-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BAJCe7EGy0IXphD6JQyMlVHWSbkIbaS2jExZPbNKVdaC2pFW1p9RsyBiH4PBLLtL a1d20IxNKzL7ITuYnpTwug== 0000708821-98-000007.txt : 19980326 0000708821-98-000007.hdr.sgml : 19980326 ACCESSION NUMBER: 0000708821-98-000007 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980325 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PAR TECHNOLOGY CORP CENTRAL INDEX KEY: 0000708821 STANDARD INDUSTRIAL CLASSIFICATION: CALCULATING & ACCOUNTING MACHINES (NO ELECTRONIC COMPUTERS) [3578] IRS NUMBER: 161434688 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-09720 FILM NUMBER: 98573185 BUSINESS ADDRESS: STREET 1: PAR TECHNOLOGY PARK STREET 2: 8383 SENECA TURNPIKE CITY: NEW HARTFORD STATE: NY ZIP: 13413 BUSINESS PHONE: 3157380600 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the Fiscal Year Ended December 31, 1997. OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period From __________ to __________ Commission File Number 1-9720 PAR TECHNOLOGY CORPORATION (Exact name of registrant as specified in its charter) Delaware 16-1434688 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) PAR Technology Park 8383 Seneca Turnpike New Hartford, New York 13413-4991 (Address of principal executive offices) (Zip Code) (315) 738-0600 (Registrant's Telephone number, including area code) Securities registered pursuant to Section 12(g) of the Act: Name of Each Exchange on Title of Each Class Which Registered Common Stock, $.02 par value New York Stock Exchange Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No The aggregate market value of the voting stock held by non-affiliates of the registrant based on the average price as of March 18, 1998 - $29.8 million. The number of shares outstanding of registrant's common stock, as of March 18, 1998 - 8,897,165 shares. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's proxy statement in connection with its 1998 annual meeting of stockholders are incorporated by reference into Part III. PAR TECHNOLOGY CORPORATION TABLE OF CONTENTS FORM 10-K Item Number ----------- PART I Item 1. Business Item 2. Properties Item 3. Legal Proceedings Item 4. Submission of Matters to a Vote of Security Holders PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters Item 6. Selected Financial Data Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 8. Financial Statements and Supplementary Data Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure PART III Item 10. Directors, Executive Officers and Other Significant Employees of the Registrant Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners Item 13. Certain Relationships and Related Transactions PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K Signatures PAR TECHNOLOGY CORPORATION PART I Item 1: Business PAR Technology Corporation ("PAR" or the "Company") is a full-function, solutions oriented Company which focuses on the reliable capture, preservation, processing and management of information throughout a business enterprise. The Company is a leading supplier of integrated solutions to the quick service restaurant industry and also provides solutions for manufacturing/warehousing enterprises. The Company's systems-based solutions have been engineered to perform reliably under harsh operating conditions and incorporate high levels of systems integration, in-depth knowledge of the customers' workflow processes, and local and wide-area networking capability. The Company also develops advanced computer-based systems and technologies for government agencies. Through its government-sponsored development work, PAR has generated significant technologies with commercial applications, from the transaction information processing capability underlying its primary business, to advanced vision technology currently being implemented in the Company's proprietary Automatic On-Line X-Ray Inspection System for use in the food packaging processes. Information concerning the Company's industry segments for the three years ended December 31, 1997 is set forth in Note 11 to the Consolidated Financial Statements included elsewhere herein. The Company's principal executive offices are located at PAR Technology Park, 8383 Seneca Turnpike, New Hartford, New York 13413-4991, telephone number (315) 738-0600. Unless the context otherwise requires, the term "PAR" or "Company" as used herein means PAR Technology Corporation and its wholly-owned subsidiaries. Commercial Segment PAR, through its wholly owned subsidiary ParTech, Inc., formerly PAR Microsystems Corporation, is a leading supplier of integrated solutions to the quick service restaurant industry and also provides solutions for manufacturing/warehousing enterprises. The Company's Point-of-Sale (POS) restaurant technology system integrates both extendible systems software and the Company's ruggedized Pentium(R) based hardware platforms. This integrated system can host fixed as well as wireless order-entry terminals and may include video monitors, third-party supplied peripherals networked via an Ethernet LAN and is accessible to enterprise-wide network configurations. For manufacturing and warehousing enterprises, the Company designs and implements complex integrated transaction processing solutions incorporating its data collection and management software that provide real-time connectivity with multiple host computers, diverse legacy applications software and "best-of-breed" software and data input hardware technologies. PAR further provides extensive systems integration capabilities to design, tailor and implement solutions that enable its customers to manage, from a central location, all aspects of data collection and processing for single or multiple site enterprises. The Company's wholly owned subsidiary, PAR Vision Systems Corporation has developed and is marketing an automatic vision inspection system called Qscan(R) for the food-processing industry. This system utilizes a specialized image processing technique to detect contaminants in filled containers. Products The demands of the major quick service chains include rugged, reliable point of sale systems capable of recording, transmitting and coordinating large numbers of orders for quick delivery. The Company's modular, integrated solutions permit its Quick Service Restaurant (QSR) customers to configure their restaurant technology systems to meet their order-entry, menu, food preparation and delivery coordination requirements while recording all aspects of the transaction at the site. The current offerings are the result of the Company's 20 years experience and an in-depth understanding of the QSR market. This knowledge and expertise is reflected in its product design, manufacturing capability and systems integration skills. Software. Recently PAR introduced intouch(TM), a new software application that enables the Company to expand its offerings beyond QSR to the full service and delivery markets. The intouch product incorporates rich features and functions such as real time mirror imaging of critical data, on-line graphical help, interactive diagnostics including real time monitoring of restaurant operations through user defined parameters as well as intuitive graphical user interfaces. In addition, this software offers a back office application that includes such features as labor scheduling and inventory management. The software also supports in-store communications between terminals, remote printers and displays, and back office PCs through an Ethernet LAN. The Company's other POS software, GT is the most widely used software in the quick service restaurant industry, installed in 20,000 restaurants in 90 countries worldwide. The features and functions of GT are extensive and integrate a high degree of flexibility for the routing and display of orders in real-time and for the design and integration of the Company's display data-entry terminals. Hardware. The Company's POS system, POS 4, is a state-of-the-art 64 bit Pentium(R) based system, designed to handle the most powerful applications of today and those of tomorrow. POS 4 is an open architecture hardware platform with industry standard components, it is compatible with the most popular operating systems, and is the first POS hardware system to be certified by Microsoft(R) as Windows(R) NT Compliant(R). The POS hardware supports a distributed processing environment and incorporates an advanced restaurant technology system, utilizing Intel microprocessors, standard PC expansion slots, Ethernet LAN and standard Centronics printer ports. The system augments its industry standard components with features for QSR applications such as multiple video ports. The POS system utilizes distributed processing architecture to integrate a broad range of PAR and third-party peripherals and is designed to withstand the harsh QSR environment. The system has a favorable price-to-performance ratio over the life of the system as a result of its PC compatibility, ease of expansion and use and high reliability design. Display terminals process and track customer orders, process employee timekeeping records, and provide on-screen production and labor scheduling. Terminals may be configured with a touch screen rather than a fixed position keyboard, allowing greater flexibility in menu design. The POS touch screen configuration allows a restaurant manager to easily reconfigure or change the menu to add new food items or provide combination meals without reprogramming the system. Wireless hand-held terminals permit restaurant employees to take orders while customers are waiting or in drive-thru lines, thus increasing the speed of service, as the customer's food order is complete by the time he or she reaches the counter and pays for the order. This system also utilitizes video monitors, printers and various other devices that can be added to a LAN. The manager can use a standard microcomputer to collect and report on store-generated data. Systems Integration. The Company utilizes its systems integration and engineering expertise in developing functions and interfaces for its restaurant technology products to meet diverse customer requirements. The Company works closely with its customers to identify and accommodate the latest developments in restaurant technology by developing interfaces to equipment, including innovations such as automated cooking and drink dispensing devices, customer-activated terminals and order display units located inside and outside of the restaurant. The Company provides systems integration to interface specialized components, such as television monitors, coin dispensers and non-volatile memory for journalizing transaction data, as may be required in some international applications. The Company also integrates the restaurant manager's back office computer, as well as corporate home office computers, as management information requirements dictate. Manufacturing/Warehousing Transaction Processing Systems The Company's manufacturing/warehousing transaction processing systems business provides enabling and applications software and systems integration services to manufacturing and warehousing end users through distributed enterprise networks. The Company's primary product offering to the manufacturing/warehousing industry is its Transaction Processing data collection enabling software package. The Transaction Processing product is an open platform, middleware application that provides connectivity across multiple non-compatible host computers, including those manufactured by International Business Machines Corporation, Hewlett-Packard Company, and Digital Equipment Corporation. PAR's Transaction Processing software also provides connectivity among diverse MRP, MRP II and MES programs (such as SAP and MANMAN) and fixed-base and hand-held RF data collection terminals on the factory floor, including those sold by Intermec Corporation, Percon, Inc., UBI Corporation and Telxon Corporation. PAR's middleware offers simplified system use and operations while maintaining system speed in complex transaction processing environments. This software package provides a flexible and highly functional platform for on-line transaction processing applications such as distribution time and attendance, inventory control, warehousing, job status, scheduling and quality control. Data can be directly read from and written to host databases, as well as forwarded to managers, who