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, 1998.
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 22, 1999 - $25,441,000
million.
The number of shares outstanding of registrant's common stock, as of March
22, 1999 - 8,548,665 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's proxy statement in connection with its 1999
annual meeting of stockholders are incorporated by reference into Part III.
<PAGE>
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
<PAGE>
PAR TECHNOLOGY CORPORATION
PART I
Item 1: Business
PAR Technology Corporation ("PAR" or the "Company") is a leading provider
of professional services, including systems integration, to the restaurant and
manufacturing/warehousing industries. PAR focuses on the design, development,
manufacture and sales and support of transaction processing systems. These
systems include industry leading software, hardware and traditional customer
service. 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. PAR is the world's largest supplier of
Point-of Sale Systems (POS) to the quick service restaurant market with systems
installed in over 90 countries.
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, 1998 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.
<PAGE>
Transaction Processing Segment
PAR, through its wholly owned subsidiary ParTech, Inc., 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 and professional service
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.
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. PAR's newest software application is the intouch(TM) product
which 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, inform(TM), PAR's
backoffice 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 newest
software application, insite(TM), is operational Decisionware for the entire
enterprise and provides automation of management reporting and process
integration. 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.
<PAGE>
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 and Professional Services. 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. Through its Professional
Services organization, the Company also integrates the restaurant manager's back
office computer, as well as corporate home office computers, as management
information requirements dictate.
<PAGE>
Manufacturing/Warehousing Transaction Processing Systems
The Company's manufacturing/warehousing automated data collection business
provides enabling and applications software and systems integration services to
a diverse customer base that includes: process manufacturing; discrete
manufacturing; gaming industry; and warehousing end users through distributed
enterprise networks. The Company's primary industrial product offering is its
Transaction Processing System data collection enabling software package
(available for both Windows NT and IBM OS/2. The Transaction Processing System
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 System software also
provides connectivity among diverse MRP II, MES, and ERP programs (such as SAP,
J.D. Edwards and PRISM) and fixed-base and handheld RF data collection
terminals, including those sold by Intermec Corporation, Percon, Inc., Symbol
Technologies, Inc. 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.
PAR has also partnered with Compaq Computer Corp. to provide a business
solution that integrates radio-frequency and fixed-base data collection into the
SAP R/3 ERP package. PAR is the first company in North America to be CA-ADC
(Cross Application-Automated Data Collection) certified for the most current SAP
R/3 release, 4.0B. This certification includes a demonstrated interface to three
widely used SAP modules - Material Management, Human Resources, and Warehouse
Management - as well as extensive demonstrated used of the ALE (application link
enabling) interface.
<PAGE>
The Company offers professional 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. PAR's services include site surveys, radio
frequency surveys, project management, LAN support services, installation and
training.
Installation and Training
In the U.S., Canada, Europe, South Africa, Australia and Asia, PAR
personnel provide installation, training, and integration services, on a
fixed-fee basis, as a normal part of the equipment purchase agreement. In
certain areas of North 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.
<PAGE>
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 automated 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, Telxon
Corporation, Symbol Technologies, Inc., and Intelligent Instrumentation Co. PAR
has also partnered with Compaq Computer Corp. to provide software products that
target the rapidly growing SAP marketplace.
<PAGE>
Competition
Competition in the transaction processing market 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, Radiant Systems,
Inc., NCR, Micros Systems Inc. and Javelin Systems, Inc. The Company believes
that the manufacturing/warehousing data collection market is highly fragmented.
Backlog
At December 31, 1998, the Company's backlog of unfilled orders for the
Transaction Processing segment was approximately $13,100,000 compared to
$6,159,000 a year ago. Most of the present orders will be delivered in 1999.
Transaction Processing 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 transaction processing
products requires a significant and continuous research and development effort.
Research and development expenses on internally funded projects were
approximately $5,526,000 in 1998, $3,854,000 in 1997 and $3,464,000 in 1996. 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.
<PAGE>
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 multi-hyperspectral sensors.
Environmental/Geographical Information System (GIS)
Environmental/GIS provides integrated, GIS-based environmental modeling and
mapping in support of flood plain and water quality applications. In particular,
the company's Flood*Ware(TM) software tool and methodology is employed in New
York State, in support of Federal Emergency Management Agency's flood map
modernization initiative. Also, similar software tools and data integration
techniques are used in support of water quality modeling and mapping
applications for the Northeast U.S. regional clients. Under a series of
contracts and task orders sponsored by various DoD agencies, this group provides
engineering services in the areas of digital terrain data evaluations, software
prototyping, software reuse and digital graphic exchange standards.
<PAGE>
Information Systems and Technology (IS&T)
IS&T researches, develops and applies advanced technology solutions
addressing specific problems in the area of multi-sensor information processing
and exploitation. This includes the development and integration of algorithms,
advanced prototype applications, and systems that process and exploit imagery,
Electro-Optical/Infrared, radar, video, and multi-hyperspectral data. IS&T is
the system integrator for the Image Exploitation 2000 facility at the Air Force
Research Laboratory-Rome Research Site; a key developer of the National Imagery
and Mapping Agency's Image Product Library that provides access to a "virtual"
network of archives/libraries in support of the operational needs to a "virtual"
network of archives/libraries in support of the operational needs of tactical
users for imagery, imagery products; and supports the full-scale development and
evolving advanced technology solutions/products improvements for Joint STARS as
a principal member of the Northrop Grumman team.
Logistics Management Systems (LMS)
LMS is focused on the design and development of the Cargo*Mate(TM)
Logistics Information Management Systems (LIMS), a solution for the monitoring
of transport assets and cargo throughout the intermodal (i.e., highway, rail,
air, and ocean) transportation lifecycle. The Cargo*Mate system is being
developed under a Cooperative Agreement with the U.S. Department of
Transportation/Federal Highway Administration, which resulted from funds
specifically authorized by Congress in 1998 for Cargo*Mate. The system will
utilize "intelligent" Radio Frequency Identification (RFID) tags and advanced
sensor technology to acquire asset/cargo location and status data; wireless
communication networks to consolidate and transmit the data to the PAR
Operations Center; and software applications to the Operations Center to
custom-format the data for each customer within the logistics supply chain.
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.
<PAGE>
Software Test and Validation
The Company supports the Joint STARS program, in the area of software
verification and validation, with Company engineers embedded in the customers
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
In 1998, the Company received a contract from Oneida County to maintain and
operate the airfield and related facilities at the former Griffiss Air Force
Base in Rome, NY. The Company is involved in assisting the conversion of this
former military airfield to private commercial use. Also, in 1998, the Company
began performance of a prime contract to support the U.S. Navy at the Naval
Radio Transmitting Facility in Dixon, CA. The Company had previously provided
support to this facility as a subcontractor. The Company's staff provides 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 Discriminating Interceptor Technology Program (DITP), dedicated to
national and theater ballistic missile defense. The Company supports the
development of sensor and fusion processor systems programs for the DITP. The
Company also supports Navy airborne infrared surveillance systems through the
development of advanced optical sensors. Technology efforts include optical
materials characterization, laser design and analysis, image and signal
processing, optical pointing and stabilization, and aircraft systems
integration.
