10-Q 1 secqtr10q02.txt SECOND QUARTER 10Q 2002 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, 2002. 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, 2002 - 7,900,760 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, 2002 and 2001 - Consolidated Statement of Comprehensive Income for the Three and Six Months Ended June 30, 2002 and 2001 - Consolidated Balance Sheet at June 30, 2002 and December 31, 2001 - Consolidated Statement of Cash Flows for the Six Months Ended June 30, 2002 and 2001 - 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, -------------------- -------------------- 2002 2001 2002 2001 -------- -------- -------- -------- Net revenues: Product ........................... $ 16,831 $ 13,081 $ 32,650 $ 25,258 Service ........................... 9,644 8,667 18,444 16,549 Contract .......................... 9,116 7,698 18,615 14,854 -------- -------- -------- -------- 35,591 29,446 69,709 56,661 -------- -------- -------- -------- Costs of sales: Product ........................... 11,419 8,681 22,272 16,648 Service ........................... 8,166 6,630 15,373 12,941 Contract .......................... 8,439 7,243 17,430 13,992 -------- -------- -------- -------- 28,024 22,554 55,075 43,581 -------- -------- -------- -------- Gross margin ................ 7,567 6,892 14,634 13,080 -------- -------- -------- -------- Operating expenses: Selling, general and administrative 5,096 4,510 9,745 8,547 Research and development .......... 1,617 1,914 3,373 3,959 -------- -------- -------- -------- 6,713 6,424 13,118 12,506 -------- -------- -------- -------- Income from operations ................. 854 468 1,516 574 Other income, net ...................... 181 212 310 550 Interest expense ....................... (208) (325) (425) (680) -------- -------- -------- -------- Income before provision for income taxes ...................... 827 355 1,401 444 Provision for income taxes ............. 260 128 461 168 -------- -------- -------- -------- Net income ............................. $ 567 $ 227 $ 940 $ 276 ======== ======== ======== ======== Basic and Diluted earnings per common share .................. $ .07 $ .03 $ .12 $ .04 ======== ======== ======== ======== Weighted average shares outstanding Diluted ........................... 8,279 7,791 8,164 7,765 ======== ======== ======== ======== Basic ............................. 7,891 7,723 7,886 7,723 ======== ======== ======== ======== 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, -------------------- -------------------- 2002 2001 2002 2001 -------- -------- -------- -------- Net income ....................... $ 567 $ 227 $ 940 $ 276 Other comprehensive income (loss), net of tax: Foreign currency translation adjustments ................. 376 (5) 413 (368) -------- -------- -------- -------- Comprehensive income (loss) ...... $ 943 $ 222 $ 1,353 $ (92) ======== ======== ======== ========
PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (In Thousands Except Share Amounts) June 30, 2002 December 31, Assets (Unaudited) 2001 -------- -------- Current Assets: Cash .................................... $ 416 $ 879 Accounts receivable-net ................. 30,359 36,934 Inventories ............................. 28,699 24,469 Income tax refund claims ................ -- 95 Deferred income taxes ................... 3,244 2,883 Other current assets .................... 2,647 3,315 -------- -------- Total current assets ................ 65,365 68,575 Property, plant and equipment - net .......... 9,104 9,471 Deferred income taxes ........................ 7,091 7,774 Other assets ................................. 3,073 3,204 -------- -------- $ 84,633 $ 89,024 ======== ======== Liabilities and Shareholders' Equity Current Liabilities: Notes payable ........................... $ 12,338 $ 14,686 Accounts payable ........................ 8,115 11,290 Accrued salaries and benefits ........... 4,383 4,580 Accrued expenses ........................ 2,508 2,274 Deferred service revenue ................ 6,061 6,339 -------- -------- Total current liabilities ........... 33,405 39,169 -------- -------- Long-term debt ............................... 2,239 2,268 -------- -------- Shareholders' Equity: Preferred stock, $.02 par value, 1,000,000 shares authorized ........... -- -- Common stock, $.02 par value, 19,000,000 shares authorized; 9,694,466 and 9,674,466 shares issued 7,900,760 and 7,880,760 outstanding ... 194 193 Capital in excess of par value .......... 28,589 28,541 Retained earnings ....................... 30,203 29,263 Accumulated comprehensive loss .......... (1,028) (1,441) Treasury stock, at cost, 1,793,706 shares (8,969) (8,969) -------- -------- Total shareholders' equity .......... 48,989 47,587 -------- -------- $ 84,633 $ 89,024 ======== ======== PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (In Thousands) (Unaudited) For the six months ended June 30, ------------------ 2002 2001 -------- ------- Cash flows from operating activities: Net income ....................................... $ 940 $ 276 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization .................. 1,615 1,624 Provision for bad debts ........................ 510 222 Provision for obsolete inventory ............... 1,198 665 Deferred income taxes .......................... 322 122 Increase (decrease) from changes in: Accounts receivable .......................... 6,065 15 Inventories .................................. (5,428) 2,594 Income tax refund claims ..................... 