can respond quickly to production deviations based on real-time information. The Company offers system integration services for implementing data collection hardware and its software for its clients. PAR's team of systems engineers, application developers, and product support personnel have experience in providing optimal system integration solutions, and work closely with customer personnel to define requirements, identify solutions, and implement solutions based on the customer's needs. X-Ray Inspection Systems Qscan(R) is the first system fully designed for use on a food processor's production line. The system detects and rejects small contaminants such as pits, shards of glass, or slivers of metal in opaque, filled and capped food containers. Certain containers can be examined on-line at high speeds--up to 1,100 per minute. This allows 100% inspection of all containers during the flow of production. Installation and Training In the U.S., Canada, Europe, South Africa, Australia and Asia, PAR POS personnel provide installation, training, and integration services, on a fixed-fee basis, as a normal part of the equipment purchase agreement. In certain areas of North America, Europe and Asia, the Company provides these integration services through third parties. Maintenance and Service The Company offers a range of maintenance and support services as part of its total solutions for its targeted transaction processing markets. In the North American restaurant technology market, the Company provides comprehensive maintenance and integration services for its own and third-party equipment and systems through a 24-hour central telephone customer support and diagnostic service in Boulder, Colorado and a field service network consisting of 60 locations offering factory, on-site, and depot maintenance and spare unit rentals. When a restaurant technology system is installed, PAR employees train the restaurant employees and managers to ensure efficient use of the system. If a problem occurs, PAR's current software products allow a service technician to diagnose the problem by telephone, greatly reducing the need for on-site service calls. The Company has contracted with Taco Bell to serve as the exclusive service integrator for restaurant technology systems, back office computer systems, hand-held data entry devices and other computer-based equipment in all company-owned Taco Bell, Taco Bell Express and Hot `n Now restaurants in the United States, Canada and Puerto Rico. The Company also maintains service centers in Europe, South Africa, Australia and Asia. The Company believes that its ability to address all support and maintenance requirements for a customer's restaurant technology network provides it with a competitive advantage. In the manufacturing/warehousing market, the Company offers technical support through an experienced product support staff available in the field or by telephone. The Company also provides training classes, led by experienced and highly qualified personnel, on its products and integration services, including both hands-on experience with use of software and operation of hardware. The Company offers ongoing maintenance and enhancements. Marketing Restaurant Technology. Sales in the restaurant technology market are usually generated by first gaining the acceptance of the restaurant chain as an approved vendor. Upon approval, marketing efforts are then directed to franchisees of the chain. Sales efforts are also directed toward franchisees of chains for which the Company is not an approved vendor. The Company employs direct sales personnel in five sales groups. The National Accounts Group works with major restaurant chain customers. The North and South American Sales Group targets franchisees of the major restaurant chain customers, franchisees of other major chains, as well as smaller chains. The International Sales Group seeks sales to major customers with restaurants overseas and to international chains that do not have a presence in the United States. The New Accounts Group seeks sales to major new corporate accounts. The Company's Reseller network works exclusively with third party dealers and value added resellers throughout the country. Manufacturing/Warehousing Systems. The Company's direct sales efforts in the manufacturing/ warehousing data collection market is generally focused on the highest level of the customer's executive management. Substantial lead time is required in sales efforts due to the fact that automation equipment is normally fitted into the manufacturing or warehousing environment as a plant is constructed. The Company has also entered into strategic marketing relationships with several companies, including Intermec Corporation, Norand Corporation and Telxon Corporation, and Digital Logistics Management. X-Ray Inspection Systems. The Company currently utilizes a direct sales force to market Qscan. The Company also has created an international dealer network in Europe and Australia in order to address the wide geographical scope of the market. Competition Competition in the restaurant technology and manufacturing/warehousing transaction processing markets is based primarily on functionality, reliability, quality, performance, price of products, and service and support. The Company believes that its principal competitive advantages include its focus on a total integrated solution offering, its advanced development capabilities, its industry knowledge and experience, product reliability, its direct sales force, the quality of its support and quick service response, and, to a lesser extent, price. The markets in which the Company competes are highly competitive. There are currently several suppliers who offer some form of sophisticated restaurant technology system similar to the Company's. The Company competes with other vendors of technology systems and the internal efforts of its current or prospective customers. Major competitors include Panasonic, International Business Machines Corporation, NCR and Micros Systems Inc. The Company believes that the manufacturing/warehousing data collection market is highly fragmented. Backlog At December 31, 1997, the Company's backlog of unfilled orders for the Commercial segment was approximately $6,159,000 compared to $1,877,000 a year ago. Most of the present orders will be delivered in 1998. Commercial segment orders are generally of a short-term nature and are usually booked and shipped in the same fiscal year. Research and Development The highly technical nature of the Company's restaurant POS technology, manufacturing/ warehousing, and X-Ray inspection products requires a significant and continuous research and development effort. The Company engages in the research and development of new technologies under government contracts and through internally funded projects. Research and development expenses on internally funded projects were approximately $5,265,000 in 1997, $5,005,000 in 1996, $5,331,000 in 1995. See Note 1 to the Consolidated Financial Statements incorporated herein by reference for discussion on Statement of Financial Accounting Standards No. 86, Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed. Manufacturing and Suppliers The Company assembles its products from standard components, such as integrated circuits, and fabricated parts such as printed circuit boards, metal parts and castings, most of which are manufactured by others to the Company's specifications. The Company depends on outside suppliers for the continued availability of its components and parts. Although most items are generally available from a number of different suppliers, the Company purchases certain components from only one supplier. Items purchased from only one supplier include certain printers, base castings and electronic components. If such a supplier should cease to supply an item, the Company believes that new sources could be found to provide the components. However, added cost and manufacturing delays could result and adversely affect the business of the Company. The Company has not experienced significant delays of this nature in the past, but there can be no assurance that delays in delivery due to supply shortages will not occur in the future. Government Segment PAR has two wholly owned subsidiaries in the government business segment, PAR Government Systems Corporation (PGSC) and Rome Research Corporation (RRC). These companies provide federal and state government organizations, including the U. S. Department of Defense (DoD), with a wide range of technical products and services. Some of the more significant areas that the Company is involved include design, development and systems integration of state-of-the-art data processing systems, advanced research and development for high-technology projects, software development/ testing, engineering services, and operation & maintenance for government facilities. The Company's offerings cover the entire development cycle for Government systems: requirements analysis, design specification, development, implementation, installation, test and evaluation. Image & Signal Processing This business sector deals with the collection and analysis of complex and massive sensor data. The Company is a leader in developing and implementing target detection and tracking algorithms for both radar and infrared sensor systems. Since 1986, the Company has been a key contributor to the full-scale engineering development for the Joint STARS program, providing algorithm development and data handling for both moving target indicator and synthetic aperture radar technologies that detect, track and target ground vehicles. The Company's scientists have also developed sensor concepts and algorithms to address the difficult problem of detecting low-contrast targets against cluttered background (e.g., finding a cruise missile or fighter aircraft against a terrain background). Through key contracts from the Defense Advanced Projects Research Agency (DARPA), the U.S. Army and the U.S. Navy, the company is creating data analysis systems for hyperspectral sensors, a new class of infrared sensors. Special Programs & C3I The Company provides special data handling and system interoperability for key Government customers. PAR's operation of the Image Exploitation 2000 facility for the Air Force's Rome Laboratory has assisted with the introduction of many new data handling concepts, including imagery dissemination using Internet technology. A key contract in command and control being conducted for the National Imagery and Mapping Agency and the U.S. Air Force is the Image Product Library, a multi-year effort that addresses the world-wide dissemination of imagery to military commanders. Logistics Management Systems This division provides seamless visibility for a user's assets, utilizing small electronic tags on assets and cargos to communicate information on an asset's location and state. Under a contract with the U.S. Department of Transportation and the National Institute for Environmental Renewal (NIER) entitled Tranzit Xpress, the Company provided a system that monitors and tracks hazardous material (HAZMAT) cargos on trucks in Northeastern Pennsylvania. The current program phase tracks these cargos within an intermodal port facility in Los Angeles, California. Through internal funding, the Company has extended this technology to produce a commercial product, Cargo*Mate, that will be able to track high-value or hazardous cargos in a variety of transport or warehouse environments. Environmental & GIS An environmental measurement and data management system has been implemented for the NIER that integrates field sensors, GIS systems, image processing, contaminant monitoring, risk assessment, and site modeling. This environmental data system has been used to assess conditions at several private and government-owned sites, addressing air and water quality monitoring, detection and monitoring of soil and underground contaminants, and emergency response for flooding situations. This division also addresses the movement of massive data sets, and the adaptation of mapping data to meet user needs for mission planning, and decision support. U.S. Government agencies use the Company's software to rapidly convert images to digital maps; to store, edit, and retrieve such maps; and to extract features from digital data bases. Applications of