Washington, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2005.
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 the registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark 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. Yes [ ] No [X]
*Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act. (Check one):
Large Accelerated Filer [ ] Accelerated Filer [X] Non-Accelerated Filer [ ]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
The aggregate market value of the voting stock held by non-affiliates of
the registrant based on the average price as of February 28, 2006 -
$133,231,356.
The number of shares outstanding of registrant's common stock, as of
February 28, 2006 - 14,154,870 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's proxy statement in connection with its 2006
annual meeting of stockholders are incorporated by reference into Part III.
PAR TECHNOLOGY CORPORATION
TABLE OF CONTENTS
FORM 10-K
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Item Number
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PART I
Item 1. Business
Item 1A. Risk Factors
Item 2. Properties
Item 3. Legal Proceedings
PART II
Item 5. Market for the Registrant's Common Stock, Related
Stockholder Matters and Issuer Purchases of
Equity Securities
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9A. Controls and Procedures
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions
Item 14. Principal Accountant Fees and Services
PART IV
Item 15. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K
Signatures
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995
This document contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934. Any statements in this document that do not
describe historical facts are forward-looking statements. Forward-looking
statements in this document (including forward-looking statements regarding the
continued health of the Hospitality industry, future information technology
outsourcing opportunities, an expected increase in funding by the U.S.
Government relating to the Company's logistics management contracts, the impact
of current world events on our results of operations, the effects of inflation
on our margins, and the effects of interest rate and foreign currency
fluctuations on our results of operations) are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. When we use
words such as "intend," "anticipate," "believe," "estimate," "plan," "will," or
"expect", we are making forward-looking statements. We believe that the
assumptions and expectations reflected in such forward-looking statements are
reasonable, based on information available to us on the date hereof, but we
cannot assure you that these assumptions and expectations will prove to have
been correct or that we will take any action that we presently may be planning.
We have disclosed certain important factors that could cause our actual future
results to differ materially from our current expectation, including a decline
in the volume of purchases made by one or a group of our major customers; risks
in technology development and commercialization; risks of downturns in economic
conditions generally, and in the quick-service sector of the hospitality market
specifically; risks associated with government contracts; risks associated with
competition and competitive pricing pressures; and risks related to foreign
operations. Forward-looking statements made in connection with this report are
necessarily qualified by these factors. We are not undertaking to update or
revise publicly any forward-looking statement if we obtain new information or
upon the occurrence of future events or otherwise.
PAR TECHNOLOGY CORPORATION
PART I
Item 1: Business
PAR Technology Corporation (PAR or the Company) operates two business
segments: Hospitality and Government. PAR's largest subsidiary, ParTech, Inc. is
a leading provider of management technology solutions, including hardware,
software, professional and traditional services to businesses in the hospitality
and retail industries. The Company is a dominant supplier of hospitality
technology systems with over 40,000 systems installed in more than 100
countries. PAR's hospitality management software applications assist in the
efficient operation of hospitality businesses and enterprises by managing data
from end-to-end and maximizing profitability through more effective operations.
PAR's professional services' mission is to assist businesses in achieving the
full maximized potential of their hospitality technology investment.
PAR is a provider of professional services and enterprise business
intelligence applications with solid long-term relationships with the restaurant
industry's two largest corporations - McDonald's Corporation and Yum! Brands
Inc. McDonald's has over 31,000 restaurants in more than 120 countries and PAR
has been a selected provider of restaurant management technology systems and
lifecycle support services to McDonald's since 1980. Yum! Brands (which includes
Taco Bell, KFC and Pizza Hut, Long John Silver's and A&W Restaurants) has been a
loyal PAR customer since the early 1980's. Yum! has over 33,000 units globally
and PAR is the sole approved supplier of restaurant management technology
systems to Taco Bell as well as the Point-of-Sale (POS) vendor of choice to KFC.
Other significant hospitality chains where PAR is the POS vendor of choice are:
Boston Market, Chick-fil-A, CKE Restaurants (including Hardees and Carl's Jr.),
Carnival Cruise Lines, Loews Cineplex, Papa Murphy's and large franchisees of
the above mentioned brands.
In the fourth quarter of 2005 the Company acquired PixelPoint(R)
Technologies, Inc. a privately held hospitality technology company and a
provider of restaurant management software applications for full/table service
dining. PixelPoint is an innovative leader, developing and marketing POS,
WebPOS, Wireless and Enterprise software suites for the table service restaurant
industry. It currently markets software in multiple languages to virtually every
major economic center worldwide. PixelPoint has over 5,000 installations in
restaurants around the globe. Their integrated software solution includes
HeadOffice(TM) enterprise management, PocketPOS(TM) a wireless application that
is seamless to their connected capability and allows remote order taking in the
dining room, Web-to-Go(TM), on-line ordering capability for customers via the
internet, and MemberShare(TM) an in-store and enterprise level Loyalty and Gift
Card information sharing application.
In the fourth quarter 2004 PAR acquired Springer-Miller Systems, a provider
of hospitality management solutions that meet/exceed the technology needs of all
types of Hospitality enterprises including city-center hotels, destination spa
and golf properties, timeshare properties and casino resorts worldwide, setting
the pace as a pioneer in the hospitality industry. PAR's SMS |Host(R)
Hospitality Management System is distinguished from other property management
systems with its integrated design and unique approach to guest service. The SMS
|Host product suite, that includes more than 20 seamlessly integrated,
guest-centric application modules, provides hotel/resort staff with the tools
they need to personalize service, surpass guest expectations, and increase
property revenues. PAR maintains a distinctive customer list in this business
including Pebble Beach Resorts, The Four Seasons, Hard Rock Hotel & Casino, the
Mandarin Oriental Hotel Group, and Destination Hotels & Resorts.
PAR also operates two Government contract subsidiaries, PAR Government
Systems Corporation and Rome Research Corporation. PAR develops advanced
technology systems for the Department of Defense and other Governmental
agencies. Additionally, PAR provides information technology and communications
support services to the U.S. Navy, U.S. Air Force and U.S. Army. PAR focuses its
computer-based system design services on providing high quality technical
products and services, ranging from experimental studies to advanced operational
systems, within a variety of areas of research, including radar, image and
signal processing, logistics management systems, and geospatial services and
products. With more than three decades experience in this sector, PAR's
Government engineering service business provides management and engineering
services that include facilities operation and management. In addition, through
Government-sponsored research and development, PAR has developed technologies
with relevant commercial uses. A prime example of this "technology transfer" is
the Company's point-of-sale technology, which was derived from research and
development involving microchip processing technology sponsored by the
Department of Defense.
Information concerning the Company's industry segments for the three years
ended December 31, 2005 is set forth in Note 12 to the Consolidated Financial
Statements included elsewhere herein.
The Company's common stock is traded on the New York Stock Exchange under
the symbol "PTC". Our corporate headquarters are located at PAR Technology Park,
8383 Seneca Turnpike, New Hartford, New York 13413-4991; telephone number (315)
738-0600. Our website address is http://www.partech.com. Information contained
on our website is not part of this prospectus.
Unless the context otherwise requires, the term "PAR" or "Company" as used
herein, means PAR Technology Corporation and its wholly-owned subsidiaries.
Hospitality Segment
PAR operates three wholly-owned subsidiaries in the Hospitality business
segment, ParTech, Inc., PAR Springer-Miller Systems, Inc., and PixelPoint ULC.
PAR is a provider of integrated enterprise solutions to the hospitality
industry. The Company's Point-of-Sale (POS) restaurant management technology
integrates both cutting-edge software applications and the Company's
Pentium(R)-based hardware platform. PAR's restaurant management system can host
fixed as well as wireless order-entry terminals, may include kitchen printers or
video monitors and/or third-party supplied peripherals networked via an Ethernet
LAN, and is accessible to enterprise-wide network configurations. In addition,
PAR is a leading provider of hospitality management solutions that satisfy the
property management technology needs of an array of hospitality enterprises,
including city-center hotels, destination spa and golf properties, timeshare
properties and casino resorts worldwide. PAR also provides extensive systems
integration and professional service capabilities to design, tailor and
implement solutions that enable its customers to manage all aspects of data
collection and processing for single or multiple site enterprises from a central
location.
Products
The technology requirements of the major hospitality organizations include
rugged, reliable, management systems capable of receiving, transmitting and
coordinating large numbers of transactions that require a quick and accurate
response. The Company's integrated hospitality management software applications
permit its customers to configure their hospitality technology systems to meet
their order entry, menu, food preparation, delivery and property management
coordination needs while capturing all pertinent data concerning the
transactions at the specific location. PAR's hospitality management systems are
the result of more than 25 years of experience and knowledge combined with an
in-depth understanding of the hospitality marketplace. This knowledge and
expertise is reflected in the innovative product design, implementation
capability and systems integration skills.
Software. The Company's range of restaurant software products cover the
hospitality market with offerings that meet the requirements of large and small
operators/corporations alike. For InFusion, PAR's restaurant-to-enterprise
software suite, the focus continues to be on Quick Service Restaurants (QSR) and
Quick Casual concepts with greater than 50 sites. The Company's GT/Exalt product
has a target market of QSR and specifically, Taco Bell. It is designed for the
small franchisee that is looking for a "turnkey" solution. With the acquisition
of PixelPoint Technologies, Inc. in 2005, PAR's sales organization introduced
software that is expected to increase and redefine market share. U.S. sales
teams are focusing PixelPoint sales on the Quick-Casual customer with 50 or less
restaurants, Coffee/Tea, Treaterie, and Table Service concepts.
InFusion is comprised of InTouch(TM) POS, InForm(TM) Back Office,
InSynch(TM) Enterprise Configuration and InQuire(TM) Enterprise Reporting. PAR's
InFusion suite is a robust, feature-rich product. InTouch is a multi-brand,
multi-concept application, containing rich features and functions such as
real-time mirror imaging of critical data, on-line graphical help and
interactive diagnostics, all presented with intuitive graphical user interfaces.
In addition, PAR's back office management software, InForm, allows restaurant
owners to control critical food and labor costs using intuitive tools for
forecasting, labor scheduling and inventory management. The InSynch Enterprise
Configuration manager allows for business-wide management of diverse concept
menus, security settings and system parameters all from one central location.
InQuire Enterprise Reporting offers a web-based reporting leveraging the latest
technology from Microsoft's .Net platform. InQuire's Executive Dashboard
provides proactive business intelligence for the entire organization, as well as
automated management reporting and process integration. In addition, the Company
offers streamlined POS software, GT/Exalt. GT/Exalt provides restaurant owners
with increased cash security, improved customer service and highly flexible
kitchen and drive-thru functionality. The PixelPoint integrated software
solution includes PixelPoint(R) POS, HeadOffice enterprise management, PocketPOS
a wireless application that is seamless to their connected capability and allows
remote order taking in the dining room, Web-to-Go, on-line ordering capability
for customers via the internet, and MemberShare an in-store and enterprise level
Loyalty and Gift Card information sharing application.
PAR is also a provider of software to the hotel/resort industry. Today,
more and more hospitality-oriented businesses are managing information and
leveraging their relationships with customers through integrated technology
systems. There are two key and complementary aspects to system integration. One
is to provide a seamless user interface to manage all aspects of the customer
experience. The second is to ensure all aspects of customer activity become part
of a single database. To accomplish this, every point of guest contact and every
interaction with the customer must be managed within the same software. PAR's
SMS|Host Hospitality Management System provides the most efficient automation
process to handle business functions within a hotel/resort--a check-in, a spa
appointment, or a retail purchase for instance. PAR's SMS|Host Hospitality
Management System is distinguished from other property management systems by its
truly integrated design and unique approach to guest service. The SMS|Host
product suite, including over 20 seamlessly integrated, guest-centric modules,
provides resort staff with the tools they need to personalize service,
anticipate guest needs, and consistently exceed guest expectations. PAR SMS also
offers SpaSoft(R) and SMS|Touch Fine Dining, two stand-alone applications.
SpaSoft is designed to meet the unique needs of the spa industry. Focusing on
activity scheduling, resource management, inventory management, point-of-sale
and reporting, SpaSoft assists in the total management of hotel/resort spas and
day spas. Because SpaSoft was specifically designed for the unique needs of the
spa industry, it assists the spa staff in providing the individualized,
impeccable guest service that their most important clients desire and expect.
The SMS|Touch Fine Dining product suite is a robust fine dining point-of-sale
system designed to increase revenue in the property's food and beverage outlets.
Hardware. In 2005, the Company introduced ViGo(TM), its 5th generation
hardware platform, designed to be durable, scalable, integrated and highly
serviceable. Both ViGo and POS4XP(TM), PAR's 4th generation hardware platform,
are Pentium-designed systems developed to host the most powerful point-of-sale
software applications in the hospitality industry. ViGo offers the hospitality,
retail and entertainment industries an innovative design with more options than
any other hardware platform in the marketplace. Both ViGo and POS4XP designs
utilize open architecture with industry standard components and are compatible
with the most popular operating systems. The hardware platforms support a
distributed processing environment and incorporate an advanced hospitality
management technology system, utilizing Intel microprocessors, standard PC
expansion slots, Ethernet LAN, standard Centronics printer ports as well as USB
ports. The hardware systems supply their industry-standard components with
features for hospitality applications such as multiple video ports. The POS
systems utilize distributed processing architecture to integrate a broad range
of PAR and third-party peripherals and are designed to withstand the harsh
hospitality environments. Both hardware platforms have a favorable
price-to-performance ratio over the life of the system as a result of their PC
compatibility, ease of expansion and high reliability design.
Systems Integration and Professional Services. PAR's ability to offer the
full spectrum of integration, implementation, installation, maintenance, and
support services is one of the Company's key differentiators. PAR continues to
work in unison with its customers to identify and address the latest hospitality
technology requirements by creating interfaces to equipment, including
innovations such as automated cooking and drink-dispensing devices,
customer-activated terminals and order display units located inside and outside
of the customer's business site. The Company provides its systems integration
expertise to interface specialized components, such as video monitors, coin
dispensers and non-volatile memory for journalizing transaction data, as is
required in some international applications. PAR is comprised of experienced
individuals with diverse hospitality backgrounds in both hotels/resorts and
restaurants. PAR has the knowledge and expertise to recommend property
management solutions which can be used most effectively in hotels and
restaurants, with emphasis on maximizing return on investment. In addition, the
Company has secured strategic partnerships with third-party organizations to
offer a variety of credit, debit and gift card payment options that allow quick
service restaurants, convenience stores, gasoline stations and drugstores to
process cashless payments quickly and efficiently. The Company's Technical
Services department continuously evaluates new technologies and adopts those
that allow PAR to provide significant improvements in customer's day-to-day
systems. From hand-held wireless devices to advances in internet performance,
the technical staff is available for consultation on a wide variety of topics
including network infrastructures, system functionality, operating system
platforms, and hardware expandability.
Installation and Training
In the United States, Canada, Europe, South Africa, the Middle East,
Australia and Asia, PAR personnel provide installation, training and integration
services on a fixed-fee basis as a normal part of the equipment purchase
agreement. In certain areas of North and South America, Europe and Asia, the
Company provides these integration services through third parties. Prior to
system installation and user training, hotel/resort operators can attend a
configuration seminar, during which attendees review internal policies and
procedures, establish a software configuration and receive an overview of the
PAR SMS|Host product suite. PAR provides complete application training for a
site's staff as well as technical instruction for Information Systems personnel.
The PAR training team is composed of experienced individuals with diverse
hospitality and technical backgrounds.
Maintenance and Service
The Company offers a wide range of maintenance and support services as part
of its total solution for its targeted hospitality technology markets. In the
North American region, the Company provides comprehensive maintenance and
integration services for the Company's equipment and systems, as well as those
of third parties, through a 24-hour central telephone customer support and
diagnostic service in Boulder, Colorado, as well as service centers in Europe,
South Africa, the Middle East, Australia and Asia. The Company believes that its
ability to address all support and maintenance requirements for a customer's
hospitality technology network provides it with a clear competitive advantage.
PAR also maintains regional support centers in three additional locations
worldwide including Las Vegas, Nevada in the US, Kuala Lumpur in Malaysia, and
Kettering in the UK, that focus upon servicing and maintaining PAR systems to
the hotel/resort markets 24 hours a day, seven days a week. The Company
maintains a field service network consisting of nearly 100 locations offering
on-site service and repair, as well as depot repair, overnight unit replacements
and spare unit rentals. At the time a hospitality technology system is
installed, PAR trains customer employees and managers to ensure efficient and
effective use of the system. If a problem occurs within the Company's
manufactured technology system (hardware and software), PAR's current service
management software products allow a service technician to diagnose the problem
by telephone or by remotely dialing-in to the system, thus greatly reducing the
need for on-site service calls.
The Company's service organization utilizes a suite of software
applications from Clarify, Inc. (Clarify) as its Customer Resource Management
tool. Clarify allows PAR to demonstrate compelling value and differentiation to
its customers through the utilization of its extensive and ever-growing
knowledge base to efficiently diagnose and resolve customer-service issues.
Clarify also enables PAR to compile the kind of in-depth information it needs to
spot trends and identify opportunities. A second software suite is a call center
CRM solution and knowledge base known as Connect-Care by Firstwave. Connect-Care
allows PAR to maintain a profile on each customer, their background, hardware
and software details, client service history, and a problem-resolution database.
Analysis of this data allows the Company to optimize customer service by
identifying trends in calls and to work with customers to quickly resolve
issues. The same system is used by the PAR SMS Research and Development team as
a real-time communications tool between these technical departments to
coordinate software change management.
