SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2003.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From __________ to __________
Commission File Number 1-9720
PAR TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 16-1434688
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
PAR Technology Park
8383 Seneca Turnpike
New Hartford, New York 13413-4991
(Address of principal executive offices) (Zip Code)
(315) 738-0600
(Registrant's Telephone number, including area code)
Securities registered pursuant to Section 12(g) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
Common Stock, $.02 par value New York Stock Exchange
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934).
Yes [ ] No [ X ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant based on the average price as of March 15, 2004 - $39,678,591.
The number of shares outstanding of registrant's common stock, as of March
15, 2004 - 8,593,150 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's proxy statement in connection with its 2003
annual meeting of stockholders are incorporated by reference into Part III.
PAR TECHNOLOGY CORPORATION
TABLE OF CONTENTS
FORM 10-K
Item Number
-----------
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for the Registrant's Common Stock, Related
Stockholder Matters and Issuer Purchases of
Equity Securities
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions
Item 14. Statements of Fees Paid to Independent Auditors
PART IV
Item 15. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K
Signatures
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995
Information provided by the Company, including information contained in
this Annual Report, or by its spokespersons from time to time may contain
forward-looking statements. Forward-looking statements are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that all forward-looking statements involve risks and
uncertainties, including without limitation, further delays in new product
introduction, risks in technology development and commercialization, risks in
product development and market acceptance of and demand for the Company's
products, risks of downturns in economic conditions generally, and in the quick
service sector of the restaurant market specifically, risks of intellectual
property rights associated with competition and competitive pricing pressures,
risks associated with foreign sales and high customer concentration, and other
risks detailed in the Company's filings with the Securities and Exchange
Commission. Actual future results may vary materially from those projected,
anticipated, or indicated in any forward-looking statements as a result of
certain risk factors. Readers should pay particular attention to the
considerations described in the sections of this report entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Quantitative and Qualitative Disclosures about Market Risk."
PAR TECHNOLOGY CORPORATION
PART I
Item 1: Business
PAR Technology Corporation ("PAR" or the "Company") is the parent company
of wholly-owned subsidiary businesses. PAR's largest subsidiary, ParTech, Inc.
is a provider of management technology solutions, including hardware, software
and professional services to businesses in the restaurant, hospitality, and
retail industries. The Company is a leading supplier of hospitality technology
systems with over 35,000 systems installed in 95 countries. PAR's hospitality
management software technology assists in the operation of hospitality and
restaurant businesses by managing data from end-to-end and improving
profitability through more efficient operations. Our professional services
mission is to assist businesses in achieving the full potential of their
hospitality technology systems.
PAR is a provider of professional services and enterprise business
intelligence applications, with long-term relationships with the restaurant
industry's two largest corporations - McDonald's Corporation and Yum! Brands
Inc. McDonald's has over 30,000 restaurants in 119 countries and PAR has been a
selected provider of restaurant management technology systems and lifecycle
support services to McDonald's since 1980. Yum! Brands (which includes Taco
Bell, KFC and Pizza Hut) has been a PAR customer since 1983. Yum has nearly
33,000 units globally and PAR is the sole approved supplier of restaurant
management technology systems to Taco Bell as well as the Point-of-Sale vendor
of choice to KFC. Other significant chains where PAR is the POS vendor of choice
are: Boston Market, Chic-fil-A, CKE Restaurants (including Hardees, Carl
Jr.'s.), Carnival Cruise Lines, Loews Cineplex and large franchisees of each of
the foregoing brands.
PAR is the parent of PAR Government Systems Corporation and Rome Research
Corporation, both who are Government contractors. As a long-standing Government
contractor, PAR develops advanced technology systems for the Department of
Defense and other Governmental agencies. Additionally, PAR provides information
technology and communications support services to the U.S. Navy, U.S. Air Force
and U.S. Army. PAR focuses its computer-based system design services on
providing high quality technical products and services, ranging from
experimental studies to advanced operational systems, within a variety of areas
of research, including radar, image and signal processing, logistic management
systems, and geospatial services and products. With more than 35 years in this
business, PAR's Government engineering service business provides management and
engineering services that include facilities operation and management. In
addition, through Government-sponsored research and development, PAR has
developed technologies with relevant commercial uses. A prime example of this
"technology transfer" is the Company's Point-of-Sale technology, which was
derived from research and development involving microchip processing technology
sponsored by the Department of Defense.
Information concerning the Company's industry segments for the three years
ended December 31, 2003 is set forth in Note 11 to the Consolidated Financial
Statements included elsewhere herein.
The Company's common stock is traded on the New York Stock Exchange under
the symbol "PTC." Our corporate headquarters offices are located at PAR
Technology Park, 8383 Seneca Turnpike, New Hartford, New York 13413-4991;
telephone number (315) 738-0600. Our website address is http://www.partech.com.
Information contained on our website is not part of this prospectus.
Unless the context otherwise requires, the term "PAR" or "Company" as used
herein, means PAR Technology Corporation and its wholly-owned subsidiaries.
Restaurant Segment
PAR's wholly-owned subsidiary, ParTech, Inc., is a provider of integrated
enterprise solutions to the hospitality industry. The Company's Point-of-Sale
(POS) restaurant management technology integrates both cutting-edge software
applications and the Company's Pentium(R)-based hardware platform. This
restaurant management system can host fixed as well as wireless order-entry
terminals, may include kitchen printers or video monitors and/or third-party
supplied peripherals networked via an Ethernet LAN, and is accessible to
enterprise-wide network configurations. PAR also provides extensive systems
integration and professional service capabilities to design, tailor and
implement solutions that enable its customers to manage all aspects of data
collection and processing for single or multiple site enterprises from a central
location.
Products
The technology requirements of the major restaurant organizations include
rugged, reliable management systems capable of receiving, transmitting and
coordinating large numbers of foodservice orders for quick and accurate
delivery. The Company's integrated restaurant software applications permit its
hospitality customers to configure their restaurant technology systems to meet
their order entry, menu, food preparation and delivery coordination needs while
recording all pertinent data concerning the transactions at the restaurant.
PAR's restaurant systems are the result of more than 25 years of experience and
knowledge combined with an in-depth understanding of the restaurant market. This
knowledge and expertise is reflected in the product design, implementation
capability and systems integration skills.
Software. PAR's latest generation of restaurant software, the InFusion
Suite, is comprised of InTouch(TM) POS, InForm(TM) Back Office, InSynch(TM)
Enterprise Configuration and InQuire(TM) Enterprise Reporting. InTouch is a
multi-brand, multi-concept application, containing rich features and functions
such as real-time mirror imaging of critical data, on-line graphical help and
interactive diagnostics, all presented with intuitive graphical user interfaces.
In addition, PAR's back office management software, InForm, allows restaurant
owners to control critical food and labor costs using intuitive tools for
forecasting, labor scheduling and inventory management. The InSynch Enterprise
Configuration manager provides business-wide management of diverse concept
menus, security settings and system parameters all from one central location.
InQuire Enterprise Reporting offers a web-based hosted reporting service
leveraging the latest technology from Microsoft's .Net platform. InQuire's
Executive Dashboard provides operational decisionware for the entire
organization, as well as automated management reporting and process integration.
In addition, the Company offers a streamlined POS software, GT/Exalt(TM), which
is the predominant software in the QSR industry. GT/Exalt provides restaurant
owners with increased cash security, improved customer service and highly
flexible kitchen and drive-thru functionality.
Hardware. The Company's hardware platform system, POS4XPO, is a
Pentium(R)-designed system, developed to host the most powerful point-of-sale
software applications of the restaurant industry. POS4XPO's design utilizes open
architecture with industry standard components, is compatible with the most
popular operating systems, and was the first POS hardware system to be certified
by Microsoft(R) as Windows(R) NT Compliant(R). POS4XPO supports a distributed
processing environment and incorporates an advanced restaurant technology
system, utilizing Intel microprocessors, standard PC expansion slots, Ethernet
LAN, standard Centronics printer ports as well as USB ports. The hardware system
supplies its industry-standard components with features for restaurant
applications such as multiple video ports. The POS system utilizes distributed
processing architecture to integrate a broad range of PAR and third-party
peripherals and is designed to withstand the harsh restaurant environment. The
hardware platform has a favorable price-to-performance ratio over the life of
the system as a result of its PC compatibility, ease of expansion and high
reliability design.
The PAR Customer Interactive Terminal (CID) offers an intuitive touchscreen
interface which integrates the customer into each transaction. The
highly-configurable CID design enables presentation of promotional
advertisements as well as information capture such as customer feedback and
signatures. It also accepts electronic payments from credit and debit cards as
well as RF-ID tags. The CID is user-friendly and built using the same rugged
design, proven technology and software compatibility as PAR's POS4XPO.
Systems Integration and Professional Services. PAR's ability to offer the
full spectrum of integration, implementation, installation, maintenance, and
support services is one of the Company's key differentiators. PAR continues to
work in unison with its customers to identify and address the latest restaurant
technology requirements by creating interfaces to equipment, including
innovations such as automated cooking and drink-dispensing devices,
customer-activated terminals and order display units located inside and outside
of the restaurant. The Company provides its systems integration expertise to
interface specialized components, such as video monitors, coin dispensers and
non-volatile memory for journalizing transaction data, as is required in some
international applications. In addition, the Company has secured strategic
partnerships with third-party organizations to offer a variety of credit, debit
and gift card payment options that allow quick service restaurants, convenience
stores, gasoline stations and drugstores to process cashless payments quickly
and efficiently.
Installation and Training
In the U.S., Canada, Europe, South Africa, Middle East, Australia and Asia,
PAR personnel provide installation, training and integration services on a
fixed-fee basis as a normal part of the equipment purchase agreement. In certain
areas of North and South America, Europe and Asia, the Company provides these
integration services through third parties.
Maintenance and Service
The Company offers a wide range of maintenance and support services as part
of its total solution for its targeted restaurant markets. In the North American
restaurant technology market, the Company provides comprehensive maintenance and
integration services for the Company's equipment and systems as well as those of
third parties through a 24-hour central telephone customer support and
diagnostic service in Boulder, Colorado. The Company also maintains a field
service network consisting of nearly 100 locations offering on-site service and
repair, as well as depot repair, overnight unit replacements and spare unit
rentals. At the time a restaurant technology system is installed, PAR employees
train the restaurant employees and managers to ensure efficient and effective
use of the system. If a problem occurs within the Company's manufactured
point-of-sale system (hardware and software), PAR's current service management
software products allow a service technician to diagnose the problem by
telephone or by remotely dialing-in to the POS system, thus greatly reducing the
need for on-site service calls.
The Company's service organization utilizes a suite of software
applications from Clarify, Inc. (Clarify) as its Customer Resource Management
tool. Clarify allows PAR to demonstrate compelling value and differentiation to
its customers through the utilization of its extensive and ever-growing
knowledge base to efficiently diagnose and resolve customer-service issues.
Clarify also enables PAR to compile the kind of in-depth information it needs to
spot trends and identify opportunities.
The Company also maintains service centers in Europe, South Africa, the
Middle East, Australia and Asia. The Company believes that its ability to
address all support and maintenance requirements for a customer's restaurant
technology network provides it with a clear competitive advantage.
Sales & Marketing
Sales in the restaurant technology market are often generated by first
obtaining the acceptance of the corporate 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 corporate vendor. The Company employs direct
sales personnel in several sales groups. The Major Accounts Group works with
large restaurant chain corporate customers typically owning more than 50
restaurants. The Domestic Sales Group targets franchisees of the major
restaurant chain customers, as well as smaller chains within the U.S. 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 Company's OEM Sales Group works exclusively with third-party
resellers and value-added resellers throughout the country. This group is
primarily responsible for sales to customers outside the restaurant industry.
Competition
The competitive landscape in the hospitality market is driven primarily by
functionality, reliability, quality, pricing, service and support. The Company
believes that its principal competitive advantages include its focus on a total
restaurant solution offering, advanced development capabilities, in-depth
industry knowledge and expertise, excellent product reliability, a direct sales
force organization, and the quality of its support and quick service response.
The markets in which the Company transacts business are highly competitive. Most
of our major customers have approved several suppliers who offer some form of
sophisticated restaurant technology system similar to the Company's. Major
competitors include Panasonic, IBM Corporation, Radiant Systems, NCR, and Micros
Systems.
Backlog
At December 31, 2003, the Company's backlog of unfilled orders for the
Restaurant segment was approximately $9,800,000 compared to $5,500,000 a year
ago. All of the present orders are expected to be delivered in 2004. The
Restaurant 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 products requires a
significant and continuous research and development effort. Research and
development expenses were approximately $4,779,000 in 2003, $5,400,000 in 2002
and $5,495,000 in 2001. The Company capitalizes certain software costs in
accordance with Statement of Financial Accounting Standards No. 86, Accounting
for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed. See
Note 1 to the Consolidated Financial Statements included in Item 15 for further
discussion.
Manufacturing and Suppliers
The Company assembles its products from standard components such as
integrated circuits and fabricated parts such as printed circuit boards, metal
parts and castings, most of which are manufactured by others to the Company's
specifications. The Company depends on outside suppliers for the continued
availability of its components and parts. Although most items are generally
available from a number of different suppliers, the Company purchases certain
components from only one supplier. Items purchased from only one supplier
include certain printers, base castings and electronic components. If such a
supplier should cease to supply an item, the Company believes that new sources
could be found to provide the components. However, added cost and manufacturing
delays could result and adversely affect the business of the Company. The
Company has not experienced significant delays of this nature in the past, but
there can be no assurance that delays in delivery due to supply shortages will
not occur in the future.
Intellectual Property
The Company owns or has rights to certain patents and trademarks, though
none of these intellectual property rights provides a significant competitive
advantage. The Company also utilizes commercially-available software with its
products. The Company does not derive any substantial economic value from these
intellectual property rights.
Government Segment
PAR operates two wholly-owned subsidiaries in the Government business
segment, PAR Government Systems Corporation and Rome Research Corporation. These
companies provide the U.S. Department of Defense (DoD) and other federal and
state Government organizations with a wide range of technical services and
products. Some of the more significant areas in which the Company is involved
include: design, development, and integration of state-of-the-art imagery
intelligence systems for information archive, retrieval, and processing;
advanced research and development for imaging sensors; development and
operations of logistic management systems; engineering and support services for
Government information technology and communications facilities.
Information Systems and Technology
The Information Systems and Technology (IS&T) business sector develops
integrated systems for imaging information archiving, processing, exploitation,
and visualization. IS&T is the system integrator for the Multi-Sensor
Integration facility at the Air Force Research Laboratory-Rome Research Site and
is a key developer of the National Geospatial-Intelligence Agency (NGA) Image
Product Library (IPL). The IPL provides access to a virtual network of archives
in support of the operational users of imagery. The Company was recently awarded
a substantial systems integration contract to support interoperability of new
and emerging commercial imagery exploitation and data management systems for
U.S. Air Force (USAF) operations. Since 1986, the Company has been a key
contributor to the full-scale engineering development for the Joint Surveillance
Target Attack Radar System (Joint STARS) and more recently, for the Affordable
Moving Surface Target Engagement (AMSTE) program. The Company provides systems
engineering for radar technologies that detect, track and target ground
vehicles.
Signal & Image Processing
The Signal and Image Processing (SIP) business sector supports the
development and implementation of complex sensor systems including the
collection and analysis of sensor data. The SIP group has developed sensor
concepts, algorithms, and real-time systems to address the difficult problems of
locating low-contrast targets against clutter background (e.g., cruise missiles,
fighter aircraft, and personnel against heavy terrain backgrounds), detecting
man-made objects in dense foliage, and performing humanitarian efforts in
support of the removal of land mines with ground penetrating radar. The Company
also supports numerous technology demonstrations for the DoD, including a
multi-national NATO exercise of wireless communications interoperability. As
part of this demonstration, the Company designed and built the Software Radio
Development System ("SoRDS") for test and evaluation of communications
waveforms. The Company has extended this technology into public safety and law
enforcement via the Software Adaptive Advanced Communications (SAACTM) system, a
multi-channel communications gateway intended to solve the problem of wireless
communications interoperability. The Company also supports Navy airborne
infrared surveillance systems through the development of advanced optical
sensors.
