SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2006.
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. [ ]
*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 The aggregate market value
of the voting stock held by non-affiliates of the registrant based on the
average price as of February 28, 2007 - $70,515,000.
The number of shares outstanding of registrant's common stock, as of
February 28, 2007 - 14,341,381 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's proxy statement in connection with its 2007
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 Registrant's Common Equity, 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 Operation
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
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,
and Director Independence
Item 14. Principal Accounting Fees and Services
PART IV
Item 15. Exhibits, Financial Statement Schedules
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 and core business
is ParTech, Inc. a leading provider of management technology solutions,
including hardware, software, professional and traditional services to
businesses in the hospitality and specialty retail industries. The Company
continues to be a primary supplier of hospitality technology systems to
quick-service restaurants with over 45,000 systems installed in more than 105
countries. PAR's hospitality management software applications provide for the
efficient operation of hospitality businesses and enterprises by managing
transaction and operational data from end-to-end and maximizing profitability
through more efficient operations. PAR's professional services' mission is to
enable businesses to achieve the full potential of their hospitality technology
investment.
PAR is a provider to the hospitality markets of professional services,
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, Pizza Hut, Long John Silver's and A&W
Restaurants) has been a loyal PAR customer since 1983. Yum! has over 33,000
units globally and PAR continues to be 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 Corporate Restaurants. Other significant hospitality
chains where PAR is the POS vendor of choice are: Boston Market, CKE Restaurants
(including Hardees and Carl's Jr.), Carnival Cruise Lines, Papa Murphy's, Corner
Bakery and large franchisees of the above mentioned brands.
In the fourth quarter of 2006 PAR acquired substantially all of the assets
of SIVA Corporation, a privately held hospitality technology software company
and a provider of web-based service oriented architected (SOA) software
applications to the hospitality industry. The acquisition included all of SIVA's
software and software technology as well as several existing contracts.
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 develops and markets POS, WebPOS, Wireless and Enterprise
software suites for the restaurant industry. It currently markets software in
multiple languages to many major economic centers worldwide. Their integrated
software solution includes enterprise management, a wireless application that is
seamless to their connected capability and allows remote order taking in the
dining room, on-line ordering capability for customers via the internet, and an
in-store and enterprise level loyalty and gift card information sharing
application.
In the fourth quarter of 2004 PAR acquired Springer-Miller Systems, a
provider of hospitality for small five star city-center hotel chains,
destination spa and golf properties, timeshare properties and five star resorts
worldwide. PAR's Hospitality Management System is distinguished from other
property management systems with its integrated design and unique approach to
guest service. The product suite includes more than 20 seamlessly integrated,
guest-centric application modules which provide 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 provides technical
expertise in the development of 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. Through Government-sponsored
research and development, PAR has developed technologies with relevant
commercial uses. A prime example of this "technology transfer" was the Company's
point-of-sale technology, which was derived from research and development
involving microchip processing technology sponsored by the Department of
Defense. Our most recent technology transfer is PAR Logistics Management
Systems. This PAR initiative brings tracking and security solutions to the
intermodal and trucking industry. Through an integrated GPS, RFID, cellular,
SATCOM, and internet PAR solution, owners and operators of refrigeration, tank,
dry van, intermodal, and generator containers have real time information on the
status and location of assets and cargo around the globe.
Information concerning the Company's industry segments for the three years
ended December 31, 2006 is set forth in Note 11 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 four wholly-owned subsidiaries in the Hospitality business
segment: ParTech, Inc., PAR Springer-Miller Systems, Inc., PixelPoint ULC and
Par-Siva Corporation. PAR provides Point-of-Sale (POS) restaurant management
technology solutions which integrate software applications and the Company's
Pentium(R)-based hardware platform. PAR's restaurant management system can host
fixed and 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. PAR also provides
hospitality management solutions that satisfy the property management technology
needs for an array of hospitality enterprises, including small five star
city-center hotel chains, destination spa and golf properties, timeshare
properties and five star resorts worldwide. PAR offers extensive service,
support, systems integration and professional service capabilities. PAR's
service professionals design, tailor and implement solutions that enable
customers to manage all aspects of data collection and processing for single or
multiple site enterprises from a central location.
Products
The Company's integrated hospitality management software applications allow
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
based on more than 27 years of experience and knowledge, and 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.
The SIVA software applications offer enterprise-architected solutions
applicable to several segments of the restaurant industry. The product suite
includes iSIVA(R) Point-of-Sale, IntelliKitchen, POS(2) (handheld wireless order
taking) and Pay@Table/Pay@Curb. The iSIVA Point-of-Sale application streamlines
the order life-cycle for table service, counter service, and bar operations,
while simplifying IT support with centralized application management. iSIVA
seamlessly integrates with POS(2) and Pay@Table/Pay@Curb, extending traditional
POS with wireless order-taking and payment capabilities. The IntelliKitchen
management system completes the suite, designed to distribute and display
kitchen orders to maximize order accuracy and increase staff efficiency.
For franchisees in Quick Service Restaurant (QSR) and Fast Casual, PAR
offers the InFusion suite. 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 feature-rich product. InTouch is a
multi-brand point of sale application, containing 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.
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 provides 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 utilizing the latest technology from
Microsoft's .Net(R) platform. InQuire's Executive Dashboard provides business
intelligence for the entire organization, as well as automated management
reporting and process integration.
In 2006, PAR introduced technology that provides paperless HACCP
management. HACCP (Hazard Analysis Critical Control Point) is a food industry
standard approach, implemented to reduce the incidence of food borne illness.
iQuality software runs wirelessly on a PDA in conjunction with a temperature
probe and iButtons used to identify HACCP checkpoints. iQuality is designed to
replace the paper checklist, minimize human errors, increase HACCP compliance,
and improve in-store efficiency. iQuality enables exception based reporting for
corrective actions, reducing the risk of food contamination.
PixelPoint is PAR's easy-to-use solution for the dealer channel and
independent restaurants. The PixelPoint integrated software solution includes
PixelPoint(R) POS, HeadOffice enterprise management, PocketPOS, a wireless
application that allows for remote order taking in the dining room, Web-to-Go
on-line ordering, and MemberShare, an in-store and enterprise level Loyalty and
Gift Card information sharing application.
PAR continues to offer GT/Exalt to QSR customers. The software is designed
for the small franchisee that is looking for a "turnkey" solution.
Hardware
PAR continues to offer 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. 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 Installation and Professional Services
PAR's ability to offer the full spectrum of 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 installation and training 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 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
installation 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 over 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 an issue arises 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 made to corporate
chains where PAR is an approved vendor. Upon achieving such status, marketing
efforts are directed to the chain's franchisees. 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 operating more
than 75 locations. The Domestic Sales Group targets franchisees of the major
chain customers, as well as smaller chains throughout the United States. The
International Sales Group sells to major customers with global locations 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.
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 world class 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 that
of the Company. Major competitors include Panasonic, IBM Corporation, Radiant
Systems, NCR, SoftBrands, Agilysis and Micros Systems.
Backlog
At December 31, 2006 the Company's backlog of unfilled orders for the
Hospitality segment was approximately $6,526,000 compared to $9,800,000 a year
ago. All of the present orders are expected to be delivered in 2007. 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
$11,802,000 in 2006, $9,355,000 in 2005 and $6,015,000 in 2004. 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 components are manufactured by third parties 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 consistently from 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 services to the U.S. Department of Defense (DoD)
and other federal and state government organizations with a wide range of
technical capability and scope. Significant areas in which the Company's
services are involved include: design, 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 supports the
development of integrated systems for geospatial information archiving,
processing, exploitation, and visualization. IS&T is the systems developer and
integrator for the Air Force Research Laboratory-Rome Research (AFRL) and is a
key developer on the National Geospatial-Intelligence Agency (NGA) Image Product
Library (IPL) program. 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 Coastal Battlefield
Reconnaissance and Analysis (COBRA) program.
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, 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
Dynamic Open Architecture Radio System (DOARS) 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). 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 2004 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, 2006, net
of amounts relating to work performed to that date, was approximately
$96,637,000, of which $28,243,000 was funded. At December 31, 2005, the
comparable amount was approximately $106,614,000, of which $35,470,000 was
funded. Funded amounts represent those amounts committed under contract by
Government agencies and prime contractors. The December 31, 2006 Government
contract backlog of $96,637,000 represents firm, existing contracts.
Approximately $49,408,000 of this amount is expected to be completed in calendar
year 2007, as funding is committed.
Employees
As of December 31, 2006, the Company had 1,700 employees, approximately 57%
of whom are engaged in the Company's Hospitality segment, 40% 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 18% 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 June 16, 2006 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, 2006, 2005 and 2004, aggregate sales to our top
two Hospitality segment customers, McDonald's and Yum! Brands, amounted to 40%,
41% and 51%, 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.
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, 2006, 2005 and 2004, we derived
70%, 73% and 71%, 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, 2006, 2005 and 2004, we derived
30%, 27% and 29%, 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 65% of the revenue that we derived
from Government contracts for the year ended December 31, 2006 came from
fixed-price or time-and-material contracts. The balance of the revenue that we
derived from Government contracts in 2006 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, 2006, 2005 and 2004, our net
revenues from sales outside the United States were 13%, 11% and 9%,
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
$25.7 million and $10.7 million at December 31, 2006, 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 relate. 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 asset 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 52,800
Stowe, VT Hospitality Sales, service and research 26,000
and development
Boulder, CO Hospitality Service 20,500
Delray Beach, FL Hospitality Sales, service and research
and development 11,000
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 Equity, 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, 2006, there were
approximately 466 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, 2006 as reported by New York Stock Exchange:
2006 2005
-------------------------- ------------------------
Period Low High Low High
- -------------- ---------- ---------- ---------- ---------
First Quarter $17.22 $22.73 $ 7.47 $10.68
Second Quarter $10.61 $18.60 $10.28 $22.30
Third Quarter $ 7.40 $13.01 $13.10 $25.60
Fourth Quarter $ 7.07 $9.24 $13.26 $23.60
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,
-------------------------------------------------------------
2006 2005 2004 2003 2002
-------------------------------------------------------------
Net revenues .................... $ 208,667 $ 205,639 $ 174,884 $ 139,770 $ 133,681
Cost of sales ................... $ 153,158 $ 150,053 $ 137,738 $ 110,777 $ 105,225
Gross margin .................... $ 55,509 $ 55,586 $ 37,146 $ 28,993 $ 28,456
Selling, general & administrative $ 33,440 $ 30,867 $ 22,106 $ 19,340 $ 19,540
Provision for income taxes ...... $ (3,146) $ (5,358) $ (3,729) $ (1,593) $ (884)
Income from continuing operations $ 5,721 $ 9,432 $ 5,635 $ 2,792 $ 2,623
Basic earnings per share from
continuing operations ......... $ .40 $ .68 $ .43 $ .22 $ .22
Diluted earnings per share from
continuing operations .......... $ .39 $ .64 $ .41 $ .21 $ .21
The selected consolidated financial statement data summarized above is
reflective of business acquisitions in 2006, 2005 and 2004, as discussed in Note
2.
SELECTED CONSOLIDATED BALANCE SHEET DATA
(In thousands)
December 31,
----------------------------------------------------
2006 2005 2004 2003 2002
----------------------------------------------------
Current assets ..... $ 95,991 $ 84,492 $ 77,696 $ 74,195 $ 69,070
Current liabilities $ 46,473 $ 43,661 $ 45,159 $ 29,816 $ 31,743
Total assets ....... $142,796 $125,149 $111,752 $ 87,147 $ 85,122
Long-term debt ..... $ 7,708 $ 1,948 $ 2,005 $ 2,092 $ 2,181
Shareholders' equity $ 86,083 $ 78,492 $ 63,574 $ 55,239 $ 51,198
The selected consolidated financial statement data summarized above is
reflective of business acquisitions in 2006, 2005 and 2004, as discussed in Note
2.
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 Operation
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 that include software, hardware and a variety of services.