Sales & Marketing
Sales in the hospitality technology market are often generated by initially
obtaining the acceptance of the corporate chain as an approved vendor. Upon
approval, marketing efforts are then directed to franchisees of the chain. Sales
efforts are also directed toward franchisees of chains for which the Company is
not an approved corporate vendor. The Company employs direct sales personnel in
several sales groups. The Major Accounts Group works with large chain corporate
customers typically operating more than 75 locations. The Domestic Sales Group
targets franchisees of the major chain customers, as well as smaller chains
within the United States. The International Sales Group seeks sales to major
customers with locations overseas and to international chains that do not have a
presence in the United States. The Company's Business Partner Development Sales
Group targets non-foodservice markets such as retail, convenience, amusement
parks, movie theaters, cruise lines, spas and other ticketing and entertainment
venues. This group also works with third-party dealers and value-added resellers
throughout the country. In 2005 PAR acquired the dealer/distribution channel of
PixelPoint, that focuses on the table service sector of restaurants in
particular. New sales in the hotel/resort technology market are often generated
by leads, be it by word of mouth, internet searches, media coverage or trade
show presence. Marketing efforts are conducted in the form of direct mail
campaigns, advertising and targeted telesales calls. The Company employs direct
sales personnel in several sales groups. The Domestic Sales Group targets
independent, business class and luxury hotels and resorts and spas in the United
States, Canada and the Caribbean. The International Sales Group seeks sales to
independent hotels and resorts outside of the United States. The Corporate
Accounts Sales Group works with high profile corporate and chain clients such as
Mandarin Oriental Hotel Group, Destination Hotels and Resorts and Intrawest. The
Company's Installed Accounts Sales Group works solely with clients who have
already installed the SMS|Host product suite. The Business Development group
focuses on proactive identification and initial penetration of new business
channels for the SMS|Host, SMS|Touch and SpaSoft product lines worldwide.
Competition
The competitive landscape in the hospitality market is driven primarily by
functionality, reliability, quality, pricing, service and support. The Company
believes that its principal competitive advantages include its focus on an
integrated technology solution offering, advanced development capabilities,
in-depth industry knowledge and expertise, excellent product reliability, a
direct sales force organization, and the quality of its support and quick
service response. The markets in which the Company transacts business are highly
competitive. Most of our major customers have approved several suppliers who
offer some form of sophisticated hospitality technology system similar to the
Company's. Major competitors include Panasonic, IBM Corporation, Radiant
Systems, NCR, Hotel Information Systems, Visual One, Agilysis and Micros
Systems.
Backlog
At December 31, 2005, the Company's backlog of unfilled orders for the
Hospitality segment was approximately $9,800,000 compared to $18,534,000 a year
ago. All of the present orders are expected to be delivered in 2006. The
Hospitality 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 hospitality products requires
a significant and continuous research and development effort. Ongoing product
research and quality development efforts are an integral part of all activities
within the Company. Functional and technical enhancements are actively being
made to our products to increase customer satisfaction and maintain the high
caliber of our software. Research and development expenses were approximately
$9,355,000 in 2005, $6,015,000 in 2004 and $4,779,000 in 2003. The Company
capitalizes certain software costs in accordance with Statement of Financial
Accounting Standards No. 86, Accounting for the Costs of Computer Software to be
Sold, Leased or Otherwise Marketed. See Note 1 to the Consolidated Financial
Statements included in Item 15 for further discussion.
Manufacturing and Suppliers
The Company assembles its products from standard components such as
integrated circuits and fabricated parts such as printed circuit boards, metal
parts and castings, most of which are manufactured by others to the Company's
specifications. The Company depends on outside suppliers for the continued
availability of its components and parts. Although most items are generally
available from a number of different suppliers, the Company purchases certain
components from only one supplier. Items purchased from only one supplier
include certain printers, base castings and electronic components. If such a
supplier should cease to supply an item, the Company believes that new sources
could be found to provide the components. However, added cost and manufacturing
delays could result and adversely affect the business of the Company. The
Company has not experienced significant delays of this nature in the past, but
there can be no assurance that delays in delivery due to supply shortages will
not occur in the future.
Intellectual Property
The Company owns or has rights to certain patents, copyrights and
trademarks, but believes none of these intellectual property rights provides a
material competitive advantage. The Company relies upon non-disclosure
agreements, license agreements and applicable domestic and foreign patent,
copyright and trademark laws for protection of its intellectual property. To the
extent such protective measures are unsuccessful, or the Company needs to enter
into protracted litigation to enforce such rights the Company's business could
be adversely impacted. Similarly there is no assurance that the Company's
products will not become the subject of a third party claim of infringement or
misappropriation. To the extent such claims result in costly litigation or force
the Company to enter into royalty or license agreements rather than enter into a
prolonged dispute the Company's business could be adversely impacted. The
Company also licenses certain third party software with its products. While the
Company has maintained a strong relationship with its licensors, there is no
assurance that such relationship will continue or that the licenses will be
continued under fees and terms acceptable to the Company.
Government Segment
PAR operates two wholly-owned subsidiaries in the Government business
segment, PAR Government Systems Corporation (PGSC) and Rome Research Corporation
(RRC). These companies provide the U.S. Department of Defense (DoD) and other
federal and state government organizations with a wide range of technical
services and products. Significant areas in which the Company is involved
include: design, development, and integration of state-of-the-art imagery
intelligence systems for information archive, retrieval, and processing;
advanced research and development for imaging sensors; development and
operations of logistics management systems; and engineering and support services
for Government information technology and communications facilities.
The Company's offerings cover the entire development cycle for Government
systems, including requirements analysis, design specification, development,
implementation, installation, test and evaluation.
Information Systems and Technology
The Information Systems and Technology (IS&T) business sector develops
integrated systems for imaging information archiving, processing, exploitation,
and visualization. IS&T is the system integrator for the Multi-Sensor
Integration facility at the Air Force Research Laboratory-Rome Research Site and
is a key developer of the National Geospatial-Intelligence Agency (NGA) Image
Product Library (IPL). The IPL provides access to a virtual network of archives
in support of the operational users of imagery. The Company has a substantial
systems integration contract to support interoperability of new and emerging
commercial imagery exploitation and data management systems for U.S. Air Force
(USAF) operations. Since 1986, the Company has been a key contributor to the
full-scale engineering development for the Joint Surveillance Target Attack
Radar System (Joint STARS) and more recently, for the Affordable Moving Surface
Target Engagement (AMSTE) program. The Company provides systems engineering and
software development for radar technologies that detect, track and target ground
vehicles.
Signal and Image Processing
The Signal and Image Processing (SIP) business sector supports the
development and implementation of complex sensor systems including the
collection and analysis of sensor data. The SIP group has developed sensor
concepts, algorithms, and real-time systems to address the difficult problems of
finding low-contrast targets against clutter background (e.g., finding cruise
missiles, fighter aircraft, and personnel against heavy terrain backgrounds),
detecting man-made objects in dense foliage, and performing humanitarian efforts
in support of the removal of land mines with ground penetrating radar. The
Company also supports numerous technology demonstrations for the DoD, including
a multi-national NATO exercise of wireless communications interoperability. As
part of this demonstration, the Company designed and built the Software Radio
Development System (SoRDS) for test and evaluation of communications waveforms.
The Company has extended this technology into public safety and law enforcement
via the Software Adaptive Advanced Communications (SAAC(R)) system, a
multi-channel communications gateway intended to solve the problem of wireless
communications interoperability. The Company also supports Navy airborne
infrared surveillance systems through the development of advanced optical
sensors.
Geospatial Software and Modeling
The Geospatial Software and Modeling (GS&M) business sector performs water
resources modeling; Geographic Information Systems (GIS) based data management,
and geospatial information technology development. In particular, the Company's
Flood*WareTM software tool and methodology is being employed by New York State
in support of Federal Emergency Management Agency's Map Modernization Program.
Similar technologies are used in support of water quality modeling and
assessment applications for the NYC Watershed Protection Program.
Logistics Management Systems
The Logistics Management Systems (LMS) business sector focuses on the
design, development, deployment and commercialization of the
CargoWatch(R)Logistics Information Management System. CargoWatch is a
comprehensive, end-to-end solution for the monitoring and management of
transport assets and cargo throughout the intermodal (i.e., port, highway, rail,
and ocean) transportation lifecycle. The CargoWatch system is being implemented
under a multi-year Cooperative Agreement with the U.S. Department of
Transportation/Maritime Administration (DOT/MARAD) with funds specifically
authorized by Congress for CargoWatch under the Transportation Equity Act for
the 21st Century (TEA-21) in 1998. CargoWatch uses state-of-the-art technology
to acquire Global Positioning System (GPS) location and equipment status data.
Wireless communication networks then transmit the data to the LMS Operations
Center, and a powerful geospatial database customizes the data to meet the needs
of each customer and provide it to the customer over the Internet or via direct
linkage to existing (back-office) information systems.
Information Technology and Communications Support Services
The Company provides a wide range of technical and support services to
sustain mission critical components of the Department of Defense Global
Information Grid. These services include continuous operations, system
enhancements and maintenance of very low frequency (VLF), high frequency (HF)
and very high frequency (VHF) radio transmitter/receiver facilities, and
extremely high frequency (EHF) and super high frequency (SHF) satellite
communication heavy earth terminal facilities. The Company supports these DoD
communications facilities, as well as other telecommunications equipment and
information systems, at customer locations in and outside of the continental
United States. The various facilities, operating 24 hours a day, are integral to
the command and control of the nation's air, land and naval forces, and those of
United States coalition allies.
Test Laboratory and Range Operations
The Company provides management, engineering, and technical services under
several contracts with the U.S. Air Force 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 include
unique components, specialized equipment, and advanced systems for radar,
communications, electronic counter-measures, and integrated weapon systems. The
Company also develops complex measurement systems in several defense-related
areas of technology.
Government Contracts
The Company performs work for U.S. Government agencies under firm
fixed-price, cost-plus-fixed-fee and time-and-material contracts. The majority
of its contracts are for one-year to five-year terms. There are several risks
associated with Government contracts. For example, contracts may be terminated
for the convenience of the Government any time the Government believes that such
termination would be in its best interests. In this circumstance, the Company is
entitled to receive payments for its allowable costs and, in general, a
proportionate share of its fee or profit for the work actually performed. The
Company's business with the U.S. Government is also subject to other risks
unique to the defense industry, such as reduction, modification, or delays of
contracts or subcontracts if the Government's requirements, budgets, or policies
or regulations change. The Company may also perform work prior to formal
authorization or prior to adjustment of the contract price for increased work
scope, change orders and other funding adjustments. Additionally, the Defense
Contract Audit Agency on a regular basis audits the books and records of the
Company. Such audits can result in adjustments to contract costs and fees.
Audits have been completed through the Company's fiscal year 2003 and have not
resulted in any material adjustments.
Marketing and Competition
Marketing begins with collecting information from a variety of sources
concerning the present and future requirements of the Government and other
potential customers for the types of technical expertise provided by the
Company. Although the Company believes it is positioned well in its chosen areas
of image and signal processing, information technology/communications and
engineering services, competition for Government contracts is intense. Many of
the Company's competitors are major corporations, or their subsidiaries, such as
Lockheed-Martin, Raytheon, Northrop-Grumman, BAE, Harris, and SAIC that are
significantly larger and have substantially greater financial resources than the
Company. The Company also competes with many smaller companies that target
particular segments of the Government market. Contracts are obtained principally
through competitive proposals in response to solicitations from Government
agencies and prime contractors. The principal competitive factors are past
performance, the ability to perform, price, technological capabilities,
management capabilities and service. In addition, the Company sometimes obtains
contracts by submitting unsolicited proposals. Many of the Company's DoD
customers are now migrating to commercial software standards, applications, and
solutions. In that manner, the Company is utilizing its Internal Research and
Development to migrate existing solutions into software product lines that will
support the DoD geospatial community (i.e., NGA, USAF, etc.).
Backlog
The dollar value of existing Government contracts at December 31, 2005, net
of amounts relating to work performed to that date, was approximately
$106,614,000, of which $35,470,000 was funded. At December 31, 2004, the
comparable amount was approximately $111,793,000, of which $35,107,000 was
funded. Funded amounts represent those amounts committed under contract by
Government agencies and prime contractors. The December 31, 2005 Government
contract backlog of $106,614,000 represents firm, existing contracts.
Approximately $51,000,000 of this amount is expected to be completed in calendar
year 2006, as funding is committed.
Employees
As of December 31, 2005, the Company had 1,539 employees, approximately 54%
of whom are engaged in the Company's Hospitality segment, 43% of whom are in the
Government segment, and the remainder are corporate employees.
Due to the highly technical nature of the Company's business, the Company's
future can be significantly influenced by its ability to attract and retain its
technical staff. The Company believes that it will be able to fulfill its
near-term needs for technical staff.
Approximately 21% of the Company's employees are covered by collective
bargaining agreements. The Company considers its employee relations to be good.
Exchange Certifications
The certification of the CEO of PAR required by Section 303A.12(a) of the
New York Stock Exchange (NYSE) Listed Company Manual, relating to PAR's
compliance with the NYSE's corporate governance listing standards, was submitted
to the NYSE on December 19, 2005 with no qualifications.
Item 1A: Risk Factors
We operate in a dynamic and rapidly changing environment that involves
numerous risks and uncertainties. The following section describes some, but not
all, of the risks and uncertainties that could have a material adverse effect on
our business, financial condition, results of operations and the market price of
our common stock, and could cause our actual results to differ materially from
those expressed or implied in our forward-looking statements.
A DECLINE IN THE VOLUME OF PURCHASES MADE BY ANY ONE OF THE COMPANY'S MAJOR
CUSTOMERS WOULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS.
A small number of related customers have historically accounted for a
majority of the Company's net revenues in any given fiscal period. For the
fiscal years ended December 31, 2005, 2004 and 2003, aggregate sales to our top
two Hospitality segment customers, McDonald's and Yum! Brands, amounted to 41%,
51% and 50%, respectively, of total revenues. Most of the Company's customers
are not obligated to provide us with any minimum level of future purchases or
with binding forecasts of product purchases for any future period. In addition,
major customers may elect to delay or otherwise change the timing of orders in a
manner that could adversely affect the Company's quarterly and annual results of
operations. There can be no assurance that our current customers will continue
to place orders with us, or that we will be able to obtain orders from new
customers.
AN INABILITY TO PRODUCE NEW PRODUCTS THAT KEEP PACE WITH TECHNOLOGICAL
DEVELOPMENTS AND CHANGING MARKET CONDITIONS COULD RESULT IN A LOSS OF MARKET
SHARE.
The products we sell are subject to rapid and continual changes in
technology. Our competitors offer products that have an increasingly wider range
of features and capabilities. We believe that in order to compete effectively we
must provide systems incorporating new technologies at competitive prices. There
can be no assurance that we will be able to continue funding research and
development at levels sufficient to enhance our current product offerings, or
that the Company will be able to develop and introduce on a timely basis new
products that keep pace with technological developments and emerging industry
standards and address the evolving needs of customers. There also can be no
assurance that we will not experience difficulties that will result in delaying
or preventing the successful development, introduction and marketing of new
products in our existing markets, or that our new products and product
enhancements will adequately meet the requirements of the marketplace or achieve
any significant degree of market acceptance. Likewise, there can be no assurance
as to the acceptance of our products in new markets, nor can there be any
assurance as to the success of our penetration of these markets, nor to the
revenue or profit margins realized by the Company with respect to these
products. If any of our competitors were to introduce superior software products
at competitive prices, or if our software products no longer met the needs of
the marketplace due to technological developments and emerging industry
standards, our software products may no longer retain any significant market
share. If this were to occur, we could be required to record a charge against
capitalized software costs, which amount to $3.7 million as of December 31,
2005.
WE GENERATE MUCH OF OUR REVENUE FROM THE HOSPITALITY INDUSTRY AND THEREFORE ARE
SUBJECT TO DECREASED REVENUES IN THE EVENT OF A DOWNTURN EITHER IN THAT INDUSTRY
OR IN THE ECONOMY AS A WHOLE.
For the fiscal years ended December 31, 2005, 2004 and 2003, we derived
73%, 71% and 70%, respectively, of our total revenues from the Hospitality
industry, primarily the quick service restaurant marketplace. Consequently, our
Hospitality technology product sales are dependent in large part on the health
of the Hospitality industry, which in turn is dependent on the domestic and
international economy, as well as factors such as consumer buying preferences
and weather conditions. Instabilities or downturns in the Hospitality market
could disproportionately impact our revenues, as clients may either exit the
industry or delay, cancel or reduce planned expenditures for our products.
Although we believe we can assist the quick service restaurant sector of the
Hospitality industry in a competitive environment, given the cyclical nature of
that industry, there can be no assurance that our profitability and growth will
continue.
WE DERIVE A PORTION OF OUR REVENUE FROM GOVERNMENT CONTRACTS, WHICH CONTAIN
PROVISIONS UNIQUE TO PUBLIC SECTOR CUSTOMERS, INCLUDING THE GOVERNMENT'S RIGHT
TO MODIFY OR TERMINATE THESE CONTRACTS AT ANY TIME.
For the fiscal years ended December 31, 2005, 2004 and 2003, we derived
27%, 29% and 30%, respectively, of our total revenues from contracts to provide
technical services to U.S. Government agencies and defense contractors.
