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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 (FEE REQUIRED)
For the Fiscal Year Ended December 31, 1997.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From __________ to __________
Commission File Number 1-9720
PAR TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 16-1434688
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
PAR Technology Park
8383 Seneca Turnpike
New Hartford, New York 13413-4991
(Address of principal executive offices) (Zip Code)
(315) 738-0600
(Registrant's Telephone number, including area code)
Securities registered pursuant to Section 12(g) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
Common Stock, $.02 par value New York Stock Exchange
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
The aggregate market value of the voting stock held by non-affiliates of
the registrant based on the average price as of March 18, 1998 - $29.8 million.
The number of shares outstanding of registrant's common stock, as of March
18, 1998 - 8,897,165 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's proxy statement in connection with its 1998
annual meeting of stockholders are incorporated by reference into Part III.
PAR TECHNOLOGY CORPORATION
TABLE OF CONTENTS
FORM 10-K
Item Number
-----------
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
PART III
Item 10. Directors, Executive Officers and Other
Significant Employees of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K
Signatures
PAR TECHNOLOGY CORPORATION
PART I
Item 1: Business
PAR Technology Corporation ("PAR" or the "Company") is a full-function,
solutions oriented Company which focuses on the reliable capture, preservation,
processing and management of information throughout a business enterprise. The
Company is a leading supplier of integrated solutions to the quick service
restaurant industry and also provides solutions for manufacturing/warehousing
enterprises. The Company's systems-based solutions have been engineered to
perform reliably under harsh operating conditions and incorporate high levels of
systems integration, in-depth knowledge of the customers' workflow processes,
and local and wide-area networking capability.
The Company also develops advanced computer-based systems and technologies
for government agencies. Through its government-sponsored development work, PAR
has generated significant technologies with commercial applications, from the
transaction information processing capability underlying its primary business,
to advanced vision technology currently being implemented in the Company's
proprietary Automatic On-Line X-Ray Inspection System for use in the food
packaging processes.
Information concerning the Company's industry segments for the three years
ended December 31, 1997 is set forth in Note 11 to the Consolidated Financial
Statements included elsewhere herein.
The Company's principal executive offices are located at PAR Technology
Park, 8383 Seneca Turnpike, New Hartford, New York 13413-4991, telephone number
(315) 738-0600. Unless the context otherwise requires, the term "PAR" or
"Company" as used herein means PAR Technology Corporation and its wholly-owned
subsidiaries.
Commercial Segment
PAR, through its wholly owned subsidiary ParTech, Inc., formerly PAR
Microsystems Corporation, is a leading supplier of integrated solutions to the
quick service restaurant industry and also provides solutions for
manufacturing/warehousing enterprises. The Company's Point-of-Sale (POS)
restaurant technology system integrates both extendible systems software and the
Company's ruggedized Pentium(R) based hardware platforms. This integrated system
can host fixed as well as wireless order-entry terminals and may include video
monitors, third-party supplied peripherals networked via an Ethernet LAN and is
accessible to enterprise-wide network configurations. For manufacturing and
warehousing enterprises, the Company designs and implements complex integrated
transaction processing solutions incorporating its data collection and
management software that provide real-time connectivity with multiple host
computers, diverse legacy applications software and "best-of-breed" software and
data input hardware technologies. PAR further provides extensive systems
integration capabilities to design, tailor and implement solutions that enable
its customers to manage, from a central location, all aspects of data collection
and processing for single or multiple site enterprises. The Company's wholly
owned subsidiary, PAR Vision Systems Corporation has developed and is marketing
an automatic vision inspection system called Qscan(R) for the food-processing
industry. This system utilizes a specialized image processing technique to
detect contaminants in filled containers.
Products
The demands of the major quick service chains include rugged, reliable
point of sale systems capable of recording, transmitting and coordinating large
numbers of orders for quick delivery. The Company's modular, integrated
solutions permit its Quick Service Restaurant (QSR) customers to configure their
restaurant technology systems to meet their order-entry, menu, food preparation
and delivery coordination requirements while recording all aspects of the
transaction at the site. The current offerings are the result of the Company's
20 years experience and an in-depth understanding of the QSR market. This
knowledge and expertise is reflected in its product design, manufacturing
capability and systems integration skills.
Software. Recently PAR introduced intouch(TM), a new software application
that enables the Company to expand its offerings beyond QSR to the full service
and delivery markets. The intouch product incorporates rich features and
functions such as real time mirror imaging of critical data, on-line graphical
help, interactive diagnostics including real time monitoring of restaurant
operations through user defined parameters as well as intuitive graphical user
interfaces. In addition, this software offers a back office application that
includes such features as labor scheduling and inventory management. The
software also supports in-store communications between terminals, remote
printers and displays, and back office PCs through an Ethernet LAN. The
Company's other POS software, GT is the most widely used software in the quick
service restaurant industry, installed in 20,000 restaurants in 90 countries
worldwide. The features and functions of GT are extensive and integrate a high
degree of flexibility for the routing and display of orders in real-time and for
the design and integration of the Company's display data-entry terminals.
Hardware. The Company's POS system, POS 4, is a state-of-the-art 64 bit
Pentium(R) based system, designed to handle the most powerful applications of
today and those of tomorrow. POS 4 is an open architecture hardware platform
with industry standard components, it is compatible with the most popular
operating systems, and is the first POS hardware system to be certified by
Microsoft(R) as Windows(R) NT Compliant(R). The POS hardware supports a
distributed processing environment and incorporates an advanced restaurant
technology system, utilizing Intel microprocessors, standard PC expansion slots,
Ethernet LAN and standard Centronics printer ports. The system augments its
industry standard components with features for QSR applications such as multiple
video ports. The POS system utilizes distributed processing architecture to
integrate a broad range of PAR and third-party peripherals and is designed to
withstand the harsh QSR environment. The system has a favorable
price-to-performance ratio over the life of the system as a result of its PC
compatibility, ease of expansion and use and high reliability design.
Display terminals process and track customer orders, process employee
timekeeping records, and provide on-screen production and labor scheduling.
Terminals may be configured with a touch screen rather than a fixed position
keyboard, allowing greater flexibility in menu design. The POS touch screen
configuration allows a restaurant manager to easily reconfigure or change the
menu to add new food items or provide combination meals without reprogramming
the system. Wireless hand-held terminals permit restaurant employees to take
orders while customers are waiting or in drive-thru lines, thus increasing the
speed of service, as the customer's food order is complete by the time he or she
reaches the counter and pays for the order. This system also utilitizes video
monitors, printers and various other devices that can be added to a LAN. The
manager can use a standard microcomputer to collect and report on
store-generated data.
Systems Integration. The Company utilizes its systems integration and
engineering expertise in developing functions and interfaces for its restaurant
technology products to meet diverse customer requirements. The Company works
closely with its customers to identify and accommodate the latest developments
in restaurant technology by developing interfaces to equipment, including
innovations such as automated cooking and drink dispensing devices,
customer-activated terminals and order display units located inside and outside
of the restaurant. The Company provides systems integration to interface
specialized components, such as television monitors, coin dispensers and
non-volatile memory for journalizing transaction data, as may be required in
some international applications. The Company also integrates the restaurant
manager's back office computer, as well as corporate home office computers, as
management information requirements dictate.
Manufacturing/Warehousing Transaction Processing Systems
The Company's manufacturing/warehousing transaction processing systems
business provides enabling and applications software and systems integration
services to manufacturing and warehousing end users through distributed
enterprise networks. The Company's primary product offering to the
manufacturing/warehousing industry is its Transaction Processing data collection
enabling software package. The Transaction Processing product is an open
platform, middleware application that provides connectivity across multiple
non-compatible host computers, including those manufactured by International
Business Machines Corporation, Hewlett-Packard Company, and Digital Equipment
Corporation. PAR's Transaction Processing software also provides connectivity
among diverse MRP, MRP II and MES programs (such as SAP and MANMAN) and
fixed-base and hand-held RF data collection terminals on the factory floor,
including those sold by Intermec Corporation, Percon, Inc., UBI Corporation and
Telxon Corporation. PAR's middleware offers simplified system use and operations
while maintaining system speed in complex transaction processing environments.
This software package provides a flexible and highly functional platform for
on-line transaction processing applications such as distribution time and
attendance, inventory control, warehousing, job status, scheduling and quality
control. Data can be directly read from and written to host databases, as well
as forwarded to managers, who can respond quickly to production deviations based
on real-time information.
The Company offers system integration services for implementing data
collection hardware and its software for its clients. PAR's team of systems
engineers, application developers, and product support personnel have experience
in providing optimal system integration solutions, and work closely with
customer personnel to define requirements, identify solutions, and implement
solutions based on the customer's needs.
X-Ray Inspection Systems
Qscan(R) is the first system fully designed for use on a food processor's
production line. The system detects and rejects small contaminants such as pits,
shards of glass, or slivers of metal in opaque, filled and capped food
containers. Certain containers can be examined on-line at high speeds--up to
1,100 per minute. This allows 100% inspection of all containers during the flow
of production.
Installation and Training
In the U.S., Canada, Europe, South Africa, Australia and Asia, PAR POS
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 America, Europe and Asia, the Company provides these
integration services through third parties.
Maintenance and Service
The Company offers a range of maintenance and support services as part of
its total solutions for its targeted transaction processing markets. In the
North American restaurant technology market, the Company provides comprehensive
maintenance and integration services for its own and third-party equipment and
systems through a 24-hour central telephone customer support and diagnostic
service in Boulder, Colorado and a field service network consisting of 60
locations offering factory, on-site, and depot maintenance and spare unit
rentals. When a restaurant technology system is installed, PAR employees train
the restaurant employees and managers to ensure efficient use of the system. If
a problem occurs, PAR's current software products allow a service technician to
diagnose the problem by telephone, greatly reducing the need for on-site service
calls. The Company has contracted with Taco Bell to serve as the exclusive
service integrator for restaurant technology systems, back office computer
systems, hand-held data entry devices and other computer-based equipment in all
company-owned Taco Bell, Taco Bell Express and Hot `n Now restaurants in the
United States, Canada and Puerto Rico.