Government Contracts
The Company performs work for U.S. Government agencies under firm
fixed-price, cost-plus fixed fee, time-and-material, and incentive-type prime
contracts and subcontracts. Most of its contracts are for one-year to five-year
terms. The Company also has been awarded Task Order/Support contracts.
<PAGE>
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 1996 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, 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,
Raytheon, Litton-PRC, 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,
<PAGE>
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 past performance, the ability to perform, price,
technological capabilities, management 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, 1998, net
of amounts relating to work performed to that date, was approximately
$30,000,000, of which $5,700,000 was funded. At December 31, 1997, the
comparable amount was approximately $21,500,000, of which $11,000,000 was
funded. Funded represents amounts committed under contract by Government
agencies and prime contractors. The December 31, 1998 Government contract
backlog of $30,000,000 represents firm, existing contracts. Approximately
$5,900,000 of this amount will be completed in calendar year 1999 as funding is
committed.
<PAGE>
Vision Segment
The Company's wholly owned subsidiary, PAR Vision Systems Corporation has
developed the Qscan(R) Automatic On-Line X-Ray Inspection System. Qscan is the
result of a five-year development by PAR, utilizing the company's considerable
expertise in image processing gained through relationships with the United
States Government. Qscan inspects filled and sealed containers for contaminants
such as glass, metal (ferrous and nonferrous), stones, bone and other foreign
objects. It can inspect glass jars, metal cans, boxes, foil or plastic pouches.
A fully automated system, Qscan does not require any personnel during operation.
If a contaminant is detected, the system automatically removes it from the
production line, at line speeds. Qscan system's inspection algorithms have been
tested extensively in the plant environment and have achieved probability of
detection (P.O.D.) up to 99% with false reject rate (F.R.R.) under 1%.
The Company currently utilizes a direct sales force to market Qscan(R). The
Company also has created an international dealer network in Europe and Australia
in order to address the wide geographical scope of the market.
Company personnel provides installation and training as a normal part of
the equipment purchase agreement. The Company also provides field service and
twenty-four hour telephone support.
<PAGE>
Employees
As of December 31, 1998, the Company had 930 employees, approximately 72%
of whom are engaged in the Company's Transaction Processing segment, 20% are in
the Government segment, and the remainder are in the Vision segment or 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.
<PAGE>
Item 2: Properties
The following are the principal facilities (by square footage) of the
Company:
<TABLE>
<CAPTION>
Industry Floor Area Number of
Location Segment Principal Operations Sq. Ft.
-------- ------- -------------------- -------
<S> <C> <C> <C>
New Hartford, NY Transaction Processing Principal executive offices 146,000
Government manufacturing, research and
Vision development laboratories,
computing facilities
Boulder, CO Transaction Processing Service 17,500
Rome, NY Government Research and Development 15,500
Norcross, GA Transaction Processing Research and Development 9,200
Sydney, Australia Transaction Processing Sales and Service 8,800
La Jolla, CA Government Research and Development 8,400
Boca Raton Transaction Processing Research and Development 7,300
San Antonio, TX Transaction Processing Sales 4,700
</TABLE>
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
<PAGE>
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, 1998, there were
approximately 821 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, 1998 as reported by New York Stock Exchange:
<TABLE>
<CAPTION>
1998 1997
---------------- -----------------
Period Low High Low High
------ --- ---- --- ----
<S> <C> <C> <C> <C>
First Quarter 6 9/16 9 3/8 9 7/8 14 3/4
Second Quarter 6 9 7/16 8 1/8 10 7/8
Third Quarter 5 1/8 7 15/16 8 1/8 10 7/16
Fourth Quarter 5 1/4 7 5/16 9 1/16 11 15/16
</TABLE>
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.
<PAGE>
Item 6: Selected Financial Data
SELECTED CONSOLIDATED STATEMENT OF INCOME DATA
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------------
1998 1997 1996 1995 1994
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenues $ 122,280 $ 100,020 $ 117,661 $ 107,394 $ 94,530
========= ========= ========= ========= ========
Net income (loss) $ 1,262 $ (8,719) $ 5,947 $ 4,658 $ 3,661
========= ========= ========= ========= ========
Diluted earnings
(loss) per share $ .14 $ (.99) $ .69 $ .58 $ .46
========== ========= ========= ========= ========
</TABLE>
SELECTED CONSOLIDATED BALANCE SHEET DATA
(In thousands)
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------
1998 1997 1996 1995 1994
-----------------------------------------------
<S> <C> <C> <C> <C> <C>
Working capital .... $50,287 $53,382 $62,107 $42,976 $38,915
Total assets ....... 93,426 83,204 86,758 68,073 60,642
Long-term debt ..... -- -- -- -- --
Shareholders' equity 62,826 63,417 72,602 53,132 48,645
</TABLE>
<PAGE>
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, 1998. 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 -- 1998 Compared to 1997
The Company reported revenues of $122.3 million for the year ended 1998, an
increase of 22% from the $100 million reported in 1997. Net income was $1.3
million or diluted earnings per share of $.14 for 1998. This compares to a net
loss of $8.7 million or a diluted loss per share of $.99 for 1997.
The 1998 results include an after tax benefit of $645,000, or $.07 diluted
earnings per share relating to the partial recovery of accounts receivable from
Phoenix Systems & Technologies, Inc. (Phoenix). The 1997 year end results
included non-recurring after tax charges of $2.3 million or a $.26 diluted loss
per share relating to receivables from Phoenix and to the Company's Vision
business. See Note 2 to the Consolidated Financial Statements for further
discussion. The 1997 results also included an after tax charge of $2 million or
a $.22 diluted loss per share relating to receivables from the Company's
Government segment and product, and inventory charges relating to the Restaurant
segment.
Product revenues were $66.9 million in 1998, an increase of 42% from the
$47 million recorded in 1997. This growth was led by increased domestic sales to
McDonald's Corporation. The Company's POS 4 hardware products have been approved
and accepted by this major customer and meet the POS requirements of their "Made
for You" initiative. Higher sales to Chick-fil-A and Pizza Hut franchisees also
contributed to this increase. The Company also recorded a 10% increase in
international product revenue with growth recorded in the Europe, South America
and the Middle East, where the Company's major customers include McDonald's,
Tricon, Burger King and Wendy's. The increase was partially offset by lower
domestic sales to Burger King as the Company completed delivery of POS systems
in 1997 under its corporate contract with this customer.
Customer service revenues were $31.4 million in 1998, an increase of 13%
from the $27.8 million in 1997. The Company's service offerings include
installation, twenty-four hour help desk support and various field and on-site
service options. In 1998, the Company increased its installation revenue, which
is directly related to the higher product revenue discussed above. The Company
also recorded increases in field service and call center revenues as its
customer base expands.
<PAGE>
Contract revenues were $24.1 million in 1998, a decrease of 4% when
compared to the $25.2 million recorded in the same period in 1997. This decrease
was due to certain contract delays relating to software development and
integration. In addition, the Company completed a major airfield management
contract in the third quarter of 1998. This decrease was partially offset by
growth in the Company's efforts in the Joint STARS Program as a subcontractor to
Northrup Grumman and the recently awarded $9 million multi-year contract for our
Cargo*Mate identification and monitoring system from the Department of
Transportation.
