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UNITED STATES
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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, 2007.
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(b) of the Act: None
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, a non-accelerated filer, or a smaller reporting company.
See definitions of "large accelerated filer", "accelerated filer", and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one): Large
Accelerated Filer [ ] Accelerated Filer [X] Non-Accelerated Filer [ ] Smaller
reporting company [ ] (Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of June 30, 2007, the last business day of the registrant's most
recently completed second fiscal quarter, the aggregate market value of the
shares of voting common stock held by non-affiliates of the registrant's was
approximately $66,781,916 based upon the closing price of the Company's common
stock.
The number of shares outstanding of registrant's common stock, as of
February 29, 2008 - 14,401,063 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's proxy statement in connection with its 2008
annual meeting of stockholders are incorporated by reference into Part III.
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PAR TECHNOLOGY CORPORATION
TABLE OF CONTENTS
FORM 10-K
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Item Number
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PART I
Item 1. Business
Item 1A. Risk Factors
Item 2. Properties
Item 3. Legal Proceedings
PART II
Item 5. Market for the Registrant's Common 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 Operations
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 Accountant 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 contract funding by the U.S.
Government, 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) conducts business in two
distinct segments: Hospitality and Government. PAR's core business is a leading
provider of technology solutions, including hardware, software and
professional\traditional services to businesses in the global hospitality and
specialty retail industries. The Company continues to be a primary supplier of
hospitality management 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
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 continues to be a leading provider of professional services and
enterprise business intelligence technology to the hospitality sector, with
solid long-term relationships with the restaurant industry's two largest
corporations - McDonald's Corporation and Yum! Brands, Inc. (Yum!). McDonald's
has over 31,000 restaurants in more than 120 countries and PAR has been a
selected provider of restaurant technology systems and lifecycle support
services to McDonald's since 1980. PAR was selected by McDonald's as its 2007
Technology Supplier of the Year. Yum! (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 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. (PixelPoint) 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 substantially all of the assets
of Springer-Miller Systems, Inc., a provider of hospitality technology systems
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's Government business 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 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 applications. A prime example of
this "technology transfer" is the Company's point-of-sale technology, which was
derived from research and development involving microchip processing technology
sponsored by the Department of Defense. Our most recent technology transfer is
PAR Logistics Management Systems. This PAR initiative brings tracking and
security solutions to the intermodal and land shipping 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, 2007 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. Through PAR's website,
its Annual Report on Form 10-K, quarterly reports on Form 10-Q, and current
reports on Form 8-K and amendments thereto are available to interested parties,
free of charge. Information contained on our website is not part of this Annual
Report on Form 10-K.
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 provides restaurant management technology solutions which combine
software applications, an Intel(R)-based hardware platform and installation and
lifecycle support services. PAR's restaurant management offering includes fixed
and wireless order-entry terminals, self-service kiosks, kitchen systems
deployed on printers or video monitors, food safety monitoring tools, back
office applications and enterprise business intelligence software. 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, implement and maintain solutions that
enable customers to manage all aspects of operational 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 technology systems to meet their order entry,
food preparation, inventory, labor and property management coordination needs
while capturing all pertinent data concerning the transactions at the specific
location and delivering it throughout the enterprise. PAR's hospitality
management systems are based on more than 28 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.
PAR offers three major point-of-sale product lines. The next generation
iSIVA(R) Point-of-Sale software application is an enterprise-enabled solution
built on a service-oriented architecture. iSIVA streamlines the order life-cycle
for table service, counter service, and bar operations, while simplifying IT
support with centralized application management and real-time data transmission
between restaurant sites and the enterprise.
For franchisees in the quick service restaurant (QSR) and fast casual
segments, PAR offers the InTouch(TM) Point-of-Sale software application. 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.
The InSynch(TM) Enterprise Configuration Manager provides business-wide
management of the InTouch point-of-sale, including diverse concept menus,
security settings and system parameters.
PixelPoint(R) is PAR's easy-to-use solution primarily sold to independent
restaurants through the Company's dealer channel. The PixelPoint integrated
software solution includes the PixelPoint Point-of-Sale software application,
PocketPOS wireless ordering software, Web-to-Go on-line ordering software,
HeadOffice enterprise management software, and MemberShare, an in-store and
enterprise level Loyalty and Gift Card information sharing application.
In addition to point-of-sale software, PAR offers a number of complementary
restaurant technologies. POS(2) and Pay2Go extend the traditional POS with
wireless order-taking and payment capabilities. The IntelliKitchen(TM) kitchen
management system distributes and displays kitchen orders to maximize order
accuracy and increase staff efficiency. The InQuire(TM) Above Store Reporting
software application offers a web-based reporting platform utilizing the latest
technology from Microsoft's .Net(R) platform. Additionally, the feature-rich
InForm(TM) Back Office software suite allows restaurant owners to control
critical food and labor costs using intuitive tools for forecasting, labor
scheduling and inventory management.
In 2006, PAR acquired technology that provides food safety monitoring and
paperless Hazard Analysis Critical Control Point (HACCP) management. HACCP is a
food industry standard approach implemented to reduce the incidence of food
borne illness. PAR's iQuality(TM) software runs on a wireless handheld device
equipped with a temperature probe to identify HACCP checkpoints. Captured data
is transmitted to the enterprise for consolidated reporting; in addition,
application configuration is web-based. iQuality is designed to replace the
paper checklist, minimize human errors, increase HACCP compliance, and improve
in-store efficiency.
PAR continues to be a provider of software solutions to the hotel/resort
industry. Today, hospitality-oriented businesses have the ability to manage
information and leverage their relationships with customers through integrated
technology systems. PAR's technology systems provide a seamless user interface
to manage all aspects of the guest experience as well as consolidating customer
information and history into a central, single database. PAR's SMS|Host(R)
Hospitality Management System provides a complete set of tools at the fingertips
of hotel and spa staff for selling and delivering personalized guest services.
All business functions are seamlessly integrated with the front office, from
guest room check-in, to spa appointments, or retail purchases. The SMS|Host
product suite, including over 20 seamlessly integrated, guest-centric modules,
provides hotel and resort staff with the tools they need to personalize service,
anticipate guest needs, and consistently exceed guest expectations. The SMS|Host
module, SMS|Enterprise, enables a chain or management company to instantly
create a real-time, single-image consolidation of all details from all locations
within a large organization for use as a central information system or as a
fully integrated Property Management System(PMS)/Central Reservation
System(CRS).
PAR in addition offers SpaSoft(R) a stand-alone spa management application.
SpaSoft Spa Management System is designed to satisfy the unique needs of resort
spas, day spas, and medi-spas. Validated by VISA(R) as compliant with CISP (Card
Information Security Program) Payment Application Best Practices, SpaSoft's
unique booking engine, advanced resource inventory, yield management module,
scheduling, management and reporting tools assist in the total management of
sophisticated hotel/resort spas and day spas. Because SpaSoft was specifically
designed for the needs of the spa industry, it assists the spa staff in
providing the individualized, impeccable guest service that their most important
clients desire and expect.
Hardware
PAR's newest hardware offering, The Gemini(TM), offers customers proven
performance at a cost-conscious price point. Gemini is a technology refresh of
PAR's popular 4th generation hardware platforms. 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
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.
In 2007 PAR introduced the InfoKey(TM) kiosk, which features both a touch
screen and a keyboard in a clean, approachable design. Suitable for deployment
of a number of different software application types, from training and hiring to
promotional content and nutrition information, the InfoKey enables restaurant
operators to create a self-service information hub for employees and guests.
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 employs experienced individuals with diverse hospitality backgrounds in
both hotels/resorts and restaurants. PAR has the knowledge and expertise to help
its customers structure property management solutions which can be used most
effectively in restaurants and hotels, 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 Professional 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 are able to provide software configuration,
installation, training and integration services as a normal part of the software
or 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. PAR is also staffed to provide 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 software, equipment and systems, as well
as those of third parties, through a 24/7 central telephone customer support and
diagnostic service in Boulder, Colorado and Las Vegas, Nevada. In addition the
Company has 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.
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
(CRM) 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.
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 the largest chain corporate customers. 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 Indirect Sales
Channel 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.
New sales in the hotel/resort technology market are often generated by
leads, be it by referrals, internet searches, media coverage or trade show
presence. Marketing efforts are conducted in the form of email newsletters,
direct mail campaigns, trade show exhibitions, advertising and targeted
telesales calls. The Company employs direct sales personnel in several sales
groups. The Domestic Sales Group targets independent, business class and luxury
hotels and resorts and spas in the United States, Canada and the Caribbean. The
International Sales Group seeks sales to independent hotels and resorts outside
of the United States. The Corporate Accounts Sales Group works with high profile
corporate and chain clients such as Mandarin Oriental Hotel Group, Destination
Hotels and Resorts and West Paces Hotel Group. The Company's Installed Accounts
Sales Group works solely with clients who have already installed the SMS|Host
product suite. The Business Development group focuses on proactive
identification of and initial penetration into new business channels for the
SMS|Host and SpaSoft product lines worldwide.
Competition
The competitive landscape in the hospitality market is driven primarily by
functionality, reliability, quality, pricing, service and support. The Company
believes that its principal competitive advantages include its focus on an
integrated technology solution offering, advanced development capabilities,
in-depth industry knowledge and expertise, excellent product reliability, a
direct sales force organization, and 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, and Micros Systems.
Backlog
Due to the nature of the Hospitality business, backlog is not significant
at any point in time. 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
$17,155,000 in 2007, $11,802,000 in 2006 and $9,355,000 in 2005. 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 relationships 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 utilized by New York State
in support of the 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, control and management of transport
assets and cargo throughout the supply chain (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. LMS has developed and delivered unique, value driven solutions to the
refrigerated transport and logistics markets.
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 (GIG). 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. In addition to the communications
support of the GIG, the Company provides information technology services to
maintain DoD Metropolitan Area, Wide Area and Local Area Networks. These DoD
communications and information technology services are provided at customer
locations in and outside of the continental United States. The various
facilities, operating 24/7, 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 weapons 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, 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 2005 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, 2007, net
of amounts relating to work performed to that date, was approximately
$152,451,000, of which $41,691,000 was funded. At December 31, 2006, the
comparable amount was approximately $96,637,000, of which $28,243,000 was
funded. Funded amounts represent those amounts committed under contract by
Government agencies and prime contractors. The December 31, 2007 Government
contract backlog of $152,451,000 represents firm, existing contracts.
Approximately $56,696,000 of this amount is expected to be completed in calendar
year 2008, as funding is committed.
Employees
As of December 31, 2007, the Company had 1,800 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 19, 2007 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, 2007, 2006 and 2005, aggregate sales to our top
two Hospitality segment customers, McDonald's and Yum! Brands, amounted to 40%,
40% and 41%, 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 meet 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, 2007, 2006 and 2005, we derived
69%, 70% and 73%, 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, 2007, 2006 and 2005, we derived
31%, 30% and 27%, 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 69% of the revenue that we derived
from Government contracts for the year ended December 31, 2007 came from
fixed-price or time-and-material contracts. The balance of the revenue that we
derived from Government contracts in 2007 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, 2007, 2006 and 2005, our net
revenues from sales outside the United States were 14%, 13% and 11%,
respectively, of the Company's total revenues. We anticipate that international
sales will continue to account for a significant portion of sales. We intend to
continue to expand our operations outside the United States and to enter
additional international markets, which will require significant management
attention and financial resources. Our operating results are subject to the
risks inherent in international sales, including, but not limited to, regulatory
requirements, political and economic changes and disruptions, geopolitical
disputes and war, transportation delays, difficulties in staffing and managing
foreign sales operations, and potentially adverse tax consequences. In addition,
fluctuations in exchange rates may render our products less competitive relative
to local product offerings, or could result in foreign exchange losses,
depending upon the currency in which we sell our products. There can be no
assurance that these factors will not have a material adverse affect on our
future international sales and, consequently, on our operating results.
OUR BUSINESS DEPENDS ON A LARGE NUMBER OF HIGHLY QUALIFIED PROFESSIONAL
EMPLOYEES AND, IF WE ARE NOT ABLE TO RECRUIT AND RETAIN A SUFFICIENT NUMBER OF
THESE EMPLOYEES, WE WOULD NOT BE ABLE TO PROVIDE HIGH QUALITY SERVICES TO OUR
CURRENT AND FUTURE CUSTOMERS, WHICH WOULD HAVE AN ADVERSE EFFECT ON OUR REVENUES
AND OPERATING RESULTS.