these GIS technologies also address the needs of state and local government groups. Test Laboratory and Range Operations The Company provides management, engineering, and technical services under several contracts with the U.S. Air Force and the U.S. Navy. These services include the planning, execution, and evaluation of tests at government ranges and laboratories operated and maintained by the Company. Test activities encompass unique components, specialized equipment, and advanced systems for radar, communications, electronic countermeasures, and integrated weapon systems. The Company also develops complex measurement systems in several defense-related areas of technology. These systems are computer-based and have led to the development by the Company of a significant software capability, which provides the basis for competing in new markets. Software Test and Validation The Company supports the Northrup Grumman Joint STARS program, which provides the Company with a means of expanding its business base into a different segment of the defense industry. The Joint STARS effort is the Company's first venture into the software verification and validation arena, with Company engineers embedded in the Northrup Grumman test organization for formal qualification of the entire Joint STARS suite. The Company participates in all phases of the test process, from initial analysis to government acceptance. The ability to provide a wide range of software technology is particularly important during a period when almost all engineering efforts require the application of complex software and hardware in support of a given task. Facility Management The Company manages all phases of airfield operations of the Griffiss Minimum Essential Airfield (MEA) at the former Griffiss Air Force Base in Rome, NY. Griffiss MEA has one of the world's largest runways, and is the only airfield ever to be privatized by the U.S. Air Force. The Company provides a full range of services, from air traffic control and airfield management to grounds maintenance, in support of the U.S. Army's 10th Mountain Division. The Company also supports the U.S. Navy at the Naval Radio Transmitting Facility in Dixon, CA. The Company's staff will provide a wide range of operational services in support of this critical Naval facility. Advanced Research and Development The Company supports numerous technology demonstrations for the DoD, including the Advanced Sensor Technology Program (ASTP), dedicated to air defense surveillance and reconnaissance systems for missile defense. The Company supports the development of sensor systems and fusion processor programs for the ASTP. The Company also supports Navy airborne surveillance systems through the development of advanced optical sensors. Technology efforts include optical materials characterization, laser design and analysis, image and signal processing, and aircraft systems integration. Government Contracts The Company performs work for U.S. Government agencies under fixed-price, cost-plus fixed fee, time-and-material, and incentive-type prime contracts and subcontracts. Most of its contracts are for one-year to five-year terms. The Company also has been awarded Task Order/Support contracts. There are several risks associated with Government contracts. For example, contracts may be terminated for the convenience of the Government any time the Government believes that such termination would be in its best interests. Under contracts terminated for the convenience of the Government, the Company is entitled to receive payments for its allowable costs and, in general, a proportionate share of its fee or profit for the work actually performed. The Company's business with the U.S. Government is also subject to other risks unique to the defense industry, such as reduction, modification, or delays of contracts or subcontracts if the Government's requirements, budgets, or policies or regulations change. The Company may also perform work prior to formal authorization or to adjustment of the contract price for increased work scope, change orders, and other funding adjustments. Additionally, the Defense Contract Audit Agency on a regular basis audits the books and records of the Company. Such audits can result in adjustments to contract costs and fees. Audits have been completed through the Company's fiscal year 1994 and have not resulted in any material adjustments. Marketing and Competition Primarily senior- and middle management and technical staff members conduct the Company's marketing activities in the Government sector. Marketing begins with collecting information from a variety of sources concerning the present and future requirements of the Government and other potential customers for the types of technical expertise provided by the Company. A proven approach is for the Company to enter into teaming arrangements with other contractors. Teaming arrangements allow the contractors to complement the unique capabilities of each other and to offer the Government the best combination of capabilities to achieve the performance, cost, and delivery schedule desired for the system being procured. Structuring the right teaming arrangement can significantly enhance a contractor's competitive position. Some of the contractors that the Company has previously, or is presently, teamed with are AAI, GDE, Harris, Lockheed-Martin, Northrop Grumman Corporation, GTE, and TASC. Although the Company believes it is positioned well in its chosen areas of image and signal processing, telecommunications and engineering services, competition for Government contracts is intense. Many of the Company's competitors are, or are controlled by, companies such as Lockheed-Martin, SAIC and Hughes that are larger and have substantially greater financial resources. The Company also competes with many smaller companies that target particular segments of the Government market. Typically, seven or more companies will compete for each contract and, as previously discussed, PAR sometimes bids as part of a team with other companies. Contracts are obtained principally through competitive proposals in response to requests for bids from Government agencies and prime contractors. The principal competitive factors are prior experience, the ability to perform, price, technological capabilities, and service. In addition, the Company sometimes obtains contracts by submitting unsolicited proposals. Backlog The dollar value of existing Government contracts at December 31, 1997, net of amounts relating to work performed to that date, was approximately $21,500,000, of which $11,000,000 was funded. At December 31, 1996, the comparable amount was approximately $19,700,000, of which $4,800,000 was funded. Funded represents amounts committed under contract by Government agencies and prime contractors. The December 31, 1997 Government contract backlog of $21,500,000 represents firm, existing contracts. Approximately $14,900,000 of this amount will be completed in calendar year 1998 as funding is committed. Employees As of December 31, 1997, the Company had 880 employees, approximately 67% of whom are engaged in the Company's Commercial segment, 27% are in the Government segment, and the remainder are corporate employees. Due to the highly technical nature of the Company's business, the Company's future can be significantly influenced by its ability to attract and retain its technical staff. The Company believes that it will be able to fulfill its near-term needs for technical staff. None of the Company's employees are covered by collective bargaining agreements. The Company considers its employee relations to be good. Item 2: Properties The following are the principal facilities (by square footage) of the Company:
Industry Floor Area Number of Location Segment Principal Operations Sq. Ft. -------- ------- -------------------- ------- New Hartford, NY Commercial Principal executive offices 146,000 Government manufacturing, research and development laboratories, computing facilities Boulder, CO Commercial Service 17,500 Rome, NY Government Research and Development 15,500 Norcross, GA Commercial Research and Development 9,200 Sydney, Australia Commercial Sales and Service 8,800 La Jolla, CA Government Research and Development 8,400 Boca Raton Commercial Research and Development 7,300 Arlington, TX Commercial Sales, Research and Development 6,100 San Antonio, TX Commercial Sales 4,700 Irvine, CA Commercial Sales and Service 4,500
The Company's headquarters and principal business facility is located in New Hartford, New York, which is near Utica, located in Central New York State. The Company owns its principal facility and adjacent space in New Hartford, N.Y. All of the other facilities are leased for varying terms. Substantially all of the Company's facilities are fully utilized, well maintained, and suitable for use. The Company believes its present and planned facilities and equipment are adequate to service its current and immediately foreseeable business needs. Item 3: Legal Proceedings The Company is subject to legal proceedings which arise in ordinary course of business. In the opinion of Management, the ultimate liability, if any, with respect to these actions will not materially affect the financial position of the Company. Item 4: Submission of Matters to a Vote of Security Holders None PART II Item 5: Market for the Registrant's Common Stock and Related Stockholder Matters The Company's Common Stock, par value $.02 per share, trades on the New York Stock Exchange (NYSE symbol - PTC). At December 31, 1997, there were approximately 882 owners of record of the Company's Common Stock, plus those owners whose stock certificates are held by brokers. The following table shows the high and low stock prices for the two years ended December 31, 1997 as reported by New York Stock Exchange:
1997 1996 ---------------- ----------------- Period Low High Low High ------ --- ---- --- ---- First Quarter 9 7/8 14 3/4 8 1/4 16 7/8 Second Quarter 8 1/8 10 7/8 14 1/8 19 7/8 Third Quarter 8 1/8 10 7/16 12 3/8 17 3/4 Fourth Quarter 9 1/16 11 15/16 10 3/4 14 3/4
The Company has not paid cash dividends on its common stock, and its Board of Directors presently intends to continue to retain earnings for reinvestment in growth opportunities for the Company. Accordingly, it is anticipated that no cash dividends will be paid in the foreseeable future. Item 6: Selected Financial Data SELECTED CONSOLIDATED STATEMENT OF INCOME DATA (In thousands, except per share amounts)
Year ended December 31, ----------------------------------------------------------- 1997 1996 1995 1994 1993 ----------------------------------------------------------- Total revenues $ 100,020 $ 117,661 $ 107,394 $ 94,530 $ 81,247 ========= ========= ========= ========= ========= Net income (loss) $ (8,719) $ 5,947 $ 4,658 $ 3,661 $ 2,529 ========= ========= ========= ========= ========= Diluted earnings (loss) per share $ (.99) $ .69 $ .58 $ .46 $ .32 ========= ========= ========= ========= =========
SELECTED CONSOLIDATED BALANCE SHEET DATA (In thousands)
December 31, ----------------------------------------------- 1997 1996 1995 1994 1993 ----------------------------------------------- Working capital $53,382 $62,107 $42,976 $38,915 $34,489 Total assets 83,204 86,758 68,073 60,642 60,449 Long-term debt -- -- -- -- -- Shareholders' equity 63,417 72,602 53,132 48,645 44,530
Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis highlights items having a significant effect on operations during the three-year period ended December 31, 1997. It may not be indicative of future operations or earnings. It should be read in conjunction with the Consolidated Financial Statements and Notes thereto and other financial and statistical information appearing elsewhere in this report. Results of Operations -- 1997 Compared to 1996 PAR Technology Corporation reported a loss per share of $.99 for the year ended December 31, 1997, compared to earnings per share of $.69 for the year ended December 31, 1996. The Company reported a net loss of $8.7 million in 1997 compared to net income of $5.9 million for 1996. Revenues for 1997 were $100 million versus $117.7 million for 1996, a decrease of 15%. The 1997 results include an after tax charge of $1.7 million, or $.19 loss per share, relating to a receivable from Phoenix Systems & Technologies, Inc. (Phoenix). This arises primarily from accounts receivable due Rome Research Corporation (RRC), a wholly owned subsidiary of PAR, from Phoenix. Phoenix is in arrears on significant moneys owed to RRC as a result of a sub-contractor relationship. See Note 2 to the Consolidated Financial Statements for further discussion. The 1997 results also include an after tax charge of $580,000, or $.07 loss per share, pertaining to the Corneal Topography (CTS) business. This charge involves obsolete CTS inventory due to the development of a new product. Product revenues were $47 million for 1997, a 26% decrease from the $63.1 million recorded in 1996. The decrease was primarily due to sales of the Company's restaurant products. In 1997, the Company was in transition due to delays in the release and stabilization of its new hardware and software products and the restructuring of its direct sales force. Also contributing to this revenue decline was lower sales to Taco Bell and Whataburger due to the completion, by PAR, of these customer's requirements in 1996. Partially offsetting this decline was sales of the Company's new POS 4 hardware to Burger King under the Company's contract with this customer. Another significant event in 1997 was the certification by McDonald's of the Company's new POS 4 hardware system. The Company also continued to expand its international presence in 1997 with sales of its POS systems to several new countries and now has its systems installed in 90 countries. Service revenues decreased 8% to $27.8 million in 1997 compared to $30.1 million for 1996. This decrease was due to a certain integration project requested by a customer in 1996 with no similar project in 1997. The decline is also due to lower installation revenue directly related to the decrease in product revenues discussed above. This decline was partially offset by the expansion of Taco Bell service integration contract. Under this agreement, the Company is responsible for servicing all Taco Bell restaurant and back office systems, and performing Help Desk and on-site support activities. Contract revenues were $25.2 million for 1997, an increase of 3% from the $24.4 million reported in 1996. The Company experienced modest growth in the areas of engineering services and software development and integration. The most significant element of this growth continues to be related to the Company's Griffiss Minimum Essential Airfield Contract. Also contributing to this growth was a $5 million contract awarded in 1997 under the U.S. Air Force's Image Product Library Program. This program provides imagery and imagery product archives in support of tactical users. Gross margin on product revenues was 29% compared to 41% in 1996. The decline in margins was primarily due to product mix as the 1997 Burger King sales included only the Company's hardware products. Additionally, certain start up costs for the Company's new products and a higher level of obsolescence on older product lines also contributed to the margin decline. Gross margin on service revenues was 10% in 1997 versus 14% in 1996. This decline was primarily due to a change in the mix of service offerings as the Company recorded lower installation revenue in 1997 than in 1996. An increased provision for obsolescence on older service parts also accounted for the margin decline. Gross margin on contract revenues was 5% in 1997, unchanged from 1996. The Company typically experiences between 5% and 6% margin on its contract business. Selling, general and administrative expenses were $23 million in 1997, an increase of 28% from the $18 million recorded in 1996. Included in 1997 expenses is a charge of $1.8 million relating to receivables of the Company's government business. The largest of these receivables relates to a developmental and marketing relationship with a third party wherein the Company undertook certain development activities for which it was not paid. The Company also increased its investment in its worldwide POS sales and marketing force and recorded a higher provision for bad debts in 1997 than in 1996. Additionally, the Company increased its contributions to the deferred profit sharing retirement plan in 1997 compared to 1996. Research and development expenses were $5.3 million in 1997, an increase of 5% from the $5 million reported a year ago. The Company increased expenditures in its restaurant business in conjunction with the release of several new products in 1997. Research and development costs attributable to government contracts are included in cost of contract revenues. Other income declined 51% from $678,000 in 1996 to $333,000 in 1997. The decrease was primarily due to lower interest income in 1997 as a result of lower cash balances throughout the year. In 1997, the Company recognized an income tax benefit of $4.9 million. In 1996, the Company's effective tax rate was 32.5%. The 1996 variance from the statutory rate was primarily due to the favorable results of a federal income tax audit. Results of Operations -- 1996 Compared to 1995 Earnings per share were $.69 for the year ended December 31, 1996, an increase of 19% from the $.58 per share recorded for the year ended December 31, 1995. Net income increased 28% to $5.9 million in 1996 compared to $4.7 million for 1995. Revenues for 1996 were $117.7 million versus $107.4 million for 1995, an increase of 10%. Product revenues were $63.1 million for 1996, an 8% increase from the $58.3 million recorded in 1995. The increase was primarily due to sales of the Company's restaurant products. The Company's international product revenues increased 17% as major customers, KFC International and McDonald's, expanded their operations abroad. Domestically, the Company added Whataburger, Inc., a Texas based quick service restaurant chain, as a new account and increased its sales to Burger King Corporation ("Burger King") and Taco Cabana. The Company was selected in June 1996 as the provider of next-generation POS hardware solutions for Burger King. Partially offsetting these increases were lower sales to Taco Bell and McDonald's domestic restaurants. During 1996, the Company delivered systems that will fulfill Taco Bell's requirements through substantially all of 1997. The decline in McDonald's revenue was primarily the result of continuing efforts by this customer to select its future software migration path. Numerous replacement decisions were postponed pending the outcome of this matter. The Company's manufacturing/warehousing ITIP business also reported lower sales. Although the Company added several new customers during 1996, the growth of this business was interrupted by technical problems encountered during the implementation of a large cellular network at a customer plant. Through our integration skills the problem was solved and the customer proceeded with the rollout of our products at additional sites. Service revenues increased 20% to $30.1 million in 1996 compared to $25.1 million for 1995. This increase was due to certain integration projects requested by customers, and the expansion of the exclusive service integration contract with Taco Bell which was awarded in the third quarter of 1995. Growth in installation and repair revenue also contributed to this increase. Contract revenues were $24.4 million for 1996, an increase of 2% from the $24 million reported in 1995. The government segment's engineering services business increased primarily due to the Griffiss Minimum Essential Airfield Contract awarded to Phoenix in 1995. The Company is a subcontractor to Phoenix to operate and maintain Griffiss Air Force Base. Additionally, the Company's software development and systems integration business continued to expand its efforts in environmental monitoring and hazardous materials tracking. Partially offsetting this increase was the cancellation for convenience of certain software development contracts of the Company by the Department of Defense and the completion of a large engineering services program in 1995. Gross margin on product revenues was 41% compared to 42% in 1995. Margins declined due to a reduction in average selling prices to several major customers during the year. The Company was able to minimize the effect of these pricing actions through lower part costs and other manufacturing cost reductions. Gross margin on service revenues was 14% in 1996 versus 17% in 1995. Periodically, the Company is requested to perform specific integration projects for certain customers. In 1996 these projects involved more labor and generated less gross margin than the 1995 projects. Additionally, costs relating to the transition to a new third party service provider contributed to the margin decline in 1996. Gross margin on contract revenues was 5% in 1996 compared to 6% in 1995. This decrease is attributable to contract mix and higher award fees in 1995. Selling, general and administrative expenses were $18 million in 1996, a decrease of 3% from the $18.5 million recorded in 1995. Included in 1995 was $1.1 million for allowances related to the Company's investment in and receivable from Phoenix. Partially offsetting this decrease were expanding sales force costs in the Company's restaurant, manufacturing/warehousing and Vision businesses. Research and development expenses were $5 million in 1996, a decrease of 6% from the $5.3 million reported a year ago. Although the Company increased expenditures in its ITIP restaurant and manufacturing/warehousing businesses, net research and development expenses declined due to the requirement to capitalize certain software development costs under the Statement of Financial Accounting Standards No. 86, Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed. The Company incurred more software development costs meeting this requirement in 1996 than in 1995. Research and development costs attributable to government contracts are included in cost of contract revenues. The Company's effective tax rate was 32.5% in 1996 compared to 33.6% in 1995. In 1996, the Company benefited from the favorable results of a federal income tax audit. In 1995, the tax rate reflected the utilization of certain foreign tax credits. Liquidity and Capital Resources Cash flows to meet the Company's requirements of operating, investing and financing activities during the past three years are reported in the Consolidated Statement of Cash Flows. Cash flow used by operating activities was $1.6 million in 1997 compared to $2.9 million in 1996. The use of cash in 1997 was primarily due to the operating loss and a build up in inventory levels in anticipation of future sales. This was partially offset by the collection of accounts receivable in 1997 pertaining to 1996 sales. The Company's accounts receivable balance grew substantially in 1996 as the result of timing of certain customer payments which were not due until the first quarter of 1997. Inventory levels also increased during 1996 due to the requirements to support the Company's different product lines, including its new POS IV products, and the need for additional service inventory to support expanding service integration activities. Cash used in investing activities was $3 million in 1997 compared to $2.5 million in 1996. The Company incurred $1.5 million for capital expenditures in 1997 which were primarily for upgrades to the Company's manufacturing facility. Capital expenditures in 1996 were primarily for internal use computer hardware and software. Cash flow provided by financing activities was $159,000 in 1997 versus $13.3 million in 1996. In 1997, the Company received a $312,000 benefit from the exercise of employee stock options. The Company also repurchased 13,000 shares of its stock at a cost of $163,000. In 1996 the Company sold 975,200 shares of common stock in a secondary offering which netted approximately $13.3 million. The Company also received a $2.2 million benefit in 1996 from the exercise of employee stock options. Additionally in 1996, the Company purchased into treasury, 134,000 shares of its stock at a cost of approximately $2 million. The Company has line-of-credit agreements with certain banks, which aggregate $34.4 million, virtually all of which were unused at December 31, 1997. The Company believes that it has adequate financial resources to meet its future liquidity and capital requirements. Year 2000--As part of the Company's continuing process to update its products and internal