The Company also maintains service centers in Europe, South Africa,
Australia and Asia. The Company believes that its ability to address all support
and maintenance requirements for a customer's restaurant technology network
provides it with a competitive advantage.
In the manufacturing/warehousing market, the Company offers technical
support through an experienced product support staff available in the field or
by telephone. The Company also provides training classes, led by experienced and
highly qualified personnel, on its products and integration services, including
both hands-on experience with use of software and operation of hardware. The
Company offers ongoing maintenance and enhancements.
Marketing
Restaurant Technology. Sales in the restaurant technology market are
usually generated by first gaining the acceptance of the restaurant chain as an
approved vendor. Upon approval, marketing efforts are then directed to
franchisees of the chain. Sales efforts are also directed toward franchisees of
chains for which the Company is not an approved vendor. The Company employs
direct sales personnel in five sales groups. The National Accounts Group works
with major restaurant chain customers. The North and South American Sales Group
targets franchisees of the major restaurant chain customers, franchisees of
other major chains, as well as smaller chains. The International Sales Group
seeks sales to major customers with restaurants overseas and to international
chains that do not have a presence in the United States. The New Accounts Group
seeks sales to major new corporate accounts. The Company's Reseller network
works exclusively with third party dealers and value added resellers throughout
the country.
Manufacturing/Warehousing Systems. The Company's direct sales efforts in
the manufacturing/ warehousing data collection market is generally focused on
the highest level of the customer's executive management. Substantial lead time
is required in sales efforts due to the fact that automation equipment is
normally fitted into the manufacturing or warehousing environment as a plant is
constructed. The Company has also entered into strategic marketing relationships
with several companies, including Intermec Corporation, Norand Corporation and
Telxon Corporation, and Digital Logistics Management.
X-Ray Inspection Systems. The Company currently utilizes a direct sales
force to market Qscan. The Company also has created an international dealer
network in Europe and Australia in order to address the wide geographical scope
of the market.
Competition
Competition in the restaurant technology and manufacturing/warehousing
transaction processing markets is based primarily on functionality, reliability,
quality, performance, price of products, and service and support. The Company
believes that its principal competitive advantages include its focus on a total
integrated solution offering, its advanced development capabilities, its
industry knowledge and experience, product reliability, its direct sales force,
the quality of its support and quick service response, and, to a lesser extent,
price. The markets in which the Company competes are highly competitive. There
are currently several suppliers who offer some form of sophisticated restaurant
technology system similar to the Company's. The Company competes with other
vendors of technology systems and the internal efforts of its current or
prospective customers. Major competitors include Panasonic, International
Business Machines Corporation, NCR and Micros Systems Inc. The Company believes
that the manufacturing/warehousing data collection market is highly fragmented.
Backlog
At December 31, 1997, the Company's backlog of unfilled orders for the
Commercial segment was approximately $6,159,000 compared to $1,877,000 a year
ago. Most of the present orders will be delivered in 1998. Commercial 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 restaurant POS technology,
manufacturing/ warehousing, and X-Ray inspection products requires a significant
and continuous research and development effort. The Company engages in the
research and development of new technologies under government contracts and
through internally funded projects. Research and development expenses on
internally funded projects were approximately $5,265,000 in 1997, $5,005,000 in
1996, $5,331,000 in 1995. See Note 1 to the Consolidated Financial Statements
incorporated herein by reference for discussion on Statement of Financial
Accounting Standards No. 86, Accounting for the Costs of Computer Software to be
Sold, Leased or Otherwise Marketed.
Manufacturing and Suppliers
The Company assembles its products from standard components, such as
integrated circuits, and fabricated parts such as printed circuit boards, metal
parts and castings, most of which are manufactured by others to the Company's
specifications. The Company depends on outside suppliers for the continued
availability of its components and parts. Although most items are generally
available from a number of different suppliers, the Company purchases certain
components from only one supplier. Items purchased from only one supplier
include certain printers, base castings and electronic components. If such a
supplier should cease to supply an item, the Company believes that new sources
could be found to provide the components. However, added cost and manufacturing
delays could result and adversely affect the business of the Company. The
Company has not experienced significant delays of this nature in the past, but
there can be no assurance that delays in delivery due to supply shortages will
not occur in the future.
Government Segment
PAR has two wholly owned subsidiaries in the government business segment,
PAR Government Systems Corporation (PGSC) and Rome Research Corporation (RRC).
These companies provide federal and state government organizations, including
the U. S. Department of Defense (DoD), with a wide range of technical products
and services. Some of the more significant areas that the Company is involved
include design, development and systems integration of state-of-the-art data
processing systems, advanced research and development for high-technology
projects, software development/ testing, engineering services, and operation &
maintenance for government facilities. The Company's offerings cover the entire
development cycle for Government systems: requirements analysis, design
specification, development, implementation, installation, test and evaluation.
Image & Signal Processing
This business sector deals with the collection and analysis of complex and
massive sensor data. The Company is a leader in developing and implementing
target detection and tracking algorithms for both radar and infrared sensor
systems. Since 1986, the Company has been a key contributor to the full-scale
engineering development for the Joint STARS program, providing algorithm
development and data handling for both moving target indicator and synthetic
aperture radar technologies that detect, track and target ground vehicles.
The Company's scientists have also developed sensor concepts and algorithms
to address the difficult problem of detecting low-contrast targets against
cluttered background (e.g., finding a cruise missile or fighter aircraft against
a terrain background). Through key contracts from the Defense Advanced Projects
Research Agency (DARPA), the U.S. Army and the U.S. Navy, the company is
creating data analysis systems for hyperspectral sensors, a new class of
infrared sensors.
Special Programs & C3I
The Company provides special data handling and system interoperability for
key Government customers. PAR's operation of the Image Exploitation 2000
facility for the Air Force's Rome Laboratory has assisted with the introduction
of many new data handling concepts, including imagery dissemination using
Internet technology. A key contract in command and control being conducted for
the National Imagery and Mapping Agency and the U.S. Air Force is the Image
Product Library, a multi-year effort that addresses the world-wide dissemination
of imagery to military commanders.
Logistics Management Systems
This division provides seamless visibility for a user's assets, utilizing
small electronic tags on assets and cargos to communicate information on an
asset's location and state. Under a contract with the U.S. Department of
Transportation and the National Institute for Environmental Renewal (NIER)
entitled Tranzit Xpress, the Company provided a system that monitors and tracks
hazardous material (HAZMAT) cargos on trucks in Northeastern Pennsylvania. The
current program phase tracks these cargos within an intermodal port facility in
Los Angeles, California. Through internal funding, the Company has extended this
technology to produce a commercial product, Cargo*Mate, that will be able to
track high-value or hazardous cargos in a variety of transport or warehouse
environments.
Environmental & GIS
An environmental measurement and data management system has been
implemented for the NIER that integrates field sensors, GIS systems, image
processing, contaminant monitoring, risk assessment, and site modeling. This
environmental data system has been used to assess conditions at several private
and government-owned sites, addressing air and water quality monitoring,
detection and monitoring of soil and underground contaminants, and emergency
response for flooding situations.
This division also addresses the movement of massive data sets, and the
adaptation of mapping data to meet user needs for mission planning, and decision
support. U.S. Government agencies use the Company's software to rapidly convert
images to digital maps; to store, edit, and retrieve such maps; and to extract
features from digital data bases. Applications of these GIS technologies also
address the needs of state and local government groups.
Test Laboratory and Range Operations
The Company provides management, engineering, and technical services under
several contracts with the U.S. Air Force and the U.S. Navy. These services
include the planning, execution, and evaluation of tests at government ranges
and laboratories operated and maintained by the Company. Test activities
encompass unique components, specialized equipment, and advanced systems for
radar, communications, electronic countermeasures, and integrated weapon
systems. The Company also develops complex measurement systems in several
defense-related areas of technology. These systems are computer-based and have
led to the development by the Company of a significant software capability,
which provides the basis for competing in new markets.
Software Test and Validation
The Company supports the Northrup Grumman Joint STARS program, which
provides the Company with a means of expanding its business base into a
different segment of the defense industry. The Joint STARS effort is the
Company's first venture into the software verification and validation arena,
with Company engineers embedded in the Northrup Grumman test organization for
formal qualification of the entire Joint STARS suite. The Company participates
in all phases of the test process, from initial analysis to government
acceptance. The ability to provide a wide range of software technology is
particularly important during a period when almost all engineering efforts
require the application of complex software and hardware in support of a given
task.
Facility Management
The Company manages all phases of airfield operations of the Griffiss
Minimum Essential Airfield (MEA) at the former Griffiss Air Force Base in Rome,
NY. Griffiss MEA has one of the world's largest runways, and is the only
airfield ever to be privatized by the U.S. Air Force. The Company provides a
full range of services, from air traffic control and airfield management to
grounds maintenance, in support of the U.S. Army's 10th Mountain Division. The
Company also supports the U.S. Navy at the Naval Radio Transmitting Facility in
Dixon, CA. The Company's staff will provide a wide range of operational services
in support of this critical Naval facility.
Advanced Research and Development
The Company supports numerous technology demonstrations for the DoD,
including the Advanced Sensor Technology Program (ASTP), dedicated to air
defense surveillance and reconnaissance systems for missile defense. The Company
supports the development of sensor systems and fusion processor programs for the
ASTP. The Company also supports Navy airborne surveillance systems through the
development of advanced optical sensors. Technology efforts include optical
materials characterization, laser design and analysis, image and signal
processing, and aircraft systems integration.
Government Contracts
The Company performs work for U.S. Government agencies under fixed-price,
cost-plus fixed fee, time-and-material, and incentive-type prime contracts and
subcontracts. Most of its contracts are for one-year to five-year terms. The
Company also has been awarded Task Order/Support contracts.
There are several risks associated with Government contracts. For example,
contracts may be terminated for the convenience of the Government any time the
Government believes that such termination would be in its best interests. Under
contracts terminated for the convenience of the Government, the Company is
entitled to receive payments for its allowable costs and, in general, a
proportionate share of its fee or profit for the work actually performed.