Contracts with U.S. Government agencies typically provide that such contracts
are terminable at the convenience of the U.S. Government. If the U.S. Government
terminated a contract on this basis, we would be entitled to receive payment for
our allowable costs and, in general, a proportionate share of our fee or profit
for work actually performed. Most U.S. Government contracts are also subject to
modification or termination in the event of changes in funding. As such, we may
perform work prior to formal authorization, or the contract prices may be
adjusted for changes in scope of work. Termination or modification of a
substantial number of our U.S. Government contracts could have a material
adverse effect on our business, financial condition and results of operations.
We perform work for various U.S. Government agencies and departments
pursuant to fixed-price, cost-plus fixed fee and time-and-material, prime
contracts and subcontracts. Approximately 64% of the revenue that we derived
from Government contracts for the year ended December 31, 2005 came from
fixed-price or time-and-material contracts. The balance of the revenue that we
derived from Government contracts in 2005 primarily came from cost-plus fixed
fee contracts. Most of our contracts are for one-year to five-year terms.
While fixed-price contracts allow us to benefit from cost savings, they
also expose us to the risk of cost overruns. If the initial estimates we use for
calculating the contract price are incorrect, we can incur losses on those
contracts. In addition, some of our governmental contracts have provisions
relating to cost controls and audit rights and, if we fail to meet the terms
specified in those contracts, then we may not realize their full benefits. Lower
earnings caused by cost overruns would have an adverse effect on our financial
results.
Under time-and-materials contracts, we are paid for labor at negotiated
hourly billing rates and for certain expenses. Under cost-plus fixed fee
contracts, we are reimbursed for allowable costs and paid a fixed fee. However,
if our costs under either of these types of contract exceed the contract ceiling
or are not allowable under the provisions of the contract or applicable
regulations, we may not be able to obtain reimbursement for all of our costs.
If we are unable to control costs incurred in performing under each type of
contract, such inability to control costs could have a material adverse effect
on our financial condition and operating results. Cost over-runs also may
adversely affect our ability to sustain existing programs and obtain future
contract awards.
WE FACE EXTENSIVE COMPETITION IN THE MARKETS IN WHICH WE OPERATE, AND OUR
FAILURE TO COMPETE EFFECTIVELY COULD RESULT IN PRICE REDUCTIONS AND/OR DECREASED
DEMAND FOR OUR PRODUCTS AND SERVICES.
There are several suppliers who offer Hospitality management systems
similar to ours. Some of these competitors are larger than PAR and have access
to substantially greater financial and other resources and, consequently, may be
able to obtain more favorable terms than we can for components and subassemblies
incorporated into these Hospitality technology products. The rapid rate of
technological change in the Hospitality industry makes it likely that we will
face competition from new products designed by companies not currently competing
with us. These new products may have features not currently available on our
Hospitality products. We believe that our competitive ability depends on our
total solution offering, our product development and systems integration
capability, our direct sales force and our customer service organization. There
is no assurance, however, that we will be able to compete effectively in the
hospitality technology market in the future.
Our Government contracting business has been focused on niche offerings,
primarily signal and image processing, information technology outsourcing and
engineering services. Many of our competitors are, or are subsidiaries of,
companies such as Lockheed-Martin, Raytheon, Northrop-Grumman, BAE, Harris and
SAIC. These companies are larger and have substantially greater financial
resources than we do. We also compete with smaller companies that target
particular segments of the Government market. These companies may be better
positioned to obtain contracts through competitive proposals. Consequently,
there are no assurances that we will continue to win Government contracts as a
prime contractor or subcontractor.
WE MAY NOT BE ABLE TO MEET THE UNIQUE OPERATIONAL, LEGAL AND FINANCIAL
CHALLENGES THAT RELATE TO OUR INTERNATIONAL OPERATIONS, WHICH MAY LIMIT THE
GROWTH OF OUR BUSINESS.
For the fiscal years ended December 31, 2005, 2004 and 2003, our net
revenues from sales outside the United States were 11%, 9% and 11%,
respectively, of the Company's total revenues. We anticipate that international
sales will continue to account for a significant portion of sales. We intend to
continue to expand our operations outside the United States and to enter
additional international markets, which will require significant management
attention and financial resources. Our operating results are subject to the
risks inherent in international sales, including, but not limited to, regulatory
requirements, political and economic changes and disruptions, geopolitical
disputes and war, transportation delays, difficulties in staffing and managing
foreign sales operations, and potentially adverse tax consequences. In addition,
fluctuations in exchange rates may render our products less competitive relative
to local product offerings, or could result in foreign exchange losses,
depending upon the currency in which we sell our products. There can be no
assurance that these factors will not have a material adverse affect on our
future international sales and, consequently, on our operating results.
OUR BUSINESS DEPENDS ON A LARGE NUMBER OF HIGHLY QUALIFIED PROFESSIONAL
EMPLOYEES AND, IF WE ARE NOT ABLE TO RECRUIT AND RETAIN A SUFFICIENT NUMBER OF
THESE EMPLOYEES, WE WOULD NOT BE ABLE TO PROVIDE HIGH QUALITY SERVICES TO OUR
CURRENT AND FUTURE CUSTOMERS, WHICH WOULD HAVE AN ADVERSE EFFECT ON OUR REVENUES
AND OPERATING RESULTS.
We actively compete for qualified professional staff. The availability or
lack thereof of qualified professional staff may affect our ability to develop
new products and to provide services and meet the needs of our customers in the
future. An inability to fulfill customer requirements due to a lack of available
qualified staff at agreed upon salary rates may adversely impact our operating
results in the future.
A SIGNIFICANT PORTION OF OUR TOTAL ASSETS CONSISTS OF GOODWILL AND IDENTIFIABLE
INTANGIBLE ASSETS, WHICH ARE SUBJECT TO A PERIODIC IMPAIRMENT ANALYSIS AND A
SIGNIFICANT IMPAIRMENT DETERMINATION IN ANY FUTURE PERIOD COULD HAVE AN ADVERSE
EFFECT ON OUR RESULTS OF OPERATIONS EVEN WITHOUT A SIGNIFICANT LOSS OF REVENUE
OR INCREASE IN CASH EXPENSES ATTRIBUTABLE TO SUCH PERIOD.
We have goodwill and identifiable intangible assets totaling approximately
$20.6 million and $9.9 million at December 31, 2005, respectively, resulting
primarily from several business acquisitions. At least annually, we evaluate
goodwill and identifiable intangible assets for impairment based on the fair
value of the operating business unit to which these assets relates. This
estimated fair value could change if we are unable to achieve operating results
at the levels that have been forecasted, the market valuation of such companies
decreases based on transactions involving similar companies, or there is a
permanent, negative change in the market demand for the services offered by the
business unit. These changes could result in an impairment of the existing
goodwill and identifiable intangible assets balances that could require a
material non-cash charge to our results of operations.
Item 2: Properties
The following are the principal facilities (by square footage) of the
Company:
Industry Floor Area Number of
Location Segment Principal Operations Sq. Ft.
-------- ------- -------------------- ----------
New Hartford, NY Hospitality Principal executive offices, 138,500
Government manufacturing, research and
development laboratories,
computing facilities
Rome, NY Government Research and development 40,900
Stowe, VT Hospitality Sales, service and research 26,000
and development
Boulder, CO Hospitality Service 20,500
Sydney, Australia Hospitality Sales and service 9,100
Las Vegas, NV Hospitality Service 8,800
Boca Raton, FL Hospitality Research and development 8,700
Vaughn, Canada Hospitality Sales, service and research and 8,000
development
Toronto, Canada Hospitality Sales, service and research and 7,700
development
The Company's headquarters and principal business facility is located in
New Hartford, New York, which is near Utica, located in Central New York State.
The Company owns its principal facility and adjacent space in New Hartford,
N.Y. All of the other facilities are leased for varying terms. Substantially all
of the Company's facilities are fully utilized, well maintained, and suitable
for use. The Company believes its present and planned facilities and equipment
are adequate to service its current and immediately foreseeable business needs.
Item 3: Legal Proceedings
The Company is subject to legal proceedings which arise in ordinary course
of business. In the opinion of management, the ultimate liability, if any, with
respect to these actions will not materially affect the financial position,
results of operations or cash flows of the Company.
PART II
Item 5: Market for the Registrant's Common Stock, Related Stockholder Matters
and Issuer Purchases of Equity Securities
The Company's Common Stock, par value $.02 per share, trades on the New
York Stock Exchange (NYSE symbol - PTC). At December 31, 2005, there were
approximately 487 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, 2005 as reported by New York Stock Exchange:
2005 2004
-------------------- -------------------
Period Low High Low High
- --------------- -------- --------- -------- -------
First Quarter $7.47 $10.68 $5.19 $7.47
Second Quarter $10.28 $22.30 $6.44 $8.24
Third Quarter $13.10 $25.60 $5.47 $7.18
Fourth Quarter $13.26 $23.60 $5.90 $7.90
The Company has not paid cash dividends on its Common Stock, and its Board
of Directors presently intends to continue to retain earnings for reinvestment
in growth opportunities. Accordingly, it is anticipated that no cash dividends
will be paid in the foreseeable future.
On November 14, 2005, the Company's Board of Directors declared a 3 for 2
stock split in the form of a stock dividend that was distributed on January 6,
2006 to shareholders of record on December 12, 2005. All share and per share
data in these consolidated financial statements and footnotes have been
retroactively restated as if the stock split had occurred as of the earliest
period presented.
Item 6: Selected Financial Data
SELECTED CONSOLIDATED STATEMENT OF INCOME DATA
(In thousands, except per share amounts)
The following selected historical consolidated financial data should be
read in conjunction with the Consolidated Financial Statements and the related
notes and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Annual Report on Form 10-K.
Year ended December 31,
-------------------------------------------------------------
2005 2004 2003 2002 2001
-------------------------------------------------------------
Net revenues .................... $ 205,639 $ 174,884 $ 139,770 $ 133,681 $ 114,354
Cost of sales ................... $ 150,053 $ 137,738 $ 110,777 $ 105,225 $ 89,001
Gross margin .................... $ 55,586 $ 37,146 $ 28,993 $ 28,456 $ 25,353
Selling, general & administrative $ 30,867 $ 22,106 $ 19,340 $ 19,540 $ 16,774
Provision for income taxes ...... $ (5,358) $ (3,729) $ (1,593) $ (884) $ (621)
Income from continuing operations $ 9,432 $ 5,635 $ 2,792 $ 2,623 $ 2,080
Basic earnings per share from
continuing operations ......... $ .68 $ .43 $ .22 $ .22 $ .18
Diluted earnings per share from
continuing operations .......... $ .64 $ .41 $ .21 $ .21 $ .18
SELECTED CONSOLIDATED BALANCE SHEET DATA
(In thousands)
December 31,
----------------------------------------------------
2005 2004 2003 2002 2001
----------------------------------------------------
Current assets ..... $ 84,492 $ 77,696 $ 74,195 $ 69,070 $ 67,795
Current liabilities $ 43,661 $ 45,159 $ 29,816 $ 31,743 $ 39,118
Total assets ....... $125,149 $111,752 $ 87,147 $ 85,122 $ 88,915
Long-term debt ..... $ 1,948 $ 2,005 $ 2,092 $ 2,181 $ 2,268
Shareholders' equity $ 78,492 $ 63,574 $ 55,239 $ 51,198 $ 47,529
On November 14, 2005, the Company's Board of Directors declared a 3 for 2
stock split in the form of a stock dividend that was distributed on January 6,
2006 to shareholders of record on December 12, 2005. All share and per share
data in these consolidated financial statements and footnotes have been
retroactively restated as if the stock split had occurred as of the earliest
period presented.
Item 7: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward-Looking Statement
This document contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934. Any statements in this document that do not
describe historical facts are forward-looking statements. Forward-looking
statements in this document (including forward-looking statements regarding the
continued health of the Hospitality industry, future information technology
outsourcing opportunities, an expected increase in funding by the U.S.
Government relating to the Company's logistics management contracts, the impact
of current world events on our results of operations, the effects of inflation
on our margins, and the effects of interest rate and foreign currency
fluctuations on our results of operations) are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. When we use
words such as "intend," "anticipate," "believe," "estimate," "plan," "will," or
"expect", we are making forward-looking statements. We believe that the
assumptions and expectations reflected in such forward-looking statements are
reasonable, based on information available to us on the date hereof, but we
cannot assure you that these assumptions and expectations will prove to have
been correct or that we will take any action that we presently may be planning.
We have disclosed certain important factors that could cause our actual future
results to differ materially from our current expectation, including a decline
in the volume of purchases made by one or a group of our major customers; risks
in technology development and commercialization; risks of downturns in economic
conditions generally, and in the quick-service sector of the hospitality market
specifically; risks associated with government contracts; risks associated with
competition and competitive pricing pressures; and risks related to foreign
operations. Forward-looking statements made in connection with this report are
necessarily qualified by these factors. We are not undertaking to update or
revise publicly any forward-looking statement if we obtain new information or
upon the occurrence of future events or otherwise.
Overview
PAR is a global designer, manufacturer and marketer of hospitality
technology systems. We also are a provider to the Federal Government, and its
agencies, of engineering services and applied technology. The primary end
markets for our products and services are:
o restaurant, hotels/resorts, entertainment, and retail industries for
the integrated technologies of transaction processing and data capture
for certain enterprises
o the U.S. military and a broad range of government agencies
The Company's hospitality technology products are used in a variety of
applications by numerous customers. The Company encounters competition in all of
its markets (restaurants, hotels, theaters, etc.) and competes primarily on the
basis of product design/features, product quality/reliability, price, customer
service and delivery capability. There has been a trend amongst our hospitality
customers to consolidate their lists of approved vendors to companies that have
a global reach, can achieve quality and delivery standards, have multiple
product offerings, R&D capability, and be competitive with their pricing. PAR
believes that its global presence as a hospitality technology provider is an
important competitive advantage as it allows the Company to provide innovative
products, with a significant delivery capability, globally to its multinational
customers like McDonald's, Yum! Brands and Mandarin Oriental Hotel Group. During
2005 the Company acquired PixelPoint Technologies of Toronto, Ontario, Canada.
PixelPoint designs software specifically for the table service segment of the
restaurant industry and the Company views this business as a natural progression
of the Company to be the dominant supplier of hospitality technology across
several vertical industries. In 2005 the Company had a significant win in being
selected by Papa Murphy's restaurants as their sole in-store technology provider
which included hardware, software and services. Papa Murphy's has nearly 900
restaurants and has aggressive growth plans in terms of new store openings in
the next several years.
PAR's strategy is to provide complete integrated technology systems and
services and a high level of customer service in the markets in which it
competes. The Company focuses its research and development efforts to develop
cutting-edge products that meet and exceed our customers' needs and also have
high probability for broader market appeal and success. PAR also focuses upon
efficiency in our operations and controlling costs. This is achieved through the
investment in modern production technologies, managing purchasing processes and
functions.
PAR operates two wholly-owned subsidiaries in the Government business
segment, PAR Government Systems Corporation (PGSC) and Rome Research Corporation
(RRC). As a long-standing Government contractor, PAR develops advanced
technology systems for the U.S. Department of Defense and other U.S.
Governmental agencies. Additionally, PAR provides information technology and
communications support services to the U.S. Navy, U.S. Air Force and U.S. Army.
PAR focuses its computer-based system design services on providing high quality
technical products and services, ranging from experimental studies to advanced
operational systems, within a variety of areas of research, including radar,
image and signal processing, logistic management systems, and geospatial
services and products. PAR's Government engineering service business provides
management and engineering services that include facilities operation and
management. In December 2005, PAR acquired C(3)I Associates, a government
technology services business and PAR will continue to seek out similar companies
for partnership or acquisition as we expand our depth in this segment. In 2005
PAR was awarded several new contracts with the U.S. Navy, including one for the
operation of a Navy I/T facility in Italy, several awards with the General
Services Administration and the International Broadcast Bureau. The Company will
continue to execute its strategy of leveraging its core technical capabilities
and performance into related technical areas and an expanding customer base. The
Company will seek to accelerate this growth through strategic acquisitions of
businesses that broaden the Company's technology and/or business base.
The Company's intention is to continue to expand our customer base and
solidify our leading position in the industries to which we market by:
o Developing integrated solutions
o Continuing to grow our global presence in growth markets
o Focusing on customer needs
o Encouraging entrepreneurial corporate attitude and spirit
o Fostering a mindset of controlling cost
o Pursuing strategic acquisitions
Summary
We believe we can continue to be successful in our two core business
segments -Hospitality Technology and Government Contracting- because of our
focus and industry expertise. In addition, our operations will benefit from our
efficient supply chain and economies of scale as we leverage our suppliers and
distribution operations. We remain committed to streamlining our operations and
improving our return on invested capital through a variety of initiatives.
The following table sets forth the Company's revenues by reportable segment
for the year ended December 31 (in thousands):
2005 2004 2003
------------- -------------- -------------
Revenues:
Hospitality $ 149,457 $ 124,969 $ 98,088
Government 56,182 49,915 41,682
------------- -------------- -------------
Total consolidated revenue $ 205,639 $ 174,884 $ 139,770
============= ============== =============
The following discussion and analysis highlights items having a significant
effect on operations during the three year period ended December 31, 2005. This
discussion may not be indicative of future operations or earnings. It should be
read in conjunction with the audited annual consolidated financial statements
and notes thereto and other financial and statistical information included in
this report.