The Company is also a provider to the Federal Government, and its agencies, of
applied technology and technical services. The primary end markets for our
products and services are:
o Restaurants, hotels/resorts/spas, 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 Federal/State/local government
agencies.
The Company's hospitality products are used in a variety of applications by
numerous customers. The Company faces 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 can 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 significant delivery capability, globally to its multinational
customers like McDonald's, Yum! Brands and Mandarin Oriental Hotel Group.
In the fourth quarter of 2006 PAR acquired substantially all of the assets
of SIVA Corporation, a privately held hospitality technology software company
and a provider of web-based service oriented architected (SOA) software
applications to the hospitality industry. The acquisition included all of SIVA's
software and software technology as well as several existing contracts. 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.
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.
In 2006 the Company had significant new customer wins in the hospitality
industry. Burger King Corporation named PAR as one of four approved technology
vendors to their more than 11,000 restaurants. The Company rolled out hardware
and software to the Corner Bakery organization that has nearly 100 restaurants.
The Company was selected by CKE Restaurants as their in-store service provider
and signed a multi-year contract with them. PAR also was named as a hardware
provider to Cardinal Health and their roster of 3,200 independent pharmacies. In
the hotel/resort business, PAR installed new property management systems at
several leading resorts including Hamilton Island Resort in Australia, Lake
Powell Resorts and the Sugarbush resort.
Approximately 30% of the Company's revenues are generated in our Government
Business segment. This segment is comprised of two subsidiaries: PAR Government
Systems Corporation and Rome Research Corporation. Through these two government
contractors, the Company provides I/T and communications support services to the
U.S. Navy, Air Force and Army. In addition, PAR also offers its services to
several non-military U.S. federal, state and local agencies. The Company
provides applied technology services including radar, image and signal
processing, logistics management systems and geospatial services and products.
The Company's high Government performance rating allows the Company to
continually secure repeat business and long-term client-vendor relationships
with their contract customers. PAR can provide its clients the expertise
necessary to facilitate and operate complex technical systems utilized by
government agencies. In 2006 PAR was awarded several new contracts with the
Department of Defense, including one with the Defense Finance and Accounting
Service (DFAS) to provide I/T instruction and helpdesk services in support of
the DFAS Wide Area Work Flow, Receipt and Acceptance program. PAR Logistics
Management Systems signed marketing agreements with both Carrier Corporation and
ThermoKing to provide tracking and monitoring services for commercial
refrigerated containers.
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 and Government - 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):
2006 2005 2004
-------- -------- --------
Revenues:
Hospitality ......... $145,216 $149,457 $124,969
Government .......... 63,451 56,182 49,915
-------- -------- --------
Total consolidated revenue $208,667 $205,639 $174,884
======== ======== ========
The following discussion and analysis highlights items having a significant
effect on operations during the three year period ended December 31, 2006. 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 -- 2006 Compared to 2005
The Company reported revenues of $208.7 million for the year ended December
31, 2006, an increase of 1.5% from the $205.6 million reported for the year
ended December 31, 2005. The Company's net income for the year ended December
31, 2006 was $5.7 million, or $.39 diluted net income per share, compared to net
income of $9.4 million and $.64 per diluted share for the same period in 2005.
Product revenues from the Company's Hospitality segment were $83.2 million
for the year ended December 31, 2006, a decrease of 9% from the $91.1 million
recorded in 2005. This decrease was due to a $9.2 million decline in domestic
product sales primarily due to lower hardware sales to Hospitality customers.
This drop in domestic revenue was partially offset by a $4.9 million increase in
international product sales. This increase was the result of growth in sales to
the Company's restaurant customers in Asia and Europe.
Customer service revenues are also generated by the Company's Hospitality
segment. The Company's service offerings include installation, software
maintenance, training, twenty-four hour help desk support and various depot and
on-site service options. Customer service revenues were $62 million for the year
ended December 31, 2006, a 6% increase from $58.3 million reported for the same
period in 2005. The Company experienced growth in its field service, software
maintenance and depot repair revenues for its Hospitality customers due to
expansion of the Company's customer base. This was partially offset by a decline
in installation revenue due to the lower product revenue.
Contract revenues from the Company's Government segment were $63.5 million
for the year ended December 31, 2006, an increase of 13% when compared to the
$56.2 million recorded in the same period in 2005. The primary factor
contributing to the growth was a $3.4 million increase in applied technology
contracts including the Company's work in providing technical assistance for the
development of battle planning software used by the Air Force. Also,
contributing was a $3 million increase in revenue from the Company's information
technology outsourcing 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.
Product margins for the year ended December 31, 2006 were 42.4 %, an
increase of 100 basis points from the 41.4% for the year ended December 31,
2005. This increase in margins was primarily attributable to an increase in
software revenue in 2006 when compared to 2005.
Customer Service margins were 25.2% for the year ended December 31, 2006
compared to 24.2% for the same period in 2005. This increase is due to lower
material costs and an increase in software maintenance revenue.
Contract margins were 7.2% for the year ended December 31, 2006 versus 6.7%
for the same period in 2005. This increase is primarily due to higher margins on
certain fixed price contracts and to a favorable cost share adjustment on the
Company's Logistics Management Program. The most significant components of
contract costs in 2006 and 2005 were labor and fringe benefits. For 2006, labor
and fringe benefits were $45.9 million or 78% of contract costs compared to
$39.4 million or 75% of contract costs for the same period in 2005.
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, 2006 were $33.4 million, an increase of 8% from
the $30.9 million expense for the same period in 2005. This increase was
primarily due to a rise in sales and marketing expenses associated with
restaurant products as the Company is planning for future growth including in
international markets. The Company's 2005 acquisition of PixelPoint
Technologies, Inc. also contributed to this increase. Other reasons for the
expense growth include start up costs on a new customer service contract in 2006
and stock based compensation expense which was not required to be recognized in
2005.
Research and development expenses relate primarily to the Company's
Hospitality segment. Research and development expenses were $11.8 million for
the year ended December 31, 2006, an increase of 26% from the $9.4 million
recorded in 2005. The increase was primarily attributable to the Company's
continued research and development in its hardware and software products for its
restaurant, resort and spa customers. The increase also reflects the research
and development expenses related to the SIVA acquisition in the fourth quarter
of 2006 and to the PixelPoint acquisition in the fourth quarter of 2005.
Amortization of identifiable intangible assets was $1.3 million for the
year ended December 31, 2006 compared to $1 million for 2005. The increase is
primarily due to amortization relating to the acquisition of PixelPoint
Technologies, Inc. on October 4, 2005, and to the SIVA acquisition on November
2, 2006.
Other income, net, was $617,000 for the year ended December 31, 2006
compared to $743,000 for the same period in 2005. Other income primarily
includes rental income and foreign currency gains and losses. The decrease is
primarily due to lower foreign currency gains in 2006 compared to 2005.
Interest expense represents interest charged on the Company's short-term
borrowing requirements from banks and from long-term debt. Interest expense was
$734,000 for the year ended December 31, 2006 as compared to $287,000 in 2005.
The Company experienced a higher borrowing interest rate and higher average
borrowings in 2006 when compared to 2005.
For the year ended December 31, 2006, the Company's effective income tax
rate was 35.5%, compared to 36.2% in 2005. The variance from the federal
statutory rate in 2006 and 2005 was primarily due to state income taxes, offset
by benefits related to export sales as well as tax benefits related to domestic
production activities.
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 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 installation 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 was 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.
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 used in continuing
operations was $3.6 million for the year ended December 31, 2006 compared to
cash provided of $11.7 million for 2005. In 2006, cash was used to finance the
growth in receivables and inventory. This was partially offset by cash generated
from operating profits. 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 increases in accounts receivable and inventory.
Cash used in investing activities was $7.8 million for the year ended
December 31, 2006 versus $9.5 million for the same period in 2005. In 2006,
capital expenditures were $1.2 million and were principally for manufacturing
and information technology equipment. Capitalized software costs relating to
software development of Hospitality segment products were $822,000 in 2006. In
2005, capital expenditures were $1.7 million and were primarily for
manufacturing and research and development equipment. Capitalized software costs
relating to software development of Hospitality segment products were $617,000
in 2005. In 2006, the Company used $5.8 million in cash for the acquisition of
SIVA Corporation. In 2005, the Company used $7.2 million in cash for
acquisitions, the majority of which was for PixelPoint Technologies.
Cash provided by financing activities was $10.5 million for the year ended
December 31, 2006 versus $5 million of cash used in 2005. In 2006, the Company
increased its short-term borrowings by $4.2 million and increased its long-term
debt by $5.9 million. This increase was principally due to debt incurred in
connection with the acquisition of SIVA Corporation. The Company also benefited
$352,000 from the exercise of employee stock options. 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.
The Company has an aggregate availability of $20,000,000 in unsecured bank
lines of credit. One line totaling $12,500,000 bears interest at the bank
borrowing rate (6.3% at December 31, 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 (6.3% at
December 31, 2006). These facilities 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 3.5 to 1. These lines expire in April 2009. The Company was in
compliance with all loan covenants on December 31, 2006. At December 31, 2006
and 2005, there was $7,713,000 and $3,500,000 outstanding under these lines,
respectively. The weighted average interest rate paid by the Company during 2006
was 6.6% and 5.6% during 2005.
In 2006, the Company borrowed $6,000,000 under an unsecured term loan
agreement with a bank in connection with the acquisition of SIVA Corporation.
The loan provides for interest only payments in the first year and escalating
principal payments through 2012. The loan bears interest at the LIBOR rate plus
the applicable interest rate spread (6.3% at December 31, 2006).
The Company has a $1,948,000 mortgage collateralized by certain real
estate. The annual mortgage payment including interest totals $226,000. The
mortgage bears interest at a fixed rate of 7% and matures in 2010.
The Company's future principal payments under its term loan and mortgage
are as follows (in thousands):
2007 $ 240
2008 772
2009 1,079
2010 2,933
2011 1,575
2012 1,349
-------
$ 7,948
=======
The Company future minimum obligations under non-cancelable operating
leases are as follows (in thousands):
2007 $ 1,852
2008 1,456
2009 1,195
2010 537
2011 223
Thereafter 89
-------
$ 5,352
=======
During fiscal year 2007, the Company anticipates that its capital
requirements will be approximately $2 to $3 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 U.S. generally accepted accounting principles (GAAP). GAAP
requires the use of estimates, assumptions, judgments and subjective
interpretations of accounting principles that have an impact on the assets,
liabilities, revenue and expense amounts reported. The Company believes its use
of estimates and underlying accounting assumptions adhere to GAAP and are
consistently applied. Valuations based on estimates are reviewed for
reasonableness and adequacy on a consistent basis throughout the Company.
Primary areas where financial information of the Company is subject to the use
of estimates, assumptions and the application of judgment include 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 (SAB) No. 104, "Revenue
Recognition" and the AICPA Statement of Position (SOP) 97-2, "Software Revenue
Recognition." Product revenues consist of sales of the Company's standard
point-of-sale and property management systems of the Hospitality segment.
Product revenues include both hardware and software sales. The Company also
records service revenues relating to its standard point-of-sale and property
management systems of the Hospitality segment.
Hardware
Revenue recognition on hardware sales occurs upon delivery to the customer
site (or when shipped for systems that are not installed by the Company) as
under SAB 104, persuasive evidence of an arrangement exists, delivery has
occurred, the price is fixed or determinable, and collectibility is reasonably
assured.
Software
Revenue recognition on software sales generally occurs upon delivery to the
customer site (or when shipped for systems that are not installed by the
Company) as under SOP 97-2, persuasive evidence of an arrangement exists,
delivery has occurred, the price is fixed or determinable, and collectibility is
reasonably assured. For software sales where the Company is the sole party that
has the proprietary knowledge to install the software, revenue is recognized
upon installation and when the system is ready to go live.
Service
Service revenue consists of installation and training services, support
maintenance, and field and depot repair. Installation and training service
revenue are based upon standard hourly/daily rates and revenue is recognized as
the services are performed. Support maintenance and field and depot repair are
provided to customers either on a time and materials basis or under a
maintenance contract. 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 underlying contract period.