95 56 Other current assets ......................... 668 (494) Other assets ................................. (200) -- Accounts payable ............................. (3,175) (2,545) Accrued salaries and benefits ................ (197) 116 Accrued expenses ............................. 234 (572) Income taxes payable ......................... -- 456 Deferred service revenue ..................... (278) 485 ------- ------- Net cash provided by operating activities ... 2,369 3,020 ------- ------- Cash flows from investing activities: Capital expenditures ........................... (578) (300) Capitalization of software costs ............... (339) (452) ------- ------- Net cash used in investing activities ....... (917) (752) ------- ------- Cash flows from financing activities: Net payments under line-of-credit agreements ... (2,348) (2,381) Payments on long-term debt obligations ......... (29) (27) Proceeds from the exercise of stock options .... 49 -- ------- ------- Net cash used in financing activities ...... (2,328) (2,408) ------- ------- Effect of exchange rate changes on cash and cash equivalents .......................... 413 (368) ------- ------- Net decrease in cash and cash equivalents ....... (463) (508) Cash and cash equivalents at beginning of year .. 879 1,199 ------- ------- Cash and cash equivalents at end of period ...... $ 416 $ 691 ======= ======= Supplemental disclosures of cash flow information: Cash paid during the year for: Interest ....................................... $ 441 $ 612 Income taxes, net of refunds ................... 8 (481) PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. The statements for the three and six months ended June 30, 2002 and 2001 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, 2002 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, 2002 are not necessarily indicative of the results of operations to be expected for the year ending December 31, 2002. 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, 2001 and 2000 included in the Company's December 31, 2001 Annual Report to the Securities and Exchange Commission on Form 10-K. 2. Inventories are primarily used in the manufacture and service of Restaurant products. The components of inventory, net of related reserves, consist of the following: (In Thousands) June 30, December 31, --------- ----------- Finished goods .......... $ 6,116 $ 5,414 Work in process ......... 1,931 1,868 Component parts ......... 4,762 3,602 Service parts ........... 15,890 13,585 ------- ------- $28,699 $24,469 ======= ======= At June 30, 2002 and December 31, 2001, the Company had recorded reserves for obsolete inventory of $3,821,000 and $3,253,000, respectively. PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 3. In June 2001, the Financial Accounting Standards Board approved Statement of Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets", ("SFAS 142"). We adopted SFAS 142 effective January 1, 2002. Under this standard, amortization of goodwill and certain intangible assets, including certain intangibles recorded as a result of past business combinations, is to be discontinued upon adoption of SFAS 142. During 2002, we performed tests of goodwill as of January 1, 2002. We tested for impairment using the two-step process prescribed in SFAS 142. The first step is a screen for potential impairment. The second step, which has been determined not to be necessary, measures the amount of any impairment. No impairment losses have been recognized as a result of these tests. The balance of goodwill at June 30, 2002 is $598,000. 4. The Company's reportable segments are strategic business units that have separate management teams and infrastructures that offer different products and services. In 2002, the Company has three reportable segments, Restaurant, Government and Industrial. The Restaurant segment offers integrated solutions to the restaurant industry. These offerings include industry leading hardware and software applications utilized at the point-of-sale, back of store and corporate office. This segment also offers customer support including field service, installation, twenty-four hour telephone support and depot repair. The Government segment designs and implements advanced technology computer software systems primarily for military and intelligence agency applications. It provides services for operating and maintaining certain U.S. Government-owned communication and test sites, and for planning, executing and evaluating experiments involving new or advanced radar systems. It is also involved in developing technology to track mobile chassis. The Industrial segment, which targets Fortune 500 industrial companies, designs and implements complex integrated transaction processing solutions incorporating its data collection and management software that provide real-time connectivity with multiple host computers, diverse legacy applications, "best-of-breed" software and data input hardware technologies. Inter-segment sales and transfers are not material. Information as to the Company's operations in its segments is set forth below (in thousands): For the three months For the six months ended June 30, ended June 30, -------------------- -------------------- 2002 2001 2002 2001 -------- -------- -------- -------- Revenues: Restaurant .............. $ 26,145 $ 21,183 $ 49,967 $ 40,442 Government .............. 9,116 7,698 18,615 14,854 Industrial .............. 