The Company's business with the U.S. Government is also subject to other
risks unique to the defense industry, such as reduction, modification, or delays
of contracts or subcontracts if the Government's requirements, budgets, or
policies or regulations change. The Company may also perform work prior to
formal authorization or to adjustment of the contract price for increased work
scope, change orders, and other funding adjustments.
Additionally, the Defense Contract Audit Agency on a regular basis audits
the books and records of the Company. Such audits can result in adjustments to
contract costs and fees. Audits have been completed through the Company's fiscal
year 1994 and have not resulted in any material adjustments.
Marketing and Competition
Primarily senior- and middle management and technical staff members conduct
the Company's marketing activities in the Government sector. Marketing begins
with collecting information from a variety of sources concerning the present and
future requirements of the Government and other potential customers for the
types of technical expertise provided by the Company. A proven approach is for
the Company to enter into teaming arrangements with other contractors. Teaming
arrangements allow the contractors to complement the unique capabilities of each
other and to offer the Government the best combination of capabilities to
achieve the performance, cost, and delivery schedule desired for the system
being procured. Structuring the right teaming arrangement can significantly
enhance a contractor's competitive position. Some of the contractors that the
Company has previously, or is presently, teamed with are AAI, GDE, Harris,
Lockheed-Martin, Northrop Grumman Corporation, GTE, and TASC.
Although the Company believes it is positioned well in its chosen areas of
image and signal processing, telecommunications and engineering services,
competition for Government contracts is intense. Many of the Company's
competitors are, or are controlled by, companies such as Lockheed-Martin, SAIC
and Hughes that are larger and have substantially greater financial resources.
The Company also competes with many smaller companies that target particular
segments of the Government market. Typically, seven or more companies will
compete for each contract and, as previously discussed, PAR sometimes bids as
part of a team with other companies. Contracts are obtained principally through
competitive proposals in response to requests for bids from Government agencies
and prime contractors. The principal competitive factors are prior experience,
the ability to perform, price, technological capabilities, and service. In
addition, the Company sometimes obtains contracts by submitting unsolicited
proposals.
Backlog
The dollar value of existing Government contracts at December 31, 1997, net
of amounts relating to work performed to that date, was approximately
$21,500,000, of which $11,000,000 was funded. At December 31, 1996, the
comparable amount was approximately $19,700,000, of which $4,800,000 was funded.
Funded represents amounts committed under contract by Government agencies and
prime contractors. The December 31, 1997 Government contract backlog of
$21,500,000 represents firm, existing contracts. Approximately $14,900,000 of
this amount will be completed in calendar year 1998 as funding is committed.
Employees
As of December 31, 1997, the Company had 880 employees, approximately 67%
of whom are engaged in the Company's Commercial segment, 27% 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.
None of the Company's employees are covered by collective bargaining
agreements. The Company considers its employee relations to be good.
Item 2: Properties
The following are the principal facilities (by square footage) of the
Company:
Industry Floor Area Number of
Location Segment Principal Operations Sq. Ft.
-------- ------- -------------------- -------
New Hartford, NY Commercial Principal executive offices 146,000
Government manufacturing, research and
development laboratories,
computing facilities
Boulder, CO Commercial Service 17,500
Rome, NY Government Research and Development 15,500
Norcross, GA Commercial Research and Development 9,200
Sydney, Australia Commercial Sales and Service 8,800
La Jolla, CA Government Research and Development 8,400
Boca Raton Commercial Research and Development 7,300
Arlington, TX Commercial Sales, Research and Development 6,100
San Antonio, TX Commercial Sales 4,700
Irvine, CA Commercial Sales and Service 4,500
The Company's headquarters and principal business facility is located in
New Hartford, New York, which is near Utica, located in Central New York State.
The Company owns its principal facility and adjacent space in New Hartford,
N.Y. All of the other facilities are leased for varying terms. Substantially all
of the Company's facilities are fully utilized, well maintained, and suitable
for use. The Company believes its present and planned facilities and equipment
are adequate to service its current and immediately foreseeable business needs.
Item 3: Legal Proceedings
The Company is subject to legal proceedings which arise in ordinary course
of business. In the opinion of Management, the ultimate liability, if any, with
respect to these actions will not materially affect the financial position of
the Company.
Item 4: Submission of Matters to a Vote of Security Holders
None
PART II
Item 5: Market for the Registrant's Common Stock and Related Stockholder Matters
The Company's Common Stock, par value $.02 per share, trades on the New
York Stock Exchange (NYSE symbol - PTC). At December 31, 1997, there were
approximately 882 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, 1997 as reported by New York Stock Exchange:
1997 1996
---------------- -----------------
Period Low High Low High
------ --- ---- --- ----
First Quarter 9 7/8 14 3/4 8 1/4 16 7/8
Second Quarter 8 1/8 10 7/8 14 1/8 19 7/8
Third Quarter 8 1/8 10 7/16 12 3/8 17 3/4
Fourth Quarter 9 1/16 11 15/16 10 3/4 14 3/4
The Company has not paid cash dividends on its common stock, and its Board
of Directors presently intends to continue to retain earnings for reinvestment
in growth opportunities for the Company. Accordingly, it is anticipated that no
cash dividends will be paid in the foreseeable future.
Item 6: Selected Financial Data
SELECTED CONSOLIDATED STATEMENT OF INCOME DATA
(In thousands, except per share amounts)
Year ended December 31,
-----------------------------------------------------------
1997 1996 1995 1994 1993
-----------------------------------------------------------
Total revenues $ 100,020 $ 117,661 $ 107,394 $ 94,530 $ 81,247
========= ========= ========= ========= =========
Net income (loss) $ (8,719) $ 5,947 $ 4,658 $ 3,661 $ 2,529
========= ========= ========= ========= =========
Diluted earnings
(loss) per share $ (.99) $ .69 $ .58 $ .46 $ .32
========= ========= ========= ========= =========
SELECTED CONSOLIDATED BALANCE SHEET DATA
(In thousands)
December 31,
-----------------------------------------------
1997 1996 1995 1994 1993
-----------------------------------------------
Working capital $53,382 $62,107 $42,976 $38,915 $34,489
Total assets 83,204 86,758 68,073 60,642 60,449
Long-term debt -- -- -- -- --
Shareholders' equity 63,417 72,602 53,132 48,645 44,530
Item 7: Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis highlights items having a significant
effect on operations during the three-year period ended December 31, 1997. It
may not be indicative of future operations or earnings. It should be read in
conjunction with the Consolidated Financial Statements and Notes thereto and
other financial and statistical information appearing elsewhere in this report.
Results of Operations -- 1997 Compared to 1996
PAR Technology Corporation reported a loss per share of $.99 for the year
ended December 31, 1997, compared to earnings per share of $.69 for the year
ended December 31, 1996. The Company reported a net loss of $8.7 million in 1997
compared to net income of $5.9 million for 1996. Revenues for 1997 were $100
million versus $117.7 million for 1996, a decrease of 15%.
The 1997 results include an after tax charge of $1.7 million, or $.19 loss
per share, relating to a receivable from Phoenix Systems & Technologies, Inc.
(Phoenix). This arises primarily from accounts receivable due Rome Research
Corporation (RRC), a wholly owned subsidiary of PAR, from Phoenix. Phoenix is in
arrears on significant moneys owed to RRC as a result of a sub-contractor
relationship. See Note 2 to the Consolidated Financial Statements for further
discussion.
The 1997 results also include an after tax charge of $580,000, or $.07
loss per share, pertaining to the Corneal Topography (CTS) business. This charge
involves obsolete CTS inventory due to the development of a new product.
Product revenues were $47 million for 1997, a 26% decrease from the $63.1
million recorded in 1996. The decrease was primarily due to sales of the
Company's restaurant products. In 1997, the Company was in transition due to
delays in the release and stabilization of its new hardware and software
products and the restructuring of its direct sales force. Also contributing to
this revenue decline was lower sales to Taco Bell and Whataburger due to the
completion, by PAR, of these customer's requirements in 1996. Partially
offsetting this decline was sales of the Company's new POS 4 hardware to Burger
King under the Company's contract with this customer. Another significant event
in 1997 was the certification by McDonald's of the Company's new POS 4 hardware
system. The Company also continued to expand its international presence in 1997
with sales of its POS systems to several new countries and now has its systems
installed in 90 countries.
Service revenues decreased 8% to $27.8 million in 1997 compared to $30.1
million for 1996. This decrease was due to a certain integration project
requested by a customer in 1996 with no similar project in 1997. The decline is
also due to lower installation revenue directly related to the decrease in
product revenues discussed above. This decline was partially offset by the
expansion of Taco Bell service integration contract. Under this agreement, the
Company is responsible for servicing all Taco Bell restaurant and back office
systems, and performing Help Desk and on-site support activities.
Contract revenues were $25.2 million for 1997, an increase of 3% from the
$24.4 million reported in 1996. The Company experienced modest growth in the
areas of engineering services and software development and integration. The most
significant element of this growth continues to be related to the Company's
Griffiss Minimum Essential Airfield Contract. Also contributing to this growth
was a $5 million contract awarded in 1997 under the U.S. Air Force's Image
Product Library Program. This program provides imagery and imagery product
archives in support of tactical users.
Gross margin on product revenues was 29% compared to 41% in 1996. The
decline in margins was primarily due to product mix as the 1997 Burger King
sales included only the Company's hardware products. Additionally, certain start
up costs for the Company's new products and a higher level of obsolescence on
older product lines also contributed to the margin decline.
Gross margin on service revenues was 10% in 1997 versus 14% in 1996. This
decline was primarily due to a change in the mix of service offerings as the
Company recorded lower installation revenue in 1997 than in 1996. An increased
provision for obsolescence on older service parts also accounted for the margin
decline.
Gross margin on contract revenues was 5% in 1997, unchanged from 1996. The
Company typically experiences between 5% and 6% margin on its contract business.