Product margins were 32% for 1998 compared to 29% for the same period in
1997. This improvement was due to favorable product mix, particularly in the
fourth quarter of 1998 as the software content of product revenue increased in
both the restaurant and manufacturing/warehouse businesses. Additionally, 1997
included new product start up costs and a higher level of obsolescence on older
product lines.
Customer service margins were 9% in 1998 compared to 10% for the same
period in 1997. The decline in margin is primarily due to an increase in
personnel as the Company is upgrading its integration and service capabilities.
The Company is completing several new service initiatives including expansion of
its full service and help desk capabilities. This coupled with the installation
of a new service management system, will result in lower costs and improved
customer satisfaction in the future.
Contract margins were 9% in 1998 compared to 5% for the same period in
1997. This increase is primarily due to a retroactive fee adjustment in
connection with the completion of certain contracts in 1998 and will not be a
continuing trend. Margins on the Company's government contract business
typically run between 5% and 6%.
Selling, general and administrative expenses were $20 million in 1998
versus $23 million for the same period in 1997, a decrease of 14%. This decrease
is primarily due to a higher provision for bad debts in 1997 related to the
Company's government business. Additionally in 1998, the Company reduced its
investment in its Corneal Topography (CTS) business. These declines were
partially offset by higher POS sales and marketing expenses, including increased
sales commission as a result of the increase in product sales.
<PAGE>
Research and development expenses were $6 million in 1998, an increase of
15% from the $5.3 million recorded for the same period in 1997. The Company is
actively increasing its investment in POS software development, including
applications for the front and back of the store and for interfacing store
information to the home office. The Company's manufacturing/warehousing business
is investing in software products for interface with SAP enterprise solutions.
Partially offsetting the increase was the reduction in the CTS business
discussed above. Research and development costs attributable to government
contracts are included in cost of contract revenues.
Other income, net increased primarily as a result of more favorable foreign
currency transactions during the year. Interest expense represents interest
charged on the Company's short-term borrowing requirements from banks.
In 1998, the Company's effective tax rate was 31.8%. The variance from the
statutory rate was primarily due to favorable adjustments to prior years
accruals and the benefit recognized on the Company's foreign sales through its
Foreign Sales Corporation.
Results of Operations -- 1997 Compared to 1996
PAR Technology Corporation reported a diluted loss per share of $.99 for
the year ended December 31, 1997, compared to diluted 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
diluted 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 was in arrears on significant amounts owed to RRC as a result of a
subcontractor 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
diluted loss per share, pertaining to the Corneal Topography (CTS) business.
This charge involves obsolete CTS inventory due to the development of a new
product.
<PAGE>
Product revenues were $47 million for 1997, a 26% decrease from the $63.1
million recorded in 1996. The decrease was primarily due to reduced 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 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 the 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 continued 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 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.
<PAGE>
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 contribution 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.
Liquidity and Capital Resources
The Company's primary source of liquidity has been from operations. Cash
used in operating activities was $3.6 million in 1998, compared to $1.6 million
in 1997. In 1998, the Company experienced an increase in accounts receivable due
to the growth in product revenues. This was partially offset by the receipt of a
$2.5 million federal tax refund pertaining to utilization of 1997's net
operating loss. In 1997, the Company experienced significant collections of
accounts receivable due to the volume of sales generated in the fourth quarter
of 1996. This was partially offset by the build up of restaurant and service
inventory in anticipation of future sales orders and service requirements.
Cash used in investing activities was $4.3 million for 1998 compared to $3
million in 1997. In 1998, capital expenditures were primarily for upgrades to
the Company's customer service center and for manufacturing equipment. In 1997,
capital expenditures were primarily for upgrades to the manufacturing facility.
<PAGE>
Cash provided from financing activities was $5.2 million for 1998 versus
$159,000 in 1997. In 1998, the Company increased its net borrowings under its
line-of-credit agreements by $7.2 million. Additionally the Company received
$176,000 from the exercise of an employee stock option. These activities were
partially offset by the acquisition of 362,400 shares of treasury stock at a
cost of $2.2 million. In 1997, the Company paid $163,000 to repurchase some of
its stock and received $312,000 from the exercise of employee stock options.
The Company has line-of-credit agreements, which aggregate $30 million with
certain banks, of which $7.4 million was outstanding at December 31, 1998. The
Company believes that it has adequate financial resources to meet its future
liquidity and capital requirements.
Year 2000 Disclosure-- The "Year 2000 problem" exists because many computer
programs use only the last two digits to refer to a year. Therefore these
computer programs do not properly recognize a year beginning with "20", instead
of the familiar "19". The Year 2000 problem affects virtually all computer
systems, processes, and products in all segments of society.
The Company has identified the following areas which could be impacted by
the Year 2000 issue. They are: Company products, internally used systems and
software, and products or services provided by key third parties or business
partners. If the Company experiences Year 2000 issues resulting from failures in
any of these areas, the results could conceivably have a material adverse effect
on the Company.
In 1997, the Company established a corporate-wide program to address the
Year 2000 issue. The objective of this program is to identify, assess, and
address any issues associated with its infrastructure, operations, and products
in transitioning to Year 2000. The Company's cross-functional Year 2000 Task
Force includes senior management personnel who have responsibility for ensuring
Year 2000 program tasks are completed in support of all PAR business functions
and locations. Year 2000 progress reports are also presented regularly to
executive management and the Company's Board of Directors.
<PAGE>
The multi-phase Year 2000 program includes: (1) education of Company
personnel on the Year 2000 and its effects, (2) identification of systems,
suppliers of goods and services, and business partners with potential Year 2000
issues relating to the Company's internal operations as well as the creation and
support of its products, (3) assessment of internal systems and products, as
well as inquiries to outside parties to ascertain Year 2000 readiness, (4)
resolution and contingency planning for any items identified as having Year 2000
issues, and (5) post implementation follow-up.
The Company is currently in Phase 4 of its program and anticipates
completion of this phase by the third quarter of 1999. The Company has
established a site on its web page dedicated to Year 2000 Readiness Disclosure.
This site is a culmination of Company product analysis and testing results, and
can be found at http://www.partech.com/.
The Company has undergone a review of its internal systems including those
which support manufacturing, financial, and general business operations. As a
result, the Company has identified some systems which require upgrades to be
Year 2000 ready, including certain business software applications. The business
application upgrades are in progress, and are accommodated by existing software
maintenance contracts with outside providers. The Company anticipates that it
will complete its review of its internal systems and expects that all necessary
upgrades to ensure Year 2000 compliance will be completed by the second quarter
of 1999.