Geospatial Software and Modeling
The Geospatial Software and Modeling (GS&M) business sector performs water
resources modeling, Geographic Information Systems (GIS) based data management,
and geospatial information technology development. In particular, the Company's
Flood*WareTM software tool and methodology is being employed by New York State
in support of Federal Emergency Management Agency's Map Modernization Program.
Similar technologies are used in support of water quality modeling and
assessment applications for the NYC Watershed Protection Program.
Logistic Management Systems
The Logistic Management Systems (LMS) business sector focuses on the
design, development, deployment and commercialization of the Cargo*Mate(R)
Logistic Information Management System. Cargo*Mate(R) is a comprehensive,
end-to-end solution for the monitoring and management of transport assets and
cargo throughout the intermodal (i.e., port, highway, rail, and ocean)
transportation lifecycle. The Cargo*Mate(R) system was being implemented under a
multi-year Cooperative Agreement with the U.S. Department of
Transportation/Federal Highway Administration (DOT/FHWA) with funds specifically
authorized by Congress for Cargo*Mate(R) under the Transportation Equity Act for
the 21st Century (TEA-21) in 1998. The Company has recently secured funding for
this program for 2004. Cargo*Mate(R) uses state-of-the-art technology to acquire
Global Positioning System (GPS) location and equipment status data, wireless
communication networks to transmit the data to the LMS Operations Center, and a
powerful geospatial database to customize the data to meet the needs of each
customer and provide it to the customer over the Internet or via direct linkage
to existing ("back-office") information systems.
Information Technology and Communications Support Services
The Company provides a wide range of technical and support services to
sustain mission critical components of the Department of Defense Global
Information Grid. These services include continuous operations, system
enhancements and maintenance of very low frequency (VLF), high frequency (HF)
and very high frequency (VHF) radio transmitter/receiver facilities, and
extremely high frequency (EHF) and super high frequency (SHF) satellite
communication heavy earth terminal facilities. The Company supports these DoD
communications facilities, as well as other telecommunications equipment and
information systems, at customer locations in and outside of the continental
United States. The various facilities, operating 24 hours a day, are integral to
the command and control of the nation's air, land and naval forces, and those of
United States coalition allies.
Test Laboratory and Range Operations
The Company provides management, engineering, and technical services under
several contracts with the U.S. Air Force, the U.S. Navy and the U.S. Army.
These services include the planning, execution, and evaluation of tests at
Government ranges and laboratories operated and maintained by the Company. Test
activities include unique components, specialized equipment, advanced systems
for radar, communications, electronic counter-measures, and integrated weapon
systems. The Company also develops complex measurement systems in several
defense-related areas of technology.
Government Contracts
The Company performs work for U.S. Government agencies under firm
fixed-price, cost-plus-fixed-fee, time-and-material, and incentive-type prime
contracts and subcontracts. 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. In this
circumstance, the Company is entitled to receive payments for its allowable
costs and, in general, a proportionate share of its fee or profit for the work
actually performed. The Company's business with the U.S. Government is also
subject to other risks unique to the defense industry, such as reduction,
modification, or delays of contracts or subcontracts if the Government's
requirements, budgets, or policies or regulations change. The Company may also
perform work prior to formal authorization or prior to adjustment of the
contract price for increased work scope, change orders and other funding
adjustments. Additionally, the Defense Contract Audit Agency on a regular basis
audits the books and records of the Company. Such audits can result in
adjustments to contract costs and fees. Audits have been completed through the
Company's fiscal year 2001 and have not resulted in any material adjustments.
Marketing and Competition
Marketing begins with collecting information from a variety of sources
concerning the present and future requirements of the Government and other
potential customers for the types of technical expertise provided by the
Company. Although the Company believes it is positioned well in its chosen areas
of image and signal processing, information technology/communications and
engineering services, competition for Government contracts is intense. Many of
the Company's competitors are major corporations, or their subsidiaries, such as
Lockheed-Martin, Raytheon, Northrop-Grumman, BAE, Harris, Boeing and SAIC that
are significantly larger and have substantially greater financial resources than
the Company. The Company also competes with many smaller companies that target
particular segments of the Government market. Contracts are obtained principally
through competitive proposals in response to solicitations from Government
agencies and prime contractors. The principal competitive factors are past
performance, the ability to perform, price, technological capabilities,
management capabilities and service. In addition, the Company sometimes obtains
contracts by submitting unsolicited proposals. Many of the Company's DoD
customers are now migrating to commercial software standards, applications, and
solutions. In that light, the Company is utilizing its Internal Research and
Development funds to migrate existing solutions into software product lines that
will support the DoD geospatial community (i.e., NGA, USAF, etc.).
Backlog
The dollar value of existing Government contracts at December 31, 2003, net
of amounts relating to work performed to that date, was approximately
$116,694,000, of which $31,894,000 was funded. At December 31, 2002, the
comparable amount was approximately $112,934,000, of which $24,100,000 was
funded. Funded amounts represent those amounts committed under contract by
Government agencies and prime contractors. The December 31, 2003 Government
contract backlog of $116,694,000 represents firm, existing contracts.
Approximately $35,900,000 of this amount is expected to be completed in calendar
year 2004, as funding is committed.
Employees
As of December 31, 2003, the Company had 1,140 employees, approximately 52%
of whom are engaged in the Company's Restaurant segment, 44% of whom are in the
Government segment, and the remainder are corporate employees.
Due to the highly technical nature of the Company's business, the Company's
future can be significantly influenced by its ability to attract and retain its
technical staff. The Company believes that it will be able to fulfill its
near-term needs for technical staff.
Approximately 24% 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 Restaurant Principal executive offices, 138,500
Government manufacturing, research and
development laboratories,
computing facilities
Rome, NY Government Research and Development 23,400
Boulder, CO Restaurant Service 20,500
Sydney, Australia Restaurant Sales and Service 9,100
Boca Raton, FL Restaurant Research and Development 8,700
La Jolla, CA Government Research and Development 3,800
The Company's headquarters and principal business facility is located in
New Hartford, New York, which is near Utica, located in Central New York State.
The Company owns its principal facility and adjacent space in New Hartford,
N.Y. All of the other facilities are leased for varying terms. Substantially all
of the Company's facilities are fully utilized, well maintained, and suitable
for use. The Company believes its present and planned facilities and equipment
are adequate to service its current and immediately foreseeable business needs.
Item 3: Legal Proceedings
The Company is subject to legal proceedings which arise in ordinary course
of business. In the opinion of management, the ultimate liability, if any, with
respect to these actions will not materially affect the financial position,
results of operations or cash flows of the Company.
Item 4: Submission of Matters to a Vote of Security Holders
None
PART II
Item 5: Market for the Registrant's Common Stock, Related Stockholder Matters
and Issuer Purchases of Equity Securities
The Company's Common Stock, par value $.02 per share, trades on the New
York Stock Exchange (NYSE symbol - PTC). At December 31, 2003, there were
approximately 631 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, 2003 as reported by New York Stock Exchange:
2003 2002
---------------------- ------------------------
Period Low High Low High
--------------- -------- -------- -------- --------
First Quarter $4.42 $7.07 $2.55 $4.15
Second Quarter $4.70 $6.23 $3.93 $5.88
Third Quarter $5.87 $7.15 $4.56 $6.25
Fourth Quarter $6.30 $8.39 $4.25 $8.13
The Company has not paid cash dividends on its Common Stock, and its Board
of Directors presently intends to continue to retain earnings for reinvestment
in growth opportunities. Accordingly, it is anticipated that no cash dividends
will be paid in the foreseeable future.
On December 3, 2002, PAR sold an aggregate of 383,019 shares of its Common
Stock at a price of $5.30 per share to E*Capital Corporation and certain
individuals associated with Eliot Rose Asset Management, LLC for an aggregate
offering price of $2,030,000. Following the payment in the amount of $87,500 to
the placement agent engaged by the Company and certain other expenses, the
remaining net proceeds to the Company of approximately $1.9 million were used to
pay down short-term debt. Such sales were made in reliance upon Rule 506 of
Regulation D promulgated under the Securities Act of 1933, as amended (the
"Securities Act").
Item 6: Selected Financial Data
SELECTED CONSOLIDATED STATEMENT OF INCOME DATA
(In thousands, except per share amounts)
The following selected historical consolidated financial data should be
read in conjunction with the Consolidated Financial Statements and the related
notes and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Annual Report on Form 10-K.
The following table has been restated to reflect all the activity of the
Company's Industrial segment as "discontinued operations."
Year ended December 31,
-------------------------------------------------------------
2003 2002 2001 2000 1999
-------------------------------------------------------------
Net revenues from
continuing operations ......... $ 139,770 $ 133,681 $ 114,354 $ 101,463 $ 132,839
Cost of sales ................... $ 110,777 $ 105,225 $ 89,001 $ 86,647 $ 103,392
Gross margin .................... $ 28,993 $ 28,456 $ 25,353 $ 14,816 $ 29,447
Selling, general & administrative $ 19,340 $ 19,540 $ 16,774 $ 23,937 $ 20,982
(Provision) benefit for
income taxes .................. $ (1,593) $ (884) $ (621) $ 6,800 $ 800
Income (loss) from
continuing operations ......... $ 2,792 $ 2,623 $ 2,080 $ (10,961) $ 374
Basic earnings (loss) per share
from continuing operations .... $ .33 $ .33 $ .27 $ (1.40) $ .04
Diluted earnings (loss) per share
from continuing operations ...... $ .32 $ .32 $ .27 $ (1.40) $ .04
SELECTED CONSOLIDATED BALANCE SHEET DATA
(In thousands)
December 31,
-----------------------------------------------
2003 2002 2001 2000 1999
-----------------------------------------------
Current assets ..... $74,215 $69,070 $67,795 $64,009 $72,170
Current liabilities $29,836 $31,743 $39,118 $36,434 $25,505
Total assets ....... $87,167 $85,122 $88,915 $85,771 $86,798
Long-term debt ..... $ 2,092 $ 2,181 $ 2,268 $ 2,323 $ --
Shareholders' equity $55,239 $51,198 $47,529 $47,012 $61,410
Item 7: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward-Looking Statement
The following discussion should be read in conjunction with the
Consolidated Financial Statements and notes thereto included elsewhere in this
Annual Report on Form 10-K. This document contains forward-looking statements.
Any statements in this document that do not describe historical facts are
forward-looking statements. Forward-looking statements in this Annual Report
(including forward-looking statements regarding future sales to McDonald's
restaurants, the impact of current world events on our results of operations,
the effects of inflation on our margins, and the effects of interest rate and
foreign currency fluctuations on our results of operations) are made pursuant to
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Investors are cautioned that all forward-looking statements involve risks
and uncertainties, including without limitation, further delays in new product
introduction; risks in technology development and commercialization; risks in
product development and market acceptance of, and demand for, the Company's
products; risks associated with Government contracts; risks of downturns in
economic conditions generally, and in the quick service sector of the restaurant
market specifically; risks associated with foreign sales and high customer
concentration; risks associated with competition and competitive pricing
pressures; and other risks detailed in the Company's filings with the Securities
and Exchange Commission. The Company's actual results could differ materially
from the results contemplated by these and any other forward-looking statements.
Factors that could contribute to such differences include those discussed below
as well as those cautionary statements and other factors set forth in
"Quantitative and Qualitative Disclosures about Market Risk" and elsewhere
herein. The cautionary statements made in this Annual Report on Form 10-K should
be read as being applicable to all related forward-looking statements whenever
they appear in this Annual Report on Form 10-K. Any forward-looking statements
should be considered in light of all of these factors.
Overview
PAR Technology Corporation ("PAR" or the "Company") is the parent company
of wholly-owned subsidiary businesses. PAR's largest subsidiary, ParTech, Inc.
is a provider of management technology solutions, including hardware, software
and professional services to businesses in the restaurant, hospitality, and
retail industries. The Company is a leading supplier of hospitality technology
systems with over 35,000 systems installed in 95 countries. PAR's hospitality
management software technology assists in the operation of hospitality and
restaurant businesses by managing data from end-to-end and improving
profitability through more efficient operations. The Company's professional
services mission is to assist businesses in achieving the full potential of
their hospitality technology systems.
PAR is a provider of professional services and enterprise business
intelligence applications, with long-term relationships with the restaurant
industry's two largest corporations - McDonald's Corporation and Yum! Brands
Inc. McDonald's has over 30,000 restaurants in 119 countries and PAR has been a
selected provider of restaurant management technology systems and lifecycle
support services to McDonald's since 1980. Yum! Brands (which includes Taco
Bell, KFC and Pizza Hut) has been a PAR customer since 1983. Yum has nearly
33,000 units globally and PAR is the sole approved supplier of restaurant
management technology systems to Taco Bell as well as the Point-of-Sale vendor
of choice to KFC. Other significant chains where PAR is the POS vendor of choice
are: Boston Market, Chic-fil-A, CKE Restaurants (including Hardees, Carl
Jr.'s.), Carnival Cruise Lines, Loews Cineplex and large franchisees of each of
the foregoing brands.
PAR is also the parent of PAR Government Systems Corporation and Rome
Research Corporation, both of whom are Government contractors. As a
long-standing Government contractor, PAR develops advanced technology systems
for the Department of Defense and other Governmental agencies. Additionally, PAR
provides information technology and communications support services to the U.S.
Navy, U.S. Air Force and U.S. Army. PAR focuses its computer-based system design
services on providing high quality technical products and services, ranging from
experimental studies to advanced operational systems, within a variety of areas
of research, including radar, image and signal processing, logistic management
systems, and geospatial services and products. PAR's Government engineering
service business provides management and engineering services that include
facilities operation and management. In addition, through Government-sponsored
research and development, PAR has developed technologies with relevant
commercial uses. A prime example of this "technology transfer" is the Company's
Point-of-Sale technology, which was derived from research and development
involving microchip processing technology sponsored by the Department of
Defense.
During 2003, the Quick-Service Restaurant market continued to strengthen as
evidenced by reported improved results from the Company's major customers
including McDonald's and Yum! Brands. Additionally, the Company was named the
primary supplier to KFC for their corporate stores. The Company also recorded
significant new business from Chick-fil-A, CKE and Bojangles and released its
new integrated software suite, iNfusion.
The Company's Government business continued to win contracts in 2003
related to I/T outsourcing and secured its first contract with the U.S. Army.
The Company now performs outsourcing for the three main branches of the
military.
In 2004, the Company anticipates the continued health of the QSR market and
additional I/T outsourcing opportunities. Over the years, PAR has maintained its
leadership in its two businesses through the utilization of several Company
strengths including market leadership, technological innovation, customer focus,
global reach and employee initiative. By focusing on these strengths, PAR is
able to help shape the marketplace, increase the Company's customer base and
continue to allow the Company to expand, worldwide.
The following table sets for the Company's revenues by reportable segment
for the period ending December 31:
(in thousands)
2003 2002 2001
--------- ---------- ---------
Revenues
Restaurant $ 98,088 $ 95,706 $ 83,844
Government 41,682 37,975 30,510
--------- ---------- ---------
Total Consolidated revenue $ 139,770 $ 133,681 $ 114,354
========= ========== =========
The following discussion and analysis highlights items having a significant
effect on operations during the three-year period ended December 31, 2003. It
may not be indicative of future operations or earnings. It should be read in
conjunction with the Consolidated Financial Statements and Notes thereto and
other financial and statistical information appearing elsewhere in this report.