The individual product and service offerings that are included in
arrangements with our customers are identified and priced separately to the
customer based upon the stand alone price for each individual product or service
sold in the arrangement irrespective of the combination of products and services
which are included in a particular arrangement. As such, the units of accounting
are based on each individual product and service sold, and revenue is allocated
to each element based on vendor specific objective evidence (VSOE) of fair
value. VSOE of fair value for each individual product and service is based on
separate individual prices of these products and services. The sales price used
to establish fair value is the sales price of the element when it is sold
individually in a separate arrangement and not as a separate element in a
multiple element arrangement.
Contracts
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 as labor hours are delivered which approximates the
straight-line basis of the life of the 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-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. 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 technological 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.
Recent Accounting Pronouncements
In November 2004, the Financial Accounting Standards Board (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 was 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 did not have a material
impact on the Company's consolidated financial statements.
FASB Interpretation 48 was issued in July 2006 to clarify the criteria for
recognizing tax benefits under FASB Statement No. 109, Accounting for Income
taxes. The Interpretation defines the threshold for recognizing the benefits of
tax return positions in the financial statements as "more-likely-than-not" to be
sustained by the taxing authority and will affect many companies' reported
results and their disclosures of uncertain tax positions. The Interpretation
does not prescribe the type of evidence required to support meeting the
more-likely-than-not threshold, stating that it depends on the individual facts
and circumstances. The benefit recognized for a tax position meeting the
more-likely-than-not criterion is measured based on the largest benefit that is
more than 50 percent likely to be realized. The measurement of the related
benefit is determined by considering the probabilities of the amounts that could
be realized upon ultimate settlement, assuming the taxing authority has full
knowledge of all relevant facts and including expected negotiated settlements
with the taxing authority. Interpretation 48 is effective as of the beginning of
the first fiscal year beginning after December 15, 2006 (the Company's 2007
fiscal year). The Company does not expect this to have a material impact on the
consolidated financial statements.
In September 2006, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 108, "Considering the Effects Prior Period Year
Misstatements When Quantifying Misstatements in Current Year Financial
Statements," ("SAB 108"). SAB 108 provides interpretative guidance on how the
effects of the carryover or reversal of prior year misstatements should be
considered in quantifying a current year misstatement. SAB 108 was effective for
the Company in the fiscal year ended December 31, 2006. The adoption of SAB 108
did not impact the Company's results of operations and financial condition.
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements"
("SFAS 157"), which provides guidance for measuring the fair value of assets and
liabilities, as well as requires expanded disclosures about fair value
measurements. SFAS 157 indicates that fair value should be determined based on
the assumptions marketplace participants would use in pricing the asset or
liability, and provides additional guidelines to consider in determining the
market-based measurement. The Company will be required to adopt SFAS 157 on
January 1, 2008. The Company is currently evaluating the impact of adopting SFAS
157 on its consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities" ("SFAS 159"). SFAS 159 permits all
entities to choose to measure eligible items at fair value at specified election
dates. SFAS 159 is effective as of the beginning of an entity's first fiscal
year that begins after November 15, 2007. The Company is currently assessing the
impact of adopting SFAS 159 on its consolidated financial statements.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
INFLATION
Inflation had little effect on revenues and related costs during 2006.
Management anticipates that margins will be maintained at acceptable levels to
minimize the affects of inflation, if any.
INTEREST RATES
As of December 31, 2006, the Company has $5.9 million in variable long-term
debt and $7.9 million in variable 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 condition, 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 2006 Consolidated financial statements, together with the
reports thereon of KPMG LLP dated March 15, 2007, 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, 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.
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, 2006. 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, 2006, the Company's internal control over financial reporting was
effective based on those criteria. This evaluation excluded the internal control
over financial reporting of SIVA Corporation ("SIVA") which the Company acquired
on November 2, 2006. Management did not have adequate time to gather sufficient
evidence about the design and operating effectiveness of internal control over
financial reporting for SIVA from the date of acquisition through December 31,
2006; therefore, Management was not able to perform an evaluation with respect
to the effectiveness of internal control over financial reporting for SIVA. As
of December 31, 2006, the total assets, net revenues, and income before
provision for income taxes of SIVA comprised 4.8%, .02%, and (6.9%),
respectively, 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. Attestation 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, 2006, 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, 2006, 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, 2006, based on criteria established in Internal Control -
Integrated Framework issued by COSO.
PAR Technology Corporation acquired SIVA Corporation on November 2, 2006, and
management excluded from its assessment of the effectiveness of PAR Technology
Corporation's internal control over financial reporting as of December 31, 2006,
SIVA Corporation's internal control over financial reporting associated with
total assets, net revenues, and income before provision for income taxes
comprising 4.8%, .02%, and (6.9%), respectively, of the consolidated total
assets, net revenues, and income before provision for income taxes of PAR
Technology Corporation and subsidiaries as of and for the year ended December
31, 2006. Our audit of internal control over financial reporting of PAR
Technology Corporation also excluded an evaluation of the internal control over
financial reporting of SIVA Corporation.
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, 2006 and 2005,
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, 2006, and our report dated March 15, 2007 expressed an
unqualified opinion on those consolidated financial statements.
/s/KPMG LLP
Syracuse, New York
March 15, 2007
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.
Item 9B: Other Information.
Reports on Form 8-K
On October 26, 2006, 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, 2006, as presented in a press release October
26, 2006 and furnished thereto as an exhibit.
On November 2, 2006, PAR Technology Corporation furnished a report on
Form 8-K pursuant to Item 8.01 (Other Events) of that Form relating to the
acquisition of substantially all of the assets of SIVA Corporation.
On November 8, 2006, PAR Technology Corporation filed a Form 8-K
pursuant to Item 2.01 (Completion of Acquisition or Disposition of Assets)
and Item 9.01 (Financial Statements and Exhibits) of that Form relating to
the acquisition of SIVA Corporation.
PART III
Item 10: Directors, Executive Officers and Corporate Governance
The directors and executive officers of the Company and their respective ages
and positions are:
Name Age Position
- ----------------------- --- ------------------------------------------------
Dr. John W. Sammon, Jr. 67 Chairman, President and Chief Executive Officer,
PAR Technology Corporation
Charles A. Constantino 67 Executive Vice President and Director,
PAR Technology Corporation
Sangwoo Ahn 68 Director, PAR Technology Corporation
Kevin R. Jost 52 Director, PAR Technology Corporation
Dr. Paul D. Nielsen 55 Director, PAR Technology Corporation
James A. Simms 47 Director, PAR Technology Corporation
Gregory T. Cortese 57 Chief Executive Officer & President,
ParTech, Inc., General Counsel and Secretary,
PAR Technology Corporation
Albert Lane, Jr. 65 President, PAR Government Systems Corporation
and Rome Research Corporation
Ronald J. Casciano 53 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. 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.
Dr. Paul D. Nielsen was appointed a Director of the Company in January,
2006. Mr. Nielsen has been Director and CEO of the Software Engineering
Institute ("SEI") at Carnegie Mellon University since 2004.
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 2007 definitive proxy statement for the annual
meeting of stockholders in May 2007 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 2007
definitive proxy statement for the annual meeting of stockholders in May 2007
and is incorporated herein by reference.
Item 13: Certain Relationships and Related Transactions, and Director
Independence
The information required by this item will appear under the caption
"Executive Compensation" in our 2007 definitive proxy statement for the annual
meeting of stockholders in May 2007 and is incorporated herein by reference.
Item 14: Principal Accounting Fees and Services
The response to this item will appear under the caption "Principal
Accountant Fees and Services" in our 2007 definitive proxy statement for the
annual meeting of stockholders to be held in May 2007 and is incorporated herein
by reference.
PART IV
Item 15: Exhibits, Financial Statement Schedules
(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, 2006 and 2005
Consolidated Statements of Income for the three years
ended December 31, 2006
Consolidated Statements of Comprehensive Income for the
three years ended December 31, 2006
Consolidated Statements of Changes in Shareholders' Equity
for the three years ended December 31, 2006
Consolidated Statements of Cash Flows for the three years
ended December 31, 2006
Notes to Consolidated Financial Statements
(b) Exhibits
See list of exhibits.
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, 2006 and 2005, and for each of
the years in the three-year period ended December 31, 2006, 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, 2006 and 2005, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2006 in conformity with U.S. generally accepted
accounting principles.
As discussed in notes 1 and 7 to the consolidated financial statements,
effective January 1, 2006, the Company adopted the fair value method of
accounting for stock-based compensation as required by Statement of Financial
Accounting Standards No. 123(R), Share-Based Payment.
We also have 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, 2006,
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 15, 2007 expressed an unqualified opinion on
management's assessment of, and the effective operation of, internal control
over financial reporting.
Our report dated March 15, 2007 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, 2006, contains an
explanatory paragraph that states PAR Technology Corporation acquired SIVA
Corporation on November 2, 2006, and management excluded from its assessment of
the effectiveness of PAR Technology Corporation's internal control over
financial reporting as of December 31, 2006, SIVA Corporation's internal control
over financial reporting associated with total assets, net revenues, and income
before provision for income taxes comprising 4.8%, 0.02%, and (6.9%),
respectively, of the consolidated total assets, net revenues, and income before
provision for income taxes of PAR Technology Corporation and subsidiaries as of
and for the year ended December 31, 2006. Our audit of internal control over
financial reporting of PAR Technology Corporation also excluded an evaluation of
the internal control over financial reporting of SIVA Corporation.
