10-Q 1 0001.txt SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended June 30, 2000. Commission File Number 1-9720 OR [ ] TRANSITION REPORT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period From __________ to __________ Commission File Number __________ PAR TECHNOLOGY CORPORATION (Exact name of registrant as specified in its charter) Delaware 16-1434688 (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) PAR Technology Park 8383 Seneca Turnpike New Hartford, NY 13413-4991 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (315) 738-0600 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No The number of shares outstanding of registrant's common stock, as of July 31, 2000 - 7,799,805 shares. PAR TECHNOLOGY CORPORATION TABLE OF CONTENTS FORM 10-Q PART 1 FINANCIAL INFORMATION Item Number ----------- Item 1. Financial Statements - Consolidated Statement of Income for the Three and Six Months Ended June 30, 2000 and 1999 - Consolidated Statement of Comprehensive Income for the Three and Six Months Ended June 30, 2000 and 1999 - Consolidated Balance Sheet at June 30, 2000 and December 31, 1999 - Consolidated Statement of Cash Flows for the Six Months Ended June 30, 2000 and 1999 - Notes to Consolidated Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K Signatures Exhibit Index Item 1. Financial Statements PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (In Thousands Except Per Share Amounts) (Unaudited)
For the three months For the six months ended June 30, ended June 30, -------------------- ------------------ 2000 1999 2000 1999 ---- ---- ---- ---- Net revenues: Product ........................... $ 10,419 $ 24,319 $ 16,931 $ 46,364 Service ........................... 7,865 9,422 14,552 18,088 Contract .......................... 6,030 5,210 12,082 10,245 -------- -------- -------- -------- 24,314 38,951 43,565 74,697 -------- -------- -------- -------- Costs of sales: Product ........................... 8,248 15,907 13,556 29,585 Service ........................... 7,424 8,219 14,104 16,285 Contract .......................... 5,618 4,796 11,313 9,552 -------- -------- -------- -------- 21,290 28,922 38,973 55,422 -------- -------- -------- -------- Gross margin ................ 3,024 10,029 4,592 19,275 -------- -------- -------- -------- Operating expenses: Selling, general and administrative 5,601 5,757 12,070 11,496 Research and development .......... 2,422 2,335 4,525 4,548 -------- -------- -------- -------- 8,023 8,092 16,595 16,044 -------- -------- -------- -------- Income (loss) from operations .......... (4,999) 1,937 (12,003) 3,231 Other income, net ...................... 108 47 97 96 Interest expense ....................... (231) (150) (355) (267) -------- -------- -------- -------- Income (loss) before provision for income taxes ...................... (5,122) 1,834 (12,261) 3,060 Provision (benefit) for income taxes ... (1,870) 660 (4,486) 1,120 -------- -------- -------- -------- Net income (loss) ...................... $ (3,252) $ 1,174 $ (7,775) $ 1,940 ======== ======== ======== ======== Basic and Diluted earnings (loss) per common share .................. $ (.41) $ .14 $ (.98) $ .23 ======== ======== ======== ======== Weighted average shares outstanding Diluted ........................... 7,863 8,546 7,949 8,575 ======== ======== ======== ======== Basic ............................. 7,863 8,414 7,949 8,448 ======== ======== ======== ======== PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (In Thousands) (Unaudited) For the three months For the six months ended June 30, ended June 30, -------------------- ------------------ 2000 1999 2000 1999 ---- ---- ---- ---- Net income (loss) ...................... $(3,252) $ 1,174 $(7,775) $ 1,940 Other comprehensive income (loss), net of tax: Foreign currency translation adjustments ........................ (439) 42 (474) (37) ------- ------- ------- ------- Comprehensive income (loss) ............ $(3,691) $ 1,216 $(8,249) $ 1,903 ======= ======= ======= =======
PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (In Thousands Except Share Amounts)