Results of Operations -- 2003 Compared to 2002
The Company reported revenues of $139.8 million for the year ended December
31, 2003, an increase of 5% from the $133.7 million reported for the year ended
December 31, 2002. Income from continuing operations for the year ended December
31, 2003 was $2.8 million, a 6% increase from the $2.6 million earned in 2002.
The Company reported diluted net income per share from continuing operations for
the year ended December 31, 2003 of $.32, unchanged from the year ended December
31, 2002. Basic net income per share from continuing operations for the year
ended December 31, 2003 was $.33 also unchanged as compared to the corresponding
period in 2002. The Company's net income for the year ended December 31, 2003
was $2.4 million, or $.27 diluted net income per share, compared to net income
of $741,000 and $.09 per diluted share for 2002.
Product revenues from the Company's Restaurant segment were $60.2 million
for the year ended December 31, 2003, an increase of 2% from the $59.2 million
recorded in 2002. The primary reason for this increase was a 23% or $3.6 million
growth in sales to YUM! Brands, as a result of the Company being recently
selected as this customer's primary supplier of Restaurant systems to KFC
Corporate stores. YUM! Brands includes five major restaurant chains. Sales to
other major accounts including Chick-fil-A, CKE and Loew's Cineplex increased
10% or $2 million reflecting an improving hospitality market. Partially
offsetting these increases was an 18% or $4.5 million decline in sales to
McDonald's due to delays in buying decisions experienced in the first half of
2003 as McDonald's transitioned to a new strategy under its new management team.
The Company anticipates growth in this account in 2004.
Customer Service revenues are also generated by the Company's Restaurant
segment. The Company's service offerings include installation, training,
twenty-four hour help desk support and various field and on-site service
options. Customer service revenues were $37.9 million for the year ended
December 31, 2003, an increase of 4% from $36.6 million in 2002. This increase
was primarily due to a 9% or $514,000 increase in call center revenue as the
number of contracts increased relating to the growth in customer base. All other
service areas increased 3% or $798,000, due to general business growth.
Contract revenues from the Company's Government segment were $41.7 million
for the year ended December 31, 2003, an increase of 10% when compared to the
$38 million recorded in the same period in 2002. This increase primarily
resulted from a $4.7 million or 26% increase in information technology
outsourcing revenue for contracts for facility operations at strategic U.S.
Department of Defense Telecommunication sites across the globe. These
outsourcing operations provided by the Company directly support U.S. Navy, Army
and Air Force operations as they seek to convert their military information
technology communications facilities into contractor-run operations. Also
contributing to this growth was a $1.3 million or 39% increase in revenue from
research contracts involving Imagery Information Technology. This was partially
offset by a $2.1 million or a 64% decline in the Company's Logistic Management
Program, due to reduced funding from the Government. This program involves the
tracking of mobile chassis under the Company's Cargo*Mate(TM) contracts. The
Company anticipates new funding for this project from the Government in 2004.
Product margins for the year ended December 31, 2003 were 35.2%, an
increase from 32.9% for the year ended December 31, 2002. In 2003, margins
benefited from higher software content in product sales when compared to 2002.
Software sales of the Company's InFusion and Exalt products both contributed to
this increase. This was offset by lower absorption of fixed manufacturing costs
due to reduced production volume experienced in the first half of 2003.
Customer service margins were 15.1% for the year ended December 31, 2003
compared to 17.7% for the same period in 2002. The decline is primarily the
result of increased employee benefit costs and an increase in the provision for
excess and obsolete service inventory in 2003 when compared to 2002. The
increase in benefit costs relates primarily to the Company's contribution to the
defined profit sharing retirement plan and higher performance bonuses based on
improved overall Company results. The increased inventory provision was
necessary due to a voluntary termination of an unprofitable service contract.
This action is expected to improve service margins in the future.
Contract margins were 5% for the year ended December 31, 2003 versus 6.5%
for 2002. In 2002, the Company recognized additional profit on certain fixed
price contracts that were completed in the period. The Company's fixed price
contracts generally span multiple years, sometimes extending for as long as four
to five years. The Company sometimes recognizes an additional profit on these
fixed price contracts as the contracts near completion, when the Company
determines that its contract expenditures will be less than it had previously
estimated. In 2002, the primary reason for cost under runs was lower than
anticipated overhead rates. In this instance, during 2002, the Company won
several new contracts that resulted in an increase in the base of direct labor
and a corresponding decline in the Company's overhead rates. The significant
components of contract costs in 2003 were 77% for labor and fringe benefits, 7%
for materials and supplies, and 2% for subcontract costs. For the same period in
2002, these costs were 73%, 7%, and 5%, respectively of contract costs. The
balance of contract costs for 2003 and 2002 included consulting, facilities,
communications and corporate overhead costs. Margins on the Company's Government
contract business historically run between 5% and 6%.
Selling, general and administrative expenses are virtually all related to
the Company's Restaurant segment. Selling, general and administrative expenses
for the year ended December 31, 2003 were $19.3 million, a decline of 1% from
the $19.5 million expended in 2002. The decline was due to a reduction in
selling expenses as a result of improved efficiencies and a reduced provision
for doubtful accounts. This was partially offset by increases in benefit costs
and legal and accounting fees.
Research and development expenses relate primarily to the Company's
Restaurant segment. However in 2003, approximately 10% of these expenses related
to the Company's Logistic Management Program (Cargo*Mate(TM)). Research and
development expenses were $5.3 million for the year ended December 31, 2003, a
decline of 2% from the $5.4 million recorded in 2002. This decline was primarily
due to a small reduction in the development staff as a result of certain
efficiency improvements. This was partially offset by the Company's investment
in its Cargo*Mate(TM) Program. The Company is investing in this technology
during a temporary funding hiatus from the U.S. Government.
Other income, net, was $582,000 in 2003 compared to $815,000 in 2002. Other
income primarily includes rental income and foreign currency gains and losses.
In 2002, the Company sold a patent that it obtained relating to former research
done by the Company involving the cornea of the eye.
Interest expense represents interest charged on the Company's short-term
borrowing requirements from banks and from long-term debt. Interest expense
declined 34% to $540,000 for the year ended December 31, 2003 as compared to
$824,000 in 2002 due to a reduced interest rate and lower average amounts
outstanding in 2003 as compared to 2002.
For the year ended December 31, 2003, the Company's effective tax rate was
36.3%, compared to 25.2% in 2002. The variance from the federal statutory rate
in 2003 was due to state income taxes partially offset by a decrease in the
valuation allowance for certain tax credits. The variance from the federal
statutory rate in 2002 was due to the extraterritorial income exclusion and the
favorable resolution of certain tax matters with taxing authorities. These items
were offset by a $329,000 valuation allowance recorded in 2002 against certain
foreign tax credits, due to the fact that the Company anticipated that these
foreign tax credits would expire prior to utilization.
For the year ended December 31, 2003, the Company recorded an after tax
loss of $363,000 compared to $1.9 million in 2002 from the discontinued
operation of its Industrial segment. In 2003 the Company determined that they
would not be able to sub-lease the Industrial business real estate operating
leases and accordingly recorded a provision of $570,000. In 2002, the Company
decided to close down its unprofitable Industrial business unit, Ausable
Solutions, Inc., due to substantial continuing losses, an inability to penetrate
the market and a long sales cycle. The overall downturn in the global economy
and specifically in the manufacturing and warehousing industries, coupled with
the diminishing capital expenditures of the Company's industrial customers,
prevented the Company from being profitable in this particular business segment.
As a result, the Company concluded that it would be prudent to take decisive
action and return the Company's focus to its core businesses of hospitality
technology and Government services and research and development. The Company
believes that the decision to exit the Industrial segment will not have a
negative impact on the Company's continuing operations. The Company notes that
its Industrial business did not have common customers with its Restaurant or
Government Contract businesses.
Results of Operations -- 2002 Compared to 2001
The Company reported revenues from continuing operations of $133.7 million
for the year ended December 31, 2002, an increase of 17% from the $114.4 million
reported in 2001. Income from continuing operations was $2.6 million in 2002, a
26% increase over the $2.1 million earned in 2001. The Company reported diluted
net income per share from continuing operations of $.32 for 2002, a 19% increase
over the $.27 reported a year earlier. Basic net income per share from
continuing operations was $.33 in 2002 compared to $.27 in 2001. The Company's
net income for the year ended December 31, 2002 was $741,000 or $.09 diluted net
income per share, compared to net income of $282,000 and $.04 per diluted share
in 2001.
Product revenues from the Company's Restaurant segment were $59.2 million
in 2002, an increase of 18% from the $50.3 million recorded in 2001. The
principal factor was increased sales to certain of the Company's traditional
customers including YUM! Brands, Inc. and McDonald's. Sales to YUM! Brands
increased 47% or $5.1 million while McDonald's sales increased 19% or $3.9
million. Also contributing to the revenue growth was an increase of 32% or $4.1
million in sales to several other new and existing accounts. These accounts
include Carnival Cruise Lines, Rare Hospitality, CKE Restaurants and The Pantry,
Inc. These increased sales were due to several factors including the market
demand for the Company's newest product, the POS4XP(TM), and customers'
requirements to replace or upgrade older systems at existing restaurants. This
increase was partially offset by a 68% or $4.2 million decline in sales to
Boston Market. The Company acquired this account and completed the delivery of
the customer's initial requirements in 2001.
Customer Service revenues are also generated by the Company's Restaurant
segment. The Company's service offerings include installation, training,
twenty-four hour help desk support and various field and on-site service
options. Customer service revenues were $36.6 million in 2002, an increase of 9%
from the $33.6 million in 2001. The growth was due to a 49% or $2.6 million
increase in installation revenue in 2002. This was the result of increased
product sales during the year. All other service areas accounted for the
remaining increase.
Contract revenues from the Company's Government segment were $38 million in
2002, an increase of 24% when compared to the $30.5 million recorded in 2001.
The Company received over $100 million in new awards in 2002. More specifically,
this increase resulted from a 52% or $6.2 million growth in the Company's I/T
outsourcing contracts for facility operations at strategic U.S. Department of
Defense Telecommunication sites across the globe. These outsourcing operations
provided by the Company directly support the U.S. Navy and Air Force operations.
The Company has become a recognized leader in the conversion of military I/T
communications facilities to contractor operations. Also contributing to the
growth was a 31% or $670,000 increase in a floodplain-mapping contract with the
New York State Department of Environment Conservation. Additionally, contract
revenues under the Company's Cargo*Mate(TM) contract grew 37% or $884,000 in
2002 compared to 2001.
Product margins were 32.9% for 2002 compared to 33.4% in 2001. The product
mix change as a result of the revenue growth discussed above had a small
positive impact on margins. However, this was offset by an increase in the
provision for excess and obsolete inventory in 2002 when compared to 2001. This
was primarily a result of a decline in the forecasted usage of certain inventory
components as the Company recently introduced newer products.
Customer service margins were 17.7% in 2002 compared to 19.1% in 2001. This
margin decline was the result of an investment by the Company to increase the
number of field service personnel in the first half of the year in order to
support the installation and field service requirements of the Boston Market
account which was acquired by the Company in 2001.
Contract margins were 6.5% in 2002 versus 7.1% in 2001. This decline was
due to slightly lower profit margins on certain fixed-price contracts in 2002
when compared to 2001. Margins in 2002 and 2001 were higher than anticipated due
to additional profit recognized upon completion of certain contracts. The
Company's fixed price contracts generally span multiple years, sometimes
extending for as long as four to five years. The Company sometimes recognizes an
additional profit on these fixed price contracts as the Company nears completion
of the contract when the Company determines that its contract expenditures will
be less than it had previously estimated. In 2002 and 2001, the primary reason
for cost underruns was lower than anticipated overhead rates. Margins on the
Company's Government contract business historically run between 5% and 6%. For
the year ended December 31, 2002, the significant components of contract costs
were 73% for labor and fringe benefits, 7% for supplies, and 5% for subcontract.
For 2001, these costs were 73%, 9% and 3%, respectively of contract costs. The
balance of contract costs for 2002 and 2001 included consulting, facilities,
communications and corporate overhead costs.
Selling, general and administrative expenses are virtually all related to
the Company's Restaurant segment. Selling, general and administrative expenses
were $19.5 million in 2002 versus $16.8 million in 2001, an increase of 16%.
This occurred primarily in sales and marketing expenses and is directly related
to the growth in product revenue. The Company increased its worldwide sales
force, increased related travel expenses and incurred general inflationary
increases in wages and benefits.
Research and development expenses are primarily from the Company's
Restaurant segment. Research and development expenses were $5.4 million in 2002,
a decrease of 3% from the $5.6 million recorded for the same period in 2001.
This minor decrease was due to the completion of certain development projects in
2002. Research and development costs attributable to Government contracts are
included in cost of contract revenues.
Other income, net, was $815,000 in 2002 and includes rental income and
foreign currency gains and losses. There were no significant variations in 2002
compared to 2001.
Interest expense represents interest charged on the Company's short-term
borrowing requirements from banks and from long-term debt. Interest expense
declined 29% to $824,000 in 2002 primarily due to lower interest rates in 2002
compared to 2001.
In 2002, the Company's effective tax rate was 25.2%, compared to 23.0% in
2001. The variance from the federal statutory rate was due to the
extraterritorial income exclusion and the favorable resolution of certain tax
matters with taxing authorities. These items were partially offset by a $329,000
valuation allowance against certain foreign tax credits, due to the fact that
the Company anticipates these foreign tax credits would expire prior to
utilization.
During 2002, the Company recorded an after tax loss of $1.9 million or $.23
loss per diluted share resulting from the discontinuance of its Industrial
segment. The Company's decision to close down its unprofitable Industrial
business unit, Ausable Solutions, Inc., followed a trend of continuous losses
over the past three years, which resulted from an economic downturn in the IT
software market with corresponding delays of anticipated contracts. This
decision will allow the Company to focus on its two core businesses, Restaurant
and Government, which are both growing and profitable.
Liquidity and Capital Resources
The Company's primary source of liquidity has been cash flow from
operations and lines of credit with various banks. Cash provided by continuing
operations was $3.3 million in 2003 compared to $4.1 million in 2002. In 2003,
cash flow was generated primarily by operating profits. This was partially
offset by an increase in accounts receivable due to the revenue growth
experienced in the fourth quarter of 2003. In 2002, cash flow benefited from the
operating profits for the period and a reduction in accounts receivable. The
Company was able to improve its ability to collect trade receivables by adding
staff and by implementing more stringent collection procedures. This was
partially offset by an increase in Customer Service inventory requirements to
support the Company's current product line and expanded customer base. In
addition, there was an increase in finished goods inventory in anticipation of
certain customer orders that were not delivered until the first quarter of 2003.
Cash used in investing activities was $1.2 million for 2003 versus $1.7
million for 2002. In 2003, capital expenditures were $415,000 and were primarily
for internal use software and upgrades to the Company's Customer Service
facility. Capitalized software costs relating to software development of
restaurant products were $809,000 in 2003. For 2002, capital expenditures were
$916,000 and were primarily for the Restaurant segment, including internal use
software and a phone system upgrade and for improvements to the Company's
headquarters facility. Capitalized software costs were $790,000 in 2002.
Cash used in financing activities was $1.8 million in 2003 and $2.8 million
in 2002. During 2003, the Company reduced its short-term bank borrowings by $2.6
million and received $839,000 from the exercise of employee stock options. In
2002, the Company reduced its short-term bank borrowings by $5.1 million, and
received $381,000 from the exercise of employee stock options. The Company also
raised $1.9 million on the sale of treasury stock in 2002. The Company evaluates
market conditions on an ongoing basis and may elect to repurchase shares of its
common stock at times when the prevailing market conditions provide an
opportunity for the Company to buy back its stock at a discounted rate as
compared to book value.