/s/KPMG LLP
Syracuse, New York
March 15, 2007
PAR TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
December 31,
----------------------
Assets 2006 2005
--------- ---------
Current assets:
Cash and cash equivalents ............................. $ 4,273 $ 4,982
Accounts receivable-net ............................... 46,791 40,781
Inventories-net ....................................... 35,948 29,562
Income tax refunds .................................... 1,103 879
Deferred income taxes ................................. 5,139 5,690
Other current assets .................................. 2,737 2,598
--------- ---------
Total current assets .............................. 95,991 84,492
Property, plant and equipment - net ........................ 7,535 8,044
Goodwill ................................................... 25,734 20,622
Intangible assets - net .................................... 10,695 9,904
Other assets ............................................... 2,841 2,087
--------- ---------
$ 142,796 $ 125,149
========= =========
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt ..................... $ 240 $ 76
Borrowings under lines of credit ...................... 7,713 3,500
Accounts payable ...................................... 12,470 12,703
Accrued salaries and benefits ......................... 8,279 9,725
Accrued expenses ...................................... 1,861 2,352
Customer deposits ..................................... 3,656 3,973
Deferred service revenue .............................. 12,254 11,332
--------- ---------
Total current liabilities ......................... 46,473 43,661
--------- ---------
Long-term debt ............................................. 7,708 1,948
--------- ---------
Deferred income taxes ...................................... 653 201
--------- ---------
Other long-term liabilities ................................ 1,879 847
--------- ---------
Commitments and contingent liabilities
Shareholders' Equity:
Preferred stock, $.02 par value,
1,000,000 shares authorized ......................... -- --
Common stock, $.02 par value,
29,000,000 shares authorized;
15,980,486 and 15,914,958 shares issued;
14,327,731 and 14,136,654 outstanding ............... 320 318
Capital in excess of par value ........................ 38,602 37,271
Retained earnings ..................................... 53,159 47,442
Accumulated other comprehensive loss .................. (489) (611)
Treasury stock, at cost, 1,652,755 and 1,778,304 shares (5,509) (5,928)
--------- ---------
Total shareholders' equity ........................ 86,083 78,492
--------- ---------
$ 142,796 $ 125,149
========= =========
See accompanying notes to consolidated financial statements
PAR TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
Year ended December 31,
-----------------------------------
2006 2005 2004
--------- --------- ---------
Net revenues:
Product ...................................... $ 83,237 $ 91,130 $ 77,503
Service ...................................... 61,979 58,327 47,466
Contract ..................................... 63,451 56,182 49,915
--------- --------- ---------
208,667 205,639 174,884
--------- --------- ---------
Costs of sales:
Product ...................................... 47,925 53,443 51,287
Service ...................................... 46,338 44,205 39,769
Contract ..................................... 58,895 52,405 46,682
--------- --------- ---------
153,158 150,053 137,738
--------- --------- ---------
Gross margin ........................... 55,509 55,586 37,146
--------- --------- ---------
Operating expenses:
Selling, general and administrative .......... 33,440 30,867 22,106
Research and development ..................... 11,802 9,355 6,270
Amortization of identifiable intangible assets 1,283 1,030 245
--------- --------- ---------
46,525 41,252 28,621
--------- --------- ---------
Operating income .................................. 8,984 14,334 8,525
Other income, net ................................. 617 743 1,134
Interest expense .................................. (734) (287) (295)
--------- --------- ---------
Income before provision for income taxes .......... 8,867 14,790 9,364
Provision for income taxes ........................ (3,146) (5,358) (3,729)
--------- --------- ---------
Net income ........................................ $ 5,721 $ 9,432 $ 5,635
========= ========= =========
Earnings per share
Basic ........................................ $ .40 $ .68 $ .43
Diluted ...................................... $ .39 $ .64 $ .41
Weighted average shares outstanding
Basic ........................................ 14,193 13,792 13,044
========= ========= =========
Diluted ...................................... 14,752 14,648 13,845
========= ========= =========
See accompanying notes to consolidated financial statements
PAR TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Year ended December 31,
----------------------------
2006 2005 2004
------- -------- --------
Net income ................................... $ 5,721 $ 9,432 $ 5,635
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments 122 (430) (138)
------- ------- -------
Comprehensive income ......................... $ 5,843 $ 9,002 $ 5,497
======= ======= =======
See accompanying notes to consolidated financial statements
PAR TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Accumulated
Capital in Other Total
Common Stock excess of Retained Comprehensive Treasury Stock Shareholders'
------------ --------------- -------------
(in thousands) Shares Amount Par Value Earnings Income (Loss) Shares Amount Equity
------ ------ --------- -------- ------------ ------ ------ ------
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 of $364 260 5 948 953
Issuance of treasury stock for
business acquisition 850 310 1,035 1,885
Translation adjustments, net of tax
benefit of $111 (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 of $3,545 706 14 5,360 5,374
Issuance of treasury stock for
business acquisition 452 28 90 542
Translation adjustments, net of tax
benefit of $263 (430) (430)
-------- ------- --------- --------- ----------- --------- -------- ---------
Balances at
December 31, 2005 15,915 318 37,271 47,442 (611) (1,778) (5,928) 78,492
Net income 5,721 5,721
Issuance of common stock upon the
exercise of stock options,
net of tax benefit of $173 47 2 350 352
Issuance of treasury stock for
business acquisition 647 125 419 1,066
Issuance of restricted stock awards 18
Cash in lieu of fractional shares on
stock split (4) (4)
Equity based compensation 334 334
Translation adjustments, net of tax
benefit of $86 122 122
-------- ------- --------- --------- ----------- --------- -------- ---------
Balances at
December 31, 2006 15,980 $ 320 $ 38,602 $ 53,159 $ (489) (1,653) $ (5,509) $ 86,083
======== ======= ========= ========= =========== ========= ======== =========
See accompanying notes to consolidated financial statements
PAR TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year ended December 31,
------------------------------------------------
2006 2005 2004
------------- ------------- -------------
Cash flows from operating activities:
Net income $ 5,721 $ 9,432 $ 5,635
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 3,884 3,755 2,812
Provision for bad debts 849 1,063 689
Provision for obsolete inventory 1,922 3,942 4,007
Equity based compensation 334 -- --
Excess tax benefit of stock option exercises -- 3,545 364
Deferred income tax 916 1,213 3,014
Changes in operating assets and liabilities:
Accounts receivable (6,846) (9,101) 246
Inventories (8,308) (6,419) 1,046
Income tax refunds (224) (879) --
Other current assets (139) 132 178
Other assets (754) (756) (825)
Accounts payable (496) 2,704 571
Accrued salaries and benefits (1,446) 1,653 2,119
Accrued expenses (491) (831) (43)
Customer deposits (317) (888) (132)
Deferred service revenue 813 2,249 42
Other long-term liabilities 1,032 847 --
------------- ------------- --------------
Net cash provided by (used in) continuing
operating activities (3,550) 11,661 19,723
Net cash used in discontinued operations -- (174) (235)
------------- ------------- -------------
Net cash provided by (used in)
operating activities (3,550) 11,487 19,488
------------- ------------- -------------
Cash flows from investing activities:
Capital expenditures (1,189) (1,682) (1,598)
Capitalization of software costs (822) (617) (804)
Business acquisitions, net of cash acquired (5,827) (7,223) (13,364)
------------- ------------- -------------
Net cash used in investing activities (7,838) (9,522) (15,766)
------------- ------------- -------------
Cash flows from financing activities:
Net borrowings (payments) under
line-of-credit agreements 4,213 (6,746) 3,257
Proceeds from long-term debt 6,000 -- --
Payments of long-term debt (76) (71) (86)
Proceeds from the exercise of stock options 179 1,830 585
Excess tax benefit of stock option exercises 173 -- --
Cash dividend in lieu of fractional shares
on stock split (4) -- --
-------------- -------------- -------------
Net cash provided by (used in)
financing activities 10,485 (4,987) 3,756
------------- ------------- -------------
PAR TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(in thousands)
Year ended December 31,
-----------------------------
2006 2005 2004
------- ------- -------
Effect of exchange rate changes on cash and
cash equivalents ........................ 194 (692) (249)
------- ------- -------
Net increase (decrease) in cash
and cash equivalents .................... (709) (3,714) 7,229
Cash and cash equivalents at
beginning of year ....................... 4,982 8,696 1,467
------- ------- -------
Cash and cash equivalents at
end of year ............................. $ 4,273 $ 4,982 $ 8,696
======= ======= =======
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 687 $ 304 $ 280
Income taxes, net of refunds 2,237 1,586 537
Supplemental disclosures of non-cash financing and investing activities:
See non-cash financing and investing activities related to the Company's
business acquisitions as summarized in Note 2.
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-Siva Corporation, 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 (SAB) No. 104, "Revenue
Recognition" and the AICPA Statement of Position (SOP) 97-2, "Software Revenue
Recognition". Product revenues consist of sales of the Company's standard
point-of-sale and property management systems of the Hospitality segment.
Product revenues include both hardware and software sales. The Company also
records service revenues relating to its standard point-of-sale and property
management systems of the Hospitality segment.
Hardware
Revenue recognition on hardware sales occurs upon delivery to the customer
site (or when shipped for systems that are not installed by the Company) as
under SAB 104, persuasive evidence of an arrangement exists, delivery has
occurred, the price is fixed or determinable, and collectibility is reasonably
assured.
Sofware
Revenue recognition on software sales generally occurs upon delivery to the
customer site (or when shipped for systems that are not installed by the
Company) as under SOP 97-2, persuasive evidence of an arrangement exists,
delivery has occurred, the price is fixed or determinable, and collectibility is
reasonably assured. For software sales where the Company is the sole party that
has the proprietary knowledge to install the software, revenue is recognized
upon installation and when the system is ready to go live.
Service
Service revenue consists of installation and training services, support
maintenance, and field and depot repair. Installation and training service
revenue are based upon standard hourly/daily rates and revenue is recognized as
the services are performed. Support maintenance and field and depot repair are
provided to customers either on a time and materials basis or under a
maintenance contract. 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 underlying contract period.
The individual product and service offerings that are included in
arrangements with our customers are identified and priced separately to the
customer based upon the stand alone price for each individual product or service
sold in the arrangement irrespective of the combination of products and services
which are included in a particular arrangement. As such, the units of accounting
are based on each individual product and service sold, and revenue is allocated
to each element based on vendor specific objective evidence (VSOE) of fair
value. VSOE of fair value for each individual product and service is based on
separate individual prices of these products and services. The sales price used
to establish fair value is the sales price of the element when it is sold
individually in a separate arrangement and not as a separate element in a
multiple element arrangement.
Contracts
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 for fixed-price
contracts is recognized as labor hours are delivered which approximates the
straight-line basis of the life of the 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.
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.
Other assets
Other assets consist of cash surrender value of life insurance related to
the Company's Deferred Compensation Plan.
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
Other long-term liabilities relates to the Company's deferred compensation.
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)
--------------------------------------
2006 2005 2004
-------- -------- --------
Currency gains ............. $ 76 $ 186 $ 502
Rental income-net .......... 320 320 349
Other ...................... 221 237 283
------ ------ ------
$ 617 $ 743 $1,134
====== ====== ======
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 $ 680,000, $834,000 and
$996,000 in 2006, 2005, and 2004, respectively.
The Company acquired identifiable intangible assets in connection with its
acquisitions in 2006, 2005 and 2004. Amortization of identifiable intangible
assets amounted to $1,283,000 in 2006, $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)
2006 2005
---------- ----------
Software costs .............. $ 6,363 $ 5,655
Customer relationships ...... 4,393 3,744
Trademarks (non-amortizable) 2,694 2,444
Other ....................... 578 578
-------- --------
14,028 12,421
Less accumulated amortization (3,333) (2,517)
-------- --------
$ 10,695 $ 9,904
======== ========
The future amortization of these intangible assets is as follows (in
thousands):
2007 $ 2,266
2008 1,923
2009 1,619
2010 942
2011 848
Thereafter 403
--------
$ 8,001
========
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 2006, 2005 and 2004.
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
Effective January 1, 2006, the Company adopted the fair value recognition
provisions of Statement of Financial Accounting Standards No. 123R Share-Based
Payment (SFAS 123R) on a modified prospective basis. 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 is recognized
as compensation expense over the vesting period of the awards. Total
compensation expense included in operating expenses for 2006 was $334,000. Prior
to adopting SFAS 123R on January 1, 2006, the Company's equity based employee
compensation awards were accounted for under the recognition and measurement
principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations.
Earnings per share
Earnings per share are calculated in accordance with Statement of Financial
Accounting Standards No. 128 "Earnings per Share," 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):
2006 2005 2004
------- -------- -------
Net income .................................... $ 5,721 $ 9,432 $ 5,635
======= ======= =======
Basic:
Shares outstanding at beginning of year .. 14,137 13,403 12,833
Weighted shares issued during the year ... 56 389 211
------- ------- -------
Weighted average common shares, basic .... 14,193 13,792 13,044
======= ======= =======
Earnings per common share, basic .... $ .40 $ .68 $ .43
======= ======= =======
Diluted:
Weighted average common shares, basic .... 14,193 13,792 13,044
Dilutive impact of stock options ......... 557 856 801
Dilutive impact of restricted stock awards 2 -- --
------- ------- -------
Weighted average common shares, diluted .. 14,752 14,648 13,845
======= ======= =======
Earnings per common share, diluted ....... $ .39 $ .64 $ .41
======= ======= =======
At December 31, 2006 there were 70,500 anti-dilutive stock options
outstanding. At December 31, 2005 and 2004, there were no anti-dilutive stock
options outstanding.
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 2006, 2005 or 2004.
The following table reflects the changes in goodwill during the year (in
thousands):
Year ended December 31,
-----------------------
2006 2005 2004
------- ------- -------
Balance at beginning of year ............ $ 20,622 $ 15,379 $ 598
Acquisition of businesses during the year 4,843 6,075 14,781
Purchase accounting adjustment related to
prior year acquisition ................ (15) (820) --
Contingent purchase price earned on prior
year acquisitions ..................... 278 -- --
Change in foreign exchange rates during
the period ............................ 6 (12) --
-------- -------- --------
Balance at end of year .................. $ 25,734 $ 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 2006, 2005 or 2004.
Reclassifications
Amounts in prior years' consolidated financial statements are reclassified
whenever necessary to conform with the current year's presentation.
New accounting pronouncements
In November 2004, the Financial Accounting Standards Board (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 was 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 did not have a material
impact on the Company's consolidated financial statements.