We actively compete for qualified professional staff. The availability or
lack thereof of qualified professional staff may affect our ability to develop
new products and to provide services and meet the needs of our customers in the
future. An inability to fulfill customer requirements due to a lack of available
qualified staff at agreed upon salary rates may adversely impact our operating
results in the future.
A SIGNIFICANT PORTION OF OUR TOTAL ASSETS CONSISTS OF GOODWILL AND IDENTIFIABLE
INTANGIBLE ASSETS, WHICH ARE SUBJECT TO A PERIODIC IMPAIRMENT ANALYSIS AND A
SIGNIFICANT IMPAIRMENT DETERMINATION IN ANY FUTURE PERIOD COULD HAVE AN ADVERSE
EFFECT ON OUR RESULTS OF OPERATIONS EVEN WITHOUT A SIGNIFICANT LOSS OF REVENUE
OR INCREASE IN CASH EXPENSES ATTRIBUTABLE TO SUCH PERIOD.
We have goodwill and identifiable intangible assets totaling approximately
$27 million and $9.9 million at December 31, 2007, 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 reporting 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 22,500
Boca Raton, FL Hospitality Research and development 14,900
Sydney, Australia Hospitality Sales and service 14,000
Las Vegas, NV Hospitality Service 8,800
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 the 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, 2007, there were
approximately 453 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, 2007 as reported by New York Stock Exchange:
2007 2006
--------------------- -----------------------
Period Low High Low High
- ------------------ --------- --------- --------- ----------
First Quarter $ 8.31 $ 10.18 $ 17.22 $ 22.73
Second Quarter $ 8.26 $ 10.87 $ 10.61 $ 18.60
Third Quarter $ 7.62 $ 8.90 $ 7.40 $ 13.01
Fourth Quarter $ 6.81 $ 8.99 $ 7.07 $ 9.24
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,
-------------------------------------------------------------
2007 2006 2005 2004 2003
-------------------------------------------------------------
Net revenues ......................... $ 209,484 $ 208,667 $ 205,639 $ 174,884 $ 139,770
Cost of sales ........................ $ 157,576 $ 153,158 $ 150,053 $ 137,738 $ 110,777
Gross margin ......................... $ 51,908 $ 55,509 $ 55,586 $ 37,146 $ 28,993
Selling, general & administrative .... $ 37,517 $ 33,440 $ 30,867 $ 22,106 $ 19,340
Benefit (provision) for income taxes . $ 1,497 $ (3,146) $ (5,358) $ (3,729) $ (1,593)
Income (loss) from
continuing operations .............. $ (2,708) $ 5,721 $ 9,432 $ 5,635 $ 2,792
Basic earnings (loss) per share from
continuing operations .............. $ (.19) $ .40 $ .68 $ .43 $ .22
Diluted earnings (loss) per share from
continuing operations ............... $ (.19) $ .39 $ .64 $ .41 $ .21
The selected consolidated financial statement data summarized above is
reflective of business acquisitions in 2006 and 2005, as discussed in Note 2 and
reflects the adoption of accounting pronouncements as discussed in Note 1 to the
Consolidated Financial Statements.
SELECTED CONSOLIDATED BALANCE SHEET DATA
(In thousands)
December 31,
-----------------------------------------------------
2007 2006 2005 2004 2003
----------------------------------------------------
Current assets ..... $ 97,879 $ 95,991 $ 84,492 $ 77,696 $ 74,195
Current liabilities $ 52,284 $ 46,473 $ 43,661 $ 45,159 $ 29,816
Total assets ....... $146,518 $142,796 $125,149 $111,752 $ 87,147
Long-term debt ..... $ 6,932 $ 7,708 $ 1,948 $ 2,005 $ 2,092
Shareholders' equity $ 84,987 $ 86,083 $ 78,492 $ 63,574 $ 55,239
The selected consolidated financial statement data summarized above is
reflective of business acquisitions in 2006 and 2005, as discussed in Note 2 to
the Consolidated Financial Statements.
On November 14, 2005, the Company's Board of Directors declared a 3 for 2
stock split in the form of a stock dividend that was distributed on January 6,
2006 to shareholders of record on December 12, 2005. All share and per share
data in these consolidated financial statements and footnotes have been
retroactively restated as if the stock split had occurred as of the earliest
period presented.
Item 7: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward-Looking Statements
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 contract funding by the U.S.
Government, 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 expectations,
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 statements if we
obtain new information or upon the occurrence of future events or otherwise.
Overview
PAR is a leading provider of hospitality systems that include software,
hardware and a variety of services to several industries including: restaurants,
hotels/resorts/spas, cruise lines and specialty retailers. The Company is also a
provider to the Federal Government, and its agencies, of applied technology and
technical services primarily with the Department of Defense.
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, etc.) and competes primarily on the basis of product
design/features, product quality/reliability, price, customer service, and
delivery capability. Recently the trend amongst our hospitality customers is 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 reach 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 the 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 completely integrated technology systems and
services along with a high level of customer service in the markets in which it
competes. The Company directs 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
operating efficiencies and controlling costs. This is achieved through
investment in modern production technologies, and by managing purchasing
processes and functions.
In 2007, the Company undertook an internal investment strategy in three
distinct areas of its hospitality segment. First, the Company made significant
investments in its development of next generation software. Additionally, the
Company invested in building a more robust, further reaching distribution
channel. Lastly, as the Company's customers expand in international markets, PAR
has invested in constructing an international infrastructure, initially
concentrating on the Asia/Pacific rim due to the new restaurant growth and
concentration of PAR's customers in that region.
In the hotel/resort business, PAR installed new property management systems
at several leading resorts including Ponte Vidra Beach Resort, the Glen Eagles
Hotel in Scotland, the MotorCity Casino Hotel and Capella Hotels & Resorts to
list a brief sample.
Approximately 31% 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 IT 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 record Government performance rating allows the Company to
continually win repeat business and long-term client-vendor relationships with
their contract customers. PAR can provide its clients the technical expertise
necessary to facilitate and operate complex systems utilized by government
agencies. In 2007 PAR was awarded several new contracts with the Department of
Defense, including contract work at the Air Force's Rome Laboratory in NY,
Robins Air Force Base, Tinker Air Force Base, NAVSOC at Point Magu, CA and the
Navy Transmitter Facility at Dixon, CA. PAR Logistics Management Systems signed
new business with JB Hunt Transport Services, Inc. and NYK Line to provide
tracking and monitoring services for commercial refrigerated containers.
The Company will continue to leverage 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.
Summary
The Company believes it can be successful in its two core business segments
- -Hospitality and Government - due to its focus and industry expertise. PAR
remains committed to streamlining operations and improving 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):
2007 2006 2005
--------- --------- ---------
Revenues:
Hospitality ......... $144,486 $145,216 $149,457
Government .......... 64,998 63,451 56,182
-------- -------- --------
Total consolidated revenue $209,484 208,667 $205,639
======== ======== ========
The following discussion and analysis highlights items having a significant
effect on operations during the three year period ended December 31, 2007. 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 -- 2007 Compared to 2006
The Company reported revenues of $209.5 million for the year ended December
31, 2007, virtually unchanged from the $208.7 million reported for the year
ended December 31, 2006. The Company's net loss for the year ended December 31,
2007 was $2.7 million, or $.19 diluted net loss per share, compared to net
income of $5.7 million and $.39 diluted net income per share for the same period
in 2006.
Product revenues from the Company's Hospitality segment were $77.1 million
for the year ended December 31, 2007, a decrease of 7% from the $83.2 million
recorded in 2006. This decrease was due to an $8.3 million decline in domestic
product sales primarily due to a continued delay in hardware orders from a major
customer pending the release of that customer's new third party software. The
decline was also due to the Company's delay in replacing hardware and software
business associated with last year's orders from two new customers. This drop in
domestic revenue was partially offset by a $2.2 million increase in
international product sales. Approximately $900,000 of the international revenue
increase was due to currency fluctuations. This increase was the result of
growth in sales to the Company's restaurant customers in Asia and Canada and
property management systems in Europe and Latin America.
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 $67.4 million for the
year ended December 31, 2007, a 9% increase from $62 million reported for the
same period in 2006. Approximately $3 million of this growth was related to the
award of a new service contract with a major customer in October of 2006. Also
contributing to the growth was an increase in software maintenance contracts.
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 $65 million
for the year ended December 31, 2007, an increase of 2% when compared to the
$63.5 million recorded in the same period in 2006. The primary factor
contributing to the growth was a $1.9 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, 2007 were 40.8%, a decrease
of 160 basis points from the 42.4% for the year ended December 31, 2006. This
decline in margins was primarily attributable to a decrease in software revenue
in 2007 when compared to 2006. The Company has not replaced the software revenue
associated with two new customers in 2006.
Customer Service margins were 24.2% for the year ended December 31, 2007
compared to 25.2% for the same period in 2006. This decrease was primarily due
to the obsolescence of service parts for a discontinued product line. The
decline was also due to lower than planned installation revenue directly related
to the decrease in product revenue. This adversely impacted the utilization of
installation personnel.
Contract margins were 6.4% for the year ended December 31, 2007 versus 7.2%
for the same period in 2006. The decrease was due, in part, to a favorable cost
share adjustment on the Company's Logistics Management Program in 2006. The
decrease was also attributable to start up costs incurred in 2007 on a new
Information Technology outsourcing contract with the Navy. The most significant
components of contract costs in 2007 and 2006 were labor and fringe benefits.
For 2007, labor and fringe benefits were $48.4 million or 79% of contract costs
compared to $45.9 million or 78% of contract costs for the same period in 2006.
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, 2007 were $37.5 million, an increase of 12% from
the $33.4 million expense for the same period in 2006. This increase was due to
growth in sales and marketing expenses associated with restaurant products as
the Company is investing in its international infrastructure and in the
expansion of its dealer channel. The increase was also due to a rise in bad debt
expense due to an increase in write-offs related to various customers.
Research and development expenses relate primarily to the Company's
Hospitality segment. Research and development expenses were $17.2 million for
the year ended December 31, 2007, an increase of 45% from the $11.8 million
recorded in 2006. This increase was primarily attributable to the Company's
continued research and development in its next generation software products for
its restaurant customers. The platform for this next generation of products was
acquired from SIVA Corporation in the fourth quarter of 2006.
Amortization of identifiable intangible assets was $1.6 million for the
year ended December 31, 2007 compared to $1.3 million for 2006. The increase is
primarily due to amortization of intangible assets of SIVA Corporation which was
acquired on November 2, 2006.
Other income, net, was $1.2 million for the year ended December 31, 2007
compared to $617,000 for the same period in 2006. Other income primarily
includes rental income and foreign currency gains and losses. The increase is
primarily due to an increase in foreign currency gains in 2007 compared to 2006.
Interest expense represents interest charged on the Company's short-term
borrowing requirements from banks and from long-term debt. Interest expense was
$1.1 million for the year ended December 31, 2007 as compared to $734,000 in
2006. The Company experienced a higher borrowing interest rate in 2007 when
compared to 2006. The Company also recognized interest expense related to its
interest rate swap agreement that was entered into in September 2007. This was
partially offset by lower than average borrowings during 2007 versus 2006.
For the year ended December 31, 2007, the Company's effective income tax
rate was a benefit of 35.6%, compared to a provision of 35.5% in 2006. The
variance from the federal statutory rate in 2007 was primarily due to the state
income tax benefits resulting from the pretax loss and certain tax credits,
offset by various nondeductible expenses which decreased the tax benefit. The
variance from the federal statutory rate in 2006 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 -- 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.
Liquidity and Capital Resources
The Company's primary sources of liquidity have been cash flow from
operations and lines of credit with various banks. Cash provided by continuing
operations was $8.7 million for the year ended December 31, 2007 compared to
cash used of $3.6 million for 2006. In 2007, cash was generated through the
timing of payments to vendors and the timing of customer payments on annual
service contracts. This was offset by a growth in inventory in anticipation of
future demand. In 2006, cash was used to finance the growth in receivables and
inventory. This was partially offset by cash generated from operating profits.
Cash used in investing activities was $3.5 million for the year ended
December 31, 2007 versus $7.8 million for the same period in 2006. In 2007,
capital expenditures were $2 million and were primarily for manufacturing and
research and development equipment. Capitalized software costs relating to
software development of Hospitality segment products were $1.2 million in 2007.