Results of Operations -- 2005 Compared to 2004
The Company reported revenues of $205.6 million for the year ended December
31, 2005, an increase of 18% from the $174.9 million reported for the year ended
December 31, 2004. The Company's net income for the year ended December 31, 2005
was $9.4 million, or $.64 diluted net income per share, compared to net income
of $5.6 million and $.41 per diluted share for the same period in 2004.
Product revenues from the Company's Hospitality segment were $91.1 million
for the year ended December 31, 2005, an increase of 18% from the $77.5 million
recorded in 2004. This increase of $13.6 million is due to an $8.5 million
increase in sales to domestic customers. Key restaurant customers contributing
to this increase were Chick-fil-A, CKE and Papa Murphy's. Also contributing were
sales to numerous resort and spa customers. In the international market place,
sales of the Company's products increased $5.1 million. The primary reason for
this growth was sales to McDonald's restaurants. Sales to the Company's resort
and spa customers also contributed to the international growth.
Customer Service revenues are also generated by the Company's Hospitality
segment. The Company's service offerings include system integration,
installation, training, twenty-four hour help desk support and various depot and
on-site service options. Customer Service revenues were $58.3 million for the
year ended December 31, 2005, an increase of 23% from the $47.5 million for the
same period in 2004. This increase was due primarily to systems integration and
software maintenance revenues associated with the Company's resort and spa
customers. Additionally, the Company increased its field service and support
center revenue for its restaurant customers by 14% or $2.8 million due to
expansion of the Company's customer base. This was partially offset by a decline
in installation revenue due to a greater number of customer's performing
self-installation.
Contract revenues from the Company's Government segment were $56.2 million
for the year ended December 31, 2005, an increase of 13% when compared to the
$49.9 million recorded in the same period in 2004. Contributing to this growth
was a $2.1 million increase in information technology outsourcing revenue from
contracts for facility operations at critical U.S. Department of Defense
telecommunication sites across the globe. These outsourcing operations provided
by the Company directly support U.S. Navy, Air Force and Army operations as they
seek to convert their military information technology communications facilities
into contractor-run operations and to meet new requirements with contractor
support. Also contributing to this increase was a $1.8 million increase in
revenue under the Company's Logistics Management Program. The balance of the
increase was due to several contracts in applied technology.
Product margins for the year ended December 31, 2005 were 41.4%, an
increase of 760 basis points from the 33.8% for the year ended December 31,
2004. This increase in margins was primarily attributable to higher software
revenue. This software revenue was generated from the Company's resort, spa and
restaurant customers. The increase was also due to a large integration project
for a major customer in 2004 that involved lower margin peripheral hardware
products. This project has been substantially completed in 2005.
Customer Service margins were 24.2% for the year ended December 31, 2005
compared to 16.2% for the same period in 2004, an increase of 800 basis points.
This increase was due to service integration and software maintenance revenue at
higher margins associated with the Company's resort and spa products. The
increase was also due to additional service contracts from restaurant customers
and the Company's ability to leverage its service infrastructure.
Contract margins were 6.7% for the year ended December 31, 2005 versus 6.5%
for the same period in 2004. In 2005, the margin increase resulted from higher
margins on certain fixed price contracts partially offset by higher than
anticipated award fees in 2004 on certain image and digital processing
contracts. The most significant components of contract costs in 2005 and 2004
were labor and fringe benefits. For the year ended December 31, 2005 labor and
fringe benefits were $39.4 million or 75% of contract costs compared to $35.9
million or 77% of contract costs for the same period in 2004.
Selling, general and administrative expenses are virtually all related to
the Company's Hospitality segment. Selling, general and administrative expenses
for the year ended December 31, 2005 were $30.9 million, an increase of 40% from
the $22.1 million expended for the same period in 2004. The increase was
primarily attributable to a rise in selling and marketing expenses due to sales
of the Company's new resort and spa software products and the Company's
traditional hardware products. Also contributing to the increase was an
investment in the Company's restaurant sales force and the cost of compliance
with the Sarbanes-Oxley regulations.
Research and development expenses relate primarily to the Company's
Hospitality segment. However, in 2004, approximately 4% of these expenses
related to the Company's Logistics Management Program. Research and development
expenses were $9.4 million for the year ended December 31, 2005, an increase of
49% from the $6.3 million recorded in 2004. The increase was primarily
attributable to the Company's investment in its recently acquired resort and spa
products. The Company also continues to invest in its restaurant hardware and
software products. Partially offsetting this increase was a decline in the
investment in the Company's Logistic Management Program as new U.S. Government
funding is in place.
Amortization of identifiable intangible assets was $1 million for the year
ended December 31, 2005 compared to $245,000 for 2004. The increase is primarily
due to a full year of amortization relating to the acquisition of
Springer-Miller Systems, Inc. on October 1, 2004.
Other income, net, was $743,000 for the year ended December 31, 2005
compared to $1.1 million for the same period in 2004. Other income primarily
includes rental income and foreign currency gains and losses. The decrease in
2005 resulted primarily from a decline in foreign currency gains when compared
to 2004.
Interest expense represents interest charged on the Company's short-term
borrowing requirements from banks and from long-term debt. Interest expense was
$287,000 for the year ended December 31, 2005 as compared to $295,000 in 2004.
The Company experienced a higher borrowing interest rate in 2005 which was
offset by a lower average borrowings outstanding in 2005 when compared to 2004.
For the year ended December 31, 2005, the Company's effective income tax
rate was 36.2%, compared to 39.8% in 2004. The variance from the federal
statutory rate in 2005 was primarily due to state income taxes. The variance
from the federal statutory rate in 2004 was primarily due to state and foreign
income taxes.
Results of Operations -- 2004 Compared to 2003
The Company reported revenues of $174.9 million for the year ended December
31, 2004, an increase of 25% from the $139.8 million reported for the year ended
December 31, 2003. The Company's net income for the year ended December 31, 2004
was $5.6 million, or $.41 net income per diluted share, compared to net income
of $2.4 million and $.18 per diluted share for the same period in 2003.
Product revenues from the Company's Hospitality segment were $77.5 million
for the year ended December 31, 2004, an increase of 29% from the $60.2 million
recorded in 2003. The primary factor contributing to the increase was sales to
McDonald's which increased 75% or $14.9 million over 2003. Due to its recent
strong financial performance, McDonald's was investing in capital equipment to
upgrade its restaurants, triggering increased sales of the Company's products.
An additional factor contributing to the increase in product revenues was a $4.2
million increase in sales to CKE Restaurants. Software revenue from the
Company's new resort and spa customers also contributed to this growth. A
partially offsetting factor was a $2.3 million decline in sales to Loews Complex
due to the timing of customer requirements.
Customer Service revenues are also generated by the Company's Hospitality
segment. The Company's service offerings include system integration,
installation, training, twenty-four hour help desk support and various depot and
on-site service options. Customer Service revenues were $47.5 million for the
year ended December 31, 2004, an increase of 25% from the $37.9 million for the
same period in 2003. This increase was due primarily to a 52% or $3.9 million
increase in installation revenue that is directly related to the growth in the
Company's product revenue. Additionally, service revenues associated with the
Company's new resort and spa customers accounted for 8% of this increase. All
other service area revenues increased 7% primarily due to increased support
contracts and maintenance service activity relating to the continued expansion
of the Company's customer base.
Contract revenues from the Company's Government segment were $49.9 million
for the year ended December 31, 2004, an increase of 20% when compared to the
$41.7 million recorded in the same period in 2003. Contributing to this growth
was a $5.5 million or 24% increase in information technology outsourcing revenue
from contracts for facility operations at critical U.S. Department of Defense
telecommunication sites across the globe. These outsourcing operations provided
by the Company directly support U.S. Navy, Air Force and Army operations as they
seek to convert their military information technology communications facilities
into contractor-run operations and to meet new requirements with contractor
support. Also contributing to this increase was a $2.6 million or 48% increase
in revenue from research contracts involving Imagery Information Technology.
Product margins for the year ended December 31, 2004 were 33.8%, a decline
from 35.2% for the year ended December 31, 2003. This decrease was the result of
a large integration project for a major customer during 2004 that involved lower
margin peripheral hardware products. This decline was partially offset by
increased absorption of fixed manufacturing costs as production volume
increased. Also partially offsetting this decline was an increase in higher
margin software revenue from the Company's resort and spa customers.
Customer Service margins were 16.2% for the year ended December 31, 2004
compared to 15.1% for the same period in 2003. This increase was due to service
integration and software maintenance revenue associated with the Company's
resort and spa products. This was partially offset by increased use of third
parties (which results in lower margins than installations performed by internal
personnel) to assist the Company with the major integration project discussed
above.
Contract margins were 6.5% for the year ended December 31, 2004 versus 5.0
% for the same period in 2003. The increase in contract margins is primarily
attributable to a higher than anticipated performance-based award fee on an
imagery information technology contract. Additionally, the Company received a
favorable contract modification on a particular information technology
outsourcing contract. This was partially offset by start up costs and certain
new awards in 2004. The most significant components of contract costs in 2004
and 2003 were labor and fringe benefits. For the year ended December 31, 2004
labor and fringe benefits were $35.9 million or 77% of contract costs compared
to $30.5 million or 77% of contract costs for the same period in 2003.
Selling, general and administrative expenses are virtually all related to
the Company's Hospitality segment. Selling, general and administrative expenses
for the year ended December 31, 2004 were $22.1 million, an increase of 14% from
the $19.3 million expended for the same period in 2003. The increase was
primarily attributable to a rise in selling and marketing expenses due to sales
of the Company's new resort and spa software products and the Company's
traditional hardware products.
Research and development expenses relate primarily to the Company's
Hospitality segment. However in 2004 and 2003, approximately 4% and 10%,
respectively, of these expenses related to the Company's Logistics Management
Program. Research and development expenses were $6.3 million for the year ended
December 31, 2004, an increase of 18% from the $5.3 million recorded in 2003.
The increase was primarily attributable to the Company's investment in its newly
acquired resort and spa products. The Company also increased its investment in
its hardware products.
Other income, net, was $1.1 million for the year ended December 31, 2004
compared to $582,000 for the same period in 2003. Other income primarily
includes rental income and foreign currency gains and losses. The increase in
2004 resulted primarily from a rise in foreign currency gains when compared to
2003.
Interest expense represents interest charged on the Company's short-term
borrowing requirements from banks and from long-term debt. Interest expense
declined 45% to $295,000 for the year ended December 31, 2004 as compared to
$540,000 in 2003 primarily due to a lower average amount outstanding in 2004 as
compared to 2003.
For the year ended December 31, 2004, the Company's effective income tax
rate was 39.8%, compared to 36.3% in 2003. The variance from the federal
statutory rate in 2004 was primarily due to state and foreign income taxes. The
variance from the federal statutory rate in 2003 was primarily due to state
income taxes partially offset by a decrease in the valuation allowance for
certain tax credits.
Liquidity and Capital Resources
The Company's primary sources of liquidity have been cash flow from
operations and lines of credit with various banks. Cash provided by continuing
operations was $11.7 million for the year ended December 31, 2005 compared to
$19.7 million for 2004. In 2005, cash flow was generated primarily from
operating profits, the tax benefit generated from the exercise of stock options
and the timing of vendor payments for material purchases. This was partially
offset by an increase in accounts receivable and inventory. In 2004, cash flow
benefited from operating profits for the period, a reduction in inventory, and
timing of salary and benefit payments.
Cash used in investing activities was $9.5 million for the year ended
December 31, 2005 versus $15.8 million for the same period in 2004. In 2005,
capital expenditures were $1.7 million and were principally for manufacturing
and research and development equipment. Capitalized software costs relating to
software development of Hospitality segment products were $617,000 in 2005. In
2004, capital expenditures were $1.6 million and were primarily for
manufacturing equipment and information technology equipment and software for
internal use. Capitalized software costs relating to software development of
Hospitality segment products were $804,000 in 2004. In 2005, the Company used
$7.2 million in cash for acquisitions, the majority of which was for PixelPoint
Technologies. In 2004, cash used for the acquisition of Springer-Miller Systems,
Inc. was $13.4 million.
Cash used by financing activities was $5 million for the year ended
December 31, 2005 versus $3.8 million of cash provided for 2004. In 2005, the
Company reduced its short-term bank borrowings by $6.7 million and received $1.8
million from the exercise of employee stock options. During 2004, the Company
increased its short-term bank borrowings by $3.3 million and received $585,000
from the exercise of employee stock options.
The Company has an aggregate availability of $20,000,000 in bank lines of
credit. One line totaling $12,500,000 bears interest at the bank borrowing rate
(6.6% at December 31, 2005) and is subject to loan covenants including a debt to
tangible net worth ratio of 1.4 to 1; a minimum working capital requirement of
at least $25,000,000; and a debt coverage ratio of 4 to 1. The total amount of
credit available under this facility at a given time is based on (a) 80% of the
Company's accounts receivable under 91 days outstanding attributable to the
Company's Hospitality segment and (b) 40% of the Company's inventory, excluding
work in process. The total amount of this facility was available at December 31,
2005. This line expires on April 30, 2006. The second line of $7,500,000 allows
the Company, at its option, to borrow funds at the LIBOR rate plus the
applicable interest rate spread or at the bank's prime lending rate (7.25% at
December 31, 2005). This facility contains certain loan covenants including a
leverage ratio of not greater than 4 to 1 and a fixed charge coverage ratio of
not less than 4 to 1. This line expires on October 30, 2006. Both lines are
collateralized by certain accounts receivable and inventory. The Company was in
compliance with all loan covenants on December 31, 2005. At December 31, 2005
and 2004, there was $3,500,000 and $10,246,000 outstanding under these lines,
respectively. The weighted average interest rate paid by the Company during 2005
was 5.6% and 4.2% during 2004. The Company anticipates that it will renew these
lines for a three-year period at similar terms.
The Company has a $2 million mortgage loan on certain real estate. The
Company's future principal payments under this mortgage are as follows (in
thousands):
2006 $ 76
2007 81
2008 88
2009 95
2010 1,684
--------
$ 2,024
========
The Company future minimum obligations under non-cancelable operating
leases are as follows (in thousands):
2006 $ 2,180
2007 1,382
2008 1,256
2009 984
2010 461
Thereafter 167
--------
$ 6,430
========
During fiscal year 2006, the Company anticipates that its capital
requirements will be approximately $2 million. The Company does not usually
enter into long term contracts with its major Hospitality segment customers. The
Company commits to purchasing inventory from its suppliers based on a
combination of internal forecasts and the actual orders from customers. This
process, along with good relations with suppliers, minimizes the working capital
investment required by the Company. Although the Company lists two major
customers, McDonald's and Yum! Brands, it sells to hundreds of individual
franchisees of these corporations, each of which is individually responsible for
its own debts. These broadly made sales substantially reduce the impact on the
Company's liquidity if one individual franchisee reduces the volume of its
purchases from the Company in a given year. The Company, based on internal
forecasts, believes its existing cash, line of credit facilities and its
anticipated operating cash flow will be sufficient to meet its cash requirements
through at least the next twelve months. However, the Company may be required,
or could elect, to seek additional funding prior to that time. The Company's
future capital requirements will depend on many factors including its rate of
revenue growth, the timing and extent of spending to support product development
efforts, expansion of sales and marketing, the timing of introductions of new
products and enhancements to existing products, and market acceptance of its
products. The Company cannot assure that additional equity or debt financing
will be available on acceptable terms or at all. The Company's sources of
liquidity beyond twelve months, in management's opinion, will be its cash
balances on hand at that time, funds provided by operations, funds available
through its lines of credit and the long-term credit facilities that it can
arrange.
Critical Accounting Policies
The Company's consolidated financial statements are based on the
application of accounting principles generally accepted in the United States of
America (GAAP). GAAP requires the use of estimates, assumptions, judgments and
subjective interpretations of accounting principles that have an impact on the
assets, liabilities, revenue and expense amounts reported. The Company believes
its use of estimates and underlying accounting assumptions adhere to GAAP and
are consistently applied. Valuations based on estimates are reviewed for
reasonableness and adequacy on a consistent basis throughout the Company.
Primary areas where financial information of the Company is subject to the use
of estimates, assumptions and the application of judgment include revenue
recognition, accounts receivable, inventories, intangible assets and taxes.
Revenue Recognition Policy
The Company recognizes revenue generated by the Hospitality segment using
the guidance from SEC Staff Accounting Bulletin No. 104, "Revenue Recognition"
and the AICPA Statement of Position (SOP) 97-2, "Software Revenue Recognition,"
and other applicable revenue recognition guidance and interpretations. Product
revenue consists of sales of the Company's standard point-of-sale and property
management systems of the Hospitality segment. The Company recognizes revenue
from the sale of complete restaurant systems (which primarily includes hardware
or hardware and software) upon delivery to the customer site or upon
installation for certain software products. For restaurant systems that are
self-installed by the customer or an unrelated third party and for component
sales or supplies, the Company recognizes revenue at the time of shipment. In
addition to product sales, the Company may provide installation and training
services, and also offers maintenance contracts to its customers. Installation
and training service revenues are recognized as the services are performed. The
Company's other service revenues, consisting of support, field and depot repair,
are provided to customers either on a time and materials basis or under its
maintenance contracts. Services provided on a time and materials basis are
recognized as the services are performed. Service revenues from maintenance
contracts are recognized ratably over the related contract period.