The Company has an aggregate of $20,000,000 in bank lines of credit. One
line totaling $12,500,000 bears interest at the prime rate (4% at December 31,
2003) and is subject to loan covenants. These covenants include a debt to
tangible net worth ratio of 1 to 1; working capital of at least $25 million; and
a debt coverage ratio of 4 to 1. The availability of this facility is determined
based on the amount of certain receivables and inventory. Specifically, the
total amount of credit available under this facility at a given time is based on
(a) 80% of the Company's accounts receivable under 91 days outstanding
attributable to the Company's Restaurant segment and (2) 40% of the Company's
inventory, excluding work in progress. This line expires on April 30, 2005. The
remaining line of $7,500,000 allows the Company, at its option, to borrow funds
at the LIBOR rate plus the applicable interest rate spread (3.9% at December 31,
2003) or at the bank's prime lending rate. This facility contains certain loan
covenants including a leverage ratio of not greater than 4 to 1 and a fixed
charge coverage ratio of not less than 4 to 1. This line expires on October 30,
2005. Both lines are collateralized by certain accounts receivable and
inventory. The Company was in compliance with all loan covenants as of December
31, 2003. At December 31, 2003, an aggregate of $6,989,000 was outstanding and
an aggregate of $13,011,000 was available under these lines.
The Company's has a $2.2 million mortgage loan on certain real estate. The
Company's future principal payments under this mortgage are as follows (in
000's):
2004 $ 89
2005 94
2006 98
2007 103
2008 108
Thereafter 1,689
--------
$ 2,181
========
The Company's future minimum obligations under non-cancelable operating
leases are as follows (in 000's):
2004 $ 1,082
2005 915
2006 641
2007 348
2008 323
Thereafter 445
--------
$ 3,754
========
Over the next twelve months, the Company anticipates that its capital
requirements will be less than $2 million. The Company does not usually enter
into long term contracts with its major restaurant customers. The Company
commits to purchasing inventory from its suppliers based on a combination of
internal forecasts and the actual orders from customers. This process, along
with good relations with suppliers, minimizes the working capital investment
required by the Company. While the Company lists two major customers, McDonald's
and Yum!Brands, it sells to hundreds of individual franchisees of these
corporations, each of which is individually responsible for its own debts. These
broadly-made sales substantially reduce the impact on the Company's liquidity if
one individual franchisee reduces the volume of its purchases from the Company
in a given year. The Company, based on internal forecasts, believes its existing
cash, line of credit facilities and its anticipated operating cash flow will be
sufficient to meet its cash requirements through at least the next twelve
months. However, the Company may be required, or could elect, to seek additional
funding prior to that time. The Company's future capital requirements will
depend on many factors, including its rate of revenue growth, the timing and
extent of spending to support product development efforts, expansion of sales
and marketing, the timing of introductions of new products and enhancements to
existing products, and market acceptance of its products. The Company cannot
assure that additional equity or debt financing will be available on acceptable
terms or at all. The Company's sources of liquidity beyond twelve months, in
management's opinion, will be its cash balances on hand at that time, funds
provided by operations and whatever long-term credit facilities it can arrange.
Critical Accounting Policies
The Company's consolidated financial statements are based on the
application of accounting principles generally accepted in the United States of
America (GAAP). GAAP requires the use of estimates, assumptions, judgments and
subjective interpretations of accounting principles that have an impact on the
assets, liabilities, revenue and expense amounts reported. The Company believes
its use of estimates and underlying accounting assumptions adhere to GAAP and
are consistently applied. Valuations based on estimates are reviewed for
reasonableness and adequacy on a consistent basis throughout the Company.
Primary areas where financial information of the Company is subject to the use
of estimates, assumptions and the application of judgment include revenues,
accounts receivable, inventories, intangible assets and taxes.
Revenue Recognition Policy
The Company recognizes revenue generated by the Restaurant segment using
the guidance from SEC Staff Accounting Bulletin No. 104, "Revenue Recognition"
and the AICPA Statement of Position (SOP) 97-2, "Software Revenue Recognition,"
and other applicable revenue recognition guidance and interpretations. Product
revenue in the Restaurant segment is generated from sales of the Company's
standard Point-of-Sale systems. When the Company installs its restaurant systems
(which primarily includes hardware or hardware and software) on behalf of its
customers, the Company recognizes revenue from the sale of its restaurant
systems upon delivery to the customer's site. For restaurant systems that are
self-installed by the customer or an unrelated third party and for component
sales or supplies, the Company recognizes revenue at the time of shipment. In
addition to product sales, the Company may provide installation and training
services, and also offers maintenance contracts to its customers. Installation
and training service revenues are recognized as the services are performed. The
Company's other service revenues in the Restaurant segment, consisting of
support, field and depot repair, are provided to customers either on a time and
materials basis or under its maintenance contracts. Services provided on a time
and materials basis are recognized as the services are performed. Service
revenues from maintenance contracts are deferred when billed and recognized
ratably over the related contract period.
The Company recognizes revenue in its Government segment using the guidance
from SEC Staff Accounting Bulletin No. 104, "Revenue Recognition". The Company's
contract revenues generated by the Government segment result primarily from
contract services performed for the United States Government under a variety of
costs-plus fee, time-and-material and fixed-price contracts. Revenue on
cost-plus fixed fee contracts is recognized based on allowable costs for labor
hours delivered, as well as other allowable costs plus the applicable fee.
Revenue on time and material contracts is recognized by multiplying the number
of direct labor-hours delivered in the performance of the contract by the
contract billing rates and adding other direct costs as incurred. Revenue for
fixed price contracts is recognized primarily on a straight-line basis over the
life of the fixed-price contract. The Company's obligation under these contracts
is simply to provide labor hours to conduct research or to staff facilities with
no other deliverables or performance obligations. Anticipated losses on all
contracts are recorded in full when identified. Unbilled accounts receivable are
stated in the Company's financial statements at their estimated realizable
value. Contract costs, including indirect expenses, are subject to audit and
adjustment through negotiations between the Company and Government
representatives.
Accounts receivable
Allowances for doubtful accounts are based on estimates of probable losses
related to accounts receivable balances. The establishment of allowances
requires the use of judgment and assumptions regarding probable losses on
receivable balances.
Inventories
The Company's inventories are valued at the lower of cost or market. The
Company uses certain estimates and judgments and considers several factors
including product demand and changes in technology to provide for excess and
obsolescence reserves to properly value inventory.
Capitalized software development costs
The Company capitalizes certain costs related to the development of
computer software used in its Restaurant products segment under the requirements
of Statement of Financial Accounting Standards No. 86, "Accounting for the Costs
of Computer Software to be Sold, Leased, or Otherwise Marketed". Software
development costs incurred prior to establishing technological feasibility are
charged to operations and included in research and development costs. Software
development costs incurred after establishing feasibility are capitalized and
amortized on a product-by-product basis when the product is available for
general release to customers.
Goodwill
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets",
(SFAS 142). The Company adopted SFAS 142 effective January 1, 2002. Under this
standard, amortization of goodwill and certain intangible assets, including
certain intangible assets recorded as a result of past business combinations,
was discontinued upon the adoption of SFAS 142. Instead, all goodwill is tested
for impairment annually, or more frequently if circumstances indicate potential
impairment, through a comparison of fair value to its carrying amount. The
Company has elected to annually test for impairment at December 31. There was no
impairment of goodwill in 2003 or 2002.
Taxes
The Company has significant amounts of deferred tax assets that are
reviewed for recoverability and valued accordingly. These assets are evaluated
by using estimates of future taxable income streams and the impact of tax
planning strategies. Valuations related to tax accruals and assets can be
impacted by changes to tax codes, changes in statutory tax rates and the
Company's estimates of its future taxable income levels.
Item 7A: Quantitative and Qualitative Disclosures about Market Risk
A DECLINE IN THE VOLUME OF PURCHASES MADE BY ANY ONE OF THE COMPANY'S MAJOR
CUSTOMERS WOULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS.
A small number of customers has historically accounted for a majority of
our net revenues in any given fiscal period. For the fiscal years ended December
31, 2003, 2002 and 2001, aggregate sales to our top two Restaurant segment
customers, McDonald's and Yum!Brands, amounted to 50%, 51% and 51%,
respectively, of total revenues. Most customers are not obligated to make any
minimum level of future purchases from us or to provide us with binding
forecasts of product purchases for any future period. In addition, major
customers may elect to delay or otherwise change the timing of orders in a
manner that could adversely affect quarterly and annual results of operations.
There can be no assurance that our current customers will continue to place
orders with us, or that we will be able to obtain orders from new customers.
AN INABILITY TO PRODUCE NEW PRODUCTS THAT KEEP PACE WITH TECHNOLOGICAL
DEVELOPMENTS AND CHANGING MARKET CONDITIONS COULD RESULT IN A LOSS OF MARKET
SHARE.
The products we sell are subject to rapid and continual technological
change. The products that are available from our competitors have increasingly
offered a wider range of features and capabilities. We believe that in order to
compete effectively we must provide compatible systems incorporating new
technologies at competitive prices. There can be no assurance that we will be
able to continue funding research and development at levels sufficient to
enhance our current product offerings, or that the Company will be able to
develop and introduce on a timely basis new products that keep pace with
technological developments and emerging industry standards and address the
evolving needs of customers. There can also be no assurance that we will not
experience difficulties that will result in delaying or preventing the
successful development, introduction and marketing of new products in our
existing markets, or that our new products and product enhancements will
adequately meet the requirements of the marketplace or achieve any significant
degree of market acceptance. Likewise, there can be no assurance as to the
acceptance of our products in new markets, nor can there be any assurance as to
the success of our penetration of these markets, or to the revenue or profit
margins with respect to these products. If any of our competitors were to
introduce superior software products at competitive prices, or if our software
products no longer met the needs of the marketplace due to technological
developments and emerging industry standards, our software products may no
longer retain any significant market share. If this were to occur, we could be
required to record a charge against capitalized software costs, which amount to
$1.8 million as of December 31, 2003.
WE GENERATE MUCH OF OUR REVENUE FROM THE QUICK SERVICE RESTAURANT INDUSTRY AND
THEREFORE ARE SUBJECT TO DECREASED REVENUES IN THE EVENT OF A DOWNTURN EITHER IN
THAT INDUSTRY OR IN THE ECONOMY AS A WHOLE.
For the years ended December 31, 2003, 2002 and 2001, we derived 70%, 72%
and 73%, respectively, of our net revenues from the restaurant industry,
primarily the Quick Service Restaurant (QSR) industry. Consequently, our
restaurant technology product sales are dependent in large part on the health of
the QSR industry, which in turn is dependent on the domestic and international
economy, as well as factors such as consumer buying preferences and weather
conditions. Instabilities or downturns in the restaurant market could
disproportionately impact our revenues, as clients may either exit the industry
or delay, cancel or reduce planned expenditures for our products. Although we
believe we can assist the QSR sector of the restaurant industry in a competitive
environment, given the cyclical nature of that industry, there can be no
assurance that our profitability and growth will continue.
WE DERIVE A PORTION OF OUR REVENUE FROM GOVERNMENT CONTRACTS, WHICH CONTAIN
PROVISIONS UNIQUE TO PUBLIC SECTOR CUSTOMERS, INCLUDING THE GOVERNMENT'S RIGHT
TO MODIFY OR TERMINATE THESE CONTRACTS AT ANY TIME.
For the fiscal years ended December 31, 2003, 2002 and 2001, we derived
30%, 28% and 27%, respectively, of our net revenues from contracts to provide
technical products and services to United States Government agencies and defense
contractors. Contracts with United States Government agencies typically provide
that such contracts are terminable at the convenience of the Government. If the
Government terminated a contract on this basis, we would be entitled to receive
payment for our allowable costs and, in general, a proportionate share of our
fee or profit for work actually performed. Most U.S. Government contracts are
also subject to modification or termination in the event of changes in funding.
As such, we may perform work prior to formal authorization, or the contract
prices may be adjusted for increased work scope or change orders. Termination or
modification of a substantial number of our U.S. Government contracts could have
a material adverse effect on our business, financial condition and results of
operations.
We perform work for the United States Government pursuant to firm
fixed-price, cost-plus fixed fee and time-and-material, prime contracts and
subcontracts. The majority of our Government contracts are either firm
fixed-price/time-and-material, or cost-plus fixed fee contracts. Approximately
72% of the revenue that we derived from Government contracts for the year ended
December 31, 2003 came from firm fixed-price or time-and-material contracts. The
balance of the revenue that we derived from Government contracts in 2003
primarily came from cost-plus fixed fee contracts. Most of our contracts are for
one-year to five-year terms.
While firm fixed-price contracts allow us to benefit from cost savings,
they also expose us to the risk of cost overruns. If the initial estimates we
use for calculating the contract price are incorrect, we can incur losses on
those contracts. In addition, some of our Governmental contracts have provisions
relating to cost controls and audit rights and, if we fail to meet the terms
specified in those contracts, then we may not realize their full benefits. Lower
earnings caused by cost overruns would have an adverse effect on our financial
results.
Under time and materials contracts, we are paid for labor at negotiated
hourly billing rates and for certain expenses. Under cost-plus fixed fee
contracts, we are reimbursed for allowable costs and paid a fixed fee. However,
if our costs under either type of contract exceed the contract ceiling or are
not allowable under the provisions of the contract or applicable regulations, we
may not be able to obtain reimbursement for all of our costs.
Under each type of contract, if we are unable to control costs we incur in
performing under the contract, our financial condition and operating results
could be materially adversely affected. Cost over-runs also may adversely affect
our ability to sustain existing programs and obtain future contract awards.
WE FACE EXTENSIVE COMPETITION IN THE MARKETS IN WHICH WE OPERATE, AND OUR
FAILURE TO COMPETE EFFECTIVELY COULD RESULT IN PRICE REDUCTIONS AND DECREASED
DEMAND FOR OUR PRODUCTS AND SERVICES.
There are currently five major suppliers who offer restaurant management
systems similar to ours. Some of these competitors are larger than PAR and have
access to substantially greater financial and other resources and, consequently,
may be able to obtain more favorable terms than we can for components and
subassemblies incorporated into their restaurant technology products. The rapid
rate of technological change in the restaurant market makes it likely that we
will face competition from new products designed by companies not currently
competing with us. Such products may have features not currently available on
our restaurant products. We believe that our competitive ability depends on our
total solution offering, our product development and systems integration
capability, our direct sales force and our Customer Service organization. There
is no assurance, however, that we will be able to compete effectively in the
restaurant technology market in the future.
Our Government contracting business has been focused on niche offerings,
primarily signal and image processing, I/T outsourcing and engineering services.
Many of our competitors are, or are subsidiaries of, companies such as
Lockheed-Martin, Raytheon, Northrop-Grumman, BAE, Harris, Boeing and SAIC. These
companies are larger and have substantially greater financial resources than we
do. We also compete with smaller companies that target particular segments of
the Government market. These companies may be better positioned to obtain
contracts through competitive proposals. Consequently, there are no assurances
that we will continue to win Government contracts as a prime contractor or
subcontractor.
WE MAY NOT BE ABLE TO MEET THE UNIQUE OPERATIONAL, LEGAL AND FINANCIAL
CHALLENGES THAT RELATE TO OUR INTERNATIONAL OPERATIONS, WHICH MAY LIMIT THE
GROWTH OF OUR BUSINESS.
For the years ended December 31, 2003, 2002 and 2001, our net revenues from
sales outside the United States were 11%, 11% and 14%, respectively, of the
Company's net revenues. We anticipate that international sales will continue to
account for a significant portion of sales. We intend to continue to expand our
operations outside the United States and to enter additional international
markets, which will require significant management attention and financial
resources. Our operating results are subject to the risks inherent in
international sales, including, but not limited to, regulatory requirements,
political and economic changes and disruptions, geopolitical disputes and war,
transportation delays, difficulties in staffing and managing foreign sales
operations, and potentially adverse tax consequences. In addition, fluctuations
in exchange rates may render our products less competitive relative to local
product offerings, or could result in foreign exchange losses, depending upon
the currency in which we sell our products. There can be no assurance that these
factors will not have a material adverse effect on our future international
sales and, consequently, on our operating results.