The amount paid as a contingent purchase price under prior years' acquisitions
totaled $278,000 in 2007. 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 2006, the Company used $5.8 million
in cash for the acquisition of SIVA Corporation
Cash used in financing activities was $5.3 million for the year ended
December 31, 2007 versus $10.5 million of cash provided in 2006. In 2007, the
Company reduced its short-term borrowings by $5.2 million and decreased its
long-term debt by $244,000. The Company also benefited $203,000 from the
exercise of employee stock options. 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.
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 (6.75% at December 31, 2007). 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 (6.85% at
December 31, 2007). These facilities contains certain loan covenants including a
leverage ratio of not greater than 3:5 to 1 and a fixed charge coverage ratio of
not less than 4 to 1. In June 2007, these credit agreements were amended to
waive the existing leverage and fixed charge coverage ratios for the remainder
of 2007. Under the amendment, the Company was required to meet a minimum EBITDA
requirement for the balance of 2007. In the fourth quarter of 2007, the Company
did not attain the required EBITDA covenant but received waivers from its banks
from this requirement. In addition, in January and February 2008, these credit
agreements were amended to modify the requirement for leverage ratio and fixed
charge coverage ratio through June of 2008. The original covenants become
effective for the quarter ended September 30, 2008 and thereafter. These lines
expire in April 2009. At December 31, 2007 and 2006, there was $2,500,000 and
$7,713,000 outstanding under these lines, respectively. The weighted average
interest rate paid by the Company during 2007 and 2006 was 6.6%.
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 (7.25% at December 31, 2007).
In September 2007, the Company entered into an interest rate swap agreement
associated with the $6,000,000 loan discussed in the preceding paragraph. At
December 31, 2007, the notional principal amount totaled $5,850,000. This
instrument was utilized by the Company to minimize significant unplanned
fluctuations in earnings and cash flows caused by interest rate volatility. The
Company did not adopt hedge accounting under the provisions of Statement of
Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities, but rather records the fair market value
adjustments through the consolidated statements of operations each period. The
associated fair value adjustment included within the consolidated statements of
operations for the year ended December 31, 2007 was $154,000 and is included as
an increase to interest expense.
The Company has a $1,854,000 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):
2008 $ 772
2009 1,079
2010 2,928
2011 1,575
2012 1,350
--------
$ 7,704
========
The Company's future minimum obligations under non-cancelable operating
leases are as follows (in thousands):
2008 $ 2,382
2009 1,793
2010 1,024
2011 716
2012 575
Thereafter 1,789
--------
$ 8,279
========
During fiscal year 2008, 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 No. 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 SAB 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
Financial Accounting Standards Board (FASB) Interpretation No. 48 was
issued in July 2006 to clarify the criteria for recognizing tax benefits under
FAS 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.
FASB Interpretation 48 is effective as of the beginning of the first fiscal year
beginning after December 15, 2006 (the Company's 2007 fiscal year). This did not
have a material impact on the 2007 consolidated financial statements.
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.
In December 2007, the FASB issued SFAS No.141 (revised 2007), Business
Combinations (SFAS 141(R)). The objective of this Statement is to improve the
relevance, representational faithfulness, and comparability of the information
that a reporting entity provides in its financial reports about a business
combination. Specifically, it establishes principles and requirements over how
the acquirer (1) recognizes and measures the identifiable assets acquired, the
liabilities assumed, and any noncontrolling interest in the acquiree; (2)
recognizes and measures goodwill acquired in the business combination or a gain
from a bargain purchase, and; (3) determines what information to disclose to
enable users of the financial statements to evaluate the nature and financial
effects of the business combination. This Statement is effective for fiscal
years beginning after December 15, 2008 (fiscal year 2009). The Company is
currently assessing the impact of adopting SFAS 141(R) on its consolidated
financial statements.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements an amendment of ARB No. 51 (SFAS 160). The
objective of this Statement is to improve the relevance, comparability, and
transparency of the financial information that a reporting entity provides in
its consolidated financial statements by establishing accounting and reporting
standards for the noncontrolling interest in a subsidiary (minority interests)
and for the deconsolidation of a subsidiary. This Statement is effective for
fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2008 (fiscal year 2009). The Company is currently assessing the
impact of adopting this SFAS 160 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 2007.
Management anticipates that margins will be maintained at acceptable levels to
minimize the effects of inflation, if any.
INTEREST RATES
As of December 31, 2007, the Company has $5.2 million in variable long-term
debt and $3.2 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.
In September 2007, the Company entered into an interest rate swap agreement
associated with a $6,000,000 variable rate loan with principal and interest
payments due through August 2012. At December 31, 2007, the notional principal
amount totaled $5,850,000. This instrument was utilized by the Company to
minimize significant unplanned fluctuations in earnings and cash flows caused by
interest rate volatility. The Company did not adopt hedge accounting under the
provisions of SFAS Statement No. 133, Accounting for Derivative Instruments and
Hedging Activities, but rather records the fair market value adjustments through
the consolidated statements of operations each period. The associated fair value
adjustment included within the consolidated statements of operations for the
year ended December 31, 2007 was $154,000 and is included within interest
expense.
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 2007 consolidated financial statements, together with the
reports thereon of KPMG LLP dated March 17, 2008, 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 Annual 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, 2007. 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, the Company's internal control over financial reporting was
effective based on those criteria.
3. Attestation Report of Independent Registered Public Accounting Firm.
The effectiveness of our internal control over financial reporting as of
December 31, 2007 has been audited by KPMG LLP, our independent registered
public accounting firm. KPMG LLP's related report is included within Item 15 of
this Form 10-K.
4. Changes in Internal Controls over Financial Reporting
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
The Company entered into amendments (the Amendments) of its bank lines of
credit, as set forth in this Annual Report on Form 10-K, on June 2007 and
January and February 2008; copies of such Amendments have been attached as
exhibits to this Annual Report on Form 10-K.
PART III
Item 10: Directors, Executive Officers and Corporate Governance
The information required by this item will appear under the caption
"Directors, Executive Officers and Corporate Governance" in our 2008 definitive
proxy statement for the annual meeting of stockholders in May 2008 and is
incorporated herein by reference.
Item 11: Executive Compensation
The information required by this item will appear under the caption
"Executive Compensation" in our 2008 definitive proxy statement for the annual
meeting of stockholders in May 2008 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 2008
definitive proxy statement for the annual meeting of stockholders in May 2008
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 2008 definitive proxy statement for the annual
meeting of stockholders in May 2008 and is incorporated herein by reference.
Item 14: Principal Accountant Fees and Services
The response to this item will appear under the caption "Principal
Accountant Fees and Services" in our 2008 definitive proxy statement for the
annual meeting of stockholders in May 2008 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, 2007 and 2006
Consolidated Statements of Operations for the three
years ended December 31, 2007
Consolidated Statements of Comprehensive Income (Loss)
for the three years ended December 31, 2007
Consolidated Statements of Changes in Shareholders' Equity for
the three years ended December 31, 2007
Consolidated Statements of Cash Flows for the three years
ended December 31, 2007
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 as of December 31, 2007 and 2006, and for each of the years in the
three-year period ended December 31, 2007, as listed in the accompanying index.
We also have audited PAR Technology Corporation's internal control over
financial reporting as of December 31, 2007, based on criteria established in
Internal Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). PAR Technology's management is
responsible for these consolidated financial statements, for maintaining
effective internal control over financial reporting, and for its assessment of
the effectiveness of internal control over financial reporting, included in the
accompanying Management's Report on Internal Control over Financial Reporting.
Our responsibility is to express an opinion on these consolidated financial
statements and an opinion on the Company's internal control over financial
reporting 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 audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material
respects. Our audits of the consolidated financial statements included
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audits also included performing such other procedures as
we considered necessary in the circumstances. We believe that our audits provide
a reasonable basis for our opinions.
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, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of PAR Technology
Corporation as of December 31, 2007 and 2006, and the results of its operations
and its cash flows for each of the years in the three-year period ended December
31, 2007, in conformity with accounting principles generally accepted in the
United States of America. Also in our opinion, PAR Technology Corporation
maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2007, based on criteria established in Internal
Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
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.
(signed) KPMG LLP
Syracuse, New York
March 17, 2008
PAR TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
December 31,
----------------------
2007 2006
--------- ---------
Assets
Current assets:
Cash and cash equivalents ...................... $ 4,431 $ 4,273
Accounts receivable-net ........................ 43,608 46,791
Inventories-net ................................ 40,319 35,948
Income tax refunds ............................. 521 1,103
Deferred income taxes .......................... 5,630 4,601
Other current assets ........................... 3,370 2,737
--------- ---------
Total current assets ....................... 97,879 95,453
Property, plant and equipment - net ................. 7,669 7,535
Deferred income taxes ............................... 503 --
Goodwill ............................................ 26,998 25,734
Intangible assets - net ............................. 9,899 10,695
Other assets ........................................ 3,570 2,841
--------- ---------
Total Assets ............................. $ 146,518 $ 142,258
========= =========
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt .............. $ 772 $ 240
Borrowings under lines of credit ............... 2,500 7,713
Accounts payable ............................... 16,978 12,470
Accrued salaries and benefits .................. 9,919 8,279
Accrued expenses ............................... 3,860 1,861
Customer deposits .............................. 3,898 3,656
Deferred service revenue ....................... 14,357 12,254
--------- ---------
Total current liabilities .................. 52,284 46,473
--------- ---------
Long-term debt ...................................... 6,932 7,708
--------- ---------
Deferred income taxes ............................... -- 115
--------- ---------
Other long-term liabilities ......................... 2,315 1,879
--------- ---------
Shareholders' Equity:
Preferred stock, $.02 par value,
1,000,000 shares authorized .................. -- --
Common stock, $.02 par value,
29,000,000 shares authorized;
16,047,818 and 15,980,486 shares issued;
14,395,063 and 14,327,731 outstanding ....... 321 320
Capital in excess of par value ................. 39,252 38,602
Retained earnings .............................. 50,451 53,159
Accumulated other comprehensive income (loss) .. 472 (489)
Treasury stock, at cost, 1,652,755 shares ...... (5,509) (5,509)
--------- ---------
Total shareholders' equity ................. 84,987 86,083
--------- ---------
Total Liabilities and Shareholders' Equity $ 146,518 $ 142,258
========= =========
See accompanying notes to consolidated financial statements
PAR TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Year ended December 31,
-----------------------------------
2007 2006 2005
--------- --------- ---------
Net revenues:
Product ...................................... $ 77,116 $ 83,237 $ 91,130
Service ...................................... 67,370 61,979 58,327
Contract ..................................... 64,998 63,451 56,182
--------- --------- ---------
209,484 208,667 205,639
--------- --------- ---------
Costs of sales:
Product ...................................... 45,635 47,925 53,443
Service ...................................... 51,078 46,338 44,205
Contract ..................................... 60,863 58,895 52,405
--------- --------- ---------
157,576 153,158 150,053
--------- --------- ---------
Gross margin ........................... 51,908 55,509 55,586
--------- --------- ---------
Operating expenses:
Selling, general and administrative .......... 37,517 33,440 30,867
Research and development ..................... 17,155 11,802 9,355
Amortization of identifiable intangible assets 1,572 1,283 1,030
--------- --------- ---------
56,244 46,525 41,252
--------- --------- ---------
Operating income (loss) ........................... (4,336) 8,984 14,334
Other income, net ................................. 1,227 617 743
Interest expense .................................. (1,096) (734) (287)
--------- --------- ---------
Income (loss) before provision for income taxes ... (4,205) 8,867 14,790
Benefit (provision) for income taxes .............. 1,497 (3,146) (5,358)
--------- --------- ---------
Net income (loss) ................................. $ (2,708) $ 5,721 $ 9,432
========= ========= =========
Earnings (loss) per share
Basic ........................................ $ (.19) $ .40 $ .68
Diluted ...................................... $ (.19) $ .39 $ .64
Weighted average shares outstanding
Basic ........................................ 14,345 14,193 13,792
========= ========= =========
Diluted ...................................... 14,345 14,752 14,648
========= ========= =========
See accompanying notes to consolidated financial statements
PAR TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
Year ended December 31,
-----------------------------------
2007 2006 2005
--------- --------- ---------
Net income (loss) ................................. $ (2,708) $ 5,721 $ 9,432
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments 961 122 (430)
--------- --------- ---------
Commprehensive income (loss) ....................... $ (1,747) $ 5,843 $ 9,002
========= ========= =========
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, 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
Net loss (2,708) (2,708)
Issuance of common stock upon the
exercise of stock options 58 1 202 203
Issuance of restricted stock awards 10
Equity based compensation 448 448
Translation adjustments, net of tax
benefit of $564 961 961
-------- ------- --------- --------- ----------- --------- -------- ---------
Balances at
December 31, 2007 16,048 $ 321 $ 39,252 $ 50,451 $ 472 (1,653) $ (5,509) $ 84,987
======== ======= ========= ========= =========== ========= ========= =========
See accompanying notes to consolidated financial statements
PAR TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year ended December 31,
------------------------------------------------
2007 2006 2005
------------- ------------- -------------
Cash flows from operating activities:
Net income (loss) $ (2,708) $ 5,721 $ 9,432
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 4,079 3,884 3,755
Provision for bad debts 3,034 849 1,063
Provision for obsolete inventory 3,001 1,922 3,942
Equity based compensation 448 334 --
Excess tax benefit of stock option exercises -- -- 3,545
Deferred income tax (2,211) 916 1,213
Changes in operating assets and liabilities:
Accounts receivable 149 (6,846) (9,101)
Inventories (7,372) (8,308) (6,419)
Income tax refunds 582 (224) (879)
Other current assets (633) (139) 132
Other assets (729) (754) (756)
Accounts payable 4,603 (496) 2,704
Accrued salaries and benefits 1,640 (1,446) 1,653
Accrued expenses 1,999 (491) (831)
Customer deposits 242 (317) (888)
Deferred service revenue 2,103 813 2,249
Other long-term liabilities 436 1,032 847
------------- ------------- -------------
Net cash provided by (used in) continuing
operating activities 8,663 (3,550) 11,661
Net cash used in discontinued operations -- -- (174)
------------- ------------- -------------
Net cash provided by (used in)
operating activities 8,663 (3,550) 11,487
------------- ------------ -------------
Cash flows from investing activities:
Capital expenditures (2,017) (1,189) (1,682)
Capitalization of software costs (1,158) (822) (617)
Contingent purchase price paid on
prior year acquisition (278) -- --
Business acquisitions, net of cash acquired -- (5,827) (7,223)
------------- ------------ -------------
Net cash used in investing activities (3,453) (7,838) (9,522)
------------- ------------ -------------
PAR TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(in thousands)
Year ended December 31,
------------------------------------------------
2007 2006 2005
------------- ------------- -------------
Cash flows from financing activities:
Net borrowings (payments) under
line-of-credit agreements (5,213) 4,213 (6,746)
Proceeds from long-term debt -- 6,000 --
Payments of long-term debt (244) (76) (71)
Proceeds from the exercise of stock options 203 179 1,830
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 (5,254) 10,485 (4,987)
-------------- ------------- -------------
Effect of exchange rate changes on cash and
cash equivalents 202 194 (692)
------------- ------------- -------------
Net increase (decrease) in cash
and cash equivalents 158 (709) (3,714)
Cash and cash equivalents at
beginning of year 4,273 4,982 8,696
------------- ------------- -------------
Cash and cash equivalents at
end of year $ 4,431 $ 4,273 $ 4,982
============= ============= =============
Supplemental disclosures of
cash flow information:
Cash paid during the year for:
Interest $ 963 $ 687 $ 304
Income taxes, net of refunds 104 2,237 1,586
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 No. 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 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.
