts receivable and
inventory. The Company was in compliance with all loan covenants on December 31,
2004. At December 31, 2004, there were borrowings under these lines of
$10,246,000 and an aggregate of $19,754,000 was available under these lines.
The Company has a $2.1 million mortgage collateralized by certain real
estate. The annual mortgage payment including interest totals $192,500. The
mortgage bears interest at a variable rate based on the lending bank's Corporate
Base Lending Rate plus 1/2%. At December 31, 2004, the interest rate was 5.75%.
The remaining balance is due on May 1, 2010. The Company's future principal
payments under this mortgage are as follows (in 000's):
2005 $ 90
2006 92
2007 98
2008 103
2009 108
Thereafter 1,604
---------
$ 2,095
=========
Note 8 -- Stock based compensation
The Company has reserved 2,000,000 shares under its stock option plan.
Options under this Plan may be incentive stock options or nonqualified options.
Stock options are nontransferable other than upon death. Option grants generally
vest over a three to five year period after the grant and typically expire ten
years after the date of the grant.
A summary of the stock options follows:
No. of Shares Weighted Average
(in thousands) Exercise Price
-------------- --------------
Outstanding at December 31, 2001 .. 1,473 $ 3.81
Granted ...................... 109 2.77
Exercised .................... (96) 3.22
Forfeited .................... (188) 5.69
------ --------
Outstanding at December 31, 2002 .. 1,298 3.67
Granted ...................... 88 4.98
Exercised .................... (196) 3.46
Forfeited .................... (137) 4.05
------ --------
Outstanding at December 31, 2003 .. 1,053 3.49
Granted ...................... 254 8.84
Exercised .................... (173) 3.40
Forfeited .................... (9) 6.33
------ --------
Outstanding at December 31, 2004 .. 1,125 $ 4.69
====== ========
Shares remaining
available for grant .......... 434
======
Total shares vested and exercisable
as of December 31, 2004 ........... 733 $ 3.58
====== ========
Stock options outstanding at December 31, 2004 are summarized as follows:
Range of Number Weighted Average Weighted Average
Exercise Prices Outstanding Remaining Life Exercise Price
--------------- ----------- -------------- --------------
$1.88 - $4.00 556 6.1 Years $ 2.72
$4.01 - $6.16 322 5.8 Years $ 4.88
$7.85 - $10.88 247 9.6 Years $ 8.87
- -------------------- ----- --------- --------
$1.88 - $10.88 1,125 6.8 Years $ 4.69
==================== ===== ========= ========
Note 9-- Income Taxes
The provision (benefit) for income taxes consists of:
Year ended December 31,
(in thousands)
----------------------------------
2004 2003 2002
-------- -------- --------
Current income tax:
Federal $ 312 $ 177 $ (465)
State 164 112 55
Foreign 239 288 131
-------- ------- -------
715 577 (279)
-------- ------- -------
Deferred income tax:
Federal 2,259 605 370
State 225 251 121
Foreign 530 (47) 38
-------- ------- -------
3,014 809 529
-------- ------- -------
Provision for income taxes $ 3,729 $ 1,386 $ 250
======== ======= =======
Deferred tax liabilities (assets) are comprised of the following at:
December 31,
(in thousands)
---------------------------
2004 2003
-------- ----------
Software development expense .......... $ 606 $ 656
Depreciation .......................... 331 209
------- --------
Gross deferred tax liabilities ........ 937 865
------- --------
Allowances for bad debts,
inventory and warranty .............. (3,506) (3,503)
Capitalized inventory costs ........... (103) (60)
Benefit accruals ...................... (369) (296)
Federal net operating loss carryforward (1,906) (4,647)
State net operating loss carryforward . (181) (634)
Foreign net operating loss carryforward -- (530)
Tax credit carryforward ............... (1,165) (538)
Other ................................. (147) --
------- --------
Gross deferred tax assets ............. (7,377) (10,208)
------- --------
Net deferred tax asset ................ $(6,440) $ (9,343)
======= ========
The Company has a Federal net operating loss carryforward of $5.6 million,
which expires in various tax years from 2020 to 2023. The Company has federal
tax credit carryforwards of $1,043,000, which expires in various tax years from
2005 - 2023. The Company also has state tax credit carryforwards of $185,000 and
state net operating loss carryforwards of $4,700,000 which expire in various tax
years through 2023. In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable income
during the periods in which the temporary differences become deductible.