The Company's analysis to date of key third parties has not revealed any
issues which would prevent them from continuing to provide products and services
through the Year 2000 transition. Such analysis has included telephone and
written inquiries to third parties. As the assessment continues, the Company
will determine its vulnerability and establish contingency plans where required
and possible. The Company expects any such contingency plans to be developed by
the second quarter of 1999. The Company estimates the cost of resolving Year
2000 issues will be approximately $1,050,000 of which $150,000 has been expensed
in 1998. This will be funded by existing financial resources. The costs to date
associated with the Year 2000 effort represent a reallocation of existing
Company resources. However failure, delays or increased costs experienced by the
Company could have a material adverse effect on the Company's results of
operations or financial condition. Additionally the Company cannot guarantee
that third parties, upon which the Company relies, will be able to adequately
assess and address their Year 2000 compliance issues in a timely manner, the
effects of which may also have an adverse impact on the Company's results of
operations. As a consequence, the Company can give no assurances that issues
related to Year 2000 will not have a material adverse effect on future results
of operations or financial condition.
<PAGE>
Other Matters
Inflation had little effect on revenues and related costs during 1998.
Management anticipates that margins will be maintained at acceptable levels to
minimize the effects of inflation, if any.
The Company has total interest bearing short-term debt of approximately
$7.4 million. Management believes that increases in short-term rates could have
an adverse effect on the Company's 1999 results.
Management believes that foreign currency fluctuations should not have a
significant impact on gross margins due to the low volume of business affected
by foreign currencies.
Important Factors Regarding Future Results
Information provided by the Company, including information contained in
this Annual Report, or by its spokespersons from time to time may contain
forward-looking statements. Forward-looking statements are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that all forward-looking statements involve risks and
uncertainties, including without limitation, further delays in new product
introduction, risks in technology development and commercialization, risks in
product development and market acceptance of and demand for the Company's
products, risks of downturns in economic conditions generally, and in the quick
service sector of the restaurant market specifically, risks of intellectual
property rights associated with competition and competitive pricing pressures,
risks associated with foreign sales and high customer concentration, Year 2000
compliance risks 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 1998 Financial Statements, together with the report thereon
of PricewaterhouseCoopers LLP dated February 4, 1999, 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.
<PAGE>
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:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Dr. John W. Sammon, Jr ............ 59 Chairman of the Board, President and
Director
Charles A. Constantino ............ 59 Executive Vice President and Director
J. Whitney Haney .................. 64 Director
Sangwoo Ahn ....................... 60 Director
Dr. James C. Castle ............... 62 Director
Albert Lane, Jr ................... 57 President, PAR Government Systems
Corporation and Rome Research Corporation
Ronald J. Casciano ................ 45 Vice President, C.F.O. and Treasurer
<CAPTION>
Other senior officers and significant employees of the Company and their
respective ages and positions are:
Name Age Position
---- --- --------
<S> <C> <C>
Raymond E. Barnes 49 Vice President, Systems Development,
ParTech, Inc.
Brian J. Bluff .................... 36 Vice President, Logistics Management Systems,
PAR Government Systems Corporation
Edward Bohling .................... 39 Vice President, Information Systems and
Technology, PAR Government Systems
Corporation
Gregory T. Cortese ................ 49 Vice President, Law and Strategic Development,
General Counsel and Secretary
<PAGE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Donald A. England ................. 47 Vice President, Worldwide Sales,
ParTech, Inc.
William J. Francis ................ 47 Vice President, Customer Service,
ParTech, Inc.
Michael Gutshick .................. 47 Vice President, McDonald's Account
ParTech, Inc.
Sam Y. Hua ........................ 37 Vice President and Chief Technical Officer,
ParTech, Inc.
C. John Kiehm, Jr. ................ 50 President, PAR Vision Systems Corporation
F. Tibertus Lenz .................. 48 Vice President, Manufacturing/Warehousing
Systems, ParTech, Inc.
Fred A. Matrulli .................. 53 Vice President, Operations/Logistics
Management Systems, PAR Government
Systems Corporation
Roger P. McReynolds ............... 54 Vice President, Operations, ParTech, Inc.
Victor Melnikow ................... 41 Vice President, Finance, Rome Research
Corporation
E. John Mohler .................... 55 Vice President, Marketing/Logistic
Management Systems, PAR Government
Systems Corporation
Jerry F. Weimar ................... 42 Vice President, Professional Services
ParTech, Inc.
Douglas C. White .................. 46 Vice President, Programs Rome Research
Corporation
Ben F. Williams ................... 57 Vice President, Business Development,
PAR Technology Corporation
William J. Williams ............... 37 Vice President, Manufacturing, ParTech, Inc.
Alexander J. Zanon ................ 60 Senior Vice President Operations,
PAR Government Systems Corporation
</TABLE>
<PAGE>
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 Corporation
Corporation in 1988. He was additionally appointed President of PAR Government
Systems Corporation in 1997.
Mr. Raymond E. Barnes was promoted to Vice President, Systems Development
of ParTech, Inc. in 1998. Prior to this position, he was the Director of Next
Generation Hardware and Software.
Mr. Brian J. Bluff was promoted to Vice President of Logistics Management
Systems in 1998 of PAR Government Systems Corporation. Previously, Mr. Bluff was
Vice President of Business Development of Rome Research Corporation.
Mr. Edward Bohling was promoted to Vice President, Information Systems and
Technology of PAR Government Systems Corporation in 1998. Previously, he was
Director of Special Projects.
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.
<PAGE>
Mr. Gregory T. Cortese was named Vice President, Law and Strategic
Development in 1998. Previously, he was the Vice President, Business and Legal
Affairs.
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 1998. Previously he was the Vice President, Finance and
Operations.
Mr. Michael Gutschick was promoted to Vice President, McDonald's Account of
ParTech, Inc. in 1997. Previously, he was an Account Manager with the Company.
Mr. Sam Y. Hua was promoted to Vice President and Chief Technical Officer
in 1998. He joined the Company in 1997 as Vice President of Product Planning. He
previously was President of ISSI Corporation.
Mr. C. John Kiehm, Jr. was appointed President of PAR Vision Systems
Corporation in 1997. Previously, he had been Sales Manager.
Mr. F. Tibertus Lenz was promoted to Vice President,
Manufacturing/Warehousing Systems, ParTech, Inc. in 1989.
Mr. Fred A. Matrulli was named Vice President, Operations/Logistics
Management Systems, PAR Government Systems Corporation in 1998. Previously, he
was Vice President, Operations of PAR Visions Systems Corporation.
Mr. Roger P. McReynolds was promoted in 1998 to Vice President, Operations
of ParTech, Inc. Previously, he held the position of Director of Total Quality
Management.
Mr. Victor Melnikow was promoted to Vice President, Finance of Rome
Research Corporation in July, 1995. Previously, he held the position of
Controller.
Mr. E. John Mohler was promoted to Vice President, Marketing/Logistics
Management Systems in 1997. He joined the Company in 1994 as Vice President,
Telecommunications Programs for PAR Government Systems Corporation. Prior to
this, he was a self-employed consultant.
Mr. Jerry F. Weimar was promoted to Vice President, Professional Services
of ParTech, Inc. in 1998. He joined PAR in 1997 as a Senior Technical Staff.
Previously, Mr. Weimar was a partner with Questra Consulting.