FASB Interpretation 48 was issued in July 2006 to clarify the criteria for
recognizing tax benefits under FASB Statement No. 109, Accounting for Income
taxes. The Interpretation defines the threshold for recognizing the benefits of
tax return positions in the financial statements as "more-likely-than-not" to be
sustained by the taxing authority and will affect many companies' reported
results and their disclosures of uncertain tax positions. The Interpretation
does not prescribe the type of evidence required to support meeting the
more-likely-than-not threshold, stating that it depends on the individual facts
and circumstances. The benefit recognized for a tax position meeting the
more-likely-than-not criterion is measured based on the largest benefit that is
more than 50 percent likely to be realized. The measurement of the related
benefit is determined by considering the probabilities of the amounts that could
be realized upon ultimate settlement, assuming the taxing authority has full
knowledge of all relevant facts and including expected negotiated settlements
with the taxing authority. Interpretation 48 is effective as of the beginning of
the first fiscal year beginning after December 15, 2006 (the Company's 2007
fiscal year). The Company does not expect this to have a material impact on the
consolidated financial statements.
In September 2006, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 108, "Considering the Effects Prior Period Year
Misstatements When Quantifying Misstatements in Current Year Financial
Statements," ("SAB 108"). SAB 108 provides interpretative guidance on how the
effects of the carryover or reversal of prior year misstatements should be
considered in quantifying a current year misstatement. SAB 108 was effective for
the Company in the fiscal year ended December 31, 2006. The adoption of SAB 108
did not impact the Company's results of operations and financial condition.
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements"
("SFAS 157"), which provides guidance for measuring the fair value of assets and
liabilities, as well as requires expanded disclosures about fair value
measurements. SFAS 157 indicates that fair value should be determined based on
the assumptions marketplace participants would use in pricing the asset or
liability, and provides additional guidelines to consider in determining the
market-based measurement. The Company will be required to adopt SFAS 157 on
January 1, 2008. The Company is currently evaluating the impact of adopting SFAS
157 on its consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities" ("SFAS 159"). SFAS 159 permits all
entities to choose to measure eligible items at fair value at specified election
dates. SFAS 159 is effective as of the beginning of an entity's first fiscal
year that begins after November 15, 2007. The Company is currently assessing the
impact of adopting SFAS 159 on its consolidated financial statements.
Note 2 -- Business Acquisitions
On November 2, 2006, PAR Technology Corporation (the "Company") and its
wholly owned subsidiary, Par-Siva Corporation (f/k/a PAR Vision Systems
Corporation) (the "Subsidiary") acquired substantially all of the assets and
assumed certain liabilities of SIVA Corporation ("SIVA"). The purchase price of
the assets was approximately $6.9 million including estimated acquisition costs
of approximately $177,000. The purchase price consisted of $1.1 million worth of
PAR common stock (125,549 shares of PAR Technology Corporation common stock
issued out of treasury) and the remainder in cash. The agreement provides for
additional contingent purchase price payments based on certain sales based
milestones and other conditions. SIVA, based in Delray Beach, Florida, is a
developer of software solutions for multi-unit restaurant operations.
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. In 2006, $218,000 was earned
based on achievement of these 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. The purchase price is also subject to price
contingencies based upon future revenue performance against certain established
targets. In 2006, $60,000 was earned based on achievement of these targets.
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:
2006 2005 2004
--------- ---------------------- --------
(in thousands) SIVA PixelPoint C(3)I PSMS
------------ -------- ---------- -------- --------
Cash and cash equivalents ............. $ -- $ 32 $ -- $ 3,227
Other current assets .................. 13 185 8 2,298
Property, plant and equipment ......... 223 122 -- 858
Other assets .......................... -- 671 -- --
Intangible assets ..................... 1,924 1,634 290 7,900
Goodwill .............................. 4,843 5,539 536 14,781
------- ------- ------- -------
Total assets acquired ................. $ 7,003 $ 8,183 834 29,064
======= ======= ======= =======
Deferred revenues and customer deposits 110 -- -- 8,087
Other current liabilities ............. -- 303 245 1,681
Long-term liabilities ................ -- -- -- 820
------- ------- ------- -------
Total liabilities assumed ............. 110 303 245 10,588
------- ------- ------- -------
Purchase price, including
acquisition related costs ........... $ 6,893 $ 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) SIVA PixelPoint C(3)I PSMS Useful Life
- -------------- ---- ---------- ----- ---- -----------
Software costs ....... $1,025 $ 258 $ -- $ 2,800 5 Years
Customer relationships 649 774 270 2,700 5 - 8 Years
Trademarks ........... 250 344 -- 2,100 Indefinite
Others ............... -- 258 20 300 3 - 7 Years
------ ------ ------ -------
$1,924 $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,
----------------------------------------------------
2006 2005 2004
-------------- ------------- -------------
Revenues .......... $ 209,723 $ 209,515 $ 191,658
============== ============== ===========
Net income ........ $ 2,743 $ 6,139 $ 3,306
============== ============== ===========
Earnings per share:
Basic ........ $ .19 $ .44 $ .25
============== ============== ===========
Diluted ...... $ .18 $ .41 $ .23
============== ============== ===========
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 -- Accounts Receivable
The Company's net accounts receivable consist of:
December 31,
(in thousands)
-----------------------------
2006 2005
---------- ---------
Government segment:
Billed ......................... $ 9,076 $ 8,222
Advanced billings .............. (1,465) (2,251)
-------- --------
7,611 5,971
-------- --------
Hospitality segment:
Accounts receivable - net ........... 39,180 34,810
-------- --------
$ 46,791 $ 40,781
======== ========
At December 31, 2006 and 2005, the Company had recorded allowances for
doubtful accounts of $1,850,000 and $1,748,000, respectively, against
Hospitality accounts receivable. Write-offs of accounts receivable during fiscal
years 2006 and 2005 were $747,000 and $1,614,000, respectively.
Note 4 -- 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)
-------------------------
2006 2005
-------- ---------
Finished goods .................... $ 9,533 $ 7,217
Work in process ................... 1,667 1,874
Component parts ................... 7,119 4,693
Service parts ..................... 17,629 15,778
------- -------
$35,948 $29,562
======= =======
The Company records reserves for shrinkage and excess and obsolete
inventory. At December 31, 2006 and 2005, these amounts were $3,658,000 and
$4,189,000, respectively. Write-offs of inventories during fiscal years 2006 and
2005 were $2,453,000 and $3,735,000, respectively.
Note 5 -- Property, Plant and Equipment
The components of property, plant and equipment are:
December 31,
(in thousands)
------------------------
2006 2005
-------- ---------
Land ........................ $ 253 $ 253
Buildings and improvements .. 5,669 5,632
Rental property ............. 5,490 5,426
Furniture and equipment ..... 18,264 19,013
-------- --------
29,676 30,324
Less accumulated depreciation
and amortization ........... (22,141) (22,280)
-------- --------
$ 7,535 $ 8,044
======== ========
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 $1,921,000, $1,883,000 and $1,571,000 for 2006, 2005 and 2004,
respectively.
The Company leases a portion of its headquarters facility to various
tenants. Rent received from these leases totaled $1,129,000, $1,038,000 and
$1,104,000 for 2006, 2005 and 2004, respectively.
Future minimum rent payments due to the Company under these leases are as
follows (in thousands):
2007 $ 893
2008 792
2009 242
2010 242
2011 182
Thereafter --
---------
$ 2,351
=========
The Company leases office space under various operating leases. Rental
expense on these operating leases was approximately $2,559,000, $2,138,000 and
$1,527,000 for 2006, 2005, and 2004, respectively.
Future minimum lease payments under all noncancelable operating leases are
(in thousands):
2007 $ 1,852
2008 1,456
2009 1,195
2010 537
2011 223
Thereafter 89
---------
$ 5,352
=========
Note 6 -- Debt
The Company has an aggregate availability of $20,000,000 in unsecured bank
lines of credit. One line totaling $12,500,000 bears interest at the bank
borrowing rate (6.3% at December 31, 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 (6.3% at
December 31, 2006). These facilities 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 3.5 to 1. These lines expire in April 2009. The Company was in
compliance with all loan covenants on December 31, 2006. At December 31, 2006
and 2005, there was $7,713,000 and $3,500,000 outstanding under these lines,
respectively. The weighted average interest rate paid by the Company during 2006
was 6.6% and 5.6% during 2005.
In 2006, the Company borrowed $6,000,000 under an unsecured term loan
agreement with a bank in connection with the acquisition of SIVA Corporation.
The loan provides for interest only payments in the first year and escalating
principal payments through 2012. The loan bears interest at the LIBOR rate plus
applicable interest rate spread (6.3% at December 31, 2006).
The Company has a $1,948,000 mortgage collateralized by certain real
estate. The annual mortgage payment including interest totals $226,000. The
mortgage bears interest at a fixed rate of 7% and matures in 2010. The Company's
future principal payments under its term loan and mortgage are as follows (in
thousands):
2007 $ 240
2008 772
2009 1,079
2010 2,933
2011 1,575
2012 1,349
Thereafter --
--------
$ 7,948
========
Note 7 -- Stock based compensation
Effective January 1, 2006, the Company adopted the fair value recognition
provisions of Statement of Financial Accounting Standards No. 123R Share-Based
Payment (SFAS 123R) on a modified prospective basis. 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 is recognized
as compensation expense over the vesting period of the awards. Total stock-based
compensation expense included in selling, general and administrative expense for
the year ended December 31, 2006 was $334,000. This amount includes $20,000
related to restricted stock awards. As a result of the adoption of SFAS 123R,
both operating income and income before taxes for the year ended December 31,
2006 were reduced by $334,000. Net income was reduced by $310,000 or $0.02 per
basic and diluted share. No compensation expense has been capitalized during the
fiscal year 2006.
Prior to adopting SFAS 123R on January 1, 2006, the Company's equity based
employee compensation awards were accounted for under the recognition and
measurement principles of APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. For the year ended December 31, 2005 and
2004, no equity option based employee compensation cost is reflected in net
income, as all options granted under the Company's stock option plans had an
exercise price equal to the underlying common stock price on the date of grant.
The following table illustrates the effect on net income and earnings per share
as if the Company had applied the fair value recognition provisions to equity
based employee compensation (in thousands, except per share data):
2005 2004
--------- ---------
Net income $ 9,432 $ 5,635
Compensation expense, net of tax (410) (354)
--------- ---------
Proforma net income $ 9,022 $ 5,281
========= =========
Earnings per share:
As reported -- Basic $ .68 $ .43
-- Diluted $ .64 $ .41
Proforma -- Basic $ .65 $ .40
-- Diluted $ .62 $ .38
In 2005, the Company's 1995 Stock Option plan expired. The 2005 Equity
Incentive Plan was approved by the shareholders at the Company's 2006 Annual
Meeting. The Company has reserved 1,000,000 shares under its 2005 Equity
Incentive Plan. Stock options under this Plan may be incentive stock options or
nonqualified stock options. The Plan also provides for restricted stock awards.
Stock options are nontransferable other than upon death. Option grants generally
vest over a one to five year period after the grant and typically expire ten
years after the date of the grant.
Information with respect to this plan is as follows:
Weighted Aggregate
No. of Shares Average Intrinsic Value
(in thousands) Exercise Price (in thousands)
-------------- -------------- --------------
Outstanding at December 31, 2005 1,037 $ 4.03 $15,008
Options granted 165 9.05
Exercised (47) 3.74
Forfeited and cancelled (16) 14.71
------ -------
Outstanding at December 31, 2006 1,139 $ 4.62 $ 5,012
====== ======= =======
Vested and expected to vest
at December 31, 2006 1,123 $ 4.57 $ 4,998
====== ======= =======
Total shares exercisable
as of December 31, 2006 763 $ 3.22 $ 4,423
====== ======= =======
Shares remaining
available for grant 832
======
The weighted average grant date fair value of options granted during the
years 2006, 2005 and 2004 was $3.69, $4.78 and $2.85, respectively. The total
intrinsic value of options exercised during the years ended December 31, 2006,
2005 and 2004 was $670,000, $10,310,000 and $1,259,000, respectively. The fair
value of options at the date of the grant was estimated using the Black-Scholes
model with the following assumptions for the respective period ending December
31:
2006 2005 2004
---------- -------- ---------
Expected option life ......................... 4.5 years 5 years 5 years
Weighted average risk-free interest rate ..... 4.6% 3.5% 3.2%
Weighted average expected volatility ......... 50% 43% 42%
Expected dividend yield ...................... 0% 0% 0%
For the years ended December 31, 2006 and 2005, the expected option life
was based on the Company's historical experience with similar type options.