Management considers the scheduled reversal of deferred tax liabilities,
projected future taxable income, and tax planning strategies in making this
assessment. Based upon the historical level of taxable income and projections
for future taxable income, management believes it is more likely than not the
Company will realize the benefit of the deferred tax assets. Accordingly, no
deferred tax valuation allowance was recorded at December 31, 2004 and 2003.
The provision for income taxes differed from the provision computed by
applying the Federal statutory rate to income before taxes due to the following:
Year ended December 31,
---------------------------------------
2004 2003 2002
-------- -------- -------
Federal statutory tax rate ...... 34.0% 34.0% 34.0%
State taxes ..................... 3.6 8.5 15.8
Extraterritorial income exclusion (1.0) (2.0) (20.6)
Valuation allowance ............. -- (8.6) 33.2
Changes in estimate of prior
years' accrual ................ -- -- (54.1)
Non deductible expenses ......... .5 3.2 8.3
Tax credits ..................... (.4) (1.3) (4.0)
Foreign income taxes ............ 2.7 2.1 12.6
Other ........................... .4 .4 --
---- ---- ----
39.8% 36.3% 25.2%
==== ==== ====
Note 10 -- Employee Benefit Plans
The Company has a deferred profit-sharing retirement plan that covers
substantially all employees. The Company's annual contribution to the plan is
discretionary. The Company contributed $1,130,000, $819,000 and $200,000 to the
Plan in 2004, 2003 and 2002, respectively. The plan also contains a 401(k)
provision that allows employees to contribute a percentage of their salary.
These contributions are matched at the rate of 10% by the Company. The Company
contributions under the 401(k) component were $228,000, $205,000, and $208,000
in 2004, 2003, and 2002, respectively.
The Company also maintains an incentive-compensation plan. Participants in
the plan are key employees as determined by the Board of Directors and executive
management. Compensation under the plan is based on the achievement of
predetermined financial performance goals of the Company and its subsidiaries.
Awards under the plan are payable in cash. Awards under the plan totaled
$682,000, $559,000 and $261,000 in 2004, 2003 and 2002, respectively.
Note 11 -- Contingencies
The Company is subject to legal proceedings, which arise in the ordinary
course of business. Additionally, U.S. Government contract costs are subject to
periodic audit and adjustment. In the opinion of management, the ultimate
liability, if any, with respect to these actions will not materially affect the
financial position, results of operations, or cash flows of the Company.
Note 12 -- Segment and Related Information
The Company's reportable segments are strategic business units that have
separate management teams and infrastructures that offer different products and
services.
The Company has two reportable segments, Hospitality and Government. The
Hospitality segment offers integrated solutions to the hospitality 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 develops
advanced technology prototype systems primarily for the Department of Defense
and other Governmental agencies. 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. Accordingly, the results of this segment have been
reported as discontinued operations. Intersegment sales and transfers are not
significant.
Information as to the Company's segments is set forth below:
Year ended December 31,
(in thousands)
---------------------------------------------------------
2004 2003 2002
---------------- ---------------- --------------
Revenues:
Hospitality $ 124,969 $ 98,088 $ 95,706
Government 49,915 41,682 37,975
---------------- --------------- ---------------
Total $ 174,884 $ 139,770 $ 133,681
================ =============== ===============
Operating income (loss):
Hospitality $ 5,657 $ 2,977 $ 1,278
Government 2,868 1,928 2,266
Other -- (562) (28)
---------------- --------------- ---------------
8,525 4,343 3,516
Other income, net 1,134 582 815
Interest expense (295) (540) (824)
---------------- --------------- ---------------
Income before provision
for income taxes $ 9,364 $ 4,385 $ 3,507
================ =============== ================
Identifiable assets:
Hospitality $ 91,432 $ 70,550 $ 71,725
Government 9,909 10,475 6,568
Industrial -- -- 59
Other 10,411 6,122 6,770
---------------- --------------- ---------------
Total $ 111,752 $ 87,147 $ 85,122
================ =============== ===============
Depreciation and amortization:
Hospitality $ 2,276 $ 2,212 $ 2,315
Government 208 201 117
Other 328 402 462
---------------- --------------- ---------------
Total $ 2,812 $ 2,815 $ 2,894
================ =============== ===============
Capital expenditures:
Hospitality $ 1,348 $ 236 $ 549
Government -- 50 112
Other 250 129 255
---------------- --------------- ---------------
Total $ 1,598 $ 415 $ 916
================ =============== ===============
The following table presents revenues by country based on the location of
the use of the product or services.