330 565 1,127 1,365 -------- -------- -------- -------- Total ............. $ 35,591 $ 29,446 $ 69,709 $ 56,661 ======== ======== ======== ======== Income (loss) from operations: Restaurant .............. $ 901 $ 771 $ 1,509 $ 816 Government .............. 665 433 1,149 751 Industrial .............. (687) (736) (1,117) (979) Corporate ............... (25) -- (25) (14) -------- -------- -------- -------- 854 468 1,516 574 Other income, net ............ 181 212 310 550 Interest expense ............. (208) (325) (425) (680) -------- -------- -------- -------- Income before provision for income taxes ........ $ 827 $ 355 $ 1,401 $ 444 ======== ======== ======== ======== Depreciation and amortization: Restaurant .............. $ 552 $ 606 $ 1,163 $ 1,148 Government .............. 26 25 54 50 Industrial .............. 75 151 162 167 Corporate ............... 119 128 236 259 -------- -------- -------- -------- Total ............. $ 772 $ 910 $ 1,615 $ 1,624 ======== ======== ======== ======== Capital expenditures: Restaurant .............. $ 318 $ 85 $ 428 $ 178 Government .............. -- 12 35 42 Industrial .............. -- 14 -- 16 Corporate ............... 30 38 115 64 -------- -------- -------- -------- Total ............. $ 348 $ 149 $ 578 $ 300 ======== ======== ======== ======== 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, -------------------- -------------------- 2002 2001 2002 2001 -------- -------- -------- -------- United States ........... $ 32,007 $ 25,370 $ 62,856 $ 48,456 Other Countries ......... 3,584 4,076 6,853 8,205 -------- -------- -------- -------- Total ............. $ 35,591 $ 29,446 $ 69,709 $ 56,661 ======== ======== ======== ======== 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, -------------------- ------------------ 2002 2001 2002 2001 ------ ------ ------- ------- Restaurant Segment: McDonald's Corporation 32% 30% 29% 30% Tricon Corporation ... 23% 26% 22% 25% Government Segment: Department of Defense 26% 26% 27% 26% All Others ................ 19% 18% 22% 19% --- --- --- --- 100% 100% 100% 100% === === === === June 30, December 31, 2002 2001 -------- ----------- Identifiable assets: Restaurant ................... $71,661 $75,309 Government ................... 5,833 7,700 Industrial ................... 1,996 2,777 Corporate .................... 5,143 3,238 ------- ------- Total .................. $84,633 $89,024 ======= ======= The following table presents property by geographic area based on the location of the asset. June 30, December 31, 2002 2001 -------- -------- United States ..................... $76,331 $80,231 Other Countries ................... 8,302 8,793 ------- ------- Total ....................... $84,633 $89,024 ======= ======= Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS QUARTER ENDED JUNE 30, 2002 COMPARED WITH QUARTER ENDED JUNE 30, 2001 Information provided by the Company, including information contained in this report or by its spokespersons from time to time might contain forward-looking statements. Forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that all forward-looking statements involve risks and uncertainties, including without limitation, further delays in new product introduction, risks in technology development and commercialization, risks in product development and market acceptance of and demand for the Company's products, risks of downturns in economic conditions generally, and in the quick service sector of the restaurant market specifically, risks of intellectual property rights associated with competition and competitive pricing pressures, risks associated with foreign sales and high customer concentration, and other risks detailed in the Company's filings with the Securities and Exchange Commission. The following discussion and analysis highlights items having a significant effect on operations during the quarter ended June 30, 2002. It may not be indicative of future operations or earnings. It should be read in conjunction with the Consolidated Financial Statements and Notes thereto and other financial and statistical information appearing elsewhere in this report. The Company reported revenues of $35.6 million for the second quarter ended 2002, an increase of 21% from the $29.4 million reported in 2001. The Company recorded net income of $567,000 or diluted earnings per share of $.07 for 2002. This compares to net income of $227,000 or diluted earnings per share of $.03 for 2001. Product revenues were $16.8 million in 2002, an increase of 29% from the $13.1 million recorded in 2001. Demand for the Company's restaurant products, including the new POS4XP(TM), remains strong. In particular, sales increased to certain of the Company's traditional customers including McDonald's and Yum! Brands. Also contributing to the revenue growth were sales to the Company's newer accounts, including Boston Market and Carnival Cruise Lines. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS QUARTER ENDED JUNE 30, 2002 COMPARED WITH QUARTER ENDED JUNE 30, 2001 Customer service revenues were $9.6 million in 2002, an increase of 11% from the $8.7 million in 2001. Higher installation revenue and increased service opportunities in support of an expanded installed base were responsible for the increase. The Company's service offerings include installation, twenty-four hour help desk support and various field and on-site service options. Contract revenues were $9.1 million in 2002, an increase of 18% when compared to the $7.7 million recorded in the same period in 2001. This increase resulted from in the expanded scope of our I/T outsourcing contracts for facility operations at strategic U.S. Navy Telecommunication sites across the globe. These operations directly support fleet operations. The Company has become a recognized leader in the conversion of military I/T communications facilities to contractor operations. Additionally, contract revenues grew as a result of our emerging logistics management business, which involves the tracking of mobile chassis under its Cargo*Mate(TM) contracts. Product margins were 32.2% for 2002 compared to 33.6% for the same period in 2001. Margins declined slightly due to a less favorable product mix in the Company's Restaurant business. Software content of revenue was lower in the second quarter of 2002 compared to 2001. Customer service margins were 15.3% in 2002 compared to 23.5% for the same period in 2001. This margin decrease resulted from field service startup expenses related to the support of the Company's new Boston Market account. The margin was also impacted by the increased use of third party organizations to meet certain installation commitments. Contract margins were 7.4% in 2002 versus 5.9% for the same period in 2001. Margins benefited from the initial system sales of the Company's Cargo*Mate(TM) system. Margins on the Company's government contract business historically run between 5% and 6%. Selling, general and administrative expenses were $5.1 million in 2002 versus $4.5 million for the same period in 2001, an increase of 13%. This increase is primarily the result of some executive salary adjustments. Last MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS QUARTER ENDED JUNE 30, 2002 COMPARED WITH QUARTER ENDED JUNE 30, 2001 year, as part of the Company's plan to return to profitability following losses incurred in 2000, a salary reduction program was initiated. This program was terminated in the fourth quarter of 2001 and normal pay was reinstated reflecting the return to profitability of the business. Additionally, sales and marketing expenses of the Restaurant business increased which is directly related to the growth in product revenue. Research and development expenses were $1.6 million in 2002, a decrease of 16% from the $1.9 million recorded for the same period in 2001. This decline resulted from a cost reduction in the Company's Industrial business and the completion of certain restaurant development projects. Research and development costs attributable to government contracts are included in cost of contract revenues. Interest expense represents interest charged on the Company's short-term borrowing requirements from banks and from long-term debt. The 36% decrease to $208,000 in 2002 was primarily due to a lower borrowing rate in 2002 than in 2001. The Company's Industrial segment continues to incur losses. This is the result of a combination of an economic downturn in this market sector and a long sales cycle in negotiating and obtaining final contracts. The Company is attempting to contain expenses in this segment while pursuing the award of a major contract. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SIX MONTHS ENDED JUNE 30, 2002 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2001 The Company reported revenues of $69.7 million for the six months ended 2002, an increase of 23% from the $56.7 million reported in 2001. The Company recorded net income of $940,000 or diluted earnings per share of $.12 for 2002. This compares to net income of $276,000 or diluted earnings per share of $.04 for 2001. Product revenues were $32.7 million in 2002, an increase of 29% from the $25.3 million recorded in 2001. This is due to increased sales in the Company's Restaurant business. New account sales included Boston Market, Carnival Cruise Lines and the Turning Stone Casino. Additionally, sales increased to certain traditional customers including McDonald's and Yum! Brands. Customer service revenues were $18.4 million in 2002, an increase of 11% from the $16.5 million in 2001. This increase was attributable to revenue derived from the installation of equipment as product sales rose. An increase in the number of service contracts also contributed to this revenue growth. Contract revenues were $18.6 million in 2002, an increase of 25% when compared to the $14.9 million recorded for the same period in 2001. This increase is primarily due to the increase in scope of the Company's I/T outsourcing contracts for strategic U.S. Navy Telecommunication sites. The increase in revenue is also attributable to a floodplain-mapping contract with the New York State Department of Environment Conservation. Additionally, contract revenues grew as a result of the Company's Cargo*Mate(TM) contracts. Product margins were 31.8% for 2002 compared to 34.1% for the same period in 2001. This decline was due to a change in product mix in the Company's Restaurant and Industrial segments where the software content of revenue was lower in the first half of 2002 compared to 2001. Customer service margins were 16.7% in 2002 compared to 21.8% for the same period in 2001. This margin decrease resulted from field service startup expenses related to the support of the Company's new Boston Market account and increased use of third parties for certain installation activities. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SIX MONTHS ENDED JUNE 30, 2002 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2001 Contract margins were 6.4% in 2002 compared to 5.8% in 2001. Margins on the Company's government contract business historically run between 5% and 6%. Selling, general and administrative expenses were $9.7 million in 2002 versus $8.5 million for the same period in 2001, an increase of 14%. This increase is primarily the result of the executive salary reduction program that was initiated in 2001. This program was part of the Company's plan to return to profitability in 2001. The program was terminated in the fourth quarter of 2001. There were also smaller increases in sales and marketing expenses related to the higher sales volume. Research and development expenses were $3.4 million in 2002, a decrease of 15% from the $4 million recorded for the same period in 2001. This decline resulted from a cost reduction in the Company's Industrial business and the completion of certain restaurant development projects. Interest expense represents interest charged on the Company's short-term borrowing requirements from banks and from long-term debt. The 37% decrease to $425,000 in 2002 was primarily due to a lower borrowing rate in 2002 than in 2001. Liquidity and Capital Resources The Company's primary source of liquidity has been from operations and lines of credit with various banks. The Company generated cash flow from operating activities of $2.4 million in 2002 compared to $3 million in 2001. The primary factor contributing to the 2002 positive cash flow was a reduction in accounts receivable. This was partially offset by an increase in inventory to meet current demand. Improved collections, a reduction in inventory and cost cutting measures taken by the Company in the fourth quarter of 2000 all contributed to the positive cash flow in the first half of 2001. Cash used in investing activities was $917,000 in 2002 versus $752,000 in 2001. In 2002, capital expenditures were primarily for improvements to the Company's headquarter facility and for normal operational needs in the restaurant segment. In addition, the Company capitalized $339,000 of software MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SIX MONTHS ENDED JUNE 30, 2002 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2001 costs. In 2001, capital expenditures were primarily for improvements to the Company's customer service facility in Boulder, Colorado. The Company also capitalized $452,000 of software costs. Cash used in financing activities was $2.3 million in 2002 compared to $2.4 million in 2001. The Company reduced its line-of-credit borrowings by $2.3 million in 2002, and by $2.4 million in 2001. million. The Company currently has line-of-credit agreements, which aggregate $20 million with certain banks. At June 30, 2002, $12.3 million was outstanding under these agreements. The Company continues to review its existing debt structure and credit availability. One line totaling $7.5 million expires on September 30, 2002. The remaining line of $12.5 million expires on April 30, 2003. The Company believes that it has adequate financial resources to meet its future liquidity and capital requirements in 2002. Critical Accounting Policies The Company's consolidated financial statements are based on the application of generally accepted accounting principles (GAAP). GAAP requires the use of estimates, assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenue and expense amounts reported. The Company believes its use of estimates and underlying accounting assumptions adhere to GAAP and are consistently applied. Valuations based on estimates are reviewed for reasonableness and adequacy on a consistent basis throughout the Company. Primary areas where financial information of the Company is subject to the use of estimates, assumptions and the application of judgment include revenues, receivables, inventories, intangible assets and taxes. Revenues from product sales are recorded as the products are shipped, provided that no significant vendor or post-contract support obligations remain and the collection of the related receivable is probable. The Company's service revenues are recognized ratably over the related contract period or as the services are performed. Billings in advance of the Company's performance of such work are reflected as deferred service revenue in the accompanying consolidated balance sheet. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SIX MONTHS ENDED JUNE 30, 2002 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2001 The Company's contract revenues result primarily from contract services performed for the United States Government under a variety of cost-reimbursement, time-and-material and fixed-price contracts. Contract revenues, including fees and profits, are recorded as services are performed using the percentage-of-completion method of accounting, primarily based on contract costs incurred to date compared with estimated costs at completion. Anticipated losses on all contracts and programs in process are recorded in full when identified. Unbilled accounts receivable are stated at estimated realizable value. Contract costs, including indirect expenses, are subject to audit and adjustment through negotiations between the Company and government representatives. Contract revenues have been recorded in amounts that are expected to be realized on final settlement. The Company follows accepted industry practice and records contract amounts retained by the government as a current asset. Allowances for doubtful