INFLATION
Inflation had little effect on revenues and related costs during 2003.
Management anticipates that margins will be maintained at acceptable levels to
minimize the effects of inflation, if any.
INTEREST RATES
As of December 31, 2003, the Company has $2.2 million in variable long-term
debt and $7.0 million in variable short-term debt. The Company believes that
adverse change in interest rates of 100 basis points would not have a material
impact on our business, financial conditions, results of operations or cash
flows.
FOREIGN CURRENCY
The Company's primary exposures relate to certain non-dollar denominated
sales and operating expenses in Europe and Asia. These primary currencies are
the Euro, the Australian dollar and the Singapore dollar. Management believes
that foreign currency fluctuations should not have a significant impact on our
business, financial conditions, results of operations or cash flows due to the
low volume of business affected by foreign currencies.
Item 8: Financial Statements and Supplementary Data
The Company's 2003 Consolidated financial statements, together with the
report thereon of KPMG LLP dated February 20, 2004, and the report of
PricewaterhouseCoopers LLP dated March 28, 2003 are included elsewhere herein.
See Item 15 for a list of Financial Statements and Financial Statement Schedule.
Item 9: Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
On July 23, 2003, the Audit Committee of our Board of Directors authorized
management of PAR Technology Corporation to seek proposals from accounting firms
interested in replacing PricewaterhouseCoopers LLP as our independent
accountants. On August 21, 2003 PricewaterhouseCoopers LLP resigned. The Company
engaged KPMG LLP as its independent public accountants as of October 9, 2003.
During the two recent fiscal years and prior to and through October 9, 2003 the
Company had not consulted with KPMG LLP regarding any of the matters or events
set forth in Item 304 (a) (2) (i) and (ii) of Regulation S-K.
The reports of PricewaterhouseCoopers LLP as of December 31, 2002 and for
each of the fiscal years ended December 31, 2001 and 2002, contained no adverse
opinion or disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope, or accounting principles.
In July 2003, PricewaterhouseCoopers LLP delivered it management letter to,
and discussed it with, Management and the Audit Committee. The management letter
is the formal means by which PricewaterhouseCoopers LLP reports to us its
findings, developed as a result of its annual audit, with regard to accounting
policies, procedures and controls. In this management letter
PricewaterhouseCoopers LLP stated its belief that material weaknesses existed at
this time of the audit with respect to the Company's revenue recognition
practices that ultimately resulted in the previously reported restatement. In
the management letter, PricewaterhouseCoopers LLP also made recommendations
regarding systems and procedures relating to revenue recognition.
While the Company did not agree with PricewaterhouseCoopers LLP's
determination that the business practices in place led to the restatement or
constituted a material weakness in the policies, procedures and controls, the
Company has implemented all of the recommendations made by
PricewaterhouseCoopers LLP in their management letter.
Item 9A: Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures.
As of December 31, 2003, the Company carried out an evaluation, under the
supervision and with the participation of the Company's management, including
the Company's President and Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of the Company's disclosure
controls and procedures, as defined in Exchange Act Rule 15d-14(c). Based upon
the evaluation, the Company's President and Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure and procedures are
effective in enabling the Company to identify, process, record and report
information required to be included in the Company's periodic SEC filings within
the required time period.
(b) Changes in Internal Controls.
There was no significant change in the Company's internal controls over
financial reporting, as defined in Rule 13a-15(f) of the Exchange Act during the
quarter ended December 31, 2003 that has materially affected, or is reasonably
likely to materially affect, such internal controls over financial reporting.
PART III
Item 10: Directors and Executive Officers of the Registrant
The directors and executive officers of the Company and their respective ages
and positions are:
Name Age Position
------------------------------ --- ---------------------------------------------------
Dr. John W. Sammon, Jr. 64 Chairman, President and Chief Executive Officer,
PAR Technology Corporation
Charles A. Constantino 64 Executive Vice President and Director,
PAR Technology Corporation
Sangwoo Ahn 65 Director, PAR Technology Corporation
J. Whitney Haney 69 Director, PAR Technology Corporation
James A. Simms 44 Director, PAR Technology Corporation
Gregory T. Cortese 54 Chief Executive Officer & President ParTech, Inc.,
General Counsel and Secretary,
PAR Technology Corporation
Albert Lane, Jr. 62 President, PAR Government Systems Corporation
and Rome Research Corporation
Ronald J. Casciano 50 Vice President, Chief Financial Officer
and Treasurer,
PAR Technology Corporation
Other senior officers and significant employees of the Company and their respective ages and positions are:
Name Age Position
------------------------------ --- ---------------------------------------------------
Raymond E. Barnes 56 Vice President, POS Systems Development,
ParTech, Inc.
Edward Bohling 44 Vice President, Information
Systems and Technology,
PAR Government Systems Corporation
Linda D. Brewer 47 Vice President, Pacific/West Coast Operations
Rome Research Corporation
Louis Brown 53 Vice President, World Wide Sales,
ParTech, Inc.
Name Age Position
------------------------------ --- ---------------------------------------------------
William P. Gaines 47 Senior Director, Finance/Controller
PAR Government Systems Corporation
Kenneth M. Giffune 55 Vice President, Human Resources
PAR Technology Corporation
Sam Y. Hua 42 Vice President and Chief Technical Officer
ParTech, Inc.
Thomas A. Lindsay 52 Vice President, New Business,
Rome Research Corporation
Fred A. Matrulli 58 Vice President, Operations/
Logistic Management Systems,
PAR Government Systems Corporation
Roger P. McReynolds 58 Vice President, Chief Quality Officer,
ParTech, Inc.
Hector Melendez 54 Vice President, Plans,
Rome Research Corporation
Victor Melnikow 46 Vice President, & General Manager,
Rome Research Corporation
E. John Mohler 60 Vice President, Business Development,
Logistic Management Systems,
PAR Government Systems Corporation
Viola A. Murdock 47 Senior Corporate Counsel,
PAR Technology Corporation
John W. Sammon III 33 Vice President and General Manger,
Logistic Management Systems,
PAR Government Systems Corporation
Samuel S. Talaba 47 Controller,
ParTech, Inc.
Jerry F. Weimar 47 Vice President, Special Projects,
ParTech, Inc.
William J. Williams 42 Vice President, Operations,
ParTech, Inc.
Stanley A. Zysk, Jr. 57 Vice President, Quality Software Assurance,
ParTech, Inc.
The Company's directors are elected in classes with staggered three-year
terms with one class being elected at each annual meeting of shareholders. The
directors serve until the next election of their class and until their
successors are duly elected and qualified. The Company's officers are appointed
by the Board of Directors and hold office at the will of the Board of Directors.
The principal occupations for the last five years of the directors,
executive officers, and other significant employees of the Company are as
follows:
Dr. John W. Sammon, Jr. is the founder of the Company and has been the
Chairman, President and Chief Executive Officer since its incorporation in 1968.
Mr. Charles A. Constantino has been a director of the Company since 1971
and Executive Vice President since 1974.
Mr. Sangwoo Ahn was appointed a director of the Company in March, 1986. Mr.
Ahn is the Chairman of the Board, Quaker Fabric Corp. since 1993 and previously
was the partner of Morgan, Lewis, Githens & Ahn.
Mr. J. Whitney Haney has been a director of the Company since 1988.
Mr. James A. Simms was appointed a director of the Company in October,
2001. Mr. Simms is currently a senior investment banker with Adams, Harkness &
Hill, Inc. and has held this position since 1997.
Mr. Gregory T. Cortese was named President, ParTech, Inc. in June 2000 in
addition to General Counsel and Secretary of PAR Technology Corporation.
Previously, Mr. Cortese was the Vice President, Law and Strategic Development
since 1998.
Mr. Albert Lane, Jr. was appointed to President, Rome Research Corporation
in 1988. Mr. Lane was additionally appointed President of PAR Government Systems
Corporation in 1997.
Mr. Ronald J. Casciano, CPA, was promoted to Vice President, Chief
Financial Officer, Treasurer of PAR Technology Corporation in June, 1995.
Mr. Raymond E. Barnes was promoted to Vice President, POS Systems
Development of ParTech, Inc. in 1998.
Mr. Edward Bohling was promoted to Vice President, Information Systems and
Technology of PAR Government Systems Corporation in 1998.
Ms. Linda D. Brewer was promoted to Vice President of Pacific/West Coast
Operations of Rome Research Corporation in January 2002. Prior to this position,
Ms. Brewer was Director of Pacific/West Coast Operations for Rome Research
Corporation.
Mr. Louis Brown was promoted to Vice President, World Wide Sales for
ParTech, Inc. in December 2001. Previously, Mr. Brown was the Director, New
Business Development of ParTech, Inc.
Mr. William Gaines was promoted to Senior Director, Finance/Controller of
PAR Government Systems Corporation in 2002. Previously, Mr. Gaines was Director
of Accounting of PAR Government Systems Corporation.
Dr. Kenneth M. Giffune, Ed.D was appointed Vice President of Human
Resources for PAR Technology Corporation in July 1995.
Mr. Sam Y. Hua was promoted to Vice President and Chief Technical Officer
of ParTech, Inc. in 1998.
Mr. Thomas A. Lindsay was promoted to Vice President, New Business in
September 2003 for Rome Research Corporation. Previously, Mr. Lindsay was
Director of Marketing for Rome Research Corporation.
Mr. Fred A. Matrulli was named Vice President, Operations/Logistic
Management Systems of PAR Government Systems Corporation, in 1998.
Mr. Roger P. McReynolds was appointed Vice President, Chief Quality Officer
of ParTech, Inc. in February 2002. Previously, Mr. McReynolds was Vice President
of Operations for ParTech, Inc.
Mr. Hector Melendez was appointed to Vice President, Plans in February,
2002. Mr. Melendez joined Rome Research Corporation in April 2001 as Vice
President. Previously, he was a Director of Communication Infrastructure in the
United States Marine Corps.
Mr. Victor Melnikow was promoted to Vice President & General Manager for
Rome Research Corporation in September 2003. Previously, Mr. Melnikow held the
position of Vice President, Finance of Rome Research Corporation.
Mr. E. John Mohler was promoted to Vice President, Business Development,
Logistic Management Systems of PAR Government Systems in 2002. Previously Mr.
Mohler held the position of Vice President, Logistic Management Systems of PAR
Government Systems Corporation.
Ms. Viola A. Murdock was promoted to Senior Corporate Counsel for PAR
Technology Corporation in 1996.
Mr. John Sammon III was named Vice President and General Manager, Logistic
Management Systems of PAR Government Systems in 2003. Prior to this position he
was Director, Logistic Management Systems of PAR Government Systems Corporation.
Mr. Samuel Talaba was named Controller of ParTech, Inc. in 1997.
Mr. Jerry F. Weimar was promoted to Vice President, Special Project of
ParTech, Inc.in 2002. Prior to that, he held the position of VP, Professional
Services of ParTech, Inc.
Mr. William J. Williams was promoted to Vice President, Operations of
ParTech, Inc. in 2002. Prior to this position, Mr. Williams was the Vice
President, Manufacturing of ParTech, Inc.
Mr. Stanley A. Zysk, Jr. was named Vice President, Quality Software
Assurance of ParTech, Inc.in May 2003. Previously, Mr. Zysk previously held the
position of Vice President of Product Management for ParTech, Inc.
Item 11: Executive Compensation
The information required by this item will appear under the caption
"Executive Compensation" in our 2003 definitive proxy statement for the annual
meeting of stockholders on May 27, 2004 and is incorporated herein by reference.
Item 12: Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
The information required by this item will appear under the caption
"Security Ownership Of Management And Certain Beneficial Owners" in our 2003
definitive proxy statement for the annual meeting of stockholders on May 27,
2004 and is incorporated herein by reference.
Item 13: Certain Relationships and Related Transactions
The information required by this item will appear under the caption
"Executive Compensation" in our 2003 definitive proxy statement for the annual
meeting of stockholders on May 27, 2004 and is incorporated herein by reference.
Item 14: Statement of Fees Paid to Independent Auditors
The response to this item will appear under the caption "Statement of Fees
Paid to Independent Auditors" in our 2003 definitive proxy statement for the
annual meeting of stockholders to be held on May 27, 2004 and is incorporated
herein by reference.
PART IV
Item 15: Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Documents filed as a part of the Form 10-K
(1) Financial Statements:
Reports of Independent Accountants
Consolidated Balance Sheets at December 31, 2003 and 2002
Consolidated Statements of Income for the three
years ended December 31, 2003
Consolidated Statements of Comprehensive Income
for the three years ended December 31, 2003
Consolidated Statements of Changes in Shareholders' Equity for
the three years ended December 31, 2003
Consolidated Statements of Cash Flows for the three years
ended December 31, 2003
Notes to Consolidated Financial Statements
(2) Financial Statement Schedule:
Valuation and Qualifying Accounts and Reserves
Reports on Form 8-K
On October 14, 2003, PAR Technology Corporation filed a report on
Form 8-K pursuant to Item 4 (Changes in Registrant's Certifying
Accountant) of that Form relating to the engagement of KPMG LLP as the
Company's independent accounts.
On October 30, 2003, PAR Technology Corporation furnished a report
on Form 8-K pursuant to Item 9 (Regulation FD Disclosure) of that Form
relating to its financial information for the quarter ended September 30,
2003, as presented in a press release October 30, 2003 and furnished
thereto as an exhibit.
(c) Exhibits
See list of exhibits on page 73.
(d) Financial statement schedules
See (a)(2) above.
Independent Auditors' Report
The Board of Directors and Shareholders
PAR Technology Corporation:
We have audited the consolidated financial statements of PAR Technology
Corporation and subsidiaries as of and for the year ended December 31, 2003, as
listed in the accompanying index. In connection with our audit of the
consolidated financial statements, we also have audited the financial statement
schedule as of and for the year ended December 31, 2003, as listed in the
accompanying index. These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the 2003 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of PAR
Technology Corporation and subsidiaries as of December 31, 2003, and the results
of their operations and their cash flows for the year then ended in conformity
with accounting principles generally accepted in the United States of America.
Also in our opinion, the related financial statement schedule as of and for the
year ended December 31, 2003, when considered in relation to the basic 2003
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
KPMG LLP
Syracuse, New York
February 20, 2004
Report of Independent Auditors
The Board of Directors and Shareholders
PAR Technology Corporation:
In our opinion, the consolidated financial statements listed in the index
appearing under Item 15(a)(1), present fairly, in all material respects, the
financial position of PAR Technology Corporation and its Subsidiaries at
December 31, 2002, and the results of their operations and their cash flows for
each of the two years in the period ended December 31, 2002, in conformity with
accounting principles generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedule listed in the index
appearing under Item 15(a)(2), presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedule are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States of America 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 our opinion.