2004 2003 2002
---------------- ---------------- --------------
United States $ 158,407 $ 124,556 $ 118,375
Other Countries 16,477 15,214 15,306
---------------- --------------- ---------------
Total $ 174,884 $ 139,770 $ 133,681
================ =============== ===============
The following table presents property by country based on the location of
the asset.
2004 2003 2002
---------------- ---------------- --------------
United States $ 105,073 $ 79,811 $ 75,640
Other Countries 6,679 7,336 9,482
---------------- --------------- ---------------
Total $ 111,752 $ 87,147 $ 85,122
================ =============== ===============
Customers comprising 10% or more of the Company's total revenues are
summarized as follows:
2004 2003 2002
------- ------ ------
Hospitality segment:
McDonald's Corporation ... 32% 25% 30%
Yum! Brands, Inc. ........ 19% 25% 21%
Government segment:
U.S. Department of Defense 29% 30% 28%
All Others ................. 20% 20% 21%
--- --- ---
100% 100% 100%
=== === ===
Note 13 -- Fair Value of Financial Instruments
Estimated fair value of financial instruments classified as current assets
or liabilities approximate carrying value due to the short-term nature of the
instruments. Such current assets and liabilities include cash and cash
equivalents, accounts receivable, borrowings under lines of credit, current
portion of long-term debt and accounts payable. The estimated fair value of the
Company's long-term debt is based on interest rates at December 31, 2004 and
2003 for new issues with similar remaining maturities and approximates carrying
value at December 31, 2004 and 2003.
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates are subjective in nature and involve uncertainties and matters
of significant judgment and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
Note 14 -- Related Party Transactions
The Company leases its corporate wellness facility to related parties at a
current rate of $9,775 per month. The Company provides membership to this
facility to all employees. During 2004, 2003, and 2002 the Company received
rental income amounting to $117,300. All lease payments are current at December
31, 2004.
The Company also leases office space from an officer of one of its
subsidiaries. The lease is for a period of five years beginning on October 1,
2004 at an annual rate of $360,000. In 2004, the Company paid $90,000 to the
officer under this lease.
At December 31, 2004 the Company has outstanding an interest-bearing loan
totaling $250,000 to an executive officer. This loan was originated prior to
June 2002. The interest rate is variable and was 4.67% at December 31, 2004. At
December 31, 2003, the Company had outstanding interest-bearing loans totally
$595,430 to two executive officers at an interest rate of 4%.
During 2004, 2003 and 2002 interest income recorded by the Company related
to these loans was $13,800, $26,100, and $27,500, respectively. These loans are
payable on demand. These loans are current as to interest payments at December
31, 2004.