June 30, 2000 December 31, Assets (Unaudited) 1999 ----------- ----------- Current Assets: Cash ................................ $ 364 $ 953 Accounts receivable-net ............. 28,864 37,436 Inventories ......................... 28,694 28,164 Income tax refund claims ............ 947 133 Deferred income taxes ............... 6,775 3,442 Other current assets ................ 2,391 2,042 -------- -------- Total current assets ............ 68,035 72,170 Property, plant and equipment - net ...... 10,882 11,470 Other assets ............................. 4,244 4,467 -------- -------- $ 83,161 $ 88,107 ======== ======== Liabilities and Shareholders' Equity Current Liabilities: Notes payable ....................... $ 10,151 $ 4,984 Current portion of long-term debt ... 48 - Accounts payable .................... 4,445 7,800 Accrued salaries and benefits ....... 4,593 4,746 Accrued expenses .................... 1,976 2,497 Deferred service revenue ............ 6,493 5,478 -------- -------- Total current liabilities ....... 27,706 25,505 -------- -------- Deferred income taxes .................... 379 459 -------- -------- Long-term debt ........................... 2,348 - -------- -------- Shareholders' Equity: Common stock, $.02 par value, 19,000,000 shares authorized; 9,516,711 shares issued 7,804,605 and 8,059,805 outstanding 190 190 Preferred stock, $.02 par value, 1,000,000 shares authorized ....... - - Capital in excess of par value ...... 28,071 28,071 Retained earnings ................... 34,416 42,191 Accumulated comprehensive loss ...... (1,238) (764) Treasury stock, at cost, 1,712,106 and 1,456,906 shares .... (8,711) (7,545) -------- -------- Total shareholders' equity ...... 52,728 62,143 -------- -------- $ 83,161 $ 88,107 ======== ========
PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (In Thousands) (Unaudited)
For the six months ended June 30, ------------------ 2000 1999 ---- ---- Cash flows from operating activities: Net income (loss) .................................... $(7,775) $ 1,940 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ...................... 1,766 1,311 Provision for obsolete inventory ................... 2,268 1,855 Translation adjustments ............................ (474) (37) Increase (decrease) from changes in: Accounts receivable-net .......................... 8,572 3,704 Inventories ...................................... (2,798) (6,557) Income tax refund claims ......................... (814) - Other current assets ............................. (349) (85) Other assets ..................................... - (50) Accounts payable ................................. (3,355) (2,227) Accrued salaries and benefits .................... (153) 677 Accrued expenses ................................. (521) 212 Income taxes payable ............................. - 1,752 Deferred service revenue ......................... 1,015 1,427 Deferred income taxes ............................ (3,413) (416) ------- ------- Net cash provided (used) by operating activities (6,031) 3,506 ------- ------- Cash flows from investing activities: Capital expenditures ............................... (393) (936) Capitalization of software costs ................... (562) (189) ------- ------- Net cash used in investing activities ........... (955) (1,125) ------- ------- Cash flows from financing activities: Net borrowing (payments) under line-of-credit agreements ....................... 5,167 (1,761) Proceeds from the issuance of long-term debt ....... 2,396 - Acquisition of treasury stock ...................... (1,166) (878) ------- ------- Net cash provided (used) in financing activities 6,397 (2,639) ------- ------- Net decrease in cash and cash equivalents ........... (589) (258) Cash and cash equivalents at beginning of year ...... 953 1,298 ------- ------- Cash and cash equivalents at end of period .......... $ 364 $ 1,040 ======= ======= Supplemental disclosures of cash flow information: Cash paid during the year for: Interest ........................................... $ 338 $ 265 Income taxes, net of refunds ....................... (216) (292)
PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. The statements for the three and six months ended June 30, 2000 and 1999 are unaudited; in the opinion of the Company such unaudited statements include all adjustments (which comprise only normal recurring accruals) necessary for a fair presentation of the results for such periods. The consolidated financial statements for the year ending December 31, 2000 are subject to adjustment at the end of the year when they will be audited by independent accountants. The results of operations for the three and six months ended June 30, 2000 are not necessarily indicative of the results of operations to be expected for the year ending December 31, 2000. The consolidated financial statements and notes thereto should be read in conjunction with the financial statements and notes for the years ended in December 31, 1999 and 1998 included in the Company's December 31, 1999 Annual Report to the Securities and Exchange Commission on Form 10-K. 2. Inventories are used in the manufacture and service of Transaction Processing products. The components of inventory, net of related reserves, consist of the following:
(In Thousands) -------------- June 30, December 31, 2000 1999 ------- ----------- Finished goods ........... $ 7,078 $ 6,886 Work in process .......... 2,706 2,763 Component parts .......... 6,615 6,001 Service parts ............ 12,295 12,514 ------- ------- $28,694 $28,164 ======= =======
At June 30, 2000 and December 31, 1999, the Company had recorded reserves for obsolete inventory of $2,841,000 and $2,208,000, respectively. PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 3. 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 three reportable segments. The Transaction Processing segment offers integrated solutions to the restaurant and manufacturing/warehousing industries. These offerings include industry leading hardware and software applications utilized at the point-of-sale, back of store, corporate office and in the manufacturing/warehousing environment. This segment also offers customer support including field service, installation, twenty-four hour telephone support and depot repair. The Government segment designs and implements advanced technology computer software systems primarily for military and intelligence agency applications. It provides services for operating and maintaining certain U.S. Government-owned test sites, and for planning, executing and evaluating experiments involving new or advanced radar systems. The Vision segment designs, manufactures, sells, installs and services image processing systems for the food-processing industry. Inter-segment sales and transfers are not material. Information as to the Company's operations in these three segments is set forth below (in thousands):
For the three months For the six months ended June 30, ended June 30, -------------------- ------------------ 2000 1999 2000 1999 ---- ---- ---- ---- Revenues: Transaction Processing .. $ 18,225 $ 33,369 $ 31,170 $ 63,989 Government .............. 6,030 5,210 12,082 10,245 Vision .................. 59 372 313 463 -------- -------- -------- -------- Total ............. $ 24,314 $ 38,951 $ 43,565 $ 74,697 ======== ======== ======== ======== Income (loss) from operations: Transaction Processing .. $ (5,206) $ 1,511 $(12,064) $ 2,787 Government .............. 412 414 491 648 Vision .................. (205) 12 (430) (204) -------- -------- -------- -------- (4,999) 1,937 (12,003) 3,231 Other income, net ............ 108 47 97 96 Interest expense ............. (231) (150) (355) (267) -------- -------- -------- -------- Income (loss) before provision for income taxes ........ $ (5,122) $ 1,834 $(12,261) $ 3,060 ======== ======== ======== ======== Depreciation and amortization: Transaction Processing .. $ 707 $ 525 $ 1,403 $ 1,038 Government .............. 26 46 60 75 Vision .................. 8 12 16 24 Corporate ............... 113 90 287 174 -------- -------- -------- -------- Total ............. $ 854 $ 673 $ 1,766 $ 1,311 ======== ======== ======== ======== Capital expenditures: Transaction Processing .. $ 118 $ 204 $ 118 $ 440 Government .............. - 197 61 197 Vision .................. 7 7 10 34 Corporate ............... 155 223 204 265 -------- -------- -------- -------- Total ............. $ 280 $ 631 $ 393 $ 936 ======== ======== ======== ======== The following table presents revenues by geographic area based on the location of the use of the product or services. For the three months For the six months ended June 30, ended June 30, -------------------- ------------------ 2000 1999 2000 1999 ---- ---- ---- ---- United States ................ $ 19,870 $ 33,136 $ 36,353 $ 64,881 Other Countries .............. 4,444 5,815 7,212 9,816 -------- -------- -------- -------- Total $ 24,314 $ 38,951 $ 43,565 $ 74,697 ======== ======== ======== =========
Customers comprising 10% or more of the Company's total revenues are summarized as follows:
For the three months For the six months ended June 30, ended June 30, -------------------- ------------------ 2000 1999 2000 1999 ---- ---- ---- ---- Transaction Processing Segment: McDonald's Corporation ... 35% 42% 29% 46% Tricon Corporation ....... 20% 23% 21% 21% Government Segment: Department of Defense .... 25% 13% 28% 14% All Others .................... 20% 22% 22% 19% --- --- --- --- 100% 100% 100% 100% === === === === June 30, December 31, 2000 1999 ------- ----------- Identifiable assets: Transaction Processing.......... $70,964 $76,780 Government ..................... 6,515 6,036 Vision ......................... 982 1,112 Corporate ...................... 4,700 4,179 ------- ------- Total .................... $83,161 $88,107 ======= =======
The following table presents property by geographic area based on the location of the asset.