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 represent amounts owed to certain employees who
are participants in the Company's Deferred Compensation Plan.
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 recorded in other income in the accompanying statements of
operations.
Other income
The components of other income for the three years ending December 31 are
as follows:
Year ended December 31,
(in thousands)
-----------------------------------
2007 2006 2005
-------- --------- -------
Foreign currency gains ............... $ 605 $ 76 $ 186
Rental income-net .................... 444 320 320
Other ................................ 178 221 237
------ ------ ------
$1,227 $ 617 $ 743
====== ====== ======
Identifiable intangible assets
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 (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 $624,000, $680,000 and $834,000 in 2007, 2006, and 2005,
respectively.
The Company acquired identifiable intangible assets in connection with its
acquisitions in 2006, 2005 and 2004. Amortization of identifiable intangible
assets amounted to $1,572,000 in 2007, $1,283,000 in 2006 and $1,030,000 in
2005. See Note 2 for additional details.
The components of identifiable intangible assets are:
Year ended December 31,
(in thousands)
----------------------------
2007 2006
---------- -----------
Software costs ............................. $ 7,475 $ 6,363
Customer relationships ..................... 4,506 4,393
Trademarks (non-amortizable) ............... 2,758 2,694
Other ...................................... 613 578
-------- --------
15,352 14,028
Less accumulated amortization .............. (5,453) (3,333)
-------- --------
$ 9,899 $ 10,695
======== ========
The future amortization of these intangible assets is as follows (in
thousands):
2008 $ 2,296
2009 2,036
2010 1,450
2011 927
2012 427
Thereafter 5
--------
$ 7,141
========
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 2007, 2006 and 2005.
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 2007 and 2006 was
$448,000 and $334,000, respectively. 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):
2007 2006 2005
-------- -------- ---------
Net income (loss) ............................... $ (2,708) $ 5,721 $ 9,432
======== ======== ========
Basic:
Shares outstanding at beginning of year .... 14,328 14,137 13,403
Less unvested restricted stock ............. (18) -- --
Weighted shares issued during the year ..... 35 56 389
-------- -------- --------
Weighted average common shares, basic ...... 14,345 14,193 13,792
======== ======== ========
Earnings (loss) per common share, basic $ (.19) $ .40 $ .68
======== ======== ========
Diluted:
Weighted average common shares, basic ...... 14,345 14,193 13,792
Dilutive impact of stock options ........... -- 557 856
Dilutive impact of restricted stock awards . -- 2 --
-------- -------- --------
Weighted average common shares, diluted .... 14,345 14,752 14,648
======== ======== ========
Earnings (loss) per common share, diluted .. $ (.19) $ .39 $ .64
======== ======== ========
For the year ended December 31, 2007, 436,000 of incremental shares from
the assumed exercise of stock options and 22,749 restricted stock awards are not
included in the computation of diluted earnings per share because of the
anti-dilutive effect on earnings per share. At December 31, 2006, there were
70,500 anti-dilutive stock options outstanding and no anti-dilutive stock
outstanding stock options in 2005.
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, 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 (SFAS) No. 142 Goodwill and Other Intangible
Assets, 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 2007, 2006 or 2005.
The following table reflects the changes in goodwill during the year (in
thousands):
Year ended December 31,
-----------------------
2007 2006 2005
--------- -------- --------
Balance at beginning of year ............ $ 25,734 $ 20,622 $ 15,379
Acquisition of businesses during the year -- 4,843 6,075
Purchase accounting adjustment related to
prior year acquisition ................ 27 (15) (820)
Contingent purchase price earned on prior
year acquisitions ..................... 156 278 --
Change in foreign exchange rates during
the period ............................ 1,081 6 (12)
-------- -------- --------
Balance at end of year .................. $ 26,998 $ 25,734 $ 20,622
======== ======== ========
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. 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. No impairment was identified during 2007, 2006 or 2005.
Reclassifications
Amounts in prior years' consolidated financial statements are reclassified
whenever necessary to conform with the current year's presentation.
New accounting pronouncements
Financial Accounting Standards Board (FASB) Interpretation 48 was issued in
July 2006 to clarify the criteria for recognizing tax benefits under FAS
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. The
Company's policy is to recognize interest and penalties on unrecognized tax
benefits in interest expense in the consolidated statements of operations. FASB
Interpretation 48 is effective as of the beginning of the first fiscal year
beginning after December 15, 2006 (the Company's 2007 fiscal year). This did not
have a material impact on the 2007 consolidated financial statements.
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.
In December 2007, the FASB issued SFAS No.141 (revised 2007), Business
Combinations (SFAS 141(R)). The objective of this Statement is to improve the
relevance, representational faithfulness, and comparability of the information
that a reporting entity provides in its financial reports about a business
combination. Specifically, it establishes principles and requirements over how
the acquirer (1) recognizes and measures the identifiable assets acquired, the
liabilities assumed, and any noncontrolling interest in the acquiree; (2)
recognizes and measures goodwill acquired in the business combination or a gain
from a bargain purchase, and; (3) determines what information to disclose to
enable users of the financial statements to evaluate the nature and financial
effects of the business combination. This Statement is effective for fiscal
years beginning after December 15, 2008 (fiscal year 2009). The Company is
currently assessing the impact of adopting SFAS 141(R) on its consolidated
financial statements.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements an amendment of ARB No. 51 (SFAS 160). The
objective of this Statement is to improve the relevance, comparability, and
transparency of the financial information that a reporting entity provides in
its consolidated financial statements by establishing accounting and reporting
standards for the noncontrolling interest in a subsidiary (minority interests)
and for the deconsolidation of a subsidiary. This Statement is effective for
fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2008 (fiscal year 2009). The Company is currently assessing the
impact of adopting this SFAS 160 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 $204,000. 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. In 2007, there was no contingent payment
earned. 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 2007 and 2006, $103,000 and
$218,000, respectively, 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 2007 and 2006, $53,000 and $60,000, respectively, was earned based
on achievement of these targets.
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 at the date of acquisition:
2006 2005
-------- -----------------------
(in thousands) SIVA PixelPoint C(3)I
------------ -------- ----------- --------
Cash and cash equivalents ............. $ -- $ 32 $ --
Other current assets .................. 13 185 8
Property, plant and equipment ......... 223 122 --
Other assets .......................... -- 671 --
Intangible assets ..................... 1,924 1,634 290
Goodwill .............................. 4,843 5,539 536
------ ------ ------
Total assets acquired ................. $7,003 $8,183 834
====== ====== ======
Deferred revenues and customer deposits 110 -- --
Other current liabilities ............. -- 303 245
Long-term liabilities ................ -- -- --
------ ------ ------
Total liabilities assumed ............. 110 303 245
------ ------ ------
Purchase price, including
acquisition related costs ........... $6,893 $7,880 $ 589
====== ====== ======
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 Useful Life
------------ --------- ---------- ---------- ------------
Software costs ....... $1,025 $ 258 $ -- 5 Years
Customer relationships 649 774 270 5 - 7 Years
Trademarks ........... 250 344 -- Indefinite
Others ............... -- 258 20 3 - 7 Years
------ ------ -------
$1,924 $1,634 $ 290
====== ====== =======
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
------------- -------------
Revenues $ 209,723 $ 209,515
============= =============
Net income $ 2,743 $ 6,139
============= =============
Earnings per share:
Basic $ .19 $ .44
============= =============
Diluted $ .18 $ .41
============= =============
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)
-------------------------
2007 2006
-------- ---------
Government segment:
Billed ............. $ 13,153 $ 9,076
Advanced billings .. (2,687) (1,465)
-------- --------
10,466 7,611
-------- --------
Hospitality segment:
Accounts receivable - net 33,142 39,180
-------- --------
$ 43,608 $ 46,791
======== ========
At December 31, 2007, 2006 and 2005, the Company had recorded allowances
for doubtful accounts of $2,447,000, $1,850,000, and $1,748,000, respectively,
against Hospitality accounts receivable. Write-offs of accounts receivable
during fiscal years 2007, 2006 and 2005 were $2,437,000, $747,000 and
$1,614,000, respectively. The provision for doubtful accounts recorded in the
consolidated statements of operations was $3,034,000, $849,000 and $1,063,000 in
2007, 2006 and 2005, 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)
-------------------------
2007 2006
-------- --------
Finished goods $ 9,965 $ 9,533
Work in process 1,722 1,667
Component parts 10,408 7,119
Service parts . 18,224 17,629
------- -------
$40,319 $35,948
======= =======
The Company records reserves for shrinkage and excess and obsolete
inventory. At December 31, 2007, 2006 and 2005, these amounts were $3,951,000,
$3,658,000, and 4,189,000, respectively. Write-offs of inventories during fiscal
years 2007, 2006 and 2005 were $2,708,000, $2,453,000 and $3,735,000,
respectively. The provision for shrinkage and excess and obsolete inventory
recorded in the consolidated statements of operations was $3,001,000, $1,922,000
and $3,942,000 in 2007, 2006 and 2005, respectively.