PricewaterhouseCoopers LLP
Syracuse, New York
March 28, 2003
CONSOLIDATED BALANCE SHEETS
(In Thousands Except Share Amounts)
December 31,
--------------------
2003 2002
-------- ---------
Assets
Current assets:
Cash ............................................... $ 1,467 $ 490
Accounts receivable-net (Note 3) ................... 31,876 25,843
Inventories-net (Note 4) ........................... 31,894 34,274
Deferred income taxes (Note 8) ..................... 6,486 5,766
Other current assets ............................... 2,472 2,638
Total assets of discontinued operation (Note 2) .... 20 59
-------- --------
Total current assets ........................... 74,215 69,070
Property, plant and equipment - net (Note 5) ............ 7,240 8,455
Deferred income taxes (Note 8) .......................... 2,857 4,386
Other assets ............................................ 2,855 3,211
-------- --------
$ 87,167 $ 85,122
======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt .................. $ 89 $ 85
Borrowings under lines of credit ................... 6,989 9,549
Accounts payable ................................... 8,301 8,371
Accrued salaries and benefits ...................... 5,461 4,615
Accrued expenses ................................... 2,471 2,077
Deferred service revenue ........................... 5,947 6,704
Total liabilities of discontinued operation (Note 2) 578 342
-------- --------
Total current liabilities ...................... 29,836 31,743
-------- --------
Long-term debt (Note 6) ................................. 2,092 2,181
-------- --------
Commitments and contingent liabilities (Notes 5 and 10)
Shareholders' Equity (Note 7):
Preferred stock, $.02 par value,
1,000,000 shares authorized ...................... -- --
Common stock, $.02 par value,
19,000,000 shares authorized;
9,966,062 and 9,770,262 shares issued;
8,555,375 and 8,359,575 outstanding .............. 199 195
Capital in excess of par value ..................... 29,761 28,926
Retained earnings .................................. 32,375 29,946
Accumulated other comprehensive loss ............... (43) (816)
Treasury stock, at cost,
1,410,687 shares ............................... (7,053) (7,053)
-------- --------
Total shareholders' equity ..................... 55,239 51,198
-------- --------
$ 87,167 $ 85,122
======== ========
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Amounts)
Year ended December 31,
----------------------------------
2003 2002 2001
--------- --------- ---------
Net revenues:
Product ................................ $ 60,223 $ 59,153 $ 50,272
Service ................................ 37,865 36,553 33,572
Contract ............................... 41,682 37,975 30,510
--------- --------- ---------
139,770 133,681 114,354
--------- --------- ---------
Costs of sales:
Product ................................ 39,024 39,643 33,506
Service ................................ 32,140 30,081 27,163
Contract ............................... 39,613 35,501 28,332
--------- --------- ---------
110,777 105,225 89,001
--------- --------- ---------
Gross margin ..................... 28,993 28,456 25,353
--------- --------- ---------
Operating expenses:
Selling, general and administrative .... 19,340 19,540 16,774
Research and development ............... 5,310 5,400 5,565
--------- --------- ---------
24,650 24,940 22,339
--------- --------- ---------
Operating income from continuing operations . 4,343 3,516 3,014
Other income, net ........................... 582 815 848
Interest expense ............................ (540) (824) (1,161)
--------- --------- ---------
Income from continuing operations
before provision for income taxes ......... 4,385 3,507 2,701
Provision for income taxes (Note 8) ......... (1,593) (884) (621)
--------- --------- ---------
Income from continuing operations ........... 2,792 2,623 2,080
--------- --------- ---------
Discontinued operations:
Loss from operations of
discontinued component (including
loss on disposal of $830,000 in 2002) (570) (2,516) (2,335)
Income tax benefit ..................... 207 634 537
--------- --------- ---------
Loss from discontinued operations ...... (363) (1,882) (1,798)
--------- --------- ---------
Net income .................................. $ 2,429 $ 741 $ 282
========= ========= =========
Continued
CONSOLIDATED STATEMENTS OF INCOME (Continued)
(In Thousands Except Per Share Amounts)
Year ended December 31,
----------------------------------
2003 2002 2001
--------- --------- --------
Earnings per share:
Basic:
Income from continuing operations $ .33 $ .33 $ .27
Loss from discontinued operations $ (.04) $ (.24) $ (.23)
Net income ................ $ .29 $ .09 $ .04
Diluted:
Income from continuing operations $ .32 $ .32 $ .27
Loss from discontinued operations $ (.04) $ (.23) $ (.23)
Net income ................ $ .27 $ .09 $ .04
Weighted average shares outstanding
Basic ........................... 8,438 7,934 7,726
========= ========= ========
Diluted ......................... 8,861 8,315 7,799
========= ========= ========
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
Year ended December 31,
-------------------------
2003 2002 2001
-------- ------ ------
Net income ................................... $2,429 $ 741 $ 282
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments 773 625 (238)
------ ------ ------
Comprehensive income ......................... $3,202 $1,366 $ 44
====== ====== ======
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Accumulated Total
Common Stock Capital in Other Treasury Stock Shareholders'
------------ excess of Retained Comprehensive --------------- ------------
(In Thousands) Shares Amount Par Value Earnings Income (Loss) Shares Amount Equity
------ ------ --------- -------- ------------ ------ ------ ------
Balance at
December 31, 2000, 9,517 $ 190 $ 28,071 $ 28,923 $ (1,203) (1,794) $ (8,969) $ 47,012
Net income 282 282
Issuance of common stock upon the
exercise of stock options (Note 7) 157 3 470 473
Translation adjustments (238) (238)
-------- ------- --------- --------- ----------- --------- -------- ---------
Balance at
December 31, 2001, 9,674 193 28,541 29,205 (1,441) (1,794) (8,969) 47,529
Net income 741 741
Sale of treasury stock, net 6 383 1,916 1,922
Issuance of common stock upon the
exercise of stock options (Note 7) 96 2 379 381
Translation adjustments 625 625
-------- ------- --------- --------- ----------- --------- -------- ---------
Balance at
December 31, 2002 9,770 195 28,926 29,946 (816) (1,411) (7,053) 51,198
Net income 2,429 2,429
Issuance of common stock upon the
exercise of stock options (Note 7) 196 4 835 839
Translation adjustments 773 773
-------- ------- --------- --------- ----------- --------- -------- ---------
Balance at
December 31, 2003 9,966 $ 199 $ 29,761 $ 32,375 $ (43) (1,411) $ (7,053) $ 55,239
======== ======== ========= ========= =========== ========= ======== =========
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Year ended December 31,
---------------------------------
2003 2002 2001
--------- --------- ---------
Cash flows from operating activities:
Net income .................................... $ 2,429 $ 741 $ 282
Adjustments to reconcile net income to net
cash provided by operating activities:
Net loss from discontinued operations ...... 363 1,882 1,798
Depreciation and amortization .............. 2,815 2,894 3,156
Provision for bad debts .................... 968 1,491 1,299
Provision for obsolete inventory ........... 2,957 2,321 590
Deferred income tax ........................ 809 544 (240)
Changes in operating assets and liabilities:
Accounts receivable ...................... (7,001) 6,045 (5,982)
Inventories .............................. (577) (10,454) (103)
Income tax refund claims ................. -- 95 638
Other current assets ..................... 166 596 (1,352)
Other assets ............................. (20) (24) (22)
Accounts payable ......................... (70) (2,611) 2,226
Accrued salaries and benefits ............ 846 292 477
Accrued expenses ......................... 394 (197) (491)
Deferred service revenue ................. (757) 493 (518)
-------- -------- --------
Net cash provided by continuing
operating activities ................... 3,322 4,108 1,758
Net cash used in discontinued operations (88) (580) (1,829)
-------- -------- --------
Net cash provided (used) by
operating activities ................... 3,234 3,528 (71)
-------- -------- --------
Cash flows from investing activities:
Capital expenditures .......................... (415) (916) (517)
Capitalization of software costs .............. (809) (790) (742)
-------- -------- --------
Net cash used in investing activities ... (1,224) (1,706) (1,259)
-------- -------- --------
Cash flows from financing activities:
Net borrowings (payments) under
line-of-credit agreements ................... (2,560) (5,082) 830
Payments of long-term debt .................... (85) (57) (55)
Net proceeds from the sale of treasury stock .. -- 1,922 --
Proceeds from the exercise of stock options ... 839 381 473
-------- -------- --------
Net cash provided (used) by
financing activities ................... (1,806) (2,836) 1,248
-------- -------- --------
Continued
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In Thousands)
Year ended December 31,
----------------------------
2003 2002 2001
-------- -------- -------
Effect of exchange rate changes on cash and
cash equivalents ........................ 773 625 (238)
------- ------- -------
Net increase (decrease) in cash
and cash equivalents .................... 977 (389) (320)
Cash and cash equivalents at
beginning of year ....................... 490 879 1,199
------- ------- -------
Cash and cash equivalents at
end of year ............................. $ 1,467 $ 490 $ 879
======= ======= =======
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 553 $ 848 $1,095
Income taxes, net of refunds 291 101 (543)
See accompanying notes to consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 -- Summary of Significant Accounting Policies
Basis of consolidation
The consolidated financial statements include the accounts of PAR
Technology Corporation and its wholly owned subsidiaries (ParTech, Inc., Ausable
Solutions, Inc., PAR Government Systems Corporation and Rome Research
Corporation), collectively referred to as the "Company." All significant
intercompany transactions have been eliminated in consolidation.
Revenue recognition
The Company recognizes revenue generated by the Restaurant segment using
the guidance from SEC Staff Accounting Bulletin No. 104, "Revenue Recognition"
and the AICPA Statement of Position (SOP) 97-2, "Software Revenue Recognition,"
and other applicable revenue recognition guidance and interpretations. Product
revenue consists of sales of the Company's standard Point-of-Sale systems of the
Restaurant segment. The Company recognizes revenue from the sale of complete
restaurant systems (which primarily includes hardware or hardware and software)
upon delivery to the customer site. For restaurant systems that are
self-installed by the customer or an unrelated third party and for component
sales or supplies, the Company recognizes revenue at the time of shipment. In
addition to product sales, the Company may provide installation and training
services, and also offers maintenance contracts to its customers. Installation
and training service revenues are recognized as the services are performed. The
Company's other service revenues, consisting of support, field and depot repair,
are provided to customers either on a time and materials basis or under its
maintenance contracts. Services provided on a time and materials basis are
recognized as the services are performed. Service revenues from maintenance
contracts are deferred when billed and recognized ratably over the related
contract period.
The Company recognizes revenue in its Government segment using the guidance
from SEC Staff Accounting Bulletin No. 104, "Revenue Recognition." The Company's
contract revenues generated by the Government segment result primarily from
contract services performed for the United States Government under a variety of
costs-plus fee, time-and-material and fixed-price contracts. Revenue on
cost-plus fixed fee contracts is recognized based on allowable costs for labor
hours delivered, as well as other allowable costs plus the applicable fee.
Revenue on time and material contracts is recognized by multiplying the number
of direct labor-hours delivered in the performance of the contract by the
contract billing rates and adding other direct costs as incurred. Revenue for
fixed price contracts is recognized primarily on a straight-line basis over the
life of the fixed-price contract. The Company's obligation under these contracts
is simply to provide labor hours to conduct research or to staff facilities with
no other deliverables or performance obligations. Anticipated losses on all
contracts are recorded in full when identified. Unbilled accounts receivable are
stated in the Company's financial statements at their estimated realizable
value. Contract costs, including indirect expenses, are subject to audit and
adjustment through negotiations between the Company and Government
representatives.
Statement of cash flows
For purposes of reporting cash flows, the Company considers all highly
liquid investments, purchased with a remaining maturity of three months or less,
to be cash equivalents. The effect of changes in foreign-exchange rates on cash
balances is not significant.
Accounts receivable - Allowance for doubtful accounts
Allowances for doubtful accounts are based on estimates of probable losses
related to accounts receivable balances. The establishment of allowances
requires the use of judgment and assumptions regarding probable losses on
receivable balances.
Inventories
The Company's inventories are valued at the lower of cost or market. The
Company uses certain estimates and judgments and considers several factors
including product demand and changes in technology to provide for excess and
obsolescence reserves to properly value inventory.
Property, plant and equipment
Property, plant and equipment are recorded at cost and depreciated using
the straight-line method over the estimated useful lives of the assets, which
range from three to twenty-five years. Expenditures for maintenance and repairs
are expensed as incurred.
Warranties
The Company's products are sold with a standard warranty for defects in
material and workmanship. The standard warranty offered by the Company is for
one year, although certain sales have shorter warranty periods. The Company
establishes an accrual for estimated warranty costs at the time revenue is
recognized on the sale. This estimate is based on projected product reliability
using historical performance data.
The changes in the product warranty liability for the years ended December
31, are summarized as follows (in thousands):
2003 2002
-------- --------
Balance at beginning of year ........................ $ (560) $ (388)
Provision for warranties issued during the year ..... (1,009) (1,540)
Settlements made (in cash or in kind) during the year 1,075 1,368
------- -------
Balance at end of year .............................. $ (494) $ (560)
======= =======
Income taxes
The provision for income taxes is based upon pretax earnings with deferred
income taxes provided for the temporary differences between the financial
reporting basis and the tax basis of the Company's assets and liabilities. The
Company records a valuation allowance when necessary to reduce deferred tax
assets to their net realizable amounts. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
Foreign currency
The assets and liabilities for the Company's international operations are
translated into U.S. dollars using year-end exchange rates. Income statement
items are translated at average exchange rates prevailing during the year. The
resulting translation adjustments are recorded as a separate component of
shareholders' equity under the heading Accumulated Other Comprehensive Loss.
Exchange gains and losses on intercompany balances of a long-term investment
nature are also recorded as a translation adjustment and are included in
Accumulated Other Comprehensive Income (Loss). Foreign currency transaction
gains and losses, which historically have not been significant, are included in
net income.
Capitalized software development costs
The Company capitalizes certain costs related to the development of
computer software used in its Restaurant products segment under the requirements
of Statement of Financial Accounting Standards No. 86, "Accounting for the Costs
of Computer Software to be Sold, Leased, or Otherwise Marketed". Software
development costs incurred prior to establishing technological feasibility are
charged to operations and included in research and development costs. Software
development costs incurred after establishing feasibility are capitalized and
amortized on a product-by-product basis when the product is available for
general release to customers. The unamortized computer software costs included
in other assets amounted to $1,772,000 and $2,148,000 at December 31, 2003 and
2002, respectively. Annual amortization, charged to cost of sales, is computed
using the straight-line method over the remaining estimated economic life of the
product, generally three years. Amortization of capitalized software costs
amounted to $1,185,000, $1,098,000 and $1,376,000 in 2003, 2002, and 2001,
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.
Had compensation cost for the Company's stock-based compensation plans and
other transactions been determined based on the fair values at the fiscal year
2003, 2002 and 2001 grant dates for those awards, consistent with the
requirements of SFAS 123, "Accounting for Stock-Based Compensation", the
Company's net income and earnings per share would have been adjusted to the
proforma amounts indicated below (in thousands, except per share data):
2003 2002 2001
-------- ------- -------
Net income ................... $ 2,429 $ 741 $ 282
Compensation benefit (expense) (118) 117 (278)
------- ------- -------
Proforma net income .......... $ 2,311 $ 858 $ 4
======= ======= =======
Earnings per share:
As reported -- Basic ....... $ .29 $ .09 $ .04
-- Diluted ..... $ .27 $ .09 $ .04
Proforma -- Basic ....... $ .27 $ .11 $ --
-- Diluted ..... $ .26 $ .10 $ --
The estimated weighted average fair value of options granted is $1.52,
$1.10 and $.62 for 2003, 2002 and 2001, respectively.
The fair value of these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions for 2003, 2002 and 2001:
2003 2002 2001
---- ---- ----
Risk-free interest rate 2.0% 4.2% 3.8%
Dividend yield N/A N/A N/A
Volatility factor 44% 44% 42%
Expected option life 5 Years 6 Years 7.5 Years
In management's opinion the existing models do not necessarily provide a
reliable measure of the fair value of its stock options because the Company's
stock options have characteristics significantly different from those of traded
options for which the Black-Scholes model was developed, and because of changes
in the subjective assumptions can materially affect fair value estimate.
Earnings per share
Earnings per share are calculated in accordance with Statement of Financial
Accounting Standards No. 128 "Earnings per Share", which specifies the
computation, presentation, and disclosure requirements for earnings per share
(EPS). It requires the presentation of basic and diluted EPS. Basic EPS excludes
all dilution and is based upon the weighted average number of common shares
outstanding during the period. Diluted EPS reflects the potential dilution that
would occur if securities or other contracts to issue common stock were
exercised or converted into common stock.