Selling, general and administrative expenses were $23 million in 1997, an
increase of 28% from the $18 million recorded in 1996. Included in 1997 expenses
is a charge of $1.8 million relating to receivables of the Company's government
business. The largest of these receivables relates to a developmental and
marketing relationship with a third party wherein the Company undertook certain
development activities for which it was not paid. The Company also increased its
investment in its worldwide POS sales and marketing force and recorded a higher
provision for bad debts in 1997 than in 1996. Additionally, the Company
increased its contributions to the deferred profit sharing retirement plan in
1997 compared to 1996.
Research and development expenses were $5.3 million in 1997, an increase of
5% from the $5 million reported a year ago. The Company increased expenditures
in its restaurant business in conjunction with the release of several new
products in 1997. Research and development costs attributable to government
contracts are included in cost of contract revenues.
Other income declined 51% from $678,000 in 1996 to $333,000 in 1997. The
decrease was primarily due to lower interest income in 1997 as a result of lower
cash balances throughout the year.
In 1997, the Company recognized an income tax benefit of $4.9 million. In
1996, the Company's effective tax rate was 32.5%. The 1996 variance from the
statutory rate was primarily due to the favorable results of a federal income
tax audit.
Results of Operations -- 1996 Compared to 1995
Earnings per share were $.69 for the year ended December 31, 1996, an
increase of 19% from the $.58 per share recorded for the year ended December 31,
1995. Net income increased 28% to $5.9 million in 1996 compared to $4.7 million
for 1995. Revenues for 1996 were $117.7 million versus $107.4 million for 1995,
an increase of 10%.
Product revenues were $63.1 million for 1996, an 8% increase from the $58.3
million recorded in 1995. The increase was primarily due to sales of the
Company's restaurant products. The Company's international product revenues
increased 17% as major customers, KFC International and McDonald's, expanded
their operations abroad. Domestically, the Company added Whataburger, Inc., a
Texas based quick service restaurant chain, as a new account and increased its
sales to Burger King Corporation ("Burger King") and Taco Cabana. The Company
was selected in June 1996 as the provider of next-generation POS hardware
solutions for Burger King. Partially offsetting these increases were lower sales
to Taco Bell and McDonald's domestic restaurants. During 1996, the Company
delivered systems that will fulfill Taco Bell's requirements through
substantially all of 1997. The decline in McDonald's revenue was primarily the
result of continuing efforts by this customer to select its future software
migration path. Numerous replacement decisions were postponed pending the
outcome of this matter.
The Company's manufacturing/warehousing ITIP business also reported lower
sales. Although the Company added several new customers during 1996, the growth
of this business was interrupted by technical problems encountered during the
implementation of a large cellular network at a customer plant. Through our
integration skills the problem was solved and the customer proceeded with the
rollout of our products at additional sites.
Service revenues increased 20% to $30.1 million in 1996 compared to $25.1
million for 1995. This increase was due to certain integration projects
requested by customers, and the expansion of the exclusive service integration
contract with Taco Bell which was awarded in the third quarter of 1995. Growth
in installation and repair revenue also contributed to this increase.
Contract revenues were $24.4 million for 1996, an increase of 2% from the
$24 million reported in 1995. The government segment's engineering services
business increased primarily due to the Griffiss Minimum Essential Airfield
Contract awarded to Phoenix in 1995. The Company is a subcontractor to Phoenix
to operate and maintain Griffiss Air Force Base. Additionally, the Company's
software development and systems integration business continued to expand its
efforts in environmental monitoring and hazardous materials tracking. Partially
offsetting this increase was the cancellation for convenience of certain
software development contracts of the Company by the Department of Defense and
the completion of a large engineering services program in 1995.
Gross margin on product revenues was 41% compared to 42% in 1995. Margins
declined due to a reduction in average selling prices to several major customers
during the year. The Company was able to minimize the effect of these pricing
actions through lower part costs and other manufacturing cost reductions.
Gross margin on service revenues was 14% in 1996 versus 17% in 1995.
Periodically, the Company is requested to perform specific integration projects
for certain customers. In 1996 these projects involved more labor and generated
less gross margin than the 1995 projects. Additionally, costs relating to the
transition to a new third party service provider contributed to the margin
decline in 1996.
Gross margin on contract revenues was 5% in 1996 compared to 6% in 1995.
This decrease is attributable to contract mix and higher award fees in 1995.
Selling, general and administrative expenses were $18 million in 1996, a
decrease of 3% from the $18.5 million recorded in 1995. Included in 1995 was
$1.1 million for allowances related to the Company's investment in and
receivable from Phoenix. Partially offsetting this decrease were expanding sales
force costs in the Company's restaurant, manufacturing/warehousing and Vision
businesses.
Research and development expenses were $5 million in 1996, a decrease of 6%
from the $5.3 million reported a year ago. Although the Company increased
expenditures in its ITIP restaurant and manufacturing/warehousing businesses,
net research and development expenses declined due to the requirement to
capitalize certain software development costs under the Statement of Financial
Accounting Standards No. 86, Accounting for the Costs of Computer Software to be
Sold, Leased, or Otherwise Marketed. The Company incurred more software
development costs meeting this requirement in 1996 than in 1995. Research and
development costs attributable to government contracts are included in cost of
contract revenues.
The Company's effective tax rate was 32.5% in 1996 compared to 33.6% in
1995. In 1996, the Company benefited from the favorable results of a federal
income tax audit. In 1995, the tax rate reflected the utilization of certain
foreign tax credits.
Liquidity and Capital Resources
Cash flows to meet the Company's requirements of operating, investing and
financing activities during the past three years are reported in the
Consolidated Statement of Cash Flows.
Cash flow used by operating activities was $1.6 million in 1997 compared to
$2.9 million in 1996. The use of cash in 1997 was primarily due to the operating
loss and a build up in inventory levels in anticipation of future sales. This
was partially offset by the collection of accounts receivable in 1997 pertaining
to 1996 sales. The Company's accounts receivable balance grew substantially in
1996 as the result of timing of certain customer payments which were not due
until the first quarter of 1997. Inventory levels also increased during 1996 due
to the requirements to support the Company's different product lines, including
its new POS IV products, and the need for additional service inventory to
support expanding service integration activities.
Cash used in investing activities was $3 million in 1997 compared to $2.5
million in 1996. The Company incurred $1.5 million for capital expenditures in
1997 which were primarily for upgrades to the Company's manufacturing facility.
Capital expenditures in 1996 were primarily for internal use computer hardware
and software.
Cash flow provided by financing activities was $159,000 in 1997 versus
$13.3 million in 1996. In 1997, the Company received a $312,000 benefit from the
exercise of employee stock options. The Company also repurchased 13,000 shares
of its stock at a cost of $163,000. In 1996 the Company sold 975,200 shares of
common stock in a secondary offering which netted approximately $13.3 million.
The Company also received a $2.2 million benefit in 1996 from the exercise of
employee stock options. Additionally in 1996, the Company purchased into
treasury, 134,000 shares of its stock at a cost of approximately $2 million.
The Company has line-of-credit agreements with certain banks, which
aggregate $34.4 million, virtually all of which were unused at December 31,
1997. The Company believes that it has adequate financial resources to meet its
future liquidity and capital requirements.
Year 2000--As part of the Company's continuing process to update its
products and internal systems, the Company is evaluating the costs associated
with testing and, as necessary, modifying its products and internal systems for
the Year 2000. The Company expects to incur internal staff costs and outside
consulting costs associated with the Year 2000 conversion effort. The total
incremental cost of this effort, at this time, cannot be estimated. As the
process of analyzing the Company's products and internal systems continues,
however, the Company will expense such costs as they are incurred. Although the
Company at present does not believe the cost of implementing any changes to
address Year 2000 issues will have a material effect on the Company's results of
operations or financial condition, there can be no assurance that there will not
be a delay in or significantly increased costs associated with the
implementation of any necessary changes and the Company's inability to implement
such changes could have an adverse effect on future results of operations.
Important Factors Regarding Future Results
Information provided by the Company, including information contained in
this Annual Report, or by its spokespersons from time to time may contain
forward-looking statements. Forward-looking statements are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that all forward-looking statements involve risks and
uncertainties, including without limitation, risks in technology development and
commercialization, risks in product development and market acceptance of and
demand for the Company's products, risks of downturns in economic conditions
generally, and in the quick service sector of the restaurant market
specifically, risks of intellectual property rights associated with competition
and competitive pricing pressures, risks associated with foreign sales and high
customer concentration and other risks detailed in the Company's filings with
the Securities and Exchange Commission.
Item 8: Financial Statements and Supplementary Data
The Company's 1997 Financial Statements, together with the report thereon
of Price Waterhouse LLP dated February 5, 1998, are included elsewhere herein.
See Item 14 for a list of Financial Statements and Financial Statement
Schedules.
Item 9: Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
PART III
Item 10: Directors, Executive Officers and Other Significant Employees of the
Registrant
The directors and executive officers of the Company and their respective ages
and positions are:
Name Age Position
---- --- --------
Dr. John W. Sammon, Jr 58 Chairman of the Board, President
and Director
Charles A. Constantino 58 Executive Vice President and Director
J. Whitney Haney 63 Director
Sangwoo Ahn 59 Director
Dr. James C. Castle 61 Director
Albert Lane, Jr 56 President, PAR Government Systems and
Rome Research
Ronald J. Casciano 44 Vice President, C.F.O. and Treasurer
Other senior officers and significant employees of the Company and their
respective ages and positions are:
Name Age Position
---- --- --------
Gregory T. Cortese 48 Vice President, Business & Legal Affairs,
General Counsel and Secretary
Donald A. England 46 Vice President, Worldwide Sales,
ParTech, Inc.
William J. Francis 46 Vice President Customer Service,
ParTech, Inc.
Michael Gutshick 46 Vice President, Account Management,
ParTech, Inc.
Sam Y. Hua 36 Vice President, Product Planning,
ParTech, Inc.
Name Age Position
---- --- --------
John Kiehm 49 President, PAR Vision Systems Corporation
F. Tibertus Lenz 47 Vice President and General Manager
Industrial Transaction Processing Systems,
ParTech, Inc.