Note 5 -- Property, Plant and Equipment
The components of property, plant and equipment are:
December 31,
(in thousands)
-----------------------------
2007 2006
---------- ---------
Land ........................ $ 253 $ 253
Buildings and improvements .. 5,895 5,669
Rental property ............. 5,490 5,490
Furniture and equipment ..... 20,215 18,264
-------- --------
31,853 29,676
Less accumulated depreciation
and amortization ........... (24,184) (22,141)
-------- --------
$ 7,669 $ 7,535
======== ========
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 $1,882,000, $1,921,000 and $1,883,000 for 2007, 2006 and 2005,
respectively.
The Company leases a portion of its headquarters facility to various
tenants. Rent received from these leases totaled $1,132,000, $1,129,000 and
$1,038,000 for 2007, 2006 and 2005, respectively.
Future minimum rent payments due to the Company under these lease
arrangements are as follows (in thousands):
2008 $ 917
2009 354
2010 242
2011 182
---------
$ 1,695
=========
The Company leases office space under various operating leases. Rental
expense on these operating leases was approximately $2,706,000, $2,559,000 and
$2,138,000 for 2007, 2006, and 2005, respectively.
Future minimum lease payments under all noncancelable operating leases are
(in thousands):
2008 $ 2,382
2009 1,793
2010 1,024
2011 716
2012 575
Thereafter 1,789
---------
$ 8,279
=========
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 (6.75% at December 31, 2007). 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 (6.85% at
December 31, 2007). These facilities contains certain loan covenants including a
leverage ratio of not greater than 3:5 to 1 and a fixed charge coverage ratio of
not less than 4 to 1. In June 2007, these credit agreements were amended to
waive the existing leverage and fixed charge coverage ratios for the remainder
of 2007. Under the amendment, the Company was required to meet a minimum EBITDA
requirement for the balance of 2007. In the fourth quarter of 2007, the Company
did not attain the required EBITDA covenant but received waivers from its banks
from this requirement. In addition, in January and February 2008, these credit
agreements were amended to modify the requirement for leverage ratio and fixed
charge coverage ratios through June of 2008. The original covenants become
effective for the quarter ended September 30, 2008 and thereafter. These lines
expire in April 2009. At December 31, 2007 and 2006, there was $2,500,000 and
$7,713,000 outstanding under these lines, respectively. The weighted average
interest rate paid by the Company during 2007 and 2006 was 6.6%.
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 (7.25% at December 31, 2007).
In September 2007, the Company entered into an interest rate swap agreement
associated with a $6,000,000 variable rate loan with principal and interest
payments due through August 2012. At December 31, 2007, the notional principal
amount totaled $5,850,000. This instrument was utilized by the Company to
minimize significant unplanned fluctuations in earnings and cash flows caused by
interest rate volatility. The Company did not adopt hedge accounting under the
provision of FASB Statement No 133, Accounting for Derivative Instruments and
Hedging Activities, but rather records the fair market value adjustments through
the consolidated statements of operations each period. The associated fair value
adjustment included within the consolidated statements of operations for the
year ended December 31, 2007 was $154,000 and is included as an increase to
interest expense.
The Company has a $1,854,000 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):
2008 $ 772
2009 1,079
2010 2,928
2011 1,575
2012 1,350
-------
$ 7,704
=======
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, 2007 and 2006 was $448,000 and $334,000,
respectively. This amount includes $78,000 and $20,000 in 2007 and 2006,
respectively, relating to restricted stock awards. No compensation expense has
been capitalized during fiscal years 2007 and 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, 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
----
Net income $ 9,432
Compensation expense, net of tax (410)
---------
Proforma net income $ 9,022
=========
Earnings per share:
As reported -- Basic $ .68
-- Diluted $ .64
Proforma -- Basic $ .65
-- Diluted $ .62
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:
Aggregate
No. of Shares Weighted Average Intrinsic Value
(in thousands) Exercise Price (in thousands)
------------- ---------------- --------------
Outstanding at December 31, 2006 . 1,139 $ 4.62 $5,012
Options granted ....... 51 9.77
Exercised ............. (58) 3.51
Forfeited and cancelled (49) 8.47
----- -------
Outstanding at December 31, 2007 . 1,083 $ 4.75 $3,206
===== ======== ======
Vested and expected to vest
at December 31, 2007 ........ 1,067 $ 4.68 $3,233
===== ======== ======
Total shares exercisable
as of December 31, 2007 ..... 837 $ 3.58 $3,457
===== ======== ======
Shares remaining
available for grant 821
=====
The weighted average grant date fair value of options granted during the
years 2007, 2006 and 2005 was $4.39, $3.69 and $4.78, respectively. The total
intrinsic value of options exercised during the years ended December 31, 2007,
2006 and 2005 was $289,000, $670,000 and $10,310,000, 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:
2007 2006 2005
---------- ---------- -------
Expected option life ................... 4.5 years 4.5 years 5 years
Weighted average risk-free interest rate 4.7 % 4.6% 3.5%
Weighted average expected volatility ... 48% 50% 43%
Expected dividend yield ................ 0% 0% 0%
For the years ended December 31, 2007, 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, 2007 are summarized as follows:
Range of Number Outstanding Weighted Average Weighted Average
Exercise Prices (in thousands) Remaining Life Exercise Price
- --------------- ------------------ ---------------- ---------------
$1.25 - $3.17 545 2.9 Years $ 2.21
$3.21 - $8.47 416 6.8 Years $ 6.31
$9.50 - $11.40 122 8.0 Years $ 10.72
- ---------------- ------- ----------- -------
$1.25 - $11.40 1,083 5.0 Years $ 4.75
================ ======= =========== =======
At December 31, 2007 the aggregate unrecognized compensation cost of
unvested options, as determined using a Black-Scholes option valuation model,
was $601,000 (net of estimated forfeitures) which is expected to be recognized
as compensation expense in fiscal years 2008 through 2012.
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, 2007 .. 376 $ 3.58
Granted ............... 51 4.39
Vested ................ (132) 4.54
Forfeited and cancelled (49) 3.89
---- --------
Balance at December 31, 2007 246 $ 3.97
==== ========
During 2007 and 2006, the Company issued 9,600 and 17,800 restricted stock
awards, respectively, 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 (benefit) for income taxes consists of:
Year ended December 31,
(in thousands)
----------------------------------
2007 2006 2005
--------- -------- ---------
Current income tax:
Federal ....................... $ 206 $ 1,565 $ 3,312
State ......................... 86 346 679
Foreign ....................... 422 319 154
------- ------- -------
714 2,230 4,145
------- ------- -------
Deferred income tax:
Federal ....................... (1,872) 802 1,196
State ......................... (339) 114 17
------- ------- -------
(2,211) 916 1,213
------- ------- -------
Provision (benefit) for income taxes $(1,497) $ 3,146 $ 5,358
======= ======= =======
Deferred tax liabilities (assets) are comprised of the following at:
December 31,
(in thousands)
---------------------------
2007 2006
---------- ----------
Software development expense .......... $ 778 $ 493
Intangible assets ..................... 864 528
Other ................................. 277 --
------- -------
Gross deferred tax liabilities ........ 1,919 1,021
------- -------
Allowances for bad debts and inventory (3,738) (3,204)
Capitalized inventory costs ........... (115) (105)
Employee benefit accruals ............. (1,566) (1,172)
Federal net operating loss carryforward (672) --
State net operating loss carryforward . (405) (81)
Tax credit carryforwards .............. (1,345) (617)
Other ................................. (211) (328)
------- -------
Gross deferred tax assets ............. (8,052) (5,507)
------- -------
Net deferred tax assets ............... $(6,133) $(4,486)
======= =======
The Company has Federal tax credit carryforwards of $1,068,000 that expire
in various tax years from 2013 to 2017. The Company has a Federal operating loss
carryforward of $2,218,000 that expires in 2027. Of the operating loss
carryforward, $241,000 will result in a benefit within additional paid in
capital when realized. The Company also has state tax credit carryforwards of
$191,000 and state net operating loss carryforwards of $9,439,000 which expire
in various tax years through 2027. 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,
2007 and 2006.
The Company has adopted the provisions of Financial Accounting Standards
Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN48)
effective January 1, 2007. The Company's adoption of FIN 48 on January 1, 2007,
did not have a material impact on the Company's consolidated financial position,
results of operations or cash flows.
The provision (benefit) 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,
----------------------------------
2007 2006 2005
------- -------- --------
Federal statutory tax rate ...... (35.0)% 35.0% 34.0%
State taxes ..................... (6.6) 3.9 3.1
Extraterritorial income exclusion -- (2.4) (1.4)
Non deductible expenses ......... 6.8 1.9 .5
Tax credits ..................... (3.6) (1.0) (.6)
Foreign income taxes ............ 1.7 -- .5
Other ........................... 1.1 (1.9) .1
---- ---- ----
(35.6)% 35.5% 36.2%
==== ==== ====
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 $800,000, $880,000, and $1,985,000 to the
Plan in 2007, 2006, and 2005, 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 $396,000, $348,000 and $297,000 in 2007, 2006, and 2005, 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
$632,000, $707,000 and $1,258,000 in 2007, 2006, and 2005, respectively.
The Company also sponsors a 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 2007,
2006, and 2005.
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)
-------------------------------------------
2007 2006 2005
----------- ----------- -----------
Revenues:
Hospitality ............... $ 144,486 $ 145,216 $ 149,457
Government ................ 64,998 63,451 56,182
--------- --------- ---------
Total ............. $ 209,484 $ 208,667 $ 205,639
========= ========= =========
Operating income (loss):
Hospitality ............... $ (7,701) $ 5,051 $ 10,864
Government ................ 3,814 4,267 3,470
Other ..................... (449) (334) --
--------- --------- ---------
(4,336) 8,984 14,334
Other income, net ............ 1,227 617 743
Interest expense ............. (1,096) (734) (287)
--------- --------- ---------
Income (loss) before provision
for income taxes ........... $ (4,205) $ 8,867 $ 14,790
========= ========= =========
Identifiable assets:
Hospitality ............... $ 122,442 $ 123,958 $ 106,529
Government ................ 14,429 10,898 9,015
Other ..................... 9,647 7,402 9,605
--------- --------- ---------
Total ............. $ 146,518 $ 142,258 $ 125,149
========= ========= =========
Goodwill:
Hospitality ............... $ 26,349 $ 25,138 $ 20,086
Government ................ 649 596 536
--------- --------- ---------
Total ............. $ 26,998 $ 25,734 $ 20,622
========= ========= =========
Depreciation and amortization:
Hospitality ............... $ 3,622 $ 3,453 $ 3,321
Government ................ 81 42 80
Other ..................... 376 389 354
--------- --------- ---------
Total ............. $ 4,079 $ 3,884 $ 3,755
========= ========= =========
Capital expenditures:
Hospitality ............... $ 1,788 $ 903 $ 1,385
Government ................ 57 14 74
Other ..................... 172 272 223
--------- --------- ---------
Total ............. $ 2,017 $ 1,189 $ 1,682
========= ========= =========
The following table presents revenues by country based on the location of
the use of the product or services.
2007 2006 2005
--------- --------- ---------
United States . $179,323 $181,482 $183,383
Other Countries 30,161 27,185 22,256
-------- -------- --------
Total ......... $209,484 $208,667 $205,639
======== ======== ========
The following table presents assets by country based on the location of the
asset.
2007 2006 2005
--------- --------- ---------
United States . $134,766 $134,799 $119,627
Other Countries 11,752 7,459 5,522
-------- -------- --------
Total ..... $146,518 $142,258 $125,149
======== ======== ========
Customers comprising 10% or more of the Company's total revenues are
summarized as follows:
2007 2006 2005
----- ----- ------
Hospitality segment:
McDonald's Corporation ... 25% 26% 28%
Yum! Brands, Inc. ........ 15% 14% 13%
Government segment:
U.S. Department of Defense 31% 30% 27%
All Others ................. 29% 30% 32%
--- --- ---
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, 2007 and 2006 is based on variable and
fixed interest rates at December 31, 2007 and 2006, respectively, for new issues
with similar remaining maturities and approximates respective carrying values at
December 31, 2007 and 2006. At December 31, 2007, the fair market value of the
Company's interest rate swap includes a realized loss of $154,000, which is
included as a component of interest expense within the consolidated statement of
operations and as a component of accrued expenses within the consolidated
balance sheet.