Expected volatility is based on historical volatility levels of the Company's
common stock over the preceding period of time consistent with the expected
life. The risk-free interest rate is based on the implied yield currently
available on U.S. Treasury zero coupon issues with a remaining term equal to the
expected life.
Stock options outstanding at December 31, 2006 are summarized as follows:
Range of Number Outstanding Weighted Average Weighted Average
Exercise Prices (in thousands) Remaining Life Exercise Price
--------------- ------------ -------------- --------------
$1.25 - $3.17 578 3.9 Years $ 2.22
$3.18 - $7.25 341 7.2 Years $ 5.59
$7.26 - $11.40 220 9.3 Years $ 9.40
- ------------------- ----- ------------ -------
$1.25 - $11.40 1,139 5.9 Years $ 4.62
=================== ===== ============ =======
At December 31, 2006, the aggregate unrecognized compensation cost of
unvested options, as determined using a Black-Scholes option valuation model,
was $873,000 (net of estimated forfeitures) which is expected to be recognized
as compensation expense in fiscal years 2007 through 2011.
Current year activity with respect to the Company's nonvested stock options
is as follows:
Weighted
Average
grant-date
Nonvested shares (in thousands) Shares fair value
- ------------------------------- ------- -----------
Balance at January 1, 2006 ....................... 396 $ 3.19
Granted .................................... 165 3.69
Vested ..................................... (170) 2.52
Forfeited and cancelled .................... (15) 1.73
---- --------
Balance at December 31, 3006 ..................... 376 $ 3.58
==== ========
During 2006, the Company issued 17,800 restricted stock awards at a per
share price of $.02. These awards vest over various periods ranging from 6 to 60
months.
Note 8-- Income Taxes
The provision for income taxes consists of:
Year ended December 31,
(in thousands)
---------------------------------
2006 2005 2004
-------- -------- -------
Current income tax:
Federal ............................ $1,565 $3,312 $ 312
State .............................. 346 679 164
Foreign ............................ 319 154 239
------ ------ ------
2,230 4,145 715
------ ------ ------
Deferred income tax:
Federal ............................ 802 1,196 2,259
State .............................. 114 17 225
Foreign ............................ -- -- 530
------ ------ ------
916 1,213 3,014
------ ------ ------
Provision for income taxes .............. $3,146 $5,358 $3,729
====== ====== ======
Deferred tax liabilities (assets) are comprised of the following at:
December 31,
(in thousands)
-------------------------
2006 2005
----------- ---------
Software development expense ..................... $ 493 $ 521
Intangible assets ................................ 528 137
------- -------
Gross deferred tax liabilities ................... 1,021 658
------- -------
Allowances for bad debts,
inventory and warranty ......................... (3,821) (3,396)
Capitalized inventory costs ...................... (105) (67)
Employee benefit accruals ........................ (555) (504)
Federal net operating loss carryforward .......... -- (254)
State net operating loss carryforward ............ (81) (123)
Tax credit carryforwards ......................... (617) (1,393)
Other ............................................ (328) (410)
------- -------
Gross deferred tax assets ........................ (5,507) (6,147)
------- -------
Net deferred tax assets .......................... $(4,486) $(5,489)
======= =======
The Company has Federal tax credit carryforwards of $498,000 that expire in
various tax years from 2014 to 2016. The Company also has state tax credit
carryforwards of $181,000 and state net operating loss carryforwards of
$2,337,000 which expire in various tax years through 2026. 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,
2006 and 2005.
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,
------------------------------
2006 2005 2004
-------- -------- -------
Federal statutory tax rate ................. 34.0% 34.0% 34.0%
State taxes ................................ 3.9 3.1 3.6
Extraterritorial income exclusion .......... (2.4) (1.4) (1.0)
Non deductible expenses .................... 1.9 .5 .5
Tax credits ................................ (1.0) (.6) (.4)
Foreign income taxes ....................... -- .5 2.7
Other ...................................... (.9) .1 .4
---- ---- ----
35.5% 36.2% 39.8%
==== ==== ====
Note 9 -- Employee Benefit Plans
The Company has a deferred profit-sharing retirement plan that covers
substantially all employees. The Company's annual contribution to the plan is
discretionary. The Company contributed $880,000, $1,985,000 and $1,130,000 to
the Plan in 2006, 2005 and 2004, 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 $348,000, $297,000 and $228,000 in 2006, 2005, and 2004, 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
$707,000, $1,258,000 and $682,000 in 2006, 2005 and 2004, 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
invests the participants deferred amounts to fund these obligations. 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
2006, 2005 and 2004.
Note 10 -- 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 11 -- 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 provides
technical expertise in the development of 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. Intersegment sales
and transfers are not significant.
Information as to the Company's segments is set forth below:
Year ended December 31,
(in thousands)
-------------------------------------
2006 2005 2004
---------- ----------- -----------
Revenues:
Hospitality ........................ $ 145,216 $ 149,457 $ 124,969
Government ......................... 63,451 56,182 49,915
--------- --------- ---------
Total ........................ $ 208,667 $ 205,639 $ 174,884
========= ========= =========
Operating income (loss):
Hospitality ........................ $ 5,051 $ 10,864 $ 5,657
Government ......................... 4,267 3,470 2,868
Other .............................. (334) -- --
--------- --------- ---------
8,984 14,334 8,525
Other income, net ....................... 617 743 1,134
Interest expense ........................ (734) (287) (295)
--------- --------- ---------
Income before provision for income taxes $ 8,867 $ 14,790 $ 9,364
========= ========= =========
Identifiable assets:
Hospitality ........................ $ 123,958 $ 106,529 $ 91,432
Government ......................... 10,898 9,015 9,909
Other .............................. 7,940 9,605 10,411
--------- --------- ---------
Total ........................ $ 142,796 $ 125,149 $ 111,752
========= ========= =========
Goodwill:
Hospitality ........................ $ 25,138 $ 20,086 $ 15,379
Government ......................... 596 536 --
--------- --------- ---------
Total ........................ $ 25,734 $ 20,622 $ 15,379
========= ========= =========
Depreciation and amortization:
Hospitality ........................ $ 3,453 $ 3,321 $ 2,276
Government ......................... 42 80 208
Other .............................. 389 354 328
--------- --------- ---------
Total ........................ $ 3,884 $ 3,755 $ 2,812
========= ========= =========
Capital expenditures:
Hospitality ........................ $ 903 $ 1,385 $ 1,348
Government ......................... 14 74 --
Other .............................. 272 223 250
--------- --------- ---------
Total ........................ $ 1,189 $ 1,682 $ 1,598
========= ========= =========
The following table presents revenues by country based on the location of
the use of the product or services.
2006 2005 2004
--------- ---------- ----------
United States ............... $181,482 $183,383 $158,407
Other Countries ............. 27,185 22,256 16,477
-------- -------- --------
Total ................... $208,667 $205,639 $174,884
======== ======== ========
The following table presents assets by country based on the location of the
asset.
2006 2005 2004
---------- ----------- ---------
United States ............... $135,337 $119,627 $105,073
Other Countries ............. 7,459 5,522 6,679
-------- -------- --------
Total ................... $142,796 $125,149 $111,752
======== ======== ========
Customers comprising 10% or more of the Company's total revenues are
summarized as follows:
2006 2005 2004
------- ------ -------
Hospitality segment:
McDonald's Corporation ................... 26% 28% 32%
Yum! Brands, Inc. ........................ 14% 13% 19%
Government segment:
U.S. Department of Defense ............... 30% 27% 29%
All Others ................................. 30% 32% 20%
--- --- ---
100% 100% 100%
=== === ===
Note 12 -- 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, 2006 and 2005 is based on variable and
fixed interest rates at December 31, 2006 and 2005, respectively, for new issues
with similar remaining maturities and approximates respective carrying values at
December 31, 2006 and 2005.
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 13 -- 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 a complimentary
membership to this facility which is provided to all employees. During 2006,
2005, and 2004 the Company received rental income amounting to $117,300 for the
lease of the facility. All lease payments are current at December 31, 2006.
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 2006, 2005 and 2004, the Company paid
$360,000, $360,000 and $90,000, respectively, to the officer under this lease.
Note 14 -- Selected Quarterly Financial Data (Unaudited)
Quarter ended
(in thousands except per share amounts)
2006 March 31 June 30 September 30 December 31
---- -------- ------- ------------ -----------
Net revenues ............. $52,597 $53,343 $48,534 $54,193
Gross margin ............. 14,363 14,911 12,177 14,058
Net income ............... 2,012 2,338 550 821
Basic earnings per share . .14 .16 .04 .06
Diluted earnings per share .14 .16 .04 .06
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
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 16, 2007 /s/John W. Sammon
----------------------------------
John W. Sammon
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
- ----------------------
John W. Sammon Chairman of Board and March 16, 2007
President (Principal
Executive Officer)
and Director
/s/Charles A. Constantino
- -------------------------
Charles A. Constantino Executive Vice President March 16, 2007
and Director
/s/Sangwoo Ahn
- ----------------------
Sangwoo Ahn Director March 16, 2007
/s/James A. Simms
- ----------------------
James A. Simms Director March 16, 2007
/s/Paul D. Nielsen
- ----------------------
Paul D. Nielsen Director March 16, 2007
/s/Kevin R. Jost
- ----------------------
Kevin R. Jost Director March 16, 2007
/s/Ronald J. Casciano
- ----------------------
Ronald J. Casciano Vice President, Chief Financial March 16, 2007
Officer and Treasurer
List of Exhibits
Exhibit No. Description of Instrument
- ----------- -------------------------
3.1 Certificate of Incorporation, Filed as Exhibit 3(i) to the quarterly
as amended report on Form 10Q for the period ended
June 30, 2006, of PAR Technology
Corporation and 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 the Filed as Exhibit 3.1 to Registration
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
incorporated herein by reference.
10.2 Asset Purchase Agreement dated October 27, Filed as Exhibit 10.1 to the current
2006. By and among PAR Technology report on Form 8K dated November 8,
Corporation, Par-Siva Corporation and 2006 of PAR Technology Corporation
SIVA Corporation. and incorporated herein by reference.
10.3 JP Morgan term loan.
10.4 2005 Equity Incentive Plan of PAR Filed as Exhibit 4.2 to Form S-8
Technology Corporation (Registration No. 333-137647) of
PAR Technology Corporation and
incorporated herein by reference.
10.5 Form of Stock Option Award Agreement Filed as Exhibit 4.3 to Form S-8
(Registration No. 333-137647) of
PAR Technology Corporation and
incorporated herein by reference.
10.6 Form of Restricted Stock Award Agreement Filed as Exhibit 4.4 to Form S-8
(Registration No. 333-137647) of
PAR Technology Corporation and
incorporated herein by reference.
22 Subsidiaries of the registrant
23 Consent of Independent Registered Public
Accounting Firm
List of Exhibits
Exhibit No. Description of Instrument (Continued)
- ----------- -------------------------------------
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 10.3
JP MORGAN TERM LOAN
AMENDMENT NO. 1
TO
AMENDED AND RESTATED CREDIT AGREEMENT
This Amendment No. 1 (the "Amendment"), dated as of November 2, 2006, is
between PAR TECHNOLOGY CORPORATION, a Delaware corporation (the "Borrower") and
JPMORGAN CHASE BANK, N.A. (the "Bank").
R E C I T A L S
A. The Borrower and the Bank are parties to an Amended and Restated
Credit Agreement dated as of April 19, 2006 (the "Credit Agreement").