Note 15 -- Selected Quarterly Financial Data (Unaudited)
Quarter ended
(in thousands except per share amounts)
-------------------------------------------------------
2004 March 31 June 30 September 30 December 31
---- -------- ------- ---------- ---------
Net revenues .................. $ 37,898 $ 42,925 $ 42,635 $ 51,426
Gross margin .................. 7,386 8,528 8,807 12,425
Income from
continuing operations ....... 736 1,312 1,734 1,853
Basic earnings per share
from continuing operations... .09 .15 .20 .21
Diluted earnings per share
from continuing operations... .08 .14 .19 .20
Quarter ended
(in thousands except per share amounts)
--------------------------------------------------------
2003 March 31 June 30 September 30 December 31
---- -------- ------- ---------- ----------
Net revenues .................. $ 30,542 $ 32,011 $ 36,006 $ 41,211
Gross margin .................. 6,041 6,344 7,520 9,088
Income from
continuing operations ....... 256 351 858 1,327
Basic earnings per share
from continuing operations... .03 .04 .10 .16
Diluted earnings per share
from continuing operations... .03 .04 .10 .15
SCHEDULE II - VALUATION AND QUALIFYING
ACCOUNTS AND RESERVES
(In Thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- ------------------------------------------------------------------------------------------------------------------------------------
Additions
---------
Balance at
beginning of Charged to Costs Charged to Balance at end
Description period and Expenses Other Accounts Deductions of period
- ------------------------------------------------------------------------------------------------------------------------------------
Allowance for Doubtful
Accounts - deducted from
Accounts Receivable in
the Consolidated Balance Sheet
2004 $2,396 689 (786) $2,299
2003 $3,168 968 (1,740) $2,396
2002 $4,504 1,491 (2,827) $3,168
(a) Uncollectible accounts written off.
- ------------------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- ------------------------------------------------------------------------------------------------------------------------------------
Additions
---------
Balance at
beginning of Charged to Costs Charged to Balance at end
Description period and Expenses Other Accounts Deductions of period
- ------------------------------------------------------------------------------------------------------------------------------------
Inventory Reserves for shrinkage, excess and obsolete inventory
- - deducted from inventory
in the Consolidated Balance Sheet
2004 $ 4,361 4,007 (4,386) $ 3,982
2003 $ 4,094 2,957 (2,690) $ 4,361
2002 $ 3,253 2,321 (1,480) $ 4,094
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PAR TECHNOLOGY CORPORATION
March 22, 2005 /s/John W. Sammon, Jr.
-------------------------------
John W. Sammon, Jr.
Chairman of Board and President
-------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
/s/John W. Sammon, Jr.
- ---------------------- Chairman of Board and March 22, 2005
John W. Sammon, Jr. President (Principal
Executive Officer)
and Director
/s/Charles A. Constantino
- ------------------------- Executive Vice President March 22, 2005
Charles A. Constantino and Director
/s/Sangwoo Ahn
- ------------------------- Director March 22, 2005
Sangwoo Ahn
/s/J. Whitney Haney
- ------------------------- Director March 22, 2005
J. Whitney Haney
/s/James A. Simms
- ------------------------- Director March 22, 2005
James A. Simms
/s/Kevin R. Jost
- ------------------------- Director March 22, 2005
Kevin R. Jost
/s/Ronald J. Casciano
- ------------------------- Vice President, Chief Financial March 22, 2005
Ronald J. Casciano Officer and Treasurer
List of Exhibits
Exhibit
No. Description of Instrument
- --------------------------------------------------------------------------------
3.1 Certificate of Incorporation, Filed as Exhibit 3.1 to Registration
as amended Statement on Form S-2 (Registration
No. 333-04077)of PAR Technology
Corporation incorporated herein by
reference.
3.2 Certificate of Amendment to the Filed as Exhibit 3.1 to Registration
Certificate of Incorporation Statement on Form S-2 (Registration
No. 333-04077)of PAR Technology
Corporation incorporated herein by
reference.
3.3 By-laws, as amended.Filed as Filed as Exhibit 3.1 to Registration
Exhibit 3.1 to Registration Statement on Form S-2 (Registration
No. 333-04077) of PAR Technology
Corporation incorporated herein by
reference.
4 Specimen Certificate representing Filed as Exhibit 3.1 to Registration
the Common Stock. Statement on Form S-2 (Registration
No. 333-04077)of PAR Technology
Corporation incorporated herein by
reference.
10.1 Letter of Agreement with Sandman Filed as Exhibit 10.1 to Form S-3/A
- SCI Corporation (Registration No. 333-102197) of
PAR Technology Corporation incor-
porated herein by reference.