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 2007,
2006, and 2005 the Company received rental income amounting to $117,300 for the
lease of the facility. All lease payments are current at December 31, 2007.
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 2007, 2006, and 2005, the Company paid
$360,000 to the officer under this lease.
Note 14 -- Selected Quarterly Financial Data (Unaudited)
Quarter ended
(in thousands except per share amounts)
2007 March 31 June 30 September 30 December 31
---- -------- ------- ------------ -----------
Net revenues .................... $ 47,836 $ 49,872 $ 51,577 $ 60,199
Gross margin .................... 10,808 12,635 12,402 16,063
Net income (loss) ............... (1,308) (1,021) (862) 483
Basic earnings (loss) per share . (.09) (.07) (.06) .03
Diluted earnings (loss) per share (.09) (.07) (.06) .03
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
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 17, 2008 John W. Sammon, Jr.
--------------------------------
John W. Sammon, Jr.
Chairman of Board and President
-------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
- --------------------------------------------------------------------------------
Signatures Title Date
- --------------------------------------------------------------------------------
/s/John W. Sammon
- ----------------------
John W. Sammon Chairman of Board and March 17, 2008
President (Principal
Executive Officer)
and Director
/s/Charles A. Constantino
- -------------------------
Charles A. Constantino Executive Vice President March 17, 2008
and Director
/s/Sangwoo Ahn
- ----------------------
Sangwoo Ahn Director March 17, 2007
/s/James A. Simms
- ----------------------
James A. Simms Director March 17, 2007
/s/Paul D. Nielsen
- ----------------------
Paul D. Nielsen Director March 17, 2007
/s/Kevin R. Jost
- ----------------------
Kevin R. Jost Director March 17, 2007
/s/Ronald J. Casciano
- ----------------------
Ronald J. Casciano Vice President, Chief Financial March 17, 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. Filed as Exhibit 10.3 to Form 10-K for
the year ended December 31, 2006 and
incorporated herein by reference.
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.
List of Exhibits (Continued)
Exhibit No. Description of Instrument
- ----------- -------------------------
10.7 June 2007 amendment to bank line of credit
agreement - JP Morgan Chase
10.8 February 2008 amendment to bank line of
credit agreement - JP Morgan Chase
10.9 June 2007 amendment to bank line of
credit agreement - NBT Bank
10.10 January 2008 amendment to bank line of
credit agreement - NBT Bank
22 Subsidiaries of the registrant
23 Consent of Independent Registered Public
Accounting Firm
31.1 Certification of Chairman of the Board
and Chief Executive Officer Pursuant
to Section 302 of the Sarbanes-Oxley Act
of 2002.
31.2 Certification of Vice President, Chief
Financial Officer and Treasurer Pursuant
to Section 302 of the Sarbanes-Oxley Act
of 2002.
32.1 Certification of Chairman of the Board
and Chief Executive Officer and
Vice President, Chief Financial Officer
and Treasurer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
EXHIBIT 10.7
AMENDMENT NO. 2
TO
AMENDED AND RESTATED CREDIT AGREEMENT
This Amendment No. 2 (the "Amendment"), dated as of June 19, 2007, 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, as amended by an Amendment No. 1 dated
November 2, 2006 (the "Credit Agreement").
B. The Borrower has requested that the Bank amend the Credit Agreement to
suspend the testing of certain financial covenants for a period of time.
C. The Bank is willing to amend the Credit Agreement as requested by the
Borrower upon the terms and conditions set forth in 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:
"Amendment No. 2 Effective Date" means the date on which all the
conditions to this Amendment have been satisfied.
2.2 The following defined term is added to Section 1.01 of the Credit
Agreement:
"EBITDA" or "Earnings Before Interest, Taxes, Depreciation and
Amortization" means, with respect to Borrower and its consolidated
Subsidiaries, on a consolidated basis, for any period, the sum of the
following for such period determined in accordance with GAAP: (a)
consolidated net income for such period, plus (b) the amount deducted
in determining consolidated net income representing income taxes, plus
(c) the amount deducted in determining consolidated net income
representing interest expense, plus (d) the amount deducted in
determining consolidated net income representing non-cash charges for
depreciation and amortization, minus (e) the amount included in
determining consolidated net income representing gains from the sale
or disposition of assets not sold in the ordinary course of business,
minus (f) the amount included in determining consolidated net income
representing income from any reappraisal, revaluation or write-up of
assets, minus (g) the amount included in determining consolidated net
income representing other extraordinary or non-recurring income or
gain; provided that (x) the net income of any Person that is not a
wholly-owned Subsidiary or that is accounted for by the equity method
of accounting shall be included only to the extent of the amount of
dividends or distributions actually received by Borrower or one of its
Subsidiaries, (y) the net income of any Person accrued prior to the
date it becomes a wholly-owned Subsidiary or is merged into or
consolidated with Borrower or another Subsidiary shall be excluded,
and (z) the net income of a Subsidiary which for any reason is
unavailable for payment of dividends to the Borrower or another
Subsidiary shall be excluded.
2.3 The definition of Applicable Rate found in Section 1.01 of the Credit
Agreement is amended by adding the following sentence at the end thereof:
Notwithstanding anything in this definition to the contrary, the
Applicable Rate for the period from the Amendment No. 2 Effective Date
to August 15, 2007 shall be the rate set forth in Category 2, and the
Applicable Rate for the period from August 16, 2007 to the date on
which Borrower delivers to Bank the financial statements and other
information required to be delivered pursuant to Section 5.01 for the
quarter ending March 31, 2008 shall be the rate set forth in Category
5; provided that, except as otherwise provided in Section 2.10(c), at
any time an Event of Default has occurred and is continuing the
Applicable Rate shall be 1.00% higher than the rate that would
otherwise be applicable.
2.4 Section 6.09 of the Credit Agreement is amended to read as
follows:
SECTION 6.09. Leverage Ratio. Borrower will not suffer or permit its
Leverage Ratio, as measured at the end of each Fiscal Quarter (other
than the Fiscal Quarters ending June 30, 2007, September 30, 2007, and
December 31, 2007), to be greater than 3.50 to 1.0.
2.5 Section 6.10 of the Credit Agreement is amended to read as
follows:
SECTION 6.10. Fixed Charge Coverage Ratio. Borrower will not suffer or
permit its Fixed Charge Coverage Ratio, as measured at the end of each
Fiscal Quarter (other than the Fiscal Quarters ending June 30, 2007,
September 30, 2007, and December 31, 2007), to be less than 4.0 to 1.0
2.6 The following new Section 6.12 is added to the Credit Agreement immediately
following Section 6.11:
SECTION 6.12. Minimum EBITDA. Borrower shall not permit its EBITDA for
the rolling four-quarter periods ending June 30, 2007, September 30,
2007 and December 31, 2007 to be less than $2,500,000, $1,500,000, and
$1,100,000, respectively.
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 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 and the authorization of this Amendment, all in form
and substance satisfactory to the Bank and its counsel.
4.3 The Bank shall have received true and correct copies, certified as
to authenticity by the Borrower, of an amendment to Borrower's loan
agreement with NBT Bank, N.A. containing financial covenants substantially
the same as those set forth in this Amendment No. 2.
4.4 The Bank shall have received a Confirmation and Acknowledgment
from each Corporate Guarantor in the form attached as Exhibit A.
4.5 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.
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. 2
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 10.8
AMENDMENT NO. 3
TO
AMENDED AND RESTATED CREDIT AGREEMENT
This Amendment No. 3 (the "Amendment"), dated as of February 7, 2008, 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, as amended by an Amendment No. 1 dated as
of November 2, 2006 and by an Amendment No. 2 dated as of June 19, 2007 (the
"Credit Agreement").
B. The Borrower has requested that the Bank (i) waive compliance with the
requirements of Section 6.12 of the Credit Agreement for the rolling
four-quarter period ending December 31, 2007 and (ii) amend the Credit Agreement
to amend certain financial covenants.
C. The Bank is willing to agree to such waiver and to amend the Credit
Agreement as requested by the Borrower upon the terms and conditions set forth
in 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. Waiver. Subject to the conditions and upon the terms set forth in this
Amendment, and in reliance on the representations and warranties of the Borrower
set forth in this Amendment, the Bank hereby waives compliance with the
requirements of Section 6.12 of the Credit Agreement for the rolling
four-quarter period ended December 31, 2007; provided, however, that such waiver
shall be automatically rescinded and of no further force and effect in the event
that Borrower's audited financial statements for the year ended December 31,
2007 delivered to the Bank pursuant to Section 5.01(a) of the Credit Agreement
reflect that Borrower's EBITDA for the rolling four-quarter period ended
December 31, 2007 is less than $750,000.
3. Amendment of Credit Agreement.
3.1 Section 6.09 of the Credit Agreement is amended to read as
follows:
SECTION 6.09. Leverage Ratio. Borrower will not suffer or permit its
Leverage Ratio, as measured at the end of each Fiscal Quarter (other than
the Fiscal Quarters ending December 31, 2007 and March 31, 2008), to be
greater than 3.50 to 1.0. Borrower will not suffer or permit its Leverage
Ratio, as measured at the end of the Fiscal Quarter ending March 31, 2008,
to be greater than 4.75 to 1.0.
3.3 Section 6.10 of the Credit Agreement is amended to read as
follows:
SECTION 6.10. Fixed Charge Coverage Ratio. Borrower will not suffer or
permit its Fixed Charge Coverage Ratio, as measured at the end of each
Fiscal Quarter (other than the Fiscal Quarters ending December 31, 2007,
March 31, 2008 and June 30, 2008), to be less than 4.0 to 1.0. Borrower
will not suffer or permit its Fixed Charge Coverage Ratio, as measured at
the end of the Fiscal Quarter ending March 31, 2008, to be less than 1.20
to 1.0. Borrower will not suffer or permit its Fixed Charge Coverage Ratio,
as measured at the end of the Fiscal Quarter ending June 30, 2008, to be
less than 2.3 to 1.0.
4. Representations and Warranties. The Borrower represents and warrants to
the Bank that the following statements are true, correct and complete:
4.1 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.
4.2 No Default or Event of Default has occurred and is continuing.
4.3 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.
5. 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):
5.1 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.
5.2 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 and the authorization of this Amendment, all in form
and substance satisfactory to the Bank and its counsel.
5.3 The Bank shall have received true and correct copies, certified as
to authenticity by the Borrower, of an amendment to Borrower's loan
agreement with NBT Bank, N.A. containing financial covenants substantially
the same as those set forth in this Amendment.
5.4 The Bank shall have received a Confirmation and Acknowledgment
from each Corporate Guarantor in the form attached as Exhibit A.
5.5 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.
6. 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 as of the dated of this Amendment. To the extent that any
provision of the Credit Agreement conflicts with any provision of this
Amendment, the provision of this Amendment shall control.
7. 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 10.9
AMENDMENT TO A BUSINESS LOAN AGREEMENT
AND TEMPORARY MODIFICATION OF A PROMISSORY NOTE INTEREST RATE
MADE AMONG PAR TECHNOLOGY CORPORATION, AS BORROWER
AND THE FOLLOWING GUARANTORS OF PAYMENT: PARTECH, INC.; PAR GOVERNMENT SYSTEMS
CORORATION; ROME RESEARCH CORPORATION; PAR SPRINGER-MILLER SYSTEMS, INC.; AND
NBT BANK, NATIONAL ASSOCIATION, AS LENDER
THIS AMENDMENT TO A BUSINESS LOAN AGREEMENT AND TEMPORARY MODIFICATION OF A
PROMISSORY NOTE INTEREST RATE (this "Amendment", hereinafter) dated as of June
20, 2007, is made to amend a certain business loan agreement dated April 21,
2006 (hereinafter the "Loan Agreement") and a certain promissory note (Line of
Credit) dated of even date as the Loan Agreement, in the maximum amount
outstanding, at any time or under any contingency, of $12,500,000.00 (the
"Note", hereinafter), and is entered into among PAR Technology Corporation
("Borrower", hereinafter) a Delaware business corporation, having its primary
corporate offices at 8383 Seneca Turnpike, New Hartford, NY 13413; NBT Bank,
National Association ("Lender", hereinafter), a national banking association
having an office for the transaction of business at 555 French Road, New
Hartford, NY 13413; and each of the following as guarantors of payment of the
Loan (as hereinafter defined): Partech, Inc.; PAR Government Systems
Corporation; Rome Research Corporation; and PAR Springer-Miller Systems, Inc.