Fred A. Matrulli 52 Vice President Operations, PAR Vision
Systems Corporation
Victor Melnikow 40 Vice President, Finance, Rome Research
Corporation
E. John Mohler 54 Vice President Telecommunications
Programs, PAR Government Systems
Corporation
Dr. John P. Retelle, Jr 52 Executive Vice President, Business
Development, PAR Government Systems and
Rome Research Corporation
Warren M. Thomas 59 Vice President Advanced Technology
Development, PAR Government Systems
Corporation
Ben F. Williams 56 Vice President Business Development,
ParTech, Inc.
William J. Williams 36 Vice President Operations, ParTech, Inc.
Alexander J. Zanon 59 Senior Vice President Operations,
PAR Government Systems Corporation
The Company's Directors are elected in classes with staggered three-year
terms with one class being elected at each annual meeting of shareholders. The
Directors serve until the next election of their class and until their
successors are duly elected and qualified. The Company's officers are appointed
by the Board of Directors and hold office at the will of the Board of Directors.
The principal occupations for the last five years of the directors,
executive officers, and other significant employees of the Company are as
follows:
Dr. John W. Sammon, Jr. is the founder of the Company and has been the
President and a Director since its incorporation in 1968. He has authored
several papers in the field of Artificial Intelligence and Pattern Recognition
and is a Fellow of the Institute of Electronic Engineers.
Mr. Charles A. Constantino has been a Director of the Company since 1971
and Executive Vice President since 1974.
Mr. J. Whitney Haney has been a Director of the Company and President of
PTI since April, 1988. He retired in 1997 as President of ParTech, Inc.
Mr. Sangwoo Ahn was appointed a Director of the Company in March, 1986. He
has been a partner of Morgan, Lewis, Githens & Ahn (investment banking) since
1982.
Dr. James C. Castle was appointed a Director of the Company in December,
1989. Dr. Castle has been the Chairman and CEO of U.S.C.S. International
(previously U.S. Computer Services Corporation) since August, 1992.
Mr. Albert Lane, Jr. was appointed to President, Rome Research in 1988. He
was additionally appointed President of PAR Government Systems in 1997.
Mr. Ronald J. Casciano, CPA, was promoted to Vice President, C.F.O.,
Treasurer in June, 1995. Mr. Casciano had been Vice President and Treasurer
since 1994.
Mr. Gregory T. Cortese has been Vice President, Business and Legal Affairs
since 1993.
Mr. Donald A. England was promoted to Vice President, Worldwide Sales of
ParTech, Inc. in 1997. Previously, he was the Vice President of National
Accounts.
Mr. William J. Francis was promoted to Vice President, Customer Service of
ParTech, Inc. in February 1997. Previously he was the Vice President, Finance
and Operations.
Mr. Michael Gutschick was promoted to Vice President, Account Management of
ParTech, Inc. in 1997. Previously, he was an Account Manager with the Company.
Mr. Sam Y. Hua joined the Company in 1997 as Vice President of Product Planning.
He previously was President of ISSI Corporation.
Mr. John Kiehm was appointed President of PAR Vision Systems in 1997.
Previously, he had been Sales Manager.
Mr. F. Tibertus Lenz was promoted to Vice President and General Manager,
Industrial Trans- action Processing Systems in 1989.
Mr. Fred A. Matrulli was promoted to Vice President, Operations of PAR
Vision Systems in January, 1993. He held the positions of Vice President
Production and Manager of Hardware Development for ParTech, Inc. since 1987.
Mr. Victor Melnikow was promoted to Vice President, Finance of Rome
Research in July, 1995. Previously, he held the position of Controller.
Mr. E. John Mohler joined the Company in 1994 as Vice President,
Telecommunications Programs for PAR Government Systems. Prior to this, he was a
self-employed consultant.
Dr. John P. Retelle, Jr. was promoted to Executive Vice President, Business
Development, of PAR Government Systems and Rome Research Corporation in December
1997. Previously he was President of PAR Government Systems. He was Vice
President, Business Development and joined the Company in July, 1993.
Mr. Warren M. Thomas joined the Company in 1994 as Vice President, Advanced
Technology Development of PAR Government Systems. Prior to PAR, he was Manager
of Advanced Program Development for Northrop Grumman Corporation.
Mr. Ben F. Williams was appointed Vice President, Business Development in
1986.
Mr. William J. Williams was promoted to Vice President, Operations of
ParTech, Inc. in February 1997. Prior to this position, Mr. Williams was the
Director of Manufacturing.
Mr. Alexander J. Zanon was promoted to Senior Vice President, Operations of
PAR Government Systems in 1986.
Item 11: Executive Compensation
The information required by this item will appear under the caption
"Executive Compensation" in the Company's 1998 definitive proxy statement for
the annual meeting of stockholders on May 21, 1998 and is incorporated herein by
reference.
Item 12: Security Ownership Of Certain Beneficial Owners
The information required by this item will appear under the caption
"Security Ownership Of Management And Certain Beneficial Owners" in the
Company's 1998 definitive proxy statement for the annual meeting of stockholders
on May 21, 1998 and is incorporated herein by reference.
Item 13: Certain Relationships and Related Transactions
The information required by this item will appear under the caption
"Executive Compensation" in the Company's 1998 definitive proxy statement for
the annual meeting of stockholders on May 21, 1998 and is incorporated herein by
reference.
PART IV
Item 14: Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Documents filed as a part of the Form 10-K
(1) Financial Statements:
Report of Independent Accountants
Consolidated Balance Sheet at December 31, 1997 and 1996
Consolidated Statement of Income for the three
years ended December 31, 1997
Consolidated Statement of Changes in Shareholders' Equity for
the three years ended December 31, 1997
Consolidated Statement of Cash Flows for the three years
ended December 31, 1997
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules:
Valuation and Qualifying Accounts and Reserves (Schedule II)
(b) Reports on Form 8-K
None
(c) Exhibits
See list of exhibits on page 54
(d) Financial statement schedules
See (a)(2) above.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of PAR Technology Corporation
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a) (1) and (2) on page 30 of the Annual Report on Form
10-K present fairly, in all material respects, the financial position of PAR
Technology Corporation and its subsidiaries at December 31, 1997 and 1996, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1997, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Syracuse, New York
February 5, 1998
CONSOLIDATED BALANCE SHEET
(In Thousands Except Share Amounts) December 31,
- ----------------------------------- --------------------
1997 1996
--------------------
Assets
Current Assets:
Cash .................................. $ 3,977 $ 8,391
Accounts receivable-net (Note 3) ...... 29,938 42,335
Inventories (Note 4) .................. 31,168 21,988
Income tax refund claims .............. 214 222
Deferred income taxes (Note 8) ........ 5,876 1,096
Other current assets .................. 1,340 1,261
------ ------
Total current assets .............. 72,513 75,293
Property, plant and equipment - net (Note 5) 7,013 7,243
Other assets ............................... 3,678 4,222
------ ------
$ 83,204 $ 86,758
====== ======
Liabilities and Shareholders' Equity
Current Liabilities:
Notes payable (Note 6) ................ $ 195 $ 185
Accounts payable ...................... 8,664 5,127
Accrued salaries and benefits ......... 3,804 2,750
Accrued expenses ...................... 3,444 2,883
Deferred service revenue .............. 3,024 2,241
------ ------
Total current liabilities ......... 19,131 13,186
------ ------
Deferred income taxes (Note 8) ............. 656 970
------ ------
Shareholders' Equity (Note 7):
Common stock, $.02 par value,
12,000,000 shares authorized;
9,466,771 and 9,416,721 shares issued
8,864,265 and 8,826,315 outstanding . 189 188
Preferred stock, $.02 par value,
250,000 shares authorized ........... -- --
Capital in excess of par value ........ 27,875 27,564
Retained earnings ..................... 38,960 47,679
Cumulative translation adjustment ..... (682) (67)
Treasury stock, at cost, 602,506 and
590,406 shares ...................... (2,925) (2,762)
------ ------
Total shareholders' equity ........ 63,417 72,602
------ ------
Contingent liabilities (Note 10)
------ ------
$ 83,204 $ 86,758
====== ======
The Accompanying Notes are an Integral Part of the Financial Statements
CONSOLIDATED STATEMENT OF INCOME
(In Thousands Except Per Share Amounts)
Year ended December 31,
---------------------------------
1997 1996 1995
---------------------------------
Net revenues:
Product ................................ $ 47,019 $ 63,134 $ 58,306
Service ................................ 27,833 30,124 25,059
Contract ............................... 25,168 24,403 24,029
------- ------- -------
100,020 117,661 107,394
------- ------- -------
Costs of sales:
Product ................................ 33,267 37,407 34,028
Service ................................ 24,948 25,979 20,807
Contract ............................... 23,884 23,093 22,492
------- ------- -------
82,099 86,479 77,327
------- ------- -------
Gross margin ..................... 17,921 31,182 30,067
------- ------- -------
Operating expenses:
Selling, general and administrative .... 23,122 18,044 18,499
Research and development ............... 5,265 5,005 5,331
Non-recurring charges (Note 2) ......... 3,535 -- --
------- ------- -------
31,922 23,049 23,830
------- ------- -------
Income (loss) from operations ............... (14,001) 8,133 6,237
Other income, net ........................... 333 678 778
------- ------- -------
Income (loss) before provision for
income taxes .............................. (13,668) 8,811 7,015
Provision (benefit) for income taxes (Note 8) (4,949) 2,864 2,357
------- ------- -------
Net income (loss) ........................... $ (8,719) $ 5,947 $ 4,658
======= ======= =======
Earnings (loss) per share
Diluted ................................ $ (.99) $ .69 $ .58
======= ======= =======
Basic .................................. $ (.99) $ .72 $ .61
======= ======= =======
Weighted average shares outstanding
Diluted ................................ 8,846 8,643 8,068
======= ======= =======
Basic .................................. 8,846 8,238 7,683
======= ======= =======
The Accompanying Notes are an Integral Part of the Financial Statements
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Common Stock Capital in Cumulative Treasury Stock
------------ excess of Retained Translation -----------------
(In Thousands) Shares Amount Par Value Earnings Adjustment Shares Amount
------ ------ --------- ------------------- ------ ------
Balance at
December 31, 1994 ................ 9,031 $ 181 $13,268 $37,074 $ (181) (1,374) $(1,697)
Net income .......................... 4,658
Issuance of common stock upon the
exercise of stock options (Note 7) 82 1 396
Translation adjustments ............. 14