The Company recognizes revenue in its Government segment using the guidance
from SEC Staff Accounting Bulletin No. 104, "Revenue Recognition." The Company's
contract revenues generated by the Government segment result primarily from
contract services performed for the U.S. Government under a variety of cost-plus
fixed fee, time-and-material and fixed-price contracts. Revenue on cost-plus
fixed fee contracts is recognized based on allowable costs for labor hours
delivered, as well as other allowable costs plus the applicable fee. Revenue on
time and material contracts is recognized by multiplying the number of direct
labor-hours delivered in the performance of the contract by the contract billing
rates and adding other direct costs as incurred. Revenue from fixed-price
contracts is recognized primarily on a straight-line basis over the life of the
fixed-price contract. The Company's obligation under these contracts is to
provide labor hours to conduct research or to staff facilities with no other
deliverables or performance obligations. Anticipated losses on all contracts are
recorded in full when identified. Unbilled accounts receivable are stated in the
Company's consolidated financial statements at their estimated realizable value.
Contract costs, including indirect expenses, are subject to audit and adjustment
through negotiations between the Company and U.S. Government representatives.
Accounts Receivable
Allowances for doubtful accounts are based on estimates of probable losses
related to accounts receivable balances. The establishment of allowances
requires the use of judgment and assumptions regarding probable losses on
receivable balances. We continuously monitor collections and payments from our
customers and maintain a provision for estimated credit losses based on our
historical experience and any specific customer collection issues that we have
identified. While such credit losses have historically been within our
expectations and appropriate reserves have been established, we cannot guarantee
that we will continue to experience the same credit loss rates that we have
experienced in the past. Thus, if the financial condition of our customers were
to deteriorate, our actual losses may exceed our estimates, and additional
allowances would be required.
Inventories
The Company's inventories are valued at the lower of cost or market, with
cost determined using the first-in, first-out (FIFO) method. The Company uses
certain estimates and judgments and considers several factors including product
demand and changes in technology to provide for excess and obsolescence reserves
to properly value inventory.
Capitalized Software Development Costs
The Company capitalizes certain costs related to the development of
computer software used in its Hospitality segment under the requirements of
Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed". Software
development costs incurred prior to establishing technological feasibility are
charged to operations and included in research and development costs. Software
development costs incurred after establishing feasibility are capitalized and
amortized over the estimated economic life when the product is available for
general release to customers.
Goodwill
Following Financial Accounting Standards Board issuance of Statement of
Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets",
(SFAS 142), the Company tests all goodwill for impairment annually, or more
frequently if circumstances indicate potential impairment. The Company has
elected to annually test for impairment in the fourth quarter of its fiscal
year.
Taxes
The Company has significant amounts of deferred tax assets that are
reviewed for recoverability and valued accordingly. These assets are evaluated
by using estimates of future taxable income and the impact of tax planning
strategies. Valuations related to tax accruals and assets can be impacted by
changes to tax codes, changes in statutory tax rates and the Company's estimates
of its future taxable income levels.
Item 7A: Quantitative and Qualitative Disclosures about Market Risk
INFLATION
Inflation had little effect on revenues and related costs during 2005.
Management anticipates that margins will be maintained at acceptable levels to
minimize the effects of inflation, if any.
INTEREST RATES
As of December 31, 2005, the Company has $2 million in variable rate
long-term debt and $3.5 million in variable rate short-term debt. The Company
believes that an adverse change in interest rates of 100 basis points would not
have a material impact on our business, financial conditions, results of
operations or cash flows.
FOREIGN CURRENCY
The Company's primary exposures relate to certain non-dollar denominated
sales and operating expenses in Europe and Asia. These primary currencies are
the Euro, the Australian dollar and the Singapore dollar. Management believes
that foreign currency fluctuations should not have a significant impact on our
business, financial conditions, results of operations or cash flows due to the
low volume of business affected by foreign currencies.
Item 8: Financial Statements and Supplementary Data
The Company's 2005 Consolidated financial statements, together with the
report thereon of KPMG LLP dated March 10, 2006, are included elsewhere herein.
See Item 15 for a list of Financial Statements.
Item 9A: Controls and Procedures
1. Evaluation of Disclosure Controls and Procedures.
Based on an evaluation of the Company's disclosure controls and procedures
(as defined in Rule 13a-15(e) and 15d - 15(e) under the Securities Exchange Act
of 1934) as of the end of the period covered by this Annual Report on Form 10-K,
conducted under the supervision of and with the participation of the Company's
chief executive officer and chief financial officer and such officers have
concluded that the Company's disclosure controls and procedures are designed to
ensure that information required to be disclosed by the Company in the reports
that it files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms and are operating in an effective manner.
2. Management's Report on Internal Control over Financial Reporting.
PAR's management is responsible for establishing and maintaining adequate
internal control over financial reporting. The Company's internal control system
was designed to provide reasonable assurance to management and the Board of
Directors regarding the preparation and fair presentation of published financial
statements in accordance with U.S. generally accepted accounting principles. For
the year ended December 31, 2005, the Company engaged the accounting firm of
Bowers & Company CPAs, PLLC to assist the Company document its internal controls
over financial reporting.
A company's internal control over financial reporting includes those
policies and procedures that (a) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (b) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (c) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the company's assets that could have a
material effect on the financial statements.
All internal control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement
preparation and presentation. Because of inherent limitations due to, for
example, the potential for human error or circumvention of controls, internal
controls over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may
deteriorate.
PAR's management assessed the effectiveness of the Company's internal
control over financial reporting as of December 31, 2005. In making this
assessment, management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control -
Integrated framework. Based on its assessment, management believes that, as of
December 31, 2005, the Company's internal control over financial reporting is
effective based on those criteria. This evaluation excluded the internal control
over financial reporting of PixelPoint Technologies (PixelPoint) which the
Company acquired on October 4, 2005. Management did not have adequate time to
gather sufficient evidence about the design and operating effectiveness of
internal control over financial reporting for PixelPoint from the date of
acquisition through December 31, 2005, therefore, Management was not able to
perform an evaluation with respect to the effectiveness of internal control over
financial reporting for PixelPoint. As of December 31, 2005, the total assets,
net revenues, and income from continuing operations before provision for income
taxes of PixelPoint comprised 6.1%, 0.4%, and 1.7% of the consolidated total
assets, net revenues, and income from continuing operations before provision for
income taxes of the Company.
PAR's independent registered public accounting firm, KPMG LLP, has issued a
report on the Company's assessment of its internal control over financial
reporting. This report appears below.
3. Report of Independent Registered Public Accounting Firm.
The Board of Directors and Shareholders
PAR Technology Corporation:
We have audited management's assessment, included in the accompanying
Management's Report on Internal Control over Financial Reporting, that PAR
Technology Corporation and subsidiaries (the Company) maintained effective
internal control over financial reporting as of December 31, 2005, based on
criteria established in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). PAR
Technology Corporation's management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our responsibility
is to express an opinion on management's assessment and an opinion on the
effectiveness of the Company's internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating management's assessment , testing
and evaluating the design and operating effectiveness of internal control, and
performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our
opinion.
A company's internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
In our opinion, management's assessment that PAR Technology Corporation and
subsidiaries maintained effective internal control over financial reporting as
of December 31, 2005, is fairly stated, in all material respects, based on
criteria established in Internal Control - Integrated Framework issued by COSO.
Also, in our opinion, PAR Technology Corporation and subsidiaries maintained, in
all material respects, effective internal control over financial reporting as of
December 31, 2005, based on criteria established in Internal Control -
Integrated Framework issued by COSO.
PAR Technology Corporation acquired PixelPoint Technologies, Inc. on
October 4, 2005, and management excluded from its assessment of the
effectiveness of PAR Technology Corporation's internal control over financial
reporting as of December 31, 2005, PixelPoint Technologies, Inc.'s internal
control over financial reporting associated with total assets, net revenues, and
income from continuing operations before provision for income taxes comprising
6.1%, 0.4 %, and 1.7% of the consolidated total assets, net revenues, and income
from continuing operations before provision for income taxes of PAR Technology
Corporation and subsidiaries as of and for the year ended December 31, 2005. Our
audit of internal control over financial reporting of PAR Technology Corporation
also excluded an evaluation of the internal control over financial reporting of
PixelPoint Technologies, Inc.
We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the consolidated balance
sheets of PAR Technology Corporation and subsidiaries as of December 31, 2005
and 2004, and the related consolidated statements of income, comprehensive
income, changes in shareholders' equity, and cash flows for each of the years in
the three-year period ended December 31, 2005, and our report dated March 10,
2006 expressed an unqualified opinion on those consolidated financial
statements.
/s/ KPMG LLP
Syracuse, New York
March 10, 2006
4. Changes in internal controls. During the period covered by this Annual
Report on Form 10-K, there were no changes in the Company's internal
control over financial reporting (as defined in Rule 13 a-15(f)) that
have materially affected, or are reasonably likely to materially
affect, the Company's internal control over financial reporting.
PART III
Item 10: Directors and Executive Officers of the Registrant
The directors and executive officers of the Company and their respective
ages and positions are:
Name Age Position
- ------------------------ --- ------------------------------------------------
Dr. John W. Sammon, Jr. 66 Chairman, President and Chief Executive Officer,
PAR Technology Corporation
Charles A. Constantino 66 Executive Vice President and Director,
PAR Technology Corporation
Sangwoo Ahn 67 Director, PAR Technology Corporation
J. Whitney Haney 71 Director, PAR Technology Corporation
Kevin R. Jost 51 Director, PAR Technology Corporation
James A. Simms 46 Director, PAR Technology Corporation
Gregory T. Cortese 56 Chief Executive Officer & President ParTech, Inc.,
General Counsel and Secretary,
PAR Technology Corporation
Albert Lane, Jr. 64 President, PAR Government Systems Corporation
and Rome Research Corporation
Ronald J. Casciano 52 Vice President, Chief Financial Officer
and Treasurer, PAR Technology Corporation
The Company's directors are elected in classes with staggered three-year
terms with one class being elected at each annual meeting of shareholders. The
directors serve until the next election of their class and until their
successors are duly elected and qualified. The Company's officers are appointed
by the Board of Directors and hold office at the will of the Board of Directors.
The principal occupations for the last five years of the directors and
executive officers of the Company are as follows:
Dr. John W. Sammon, Jr. is the founder of the Company and has been the
Chairman, President and Chief Executive Officer since its incorporation in 1968.
Mr. Charles A. Constantino has been a director of the Company since 1971
and Executive Vice President since 1974.
Mr. Sangwoo Ahn was appointed a director of the Company in March, 1986. Mr.
Ahn is the Chairman of the Board, Quaker Fabric Corp. since 1993 and previously
was the partner of Morgan, Lewis, Githens & Ahn.
Mr. J. Whitney Haney retired as President of ParTech, Inc. in 1998. He has
been a director of the Company since 1988.
Mr. Kevin R. Jost was appointed a director of the Company in May, 2004. Mr.
Jost has been the President and Chief Executive Officer of Hand Held Products,
Inc. since 1999.
Mr. James A. Simms was appointed a director of the Company in October,
2001. Mr. Simms is currently a senior investment banker with Janney, Montgomery,
Scott.
Mr. Albert Lane, Jr. was appointed to President, Rome Research Corporation
in 1988. Mr. Lane was additionally appointed President of PAR Government Systems
Corporation in 1997.
Mr. Gregory T. Cortese was named President, ParTech, Inc. in June 2000 in
addition to General Counsel and Secretary of PAR Technology Corporation.
Previously, Mr. Cortese was the Vice President, Law and Strategic Development
since 1998.
Mr. Ronald J. Casciano, CPA, was promoted to Vice President, Chief
Financial Officer, Treasurer of PAR Technology Corporation in June, 1995.
Item 11: Executive Compensation
The information required by this item will appear under the caption
"Executive Compensation" in our 2006 definitive proxy statement for the annual
meeting of stockholders in May 2006 and is incorporated herein by reference.
Item 12: Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
The information required by this item will appear under the caption
"Security Ownership Of Management And Certain Beneficial Owners" in our 2006
definitive proxy statement for the annual meeting of stockholders in May 2006
and is incorporated herein by reference.
Item 13: Certain Relationships and Related Transactions
The information required by this item will appear under the caption
"Executive Compensation" in our 2006 definitive proxy statement for the annual
meeting of stockholders in May 2006 and is incorporated herein by reference.
Item 14: Principal Accountant Fees and Services
The response to this item will appear under the caption "Principal
Accountant Fees and Services" in our 2006 definitive proxy statement for the
annual meeting of stockholders to be held in May 2006 and is incorporated herein
by reference.
PART IV
Item 15: Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Documents filed as a part of the Form 10-K
Financial Statements:
---------------------
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at December 31, 2005 and 2004
Consolidated Statements of Income for the three
years ended December 31, 2005
Consolidated Statements of Comprehensive Income
for the three years ended December 31, 2005
Consolidated Statements of Changes in Shareholders' Equity for
the three years ended December 31, 2005
Consolidated Statements of Cash Flows for the three years
ended December 31, 2005
Notes to Consolidated Financial Statements
PART IV
Item 15: Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(Continued)
(b) Reports on Form 8-K
On October 27, 2005, PAR Technology Corporation furnished a report on
Form 8-K pursuant to Item 2.02 (Results of Operations and Financial
Condition) of that Form relating to its financial information for the
quarter ended September 30, 2005, as presented in a press release October
27, 2005 and furnished thereto as an exhibit.
On November 15, 2005, PAR Technology Corporation furnished a report on
Form 8-K pursuant to Item 5.02 (Appointment of New Director) and Item 8.01
(Other Events) of that Form relating to the approved increase in the number
of Board seats from 6 to 7 and Dr. Paul Nielsen being elected to fill the
newly created seat.
On November 15, 2005, PAR Technology Corporation furnished a report on
Form 8-K pursuant to Item 8.01 (Other Events) and Item 9.01 (Financial
Statements and Exhibits) of that Form relating to the Company approving a 3
for 2 split as presented in a press release dated November 15, 2005 and
furnished thereto as an exhibit.
On December 19, 2005, PAR Technology Corporation furnished a report on
Form 8-K pursuant to Item 8.01 (Other Events) of that Form pertaining to
the availability of certain Corporate Governance documents.
(c) Exhibits
See list of exhibits on page 79
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
PAR Technology Corporation:
We have audited the consolidated financial statements of PAR Technology
Corporation and subsidiaries as of December 31, 2005 and 2004, and for each of
the years in the three-year period ended December 31, 2005, as listed in the
accompanying index. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of PAR Technology
Corporation and subsidiaries as of December 31, 2005 and 2004, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2005 in conformity with U.S. generally accepted
accounting principles.
We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of PAR Technology
Corporation's internal control over financial reporting as of December 31, 2005,
based on criteria established in Internal Control - Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO),
and our report dated March 10, 2006 expressed an unqualified opinion on
management's assessment of, and the effective operation of, internal control
over financial reporting.
Our report dated March 10, 2006 on management's assessment of the effectiveness
of internal control over financial reporting and the effectiveness of internal
control over financial reporting as of December 31, 2005, contains an
explanatory paragraph that states PAR Technology Corporation acquired PixelPoint
Technologies, Inc. on October 4, 2005, and management excluded from its
assessment of the effectiveness of PAR Technology Corporation's internal control
over financial reporting as of December 31, 2005, PixelPoint Technologies,
Inc.'s internal control over financial reporting associated with total assets,
net revenues, and income from continuing operations before provision for income
taxes comprising 6.1%, 0.4 %, and 1.7% of the consolidated total assets, net
revenues, and income from continuing operations before provision for income
taxes of PAR Technology Corporation and subsidiaries as of and for the year
ended December 31, 2005. Our audit of internal control over financial reporting
of PAR Technology Corporation also excluded an evaluation of the internal
control over financial reporting of PixelPoint Technologies, Inc.