("Guarantors", collectively hereinafter, and each being referred to separately
as a "Guarantor"), which execute this Amendment, together with their several
Reaffirmations of Guaranties (the "Reaffirmations", collectively) dated as of
even date herewith, in order to confirm and agree to the modifications to the
Loan Agreement, as hereinafter set forth.
RECITALS:
WHEREAS, Borrower has requested of Lender that Lender modify certain Financial
Covenants required to be met by the Borrower pursuant to the Loan Agreement, as
conditions of the Loan; and to make a temporary modification of the variable
rate of interest charged under the Note against the outstanding principal
balance of the Loan from time to time (the "Variable Interest Rate",
hereinafter); and
WHEREAS, Lender has agreed to modify the Borrower's compliance with certain of
such Financial Covenants and to make a temporary modification of the Variable
Interest Rate, upon Borrower's agreement to add to the Loan terms an additional
Financial Covenant, as hereinafter set forth, which shall be made part of and
thereby modify the Loan Agreement; and to execute a certain "letter of
understanding" (the "Letter of Understanding", hereinafter) with respect to the
modification of such Financial Covenants and Variable Interest Rate, and the
effect of such modification of such Financial Covenants upon the Variable
Interest Rate pricing set forth in the Note; and a corresponding modification of
the unused line of credit fee;
NOW THEREFORE, in consideration of the above recitals, and other good and
valuable consideration, acknowledged to have been exchanged between the parties
hereto, the parties hereto agree as follows:
1. Modification to the Loan Agreement. Paragraph titled " Financial
Covenants and Ratios" of the Loan Agreement ( Page 7 thereof) is modified,
as follows:
1.1. Subparagraph "B" "Fixed Charge Coverage Ratio" is deleted, and
replaced with the following:
B. Fixed Charge Coverage Ratio: Excluding quarters ending June 30, 2007,
September 30, 2007, and December 31, 2007, respectively, Borrower shall maintain
a Fixed Charge Coverage Ratio, measured quarter-annually, upon a
rolling-four-quarters basis, based upon Borrower's filed SEC 10Q Reports, of not
less than 4.0 to 1.0 (4.0:1.0). The Fixed Charge Coverage shall be determined
based upon the following formula:
A fraction, (a) the numerator of which is:Earnings measured before deductions
therefrom of Interest, Taxes, Depreciation, and Amortization; and
(b) the denominator of which is: Interest Expense plus current
maturities of long-term debt.
1.2. Subparagraph "C" "Leverage Ratio" is deleted, and replaced with the
following:
C. Leverage Ratio. Excluding quarters ending June 30, 2007, September 30,
2007, and December 31, 2007, respectively, Borrower shall maintain a Leverage
Ratio measured at the end of each of Borrower's fiscal quarter-annual periods,
determined on a rolling-four-quarters basis, of not more than 3.5 to 1.0
(3.5:1.0). The Leverage Ratio shall be applied based upon the following formula:
A fraction, (a) the numerator of which is: all institutional debt of the
borrower; and
(b) the denominator of which is: Earnings, measured before
deductions therefrom, of Interest, taxes, Depreciation and
Amortization.
1.3. The following new Financial Covenant is made a part of the Loan
Agreement:
Minimum EBITDA Covenant: Borrower shall maintain a Minimum EBITDA measured
quarter-annually, commencing with the quarter-annual period ending June 30,
2007, on a rolling-twelve-months basis, based upon Borrower's filed SEC 10Q
reports, as follows:
(a) Quarter-Annual Period ending June 30, 2007: Minimum EBITDA of Two
Million Five Hundred Thousand and 00/100ths Dollars ($2,500,000.00)
(b) Quarter-Annual Period ending September 30, 2007: Minimum EBITDA of One
Million Five Hundred Thousand and 00/100ths Dollars ($1,500,000.00)
(c) Quarter-Annual Period ending December 31, 2007: Minimum EBITDA of One
Million One Hundred Thousand and 00/100ths Dollars ($1,100,000.00).
This Covenant with respect to Minimum EBITDA shall cease, as an effective
covenant and condition of the Loan and Loan Agreement, with the inception of the
first quarter-annual period of Borrower's fiscal year 2008.
"EBITDA" means the following: "Earnings, measured before deductions therefrom of
Interest, taxes, Depreciation, and Amortization"
2. Temporary Modification of the Variable Interest Rate.
2.1. The Variable Interest Rate charged under the Note evidencing the Loan
is modified, such that, notwithstanding the terms and conditions set forth in
the Note, the Variable Interest Rate from August 16, 2007, to May 15, 2008,
shall be determined quarter-annually based upon the Index (as defined in the
Note) plus one hundred seventy five basis points (175 BP), without application
of the Leverage Ratio, for purposes of determining the Margin (as defined in the
Note).
2.2. The modification set forth in Paragraph 2.1. hereinabove shall
continue in effect until May 15, 2008, upon which date the modification shall be
terminated; the determination of the Variable Interest Rate shall thereafter be
made by reference to the Note, excluding the effect of this modification; and
the terms and conditions of the Note will revert to those terms set forth within
the Note, without the effect and application of the modifications set forth in
Paragraph 2.1 hereinabove.
2.3. Except for the modifications set forth in Paragraph 2.1 hereinabove,
no other terms or conditions of the Note are modified.
3. Guarantors' Consent. Each of the Guarantors executes this Amendment for
purposes of consenting to the modifications to the Loan Agreement and the Note;
and Guarantors' confirmations, continuation and reaffirmations of their
respective Guaranties with respect to such modifications, are, in addition to
their consents evidenced by this Amendment, set forth in each of their
respective Reaffirmations (as hereinabove defined).
4. Modification Fee. In consideration of the amendments and modifications
to the Loan Agreement and Note effected hereby, the Borrower does agree, upon
execution hereof, to pay a Business Loan Agreement and Note Modification Fee
(the "Modification Fee", hereinafter), of Twenty Thousand and 00/100ths Dollars
($20,000.00), due and payable on or before Lender's execution of this Amendment.
5. No other Changes. This Amendment modifies the Loan Agreement and Note
only as specifically set forth hereinabove; and except as modified herein, the
Loan Agreement and Note each continue in full force and effect, without further
or additional modification.
6. Related Documents. This Amendment, and any other documents made and
executed by and between, or among, Borrower, Lender and Guarantor(s), which
documents are all dated as of even date herewith, are included as "Related
Documents", as that term is defined in the Loan Agreement.
7. Entire Understanding. This Amendment, the Loan Agreement, the Note, and
the Related Documents dated as of even date herewith, constitute the entire
understanding and agreement of the parties hereto as to the matters set forth in
this Amendment; and no alteration of or modification of this Amendment, to the
Loan Agreement, or to the Note, shall be effective unless given in writing, and
signed by the party or parties sought to be charged or bound by such alteration
and/or modification.
8. Venue; Waiver of Trial By Jury; Choice of Law. This Amendment, the Loan
Agreement, the Note, and the Guaranties are, and have been, made among Borrower,
Guarantors and Lender in the State of New York. If there is a lawsuit, the
Borrower and Guarantors agree, upon Lender's request, to submit to the
jurisdiction of the Courts of Oneida County, State of New York. LENDER, BORROWER
AND GUARANTORS HEREBY WAIVE THE RIGHT TO ANY JURY TRIAL IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY OF THEM AGAINST ANY OTHER(S). This
Amendment shall be governed by and construed in accordance with the laws of the
State of New York, exclusive of law rules and public policies.
9. Notices. All notices required to be given under this Amendment shall be
given in writing in accordance with those same "notice" terms as set forth in
the Loan Agreement on page 12 thereof, titled "Notices."
10. Successors and Assigns. The covenants and agreements contained by or on
behalf of Borrower or Guarantors shall bind their respective successors and
assigns, shall inure to the benefit of the Lender, its successors and/or
assigns. Borrower and Guarantors shall not, however, have the right to assign
their rights under this Amendment or Loan Agreement, or their interests therein,
without the prior written consent of the Lender.
11. Severability. If a court of competent jurisdiction finds any provision
of this Amendment, and/or the Loan Agreement, and/or the Note, as modified
hereby, to be invalid or unenforceable as to any person or circumstance, such
finding shall not render that provision invalid or unenforceable as to any other
persons or circumstances. If feasible, any such offending provision shall be
deemed to be modified to be within the limits of enforceability or validity;
however, if the offending provision cannot be so modified, it shall be stricken
and all other provisions of this Amendment, the Loan Agreement, and the Note in
all other respects shall remain valid and enforceable.
12. Performance. TIME IS OF THE ESSENCE in the performance of all
requirements set forth in this Amendment, in the Loan Agreement, and in the
Note, including, but not limited to, those requirements which are modified
hereby.
13. Costs and Expenses. Borrower and Guarantors shall pay the reasonable
out-of-pocket costs and expenses of Lender, including, but not limited to: the
Modification Fee, the reasonable fees and disbursements of Lender's counsel,
incurred by Lender in connection with the negotiation and preparation of this
Amendment and the other Related Documents of even date; any further amendments
hereto or to the Loan Agreement, the Note, and/or the other Related Documents
(whether or not of even date herewith); any amendments required to a
participation agreement existing or concurrently entered into between Lender
with a participant or participants.
BORROWER AND EACH GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS
OF THIS AMENDMENT, AND EACH AGREES TO ITS TERMS.
IN WITNESS WHEREOF, the parties hereto execute these presents, or cause the same
to be executed by their duly authorized representatives, as of June 20, 2007.
PAR TECHNOLOGY CORPORATION
By: /s/Ronald J. Caciano
-----------------------------
Ronald J. Casciano, Treasurer
PARTECH, INC.
By: /s/Ronald J. Caciano
-----------------------------
Ronald J. Casciano, Treasurer
PAR GOVERNMENT SYSTEMS CORPORATION
By: /s/Ronald J. Caciano
-----------------------------
Ronald J. Casciano, Treasurer
ROME RESEARCH CORPORATION
By: /s/Ronald J. Caciano
-----------------------------
Ronald J. Casciano, Treasurer
PAR SPRINGER-MILLER SYSTEMS, INC.
By: /s/Ronald J. Caciano
-----------------------------
Ronald J. Casciano, Treasurer
NBT BANK, NATIONAL ASSOCIATION
By: /s/Rex W. Cary
----------------------------
Rex W. Cary, Vice President
EXHIBIT 10.10
(SECOND)AMENDMENT TO A BUSINESS LOAN AGREEMENT
AND ACKNOWLEDGMENT OF THE INTEREST RATE AND TERMS OF REPAYMENT OF A
PROMISSORY NOTE MADE AMONG PAR TECHNOLOGY CORPORATION, AS BORROWER
AND THE FOLLOWING GUARANTORS OF PAYMENT: PARTECH, INC.; PAR GOVERNMENT SYSTEMS
CORPORATION; ROME RESEARCH CORPORATION;
PAR SPRINGER-MILLER SYSTEMS, INC.; AND NBT BANK, NATIONAL ASSOCIATION,
AS LENDER
INTENT AND BACKGROUND. THIS (SECOND) AMENDMENT TO A BUSINESS LOAN AGREEMENT AND
ACKNOWLEDGMENT OF INTEREST RATE AND TERMS OF REPAYMENT OF A PROMISSORY NOTE
(this "Amendment", hereinafter) dated as of January 1, 2008, is made to
(a) modify a certain business loan agreement dated April 21, 2006 (the "Loan
Agreement" hereinafter) as modified by a certain Amendment to a Business Loan
Agreement and Temporary Modification of a Promissory Note Interest Rate (the
"First Amendment", hereinafter), dated as of June 20, 2007, entered into among
Borrower, Lender and Guarantors (each, as hereinafter defined); and
(b) confirm and acknowledge the original terms of repayment (including, but not
limited to, the pricing structure of the interest rate) of a certain promissory
note (the "Note", hereinafter) dated of even date as the Loan Agreement as
temporarily modified by the First Amendment; said Note being in the maximum
principal amount permitted to be outstanding, at anyone time under any
contingency, of Twelve Million Five Hundred Thousand and 00/100ths Dollars
($12,500,000.00).