The following is a reconciliation of the weighted average shares
outstanding for the basic and diluted EPS computations (In Thousands Except
Share and Per Share Data):
2003 2002 2001
------ ------ ------
Net income ................................. $2,429 $ 741 $ 282
====== ====== ======
Basic:
Shares outstanding at beginning of year 8,360 7,881 7,723
Weighted shares issued during the year 78 53 3
------ ------ ------
Weighted average common shares, basic . 8,438 7,934 7,726
====== ====== ======
Earnings per common share, basic ...... $ .29 $ .09 $ .04
====== ====== ======
Diluted:
Weighted average common shares, basic . 8,438 7,934 7,726
Dilutive impact of stock options ...... 423 381 73
------ ------ ------
Weighted average common shares, diluted 8,861 8,315 7,799
====== ====== ======
Earnings per common share, diluted .... $ .27 $ .09 $ .04
====== ====== ======
Use of Estimates
The preparation of consolidated financial statements requires management of
the Company to make a number of estimates and assumptions relating to the
reported amount of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the consolidated financial statements and
the reported amounts of revenues and expenses during the period. Significant
items subject to such estimates and assumptions include the carrying amount of
property, plant and equipment, intangible assets and goodwill, valuation
allowances for receivables, inventories and deferred income tax assets. Actual
results could differ from those estimates.
Goodwill and Other Intangible Assets
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets",
(SFAS 142). The Company adopted SFAS 142 effective January 1, 2002. Under this
standard, amortization of goodwill and certain intangible assets, including
certain intangible assets recorded as a result of past business combinations,
was discontinued upon the adoption of SFAS 142. Instead, all goodwill is tested
for impairment annually, or more frequently if circumstances indicate potential
impairment, through a comparison of fair value to its carrying amount. The
Company has elected to annually test for impairment at December 31. There was no
impairment of goodwill in 2003 or 2002. The carrying value of goodwill was
$598,000 at December 31, 2003 and is included in other assets on the
consolidated balance sheets.
The following is a reconciliation assuming goodwill had been accounted for
in accordance with SFAS 142 in the year ended December 31, 2001: 2001
Income from continuing operations - as reported ...... $ 2,080
Add back: Goodwill amortization (net of income taxes) 114
---------
Adjusted income from continuing operations ........... $ 2,194
=========
Basic EPS
Income from continuing operations - as reported ...... $ .27
Add back: Goodwill amortization (net of income taxes) .01
---------
Adjusted income from continuing operations ........... $ .28
=========
Diluted EPS
Income from continuing operations - as reported ...... $ .27
---------
Add back: Goodwill amortization (net of income taxes) .01
---------
Adjusted income from continuing operations ........... $ .28
=========
Accounting for Impairment or Disposal of Long-Lived Assets
Statement of Financial Accounting Standards No. 144, "Accounting for
Impairment or Disposal of Long-Lived Assets," (SFAS 144) was issued in August
2001. SFAS 144 provides new guidance on the recognition of impairment and losses
on long-lived assets to be held and used, or to be disposed of, and also
broadens the definition of what constitutes a discontinued operation and how the
results of discontinued operations are to be measured and presented. SFAS 144
supersedes Standard Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets to be Disposed Of," and a portion of Accounting
Principle Board (APB) No. 30, "Reporting the Results of Operations-Reporting the
Effects of Disposal of Segment of a Business," while retaining many of the
requirements of these two statements. Under SFAS 144, discontinued operations
are no longer measured on a net realizable value basis, and future operating
losses are no longer recognized before they occur.
As further described in Note 3, the Company decided to dispose of its
Industrial segment in August 2002 and has adopted the provisions of SFAS 144
regarding the measurement, recognition and disclosure of this discontinued
operation.
Reclassifications
Amounts in prior years' consolidated financial statements are reclassified
whenever necessary to conform with the current year's presentation.
New Accounting Pronouncements
In December 2002, the Emerging Issues Task Force (EITF) issued EITF 00-21,
Revenue Arrangements with Multiple Deliveries (EITF 00-21). EITF 00-21 addresses
how to determine whether an arrangement involving multiple deliverables contains
more than one unit of accounting. It also addresses how arrangement
consideration should be measured and allocated to the separate units of
accounting in an arrangement. EITF 00-21 does not apply to deliverables in
arrangements to the extent the accounting for such deliverables is within the
scope of other existing higher-level authoritative accounting literature. EITF
00-21 is effective for revenue arrangements entered into beginning after July 1,
2003. The adoption of EITF 00-21 did not have an impact on the 2003 consolidated
financial statements and the Company does not anticipate that the adoption of
EITF 00-21 will have any impact on the consolidated financial statements
prospectively.
In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities (FIN 46). FIN 46 provides guidance for identifying a
controlling interest in a Variable Interest Entity (VIE) established by means
other than voting interests. FIN 46 also requires consolidation of a VIE by an
enterprise that holds such controlling interest. The Company is required to
adopt the provisions of FIN 46 for any variable interest entity created prior to
February 1, 2003, by the end of the current fiscal year. The Company does not
have any interest qualifying as VIE's and does not anticipate that the
provisions of FIN 46 will have a significant impact on the consolidated
financial statements, prospectively.
In December 2002, FASB Statement No. 148 Accounting for Stock Based
Compensation - Transaction and Disclosure, an amendment of FASB Statement No.
123, was issued. This Statement amends FASB Statement No. 123, Accounting for
Stock-Based Compensation, to provide alternative methods of transition for a
voluntary change to the fair value method of accounting for stock-based employee
compensation. In addition, Statement 148 amends the disclosure requirements of
Statement 123 to require prominent disclosures in both annual and interim
financial statements. Disclosures required by this standard are included in the
notes to these consolidated financial statements.
In April 2003, the FASB issued Statement of Financial Accounting Standards
No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities (SFAS 149). SFAS 149 amends and clarifies the accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities under Statement of Financial
Accounting Standards No. 133. SFAS 149 is generally effective for contracts
entered into or modified after June 30, 2003. The adoption of SFAS 149 did not
have an impact on the Company's consolidated financial statements. The Company
does not expect the adoption of SFAS 149 to have a significant impact on the
Company's consolidated financial statements, prospectively.
In May, 2003, the FASB issued Statement of Financial Accounting Standards
No. 150, Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity (SFAS 150). SFAS 150 established standards for how
an issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity SFAS 150 is effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
is effective beginning in the third quarter of 2003. The adoption of SFAS 150
did not have an impact on the consolidated financial statements and the Company
does not anticipate SFAS 150 will have a significant impact on the consolidated
financial statements, prospectively.
Note 2 -- Business Operations
During the third quarter of 2002, the Company decided to close down its
unprofitable Industrial business unit, Ausable Solutions, Inc., following a
trend of continuous losses. The overall downturn in the global economy and
specifically the manufacturing and warehousing industries, coupled with the
diminishing capital expenditures of the Company's industrial customers,
prevented the Company from being profitable in this particular business segment.
The decision to shut down this unit has allowed the Company to focus on its two
core businesses, Restaurant and Government. The Company believes that the
decision to exit the Industrial segment will not have a negative impact on the
Company's continuing operations. The Company's Industrial business did not have
common customers with its Restaurant and Government contract businesses.
A summary of net revenues, net loss from operations of discontinued
component and total assets and liabilities of discontinued operations are
detailed below (in thousands):
Year ended December 31,
-----------------------------
2003 2002 2001
-------- ------- -------
Net revenues .............. $ -- $ 1,454 $ 2,749
Net loss from operations of
discontinued component . $ (363) $(1,882) $(1,798)
December 31,
--------------
2003 2002
------ -----
Discontinued assets-other ....... $ 20 $ 59
==== ====
Discontinued liabilities-other .. $578 $342
==== ====
Note 3 -- Accounts Receivable
The Company's net accounts receivable consist of:
December 31,
(In Thousands)
----------------------
2003 2002
-------- ---------
Government segment:
Billed ............. $ 8,961 $ 4,789
Advanced billings
(1,214) (532)
-------- --------
7,747 4,257
-------- --------
Restaurant segment:
Trade accounts receivable 24,129 21,586
-------- --------
$ 31,876 $ 25,843
======== ========
At December 31, 2003 and 2002, the Company had recorded allowances for
doubtful accounts of $2,389,000 and $3,153,000, respectively, against trade
accounts receivable. Trade accounts receivable are primarily with major
fast-food corporations or their franchisees. At December 31, 2003 and 2002, the
Company had also recorded reserves of $7,000 and $15,000, respectively, against
Government accounts receivable.
Note 4 -- Inventories
Inventories are used primarily in the manufacture, maintenance, and service
of restaurant systems. Inventories are net of related reserves. The components
of inventory are:
December 31,
(In Thousands)
----------------------------
2003 2002
-------- --------
Finished goods ....................... $ 7,430 $10,892
Work in process ...................... 1,623 1,700
Component parts ...................... 5,585 4,923
Service parts ........................ 17,256 16,759
------- -------
$31,894 $34,274
======= =======
The Company records reserves for shrinkage, excess and obsolete inventory.
At December 31, 2003 and 2002, these amounts were $4,361,000 and $4,094,000,
respectively.
Note 5 -- Property, Plant and Equipment
The components of property, plant and equipment are:
December 31,
(In Thousands)
------------------
2003 2002
------- --------
Land ........................ $ 253 $ 253
Buildings and improvements .. 7,108 7,026
Rental property ............. 3,490 3,582
Furniture and equipment ..... 25,719 25,992
------- -------
36,570 36,853
Less accumulated depreciation
and amortization ............ 29,330 28,398
------- -------
$ 7,240 $ 8,455
======= =======
The useful lives of buildings and improvements and rental property are
twenty to twenty-five years. The useful lives of furniture and equipment ranges
from three to eight years. Depreciation expense recorded was $1,630,000,
$1,802,000 and $1,967,000 for 2003, 2002 and 2001, respectively.
The Company subleases a portion of its headquarters facility to various
tenants. Rent received from these leases totaled $1,114,000, $1,027,000 and
$1,051,000 for the years ended December 31, 2003, 2002 and 2001, respectively.
Future minimum rent payments due to the Company under these leases is as
follows (in thousands):
2004 $ 942
2005 942
2006 882
2007 133
--------
$ 2,899
========
The Company leases office space under various operating leases. Rental
expense on these operating leases was approximately $1,200,000, $1,228,000 and
$1,143,000 for the years ended December 31, 2003, 2002, and 2001, respectively.
Future minimum lease payments under all noncancelable operating leases are
(in thousands):
2004 $ 1,082
2005 915
2006 641
2007 348
2008 323
Thereafter 445
--------
$ 3,754
========
In accordance with SFAS 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," we evaluate the accounting and reporting for the impairment
of long-lived assets and for long-lived assets to be disposed of. SFAS 144
requires recognition of impairment of long-lived assets if the net book value of
such assets exceeds the estimated future undiscounted cash flows attributable to
such assets. If the carrying value of a long-lived asset is considered impaired,
a loss is recognized based on the amount by which the carrying value exceeds the
fair market value of the long-lived asset for assets to be held and used, or the
amount by which the carrying value exceeds the fair market value less cost to
dispose for assets to be disposed. Fair market value is determined primarily
using the anticipated cash flows discounted at a rate commensurate with the risk
involved. No impairment was identified during 2003, 2002 or 2001.
Note 6 -- Debt
The Company has an aggregate of $20,000,000 in bank lines of credit. One
line with a maximum availability totaling $12,500,000, bears interest at the
prime rate (4% at December 31, 2003) and is subject to loan covenants. These
covenants include a debt to tangible net worth ratio of 1 to 1; working capital
of at least $25 million; and a debt coverage ratio of 4 to 1. The availability
of this facility is determined based on the amount of certain accounts
receivable and inventory. At December 31, 2003, the amount of available under
this line was $12,500,000 based on (a) 80% of the Company's accounts receivable
under 91 days outstanding attributable to the Company's Restaurant segment and
(2) 40% of the Company's inventory, excluding work in progress. This line
expires on April 30, 2005. The remaining line of $7,500,000 allows the Company,
at its option, to borrow funds at the LIBOR rate plus the applicable interest
rate spread (3.9% at December 31, 2003) or at the bank's prime lending rate.
This facility contains certain loan covenants including a leverage ratio of not
greater than 4 to 1 and a fixed charge coverage ratio of not less than 4 to 1.
This line expires on October 30, 2005. Both lines are collateralized by certain
accounts receivable and inventory. The Company was in compliance with all loan
covenants as of December 31, 2003. At December 31, 2003, an aggregate of
$6,989,000 was outstanding and an aggregate of $13,011,000 was available under
these lines.
The Company has a $2.2 million mortgage collateralized by certain real
estate. The annual mortgage payment including interest totals $192,500. The
mortgage bears interest at a variable rate based on the lending bank's Corporate
Base Lending Rate plus 1/2%. At December 31, 2003, the interest rate was 4 3/4%.
The remaining balance is due on May 1, 2010. The Company's future principal
payments under this mortgage are as follows (in 000's):
2004 $ 89
2005 94
2006 98
2007 103
2008 108
Thereafter 1,689
---------
$ 2,181
=========
Note 7 -- Stock based compensation
The Company has reserved 2,055,260 shares under its stock option plan.
Options under this Plan may be incentive stock options or nonqualified options.
Stock options are nontransferable other than upon death. Option grants generally
vest over a three to five year period after the grant and typically expire ten
years after the date of the grant.
A summary of the stock options follows:
No. of Shares Weighted Average
(In Thousands) Exercise Price
-------------- --------------
Outstanding at December 31, 2000 ... 1,515 $ 4.21
Granted ....................... 404 2.29
Exercised ..................... (157) 3.00
Forfeited ..................... (289) 4.01
------ --------
Outstanding at December 31, 2001 ... 1,473 3.81
Granted ....................... 109 2.77
Exercised ..................... (96) 3.22
Forfeited ..................... (188) 5.69
------ --------
Outstanding at December 31, 2002 ... 1,298 3.67
Granted ....................... 79 4.98
Exercised ..................... (196) 3.46
Forfeited ..................... (137) 4.05
------ --------
Outstanding at December 31, 2003 ... 1,044 $ 3.48
====== ========
Shares remaining available for grant 688
======
Total shares vested and exercisable
as of December 31, 2003 ....... 716 $ 3.53
====== ========
Stock options outstanding at December 31, 2003 are summarized as follows:
Range of Number Weighted Average Weighted Average
Exercise Prices Outstanding Remaining Life Exercise Price
--------------- ----------- -------------- --------------
$1.88 - $4.00 681 7.1 Years $2.67
$4.01 - $6.50 363 6.4 Years $4.97
-------------- ------ --------- -----
$1.88 - $6.50 1,044 6.8 Years $3.48
============== ===== ========= =====
Note 8-- Income Taxes
The provision (benefit) for income taxes consists of:
Year ended December 31,
(In Thousands)
----------------------------------------
2003 2002 2001
--------- --------- --------
Current income tax:
Federal ............. $ 177 $ (465) $ 13
State ............... 112 55 28
Foreign ............. 288 131 98
------- ------- -------
577 (279) 139
------- ------- -------
Deferred income tax:
Federal ............. 605 370 (57)
State ............... 251 121 (64)
Foreign ............. (47) 38 66
------- ------- -------
809 529 (55)
------- ------- -------
Provision for income taxes $ 1,386 $ 250 $ 84
======= ======= =======
Deferred tax liabilities (assets) are comprised of the following at:
December 31,
(In Thousands)
----------------------
2003 2002
--------- ---------
Software development expense .............. $ 656 $ 266
Depreciation .............................. 209 426
-------- --------
Gross deferred tax liabilities ............ 865 692
-------- --------
Allowances for bad debts,
inventory and warranty .................. (3,503) (3,511)
Capitalized inventory costs ............... (60) (67)
Benefit accruals .......................... (296) (324)
Federal net operating loss carryforward ... (4,647) (5,113)
State net operating loss carryforward ..... (634) (865)
Foreign net operating loss carryforward ... (530) (483)
Tax credit carryforward ................... (538) (772)
Valuation allowance for foreign tax credits -- 329
Other ..................................... -- (38)
-------- --------
Gross deferred tax assets ................. (10,208) (10,844)
-------- --------
Net deferred tax asset .................... $ (9,343) $(10,152)
======== ========
The Company has a Federal net operating loss carryforward of $13.7 million,
which expires in 2020 and 2021. The Company has tax credit carryforwards of
$538,000, which expires in various tax years from 2005 - 2023. In assessing the
realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which the temporary
differences become deductible. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income, and tax planning
strategies in making this assessment. Based upon the historical level of taxable
income and projections for future taxable income, management believes it is more
likely than not the Company will realize the benefit of the deferred tax assets.