/s/KPMG LLP
Syracuse, New York
March 10, 2006
CONSOLIDATED BALANCE SHEETS
(in thousands except share amounts)
December 31,
----------------------
2005 2004
Assets ---------- ---------
Current assets:
Cash and cash equivalents ................ $ 4,982 $ 8,696
Accounts receivable-net .................. 40,781 32,702
Inventories-net .......................... 29,562 27,047
Income tax refunds ....................... 879 --
Deferred income taxes .................... 5,690 6,634
Other current assets ..................... 2,598 2,617
--------- ---------
Total current assets ................. 84,492 77,696
Property, plant and equipment - net ........... 8,044 8,123
Goodwill ...................................... 20,622 15,379
Intangible assets - net ....................... 9,904 9,235
Other assets .................................. 2,087 1,319
--------- ---------
$ 125,149 $ 111,752
========= =========
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt ........ $ 76 $ 90
Borrowings under lines of credit ......... 3,500 10,246
Accounts payable ......................... 12,703 9,486
Accrued salaries and benefits ............ 9,725 8,072
Accrued expenses ......................... 2,203 2,998
Customer deposits ........................ 3,973 4,861
Deferred service revenue ................. 11,332 9,083
Net liabilities of discontinued operation 149 323
--------- ---------
Total current liabilities ............ 43,661 45,159
--------- ---------
Long-term debt ................................ 1,948 2,005
--------- ---------
Deferred income taxes ......................... 201 194
--------- ---------
Other long-term liabilities ................... 847 820
--------- ---------
Commitments and contingent liabilities
Shareholders' Equity:
Preferred stock, $.02 par value,
1,000,000 shares authorized ............ -- --
Common stock, $.02 par value,
19,000,000 shares authorized;
15,914,958 and 15,208,698 shares issued;
14,136,654 and 13,403,184 outstanding .. 318 304
Capital in excess of par value ........... 37,271 31,459
Retained earnings ........................ 47,442 38,010
Accumulated other comprehensive loss ..... (611) (181)
Treasury stock, at cost,
1,778,304 and 1,805,514 shares ......... (5,928) (6,018)
--------- ---------
Total shareholders' equity ........... 78,492 63,574
--------- ---------
$ 125,149 $ 111,752
========= =========
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share amounts)
Year ended December 31,
-----------------------------------
2005 2004 2003
--------- --------- ---------
Net revenues:
Product ...................................... $ 91,130 $ 77,503 $ 60,223
Service ...................................... 58,327 47,466 37,865
Contract ..................................... 56,182 49,915 41,682
--------- --------- ---------
205,639 174,884 139,770
--------- --------- ---------
Costs of sales:
Product ...................................... 53,443 51,287 39,024
Service ...................................... 44,205 39,769 32,140
Contract ..................................... 52,405 46,682 39,613
--------- --------- ---------
150,053 137,738 110,777
--------- --------- ---------
Gross margin ........................... 55,586 37,146 28,993
--------- --------- ---------
Operating expenses:
Selling, general and administrative .......... 30,867 22,106 19,340
Research and development ..................... 9,355 6,270 5,310
Amortization of identifiable intangible assets 1,030 245 --
--------- --------- ---------
41,252 28,621 24,650
--------- --------- ---------
Operating income .................................. 14,334 8,525 4,343
Other income, net ................................. 743 1,134 582
Interest expense .................................. (287) (295) (540)
--------- --------- ---------
Income from continuing operations
before provision for income taxes ............... 14,790 9,364 4,385
Provision for income taxes ........................ (5,358) (3,729) (1,593)
--------- --------- ---------
Income from continuing operations ................. 9,432 5,635 2,792
--------- --------- ---------
Discontinued operations:
Loss from operations of
discontinued component .................... -- -- (570)
Income tax benefit ........................... -- -- 207
--------- --------- ---------
Loss from discontinued operations ............ -- -- (363)
--------- --------- ---------
Net income ........................................ $ 9,432 $ 5,635 $ 2,429
========= ========= =========
Continued
CONSOLIDATED STATEMENTS OF INCOME (Continued)
(in thousands except per share amounts)
Year ended December 31,
------------------------------------
2005 2004 2003
---------- ---------- ----------
Earnings per share:
Basic:
Income from continuing operations $ .68 $ .43 $ .22
Loss from discontinued operations $ -- $ -- $ (.03)
Net income ................ $ .68 $ .43 $ .19
Diluted:
Income from continuing operations $ .64 $ .41 $ .21
Loss from discontinued operations $ -- $ -- $ (.03)
Net income ................ $ .64 $ .41 $ .18
Weighted average shares outstanding
Basic ........................... 13,792 13,044 12,657
========== ========== ==========
Diluted ......................... 14,648 13,845 13,291
========== ========== ==========
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Year ended December 31,
--------------------------------
2005 2004 2003
-------- -------- --------
Net income $ 9,432 $ 5,635 $ 2,429
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments (430) (138) 773
-------- -------- --------
Comprehensive income $ 9,002 $ 5,497 $ 3,202
======== ======== ========
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Accumulated
Common Stock Capital in Other Total
------------ excess of Retained Comprehensive Treasury Stock Shareholders'
(in thousands) Shares Amount Par Value Earnings Income (Loss) Shares Amount Equity
------ ------ --------- -------- -------- ------ ------ ------
Balances at
December 31, 2002 ............ 14,655 $ 293 $28,828 $29,946 $ (816) (2,116) $(7,053) $ 51,198
Net income ...................... 2,429 2,429
Issuance of common stock upon the
exercise of stock options,
net of tax benefit ............ 294 6 833 839
Translation adjustments ......... 773 773
------ ------ ------ ------ ------ ------ ------ -------
Balances at
December 31, 2003 ............ 14,949 299 29,661 32,375 (43) (2,116) (7,053) 55,239
Net income ...................... 5,635 5,635
Issuance of common stock upon the
exercise of stock options,
net of tax benefit ............ 260 5 948 953
Issuance of treasury stock for
business acquisition .......... 850 310 1,035 1,885
Translation adjustments ......... (138) (138)
------ ------ ------ ------ ------ ------ ------ -------
Balances at
December 31, 2004 ............ 15,209 304 31,459 38,010 (181) (1,806) (6,018) 63,574
Net income ...................... 9,432 9,432
Issuance of common stock upon the
exercise of stock options,
net of tax benefit ............ 706 14 5,360 5,374
Issuance of treasury stock for
business acquisition .......... 452 28 90 542
Translation adjustments ......... (430) (430)
------ ------- ------ ------ ------ ------ ------ -------
Balances at
December 31, 2005 ............ 15,915 $ 318 $37,271 $47,442 $ (611) (1,778) $(5,928) $ 78,492
====== ======== ======= ======= ======= ======= ======= ========
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year ended December 31,
--------------------------------
2005 2004 2003
-------- -------- --------
Cash flows from operating activities:
Net income ............................................ $ 9,432 $ 5,635 $ 2,429
Adjustments to reconcile net income to net
cash provided by operating activities:
Net loss from discontinued operations ................ -- -- 363
Depreciation and amortization .......................... 3,755 2,812 2,815
Provision for bad debts ................................ 1,063 689 968
Provision for obsolete inventory ....................... 3,942 4,007 2,957
Tax benefit of stock option exercises .................. 3,544 368 161
Deferred income tax .................................... 1,213 3,014 809
Changes in operating assets and liabilities:
Accounts receivable ................................. (9,101) 246 (7,001)
Inventories ......................................... (6,419) 1,046 (577)
Income tax refunds .................................. (879) -- --
Other current assets ................................ 132 178 166
Other assets ........................................ (756) (825) (20)
Accounts payable .................................... 2,705 567 (70)
Accrued salaries and benefits ....................... 1,653 2,119 846
Accrued expenses .................................... (831) (43) 394
Customer deposits ................................... (888) (132) --
Deferred service revenue ............................ 2,249 42 (757)
Other long-term liabilities ......................... 847 -- --
-------- -------- --------
Net cash provided by continuing
operating activities .............................. 11,661 19,723 3,483
Net cash used in discontinued operations ........... (174) (235) (88)
-------- -------- --------
Net cash provided by operating activities .......... 11,487 19,488 3,395
-------- -------- --------
Cash flows from investing activities:
Capital expenditures .................................. (1,682) (1,598) (415)
apitalization of software costs ....................... (617) (804) (809)
Business acquisitions, net of cash acquired ........... (7,223) (13,364) --
-------- -------- --------
Net cash used in investing activities .................. (9,522) (15,766) (1,224)
-------- -------- --------
Cash flows from financing activities:
Net borrowings (payments) under
line-of-credit agreements .......................... (6,746) 3,257 (2,560)
Payments of long-term debt .......................... (71) (86) (85)
Proceeds from the exercise of stock options ......... 1,830 585 678
-------- -------- --------
Net cash provided (used) by financing activities (4,987) 3,756 (1,967)
-------- -------- --------
Continued
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(in thousands)
Year ended December 31,
----------------------------
2005 2004 2003
-------- -------- -------
Effect of exchange rate changes on cash and
cash equivalents ........................ (692) (249) 773
------- ------- -------
Net increase (decrease) in cash
and cash equivalents .................... (3,714) 7,229 977
Cash and cash equivalents at
beginning of year ....................... 8,696 1,467 490
------- ------- -------
Cash and cash equivalents at
end of year ............................. $ 4,982 $ 8,696 $ 1,467
======= ======= =======
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest ................... $ 304 $ 280 $ 553
Income taxes, net of refunds 1,586 537 291
See accompanying notes to consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 -- Summary of Significant Accounting Policies
Basis of consolidation
The consolidated financial statements include the accounts of PAR
Technology Corporation and its subsidiaries (ParTech, Inc., PAR Springer-Miller
Systems, Inc., PixelPoint ULC, PAR Government Systems Corporation, Rome Research
Corporation and Ausable Solutions, Inc.), collectively referred to as the
"Company." All significant intercompany transactions have been eliminated in
consolidation.
Revenue recognition
The Company recognizes revenue generated by the Hospitality segment using
the guidance from SEC Staff Accounting Bulletin No. 104, "Revenue Recognition"
and the AICPA Statement of Position (SOP) 97-2, "Software Revenue Recognition,"
and other applicable revenue recognition guidance and interpretations. Product
revenue consists of sales of the Company's standard point-of-sale and property
management systems of the Hospitality segment. The Company recognizes revenue
from the sale of complete restaurant systems (which primarily includes hardware
or hardware and software) upon delivery to the customer site or upon
installation for certain software products. For restaurant systems that are
self-installed by the customer or an unrelated third party and for component
sales or supplies, the Company recognizes revenue at the time of shipment. In
addition to product sales, the Company may provide installation and training
services, and also offers maintenance contracts to its customers. Installation
and training service revenues are recognized as the services are performed. The
Company's other service revenues, consisting of support, field and depot repair,
are provided to customers either on a time and materials basis or under its
maintenance contracts. Services provided on a time and materials basis are
recognized as the services are performed. Service revenues from maintenance
contracts are recognized ratably over the related contract period.
The Company recognizes revenue in its Government segment using the guidance
from SEC Staff Accounting Bulletin No. 104, "Revenue Recognition." The Company's
contract revenues generated by the Government segment result primarily from
contract services performed for the U.S. Government under a variety of cost-plus
fixed fee, time-and-material and fixed-price contracts. Revenue on cost-plus
fixed fee contracts is recognized based on allowable costs for labor hours
delivered, as well as other allowable costs plus the applicable fee. Revenue on
time and material contracts is recognized by multiplying the number of direct
labor-hours delivered in the performance of the contract by the contract billing
rates and adding other direct costs as incurred. Revenue from fixed price
contracts is recognized primarily on a straight-line basis over the life of the
fixed-price contract. The Company's obligation under these contracts is simply
to provide labor hours to conduct research or to staff facilities with no other
deliverables or performance obligations. Anticipated losses on all contracts are
recorded in full when identified. Unbilled accounts receivable are stated in the
Company's consolidated financial statements at their estimated realizable value.
Contract costs, including indirect expenses, are subject to audit and adjustment
through negotiations between the Company and U.S. Government representatives.
Statement of cash flows
For purposes of reporting cash flows, the Company considers all highly
liquid investments, purchased with a remaining maturity of three months or less,
to be cash equivalents.
Accounts receivable - Allowance for doubtful accounts
Allowances for doubtful accounts are based on estimates of probable losses
related to accounts receivable balances. The establishment of allowances
requires the use of judgment and assumptions regarding probable losses on
receivable balances.
Inventories
The Company's inventories are valued at the lower of cost or market, with
cost determined using the first-in, first-out (FIFO) method. The Company uses
certain estimates and judgments and considers several factors including product
demand and changes in technology to provide for excess and obsolescence reserves
to properly value inventory.
Property, plant and equipment
Property, plant and equipment are recorded at cost and depreciated using
the straight-line method over the estimated useful lives of the assets, which
range from three to twenty-five years. Expenditures for maintenance and repairs
are expensed as incurred.
Warranties
The Company's products are sold with a standard warranty for defects in
material and workmanship. The standard warranty offered by the Company is for
one year, although certain sales have shorter warranty periods. The Company
establishes an accrual for estimated warranty costs at the time revenue is
recognized on the sale. This estimate is based on projected product reliability
using historical performance data.
Income taxes
The provision for income taxes is based upon pretax earnings with
deferred income taxes provided for the temporary differences between the
financial reporting basis and the tax basis of the Company's assets and
liabilities. The Company records a valuation allowance when necessary to reduce
deferred tax assets to their net realizable amounts. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Other long-term liabilities
In 2005, other long-term liabilities relates to the Company's deferred
compensation plan (see Note 10). In 2004, other long-term liabilities consisted
of an obligation owed to a third party as a result of the acquisition of
Springer-Miller Systems, Inc. Based on the provisions of the purchase agreement,
this $820,000 liability did not come to fruition and was properly adjusted as a
reduction to goodwill in 2005.
Foreign currency
The assets and liabilities for the Company's international operations are
translated into U.S. dollars using year-end exchange rates. Income statement
items are translated at average exchange rates prevailing during the year. The
resulting translation adjustments are recorded as a separate component of
shareholders' equity under the heading Accumulated Other Comprehensive Loss.
Exchange gains and losses on intercompany balances of a long-term investment
nature are also recorded as a translation adjustment and are included in
Accumulated Other Comprehensive Income (Loss). Foreign currency transaction
gains and losses, are included in net income.
Other income
The components of other income for the three years ending December 31, are
as follows:
Year ended December 31
(in thousands)
----------------------------------
2005 2004 2003
------- -------- --------
Currency gains ............... $ 186 $ 502 $ 95
Rental income-net ............ 320 349 441
Other ........................ 237 283 46
------ ------ ------
$ 743 $1,134 $ 582
====== ====== ======
Identifiable intangible assets
The Company capitalizes certain costs related to the development of
computer software used in its Hospitality products segment under the
requirements of Statement of Financial Accounting Standards (SFAS) 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. Annual amortization,
charged to cost of sales, is computed using the straight-line method over the
remaining estimated economic life of the product, generally three years.
Amortization of capitalized software costs amounted to $834,000, $996,000 and
$1,185,000 in 2005, 2004, and 2003, respectively.
The Company acquired identifiable intangible assets in connection with its
acquisitions in 2005 and 2004. Amortization of identifiable intangible assets
amounted to $1,030,000 in 2005 and $245,000 in 2004. See Note 2 for additional
details.
The components of identifiable intangible assets are:
Year ended December 31
(in thousands)
-------------------------
2005 2004
-------- --------
Software costs $ 5,655 $ 5,599
Customer relationships 3,744 2,700
Trademarks (non-amortizable) 2,444 2,100
Other 578 300
-------- -------
12,421 10,699
Less accumulated amortization (2,517) (1,464)
-------- -------
$ 9,904 $ 9,235
======== =======
The future amortization of these intangible assets is as follows (in
thousands):
2006 1,855
2007 1,598
2008 1,529
2009 995
2010 562
Thereafter 921
--------
$ 7,460
========
The Company has elected to test for impairment of identifiable intangible
assets during the fourth quarter of its fiscal year. There was no impairment of
identifiable intangible assets in 2005, 2004 and 2003.
Stock split
On November 14, 2005, the Company's Board of Directors declared a 3 for 2
stock split in the form of a stock dividend that was distributed on January 6,
2006 to shareholders of record on December 12, 2005. All share and per share
data in these consolidated financial statements and footnotes have been
retroactively restated as if the stock split had occurred as of the earliest
period presented.
Stock-based compensation
In December 2004, the Financial Accounting Standards Board (FASB) issued
SFAS No. 123 (revised 2004), "Share-Based Payment" (SFAS 123R), which replaces
SFAS No. 123, "Accounting for Stock-Based Compensation" (SFAS 123) and
supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees." In
April 2005, the Securities and Exchange Commission released a final rule
"Amendment to Rule 4-01(a) of Regulation S-X Regarding the Compliance Date for
Statement of Financial Accounting Standards No. 123 (Revised 2004), Share-Based
Payment." This rule defers the date the Company is required to adopt SFAS 123R
until January 1, 2006. SFAS 123R requires that all share-based payments to
employees, including grants of employee stock options, be recognized in the
financial statements based on their fair values.
Had compensation cost for the Company's stock-based compensation plans been
determined based on the fair values at the fiscal year 2005, 2004 and 2003 grant
dates for those awards, consistent with the requirements of SFAS 123,
"Accounting for Stock-Based Compensation," the Company's net income and earnings
per share would have been adjusted to the proforma amounts indicated below (in
thousands, except per share data):
2005 2004 2003
--------- --------- --------
Net income $ 9,432 $ 5,635 $ 2,429
Proforma compensation expense,
net of tax (410) (354) (118)
-------- --------- --------
Proforma net income $ 9,022 5,281 $ 2,311
======== ========= ========
Earnings per share:
As reported -- Basic $ .68 $ .43 $ .19
-- Diluted $ .64 $ .41 $ .18
Proforma -- Basic $ .65 $ .40 $ .18
-- Diluted $ .62 $ .38 $ .17
The estimated weighted average fair value of options granted is $4.78,
$1.90 and $1.01 for 2005, 2004 and 2003, respectively.
The fair value of these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions for 2005, 2004 and 2003:
2005 2004 2003
---- ---- ----
Risk-free interest rate 3.5% 3.2% 2.0%
Dividend yield N/A N/A N/A
Volatility factor 43% 42% 44%
Expected option life 5 Years 5 Years 5 Years
In management's opinion the existing models do not necessarily provide a
reliable measure of the fair value of its stock options because the Company's
stock options have characteristics significantly different from those of traded
options for which the Black-Scholes model was developed, and because changes in
the subjective assumptions can materially affect fair value estimates.
Earnings per share
Earnings per share are calculated in accordance with Statement of Financial
Accounting Standards No. 128 "Earnings per Share," which specifies the
computation, presentation, and disclosure requirements for earnings per share
(EPS). It requires the presentation of basic and diluted EPS. Basic EPS excludes
all dilution and is based upon the weighted average number of common shares
outstanding during the period. Diluted EPS reflects the potential dilution that
would occur if securities or other contracts to issue common stock were
exercised or converted into common stock.