Acquisition of treasury stock ....... (57) (582)
----- ------ ------ ------ ----- ----- -----
Balance at
December 31, 1995 ................ 9,113 182 13,664 41,732 (167) (1,431) (2,279)
Net income .......................... 5,947
Issuance of common stock ............ 11,748 975 1,554
Issuance of common stock upon the
exercise of stock options (Note 7) 304 6 2,152
Translation adjustments ............. 100
Acquisition of treasury stock ....... (134) (2,037)
----- ------ ------ ------ ----- ----- -----
Balance at
December 31, 1996 ................ 9,417 188 27,564 47,679 (67) (590) (2,762)
Net loss ............................ (8,719)
Issuance of common stock upon the
exercise of stock options (Note 7) 50 1 311
Translation adjustments ............. (615)
Acquisition of treasury stock ....... (13) (163)
----- ------ ------ ------ ----- ----- -----
Balance at
December 31, 1997 ................ 9,467 $ 189 $27,875 $38,960 $ (682) (603) $(2,925)
===== ====== ====== ====== ====== ==== ======
The Accompanying Notes are an Integral Part of the Financial Statements
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands) Year ended December 31,
--------------------------------
1997 1996 1995
--------------------------------
Cash flows from operating activities:
Net income (loss) ............................ $ (8,719) $ 5,947 $ 4,658
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ....... 2,282 2,342 2,414
Provision for obsolete inventory .... 4,595 2,143 2,072
Translation adjustments ............. (615) 100 14
Increase (decrease) from changes in:
Accounts receivable-net ............. 12,397 (5,861) (8,371)
Inventories ......................... (13,775) (6,330) (3,406)
Income tax refund claims ............ 8 (222) --
Other current assets ................ (79) (171) 370
Other assets ........................ 1,487 (371) (907)
Accounts payable .................... 3,537 202 1,293
Accrued salaries and benefits ....... 1,054 (1,436) 312
Accrued expenses .................... 561 1,349 297
Deferred service revenue ............ 783 27 204
Income taxes payable ................ -- (1,005) 697
Deferred income taxes ............... (5,094) 386 (414)
------ ------ ------
Net cash used by operating activities ............. (1,578) (2,900) (767)
------ ------ ------
Cash flows from investing activities:
Capital expenditures ......................... (1,520) (1,302) (1,288)
Capitalization of software costs ............. (1,475) (1,187) (500)
------ ------ ------
Net cash used in investing activities ............. (2,995) (2,489) (1,788)
------ ------ ------
Cash flows from financing activities:
Net borrowings (payments) under
line-of-credit agreements .................. 10 (101) 286
Net proceeds from issuance of common stock ... -- 13,302 --
Proceeds from the exercise of stock options .. 312 2,158 397
Acquisition of treasury stock ................ (163) (2,037) (582)
------ ------ ------
Net cash provided by financing activities ......... 159 13,322 101
------ ------ ------
Net increase (decrease) in cash
and cash equivalents ............................ (4,414) 7,933 (2,454)
Cash and cash equivalents at
beginning of year ............................... 8,391 458 2,912
------ ------ ------
Cash and cash equivalents at
end of year ..................................... $ 3,977 $ 8,391 $ 458
====== ====== ======
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest ................................. $ 19 $ 54 $ 20
Income taxes, net of refunds ............. 94 2,537 1,940
The Accompanying Notes are an Integral Part of the Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 -- Summary of Significant Accounting Policies
Basis of consolidation
The consolidated financial statements include the accounts of PAR
Technology Corporation and its wholly owned subsidiaries (ParTech, Inc., PAR
Government Systems Corporation, Rome Research Corporation and PAR Vision Systems
Corporation), collectively referred to as the "Company." All significant
intercompany transactions have been eliminated in consolidation.
Revenue recognition
Revenues from sales of commercial products are generally recorded as the
products are shipped, provided that no significant vendor and post-contract
support obligations remain and the collection of the related receivable is
probable. Costs relating to any remaining insignificant vendor and post-contract
obligations are accrued. The Company's service revenues are recognized ratably
over the related contract period or as the services are performed. Billings in
advance of the Company's performance of such work are reflected as deferred
service revenue in the accompanying consolidated balance sheet.
The Company's contract revenues result primarily from contract services
performed for the United States Government under a variety of
cost-reimbursement, time-and-material and fixed-price contracts. Contract
revenues, including fees and profits, are recorded as services are performed
using the percentage-of-completion method of accounting, primarily based on
contract costs incurred to date compared with estimated costs at completion.
Anticipated losses on all contracts and programs in process are recorded in full
when identified. Unbilled accounts receivable are stated at estimated realizable
value. Contract costs, including indirect expenses, are subject to audit and
adjustment through negotiations between the Company and government
representatives. Contract revenues have been recorded in amounts that are
expected to be realized on final settlement. The Company follows accepted
industry practice and records amounts retained by the government on contracts as
a current asset.
Statement of cash flows
For purposes of reporting cash flows, the Company considers all highly
liquid investments, purchased with a remaining maturity of three months or less,
to be cash equivalents. The effect of changes in foreign-exchange rates on cash
balances is not material.
Inventories
Inventories are valued at the lower of cost or market, cost being
determined on the basis of the first-in, first-out (FIFO) method.
Property, plant and equipment
Property, plant and equipment are recorded at cost and depreciated using
the straight-line or an accelerated method over the estimated useful lives of
the assets, which range from three to twenty years. Expenditures for maintenance
and repairs are expensed as incurred.
Warranties
A majority of the Company's products are under warranty for defects in
material and workmanship for various periods of time. The Company establishes an
accrual for estimated warranty costs at the time of sale.
Income taxes
The provision for income taxes is based upon pretax earnings with deferred
income taxes provided for the temporary differences between the financial
reporting basis and the tax basis of the Company's assets and liabilities. The
Company believes its more likely than not to realize the net deferred tax asset
and accordingly no valuation allowance has been made.
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. Exchange gains and losses on intercompany balances of a
long-term investment nature are also recorded as a translation adjustment.
Foreign currency transaction gains and losses, which historically have been
immaterial, are included in net income.
Research and development costs
The Company capitalizes certain costs related to the development of
computer software under the requirements of Statement of Financial Accounting
Standards No. 86, Accounting for the Costs of Computer Software to be Sold,
Leased, or Otherwise Marketed. Software development costs incurred prior to
establishing technological feasibility are charged to operations and included in
research and development costs. Software development costs incurred after
establishing feasibility are capitalized and amortized on a product-by-product
basis when the product is available for general release to customers. The
unamortized computer software costs included in other assets amounted to
$2,792,000 and $1,818,000 at December 31, 1997 and 1996, respectively. Annual
amortization, charged to cost of sales, is the greater of the amount computed
using the ratio that current gross revenues for a product bear to the total of
current and anticipated future gross revenues for that product, or the
straight-line method over the remaining estimated economic life of the product.
Amortization of capitalized software costs amounted to $501,000, $680,000 and
$990,000 in 1997, 1996, and 1995, respectively.
Stock-based compensation
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation (SFAS 123), encourages, but does not require companies
to record compensation cost for stock-based compensation plans at fair value.
The Company has elected to continue to account for stock-based compensation
using the intrinsic value method prescribed in Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations.
Earnings per share
In 1997, the Company adopted Statement of Financial Accounting Standards
No. 128 Earnings per Share (SFAS 128), which specifies the computation,
presentation, and disclosure requirements for earnings per share (EPS). It
replaces the presentation of primary and fully diluted EPS with basic and
diluted EPS. Basic EPS excludes all dilution. It is based upon the weighted
average number of common shares outstanding during the period. Diluted EPS
reflects the potential dilution that would occur if securities or other
contracts to issue common stock were exercised or converted into common stock.
Previously presented EPS amounts have been restated to reflect the method of
computation required by SFAS 128.
The following is a reconciliation of the weighted average shares
outstanding for the basic and diluted EPS computations:
For the year Ended 1997
-----------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic and Diluted EPS $(8,719) $ 8,846 $ (.99)
======= ======= ======
The 1997 diluted EPS calculation excludes the effect of stock options, as
they would have been antidilutive.
For the year Ended 1996
-----------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic EPS $ 5,947 $ 8,238 $ .72
Effect of Stock Options 405
------- ------- ------
Diluted EPS $ 5,947 $ 8,643 $ .69
======= ======= ======
For the year Ended 1995
-----------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic EPS $ 4,658 $ 7,683 $ .61
Effect of Stock Options 385
------- ------- ------
Diluted EPS $ 4,658 $ 8,068 $ .58
======= ======= ======
Comprehensive Income and Segment Reporting
During 1997, the Financial Accounting Standards Board issued Statement 130
Reporting Comprehensive Income and Statement 131 Disclosures about Segments of
an Enterprise and Related Information. The Company will adopt these standards in
1998.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates, judgments
and assumptions that affect the reported amounts of assets, liabilities and
revenues and expenses (as well as disclosures of contingent liabilities) during
the reporting period. Actual results could differ from those estimates.
Note 2 -- Nonrecurring Charges
During 1997, the Company recorded two nonrecurring charges. The first was
$2.6 million ($1.7 million after tax or $.19 loss per share) relating to Phoenix
Systems and Technologies, Inc. (Phoenix). The second charge was $900,000
($580,000 after tax or $.06 loss per share) relating to the Company's Corneal
Topography System (CTS) business.