Mr. Douglas C. White was promoted to Vice President, Programs of Rome
Research Corporation in 1998. Previously, Mr. White had been Director of
Strategic Planning.
<PAGE>
Mr. Ben F. Williams was appointed Vice President, Business Development in
1986.
Mr. William J. Williams was promoted to Vice President, Manufacturing of
ParTech, Inc. in February 1998. Prior to this position, Mr. Williams was the
Vice President, Operations.
Mr. Alexander J. Zanon was promoted to Senior Vice President, Operations of
PAR Government Systems Corporation in 1986.
<PAGE>
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 20, 1999 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 20, 1999 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 20, 1999 and is incorporated herein by
reference.
<PAGE>
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, 1998 and 1997
Consolidated Statement of Income for the three
years ended December 31, 1998
Consolidated Statement of Comprehensive Income
for the three years ended December 31, 1998
Consolidated Statement of Changes in Shareholders' Equity for
the three years ended December 31, 1998
Consolidated Statement of Cash Flows for the three years
ended December 31, 1998
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 56
(d) Financial statement schedules
See (a)(2) above.
<PAGE>
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 33 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, 1998 and 1997, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1998, 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.
PRICEWATERHOUSECOOPERS LLP
Syracuse, New York
February 4, 1999
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
(In Thousands Except Share Amounts) December 31,
---------------------
1998 1997
--------- ---------
<S> <C> <C>
Assets
Current Assets:
Cash ................................... $ 1,298 $ 3,977
Accounts receivable-net (Note 3) ....... 47,137 29,938
Inventories (Note 4) ................... 27,260 31,168
Income tax refund claims ............... -- 214
Deferred income taxes (Note 8) ......... 3,208 5,876
Other current assets ................... 1,367 1,340
-------- --------
Total current assets ............... 80,270 72,513
Property, plant and equipment - net (Note 5) 8,465 7,013
Other assets ................................ 4,691 3,678
-------- --------
$ 93,426 $ 83,204
======== ========
Liabilities and Shareholders' Equity
Current Liabilities:
Notes payable (Note 6) ................. $ 7,387 $ 195
Accounts payable ....................... 9,789 8,664
Accrued salaries and benefits .......... 4,731 3,804
Accrued expenses ....................... 3,427 3,444
Income taxes payable ................... 273 --
Deferred service revenue ............... 4,376 3,024
-------- --------
Total current liabilities .......... 29,983 19,131
-------- --------
Deferred income taxes (Note 8) .............. 617 656
-------- --------
Shareholders' Equity (Note 7):
Common stock, $.02 par value,
19,000,000 shares authorized;
9,513,571 and 9,466,771 shares issued
8,548,665 and 8,864,265 outstanding . 190 189
Preferred stock, $.02 par value,
1,000,000 shares authorized .......... -- --
Capital in excess of par value ......... 28,050 27,875
Retained earnings ...................... 40,222 38,960
Accumulative comprehensive income ...... (547) (682)
Treasury stock, at cost, 964,906 and
602,506 shares ....................... (5,089) (2,925)
-------- --------
Total shareholders' equity ......... 62,826 63,417
-------- --------
Contingent liabilities (Note 10)
-------- --------
$ 93,426 $ 83,204
======== ========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME
(In Thousands Except Per Share Amounts) Year ended December 31,
------------------------------------
1998 1997 1996
------------------------------------
<S> <C> <C> <C>
Net revenues:
Product ................................ $ 66,854 $ 47,019 $ 63,134
Service ................................ 31,357 27,833 30,124
Contract ............................... 24,069 25,168 24,403
--------- --------- ---------
122,280 100,020 117,661
--------- --------- ---------
Costs of sales:
Product ................................ 45,446 33,267 37,407
Service ................................ 28,518 24,948 25,979
Contract ............................... 21,892 23,884 23,093
--------- --------- ---------
95,856 82,099 86,479
--------- --------- ---------
Gross margin ..................... 26,424 17,921 31,182
--------- --------- ---------
Operating expenses:
Selling, general and administrative .... 19,955 23,122 18,044
Research and development ............... 6,040 5,265 5,005
Non-recurring charges (Note 2) ......... (1,016) 3,535 --
--------- --------- ---------
24,979 31,922 23,049
--------- --------- ---------
Income (loss) from operations ............... 1,445 (14,001) 8,133
Other income, net ........................... 529 333 678
Interest expense ............................ (124) -- --
--------- --------- ---------
Income (loss) before provision for
income taxes .............................. 1,850 (13,668) 8,811
Provision (benefit) for income taxes (Note 8) 588 (4,949) 2,864
--------- --------- ---------
Net income (loss) ........................... $ 1,262 $ (8,719) $ 5,947
========= ========= =========
Earnings (loss) per share
Diluted ................................ $ .14 $ (.99) $ .69
========= ========= =========
Basic .................................. $ .14 $ (.99) $ .72
========= ========= =========
Weighted average shares outstanding
Diluted ................................ 8,954 8,846 8,643
========= ========= =========
Basic .................................. 8,819 8,846 8,238
========= ========= =========
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(In Thousands)
<CAPTION>
Year ended December 31,
------------------------------------
1998 1997 1996
------------------------------------
<S> <C> <C> <C>
Net income (loss) ............................ $ 1,262 $ (8,719) $ 5,947
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments 135 (615) 100
--------- -------- ---------
Comprehensive income (loss) .................. $ 1,397 $ (9,334) $ 6,047
========= ======== =========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Capital in Accumulated
Common Stock excess of Retained Comprehensive Treasury Stock
(In Thousands) Shares Amount Par Value Earnings Income Shares Amount
------ ------ --------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
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)
Net income ......................... 1,262
Issuance of common stock upon the
exercise of stock options (Note 7) 47 1 175
Translation adjustments ............ 135
Acquisition of treasury stock ...... (362) (2,164)
------- ------- ------- ------- ------- ------- -------
Balance at
December 31, 1998 ............... 9,514 $ 190 $28,050 $40,222 $ (547) (965) $(5,089)
======= ======= ======= ======= ======= ======= =======
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands) Year ended December 31,
---------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ............................ $ 1,262 $ (8,719) $ 5,947
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ....... 2,405 2,282 2,342
Provision for obsolete inventory .... 3,162 4,595 2,143
Translation adjustments ............. 135 (615) 100
Increase (decrease) from changes in:
Accounts receivable-net ............. (17,199) 12,397 (5,861)
Inventories ......................... 746 (13,775) (6,330)
Income tax refund claims ............ 214 8 (222)
Other current assets ................ (27) (79) (171)
Other assets ........................ (605) 1,487 (371)
Accounts payable .................... 1,125 3,537 202
Accrued salaries and benefits ....... 927 1,054 (1,436)
Accrued expenses .................... (17) 561 1,349
Deferred service revenue ............ 1,352 783 27
Income taxes payable ................ 273 -- (1,005)
Deferred income taxes ............... 2,629 (5,094) 386
-------- -------- --------
Net cash used by operating activities ............. (3,618) (1,578) (2,900)
-------- -------- --------
Cash flows from investing activities:
Capital expenditures ......................... (3,177) (1,520) (1,302)
Capitalization of software costs ............. (1,088) (1,475) (1,187)
-------- -------- --------
Net cash used in investing activities ............. (4,265) (2,995) (2,489)
-------- -------- --------
Cash flows from financing activities:
Net borrowings (payments) under
line-of-credit agreements .................. 7,192 10 (101)
Net proceeds from issuance of common stock ... -- -- 13,302
Proceeds from the exercise of stock options .. 176 312 2,158
Acquisition of treasury stock ................ (2,164) (163) (2,037)
-------- -------- --------
Net cash provided by financing activities ......... 5,204 159 13,322
-------- -------- --------
Net increase (decrease) in cash
and cash equivalents ............................ (2,679) (4,414) 7,933
Cash and cash equivalents at
beginning of year ............................... 3,977 8,391 458
-------- -------- --------
Cash and cash equivalents at
end of year ..................................... $ 1,298 $ 3,977 $ 8,391
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest ................................. $ 121 $ 19 $ 54
Income taxes, net of refunds ............. (2,507) 94 2,537
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
<PAGE>
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 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.