systems, the Company is evaluating the costs associated with testing and, as necessary, modifying its products and internal systems for the Year 2000. The Company expects to incur internal staff costs and outside consulting costs associated with the Year 2000 conversion effort. The total incremental cost of this effort, at this time, cannot be estimated. As the process of analyzing the Company's products and internal systems continues, however, the Company will expense such costs as they are incurred. Although the Company at present does not believe the cost of implementing any changes to address Year 2000 issues will have a material effect on the Company's results of operations or financial condition, there can be no assurance that there will not be a delay in or significantly increased costs associated with the implementation of any necessary changes and the Company's inability to implement such changes could have an adverse effect on future results of operations. Important Factors Regarding Future Results Information provided by the Company, including information contained in this Annual Report, or by its spokespersons from time to time may contain forward-looking statements. Forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that all forward-looking statements involve risks and uncertainties, including without limitation, risks in technology development and commercialization, risks in product development and market acceptance of and demand for the Company's products, risks of downturns in economic conditions generally, and in the quick service sector of the restaurant market specifically, risks of intellectual property rights associated with competition and competitive pricing pressures, risks associated with foreign sales and high customer concentration and other risks detailed in the Company's filings with the Securities and Exchange Commission. Item 8: Financial Statements and Supplementary Data The Company's 1997 Financial Statements, together with the report thereon of Price Waterhouse LLP dated February 5, 1998, are included elsewhere herein. See Item 14 for a list of Financial Statements and Financial Statement Schedules. Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. PART III Item 10: Directors, Executive Officers and Other Significant Employees of the Registrant The directors and executive officers of the Company and their respective ages and positions are:
Name Age Position ---- --- -------- Dr. John W. Sammon, Jr 58 Chairman of the Board, President and Director Charles A. Constantino 58 Executive Vice President and Director J. Whitney Haney 63 Director Sangwoo Ahn 59 Director Dr. James C. Castle 61 Director Albert Lane, Jr 56 President, PAR Government Systems and Rome Research Ronald J. Casciano 44 Vice President, C.F.O. and Treasurer Other senior officers and significant employees of the Company and their respective ages and positions are: Name Age Position ---- --- -------- Gregory T. Cortese 48 Vice President, Business & Legal Affairs, General Counsel and Secretary Donald A. England 46 Vice President, Worldwide Sales, ParTech, Inc. William J. Francis 46 Vice President Customer Service, ParTech, Inc. Michael Gutshick 46 Vice President, Account Management, ParTech, Inc. Sam Y. Hua 36 Vice President, Product Planning, ParTech, Inc. Name Age Position ---- --- -------- John Kiehm 49 President, PAR Vision Systems Corporation F. Tibertus Lenz 47 Vice President and General Manager Industrial Transaction Processing Systems, ParTech, Inc. Fred A. Matrulli 52 Vice President Operations, PAR Vision Systems Corporation Victor Melnikow 40 Vice President, Finance, Rome Research Corporation E. John Mohler 54 Vice President Telecommunications Programs, PAR Government Systems Corporation Dr. John P. Retelle, Jr 52 Executive Vice President, Business Development, PAR Government Systems and Rome Research Corporation Warren M. Thomas 59 Vice President Advanced Technology Development, PAR Government Systems Corporation Ben F. Williams 56 Vice President Business Development, ParTech, Inc. William J. Williams 36 Vice President Operations, ParTech, Inc. Alexander J. Zanon 59 Senior Vice President Operations, PAR Government Systems Corporation
The Company's Directors are elected in classes with staggered three-year terms with one class being elected at each annual meeting of shareholders. The Directors serve until the next election of their class and until their successors are duly elected and qualified. The Company's officers are appointed by the Board of Directors and hold office at the will of the Board of Directors. The principal occupations for the last five years of the directors, executive officers, and other significant employees of the Company are as follows: Dr. John W. Sammon, Jr. is the founder of the Company and has been the President and a Director since its incorporation in 1968. He has authored several papers in the field of Artificial Intelligence and Pattern Recognition and is a Fellow of the Institute of Electronic Engineers. Mr. Charles A. Constantino has been a Director of the Company since 1971 and Executive Vice President since 1974. Mr. J. Whitney Haney has been a Director of the Company and President of PTI since April, 1988. He retired in 1997 as President of ParTech, Inc. Mr. Sangwoo Ahn was appointed a Director of the Company in March, 1986. He has been a partner of Morgan, Lewis, Githens & Ahn (investment banking) since 1982. Dr. James C. Castle was appointed a Director of the Company in December, 1989. Dr. Castle has been the Chairman and CEO of U.S.C.S. International (previously U.S. Computer Services Corporation) since August, 1992. Mr. Albert Lane, Jr. was appointed to President, Rome Research in 1988. He was additionally appointed President of PAR Government Systems in 1997. Mr. Ronald J. Casciano, CPA, was promoted to Vice President, C.F.O., Treasurer in June, 1995. Mr. Casciano had been Vice President and Treasurer since 1994. Mr. Gregory T. Cortese has been Vice President, Business and Legal Affairs since 1993. Mr. Donald A. England was promoted to Vice President, Worldwide Sales of ParTech, Inc. in 1997. Previously, he was the Vice President of National Accounts. Mr. William J. Francis was promoted to Vice President, Customer Service of ParTech, Inc. in February 1997. Previously he was the Vice President, Finance and Operations. Mr. Michael Gutschick was promoted to Vice President, Account Management of ParTech, Inc. in 1997. Previously, he was an Account Manager with the Company. Mr. Sam Y. Hua joined the Company in 1997 as Vice President of Product Planning. He previously was President of ISSI Corporation. Mr. John Kiehm was appointed President of PAR Vision Systems in 1997. Previously, he had been Sales Manager. Mr. F. Tibertus Lenz was promoted to Vice President and General Manager, Industrial Trans- action Processing Systems in 1989. Mr. Fred A. Matrulli was promoted to Vice President, Operations of PAR Vision Systems in January, 1993. He held the positions of Vice President Production and Manager of Hardware Development for ParTech, Inc. since 1987. Mr. Victor Melnikow was promoted to Vice President, Finance of Rome Research in July, 1995. Previously, he held the position of Controller. Mr. E. John Mohler joined the Company in 1994 as Vice President, Telecommunications Programs for PAR Government Systems. Prior to this, he was a self-employed consultant. Dr. John P. Retelle, Jr. was promoted to Executive Vice President, Business Development, of PAR Government Systems and Rome Research Corporation in December 1997. Previously he was President of PAR Government Systems. He was Vice President, Business Development and joined the Company in July, 1993. Mr. Warren M. Thomas joined the Company in 1994 as Vice President, Advanced Technology Development of PAR Government Systems. Prior to PAR, he was Manager of Advanced Program Development for Northrop Grumman Corporation. Mr. Ben F. Williams was appointed Vice President, Business Development in 1986. Mr. William J. Williams was promoted to Vice President, Operations of ParTech, Inc. in February 1997. Prior to this position, Mr. Williams was the Director of Manufacturing. Mr. Alexander J. Zanon was promoted to Senior Vice President, Operations of PAR Government Systems in 1986. Item 11: Executive Compensation The information required by this item will appear under the caption "Executive Compensation" in the Company's 1998 definitive proxy statement for the annual meeting of stockholders on May 21, 1998 and is incorporated herein by reference. Item 12: Security Ownership Of Certain Beneficial Owners The information required by this item will appear under the caption "Security Ownership Of Management And Certain Beneficial Owners" in the Company's 1998 definitive proxy statement for the annual meeting of stockholders on May 21, 1998 and is incorporated herein by reference. Item 13: Certain Relationships and Related Transactions The information required by this item will appear under the caption "Executive Compensation" in the Company's 1998 definitive proxy statement for the annual meeting of stockholders on May 21, 1998 and is incorporated herein by reference. PART IV Item 14: Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) Documents filed as a part of the Form 10-K (1) Financial Statements: Report of Independent Accountants Consolidated Balance Sheet at December 31, 1997 and 1996 Consolidated Statement of Income for the three years ended December 31, 1997 Consolidated Statement of Changes in Shareholders' Equity for the three years ended December 31, 1997 Consolidated Statement of Cash Flows for the three years ended December 31, 1997 Notes to Consolidated Financial Statements (2) Financial Statement Schedules: Valuation and Qualifying Accounts and Reserves (Schedule II) (b) Reports on Form 8-K None (c) Exhibits See list of exhibits on page 54 (d) Financial statement schedules See (a)(2) above. REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of PAR Technology Corporation In our opinion, the consolidated financial statements listed in the index appearing under Item 14(a) (1) and (2) on page 30 of the Annual Report on Form 10-K present fairly, in all material respects, the financial position of PAR Technology Corporation and its subsidiaries at December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP Syracuse, New York February 5, 1998
CONSOLIDATED BALANCE SHEET (In Thousands Except Share Amounts) December 31, - ----------------------------------- -------------------- 1997 1996 -------------------- Assets Current Assets: Cash .................................. $ 3,977 $ 8,391 Accounts receivable-net (Note 3) ...... 29,938 42,335 Inventories (Note 4) .................. 31,168 21,988 Income tax refund claims .............. 214 222 Deferred income taxes (Note 8) ........ 5,876 1,096 Other current assets .................. 1,340 1,261 ------ ------ Total current assets .............. 72,513 75,293 Property, plant and equipment - net (Note 5) 7,013 7,243 Other assets ............................... 3,678 4,222 ------ ------ $ 83,204 $ 86,758 ====== ====== Liabilities and Shareholders' Equity Current Liabilities: Notes payable (Note 6) ................ $ 195 $ 185 Accounts payable ...................... 8,664 5,127 Accrued salaries and benefits ......... 3,804 2,750 Accrued expenses ...................... 3,444 2,883 Deferred service revenue .............. 3,024 2,241 ------ ------ Total current liabilities ......... 19,131 13,186 ------ ------ Deferred income taxes (Note 8) ............. 656 970 ------ ------ Shareholders' Equity (Note 7): Common stock, $.02 par value, 12,000,000 shares authorized; 9,466,771 and 9,416,721 shares issued 8,864,265 and 8,826,315 outstanding . 189 188 Preferred stock, $.02 par value, 250,000 shares authorized ........... -- -- Capital in excess of par value ........ 27,875 27,564 Retained earnings ..................... 38,960 47,679 Cumulative translation adjustment ..... (682) (67) Treasury stock, at cost, 602,506 and 590,406 shares ...................... (2,925) (2,762) ------ ------ Total shareholders' equity ........ 63,417 72,602 ------ ------ Contingent liabilities (Note 10) ------ ------ $ 83,204 $ 86,758 ====== ======
The Accompanying Notes are an Integral Part of the Financial Statements