In June 1992, the Company was approved under the Department of Defense
Mentor-Protege Program as a mentor for a minority-owned government contractor,
Phoenix. Under this program, the Company had guaranteed a bank loan in the
amount of $900,000. Additionally, concurrent with this approval, the Company
acquired a 44% interest in Phoenix, which was accounted for under the equity
method. The Company is a subcontractor to Phoenix on certain engineering service
contracts with the United States Government. Additionally, Phoenix rented its
office space from the Company and is also a vendor to PAR providing
manufacturing and certain contract services. As a result of these activities,
the Company had recorded a receivable from Phoenix of $1.7 million, net of a
$903,000 allowance, at December 31, 1996.
During 1997, the Company's subcontracting activities expanded due to
increased government requirements. This, coupled with Phoenix's failure to make
timely payments on amounts due, resulted in the growth of this receivable to
$4.2 million at June 30, 1997. On July 29, 1997, the Company and Phoenix reached
an agreement regarding repayment of amounts owed to PAR. Under this agreement,
the Company received $720,000 in cash payments. The agreement also provided for
certain payments to be made in the second half of 1997, the issuance by Phoenix
of a note for $1.5 million, with interest at 8%, payable in three years. This
note would be subordinate to the claims of a proposed bank lender. PAR would
also be removed from the $900,000 loan guarantee.
The execution of this plan was contingent upon Phoenix obtaining additional
bank financing. Accordingly, the Company recorded provisions in the second
quarter of 1997 totaling $4 million. This amount included the remaining exposure
on the receivables, ($4.2 million less $900,000 allowance and the $720,000 cash
payments); the $900,000 loan guarantee and $500,000 for additional
subcontracting efforts that the Company performed subsequent to June 30, 1997.
During the fourth quarter of 1997, Phoenix obtained new bank financing and
PAR was removed from the $900,000 loan guarantee, received the $1.5 million
subordinated note, and received a cash payment toward amounts owed. As part of
this new financing, PAR and Phoenix executed a second note for $400,000 which
bears interest at 8% and is payable in ten monthly installments beginning in
January 1998 and is subordinate to the bank loan. PAR also relinquished its
equity interest in Phoenix but retained a security interest in a portion of such
stock as security for the repayment of the subordinated debt. As a result of
this transaction, PAR recorded a benefit of $1.4 million in the fourth quarter
of 1997.
At December 31, 1997, Phoenix owes the Company $3 million, which is fully
reserved. Any future amounts received under the above agreements will be
credited to income when received.
The Company also recorded a $900,000 charge pertaining to its CTS business.
This charge is for obsolete CTS inventory due to the development of a new
product.
Note 3 -- Accounts Receivable
The Company's net accounts receivable consist of:
December 31,
(In Thousands)
--------------
1997 1996
---- ----
Government segment:
United States Government --
Billed .................. $ 1,009 $ 1,599
Unbilled ................ 539 820
------- -------
1,548 2,419
------- -------
Other --
Billed .................. 4,972 3,223
Unbilled ................ 349 1,183
------- -------
5,321 4,406
------- -------
Commercial segment:
Trade accounts receivable 23,069 35,510
------- -------
$29,938 $42,335
======= =======
At December 31, 1997 and 1996, the Company had recorded a reserve for
doubtful accounts of $915,000 and $677,000, respectively, against trade accounts
receivable. Trade accounts receivable are primarily with major fast-food
corporations or their franchisees. At December 31, 1997, the Company had also
recorded a reserve of $1,355,000 against government accounts receivables.
Note 4 -- Inventories
Inventories are used primarily in the manufacture, maintenance, and service
of commercial systems. Inventories are net of related reserves. The components
of inventory are:
December 31,
(In Thousands)
--------------
1997 1996
---- ----
Finished goods $ 8,635 $ 5,111
Work in process 4,184 3,538
Component parts 9,883 6,234
Service parts 8,466 7,105
------- -------
$31,168 $21,988
======= =======
Note 5 -- Property, Plant and Equipment
The components of property, plant and equipment are:
December 31,
(In Thousands)
--------------
1997 1996
---- ----
Land ........................ $ 253 $ 253
Building and improvements ... 8,403 8,393
Furniture and equipment ..... 23,785 22,974
------- -------
32,441 31,620
Less accumulated depreciation
and amortization ........... 25,428 24,377
------- -------
$ 7,013 $ 7,243
======= =======
The Company leases office space under various operating leases. Rental
expense on these operating leases was approximately $922,000, $810,000 and
$879,000 for the years ended December 31, 1997, 1996, and 1995, respectively.
Future minimum lease payments under all noncancelable operating leases are
(in thousands):
1998 $ 846
1999 761
2000 349
2001 209
2002 88
Thereafter 46
------
$2,299
======
Note 6 -- Notes Payable
The Company has an aggregate of $34,400,000 in bank lines of credit.
Certain lines totalling $30,000,000 allow the Company to choose among unsecured
borrowings which bear interest at the prime rate (8.5% at December 31, 1997),
banker's acceptance borrowings which bear interest at a rate below the prime
rate, or other bank negotiated rates below prime. These lines are negotiated
annually. The remaining line of $4,400,000 is unsecured, bears interest at the
prime rate, requires a compensating balance and expires on April 30, 1998. At
December 31, 1997, $195,000 was outstanding under these lines at an interest
rate of 8.5%.
Note 7 -- Common Stock
The Company has reserved 500,000 shares under its stock option plan.
Options under this Plan may be incentive stock options or nonqualified options.
Stock options are nontransferable other than upon death. Option grants become
exercisable no less than six months after the grant and typically expire ten
years after the date of the grant.
A summary of the stock options follows:
No. of Shares Weighted Average
(In Thousands) Exercise Price
-------------- --------------
Outstanding at December 31, 1994 .. 859 $ 3.59
Granted ...................... 38 9.77
Exercised .................... (82) 3.27
Forfeited .................... (5) 10.66
---- -----
Outstanding at December 31, 1995 .. 810 3.86
Granted ...................... 186 9.51
Exercised .................... (304) 3.35
Forfeited .................... (20) 8.97
---- ----
Outstanding at December 31, 1996 .. 672 5.50
Granted ...................... 5 9.28
Exercised .................... (50) 3.61
Forfeited .................... (48) 10.22
---- -----
Outstanding at December 31, 1997 .. 579 $ 5.31
==== =====
Shares remaining
available for grant .......... 326
====
Total shares vested and exercisable
as of December 31, 1997 ...... 392 $ 3.89
==== =====
Stock options outstanding at December 31, 1997 are summarized as follows:
Range of Number Weighted Average Weighted Average
Exercise Prices Outstanding Remaining Life Exercise Price
--------------- ----------- -------------- --------------
$3.00 - $5.00 331 3.4 Years $ 3.05
$5.01 - $7.00 76 6.3 Years $ 6.26
$7.01 - $9.31 172 8.1 Years $ 9.25
------------- --- ------------ --------
$3.00 - $9.31 579 5.2 Years $ 5.31
============= === ============ ========
Pro forma information regarding net income and earnings per share is
required by SFAS 123, and has been determined as if the Company had accounted
for its employee stock options under the fair value method of that Statement.
The fair value of these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions for 1997, 1996 and 1995:
1997 1996 1995
---- ---- ----
Risk-free interest rate 6.4% 5.6% 6.0%
Dividend yield N/A N/A N/A
Volatility factor 52% 30% 30%
Weighted average expected life 6 Years 5 Years 4 Years
The pro forma stock-based compensation calculated under the above
guidelines is not material.
Note 8-- Income Taxes
The provision for income taxes consists of:
Year ended December 31,
(In Thousands)
------------------------------
1997 1996 1995
------------------------------
Current tax expense:
Federal ....................... $ 135 $ 1,991 $ 2,248
State ......................... 626 542
Foreign ....................... 16 48 (11)
------- ------- -------
242 2,665 2,779
------- ------- -------
Deferred income tax:
Federal ....................... (4,736) 287 (422)
State ......................... (272) -- --
Foreign ....................... (183) (88) --
------- ------- -------
(5,191) 199 (422)
------- ------- -------
Provision (benefit) for income taxes $(4,949) $ 2,864 $ 2,357
======= ======= =======
Deferred tax liabilities (assets) are comprised of the following at:
December 31,
(In Thousands)
-----------------------
1997 1996
-----------------------
Depreciation ................. $ 535 $ 678
Software development expense . 786 618
------- -------
Gross deferred tax liabilities 1,321 1,296
------- -------
Allowances for bad debts,
inventory and warranty ..... (3,120) (736)
Capitalized inventory costs .. (109) (88)
Wage and salary accruals ..... (315) (345)
Federal net operating loss ... (2,360) --
State net operating loss ..... (272) --
Foreign net operating loss ... (346) (163)
Other ........................ (19) (90)
------- -------
Gross deferred tax assets .... (6,541) (1,422)
------- -------
$(5,220) $ (126)
======= =======
Total income tax provision differed from total tax expense as computed by
applying the statutory U.S. federal income tax rate to income before taxes. The
reasons were:
Year ended December 31,
--------------------------------------
1997 1996 1995
--------------------------------------
Statutory U.S. federal tax rate (34.0)% 34.0% 34.0%
State taxes net of federal benefit .4 4.7 5.1
Foreign income taxes .1 .5 .8
FSC benefit -- (2.0) (2.6)
Adjustment to prior years' accrual -- (4.3) 1.8
State net operating loss (2.1) -- --
Foreign net operating loss (1.4) -- --
Foreign tax credits (.1) (.6) (7.7)
Other .9 .2 2.2
---- ---- ----
(36.2)% 32.5% 33.6%
==== ==== ====
The provision for income taxes is based on income (loss) before income
taxes as follows:
Year ended December 31,
(In Thousands)
---------------------------------------
1997 1996 1995
---------------------------------------
Domestic operations $(11,932) $ 9,849 $ 7,697
Foreign operations (1,736) (1,038) (682)
-------- -------- --------
Total ........ $(13,668) $ 8,811 $ 7,015
======== ======== ========
Note 9 -- Employee Benefit Plans
The Company has a deferred profit-sharing retirement plan that covers
substantially all employees. The Company's annual contribution to the plan is
discretionary. The contributions to the plan in 1997, 1996 and 1995 were
approximately $1,550,000, $200,000 and $824,000, respectively. The plan also
contains a 401(K) provision that allows employees to contribute a percentage of
their salary.