<PAGE>
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 provided.
Foreign currency
The assets and liabilities for the Company's international operations are
translated into U.S. dollars using year-end exchange rates. Income statement
items are translated at average exchange rates prevailing during the year. The
resulting translation adjustments are recorded as a separate component of
shareholders' equity under the heading Accumulated Comprehensive Income.
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.
<PAGE>
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
$3,354,000 and $2,792,000 at December 31, 1998 and 1997, 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 $526,000, $501,000 and
$680,000 in 1998, 1997, and 1996, 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
Earnings per share are calculated in accordance with 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 requires the presentation of 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.
<PAGE>
The following is a reconciliation of the weighted average shares
outstanding for the basic and diluted EPS computations (In Thousands except per
share data):
<TABLE>
<CAPTION>
For the year ended 1998
-----------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Basic EPS .................... $ 1,262 8,819 $ .14
Effect of Stock Options ...... 135
------- ------- -------
Diluted EPS$ ................. $ 1,262 8,954 $ .14
======= ======= =======
<CAPTION>
For the year ended 1997
-----------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
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.
<CAPTION>
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
======= ======= =======
</TABLE>
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
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 Systems and Technologies, Inc. (Phoenix). The Company subsequently
<PAGE>
became a subcontractor to Phoenix on certain engineering service contracts with
the United States Government. As a result of a default by Phoenix during 1997,
the Company recorded a non-recurring charge of $2.6 million ($1.7 million after
tax or $.19 loss per share) relating to amounts owed by Phoenix on these
subcontracts. During 1998, the Company recorded a nonrecurring benefit of
$1,016,000 ($645,000 after tax or $.07 earnings per share) relating to the
recovery of certain amounts owed by Phoenix. These subcontracts terminated in
1998 and the Company has no further ongoing contractual relationships with
Phoenix.
At December 31, 1998, Phoenix owes the Company $2.1 million, for which a
note was issued by Phoenix. This note bears interest at 8%, and is subordinate
to the third party lender. The note along with interest is payable in full on
July 30, 2000. This amount is fully reserved.
In 1997, the Company also recorded a charge of $900,000 ($580,000 after tax
or $.07 loss per share) 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:
<TABLE>
<CAPTION>
December 31,
(In Thousands)
----------------
1998 1997
------- ------
<S> <C> <C>
Government segment:
United States Government --
Billed ................ $ 1,313 $ 1,009
Unbilled .............. 99 539
------- -------
1,412 1,548
------- -------
Other --
Billed ................ 2,071 4,972
Unbilled .............. 100 349
------- -------
2,171 5,321
------- -------
Other segments:
Trade accounts receivable . 43,554 23,069
------- -------
$47,137 $29,938
======= =======
</TABLE>
At December 31, 1998 and 1997, the Company had recorded a reserve for
doubtful accounts of $1,145,000 and $915,000, respectively, against trade
accounts receivable. Trade accounts receivable are primarily with major
fast-food corporations or their franchisees. At December 31, 1998 and 1997, the
Company had also recorded reserves of $50,000 and $1,355,000, respectively,
against government accounts receivables.
<PAGE>
Note 4 -- Inventories
Inventories are used primarily in the manufacture, maintenance, and service
of transaction processing systems. Inventories are net of related reserves. The
components of inventory are:
<TABLE>
<CAPTION>
December 31,
(In Thousands)
-----------------
1998 1997
-------- --------
<S> <C> <C>
Finished goods $ 7,377 $ 8,635
Work in process 2,234 4,184
Component parts 7,342 9,883
Service parts 10,307 8,466
------- -------
$27,260 $31,168
======= =======
</TABLE>
Note 5 -- Property, Plant and Equipment
The components of property, plant and equipment are:
<TABLE>
<CAPTION>
December 31,
(In Thousands)
--------------
1998 1997
------- ------
<S> <C> <C>
Land ........................ $ 253 $ 253
Building and improvements ... 8,479 8,403
Furniture and equipment ..... 23,227 23,785
------- -------
31,959 32,441
Less accumulated depreciation
and amortization ........... 23,494 25,428
------- -------
$ 8,465 $ 7,013
======= =======
</TABLE>
The Company leases office space under various operating leases. Rental
expense on these operating leases was approximately $919,000, $922,000 and
$810,000 for the years ended December 31, 1998, 1997, and 1996, respectively.
<PAGE>
Future minimum lease payments under all noncancelable operating leases are
(in thousands):
<TABLE>
<CAPTION>
<S> <C>
1999 $ 865
2000 441
2001 218
2002 80
2003 35
Thereafter 7
------
$1,646
======
</TABLE>
Note 6 -- Notes Payable
The Company has an aggregate of $30,000,000 in bank lines of credit.
Certain lines totalling $25,000,000 allow the Company to choose among unsecured
borrowings, which bear interest at the prime rate (7.75% at December 31, 1998),
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 $5,000,000 is unsecured, bears interest at the
prime rate, requires a compensating balance and expires on April 30, 2000. At
December 31, 1998, $7,387,000 was outstanding under these lines at an interest
rate of 6.4%.
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.