The following is a reconciliation of the weighted average shares
outstanding for the basic and diluted EPS computations (in thousands except
share and per share data):
2005 2004 2003
--------------- ------------- ------------
Net income $ 9,432 $ 5,635 $ 2,429
=============== ============ ============
Basic:
Shares outstanding at beginning of year 13,403 12,833 12,539
Weighted shares issued during the year 389 211 118
--------------- ------------- ------------
Weighted average common shares, basic 13,792 13,044 12,657
=============== ============= ============
Earnings per common share, basic $ .68 $ .43 $ .19
=============== ============= ============
Diluted:
Weighted average common shares, basic 13,792 13,044 12,657
Dilutive impact of stock options 856 801 634
--------------- ------------- ------------
Weighted average common shares, diluted 14,648 13,845 13,291
=============== ============= ============
Earnings per common share, diluted $ .64 $ .41 $ .18
=============== ============= ============
Use of Estimates
The preparation of the consolidated financial statements requires
management of the Company to make a number of estimates and assumptions relating
to the reported amount of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the period.
Significant items subject to such estimates and assumptions include: the
carrying amount of property, plant and equipment, identifiable intangible assets
and goodwill, warranty reserve, valuation allowances for receivables,
inventories and deferred income tax assets. Actual results could differ from
those estimates.
Goodwill
Goodwill represents the excess of the cost of an acquired entity over the
net of the amounts assigned to assets acquired and liabilities assumed.
Following Financial Accounting Standards Board issuance of Statement of
Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets",
(SFAS 142), the Company tests all goodwill for impairment annually, or more
frequently if circumstances indicate potential impairment, through a comparison
of fair value to its carrying amount. The Company has elected to annually test
for impairment in the fourth quarter of its fiscal year. There was no impairment
of goodwill in 2005, 2004 or 2003.
The following table reflects the changes in goodwill during the year (in
thousands):
Year ended December 31,
2005 2004
--------- ---------
Balance at beginning of year $ 15,379 $ 598
Acquisition of businesses during the year 6,075 14,781
Purchase accounting adjustment related to
prior year acquisition (820) --
Change in foreign exchange rates during
the period (12) --
--------- ---------
Balance at end of year $ 20,622 $ 15,379
========= =========
Accounting for Impairment or Disposal of Long-Lived Assets
In accordance with SFAS 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," we evaluate the accounting and reporting for the impairment
of long-lived assets and for long-lived assets to be disposed of. SFAS 144
requires recognition of impairment of long-lived assets or asset groups if the
net book value of such assets exceeds the estimated future undiscounted cash
flows attributable to such assets. If the carrying value of a long-lived asset
or asset group is considered impaired, a loss is recognized based on the amount
by which the carrying value exceeds the fair market value of the long-lived
asset or asset group for assets to be held and used, or the amount by which the
carrying value exceeds the fair market value less cost to dispose for assets to
be disposed. Fair market value is determined primarily using the anticipated
cash flows discounted at a rate commensurate with the risk involved. No
impairment was identified during 2005, 2004 or 2003.
As further described in Note 3, the Company decided to dispose of its
Industrial segment in August 2002 and adopted the provisions of SFAS 144
regarding the measurement, recognition and disclosure of this discontinued
operation.
Reclassifications
Amounts in prior years' consolidated financial statements are reclassified
whenever necessary to conform with the current year's presentation.
New Accounting Pronouncements
In December 2004, Financial Accounting Standards Board (FASB) issued SFAS
No. 123R, a revision of Statement No. 123, Accounting for Stock-Based
Compensation. This standard requires the Company to measure the cost of employee
services received in exchange for equity awards based on the grant date fair
value of the awards. The cost will be recognized as compensation expense over
the vesting period of the awards. The Company is required to adopt SFAS 123R at
the beginning of the first quarter of fiscal 2006. The standard provides for a
prospective application. Under this method, the Company will begin recognizing
compensation cost for equity-based compensation for all new and modified grants
after January 1, 2006. In addition, the Company will recognize the unvested
portion of the grant date fair value of awards issued prior to adoption based on
the fair values previously calculated for disclosure purposes under SFAS 123R.
At December 31, 2005, the aggregate value of unvested options, as determined
using a Black-Scholes option valuation model, was $534,000. Upon adoption of
SFAS 123R, a majority of this amount will be recognized over the remaining four
year vesting period of these options.
In November 2004, the FASB published SFAS No. 151, Inventory Costs, an
amendment of ARB No. 43, Chapter 4. Statement 151 amends the guidance in Chapter
4, "Inventory Pricing" of ARB No. 43 and clarifies the accounting for abnormal
amounts of idle facility expense, freight, handling costs, and wasted material
(spoilage). SFAS 151 requires that those items be recognized as current-period
charges. SFAS 151 also requires that allocation of fixed production overheads to
the costs of conversion be based on the normal capacity of the production
facilities. SFAS 151 is effective for inventory costs incurred during fiscal
years beginning after June 15, 2005. SFAS 151 is effective for the Company's
2006 fiscal year and is not expected to have a material impact on the Company's
consolidated financial statements.
In May 2005, the FASB published SFAS No. 154, Accounting Changes and Error
Corrections. Statement 154 replaces APB Opinion No. 20, Accounting Changes, and
SFAS No. 3, Reporting Changes in Interim Financial Statements. The Statement
changes the accounting for, and reporting of, a change in accounting principle.
SFAS 154 requires retrospective application to prior period's financial
statements of voluntary changes in accounting principle and changes required by
new accounting standards when the standard does not include specific transition
provisions, unless it is impracticable to do so. SFAS 154 is effective for
accounting changes and corrections of errors in fiscal years beginning after
December 15, 2005 and is not expected to have a material impact on the Company's
consolidated financial statements. Early application is permitted for accounting
changes and corrections of errors during fiscal years beginning after June 1,
2005.
Note 2 -- Business Acquisitions
On October 4, 2005, the Company and its newly formed, wholly-owned Canadian
subsidiary, PixelPoint, ULC (the Canadian Subsidiary), completed their
acquisition of PixelPoint Technologies, Inc. (PixelPoint) pursuant to which the
Canadian Subsidiary acquired all of the stock of PixelPoint. The purchase price
was $7.5 million and consisted of $542,000 in Company common stock (27,210
shares of PAR Technology Corporation common stock issued out of treasury) a
promissory note for $671,000 and the remainder in cash. The Company also
incurred $344,000 in direct acquisition costs relating to this purchase. The
purchase price is also subject to price contingencies based upon future revenue
performance against certain established targets. Located in suburban Toronto,
Ontario, PixelPoint Technologies, Inc. is a supplier of hospitality solutions to
full-service restaurants around the globe.
On December 6, 2005, the Company also acquired C(3)I Associates (C(3)I), a
Government technology services business. The Company paid $589,000 in cash and
assumed certain liabilities.
On October 1, 2004, PAR Technology Corporation (the Company) and its
wholly-owned subsidiary, PAR Springer-Miller Systems, Inc. (PSMS), completed
their previously-announced transaction with Springer-Miller Systems, Inc.
(Springer-Miller) and John Springer-Miller pursuant to which PSMS acquired
substantially all of the assets (including the 100% equity interests in each of
Springer-Miller International, LLC and Springer-Miller Canada, ULC), and assumed
certain liabilities, of Springer-Miller. Springer-Miller, based in Stowe,
Vermont, is a provider of hospitality management solutions for all types of
hospitality enterprises including resort hotels, destination spa and golf
properties, timeshare properties and casino resorts worldwide.
The purchase price of the net assets acquired was $14,985,000 plus
approximately $3,227,000 (an amount equal to the cash and cash equivalents held
by Springer-Miller and its subsidiaries at the closing date of the acquisition,
October 1, 2004). The Company also incurred $264,000 in direct acquisition costs
relating to this purchase. The purchase price consisted of $1,885,000 in Company
common stock (310,516 shares of PAR Technology Corporation common stock issued
out of treasury) and the remainder in cash.
The total purchase price for each of these acquisitions was allocated to
the tangible and identifiable intangible assets acquired and liabilities assumed
by the Company based on their estimated fair values as of the respective closing
date of the acquisitions. Identifiable intangible assets recorded in the
acquisitions are tested for impairment in accordance with the provisions of SFAS
142. The following table presents the estimated fair value of the assets
acquired and liabilities assumed:
2005 2004
--------------------- --------
(in thousands) PixelPoint C(3)I PSMS
------------ -------- -------- --------
Cash and cash equivalents ............. $ 32 $ -- $ 3,227
Other current assets .................. 185 8 2,298
Property, plant and equipment ......... 122 -- 858
Other assets .......................... 671 -- --
Intangible assets ..................... 1,634 290 7,900
Goodwill .............................. 5,539 536 14,781
------ ------ ------
Total assets acquired ................. 8,183 834 29,064
====== ====== ======
Deferred revenues and customer deposits -- -- 8,087
Other current liabilities ............. 303 245 1,681
Long-term liabilities ............... -- -- 820
------ ------ ------
Total liabilities assumed ............. 303 245 10,588
------ ------ ------
Purchase price, including
acquisition related costs ............ $ 7,880 $ 589 $ 18,476
====== ====== ======
The identifiable intangible assets acquired and their estimated useful
lives (based on third party valuation) are as follows:
(in thousands) PixelPoint C(3)I PSMS Useful Life
-------------- ---------- ----- ---- -----------
Software costs $ 258 $ -- $ 2,800 5 Years
Customer relationships 774 270 2,700 7 - 8 Years
Trademarks 344 -- 2,100 Indefinite
Others 258 20 300 3 - 7 Years
------- ------- -------
$ 1,634 $ 290 $ 7,900
======= ======= =======
On an unaudited proforma basis, assuming the completed acquisitions had
occurred as of the beginning of the periods presented, the consolidated results
of the Company would have been as follows (in thousands, except per share
amounts):
Year ended December 31,
-------------------------------------------------
2005 2004 2003
-------------- -------------- -------------
Revenues .......... $ 207,552 $ 189,266 $ 153,733
============== ============== ===========
Net income ........ $ 9,550 $ 5,570 $ 1,143
============== ============== ===========
Earnings per share:
Basic ........ $ .69 $ .42 $ .09
============== ============== ===========
Diluted ...... $ .65 $ .39 $ .09
============== ============== ===========
The unaudited proforma financial information presented above gives effect
to purchase accounting adjustments which have resulted or are expected to result
from the acquisition. This proforma information is not necessarily indicative of
the results that would actually have been obtained had the companies been
combined for the periods presented.
Note 3 -- Business Operations
During the third quarter of 2002, the Company decided to close down its
unprofitable Industrial segment, Ausable Solutions, Inc., following a trend of
continuous losses. The overall downturn in the global economy and specifically
the manufacturing and warehousing industries, coupled with the diminishing
capital expenditures of the Company's industrial customers, prevented the
Company from being profitable in this particular business segment. The decision
to shut down this unit has allowed the Company to focus on its two core
businesses, Hospitality and Government. The Company believes that the decision
to exit the Industrial segment will not have a negative impact on the Company's
continuing operations. The Company's Industrial business did not have common
customers with its Hospitality and Government contract businesses. The Company
recorded a net loss from operations of the discontinued component of $363,000 in
2003. Liabilities of discontinued operations were $149,000 and $323,000 at
December 31, 2005 and 2004, respectively.
Note 4 -- Accounts Receivable
The Company's net accounts receivable consist of:
December 31,
(in thousands)
-----------------------
2005 2004
--------- --------
Government segment:
Billed ............. $ 8,222 $ 8,376
Advanced billings... (2,251) (1,729)
-------- --------
5,971 6,647
-------- --------
Hospitality segment:
Accounts receivable - net 34,810 26,055
-------- --------
$ 40,781 $ 32,702
======== ========
At December 31, 2005 and 2004, the Company had recorded allowances for
doubtful accounts of $1,748,000 and $2,299,000, respectively, against
Hospitality accounts receivable.
Note 5 -- Inventories
Inventories are used primarily in the manufacture, maintenance, and service
of Hospitality systems. Inventories are net of related reserves. The components
of inventories-net are:
December 31,
(in thousands)
-------------------------
2005 2004
-------- --------
Finished goods....... $ 7,217 $ 6,415
Work in process ..... 1,874 1,296
Component parts ..... 4,693 2,898
Service parts ....... 15,778 16,438
------- -------
$29,562 $27,047
======= =======
The Company records reserves for shrinkage and excess and obsolete
inventory. At December 31, 2005 and 2004, these amounts were $4,189,000 and
$3,982,000, respectively.
Note 6 -- Property, Plant and Equipment
The components of property, plant and equipment are:
December 31,
(in thousands)
---------------------
2005 2004
-------- --------
Land ........................ $ 253 $ 253
Buildings and improvements .. 5,632 5,687
Rental property ............. 5,426 5,304
Furniture and equipment ..... 19,013 26,860
------- -------
30,324 38,104
Less accumulated depreciation
and amortization ........... 22,280 29,981
------- -------
$ 8,044 $ 8,123
======= =======
The estimated useful lives of buildings and improvements and rental
property are twenty to twenty-five years. The estimated useful lives of
furniture and equipment ranges from three to eight years. Depreciation expense
recorded was $1,883,000, $1,571,000 and $1,630,000 for 2005, 2004 and 2003,
respectively.
The Company subleases a portion of its headquarters facility to various
tenants. Rent received from these leases totaled $1,038,000, $1,104,000 and
$1,114,000 for 2005, 2004 and 2003, respectively.
Future minimum rent payments due to the Company under these leases are as
follows (in thousands):
2006 $ 858
2007 101
---------
$ 959
=========
The Company leases office space under various operating leases. Rental
expense on these operating leases was approximately $2,138,000, $1,527,000 and
$1,200,000 for 2005, 2004, and 2003, respectively.
Future minimum lease payments under all noncancelable operating leases are
(in thousands):
2006 $ 2,180
2007 1,382
2008 1,256
2009 984
2010 461
Thereafter 167
-----------
$ 6,430
===========
Note 7 -- Debt
The Company has an aggregate availability of $20,000,000 in bank lines of
credit. One line totaling $12,500,000 bears interest at the bank borrowing rate
(6.6% at December 31, 2005) and is subject to loan covenants including a debt to
tangible net worth ratio of 1.4 to 1; a minimum working capital requirement of
at least $25,000,000; and a debt coverage ratio of 4 to 1. The total amount of
credit available under this facility at a given time is based on (a) 80% of the
Company's accounts receivable under 91 days outstanding attributable to the
Company's Hospitality segment and (b) 40% of the Company's inventory, excluding
work in process. The total amount of this facility was available at December 31,
2005. This line expires on April 30, 2006. The second line of $7,500,000 allows
the Company, at its option, to borrow funds at the LIBOR rate plus the
applicable interest rate spread or at the bank's prime lending rate (7.25% at
December 31, 2005). This facility contains certain loan covenants including a
leverage ratio of not greater than 4 to 1 and a fixed charge coverage ratio of
not less than 4 to 1. This line expires on October 30, 2006. Both lines are
collateralized by certain accounts receivable and inventory. The Company was in
compliance with all loan covenants on December 31, 2005. At December 31, 2005
and 2004, there was $3,500,000 and $10,246,000 outstanding under these lines,
respectively. The weighted average interest rate paid by the Company during 2005
was 5.6% and 4.2% during 2004. The Company anticipates that it will renew these
lines for a three-year period at similar terms.
The Company has a $2,024,000 mortgage collateralized by certain real
estate. The annual mortgage payment including interest totals $231,600. The
mortgage bears interest at a variable rate based on the lending bank's Corporate
Base Lending Rate plus 1/2%. At December 31, 2005, the interest rate was 7.75%.
The remaining balance is due on May 1, 2010. The Company's future principal
payments under this mortgage are as follows (in thousands):
2006 $ 76
2007 81
2008 88
2009 95
2010 1,684
---------
$ 2,024
==========
Note 8 -- Stock based compensation
The Company's 1995 Stock Option Plan expired in 2005. In 2005, the Board of
the Directors of the Company approved the 2005 Equity Investment Plan, subject
to shareholder approval at the 2006 Annual Meeting. Under this Plan, the Company
has reserved 200,000 shares. Stock options under this Plan may be incentive
stock options or nonqualified stock options. The Plan also provides for
restricted stock grants. There were no grants under this Plan in 2005. Stock
options are nontransferable other than upon death. Option grants generally vest
over a three to five year period after the grant and typically expire ten years
after the date of the grant.