CONSOLIDATED STATEMENT OF INCOME (In Thousands Except Per Share Amounts) Year ended December 31, --------------------------------- 1997 1996 1995 --------------------------------- Net revenues: Product ................................ $ 47,019 $ 63,134 $ 58,306 Service ................................ 27,833 30,124 25,059 Contract ............................... 25,168 24,403 24,029 ------- ------- ------- 100,020 117,661 107,394 ------- ------- ------- Costs of sales: Product ................................ 33,267 37,407 34,028 Service ................................ 24,948 25,979 20,807 Contract ............................... 23,884 23,093 22,492 ------- ------- ------- 82,099 86,479 77,327 ------- ------- ------- Gross margin ..................... 17,921 31,182 30,067 ------- ------- ------- Operating expenses: Selling, general and administrative .... 23,122 18,044 18,499 Research and development ............... 5,265 5,005 5,331 Non-recurring charges (Note 2) ......... 3,535 -- -- ------- ------- ------- 31,922 23,049 23,830 ------- ------- ------- Income (loss) from operations ............... (14,001) 8,133 6,237 Other income, net ........................... 333 678 778 ------- ------- ------- Income (loss) before provision for income taxes .............................. (13,668) 8,811 7,015 Provision (benefit) for income taxes (Note 8) (4,949) 2,864 2,357 ------- ------- ------- Net income (loss) ........................... $ (8,719) $ 5,947 $ 4,658 ======= ======= ======= Earnings (loss) per share Diluted ................................ $ (.99) $ .69 $ .58 ======= ======= ======= Basic .................................. $ (.99) $ .72 $ .61 ======= ======= ======= Weighted average shares outstanding Diluted ................................ 8,846 8,643 8,068 ======= ======= ======= Basic .................................. 8,846 8,238 7,683 ======= ======= =======
The Accompanying Notes are an Integral Part of the Financial Statements
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY Common Stock Capital in Cumulative Treasury Stock ------------ excess of Retained Translation ----------------- (In Thousands) Shares Amount Par Value Earnings Adjustment Shares Amount ------ ------ --------- ------------------- ------ ------ Balance at December 31, 1994 ................ 9,031 $ 181 $13,268 $37,074 $ (181) (1,374) $(1,697) Net income .......................... 4,658 Issuance of common stock upon the exercise of stock options (Note 7) 82 1 396 Translation adjustments ............. 14 Acquisition of treasury stock ....... (57) (582) ----- ------ ------ ------ ----- ----- ----- Balance at December 31, 1995 ................ 9,113 182 13,664 41,732 (167) (1,431) (2,279) Net income .......................... 5,947 Issuance of common stock ............ 11,748 975 1,554 Issuance of common stock upon the exercise of stock options (Note 7) 304 6 2,152 Translation adjustments ............. 100 Acquisition of treasury stock ....... (134) (2,037) ----- ------ ------ ------ ----- ----- ----- Balance at December 31, 1996 ................ 9,417 188 27,564 47,679 (67) (590) (2,762) Net loss ............................ (8,719) Issuance of common stock upon the exercise of stock options (Note 7) 50 1 311 Translation adjustments ............. (615) Acquisition of treasury stock ....... (13) (163) ----- ------ ------ ------ ----- ----- ----- Balance at December 31, 1997 ................ 9,467 $ 189 $27,875 $38,960 $ (682) (603) $(2,925) ===== ====== ====== ====== ====== ==== ======
The Accompanying Notes are an Integral Part of the Financial Statements
CONSOLIDATED STATEMENT OF CASH FLOWS (In Thousands) Year ended December 31, -------------------------------- 1997 1996 1995 -------------------------------- Cash flows from operating activities: Net income (loss) ............................ $ (8,719) $ 5,947 $ 4,658 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ....... 2,282 2,342 2,414 Provision for obsolete inventory .... 4,595 2,143 2,072 Translation adjustments ............. (615) 100 14 Increase (decrease) from changes in: Accounts receivable-net ............. 12,397 (5,861) (8,371) Inventories ......................... (13,775) (6,330) (3,406) Income tax refund claims ............ 8 (222) -- Other current assets ................ (79) (171) 370 Other assets ........................ 1,487 (371) (907) Accounts payable .................... 3,537 202 1,293 Accrued salaries and benefits ....... 1,054 (1,436) 312 Accrued expenses .................... 561 1,349 297 Deferred service revenue ............ 783 27 204 Income taxes payable ................ -- (1,005) 697 Deferred income taxes ............... (5,094) 386 (414) ------ ------ ------ Net cash used by operating activities ............. (1,578) (2,900) (767) ------ ------ ------ Cash flows from investing activities: Capital expenditures ......................... (1,520) (1,302) (1,288) Capitalization of software costs ............. (1,475) (1,187) (500) ------ ------ ------ Net cash used in investing activities ............. (2,995) (2,489) (1,788) ------ ------ ------ Cash flows from financing activities: Net borrowings (payments) under line-of-credit agreements .................. 10 (101) 286 Net proceeds from issuance of common stock ... -- 13,302 -- Proceeds from the exercise of stock options .. 312 2,158 397 Acquisition of treasury stock ................ (163) (2,037) (582) ------ ------ ------ Net cash provided by financing activities ......... 159 13,322 101 ------ ------ ------ Net increase (decrease) in cash and cash equivalents ............................ (4,414) 7,933 (2,454) Cash and cash equivalents at beginning of year ............................... 8,391 458 2,912 ------ ------ ------ Cash and cash equivalents at end of year ..................................... $ 3,977 $ 8,391 $ 458 ====== ====== ====== Supplemental disclosures of cash flow information: Cash paid during the year for: Interest ................................. $ 19 $ 54 $ 20 Income taxes, net of refunds ............. 94 2,537 1,940 The Accompanying Notes are an Integral Part of the Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 -- Summary of Significant Accounting Policies Basis of consolidation The consolidated financial statements include the accounts of PAR Technology Corporation and its wholly owned subsidiaries (ParTech, Inc., PAR Government Systems Corporation, Rome Research Corporation and PAR Vision Systems Corporation), collectively referred to as the "Company." All significant intercompany transactions have been eliminated in consolidation. Revenue recognition Revenues from sales of commercial products are generally recorded as the products are shipped, provided that no significant vendor and post-contract support obligations remain and the collection of the related receivable is probable. Costs relating to any remaining insignificant vendor and post-contract obligations are accrued. The Company's service revenues are recognized ratably over the related contract period or as the services are performed. Billings in advance of the Company's performance of such work are reflected as deferred service revenue in the accompanying consolidated balance sheet. The Company's contract revenues result primarily from contract services performed for the United States Government under a variety of cost-reimbursement, time-and-material and fixed-price contracts. Contract revenues, including fees and profits, are recorded as services are performed using the percentage-of-completion method of accounting, primarily based on contract costs incurred to date compared with estimated costs at completion. Anticipated losses on all contracts and programs in process are recorded in full when identified. Unbilled accounts receivable are stated at estimated realizable value. Contract costs, including indirect expenses, are subject to audit and adjustment through negotiations between the Company and government representatives. Contract revenues have been recorded in amounts that are expected to be realized on final settlement. The Company follows accepted industry practice and records amounts retained by the government on contracts as a current asset. Statement of cash flows For purposes of reporting cash flows, the Company considers all highly liquid investments, purchased with a remaining maturity of three months or less, to be cash equivalents. The effect of changes in foreign-exchange rates on cash balances is not material. Inventories Inventories are valued at the lower of cost or market, cost being determined on the basis of the first-in, first-out (FIFO) method. Property, plant and equipment Property, plant and equipment are recorded at cost and depreciated using the straight-line or an accelerated method over the estimated useful lives of the assets, which range from three to twenty years. Expenditures for maintenance and repairs are expensed as incurred. Warranties A majority of the Company's products are under warranty for defects in material and workmanship for various periods of time. The Company establishes an accrual for estimated warranty costs at the time of sale. Income taxes The provision for income taxes is based upon pretax earnings with deferred income taxes provided for the temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities. The Company believes its more likely than not to realize the net deferred tax asset and accordingly no valuation allowance has been made. Foreign currency The assets and liabilities for the Company's international operations are translated into U.S. dollars using year-end exchange rates. Income statement items are translated at average exchange rates prevailing during the year. The resulting translation adjustments are recorded as a separate component of shareholders' equity. Exchange gains and losses on intercompany balances of a long-term investment nature are also recorded as a translation adjustment. Foreign currency transaction gains and losses, which historically have been immaterial, are included in net income. Research and development costs The Company capitalizes certain costs related to the development of computer software under the requirements of Statement of Financial Accounting Standards No. 86, Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed. Software development costs incurred prior to establishing technological feasibility are charged to operations and included in research and development costs. Software development costs incurred after establishing feasibility are capitalized and amortized on a product-by-product basis when the product is available for general release to customers. The unamortized computer software costs included in other assets amounted to $2,792,000 and $1,818,000 at December 31, 1997 and 1996, respectively. Annual amortization, charged to cost of sales, is the greater of the amount computed using the ratio that current gross revenues for a product bear to the total of current and anticipated future gross revenues for that product, or the straight-line method over the remaining estimated economic life of the product. Amortization of capitalized software costs amounted to $501,000, $680,000 and $990,000 in 1997, 1996, and 1995, respectively. Stock-based compensation Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123), encourages, but does not require companies to record compensation cost for stock-based compensation plans at fair value. The Company has elected to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. Earnings per share In 1997, the Company adopted Statement of Financial Accounting Standards No. 128 Earnings per Share (SFAS 128), which specifies the computation, presentation, and disclosure requirements for earnings per share (EPS). It replaces the presentation of primary and fully diluted EPS with basic and diluted EPS. Basic EPS excludes all dilution. It is based upon the weighted average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock. Previously presented EPS amounts have been restated to reflect the method of computation required by SFAS 128. The following is a reconciliation of the weighted average shares outstanding for the basic and diluted EPS computations:
For the year Ended 1997 ----------------------- Income Shares Per-Share (Numerator) (Denominator) Amount ----------- ------------- ------ Basic and Diluted EPS $(8,719) $ 8,846 $ (.99) ======= ======= ======
The 1997 diluted EPS calculation excludes the effect of stock options, as they would have been antidilutive.