10.2 NBT, N.A. Line of Credit Agreement
10.3 JPMorgan Chase Agreement
22 Subsidiaries of the registrant
23 Consents of Independent Registered
Public Accounting Firms
31.1 Certification of Chairman of the
Board and Chief Executive Officer
Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification of Vice President,
Chief Financial Officer and Treasurer
Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Certification of Chairman of the Board
and Chief Executive Officer and Vice
President, Chief Financial Officer and
Treasurer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley
Act of 2002.
EXHIBIT 22
Subsidiaries of PAR Technology Corporation
- --------------------------------------------------------------------------------
Name State of Incorporation
- --------------------------------------------------------------------------------
ParTech, Inc. New York
PAR Springer-Miller Systems, Inc. Delaware
PAR Government Systems Corporation New York
Rome Research Corporation New York
PAR Vision Systems Corporation New York
Ausable Solutions, Inc. Delaware
EXHIBIT 23
Consent of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
PAR Technology Corporation
We consent to the incorporation by reference in the registration statements
(No. 33-119828, 33-04968, 33-39784, 33-58110, and 33-63095) on Form S-8 and the
registration statement (No. 333-102197) on Form S-3 of PAR Technology
Corporation of our report dated February 25, 2005, with respect to the
consolidated balance sheets of PAR Technology Corporation and subsidiaries as of
December 31, 2004 and 2003 and the related consolidated statements of income,
comprehensive income, changes in shareholders' equity, and cash flows for the
years ended December 31, 2004 and 2003, and the financial statement schedule
"Valuation and Qualifying Accounts and Reserves" as of December 31, 2004 and
2003 and for the years then ended, which report appears in the December 31, 2004
annual report on Form 10-K of PAR Technology Corporation.
KPMG LLP
March 22, 2005
Syracuse, New York
Consent of Independent Registered Public Accounting Firm
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (33-04968, 33-39784, 33-58110, 33-63095 and 33-119828) and
Form S-3 (333-102197) of PAR Technology Corporation and its subsidiaries of our
report dated March 28, 2003 relating to the financial statements and financial
statement schedules, which appears in this Form 10-K.
PricewaterhouseCoopers LLP
March 22, 2005
Syracuse, New York
Exhibit 31.1
PAR TECHNOLOGY CORPORATION
STATEMENT OF EXECUTIVE OFFICER
I, John W. Sammon, Jr., certify that:
1. I have reviewed this year end report on Form 10-K of PAR Technology
Corporation;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)), for the registrant and
have:
a. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, 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 report is being prepared;
b. [Reserved]
c. Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluations; and
d. Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrants fourth,
fiscal quarter in the case of an annual report) and that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors:
a. All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: March 22, 2005
/s/John W. Sammon, Jr.
------------------------------------------
John W. Sammon, Jr.
Chairman of the Board and Chief Executive Officer
Exhibit 31.2
PAR TECHNOLOGY CORPORATION
STATEMENT OF EXECUTIVE OFFICER
I, Ronald J. Casciano, certify that:
1. I have reviewed this year end report on Form 10-K of PAR Technology
Corporation;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)), for the registrant and
have:
a. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, 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 report is being prepared;
b. [Reserved]
c. Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluations; and
d. Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrants fourth,
fiscal quarter in the case of an annual report) and that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors:
a. All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: March 22, 2005
/s/Ronald J. Casciano
------------------------------------------
Ronald J. Casciano
Vice President, Chief Financial Officer & Treasurer
Exhibit 32.1
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 Annual Report of PAR Technology Corporation (the
"Company") on Form 10-K for the year ended December 31, 2004 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), we, John
W. Sammon, Jr. and Ronald J. Casciano, Chairman of the Board & Chief Executive
Officer and Vice President, Chief Financial Officer & 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, to the best of our knowledge:
(1) The Report fully complies with the requirement of section 13(a)
or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Company.
/s/John W. Sammon, Jr.
- -------------------------------
John W. Sammon, Jr.
Chairman of the Board & Chief Executive Officer
March 22, 2005
/s/Ronald J. Casciano
- -------------------------------
Ronald J. Casciano
Vice President, Chief Financial Officer & Treasurer
March 22, 2005