<PAGE>
A summary of the stock options follows:
<TABLE>
<CAPTION>
No. of Shares Weighted Average
(In Thousands) Exercise Price
-------------- --------------
<S> <C> <C>
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
Granted ...................... 143 6.51
Exercised .................... (47) 3.76
Forfeited .................... (6) 6.42
---- ---------
Outstanding at December 31, 1998 .. 669 $ 5.67
==== =========
Shares remaining
available for grant .......... 183
Total shares vested and exercisable
as of December 31, 1998 ...... 381 $ 4.13
==== =========
</TABLE>
<PAGE>
Stock options outstanding at December 31, 1998 are summarized as follows:
<TABLE>
<CAPTION>
Range of Number Weighted Average Weighted Average
Exercise Prices Outstanding Remaining Life Exercise Price
--------------- ----------- -------------- --------------
<S> <C> <C> <C>
$3.00 - $5.00 296 2.5 Years $ 3.05
$5.01 - $7.00 201 8.2 Years $ 6.46
$7.01 - $9.31 172 7.1 Years $ 9.25
-------------- --- ------------ --------
$3.00 - $9.31 669 5.5 Years $ 5.67
============== === ============ ========
</TABLE>
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 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Risk-free interest rate ...... 5.5% 6.4% 5.6%
Dividend yield ............... N/A N/A N/A
Volatility factor ............ 48% 52% 30%
Weighted average expected life 6 Years 6 Years 5 Years
</TABLE>
Had compensation cost for the Company's stock-based compensation plans and
other transactions been determined based on the fair values of the fiscal year
1998, 1997 and 1996 grant dates for those awards, consistent with the
requirements of SFAS No. 123, Accounting for Stock-Based Compensation, the
Company's net income and earnings per share would have been reduced to the pro
forma amounts indicated below (In thousands, except per share data):
<TABLE>
<CAPTION>
1998 1997 1996
----------- ---------- -----------
<S> <C> <C> <C>
Net income (loss):
As reported $ 1,262 $ (8,719) $ 5,947
Pro forma $ 1,043 $ (8,900) $ 5,728
Earnings (loss) per share:
As reported -- Diluted $ .14 $ (.99) $ .69
-- Basic $ .14 $ (.99) $ .72
Proforma -- Diluted $ .12 $ (1.01) $ .66
-- Basic $ .12 $ (1.01) $ .70
</TABLE>
<PAGE>
Note 8-- Income Taxes
The provision (benefit) for income taxes consists of:
<TABLE>
<CAPTION>
Year ended December 31,
(In Thousands)
-----------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Current tax expense:
Federal ....................... $ (122) $ 135 $ 1,991
State ......................... 161 91 626
Foreign ....................... 312 16 48
------- ------- -------
351 242 2,665
------- ------- -------
Deferred income tax:
Federal ....................... 230 (4,736) 287
State ......................... 183 (272) --
Foreign ....................... (176) (183) (88)
------- ------- -------
237 (5,191) 199
------- ------- -------
Provision (benefit) for income taxes $ 588 $(4,949) $ 2,864
======= ======= =======
</TABLE>
Deferred tax liabilities (assets) are comprised of the following at:
<TABLE>
<CAPTION>
December 31,
(In Thousands)
------------------
1998 1997
---- ----
<S> <C> <C>
Software development expense . $ 1,140 $ 786
Depreciation ................. 389 535
------- -------
Gross deferred tax liabilities 1,529 1,321
------- -------
Allowances for bad debts,
inventory and warranty ..... (2,249) (3,120)
Capitalized inventory costs .. (69) (109)
Wage and salary accruals ..... (288) (315)
Federal net operating loss ... (887) (2,360)
State net operating loss ..... (89) (272)
Foreign net operating loss ... (522) (346)
Other ........................ (16) (19)
------- -------
Gross deferred tax assets .... (4,120) (6,541)
------- -------
$(2,591) $(5,220)
======= =======
</TABLE>
<PAGE>
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:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Statutory U.S. federal tax rate .. 34.0% (34.0)% 34.0%
State taxes net of federal benefit 15.6 .4 4.7
Foreign income taxes ............. 7.4 (1.3) (.5)
Non deductible expenses .......... 10.4 1.0 1.6
FSC benefit ...................... (6.9) -- (2.0)
Adjustment to prior years' accrual (10.9) -- (4.3)
State net operating loss ......... -- (2.1) --
Foreign tax credits .............. (16.9) (.1) (.6)
Other ............................ (.9) (.1) (.4)
------ ------ ------
31.8% (36.2)% 32.5%
====== ====== ======
</TABLE>
The provision for income taxes is based on income (loss) before income
taxes as follows:
<TABLE>
<CAPTION>
Year ended December 31,
(In Thousands)
---------------------------------
1998 1997 1996
---------------------------------
<S> <C> <C> <C>
Domestic operations $ 2,450 $(11,932) $ 9,849
Foreign operations (600) (1,736) (1,038)
-------- -------- --------
Total ........ $ 1,850 $(13,668) $ 8,811
======== ======== ========
</TABLE>
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 1998, 1997 and 1996 were
approximately $957,000, $1,550,000 and $200,000, 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 1998, cash awards under the plan totaled $253,000. In 1997
and 1996, there were no awards under the plan.
<PAGE>
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 -- Segment and Related Information
The Company adopted SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information, in 1998 which changes the way the Company
reports information about its operating segments. The information for 1997 and
1996 has been restated from the prior year's presentation in order to conform to
the 1998 presentation.
The Company's reportable segments are strategic business units that have
separate management teams and infrastructures that offer different products and
services.
The Company has three reportable segments. The Transaction Processing
segment offers integrated solutions to the restaurant and
manufacturing/warehousing industries. These offerings include industry leading
hardware and software applications utilized at the point-of-sale, back of store,
corporate office and in the manufacturing/warehousing environment. This segment
also offers customer support including field service, installation, twenty-four
hour telephone support and depot repair. The Government segment designs and
implements advanced technology computer software systems primarily for military
and intelligence agency applications. It provides services for operating and
maintaining certain U.S. Government-owned test sites, and for planning,
executing and evaluating experiments involving new or advanced radar systems.
The Vision segment designs, manufactures, sells, installs and services image
processing systems for the food-processing industry. Inter-segment sales and
transfers are not material.
<PAGE>
Information as to the Company's operations in these three segments is set
forth below:
<TABLE>
<CAPTION>
Year ended December 31,
(In Thousands)
-----------------------------------
1998 1997 1996
-----------------------------------
<S> <C> <C> <C>
Revenues:
Transaction Processing .. $ 97,345 $ 73,820 $ 91,837
Government .............. 24,069 25,168 24,403
Vision .................. 866 1,032 1,421
--------- --------- ---------
Total ............. $ 122,280 $ 100,020 $ 117,661
========= ========= =========
Income (loss) from operations:
Transaction Processing .. $ (1,061) $ (6,772) $ 8,880
Government .............. 2,097 (1,007) 1,310
Vision .................. (607) (2,687) (2,057)
Nonrecurring charges .... 1,016 (3,535) --
--------- --------- ---------
1,445 (14,001) 8,133
Other income, net ............ 529 333 678
Interest expense ............. (124) -- --
--------- --------- ---------
Income (loss) before provision
for income taxes ........ $ 1,850 $ (13,668) $ 8,811
========= ========= =========
Identifiable assets:
Transaction Processing .. $ 83,569 $ 66,544 $ 65,633
Government .............. 6,022 13,074 10,929
Vision .................. 1,520 958 2,601
Corporate ............... 2,315 2,628 7,595
--------- --------- ---------
Total ............. $ 93,426 $ 83,204 $ 86,758
========= ========= =========
Depreciation and amortization:
Transaction Processing .. $ 1,636 $ 1,511 $ 1,743
Government .............. 128 165 159
Vision .................. 86 248 150
Corporate ............... 555 358 290
--------- --------- ---------
Total ............. $ 2,405 $ 2,282 $ 2,342
========= ========= =========
Capital expenditures:
Transaction Processing .. $ 2,912 $ 1,012 $ 697
Government .............. 87 154 175
Vision .................. 30 197 96
Corporate ............... 148 157 334
--------- --------- ---------
Total ............. $ 3,177 $ 1,520 $ 1,302
========= ========= =========
</TABLE>
<PAGE>
The following table presents revenues by country based on the location of
the use of the product or services.