Accordingly, no deferred tax valuation allowance was recorded at December 31,
2003. As of December 31, 2002, the Company recorded a $329,000 valuation
allowance against certain foreign tax credits. The foreign tax credits either
expired or were converted to net operating loss carryforwards in 2003.
Therefore, a valuation allowance is no longer required at December 31, 2003.
The provision for income taxes differed from the provision computed by
applying the Federal statutory rate to income before taxes due to the following:
Year ended December 31,
---------------------------------
2003 2002 2001
------ ------- -------
Federal statutory tax rate ...... 34.0% 34.0% 34.0%
State taxes ..................... 8.5 15.8 (12.6)
Extraterritorial income exclusion (2.0) (20.6) (19.7)
Valuation allowance ............. (8.6) 33.2 --
Changes in estimate of prior
year's accrual ................ -- (54.1) (3.0)
Non deductible expenses ......... 3.2 8.3 19.5
Tax credits ..................... (1.3) (4.0) (13.7)
Foreign income taxes ............ 2.1 12.6 18.0
Other ........................... .4 -- .5
---- ---- ----
36.3% 25.2% 23.0%
==== ==== ====
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 Company contributed $819,000 and $200,000 to the Plan in 2003
and 2002, respectively. There was no contribution to the plan in 2001. The plan
also contains a 401(k) provision that allows employees to contribute a
percentage of their salary. These contributions are matched at the rate of 10%
by the Company. The Company contributions under the 401(k)component were
$205,000, $208,000, and $208,000 in 2003, 2002, and 2001, respectively.
The Company also maintains an incentive-compensation plan. Participants in
the plan are key employees as determined by the Board of Directors and executive
management. Compensation under the plan is based on the achievement of
predetermined financial performance goals of the Company and its subsidiaries.
Awards under the plan are payable in cash. Awards under the plan totaled
$559,000, $261,000 and $416,000 in 2003, 2002 and 2001, respectively.
Note 10 -- Contingencies
The Company is subject to legal proceedings, which arise in the ordinary
course of business. Additionally, U.S. Government contract costs are subject to
periodic audit and adjustment. In the opinion of management, the ultimate
liability, if any, with respect to these actions will not materially affect the
financial position, results of operations, or cash flows of the Company.
Note 11 -- Segment and Related Information
The Company's reportable segments are strategic business units that have
separate management teams and infrastructures that offer different products and
services.
The Company has two reportable segments, Restaurant and Government. The
Restaurant segment offers integrated solutions to the hospitality industry.
These offerings include industry leading hardware and software applications
utilized at the point-of-sale, back of store and corporate office. This segment
also offers customer support including field service, installation, twenty-four
hour telephone support and depot repair. The Government segment develops
advanced technology prototype systems primarily for the Department of Defense
and other Governmental agencies. It provides services for operating and
maintaining certain U.S. Government-owned communication and test sites, and for
planning, executing and evaluating experiments involving new or advanced radar
systems. It is also involved in developing technology to track mobile chassis.
As discussed in Note 3, the Company discontinued its Industrial segment in the
third quarter of 2002. Accordingly, the results of this segment have been
reported as discontinued operations. Intersegment sales and transfers are not
significant.
Information as to the Company's segments is set forth below:
Year ended December 31,
(In Thousands)
------------------------------------
2003 2002 2001
---------- ---------- ----------
Revenues:
Restaurant ......................... $ 98,088 $ 95,706 $ 83,844
Government ......................... 41,682 37,975 30,510
--------- --------- ---------
Total ........................ $ 139,770 $ 133,681 $ 114,354
========= ========= =========
Income (loss) from continuing operations:
Restaurant ......................... $ 2,977 $ 1,278 $ 1,226
Government ......................... 1,928 2,266 1,954
Other .............................. (562) (28) (166)
--------- --------- ---------
4,343 3,516 3,014
Other income, net ....................... 582 815 848
Interest expense ........................ (540) (824) (1,161)
--------- --------- ---------
Income before provision
for income taxes ................... $ 4,385 $ 3,507 $ 2,701
========= ========= =========
Identifiable assets:
Restaurant ......................... $ 70,550 $ 71,725 $ 75,200
Government ......................... 10,475 6,568 7,700
Industrial ......................... 20 59 2,777
Other .............................. 6,122 6,770 3,238
--------- --------- ---------
Total ........................ $ 87,167 $ 85,122 $ 88,915
========= ========= =========
Depreciation and amortization:
Restaurant ......................... $ 2,212 $ 2,315 $ 2,557
Government ......................... 201 117 104
Other .............................. 402 462 495
--------- --------- ---------
Total ........................ $ 2,815 $ 2,894 $ 3,156
========= ========= =========
Capital expenditures:
Restaurant ......................... $ 236 $ 549 $ 307
Government ......................... 50 112 83
Other .............................. 129 255 127
--------- --------- ---------
Total ........................ $ 415 $ 916 $ 517
========= ========= =========
The following table presents revenues by country based on the location of
the use of the product or services.
2003 2002 2001
---------- ---------- ----------
United States ........................... $ 124,556 $ 118,375 $ 97,937
Other Countries ......................... 15,214 15,306 16,417
--------- --------- ---------
Total ............................... $ 139,770 $ 133,681 $ 114,354
========= ========= =========
The following table presents property by country based on the location of
the asset.
2003 2002 2001
------- ------- -------
United States ......... $79,831 $75,640 $80,122
Other Countries........ 7,336 9,482 8,793
------- ------- -------
Total ............. $87,167 $85,122 $88,915
======= ======= =======
Customers comprising 10% or more of the Company's total revenues are
summarized as follows:
2003 2002 2001
--------- --------- ---------
Restaurant segment:
McDonald's Corporation....... 25% 30% 30%
Yum! Brands, Inc. ........... 25% 21% 21%
Government segment:
Department of Defense ....... 30% 28% 27%
All Others .................... 20% 21% 22%
--- --- ---
100% 100% 100%
=== === ===
Note 12 -- Fair Value of Financial Instruments
Estimated fair value of financial instruments classified as current assets
or liabilities approximate carrying value due to the short-term nature of the
instruments. Such current assets and liabilities include cash and cash
equivalents, accounts receivable, borrowings under lines of credit, current
portion of long-term debt and accounts payable. The estimated fair value of the
Company's long-term debt is based on interest rates at December 31, 2003 and
2002 for new issues with similar remaining maturities and approximates carrying
value at December 31, 2003 and 2002.
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates are subjective in nature and involve uncertainties and matters
of significant judgment and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
Note 13 -- Related Party Transactions
The Company leases its corporate wellness facility to related parties at a
current rate of $9,775 per month. The Company provides membership to this
facility to all employees. During 2003, 2002, and 2001 the Company received
rental income amounting to $117,300, $117,300, and $108,600, respectively. All
lease payments are current at December 31, 2003.
At December 31, 2003 the Company has outstanding interest bearing loans
totaling $595,430 to two executive officers. These loans were originated prior
to June, 2002. The interest rates are variable and were 4% at December 31, 2003.
The amount outstanding and interest rate at December 31, 2002 were $720,000 and
4.25%, respectively.
During 2003, 2002 and 2001 interest income recorded by the Company related
to these loans was $26,100, $27,500, and $35,300, respectively. These loans are
payable on demand. These loans are current as to interest payments at December
31, 2003.
Note 14 -- Selected Quarterly Financial Data (Unaudited)
Quarter ended
(In Thousands Except Per Share Amounts)
2003 March 31 June 30 September 30 December 31
---- -------- ------- ------------ -----------
Net revenues ..................... $30,542 $32,011 $36,006 $41,211
Gross margin ..................... 6,041 6,344 7,520 9,088
Income from
continuing operations .......... 256 351 858 1,327
Basic earnings per share
from continuing operations ..... .03 .04 .10 .16
Diluted earnings per share
from continuing operations ..... .03 .04 .10 .15
Quarter ended
(In Thousands Except Per Share Amounts)
2002 March 31 June 30 September 30 December 31
---- -------- ------- ------------ -----------
Net revenues ..................... $33,715 $33,918 $31,785 $34,263
Gross margin ..................... 6,818 7,038 7,226 7,374
Income from
continuing operations .......... 832 702 726 363
Basic earnings per share
from continuing operations ..... .10 .09 .09 .05
Diluted earnings per share
from continuing operations ..... .10 .09 .09 .04
SCHEDULE II - VALUATION AND QUALIFYING
ACCOUNTS AND RESERVES
(In Thousands)
------------------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
------------------------------------------------------------------------------------------------------------------------------------
Additions
---------
Balance at
beginning of Charged to Costs Charged to Balance at end
Description period and Expenses Other Accounts Deductions of period
------------------------------------------------------------------------------------------------------------------------------------
Allowance for Doubtful
Accounts - deducted from
Accounts Receivable in
the Consolidated Balance Sheet
2003 $3,168 968 (1,740) $2,396
2002 $4,504 1,491 (2,827) $3,168
2001 $4,444 1,299 (1,239) $4,504
(a) Uncollectible accounts written off.
------------------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
------------------------------------------------------------------------------------------------------------------------------------
Additions
---------
Balance at
beginning of Charged to Costs Charged to Balance at end
Description period and Expenses Other Accounts Deductions of period
------------------------------------------------------------------------------------------------------------------------------------
Inventory Reserves for shrinkage, excess and obsolete inventory
- deducted from inventory
in the Consolidated Balance Sheet
2003 $ 4,094 2,957 (2,690) $ 4,361
2002 $ 3,253 2,321 (1,480) $ 4,094
2001 $ 4,171 590 (1,508) $ 3,253
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PAR TECHNOLOGY CORPORATION
March 30, 2004 /s/John W. Sammon, Jr.
-------------------------------
John W. Sammon, Jr.
Chairman of Board and President
-------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
/s/John W. Sammon, Jr.
---------------------- Chairman of Board and March 30, 2004
John W. Sammon, Jr. President (Principal
Executive Officer)
and Director
/s/Charles A. Constantino
------------------------- Executive Vice President March 30, 2004
Charles A. Constantino and Director
/s/Sangwoo Ahn
------------------------- Director March 30, 2004
Sangwoo Ahn
/s/J. Whitney Haney
------------------------- Director March 30, 2004
J. Whitney Haney
/s/James A. Simms
------------------------- Director March 30, 2004
James A. Simms
/s/Ronald J. Casciano
------------------------- Vice President, Chief Financial March 30, 2004
Ronald J. Casciano Officer and Treasurer
List of Exhibits
Exhibit
No. Description of Instrument
--------------------------------------------------------------------------------
3.1 Certificate of Incorporation, Filed as Exhibit 3.1 to Registration
as amended Statement on Form S-2 (Registration
No. 333-04077)of PAR Technology
Corporation incorporated herein by
reference.
3.2 Certificate of Amendment to the Filed as Exhibit 3.1 to Registration
Certificate of Incorporation Statement on Form S-2 (Registration
No. 333-04077)of PAR Technology
Corporation incorporated herein by
reference.
3.3 By-laws, as amended.Filed as Statement on Form S-2 (Registration
Exhibit 3.1 to Registration No. 333-04077) of PAR Technology
Corporation incorporated herein by
reference.
4 Specimen Certificate representing Filed as Exhibit 3.1 to Registration
the Common Stock. Statement on Form S-2 (Registration
No. 333-04077)of PAR Technology
Corporation incorporated herein by
reference.
10.1 Letter of Agreement with Sanmina Filed as Exhibit 10.1 to Form S-3/A
- SCI Corporation (Registration No. 333-102197) of
PAR Technology Corporation incor-
porated herein by reference.
10.2 NBT, N.A. Line of Credit Agreement
10.3 JPMorgan Chase Agreement
22 Subsidiaries of the registrant
23 Consents of Independent Accountants
31.1 Certification of Chairman of the
Board and Chief Executive Officer
Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification of Vice President,
Chief Financial Officer and Treasurer
Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Certification of Chairman of the Board
and Chief Executive Officer and Vice
President, Chief Financial Officer and
Treasurer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley
Act of 2002.
EXHIBIT 22
Subsidiaries of PAR Technology Corporation
--------------------------------------------------------------------------------
Name State of Incorporation
--------------------------------------------------------------------------------
ParTech, Inc. New York
PAR Government Systems Corporation New York
Rome Research Corporation New York
PAR Vision Systems Corporation New York
Ausable Solutions, Inc. Delaware
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors and Shareholders
PAR Technology Corporation
We consent to the incorporation by reference in the registration statements (No.
33-04968, 33-39784, 33-58110, and 33-63095) on Form S-8 and the registration
statement (No. 333-102197) on Form S-3 of PAR Technology Corporation of our
report dated February 20, 2004, with respect to the consolidated balance sheet
of PAR Technology Corporation as of December 31, 2003 and the related
consolidated statements of income, comprehensive income, changes in
shareholders' equity, and cash flows for the year ended December 31, 2003, and
the financial statement schedule "Valuation and Qualifying Accounts and
Reserves" as of and for the year ended December 31, 2003, which report appears
in the December 31, 2003 annual report on Form 10-K of PAR Technology
Corporation.
KPMG LLP
Syracuse, New York
March 29, 2004
Consent of Independent Auditors
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (33-04968, 33-39784, 33-58110, and 33-63095) and the
Registration Statement on Form S-3 (333-102197) of PAR Technology Corporation of
our report dated March 28, 2003 relating to the financial statements and
financial statement schedule, which appears in this Form 10-K.
PricewaterhouseCoopers LLP
Syracuse, New York
March 29, 2004
Exhibit 31.1
PAR TECHNOLOGY CORPORATION
STATEMENT OF EXECUTIVE OFFICER
I, John W. Sammon, Jr., certify that:
1. I have reviewed this year end report on Form 10-K of PAR Technology
Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)), for the registrant and
have:
a. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluations; and
c. Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrants fourth, fiscal quarter in
the case of an annual report) and that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors:
d. All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
e. Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: March 30, 2004
/s/John W. Sammon, Jr.
-------------------------
John W. Sammon, Jr.
Chairman of the Board and
Chief Executive Officer
Exhibit 31.2
PAR TECHNOLOGY CORPORATION
STATEMENT OF EXECUTIVE OFFICER
I, Ronald J. Casciano, certify that:
1. I have reviewed this year end report on Form 10-K of PAR Technology
Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)), for the registrant and
have:
a. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluations; and
c. Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrants fourth, fiscal quarter in
the case of an annual report) and that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors:
d. All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
e. Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: March 30, 2004
/s/Ronald J. Casciano
-------------------------
Ronald J. Casciano
Vice President,
Chief Financial Officer
& Treasurer
Exhibit 32.1
PAR TECHNOLOGY CORPORATION
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of PAR Technology Corporation (the
"Company") on Form 10-K for the year ending December 31, 2003 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), we, John
W. Sammon, Jr. and Ronald J. Casciano, Chairman of the Board & Chief Executive
Officer and Vice President, Chief Financial Officer & Treasurer of the Company,
certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that, to the best of our knowledge:
(1) The Report fully complies with the requirement of section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
/s/John W. Sammon, Jr.
-------------------------------
John W. Sammon, Jr.
Chairman of the Board & Chief Executive Officer
March 30, 2004
/s/Ronald J. Casciano
-------------------------------
Ronald J. Casciano
Vice President, Chief Financial Officer & Treasurer
March 30, 2004