For the year Ended 1996 ----------------------- Income Shares Per-Share (Numerator) (Denominator) Amount ----------- ------------- ------ Basic EPS $ 5,947 $ 8,238 $ .72 Effect of Stock Options 405 ------- ------- ------ Diluted EPS $ 5,947 $ 8,643 $ .69 ======= ======= ====== For the year Ended 1995 ----------------------- Income Shares Per-Share (Numerator) (Denominator) Amount ----------- ------------- ------ Basic EPS $ 4,658 $ 7,683 $ .61 Effect of Stock Options 385 ------- ------- ------ Diluted EPS $ 4,658 $ 8,068 $ .58 ======= ======= ======
Comprehensive Income and Segment Reporting During 1997, the Financial Accounting Standards Board issued Statement 130 Reporting Comprehensive Income and Statement 131 Disclosures about Segments of an Enterprise and Related Information. The Company will adopt these standards in 1998. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities and revenues and expenses (as well as disclosures of contingent liabilities) during the reporting period. Actual results could differ from those estimates. Note 2 -- Nonrecurring Charges During 1997, the Company recorded two nonrecurring charges. The first was $2.6 million ($1.7 million after tax or $.19 loss per share) relating to Phoenix Systems and Technologies, Inc. (Phoenix). The second charge was $900,000 ($580,000 after tax or $.06 loss per share) relating to the Company's Corneal Topography System (CTS) business. In June 1992, the Company was approved under the Department of Defense Mentor-Protege Program as a mentor for a minority-owned government contractor, Phoenix. Under this program, the Company had guaranteed a bank loan in the amount of $900,000. Additionally, concurrent with this approval, the Company acquired a 44% interest in Phoenix, which was accounted for under the equity method. The Company is a subcontractor to Phoenix on certain engineering service contracts with the United States Government. Additionally, Phoenix rented its office space from the Company and is also a vendor to PAR providing manufacturing and certain contract services. As a result of these activities, the Company had recorded a receivable from Phoenix of $1.7 million, net of a $903,000 allowance, at December 31, 1996. During 1997, the Company's subcontracting activities expanded due to increased government requirements. This, coupled with Phoenix's failure to make timely payments on amounts due, resulted in the growth of this receivable to $4.2 million at June 30, 1997. On July 29, 1997, the Company and Phoenix reached an agreement regarding repayment of amounts owed to PAR. Under this agreement, the Company received $720,000 in cash payments. The agreement also provided for certain payments to be made in the second half of 1997, the issuance by Phoenix of a note for $1.5 million, with interest at 8%, payable in three years. This note would be subordinate to the claims of a proposed bank lender. PAR would also be removed from the $900,000 loan guarantee. The execution of this plan was contingent upon Phoenix obtaining additional bank financing. Accordingly, the Company recorded provisions in the second quarter of 1997 totaling $4 million. This amount included the remaining exposure on the receivables, ($4.2 million less $900,000 allowance and the $720,000 cash payments); the $900,000 loan guarantee and $500,000 for additional subcontracting efforts that the Company performed subsequent to June 30, 1997. During the fourth quarter of 1997, Phoenix obtained new bank financing and PAR was removed from the $900,000 loan guarantee, received the $1.5 million subordinated note, and received a cash payment toward amounts owed. As part of this new financing, PAR and Phoenix executed a second note for $400,000 which bears interest at 8% and is payable in ten monthly installments beginning in January 1998 and is subordinate to the bank loan. PAR also relinquished its equity interest in Phoenix but retained a security interest in a portion of such stock as security for the repayment of the subordinated debt. As a result of this transaction, PAR recorded a benefit of $1.4 million in the fourth quarter of 1997. At December 31, 1997, Phoenix owes the Company $3 million, which is fully reserved. Any future amounts received under the above agreements will be credited to income when received. The Company also recorded a $900,000 charge pertaining to its CTS business. This charge is for obsolete CTS inventory due to the development of a new product. Note 3 -- Accounts Receivable The Company's net accounts receivable consist of:
December 31, (In Thousands) -------------- 1997 1996 ---- ---- Government segment: United States Government -- Billed .................. $ 1,009 $ 1,599 Unbilled ................ 539 820 ------- ------- 1,548 2,419 ------- ------- Other -- Billed .................. 4,972 3,223 Unbilled ................ 349 1,183 ------- ------- 5,321 4,406 ------- ------- Commercial segment: Trade accounts receivable 23,069 35,510 ------- ------- $29,938 $42,335 ======= =======
At December 31, 1997 and 1996, the Company had recorded a reserve for doubtful accounts of $915,000 and $677,000, respectively, against trade accounts receivable. Trade accounts receivable are primarily with major fast-food corporations or their franchisees. At December 31, 1997, the Company had also recorded a reserve of $1,355,000 against government accounts receivables. Note 4 -- Inventories Inventories are used primarily in the manufacture, maintenance, and service of commercial systems. Inventories are net of related reserves. The components of inventory are:
December 31, (In Thousands) -------------- 1997 1996 ---- ---- Finished goods $ 8,635 $ 5,111 Work in process 4,184 3,538 Component parts 9,883 6,234 Service parts 8,466 7,105 ------- ------- $31,168 $21,988 ======= =======
Note 5 -- Property, Plant and Equipment The components of property, plant and equipment are:
December 31, (In Thousands) -------------- 1997 1996 ---- ---- Land ........................ $ 253 $ 253 Building and improvements ... 8,403 8,393 Furniture and equipment ..... 23,785 22,974 ------- ------- 32,441 31,620 Less accumulated depreciation and amortization ........... 25,428 24,377 ------- ------- $ 7,013 $ 7,243 ======= =======
The Company leases office space under various operating leases. Rental expense on these operating leases was approximately $922,000, $810,000 and $879,000 for the years ended December 31, 1997, 1996, and 1995, respectively. Future minimum lease payments under all noncancelable operating leases are (in thousands):
1998 $ 846 1999 761 2000 349 2001 209 2002 88 Thereafter 46 ------ $2,299 ======
Note 6 -- Notes Payable The Company has an aggregate of $34,400,000 in bank lines of credit. Certain lines totalling $30,000,000 allow the Company to choose among unsecured borrowings which bear interest at the prime rate (8.5% at December 31, 1997), banker's acceptance borrowings which bear interest at a rate below the prime rate, or other bank negotiated rates below prime. These lines are negotiated annually. The remaining line of $4,400,000 is unsecured, bears interest at the prime rate, requires a compensating balance and expires on April 30, 1998. At December 31, 1997, $195,000 was outstanding under these lines at an interest rate of 8.5%. Note 7 -- Common Stock The Company has reserved 500,000 shares under its stock option plan. Options under this Plan may be incentive stock options or nonqualified options. Stock options are nontransferable other than upon death. Option grants become exercisable no less than six months after the grant and typically expire ten years after the date of the grant. A summary of the stock options follows:
No. of Shares Weighted Average (In Thousands) Exercise Price -------------- -------------- Outstanding at December 31, 1994 .. 859 $ 3.59 Granted ...................... 38 9.77 Exercised .................... (82) 3.27 Forfeited .................... (5) 10.66 ---- ----- Outstanding at December 31, 1995 .. 810 3.86 Granted ...................... 186 9.51 Exercised .................... (304) 3.35 Forfeited .................... (20) 8.97 ---- ---- Outstanding at December 31, 1996 .. 672 5.50 Granted ...................... 5 9.28 Exercised .................... (50) 3.61 Forfeited .................... (48) 10.22 ---- ----- Outstanding at December 31, 1997 .. 579 $ 5.31 ==== ===== Shares remaining available for grant .......... 326 ==== Total shares vested and exercisable as of December 31, 1997 ...... 392 $ 3.89 ==== =====
Stock options outstanding at December 31, 1997 are summarized as follows:
Range of Number Weighted Average Weighted Average Exercise Prices Outstanding Remaining Life Exercise Price --------------- ----------- -------------- -------------- $3.00 - $5.00 331 3.4 Years $ 3.05 $5.01 - $7.00 76 6.3 Years $ 6.26 $7.01 - $9.31 172 8.1 Years $ 9.25 ------------- --- ------------ -------- $3.00 - $9.31 579 5.2 Years $ 5.31 ============= === ============ ========
Pro forma information regarding net income and earnings per share is required by SFAS 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The fair value of these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions for 1997, 1996 and 1995:
1997 1996 1995 ---- ---- ---- Risk-free interest rate 6.4% 5.6% 6.0% Dividend yield N/A N/A N/A Volatility factor 52% 30% 30% Weighted average expected life 6 Years 5 Years 4 Years
The pro forma stock-based compensation calculated under the above guidelines is not material. Note 8-- Income Taxes The provision for income taxes consists of:
Year ended December 31, (In Thousands) ------------------------------ 1997 1996 1995 ------------------------------ Current tax expense: Federal ....................... $ 135 $ 1,991 $ 2,248 State ......................... 626 542 Foreign ....................... 16 48 (11) ------- ------- ------- 242 2,665 2,779 ------- ------- ------- Deferred income tax: Federal ....................... (4,736) 287 (422) State ......................... (272) -- -- Foreign ....................... (183) (88) -- ------- ------- ------- (5,191) 199 (422) ------- ------- ------- Provision (benefit) for income taxes $(4,949) $ 2,864 $ 2,357 ======= ======= =======
Deferred tax liabilities (assets) are comprised of the following at:
December 31, (In Thousands) ----------------------- 1997 1996 ----------------------- Depreciation ................. $ 535 $ 678 Software development expense . 786 618 ------- ------- Gross deferred tax liabilities 1,321 1,296 ------- ------- Allowances for bad debts, inventory and warranty ..... (3,120) (736) Capitalized inventory costs .. (109) (88) Wage and salary accruals ..... (315) (345) Federal net operating loss ... (2,360) -- State net operating loss ..... (272) -- Foreign net operating loss ... (346) (163) Other ........................ (19) (90) ------- ------- Gross deferred tax assets .... (6,541) (1,422) ------- ------- $(5,220) $ (126) ======= =======
Total income tax provision differed from total tax expense as computed by applying the statutory U.S. federal income tax rate to income before taxes. The reasons were:
Year ended December 31, -------------------------------------- 1997 1996 1995 -------------------------------------- Statutory U.S. federal tax rate (34.0)% 34.0% 34.0% State taxes net of federal benefit .4 4.7 5.1 Foreign income taxes .1 .5 .8 FSC benefit -- (2.0) (2.6) Adjustment to prior years' accrual -- (4.3) 1.8 State net operating loss (2.1) -- -- Foreign net operating loss (1.4) -- -- Foreign tax credits (.1) (.6) (7.7) Other .9 .2 2.2 ---- ---- ---- (36.2)% 32.5% 33.6% ==== ==== ====
The provision for income taxes is based on income (loss) before income taxes as follows:
Year ended December 31, (In Thousands) --------------------------------------- 1997 1996 1995 --------------------------------------- Domestic operations $(11,932) $ 9,849 $ 7,697 Foreign operations (1,736) (1,038) (682) -------- -------- -------- Total ........ $(13,668) $ 8,811 $ 7,015 ======== ======== ========