June 30, December 31, 2000 1999 ------- ----------- United States .............. $76,234 $77,438 Other Countries ............ 6,927 10,669 ------- ------- Total ................ $83,161 $88,107 ======= =======
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS QUARTER ENDED JUNE 30, 2000 COMPARED WITH QUARTER ENDED JUNE 30, 1999 The Company reported revenues of $24.3 million for the second quarter ended 2000, a decrease of 38% from the $39 million reported in 1999. The Company recorded a net loss of $3.3 million or a diluted loss per share of $.41 for 2000. This compares to net income of $1.2 million or diluted earnings per share of $.14 for 1999. Product revenues were $10.4 million in 2000, a decrease of 57% from the $24.3 million recorded in 1999. This decline is attributed to ongoing delays in the release of PAR's restaurant management software, as well as the release and market acceptance of third party software products. Sales to McDonald's Corporation were lower in 2000 compared to last year due to the completion of their "Made for You" initiative. Product sales to other restaurant customers were also down reflecting a general slow down of sales activities in this market. Customer service revenues were $7.9 million in 2000, a decrease of 17% from the $9.4 million in 1999. The primary reason was lower installation revenue which is directly related to the decreased product revenue discussed above. The Company's service offerings include installation, twenty-four hour help desk support and various field and on-site service options. Contract revenues were $6 million in 2000, an increase of 16% when compared to the $5.2 million recorded in the same period in 1999. This growth was primarily due to the startup of a recently awarded four-year, $24 million Navy contract to operate and maintain communications in support of the Pacific Fleet. Additionally, the Company was recently awarded a $4.5 million contract with the US Navy to provide telecommunications support to the Naval Computer and Telecommunications Detachment located in Brunswick, Maine. These contracts will contribute to revenue growth throughout the remainder of 2000. Product margins were 21% for 2000 compared to 35% for the same period in 1999. This decrease resulted from absorption of fixed manufacturing costs on a very low product volume as discussed above. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS QUARTER ENDED JUNE 30, 2000 COMPARED WITH QUARTER ENDED JUNE 30, 1999 Customer service margins were 6% in 2000 compared to 13% for the same period in 1999. The service margins were down primarily due to a loss in installation activities caused by lower than anticipated product sales. Additionally, margins realized in the depot repair process were lower in 2000 when compared to 1999. Contract margins were 7% in 2000 compared to 8% for the same period in 1999. The difference in margins is due to a minor change in contract mix. Margins on the Company's government contract business typically run between 5% and 6%. Selling, general and administrative expenses were $5.6 million in 2000 versus $5.8 million for the same period in 1999, a decrease of 3%. The decline is primarily due to lower selling expense in the Restaurant business which is directly related to lower product revenues. Research and development expenses were $2.4 million in 2000, an increase of 4% from the $2.3 million recorded for the same period in 1999. This increase is the result of the Company's investment in its new iN.fusion software suite for its restaurant customers and its investment in enterprise solutions for its manufacturing/warehousing customers. This increase was partially offset by the amount of software development costs capitalized in accordance with Statement of Financial Accounting Standards No. 86, Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed. Research and development costs attributable to government contracts are included in cost of contract revenues. Interest expense represents interest charged on the Company's short-term borrowing requirements from banks and from the recently acquired long-term debt. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SIX MONTHS ENDED JUNE 30, 2000 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1999 The Company reported revenues of $43.6 million for the six months ended 2000, a decrease of 42% from the $74.7 million reported in 1999. The Company recorded a net loss of $7.8 million or diluted loss per share of $.98 for 2000. This compares to net income of $1.9 million or diluted earnings per share of $.23 for 1999. Product revenues were $16.9 million in 2000, a decrease of 63% from the $46.4 million recorded in 1999. This decline is attributed to ongoing delays in the release of PAR's restaurant management software, as well as the release and market acceptance of third party software products. The first half of 1999 was a record for the Company with sales especially strong to McDonald's Corporation due to the requirements of their "Made for You" initiative. This program was completed in 1999. Customer service revenues were $14.6 million in 2000, a decrease of 20% from the $18.1 million in 1999. The primary reason was lower installation revenue and supply sales which are directly related to the decreased product revenue discussed above. Contract revenues were $12.1 million in 2000, an increase of 18% when compared to the $10.2 million recorded in the same period in 1999. This growth was primarily due to the Navy contract to operate and maintain communications in support of the Pacific Fleet and an increase in software development work for the Department of Defense. Product margins were 20% for 2000 compared to 36% for the same period in 1999. Product margins have been below normal for the first half of 2000 due to absorption of fixed manufacturing costs on a very low product volume as discussed above. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SIX MONTHS ENDED JUNE 30, 2000 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1999 Customer service margins were 3% in 2000 compared to 10% for the same period in 1999. The service margins were down primarily due to a loss in installation activities caused by lower than anticipated product sales. Additionally, the provision for excess and obsolete inventory was higher in 2000 when compared to 1999. The Company is continuing its investments in service personnel, training and service integration and help desk capabilities. Contract margins were 6% in 2000 compared to 7% for the same period in 1999. Margins on the Company's government contract business typically run between 5% and 6%. Selling, general and administrative expenses were $12.1 million in 2000 versus $11.5 million for the same period in 1999, an increase of 5%. The increase is the result of a one-time early retirement program offered to eligible employees in the first quarter of 2000. Additionally, administrative expenses related to the recently installed service management system increased. This was partially offset by a reduction in sales and marketing expenses directly related to the decline in product revenue. Research and development expenses were $4.5 million in 2000, virtually unchanged from the same period in 1999. The Company is continuing its investment in enterprise solutions for both its restaurant and manufacturing/warehousing customers. This investment was offset by the amount of software development costs capitalized in accordance with Statement of Financial Accounting Standards No. 86, Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed. Interest expense represents interest charged on the Company's short-term borrowing requirements from banks and from the recently acquired long-term debt. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SIX MONTHS ENDED JUNE 30, 2000 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1999 Liquidity and Capital Resources Cash used by operating activities was $6 million for the six months ended June 30, 2000, compared to cash provided by operating activities of $3.5 million in 1999. During 2000, cash flow was adversely affected by the operating loss, a build up in inventory in anticipation of future demands and the timing of vendor payments. This was partially offset by the $8.6 million reduction in accounts receivable. During 1999, cash flow benefited from the collection of accounts receivable, net income for the period and the federal income tax refund. This was partially offset by the increase in inventory levels in anticipation of future demand and to meet the growing service parts requirements as the Company's customer base increases. Cash used in investing activities was $1 million for the first six months of 2000 compared to $1.1 million in 1999. In the first six months of 2000, the most significant investing activity was the $562,000 capitalization of software costs. In 1999, funds were used for capital expenditures for the upgrade to the Company's customer service center, for PC equipment and for research and development equipment. Cash provided by financing activities was $6.4 million for the six months ended June, 2000 compared to cash used of $2.6 million in 1999. In 2000, the Company increased its line-of-credit borrowings by $5.2 million and secured a mortgage on a portion of its headquarter facilities. This was partially offset by the repurchase of 255,200 shares of its stock for $1.2 million. In 1999, the Company reduced its lines of credit borrowings by $1.8 million. The Company also repurchased 137,300 shares of its stock for $878,000. The Company has line-of-credit agreements, which aggregate $27.5 million with certain banks, of which $17.3 million were unused at June 30, 2000. The Company believes that it has adequate financial resources to meet its future liquidity and capital requirements. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SIX MONTHS ENDED JUNE 30, 2000 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1999 Other Matters Inflation had little effect on revenues and related costs during the first six months of 2000. Management anticipates that margins will be maintained at acceptable levels to minimize the effects of inflation, if any. The Company has total interest bearing short-term debt of approximately $10.2 million at June 30, 2000. Management believes that increases in short-term rates could have an adverse effect on the Company's 2000 results. Management believes that foreign currency fluctuations should not have a significant impact on gross margins due to the low volume of business affected by foreign currencies. Important Factors Regarding Future Results Information provided by the Company, including information contained in this 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, Year 2000 compliance risks and other risks detailed in the Company's filings with the Securities and Exchange Commission. Item 6. Exhibits and Reports on Form 8-K List of Exhibits Exhibit No. Description of Instrument ----------- ------------------------- 11 Statement re computation of per-share earnings Reports on Form 8-K None during the second quarter of 2000. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PAR TECHNOLOGY CORPORATION -------------------------- (Registrant) Date: August 10, 2000 RONALD J. CASCIANO ------------------ Ronald J. Casciano Vice President, Chief Financial Officer and Treasurer