B. The Borrower has requested that the Bank amend the Credit Agreement
to provide for a $6,000,000 term loan from the Bank to the Borrower.
C. The Bank is willing to amend the Credit Agreement as requested by
the Borrower upon the terms and conditions of this Amendment.
NOW, THEREFORE, the parties agree as follows:
1. Definitions. All capitalized terms used in this Amendment which are not
otherwise defined shall have the meanings given to those terms in the Credit
Agreement, except where such terms are amended herein.
2. Amendment of Credit Agreement.
2.1 The following defined term is added to Section 1.01 of the Credit
Agreement:
"Acquisition" means Par-Siva Corporation's acquisition of the assets
of SIVA Corporation, a Delaware corporation, pursuant to the Purchase
Agreement.
2.2 The following defined term is added to Section 1.01 of the Credit
Agreement:
"Amendment No. 1 Effective Date" means the date on which all the
conditions to this Amendment have been satisfied.
2.3 The definition of the term Applicable Rate in Section 1.01 of the
Credit Agreement is amended by deleting the term "Category 1" in the
proviso at the end of the last sentence appearing after the pricing grid
and adding in its place "Category 5."
2.4 The definition of the term Commitment in Section 1.01 of the
Credit Agreement is amended by deleting the word "Loans" where it appears
in the first sentence and adding in its place the words "Revolving Loans."
2.5 The definition of the term Corporate Guarantor in Section 1.01 of
the Credit Agreement is amended by deleting the word "and" before the words
"Rome Research Corporation" and adding the words "and Par-Siva Corporation"
to the end of the sentence.
2.6 The definition of the term LIBO Rate in Section 1.01 of the Credit
Agreement is amended to read as follows:
"LIBO Rate" means, with respect to any Eurodollar Loan for any
Interest Period, the rate appearing on Page 3750 of the Moneyline
Telerate Service (or on any successor or substitute page of such
Service, or any successor to or substitute for such Service, providing
rate quotations comparable to those currently provided on such page of
such Service, as determined by the Bank from time to time for purposes
of providing quotations of interest rates applicable to dollar
deposits in the London interbank market) at approximately 11:00 a.m.,
London time, two Business Days prior to the commencement of such
Interest Period, as the rate for dollar deposits with a maturity
comparable to such Interest Period. In the event that such rate is not
available at such time for any reason, then the "LIBO Rate" with
respect to such Eurodollar Loan for such Interest Period shall be the
rate at which dollar deposits in the approximate amount of principal
outstanding on such date and for a maturity comparable to such
Interest Period are offered by the principal London office of the Bank
in immediately available funds in the London interbank market at
approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period.
2.7 The definition of the term Loans in Section 1.01 of the Credit
Agreement is amended to read as follows:
"Loans" means the Term Loan and all Revolving Loans made by the Bank
to the Borrower pursuant to this Agreement.
2.8 The definition of the term Prime Rate in Section 1.01 of the
Credit Agreement is amended to read as follows:
"Prime Rate" means the rate of interest per annum announced from time
to time by the Bank as its prime rate. The Prime Rate is a variable
rate and each change in the Prime Rate is effective from and including
the date the change is announced as being effective. THE PRIME RATE IS
A REFERENCE RATE AND MAY NOT BE THE BANK'S LOWEST RATE.
2.9 The following defined term is added to Section 1.01 of the Credit
Agreement:
"Purchase Agreement" means the Asset Purchase Agreement, dated as of
October 27, 2006, by and between SIVA Corporation, a Delaware
corporation, Borrower, and Par-Siva Corporation, a New York
corporation and a wholly-owned subsidiary of the Borrower, pursuant to
which Par-Siva Corporation shall acquire substantially all of the
assets of SIVA Corporation.
2.10 The following defined term is added to Section 1.01 of the Credit
Agreement:
"Revolving Loan" has the meaning set forth in Section 2.01(b).
2.11 The following defined term is added to Section 1.01 of the Credit
Agreement: "Term Loan" has the meaning set forth in Section 2.01(a) of the
Credit Agreement.
2.12 The following defined term is added to Section 1.01 of the Credit
Agreement:
"Term Loan Maturity Date" means August 1, 2012.
2.13 The following defined term is added to Section 1.01 of the Credit
Agreement:
"Term Note" has the meaning set forth in Section 2.07(e) of the Credit
Agreement.
2.14 Section 2.01 of the Credit Agreement is amended to read as
follows:
SECTION 2.01. Commitment.
(a) Subject to the terms and conditions hereof, the Bank agrees to
make a term loan (the "Term Loan") to the Borrower on the Amendment
No. 1 Effective Date in the amount of $6,000,000. The Term Loan may
from time to time be an ABR Loan, a Eurodollar Loan or a combination
thereof, as determined by the Borrower and notified to the Bank in
accordance with Section 2.5. No portion of the Term Loan which is
repaid or prepaid may be reborrowed.
(b) Subject to the terms and conditions set forth herein, the Bank
agrees to make loans (the "Revolving Loans") to the Borrower from time
to time during the Availability Period in an aggregate principal
amount that will not result in outstanding Loans exceeding the
Commitment. Within the foregoing limits and subject to the terms and
conditions set forth herein, the Borrower may borrow, prepay and
reborrow Revolving Loans.
2.15 Section 2.02 of the Credit Agreement is amended to read as
follows:
SECTION 2.02. Loans.
(a) At the commencement of each Interest Period for any Eurodollar
Loan, such Loan shall be in an amount that is an integral multiple of
$100,000 and not less than $500,000. At the time that each ABR Loan is
made, such Loan shall be in an aggregate amount that is an integral
multiple of $50,000 and not less than $50,000; provided that a
Revolving Loan which is an ABR Loan may be in an aggregate amount that
is equal to the entire unused balance of the total Commitment. Loans
of more than one Type and Class may be outstanding at the same time;
provided that there shall not at any time be more than a total of
fourteen Eurodollar Loans outstanding.
(b) Notwithstanding any other provision of this Agreement, the
Borrower shall not be entitled to request, or to elect to convert or
continue, any Loan if the Interest Period requested with respect
thereto would end after: (i) the Maturity Date, with respect to
Revolving Loans, or (ii) the Term Loan Maturity Date, with respect to
the Term Loan.
2.16 Section 2.03 of the Credit Agreement is amended by: (i) making
the existing language subsection (b); (ii) deleting the word "Loan" where
it first appears in the first sentence of such subsection (b) and adding in
its place the words "Revolving Loan"; and (iii) adding a new subsection (a)
to read as follows:
(a) The Borrower hereby requests a Term Loan borrowing on the
Amendment No. 1 Effective Date in the amount of $6,000,000 to be
credited to an account of the Borrower maintained with the Bank, as
designated by the Borrower. The Term Loan shall initially be an ABR
Loan. Thereafter, the Borrower may elect to convert the Term Loan into
a different Type in accordance with Section 2.5.
2.17 Section 2.04 of the Credit Agreement is amended to read as
follows:
SECTION 2.04. Funding of Loans.
(a) The Bank shall make the Term Loan available to the Borrower on the
Amendment No. 1 Effective Date by crediting the amount of $6,000,000
to an account of the Borrower maintained with the Bank, as designated
by the Borrower.
(b) The Bank shall make each Revolving Loan available to the Borrower
by promptly crediting the amount requested in the Borrower's Borrowing
Request to an account of the Borrower maintained with the Bank and
designated by the Borrower in such Borrowing Request.
2.18 Section 2.07 of the Credit Agreement is amended to read as
follows:
SECTION 2.07. Repayment of Loans; Evidence of Debt.
(a) The Borrower hereby unconditionally promises to pay to the Bank in
repayment of the principal amount of the Term Loan the amounts set
forth below on the dates set forth below without setoff, deduction or
counterclaim; provided that, notwithstanding the foregoing, the
aggregate then unpaid principal amount of the Term Loan shall be
payable on the Term Loan Maturity Date (or such earlier date on which
the Term Loan becomes due and payable pursuant to Article VII):
Schedule of Principal Payments
Principal Payment Date Principal Amount Due
November 1, 2007 ....................................... $150,000
February 1, 2008 ....................................... $150,000
May 1, 2008 ............................................ $150,000
August 1, 2008 ......................................... $150,000
November 1, 2008 ....................................... $225,000
February 1, 2009 ....................................... $225,000
May 1, 2009 ............................................ $225,000
August 1, 2009 ......................................... $225,000
November 1, 2009 ....................................... $300,000
February 1, 2010 ....................................... $300,000
May 1, 2010 ............................................ $300,000
August 1, 2010 ......................................... $300,000
November 1, 2010 ....................................... $375,000
February 1, 2011 ....................................... $375,000
May 1, 2011 ............................................ $375,000
August 1, 2011 ......................................... $375,000
November 1, 2011 ....................................... $450,000
February 1, 2012 ....................................... $450,000
May 1, 2012 ............................................ $450,000
August 1, 2012 ......................................... $450,000
In the event that any payment date set forth above is not a Business
Day, the Borrower shall pay the Bank the corresponding principal
payment on the next succeeding Business Day. The Borrower hereby
further agrees to pay interest on the unpaid principal amount of the
Term Loan from time to time outstanding from the date hereof until
payment in full thereof at the rates per annum, and on the dates, set
forth in Section 2.10.
(b) The Borrower hereby unconditionally promises to pay to the Bank
the then unpaid principal amount of each Revolving Loan on the
Maturity Date without setoff, deduction or counterclaim.
(c) The Bank shall maintain in accordance with its usual practice an
account or accounts evidencing (i) the indebtedness of the Borrower to
the Bank resulting from each Loan made by the Bank, including the
amounts of principal and interest payable and paid to the Bank from
time to time hereunder, (ii) the amount of each Loan made hereunder,
the Type thereof and the Interest Period applicable thereto, and (iii)
the amount of any principal or interest due and payable or to become
due and payable from the Borrower to the Bank hereunder.
(d) The entries made in the accounts maintained pursuant to paragraph
(c) of this Section shall be prima facie evidence of the existence and
amounts of the obligations recorded therein; provided that the failure
of the Bank to maintain such accounts or any error therein shall not
in any manner affect the obligation of the Borrower to repay the Loans
in accordance with the terms of this Agreement.
(e) The Borrower agrees that on the Amendment No. 1 Effective Date the
Borrower will execute and deliver to the Bank a promissory note of the
Borrower evidencing the Term Loan, substantially in the form of
Exhibit A (the "Term Note"), payable to the order of the Bank and in
the principal amount of $6,000,000.
(f) The Bank may request that Revolving Loans be evidenced by a
promissory note. In such event, the Borrower shall prepare, execute
and deliver to the Bank a promissory note payable to the order of the
Bank (or, if requested by the Bank, to the Bank and its registered
assigns). Thereafter, the Loans evidenced by such promissory note and
interest thereon shall at all times (including after assignment
pursuant to Section 8.04) be represented by one or more promissory
notes in such form payable to the order of the payee named therein
(or, if such promissory note is a registered note, to such payee and
its registered assigns).
2.19 Section 2.10 (d) of the Credit Agreement are amended to read as
follows:
(d) Accrued interest on each Loan shall be payable in arrears on each
Interest Payment Date for such Loan and upon: (x) termination of the
Commitment, with respect to Revolving Loans and (y) the Term Loan
Maturity Date, with respect to the Term Loan; provided that (i)
interest accrued pursuant to paragraph (c) of this Section shall be
payable on demand, (ii) in the event of any repayment or prepayment of
any Loan (other than a prepayment of an ABR Loan prior to the end of
the Availability Period), accrued interest on the principal amount
repaid or prepaid shall be payable on the date of such repayment or
prepayment and (iii) in the event of any conversion of any Eurodollar
Loan prior to the end of the current Interest Period therefor, accrued
interest on such Loan shall be payable on the effective date of such
conversion.
2.20 Section 5.08 of the Credit Agreement is amended to read as
follows:
SECTION 5.08. Use of Proceeds.
(a) The proceeds of the Term Loan shall be used by the Borrower solely
to finance a portion of the Acquisition and/or to pay related fees and
expenses.