Note 9 -- Employee Benefit Plans The Company has a deferred profit-sharing retirement plan that covers substantially all employees. The Company's annual contribution to the plan is discretionary. The contributions to the plan in 1997, 1996 and 1995 were approximately $1,550,000, $200,000 and $824,000, respectively. The plan also contains a 401(K) provision that allows employees to contribute a percentage of their salary. The Company also maintains an incentive-compensation plan. Participants in the plan are key employees as determined by executive management. Compensation under the plan is based on the achievement of predetermined financial performance goals of the Company and its subsidiaries. Awards under the plan are payable in cash. In 1997 and 1996, there were no awards under the plan. For the year ended December 31, 1995, the Company expensed approximately $628,000 in cash awards under the plan. Note 10 -- Contingencies The Company is subject to legal proceedings which arise in the ordinary course of business. Additionally, Government contract costs are subject to periodic audit and adjustment. In the opinion of management, the ultimate liability, if any, with respect to these actions will not materially affect the financial position or results of operations of the Company. Note 11 -- Industry Segments The Company, through its separate operating subsidiaries, operates in two principal segments: a Commercial segment and a Government segment. The Commercial segment designs, develops, manufactures, sells, installs and services point-of-sale terminal systems for the restaurant industry, transaction processing systems for the manufacturing/warehousing industry, and image processing systems for the ophthalmic and food-processing industries. The Government segment designs and implements advanced technology computer software systems primarily for military and intelligence agency applications, and provides services for operating and maintaining certain U.S. Government-owned test sites, and for planning, executing and evaluating experiments involving new or advanced radar systems. Inter-segment sales and transfers are not material. Information as to the Company's operations in these two segments is set forth below:
Year ended December 31, (In Thousands) ------------------------------------------- 1997 1996 1995 ------------------------------------------- Revenues: Commercial segment United States ....... $ 67,982 $ 85,421 $ 76,984 Europe .............. 5,727 5,841 6,335 Australia ........... 2,444 3,048 2,654 Other Non U.S. ...... 4,767 6,255 3,432 Eliminations ........ (6,068) (7,307) (6,040) Government segment ...... 25,168 24,403 24,029 ------- ------- ------- Total ................. $ 100,020 $ 117,661 $ 107,394 ======= ======= ======= Income (loss) from operations: Commercial segment United States ....... $ (9,442) $ 5,861 $ 4,585 Europe .............. 34 518 1,047 Australia ........... (105) 151 260 Other Non U.S. ...... 599 862 164 Government segment ...... (1,007) 1,310 1,537 Corporate ............... (545) (569) (1,356) Nonrecurring charges .... (3,535) -- -- ------- ------- ------- (14,001) 8,133 6,237 Other income, net ............ 333 678 778 ------- ------- ------- Income (loss) before provision for income taxes ...... $ (13,668) $ 8,811 $ 7,015 ======= ======= ======= Identifiable assets: Commercial segment United States ....... $ 60,539 $ 60,403 $ 50,186 Europe .............. 3,356 3,044 3,263 Australia ........... 972 1,415 1,195 Other Non U.S. ...... 2,635 3,372 2,511 Government segment ...... 13,074 10,929 10,730 Corporate ............... 2,628 7,595 188 -------- -------- ------- Total ............... $ 83,204 $ 86,758 $ 68,073 ======== ======== ======= Depreciation and amortization: Commercial segment ...... $ 1,759 $ 1,893 $ 1,959 Government segment ...... 165 159 210 Corporate ............... 358 290 245 ------- -------- -------- Total ............... $ 2,282 $ 2,342 $ 2,414 ======= ======== ======== Capital expenditures: Commercial segment ...... $ 1,209 $ 793 $ 1,063 Government segment ...... 154 175 137 Corporate ............... 157 334 88 -------- -------- -------- Total ............... $ 1,520 $ 1,302 $ 1,288 ======== ======== ========
Customers comprising 10% or more of the Company's Commercial segment sales are summarized as follows:
1997 1996 1995 ---- ---- ---- Taco Bell Corporation ................... 25% 40% 42% McDonald's Corporation .................. 28% 22% 27% Burger King ............................. 17% 2% -- All Others .............................. 30% 36% 31% ---- ---- ---- 100% 100% 100% ==== ==== ====
Substantially all revenues derived by the Government segment arise from Federal government contracts, or subcontracts related thereto, virtually all of which are with the Department of Defense. Note 12 -- Fair Value of Financial Instruments Financial instruments consist of the following:
December 31, 1997 (In Thousands) -------------- Carrying Fair Value Value ----- ----- Cash and cash equivalents $3,977 $3,977 Notes Payable ........... 195 195
Fair value of financial instruments classified as current assets or liabilities approximate carrying value due to the short-term maturity of the instruments. Note 13 -- Selected Quarterly Financial Data (Unaudited)
Quarter ended (In Thousands Except Per Share Amounts) ---------------------------------------------- 1997 March 31 June 30 September 30 December 31 ---- ---------------------------------------------- Total revenues .................. $ 18,063 $ 21,677 $ 31,533 $ 28,747 Gross margin .................... 2,053 3,387 7,648 4,833 Net income (loss) ............... (2,393) (5,345) 1,431 (2,412) Diluted and basic Earnings (loss) per share .... $ (.27) $ (.60) $ .16 $ (.27) ======== ======== ======== ======== Quarter ended (In Thousands Except Per Share Amounts) ---------------------------------------------- 1996 March 31 June 30 September 30 December 31 ---- ---------------------------------------------- Total revenues ................... $ 25,494 $ 28,388 $ 27,938 $ 35,841 Gross margin ..................... 5,942 6,981 8,100 10,159 Net income ....................... 551 892 1,972 2,532 Diluted Earnings per share ....... $ .07 $ .11 $ .22 $ .28 ======== ======== ======= ======== Basic Earnings per share ......... $ .07 $ .11 $ .23 $ .29 ======== ======== ======= ========
The second quarter of 1997 includes a charge of $4 million ($2.6 million after tax) or $.29 loss per share relating to accounts receivable and a loan guarantee for Phoenix. The second quarter of 1997 also includes a charge of $900,000 ($580,000 after tax) or $.07 loss per share pertaining to the Company's Corneal Topography Systems business. The fourth quarter of 1997 includes a $1.8 million charge ($1.2 million after tax) or $.13 loss per share relating to accounts receivable associated with the Company's government business. Additionally, the Company recorded charges of approximately $1.3 million ($829,000 after tax) or $.09 loss per share in the fourth quarter of 1997 relating to new product enhancements and inventory charges on older product lines. Also included in the fourth quarter of 1997 is a benefit of $1.4 million (after tax benefit of $890,000) or $.10 per share relating to a partial recovery of the Phoenix reserves taken in the second quarter of 1997.
PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (In Thousands) - ------------------------------------------------------------------------------------------------------ Column A Column B Column C Column D Column E - ------------------------------------------------------------------------------------------------------ Additions Balance at ------------------------------- beginning of Charged to Costs Charged to Balance at end Description period and Expenses Other Accounts Deductions of period - ------------------------------------------------------------------------------------------------------ Allowance for Doubtful Accounts - deducted from Accounts Receivable in the Balance Sheet 1997 $677 3,441 (1,756) (a) $2,362 1996 $768 174 (265) (b) $ 677 1995 $818 137 (187) (c) $ 768 (a) Uncollectible accounts written off during 1997. (b) Uncollectible accounts written off during 1996. (c) Uncollectible accounts written off during 1995. - ------------------------------------------------------------------------------------------------------ Column A Column B Column C Column D Column E - ------------------------------------------------------------------------------------------------------ Additions Balance at ------------------------------- beginning of Charged to Costs Charged to Balance at end Description period and Expenses Other Accounts Deductions of period - ------------------------------------------------------------------------------------------------------ Inventory Reserves - - deducted from Inventory in the Balance Sheet 1997 $1,174 4,595 (1,952) $3,817 1996 $1,922 2,143 (2,891) $1,174 1995 $2,860 2,072 (3,010) $1,922
SIGNATURES Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AR TECHNOLOGY CORPORATION March 25, 1998 /s/John W. Sammon, Jr. - -------------- --------------------- John W. Sammon, Jr. Chairman of Board and President ------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
- -------------------------------------------------------------------------------- Signatures Title Date ================================================================================ /s/John W. Sammon, Jr. - ---------------------- John W. Sammon, Jr. Chairman of Board and March 25, 1998 President (Principal Executive Officer) and Director /s/Charles A. Constantino - ------------------------- Charles A. Constantino Executive Vice President March 25, 1998 and Director /s/J. Whitney Haney - ------------------- J. Whitney Haney Director March 25, 1998 /s/Ronald J. Casciano - --------------------- Ronald J. Casciano Vice President, Chief Financial March 25, 1998 Officer and Treasurer
List of Exhibits Exhibit No. Description of Instrument ================================================================================ 3.1 Certificate of Incorporation, Filed as Exhibit 3.1 to Registration as amended Statement on Form S-2 (Registration No. 333-04077) of PAR Technology Corporation incorporated herein by reference. 3.2 Form of Certificate of Amendment Filed as Exhibit 3.1 to Registration to the Corporation incorporated Statement on Form S-2 (Registration herein by reference. No. 333-04077) of PAR Technology 3.3 By-laws, as amended. Filed as Exhibit 3.1 to Registration Statement on Form S-2 (Registration No. 333-04077) of PAR Technology Corporation incorporated herein by reference. 4 Specimen Certificate Filed as Exhibit 3.1 to Registration representing the Common Stock. Statement on Form S-2 (Registration No. 333-04077) of PAR Technology Corporation incorporated herein by reference. 10.1 * Agreement between Taco Bell Corp. Filed as Exhibit 3.1 to Registration and ParTech, Inc., dated Statement on Form S-2 (Registration December 18, 1995. No. 333-04077) of PAR Technology Corporation incorporated herein by reference. 10.2 * Service Integration Agreement Filed as Exhibit 3.1 to Registration between ParTech, Inc., dated Statement on Form S-2 (Registration December 18, 1995. No. 333-04077) of PAR Technology Corporation incorporated herein by reference. 11 Statement re computation of Earnings per share. 22 Subsidiaries of the registrant 23 Consent of independent accountants * Confidential treatment requested as to certain portions.
EX-11 2
EXHIBIT 11 STATEMENT RE COMPUTATION OF PER-SHARE EARNINGS (In Thousands) 1997 1996 1995 ---- ---- ---- Weighted average shares of common stock outstanding: Balance outstanding - beginning of year ............ 8,826 7,682 7,656 Weighted average shares issued during the year ............................. 29 633 51 Weighted average shares of treasury stock acquired ............................ (9) (77) (23) Incremental shares of common stock outstanding giving effect to stock options ............................................ -- 405 384 Weighted balance - end of year ..................... 8,846 8,643 8,068
EX-22 3 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 Transaction Control Industries, Inc. Texas PAR U.K. Corp. New York EX-23 4 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (Nos. 2-82392, 33-04968, 33-39784, 33-58110 and 33-63095) of PAR Technology Corporation of our report dated February 5, 1998 appearing at Item 14 of this Form 10-K. PRICE WATERHOUSE LLP Syracuse, New York March 25, 1998 EX-27 5 FDS --
5 12-MOS DEC-31-1997 DEC-31-1997 3,977 0 29,938 0 31,168 72,513 7,013 0 83,204 19,131 0 0 0 189 63,228 83,204 47,019 100,020 33,267 82,099 5,265 0 0 (13,668) (4,949) (8,719) 0 0 0 (8,719) (.99) (.99)
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