accounts are based on estimates of losses related to customer receivable balances. The establishment of reserves requires the use of judgment and assumptions regarding the potential for losses on receivable balances. The Company's inventories are valued at the lower of cost or market. The Company uses certain estimates and judgments and considers several factors including product demand and changes in technology to provide for excess and obsolescence reserves to properly value inventory. The Company has intangible assets on its balance sheet that includes computer software costs and goodwill related to acquisitions. The valuation of these assets and the assignment of useful amortization lives involve significant judgments and the use of estimates. The testing of these intangibles for impairment under established accounting guidelines also requires significant use of judgment and assumptions. Changes in business conditions could potentially require future adjustments to these assets. The Company has significant amounts of deferred tax assets that are reviewed for recoverability and valued accordingly. These assets are evaluated by using estimates of future taxable income streams and the impact of tax planning strategies. Valuations related to tax accruals and assets can be impacted by changes to tax codes, changes in statutory tax rates and the Company's future taxable income levels. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SIX MONTHS ENDED JUNE 30, 2002 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2001 Quantitative and Qualitative Disclosures about Market Risk Inflation had little effect on revenues and related costs during the first half of 2002. 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 $12.3 million at June 30, 2002. Management believes that increases in short-term rates could have an adverse effect on the Company's 2002 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. Item 6. Exhibits and Reports on Form 8-K List of Exhibits Exhibit No. Description of Instrument ----------- ------------------------- 11 Statement re computation of per-share earnings 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Reports on Form 8-K None during the second quarter of 2002. 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 12, 2002 /s/RONALD J. CASCIANO ---------------------------------------- Ronald J. Casciano Vice President, Chief Financial Officer and Treasurer Exhibit Index Exhibit ------- 11 - Statement re computation of per-share earnings 99.1 - Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 99.2 - Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Exhibit 11 COMPUTATION OF WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK (In Thousands) For the three months ended June 30, ----------------------- 2002 2001 ----------------------- Diluted Earnings Per Share: Weighted average shares of Common stock outstanding: Balance outstanding - beginning of period 7,881 7,723 Weighted average shares issued 10 -- Incremental shares of common stock outstanding giving effect to stock options 388 68 -------- --------- Weighted balance - end of period 8,279 7,791 ========= ========= For the three months ended June 30, ----------------------- 2002 2001 ----------------------- Basic Earnings Per Share: Weighted average shares of Common stock outstanding: Balance outstanding - beginning of period 7,881 7,723 Weighted average shares issued 10 -- --------- --------- Weighted balance - end of period 7,891 7,723 ========= ========= Exhibit 11 COMPUTATION OF WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK (In Thousands) For the six months ended June 30, ----------------------- 2002 2001 ----------------------- Diluted Earnings Per Share: Weighted average shares of Common stock outstanding: Balance outstanding - beginning of period 7,881 7,723 Weighted average shares issued 5 -- Incremental shares of common stock outstanding giving effect to stock options 278 42 -------- --------- Weighted balance - end of period 8,164 7,765 ======== ========= For the six months ended June 30, ----------------------- 2002 2001 ----------------------- Basic Earnings Per Share: Weighted average shares of Common stock outstanding: Balance outstanding - beginning of period 7,881 7,723 Weighted average shares issued 5 -- --------- --------- Weighted balance - end of period 7,886 7,723 ========= ========= Exhibit 99.1 PAR TECHNOLOGY CORPORATION CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of PAR Technology Corporation (the Company) on Form 10-Q for the period ending June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, John W. Sammon, Chairman of the Board and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350 as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirement of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ John W. Sammon ------------------ John W. Sammon Chairman of the Board and Chief Executive Officer August 12, 2002 Exhibit 99.2 PAR TECHNOLOGY CORPORATION CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of PAR Technology Corporation (the Company) on Form 10-Q for the period ending June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Ronald J. Casciano, VP, C.F.O. & Treasurer of the Company, certify, pursuant to 18 U.S.C. ss. 1350 as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirement of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Ronald J. Casciano ---------------------- Ronald J. Casciano VP, C.F.O. & Treasurer August 12, 2002