The Note evidences, and said Loan Agreement is made with respect to, that
certain unsecured line of credit in the maximum principal amount permitted to be
outstanding at any one time under any contingency, of $12,500,000.00 (the
"Loan", hereinafter) extended by NBT Bank, National Association, a national
banking association having an office at 555 French Road, New Hartford, NY 13413,
as lender ("Lender", hereinafter), to PAR Technology Corporation, a Delaware
business corporation, having an office at 8383 Seneca Turnpike, New Hartford, NY
13413, as borrower ("Borrower", hereinafter); the payment of which Loan is
guarantied by each of the following corporations: Partech, Inc.; PAR Government
Systems Corporation; Rome Research Corporation; and PAR Springer-Miller Systems,
Inc. ("Guarantors", collectively hereinafter, and each being referred to
separately as a "Guarantor").
Guarantors, having also entered into the Loan Agreement for purposes of making
such statements and/or agreements set forth therein as being those of the
Guarantors, also execute this Amendment, together with (inter alia) certain
Reaffirmations of Guaranties (the "Reaffirmations", collectively) dated as of
even date herewith, in order to confirm and agree to the modifications to the
Loan Agreement, as hereinafter set forth, the acknowledgment of the terms of
repayment of the Note as set forth therein, and the replacement of the First
Amendment by this Amendment.
THIS AMENDMENT IS A REPLACEMENT AMENDMENT. THIS AMENDMENT AND THE TERMS HEREOF
ARE DEEMED TO SUPERSEDE AND REPLACE THE FIRST AMENDMENT AND THE TERMS THEREOF,
EFFECTIVE BEGINNING ON THE DATE OF THIS AGREEMENT.
FIRST RECITAL:
WHEREAS, Borrower has requested of Lender that Lender modify certain
Financial Covenants required to be met by the Borrower pursuant to the Loan
Agreement and as subsequently modified by the First Amendment, and waive and
terminate a certain temporary financial covenant established in the First
Amendment; and
SECOND RECITAL:
WHEREAS, Lender has agreed to such modifications (hereinafter the
"Modifications"), upon, inter alia, Borrower's and Guarantors' entering into
this Amendment, replacing the First Amendment and its effect upon the Note and
Loan Agreement and the terms thereof, including, but not necessarily limited to,
its effect upon the Variable Interest Rate (as defined in the Note) and Unused
Line Fee (as defined in the Loan Agreement); and
THIRD RECITAL:
NOW THEREFORE, in consideration of the above recitals, and other good and
valuable consideration, acknowledged to have been exchanged between the parties
hereto, the parties hereto agree as follows:
1. Modifications to the Loan Agreement. Paragraph titled " Financial Covenants
and Ratios" of the Loan Agreement ( Page 7) thereof) is modified, as follows:
1.1. Subparagraph "B" "Fixed Charge Coverage Ratio" is deleted, and
replaced with the following:
B. Fixed Charge Coverage Ratio:
B.1. For Borrower's fiscal quarter-annual period ending March 31, 2008,
Borrower shall maintain a Fixed Charge Coverage Ratio, measured
quarter-annually, upon the immediately preceding rolling-four-quarters, based
upon Borrower's filed SEC 10Q Reports, of not less than 1.2:1.0; and
B.2. For Borrower's fiscal quarter-annual period ending June 30, 2008,
Borrower shall maintain a Fixed Charge Coverage Ratio, measured
quarter-annually, upon the immediately preceding rolling-four-quarters, based
upon Borrower's filed SEC 10Q Reports, of not less than 2.3:1.0; and
B.3. Beginning with Borrower's fiscal quarter-annual period ending
September 30th, 2008 and continuing for each successive quarter-annual period
throughout the remaining term of the Loan, Borrower shall maintain a Fixed
Charge Coverage Ratio, measured quarter-annually at the end of each of
Borrower's fiscal quarter-annual periods, upon the immediately preceding
rolling-four-quarters, based upon Borrower's filed SEC 10Q Reports, of not less
than 4.0:1.00.
The Fixed Charge Coverage shall be determined based upon the following
formula:
A fraction, (a) the numerator of which is: Earnings measured before deductions
therefrom of Interest, Taxes, Depreciation, and Amortization
("EBITDA"); and
(b) the denominator of which is: Interest Expense, plus current
maturities of long-term debt.
1.2. Subparagraph "C" "Leverage Ratio" is deleted, and replaced with the
following:
C. Leverage Ratio.
C.1. For Borrower's fiscal quarter-annual period ending on March 31, 2008,
Borrower shall maintain a Leverage Ratio measured quarter-annually
upon the immediately-receding rolling-four-quarters, based on Borrower's filed
SEC 10Q reports, of not more than 4.75:1.00.
C.2. For Borrower's fiscal quarter-annual period ending on June 30, 2008,
and continuing for each successive quarter-annual period throughout the
remaining term of the Loan, Borrower shall maintain a Leverage Ratio, measured
quarter-annually upon the immediately-preceding rolling-four-quarters, based on
Borrower's filed SEC 10Q reports, of not more than 3.5:1.00.
C.3. The Leverage Ratio shall be determined based upon the following
formula:
A fraction, (a) the numerator of which is: all institutional debt of the
borrower; and
(b) the denominator of which is: EBITDA (as hereinabove defined).
2. EBIDTA Requirement Waived. Lender hereby waives all requirement of
Borrower to comply with that certain Minimum EBITDA Covenant, as required in
Paragraph 1.3(c) of the First Amendment. Hereinafter, the Minimum EBITDA
Covenant is deleted as a covenant applicable to the Borrower with respect to the
Loan.
3 Terms of the Note and Unused Line Fee Confirmed. Borrower, Lender and
Guarantors agree that (a) effective as of the date of this Amendment, all effect
of the First Amendment on the Note has been terminated, and that the original
terms of the Note as set forth therein, including, but not limited to, the
matrix pricing structure effecting the level of the Margin as set forth in the
Note, now governs the Variable Interest Rate charged on the Loan; (b) that the
current Leverage Ratio exceeds 3.00:1.00; and that the effect thereof is that
(i) pursuant to the terms of the Note, the Variable Interest Rate is now two
hundred basis points (200) above the Index, adjustable in accordance with the
terms of the Note; and (ii) pursuant to the terms of the Loan Agreement, Page 7,
Paragraph D.2 of Section titled "Financial Covenants and Ratios", the price of
the Unused Line Fee, is at one half of one percent (.05) of the amount of the
unused Loan principal during the prior quarter-annual period of Borrower's
fiscal year, subject to future continuing adjustment in accordance with the
terms of the Loan Agreement and the applicable provisions of the Note.
4. Guarantors' Consent. Each of the Guarantors executes this Amendment for
purposes of consenting to the Modifications; and Guarantors' confirmations,
continuation and reaffirmations of their respective Guaranties with respect to
such modifications, are, in addition to their consents evidenced by this
Amendment, set forth in each of their respective Reaffirmations (as hereinabove
defined).
5. No other Changes. (a) This Amendment modifies the Loan Agreement only as
specifically set forth hereinabove; and except as modified herein, the Loan
Agreement remains unchanged and continuing in full force and effect; (b) this
Amendment modifies the Note to the extent and only to the extent that it
replaces the First Amendment and removes the effect of the First Amendment on
the Note; and that otherwise the Note remains unchanged and continues in full
force and effect.
6. Related Documents. This Amendment, and any other documents made and
executed by and between, or among, Borrower, Lender and Guarantor(s), are
included as "Related Documents", as that term is defined in the Loan Agreement.
7. Entire Understanding. This Amendment, the Loan Agreement, the Note, and
the Related Documents dated as of even date herewith, constitute the entire
understanding and agreement of the parties hereto as to the matters set forth in
this Amendment; and no alteration of or modification of this Amendment, to the
Loan Agreement, or to the Note or any Related Documents, shall be effective
unless given in writing, and signed by the party or parties sought to be charged
or bound by such alteration and/or modification.
8. Venue; Waiver of Trial By Jury; Choice of Law. This Amendment, the Loan
Agreement, the Note, and the Guaranties are, and have been, made among Borrower,
Guarantors and Lender in the State of New York. If there is a lawsuit, the
Borrower and Guarantors agree, upon Lender's request, to submit to the
jurisdiction of the Courts of Oneida County, State of New York. LENDER, BORROWER
AND GUARANTORS HEREBY WAIVE THE RIGHT TO ANY JURY TRIAL IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY OF THEM AGAINST ANY OTHER(S). This
Amendment shall be governed by and construed in accordance with the laws of the
State of New York, exclusive of law rules and public policies.
10. Notices. All notices required to be given under this Amendment shall be
given in writing in accordance with those same "notice" terms as set forth in
the Loan Agreement.
11. Successors and Assigns. The covenants and agreements contained by or on
behalf of Borrower or Guarantors shall bind their respective successors and
assigns, shall inure to the benefit of the Lender, its successors and/or
assigns. Borrower and Guarantors shall not, however, have the right to assign
their rights under this Amendment, the Note, or Loan Agreement, or their
interests therein, without the prior written consent of the Lender.
12. Severability. If a court of competent jurisdiction finds any provision
of this Amendment, and/or the Loan Agreement, and/or the Note, and/or any
Related Document, to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any such
offending provision shall be deemed to be modified to be within the limits of
enforceability or validity; however, if the offending provision cannot be so
modified, it shall be stricken and all other provisions of this Amendment, the
Loan Agreement, the Note, and the Related Documents in all other respects shall
remain valid and enforceable.
13. Performance. TIME IS OF THE ESSENCE in the performance of all
requirements set forth in this Amendment, in the Loan Agreement, and in the
Note, including, but not limited to, those requirements which are modified
hereby.
14. Costs and Expenses. Borrower and Guarantors shall pay the reasonable
out-of-pocket costs an8d expenses of Lender incurred with respect to this
Agreement, including, but not limited to, the reasonable fees and disbursements
of Lender's counsel incurred by Lender in connection with the negotiation and
preparation of this Amendment and the other Related Documents of even date; any
further amendments hereto or to the Loan Agreement, the Note, and/or the other
Related Documents (whether or not of even date herewith); any amendments
required to a participation agreement existing or concurrently entered into
between Lender with a participant or participants, and any costs incurred in
enforcing any provision of this Amendment, the Note, the Loan Agreement, and any
related Document.
BORROWER AND EACH GUARANTOR ACKNOWLEDGE HAVING READ ALL THE PROVISIONS OF
THIS AMENDMENT, AND EACH AGREES TO ITS TERMS.
IN WITNESS WHEREOF, the parties hereto execute these presents, or cause the
same to be executed by their duly authorized representatives, effective as of
January 1, 2008.
PAR TECHNOLOGY CORPORATION
By: /s/Ronald J. Caciano
-----------------------------
Ronald J. Casciano, Treasurer
PARTECH, INC.
By: /s/Ronald J. Caciano
-----------------------------
Ronald J. Casciano, Treasurer
PAR GOVERNMENT SYSTEMS CORPORATION
By: /s/Ronald J. Caciano
-----------------------------
Ronald J. Casciano, Treasurer
ROME RESEARCH CORPORATION
By: /s/Ronald J. Caciano
-----------------------------
Ronald J. Casciano, Treasurer
PAR SPRINGER-MILLER SYSTEMS, INC.
By: /s/Ronald J. Caciano
-----------------------------
Ronald J. Casciano, Treasurer
NBT BANK, NATIONAL ASSOCIATION
By: /s/John F. Buffa
-----------------------------
John F. Buffa, Sr. Vice President
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.
333-119828, 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 report dated March 17, 2008, with respect to the consolidated
balance sheets of PAR Technology Corporation and subsidiaries as of December 31,
2007 and 2006, and the related consolidated statements of operations,
comprehensive income (loss), changes in shareholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 2007, and the
effectiveness of internal control over financial reporting as of December 31,
2007, which report appears in the December 31, 2007 annual report on Form 10-K
of PAR Technology 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.
(Signed) KPMG LLP
Syracuse, New York
March 17, 2008
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 17, 2008 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 17, 2008 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, 2007 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.
John W. Sammon, Jr.
- -------------------------------
John W. Sammon, Jr.
Chairman of the Board & Chief Executive Officer
March 17, 2008
Ronald J. Casciano
- --------------------------------
Ronald J. Casciano
Vice President, Chief Financial Officer & Treasurer
March 17, 2008