No. of Shares Weighted Average
(in thousands) Exercise Price
------------- --------------
Outstanding at December 31, 2002 .. 1,947 $ 2.29
Granted ...................... 132 3.32
Exercised .................... (294) 2.31
Forfeited .................... (206) 2.70
------ ---------
Outstanding at December 31, 2003 .. 1,579 2.33
Granted ...................... 381 5.90
Exercised .................... (260) 2.27
Forfeited .................... (16) 4.22
------ ---------
Outstanding at December 31, 2004 .. 1,684 3.13
Granted ...................... 70 11.40
Exercised .................... (706) 2.59
Forfeited .................... (11) 5.75
------ ---------
Outstanding at December 31, 2005 .. 1,037 $ 4.03
====== =========
Shares remaining
available for grant .......... 200
======
Total shares vested and exercisable
as of December 31, 2005 ........... 641 $ 2.71
====== =========
Stock options outstanding at December 31, 2005 are summarized as follows:
Range of Number Weighted Average Weighted Average
Exercise Prices Outstanding Remaining Life Exercise Price
--------------- ----------- -------------- --------------
$1.25 - $4.00 654 5.0 Years $ 2.32
$4.01 - $7.25 313 8.6 Years $ 5.91
$11.40 70 9.3 Years $ 11.40
- -------------------- ------ ----------- ---------
$1.25 - $11.40 1,037 6.4 Years $ 4.03
==================== ====== =========== =========
Note 9-- Income Taxes
The provision (benefit) for income taxes consists of:
Year ended December 31,
(in thousands)
----------------------------------
2005 2004 2003
-------- -------- --------
Current income tax:
Federal ............. $ 3,312 $ 312 $ 177
State ............... 679 164 112
Foreign ............. 154 239 288
-------- ------- -------
4,145 715 577
-------- ------- -------
Deferred income tax:
Federal ............. 1,196 2,259 605
State ............... 17 225 251
Foreign ............. -- 530 (47)
-------- ------- -------
1,213 3,014 809
-------- ------- -------
Provision for income taxes $ 5,358 $ 3,729 $ 1,386
======== ======= =======
Deferred tax liabilities (assets) are comprised of the following at:
December 31,
(in thousands)
----------------------
2005 2004
-------- ---------
Software development expense .......... $ 521 $ 606
Depreciation .......................... 137 331
------- -------
Gross deferred tax liabilities ........ 658 937
------- -------
Allowances for bad debts,
inventory and warranty .............. (3,396) (3,506)
Capitalized inventory costs ........... (67) (103)
Employee benefit accruals ............. (504) (369)
Federal net operating loss carryforward (254) (1,906)
State net operating loss carryforward . (123) (181)
Tax credit carryforwards .............. (1,393) (1,165)
Other ................................. (410) (147)
------- -------
Gross deferred tax assets ............. (6,147) (7,377)
------- -------
Net deferred tax assets ................ $(5,489) $(6,440)
======= =======
The Company has a Federal net operating loss carryforward of $747,000,
which expires in various tax years from 2021 to 2024. The Company has Federal
tax credit carryforwards of $1,250,000, of which $334,000 has no expiration and
the balance expires in various tax years from 2008 - 2025. The Company also has
state tax credit carryforwards of $143,000 and state net operating loss
carryforwards of $3,500,000 which expire in various tax years through 2024. In
assessing the realizability of deferred tax assets, management considers whether
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which the temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. Based upon the historical
level of taxable income and projections for future taxable income, management
believes it is more likely than not the Company will realize the benefit of the
deferred tax assets. Accordingly, no deferred tax valuation allowance was
recorded at December 31, 2005 and 2004.
The provision for income taxes differed from the provision computed by
applying the Federal statutory rate to income before taxes due to the following:
Year ended December 31,
-----------------------------
2005 2004 2003
------ ------ -------
Federal statutory tax rate ...... 34.0% 34.0% 34.0%
State taxes ..................... 3.1 3.6 8.5
Extraterritorial income exclusion (1.4) (1.0) (2.0)
Valuation allowance ............. -- -- (8.6)
Non deductible expenses ......... .5 .5 3.2
Tax credits ..................... (.6) (.4) (1.3)
Foreign income taxes ............ .5 2.7 2.1
Other ........................... .1 .4 .4
------ ------ ------
36.2% 39.8% 36.3%
====== ====== ======
Note 10 -- Employee Benefit Plans
The Company has a deferred profit-sharing retirement plan that covers
substantially all employees. The Company's annual contribution to the plan is
discretionary. The Company contributed $1,985,000, $1,130,000 and $819,000 to
the Plan in 2005, 2004 and 2003, respectively. The plan also contains a 401(k)
provision that allows employees to contribute a percentage of their salary up to
the statutory limitation. These contributions are matched at the rate of 10% by
the Company. The Company's matching contributions under the 401(k) component
were $297,000, $228,000 and $205,000 in 2005, 2004, and 2003, respectively.
The Company also maintains an incentive-compensation plan. Participants in
the plan are key employees as determined by the Board of Directors and executive
management. Compensation under the plan is based on the achievement of
predetermined financial performance goals of the Company and its subsidiaries.
Awards under the plan are payable in cash. Awards under the plan totaled
$1,258,000, $682,000 and $559,000 in 2005, 2004 and 2003, respectively.
The Company also sponsors an unfunded Deferred Compensation Plan for a
select group of highly compensated employees that includes the Executive
Officers. The Deferred Compensation Plan was adopted effective March 4, 2004.
Participants may make elective deferrals of their salary to the plan in excess
of tax code limitations that apply to the Company's qualified plan. The Company
also has the sole discretion to make employer contributions to the plan on the
behalf of the participants, though it did not make any employer contributions in
2005 and 2004.
Note 11 -- Contingencies
The Company is subject to legal proceedings, which arise in the ordinary
course of business. Additionally, U.S. Government contract costs are subject to
periodic audit and adjustment. In the opinion of management, the ultimate
liability, if any, with respect to these actions will not materially affect the
financial position, results of operations, or cash flows of the Company.
Note 12 -- Segment and Related Information
The Company's reportable segments are strategic business units that have
separate management teams and infrastructures that offer different products and
services.
The Company has two reportable segments, Hospitality and Government. The
Hospitality segment offers integrated solutions to the hospitality industry.
These offerings include industry leading hardware and software applications
utilized at the point-of-sale, back of store and corporate office. This segment
also offers customer support including field service, installation, twenty-four
hour telephone support and depot repair. The Government segment develops
advanced technology prototype systems primarily for the U.S. Department of
Defense and other U.S. Governmental agencies. It provides services for operating
and maintaining certain U.S. Government-owned communication and test sites, and
for planning, executing and evaluating experiments involving new or advanced
radar systems. It is also involved in developing technology to track mobile
chassis. As discussed in Note 3, the Company discontinued its Industrial segment
in the third quarter of 2002. Accordingly, the results of this segment have been
reported as discontinued operations. Intersegment sales and transfers are not
significant.
Information as to the Company's segments is set forth below:
Year ended December 31,
(in thousands)
---------------------------------------------------------
2005 2004 2003
---------------- ---------------- --------------
Revenues:
Hospitality $ 149,457 $ 124,969 $ 98,088
Government 56,182 49,915 41,682
---------------- --------------- ---------------
Total $ 205,639 $ 174,884 $ 139,770
================ =============== ===============
Operating income (loss):
Hospitality $ 10,864 $ 5,657 $ 2,977
Government 3,470 2,868 1,928
Other -- -- (562)
---------------- --------------- ---------------
14,334 8,525 4,343
Other income, net 743 1,134 582
Interest expense (287) (295) (540)
---------------- --------------- ---------------
Income from continuing operations
before provision for income taxes $ 14,790 $ 9,364 $ 4,385
================ =============== ===============
Identifiable assets:
Hospitality $ 106,529 $ 91,432 $ 70,550
Government 9,015 9,909 10,475
Other 9,605 10,411 6,122
---------------- --------------- ---------------
Total $ 125,149 $ 111,752 $ 87,147
================ =============== ===============
Goodwill:
Hospitality $ 20,086 $ 15,379 $ 598
Government 536 -- --
---------------- --------------- ---------------
Total $ 20,622 $ 15,379 $ 598
================ =============== ===============
Depreciation and amortization:
Hospitality $ 3,321 $ 2,276 $ 2,212
Government 80 208 201
Other 354 328 402
---------------- --------------- ---------------
Total $ 3,755 $ 2,812 $ 2,815
================ =============== ===============
Capital expenditures:
Hospitality $ 1,385 $ 1,348 $ 236
Government 74 -- 50
Other 223 250 129
---------------- --------------- ---------------
Total $ 1,682 $ 1,598 $ 415
================ =============== ===============
The following table presents revenues by country based on the location of
the use of the product or services.
2005 2004 2003
---------------- ---------------- --------------
United States $ 183,383 $ 158,407 $ 124,556
Other Countries 22,256 16,477 15,214
---------------- --------------- ---------------
Total $ 205,639 $ 174,884 $ 139,770
================ =============== ===============
The following table presents assets by country based on the location of the
asset.
2005 2004 2003
---------------- ---------------- --------------
United States $ 119,627 $ 105,073 $ 79,811
Other Countries 5,522 6,679 7,336
---------------- --------------- ---------------
Total $ 125,149 $ 111,752 $ 87,147
================ =============== ===============
Customers comprising 10% or more of the Company's total revenues are
summarized as follows:
2005 2004 2003
----- ------ ------
Hospitality segment:
McDonald's Corporation ... 28% 32% 25%
Yum! Brands, Inc. ........ 13% 19% 25%
Government segment:
U.S. Department of Defense 27% 29% 30%
All Others ................. 32% 20% 20%
--- --- ---
100% 100% 100%
=== === ===
Note 13 -- Fair Value of Financial Instruments
Estimated fair values of financial instruments classified as current assets
or liabilities approximate carrying values due to the short-term nature of the
instruments. Such current assets and liabilities include cash and cash
equivalents, accounts receivable, borrowings under lines of credit, current
portion of long-term debt and accounts payable. The estimated fair values of the
Company's long-term debt at December 31, 2005 and 2004 is based on variable
interest rates at December 31, 2005 and 2004, respectively, for new issues with
similar remaining maturities and approximates respective carrying values at
December 31, 2005 and 2004.
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates are subjective in nature and involve uncertainties and matters
of significant judgment and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
Note 14 -- Related Party Transactions
The Company leases its corporate wellness facility to related parties at a
current rate of $9,775 per month. The Company receives membership to this
facility for all employees. During 2005, 2004, and 2003 the Company received
rental income amounting to $117,300. All lease payments are current at December
31, 2005.
The Company also leases office space from an officer of one of its
subsidiaries. The lease is for a period of five years beginning on October 1,
2004 at an annual rate of $360,000. In 2005 and 2004, the Company paid $360,000
and $90,000, respectively, to the officer under this lease.
At December 31, 2004 the Company had outstanding an interest-bearing loan
totaling $250,000 to an executive officer. This loan was originated prior to
June 2002. The interest rate is variable and was 4.67% at December 31, 2004.
During 2005, this loan was paid in full. During 2005, 2004 and 2003 interest
income recorded by the Company related to this loan was $4,300, $12,700 and
$20,300, respectively.
Note 15 -- Selected Quarterly Financial Data (Unaudited)
Quarter ended
(in thousands except per share amounts)
2005 March 31 June 30 September 30 December 31
---- -------- ------- ------------ -----------
Net revenues $ 48,757 $ 51,220 $ 52,197 $ 53,465
Gross margin 11,869 13,460 14,157 16,100
Net income 1,306 2,351 2,543 3,232
Basic earnings per share .10 .17 .18 .23
Diluted earnings per share .09 .16 .17 .22
Quarter ended
(in thousands except per share amounts)
2004 March 31 June 30 September 30 December 31
---- -------- ------- ------------ -----------
Net revenues $ 37,898 $ 42,925 $ 42,635 $ 51,426
Gross margin 7,386 8,528 8,807 12,425
Net income 736 1,312 1,734 1,853
Basic earnings per share .06 .10 .13 .14
Diluted earnings per share .05 .10 .13 .13
SIGNATURES
Pursuant to the requirements of Section 13 or 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 15, 2006 /s/John W. Sammon, Jr.
--------------------------------
John W. Sammon, Jr.
Chairman of Board and President
-------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
- --------------------------------------------------------------------------------
Signatures Title Date
- --------------------------------------------------------------------------------
/s/John W. Sammon, Jr.
- ----------------------
John W. Sammon, Jr. Chairman of the Board and March 15, 2006
President (Principal
Executive Officer)
and Director
/s/Charles A. Constantino
- -------------------------
Charles A. Constantino Executive Vice President March 15, 2006
and Director
/s/Sangwoo Ahn
- ----------------------
Sangwoo Ahn Director March 15, 2006
/s/J. Whitney Haney
- ----------------------
J. Whitney Haney Director March 15, 2006
/s/James A. Simms
- ----------------------
James A. Simms Director March 15, 2006
/s/Kevin R. Jost
- ----------------------
Kevin R. Jost Director March 15, 2006
/s/Ronald J. Casciano
- ----------------------
Ronald J. Casciano Vice President, Chief Financial March 15, 2006
Officer and Treasurer
List of Exhibits
Exhibit
No. Description of Instrument
- --------------------------------------------------------------------------------
3.1 Certificate of Incorporation, Filed as Exhibit 3.1 to Registration
as amended Statement on Form S-2 (Registration
No. 333-04077)of PAR Technology
Corporation incorporated herein by
reference.
3.2 Certificate of Amendment to the Filed as Exhibit 3.1 to Registration
Certificate of Incorporation Statement on Form S-2 (Registration
No. 333-04077)of PAR Technology
Corporation incorporated herein by
reference.
3.3 By-laws, as amended. Filed as 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 representing Filed as Exhibit 3.1 to Registration
the Common Stock. Statement on Form S-2 (Registration
No. 333-04077)of PAR Technology
Corporation incorporated herein by
reference.
10.1 Letter of Agreement with Sandman Filed as Exhibit 10.1 to Form S-3/A
- SCI Corporation (Registration No. 333-102197) of
PAR Technology Corporation incor-
porated herein by reference.
10.2 NBT, N.A. Line of Credit Agreement
10.3 JPMorgan Chase Agreement
22 Subsidiaries of the registrant
23 Consent of Independent Registered
Public Accounting Firm
31.1 Certification of Chairman of the
Board and Chief Executive Officer
Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification of Vice President,
Chief Financial Officer and Treasurer
Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Certification of Chairman of the Board
and Chief Executive Officer and Vice
President, Chief Financial Officer and
Treasurer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley
Act of 2002.
EXHIBIT 22
Subsidiaries of PAR Technology Corporation
- --------------------------------------------------------------------------------
Name State of Incorporation
- --------------------------------------------------------------------------------
ParTech, Inc. New York
PAR Springer-Miller Systems, Inc. Delaware
PAR Government Systems Corporation New York
Rome Research Corporation New York
PAR Vision Systems Corporation New York
Ausable Solutions, Inc. Delaware
PixelPoint ULC Canada
EXHIBIT 23
Consent of Independent Registered Public Accounting Firm
The Board of Directors
PAR Technology Corporation:
We consent to the incorporation by reference in the registration statements (No.
33-119828, 33-04968, 33-39784, 33-58110, and 33-63095) on Form S-8 and the
registration statement (No. 333-102197) on Form S-3 of PAR Technology
Corporation of our reports dated March 10, 2006, with respect to the
consolidated balance sheets of PAR Technology Corporation and subsidiaries as of
December 31, 2005 and 2004, and the related consolidated statements of income,
comprehensive income, changes in shareholders' equity, and cash flows for each
of the years in the three-year period ended December 31, 2005, and management's
assessment of the effectiveness of internal control over financial reporting as
of December 31, 2005 and the effectiveness of internal control over financial
reporting as of December 31, 2005, which reports appear in the December 31, 2005
annual report on Form 10-K of PAR Technology Corporation.
Our report dated March 10, 2006 on management's assessment of the effectiveness
of internal control over financial reporting and the effectiveness of internal
control over financial reporting as of December 31, 2005, contains an
explanatory paragraph that states PAR Technology Corporation acquired PixelPoint
Technologies, Inc. on October 4, 2005, and management excluded from its
assessment of the effectiveness of PAR Technology Corporation's internal control
over financial reporting as of December 31, 2005, PixelPoint Technologies,
Inc.'s internal control over financial reporting associated with total assets,
net revenues, and income from continuing operations before provision for income
taxes comprising 6.1%, 0.4%, and 1.7% of the consolidated total assets, net
revenues, and income from continuing operations before provision for income
taxes of PAR Technology Corporation and subsidiaries as of and for the year
ended December 31, 2005. Our audit of internal control over financial reporting
of PAR Technology Corporation also excluded an evaluation of the internal
control over financial reporting of PixelPoint Technologies, Inc.
/s/KPMG LLP
Syracuse, New York
March 15, 2006
Exhibit 31.1
PAR TECHNOLOGY CORPORATION
STATEMENT OF EXECUTIVE OFFICER
I, John W. Sammon, Jr., certify that:
1. I have reviewed this annual report on Form 10-K of PAR Technology
Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)), and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b. Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluations; and
d. Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrants fourth fiscal quarter in
the case of an annual report) and that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors:
a. All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: March 15, 2006 /s/John W. Sammon, Jr.
--------------------------------
John W. Sammon, Jr.
Chairman of the Board and
Chief Executive Officer
Exhibit 31.2
PAR TECHNOLOGY CORPORATION
STATEMENT OF EXECUTIVE OFFICER
I, Ronald J. Casciano, certify that:
1. I have reviewed this annual report on Form 10-K of PAR Technology
Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)), and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b. Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluations; and
d. Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrants fourth fiscal quarter in
the case of an annual report) and that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors:
a. All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: March 15, 2006 /s/Ronald J. Casciano
--------------------------------
Ronald J. Casciano
Vice President, Chief Financial
Officer & Treasurer
Exhibit 32.1
PAR TECHNOLOGY CORPORATION
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of PAR Technology Corporation (the
Company) on Form 10-K for the year ended December 31, 2005 as filed with the
Securities and Exchange Commission on the date hereof (the Report), we, John W.
Sammon, Jr. and Ronald J. Casciano, Chairman of the Board & Chief Executive
Officer and Vice President, Chief Financial Officer & Treasurer of the Company,
certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that, to the best of our knowledge:
(1) The Report fully complies with the requirement of section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
/s/John W. Sammon, Jr.
- -------------------------------
John W. Sammon, Jr.
Chairman of the Board and
Chief Executive Officer
March 15, 2006
/s/Ronald J. Casciano
- -------------------------------
Ronald J. Casciano
Vice President, Chief Financial
Officer & Treasurer
March 15, 2006