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
United States . $102,468 $ 81,169 $ 97,056
Other Countries 19,812 18,851 20,605
-------- -------- --------
Total ..... $122,280 $100,020 $117,661
======== ======== ========
</TABLE>
The following table presents property by country based on the location of
the asset.
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
United States . $84,656 $76,241 $78,927
Other Countries 8,770 6,963 7,831
------- ------- -------
Total ..... $93,426 $83,204 $86,758
======= ======= =======
</TABLE>
Customers comprising 10% or more of the Company's total revenues are
summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Transaction Processing segment:
McDonald's Corporation ...... 40% 21% 17%
Tricon Corporation .......... 22% 26% 40%
Burger King Corporation ..... 4% 13% 1%
Government segment:
Department of Defense ....... 20% 25% 21%
All Others .................... 14% 15% 21%
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
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.
<PAGE>
Note 12 -- Fair Value of Financial Instruments
Financial instruments consist of the following:
<TABLE>
<CAPTION>
December 31, 1998
(In Thousands)
--------------
Carrying Fair
Value Value
----- -----
<S> <C> <C>
Cash and cash equivalents $1,298 $1,298
Notes Payable ........... $7,387 $7,387
</TABLE>
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)
<TABLE>
<CAPTION>
Quarter ended
(In Thousands Except Per Share Amounts)
---------------------------------------
1998 March 31 June 30 September 30 December 31
---- -------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Total revenues ............. $ 21,181 $ 25,977 $ 33,463 $ 41,659
Gross margin ............... 3,158 4,501 7,668 11,097
Net income (loss) .......... (1,627) (445) 1,166 2,168
Diluted and basic
Earnings (loss) per share $ (.18) $ (.05) $ .13 $ .25
======== ======== ======== ========
<CAPTION>
Quarter ended
(In Thousands Except Per Share Amounts)
1997 March 31 June 30 September 30 December 31
---- -------- ------- ------------ -----------
<S> <C> <C> <C> <C>
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)
======== ======== ======== ========
</TABLE>
During 1998, the Company recovered certain amounts relating to accounts
receivable from Phoenix, which were reserved in 1998. The benefit was $100,000
($64,000 after tax) or $.01 per share in the first quarter, $550,000 ($349,000
after tax) or $.04 per share in the second quarter, $157,000 ($100,000 after
tax) or $.01 per share in the third quarter and $209,000 ($132,000 after tax) or
$.02 per share in the fourth quarter.
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.
<PAGE>
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.
<PAGE>
<TABLE>
<CAPTION>
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
<S> <C> <C> <C> <C>
1998 $2,362 394 (1,561) (a) $1,195
1997 $ 677 3,441 (1,756) (b) $2,362
1996 $ 768 174 (265) (b) $ 677
(a) Uncollectible accounts written off during 1998.
(b) Uncollectible accounts written off during 1997.
(c) Uncollectible accounts written off during 1996.
<CAPTION>
- ------------------------------------------------------------------------------------------------------
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
<C> <C> <C> <C> <C>
1998 $3,817 3,162 (4,856) (a) $2,123
1997 $1,174 4,595 (1,952) (b) $3,817
1996 $1,922 2,143 (2,891) (b) $1,174
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PAR TECHNOLOGY CORPORATION
March 26, 1999 /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.
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.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Signatures Title Date
================================================================================
<S> <C> <C>
/s/John W. Sammon, Jr.
- ----------------------
John W. Sammon, Jr. Chairman of Board and March 26, 1999
President (Principal
Executive Officer)
and Director
/s/Charles A. Constantino
- -------------------------
Charles A. Constantino Executive Vice President March 26, 1999
and Director
/s/J. Whitney Haney
- -------------------
J. Whitney Haney Director March 26, 1999
/s/Ronald J. Casciano
- ---------------------
Ronald J. Casciano Vice President, Chief Financial March 26, 1999
Officer and Treasurer
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
List of Exhibits
Exhibit
No. Description of Instrument
================================================================================
<S> <C> <C>
3.1 Certificate of Incorporation, Filed as Exhibit 3.1 to Registration
as amended. Statement on Form S-2 (Registration
No. 333-04077) of PAR Technology
Corporation incorporated herein by
reference.
3.2 Certificate of Amendment to the Filed as Exhibit 3.1 to Registration
Certificate of Incorporation. Statement on Form S-2 (Registration
No. 333-04077) of PAR Technology
Corporation incorporated herein by
reference.
3.3 By-laws, as amended. Filed as 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 Taco Bell Corp. and Statement on Form S-2 (Registration
ParTech, Inc. dated No. 333-04077) of PAR Technology
September 12, 1995. 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.
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT 11
STATEMENT RE COMPUTATION OF PER-SHARE EARNINGS
(In Thousands)
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Diluted Earnings Per Share:
Weighted average shares of
common stock outstanding:
Balance outstanding - beginning of year 8,864 8,826 7,682
Weighted average shares
issued during the year ................ 39 29 633
Weighted average shares of
treasury stock acquired ............... (84) (9) (77)
Incremental shares of common stock
outstanding giving effect to stock
options ............................... 135 -- 405
------ ------ ------
Weighted balance - end of year ........ 8,954 8,846 8,643
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT 11
STATEMENT RE COMPUTATION OF PER-SHARE EARNINGS
(In Thousands)
1998 1997 1996
------ ------- -------
<S> <C> <C> <C>
Basic Earnings Per Share:
Weighted average shares of
common stock outstanding:
Balance outstanding - beginning of year 8,864 8,826 7,682
Weighted average shares
issued during the year ................ 39 29 633
Weighted average shares of
treasury stock acquired ............... (84) (9) (77)
------ ------ ------
Weighted balance - end of year ........ 8,819 8,846 8,238
====== ====== ======
</TABLE>
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
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 4, 1999 appearing at
Item 14 of this Form 10-K.
PRICEWATERHOUSECOOPERS LLP
Syracuse, New York
March 26, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,298
<SECURITIES> 0
<RECEIVABLES> 47,137
<ALLOWANCES> 0
<INVENTORY> 27,260
<CURRENT-ASSETS> 80,270
<PP&E> 8,465
<DEPRECIATION> 0
<TOTAL-ASSETS> 93,426
<CURRENT-LIABILITIES> 29,983
<BONDS> 0
0
0
<COMMON> 190
<OTHER-SE> 62,636
<TOTAL-LIABILITY-AND-EQUITY> 93,426
<SALES> 66,854
<TOTAL-REVENUES> 122,280
<CGS> 45,446
<TOTAL-COSTS> 95,856
<OTHER-EXPENSES> 6,040
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,850
<INCOME-TAX> 588
<INCOME-CONTINUING> 1,262
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,262
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