The Company also maintains an incentive-compensation plan. Participants in
the plan are key employees as determined by executive management. Compensation
under the plan is based on the achievement of predetermined financial
performance goals of the Company and its subsidiaries. Awards under the plan are
payable in cash. In 1997 and 1996, there were no awards under the plan. For the
year ended December 31, 1995, the Company expensed approximately $628,000 in
cash awards under the plan.
Note 10 -- Contingencies
The Company is subject to legal proceedings which arise in the ordinary
course of business. Additionally, Government contract costs are subject to
periodic audit and adjustment. In the opinion of management, the ultimate
liability, if any, with respect to these actions will not materially affect the
financial position or results of operations of the Company.
Note 11 -- Industry Segments
The Company, through its separate operating subsidiaries, operates in two
principal segments: a Commercial segment and a Government segment. The
Commercial segment designs, develops, manufactures, sells, installs and services
point-of-sale terminal systems for the restaurant industry, transaction
processing systems for the manufacturing/warehousing industry, and image
processing systems for the ophthalmic and food-processing industries. The
Government segment designs and implements advanced technology computer software
systems primarily for military and intelligence agency applications, and
provides services for operating and maintaining certain U.S. Government-owned
test sites, and for planning, executing and evaluating experiments involving new
or advanced radar systems. Inter-segment sales and transfers are not material.
Information as to the Company's operations in these two segments is set
forth below:
Year ended December 31,
(In Thousands)
-------------------------------------------
1997 1996 1995
-------------------------------------------
Revenues:
Commercial segment
United States ....... $ 67,982 $ 85,421 $ 76,984
Europe .............. 5,727 5,841 6,335
Australia ........... 2,444 3,048 2,654
Other Non U.S. ...... 4,767 6,255 3,432
Eliminations ........ (6,068) (7,307) (6,040)
Government segment ...... 25,168 24,403 24,029
------- ------- -------
Total ................. $ 100,020 $ 117,661 $ 107,394
======= ======= =======
Income (loss) from operations:
Commercial segment
United States ....... $ (9,442) $ 5,861 $ 4,585
Europe .............. 34 518 1,047
Australia ........... (105) 151 260
Other Non U.S. ...... 599 862 164
Government segment ...... (1,007) 1,310 1,537
Corporate ............... (545) (569) (1,356)
Nonrecurring charges .... (3,535) -- --
------- ------- -------
(14,001) 8,133 6,237
Other income, net ............ 333 678 778
------- ------- -------
Income (loss) before provision
for income taxes ...... $ (13,668) $ 8,811 $ 7,015
======= ======= =======
Identifiable assets:
Commercial segment
United States ....... $ 60,539 $ 60,403 $ 50,186
Europe .............. 3,356 3,044 3,263
Australia ........... 972 1,415 1,195
Other Non U.S. ...... 2,635 3,372 2,511
Government segment ...... 13,074 10,929 10,730
Corporate ............... 2,628 7,595 188
-------- -------- -------
Total ............... $ 83,204 $ 86,758 $ 68,073
======== ======== =======
Depreciation and amortization:
Commercial segment ...... $ 1,759 $ 1,893 $ 1,959
Government segment ...... 165 159 210
Corporate ............... 358 290 245
------- -------- --------
Total ............... $ 2,282 $ 2,342 $ 2,414
======= ======== ========
Capital expenditures:
Commercial segment ...... $ 1,209 $ 793 $ 1,063
Government segment ...... 154 175 137
Corporate ............... 157 334 88
-------- -------- --------
Total ............... $ 1,520 $ 1,302 $ 1,288
======== ======== ========
Customers comprising 10% or more of the Company's Commercial segment sales
are summarized as follows:
1997 1996 1995
---- ---- ----
Taco Bell Corporation ................... 25% 40% 42%
McDonald's Corporation .................. 28% 22% 27%
Burger King ............................. 17% 2% --
All Others .............................. 30% 36% 31%
---- ---- ----
100% 100% 100%
==== ==== ====
Substantially all revenues derived by the Government segment arise from
Federal government contracts, or subcontracts related thereto, virtually all of
which are with the Department of Defense.
Note 12 -- Fair Value of Financial Instruments
Financial instruments consist of the following:
December 31, 1997
(In Thousands)
--------------
Carrying Fair
Value Value
----- -----
Cash and cash equivalents $3,977 $3,977
Notes Payable ........... 195 195
Fair value of financial instruments classified as current assets or
liabilities approximate carrying value due to the short-term maturity of the
instruments.
Note 13 -- Selected Quarterly Financial Data (Unaudited)
Quarter ended
(In Thousands Except Per Share Amounts)
----------------------------------------------
1997 March 31 June 30 September 30 December 31
---- ----------------------------------------------
Total revenues .................. $ 18,063 $ 21,677 $ 31,533 $ 28,747
Gross margin .................... 2,053 3,387 7,648 4,833
Net income (loss) ............... (2,393) (5,345) 1,431 (2,412)
Diluted and basic
Earnings (loss) per share .... $ (.27) $ (.60) $ .16 $ (.27)
======== ======== ======== ========
Quarter ended
(In Thousands Except Per Share Amounts)
----------------------------------------------
1996 March 31 June 30 September 30 December 31
---- ----------------------------------------------
Total revenues ................... $ 25,494 $ 28,388 $ 27,938 $ 35,841
Gross margin ..................... 5,942 6,981 8,100 10,159
Net income ....................... 551 892 1,972 2,532
Diluted Earnings per share ....... $ .07 $ .11 $ .22 $ .28
======== ======== ======= ========
Basic Earnings per share ......... $ .07 $ .11 $ .23 $ .29
======== ======== ======= ========
The second quarter of 1997 includes a charge of $4 million ($2.6 million
after tax) or $.29 loss per share relating to accounts receivable and a loan
guarantee for Phoenix. The second quarter of 1997 also includes a charge of
$900,000 ($580,000 after tax) or $.07 loss per share pertaining to the Company's
Corneal Topography Systems business.
The fourth quarter of 1997 includes a $1.8 million charge ($1.2 million
after tax) or $.13 loss per share relating to accounts receivable associated
with the Company's government business. Additionally, the Company recorded
charges of approximately $1.3 million ($829,000 after tax) or $.09 loss per
share in the fourth quarter of 1997 relating to new product enhancements and
inventory charges on older product lines. Also included in the fourth quarter of
1997 is a benefit of $1.4 million (after tax benefit of $890,000) or $.10 per
share relating to a partial recovery of the Phoenix reserves taken in the second
quarter of 1997.
PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING
ACCOUNTS AND RESERVES
(In Thousands)
- ------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- ------------------------------------------------------------------------------------------------------
Additions
Balance at -------------------------------
beginning of Charged to Costs Charged to Balance at end
Description period and Expenses Other Accounts Deductions of period
- ------------------------------------------------------------------------------------------------------
Allowance for Doubtful
Accounts - deducted from
Accounts Receivable in
the Balance Sheet
1997 $677 3,441 (1,756) (a) $2,362
1996 $768 174 (265) (b) $ 677
1995 $818 137 (187) (c) $ 768
(a) Uncollectible accounts written off during 1997.
(b) Uncollectible accounts written off during 1996.
(c) Uncollectible accounts written off during 1995.
- ------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- ------------------------------------------------------------------------------------------------------
Additions
Balance at -------------------------------
beginning of Charged to Costs Charged to Balance at end
Description period and Expenses Other Accounts Deductions of period
- ------------------------------------------------------------------------------------------------------
Inventory Reserves
- - deducted from Inventory
in the Balance Sheet
1997 $1,174 4,595 (1,952) $3,817
1996 $1,922 2,143 (2,891) $1,174
1995 $2,860 2,072 (3,010) $1,922
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AR TECHNOLOGY CORPORATION
March 25, 1998 /s/John W. Sammon, Jr.
- -------------- ---------------------
John W. Sammon, Jr.
Chairman of Board and President
-------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
- --------------------------------------------------------------------------------
Signatures Title Date
================================================================================
/s/John W. Sammon, Jr.
- ----------------------
John W. Sammon, Jr. Chairman of Board and March 25, 1998
President (Principal
Executive Officer)
and Director
/s/Charles A. Constantino
- -------------------------
Charles A. Constantino Executive Vice President March 25, 1998
and Director
/s/J. Whitney Haney
- -------------------
J. Whitney Haney Director March 25, 1998
/s/Ronald J. Casciano
- ---------------------
Ronald J. Casciano Vice President, Chief Financial March 25, 1998
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 Form of Certificate of Amendment Filed as Exhibit 3.1 to Registration
to the Corporation incorporated Statement on Form S-2 (Registration
herein by reference. No. 333-04077) of PAR Technology
3.3 By-laws, as amended. Filed as Exhibit 3.1 to Registration
Statement on Form S-2 (Registration
No. 333-04077) of PAR Technology
Corporation incorporated herein by
reference.
4 Specimen Certificate Filed as Exhibit 3.1 to Registration
representing the Common Stock. Statement on Form S-2 (Registration
No. 333-04077) of PAR Technology
Corporation incorporated herein by
reference.
10.1 * Agreement between Taco Bell Corp. Filed as Exhibit 3.1 to Registration
and ParTech, Inc., dated Statement on Form S-2 (Registration
December 18, 1995. No. 333-04077) of PAR Technology
Corporation incorporated herein by
reference.
10.2 * Service Integration Agreement Filed as Exhibit 3.1 to Registration
between ParTech, Inc., dated Statement on Form S-2 (Registration
December 18, 1995. No. 333-04077) of PAR Technology
Corporation incorporated herein by
reference.
11 Statement re computation of
Earnings per share.
22 Subsidiaries of the registrant
23 Consent of independent
accountants
* Confidential treatment requested as to certain portions.