(b) The proceeds of the Revolving Loans will be used only for working
capital. No part of the proceeds of any Loan will be used, whether
directly or indirectly, for any purpose that entails a violation of
any of the Regulations of the Board, including Regulations G, U and X.
2.21 The following new Section 6.12 is added to the Credit Agreement
immediately following Section 6.11:
Section 6.12 Government Regulation. The Borrower shall not (1) be or
become subject at any time to any law, regulation, or list of any
government agency (including, without limitation, the U.S. Office of
Foreign Asset Control list) that prohibits or limits the Bank from
making any Loan or extension of credit to the Borrower or from
otherwise conducting business with the Borrower, or (2) fail to
provide documentary or other evidence of the Borrower's identity as
may be requested by the bank at any time to enable the Bank to verify
the Borrower's identity or to comply with any applicable law or
regulation, including, without limitation, Section 326 of the USA
Patriot Act of 2001, 31 U.S.C. Section 5318.
2.22 Section 8.13 of the Credit Agreement is amended to read as
follows:
Section 8.13 USA PATRIOT ACT NOTIFICATION. The following notification
is provided to the Borrower pursuant to Section 326 of the USA Patriot
Act of 2001, 31 U.S.C. Section 5318: IMPORTANT INFORMATION ABOUT
PROCEDURES FOR OPENING A NEW ACCOUNT. To help the government fight the
funding of terrorism and money laundering activities, Federal law
requires all financial institutions to obtain, verify, and record
information that identifies each Person that opens an account,
including any deposit account, treasury management account, loan,
other extension of credit, or other financial services product. What
this means for the Borrower: When the Borrower opens an account, the
Bank will ask for the Borrower's name, taxpayer identification number,
business address, and other information that will allow the Bank to
identify the Borrower. The Bank may also ask to see the Borrower's
legal organizational documents or other identifying documents.
3. Representations and Warranties. The Borrower represents and warrants to
the Bank that the following statements are true, correct and complete:
3.1 Each of the representations and warranties made by the Borrower in
the Credit Agreement is true and correct on and as of the date of this
Amendment and after giving effect to the transactions contemplated by this
Amendment.
3.2 No Default or Event of Default has occurred and is continuing.
3.3 This Amendment has been duly and validly executed and delivered by
the Borrower and constitutes its legal, valid and binding obligation,
enforceable against the Borrower in accordance with its terms.
4. Conditions to Effectiveness of Amendment. This Amendment shall be
effective only when and if each of the following conditions is satisfied (or
waived in accordance with Section 8.02 of the Credit Agreement):
4.1 The Bank (or its counsel) shall have received from the Borrower
either (i) a counterpart of this Amendment signed on behalf of the Borrower
or (ii) written evidence satisfactory to the Bank (which may include
telecopy or electronic transmission of a signed signature page of this
Amendment) that the Borrower has signed a counterpart of this Amendment.
4.2 The Bank shall have received a favorable written opinion
(addressed to the Bank and dated the Amendment No. 1 Effective Date) of
Hiscock & Barclay, LLP, counsel for the Borrower and the Corporate
Guarantors, substantially in the form of Exhibit B and covering such other
matters relating to the Borrower, this Amendment or the Transactions as the
Bank shall reasonably request. The Borrower hereby requests such counsel to
deliver such opinion.
4.3 The Bank shall have received such documents and certificates as
the Bank or its counsel may reasonably request relating to the
organization, existence and good standing of the Borrower and each
Corporate Guarantor, the authorization of the Transactions and any other
legal matters relating to the Borrower, this Amendment or the Transactions,
all in form and substance satisfactory to the Bank and its counsel.
4.4 The Bank shall have received pro forma financial statements as of
the Fiscal Quarter ending June 30, 2006, in form and substance satisfactory
to the Bank, reflecting the financial condition and results of operations
of the Borrower after giving effect to the Term Loan borrowing and the
Acquisition and reflecting compliance with Sections 6.04, 6.09, 6.10 and
6.11 of the Credit Agreement as of such date on a pro forma basis.
4.5 The Bank shall have received a certificate substantially in the
form of Exhibit C, dated the Amendment No. 1 Effective Date and signed by
the President, a Vice President or a Financial Officer of the Borrower,
certifying: (i) compliance with the conditions set forth in paragraphs (a)
and (b) of Section 4.02 of the Credit Agreement; (ii) that the Acquisition
is a Permitted Acquisition; (iii) that after giving effect to the
completion of the Acquisition the Leverage Ratio on a pro forma basis will
be less than or equal to 3.25 to 1; and (iv) that, after giving effect to
the completion of the Acquisition, the then total aggregate outstanding
principal balance of Indebtedness incurred in connection with all Permitted
Acquisitions occurring in the immediately preceding four fiscal quarters,
including the current fiscal quarter, does not exceed $15,000,000.
4.6 The Bank shall have received true and correct copies, certified as
to authenticity by the Borrower, of the Purchase Agreement, the terms and
conditions of which shall be in form and substance satisfactory to the
Bank.
4.7 The Bank shall have received a copy of the written consent of NBT
Bank, National Association to the Borrowers incurrence of the Term Loan and
consummation of the Acquisition.
4.8 The Borrower shall have paid the Bank an amendment fee equal to
$15,000.
4.9 The Bank shall have received a Confirmation and Acknowledgment
from each Corporate Guarantor other than Par-Siva Corporation in the form
attached as Exhibit D.
4.10 The Bank shall have received a Guarantee of the Liabilities of
the Borrower from Par-Siva Corporation, in form and substance satisfactory
to the Bank.
4.11 The Borrower shall have paid or agreed to pay all invoices
presented to Borrower for expense reimbursements due to the Bank in
connection with the preparation of this Amendment.
4.12 The Bank shall have received the Term Note duly executed by
Borrower.
5. Effect of this Amendment. This Amendment constitutes the entire
agreement of the parties with respect to the subject matter hereof, and
supersedes all prior oral or written communications, memoranda, proposals,
negotiations, discussions, term sheets and commitments with respect to the
subject matter hereof. Except as expressly provided herein, no other changes or
modifications to the Credit Agreement are intended or implied by this Amendment,
and in all other respects the Credit Agreement is hereby specifically ratified,
restated and confirmed by as of the Amendment No. 1 Effective Date. To the
extent that any provision of the Credit Agreement conflicts with any provision
of this Amendment, the provision of this Amendment shall control.
6. Counterparts. This Amendment may be signed in any number of
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument. Delivery of an executed
signature page to this Amendment by facsimile transmission shall be as effective
as delivery of a manually signed counterpart.
[Remainder of page intentionally left blank]
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed as of the day and year first above written.
PAR TECHNOLOGY CORPORATION
By: /s/Ronald J. Casciano
-------------------------
Name: Ronald J. Casciano
Title: Treasurer
JPMORGAN CHASE BANK, N.A.
By: /s/Frederick K. Miller
--------------------------
Name: Frederick K. Miller
Title: Vice President
EXHIBIT A
Form of Term Note
TERM NOTE
$6,000,000.00 November 2, 2006
FOR VALUE RECEIVED, PAR TECHNOLOGY CORPORATION ("Borrower") hereby promises
to pay to the order of JPMORGAN CHASE BANK, N.A. ("Bank") at its office at 500
Plum Street, Syracuse, New York 13204, the principal sum of Six Million and
00/100 Dollars ($6,000,000.00), in the amounts and at the times set forth in
Schedule A attached hereto, with a final payment on August 1, 2012, at which
time any remaining principal balance and all accrued and unpaid interest shall
be paid in full.
Unpaid principal shall bear interest, until paid in full, at the rate(s) of
interest set forth in the Credit Agreement referred to below. Accrued interest
shall be payable on the date(s) and in the manner provided in the Credit
Agreement. All payments of principal and interest shall be made without setoff,
deduction or counterclaim of any kind.
Bank shall maintain on its books and records kept in the ordinary course of
its business an account in the name of Borrower showing all payments, the
current principal balance, the rate of interest and each Interest Period, if
applicable. Borrower agrees that such books and records of Bank shall be prima
facie evidence of the interest rate and Interest Period applicable hereunder. At
Bank's option, prior to any transfer of this Note (or at Bank's option at any
other time), a schedule may be attached to this Note and endorsed by Bank with a
record of all payments, the current principal balance, the then current interest
rate and Interest Period, if applicable. Any such endorsement shall be
conclusive, absent manifest error.
This Term Note is the Term Note referred to in, is entitled to the benefits
of, and is subject to, the Amended and Restated Credit Agreement, dated as of
April 19, 2006, between Borrower and Bank, as has been or may hereafter be
amended, modified or restated (the "Credit Agreement"). Reference is made to the
Credit Agreement for a statement of the terms and conditions of this Term Note,
including, without limitation, terms providing for the acceleration of the
maturity of the outstanding principal balance upon the occurrence of certain
Events of Default. Capitalized terms used in this Term Note which are not
otherwise defined shall have the meanings given thereto in the Credit Agreement.
This Term Note is governed by and construed in accordance with the laws of
the State of New York.
PAR TECHNOLOGY CORPORATION
By:/s/Ronald J. Casciano
------------------------
Name: Ronald J. Casciano
Title: Treasurer
Schedule of Principal Payments
Principal Payment Date Principal Amount Due
November 1, 2007 ....................................... $150,000
February 1, 2008 ....................................... $150,000
May 1, 2008 ............................................ $150,000
August 1, 2008 ......................................... $150,000
November 1, 2008 ....................................... $225,000
February 1, 2009 ....................................... $225,000
May 1, 2009 ............................................ $225,000
August 1, 2009 ......................................... $225,000
November 1, 2009 ....................................... $300,000
February 1, 2010 ....................................... $300,000
May 1, 2010 ............................................ $300,000
August 1, 2010 ......................................... $300,000
November 1, 2010 ....................................... $375,000
February 1, 2011 ....................................... $375,000
May 1, 2011 ............................................ $375,000
August 1, 2011 ......................................... $375,000
November 1, 2011 ....................................... $450,000
February 1, 2012 ....................................... $450,000
May 1, 2012 ............................................ $450,000
August 1, 2012 ......................................... $450,000
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 Siva 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, 33-63095 and 333-137647) on Form S-8
and the registration statement (No. 333-102197) on Form S-3 of PAR Technology
Corporation of our reports dated March 15, 2007, with respect to the
consolidated balance sheets of PAR Technology Corporation and subsidiaries as of
December 31, 2006 and 2005, 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, 2006, and management's
assessment of the effectiveness of internal control over financial reporting as
of December 31, 2006 and the effectiveness of internal control over financial
reporting as of December 31, 2006, which reports appear in the December 31, 2006
annual report on Form 10-K of PAR Technology Corporation.
Our report dated March 15, 2007 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, 2006, contains an
explanatory paragraph that states PAR Technology Corporation acquired SIVA
Corporation on November 2, 2006, and management excluded from its assessment of
the effectiveness of PAR Technology Corporation's internal control over
financial reporting as of December 31, 2006, SIVA Corporation's internal control
over financial reporting associated with total assets, net revenues, and income
before provision for income taxes comprising 4.8%, 0.02%, and (6.9%),
respectively, of the consolidated total assets, net revenues, and income before
provision for income taxes of PAR Technology Corporation and subsidiaries as of
and for the year ended December 31, 2006. Our audit of internal control over
financial reporting of PAR Technology Corporation also excluded an evaluation of
the internal control over financial reporting of SIVA Corporation.
As discussed in notes 1 and 7 to the consolidated financial statements,
effective January 1, 2006, the Company adopted the fair value method of
accounting for stock-based compensation as required by Statement of Financial
Accounting Standards No. 123(R), Share-Based Payment.
/s/KPMG LLP
Syracuse, New York
March 15, 2007
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 16, 2007 /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 16, 2007 /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, 2006 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 & Chief
Executive Officer
March 16, 2007
/s/Ronald J. Casciano
Ronald J. Casciano
Vice President, Chief Financial
Officer & Treasurer
March 16, 2007