UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[ X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 2009. Commission File Number 1-9720
OR
[ ] TRANSITION REPORT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From __________ to __________
Commission File Number __________
PAR TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 16-1434688
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
PAR Technology Park
8383 Seneca Turnpike
New Hartford, NY 13413-4991
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (315) 738-0600
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 whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of "large accelerated filer" and "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 [ ]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
The number of shares outstanding of registrant's common stock, as of as of
April 30, 2009 - 14,537,363 shares.
PAR TECHNOLOGY CORPORATION
TABLE OF CONTENTS
FORM 10-Q
PART I
FINANCIAL INFORMATION
Item Number
-----------
Item 1. Financial Statements (unaudited)
- Consolidated Statements of Operations for
the three months ended March 31, 2009 and 2008
- Consolidated Statements of Comprehensive
Income (Loss) for the three months ended
March 31, 2009 and 2008
- Consolidated Balance Sheets at
March 31, 2009 and December 31, 2008
- Consolidated Statements of Cash Flows
for the three months ended March 31, 2009 and 2008
- Notes to Unaudited Interim Consolidated
Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
Item 4. Controls and Procedures
PART II
OTHER INFORMATION
Item 1A. Risk Factors
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits
Signatures
Exhibit Index
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
For the three months
ended March 31,
--------------------------
2009 2008
----------- -----------
Net revenues:
Product ...................................... $ 20,237 $ 16,897
Service ...................................... 19,981 16,415
Contract ..................................... 20,250 18,795
----------- ----------
60,468 52,107
----------- ----------
Costs of sales:
Product ...................................... 13,068 9,425
Service ...................................... 14,477 12,483
Contract ..................................... 19,236 17,840
----------- ----------
46,781 39,748
----------- ----------
Gross margin ........................... 13,687 12,359
----------- -----------
Operating expenses:
Selling, general and administrative .......... 9,595 9,061
Research and development ..................... 3,309 4,121
Amortization of identifiable intangible assets 365 390
----------- ----------
13,269 13,572
----------- ----------
Operating income (loss) ........................... 418 (1,213)
Other income, net ................................. 107 314
Interest expense .................................. (139) (348)
----------- ----------
Income (loss) before provision for income taxes ... 386 (1,247)
(Provision) benefit for income taxes .............. (139) 503
----------- ----------
Net income (loss) ................................. $ 247 $ (744)
=========== ==========
Earnings (loss) per share
Basic ........................................ $ .02 $ (.05)
Diluted ...................................... $ .02 $ (.05)
Weighted average shares outstanding
Basic ........................................ 14,473 14,379
=========== ==========
Diluted ...................................... 14,721 14,379
=========== ==========
See notes to unaudited interim consolidated financial statements
PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
(unaudited)
For the three months
ended March 31,
--------------------------
2009 2008
----------- -----------
Net income (loss) $ 247 $ (744)
Other comprehensive loss, net of tax:
Foreign currency translation adjustments (278) (104)
------------ ----------
Comprehensive loss $ (31) $ (848)
============ ==========
See notes to unaudited interim consolidated financial statements
PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
(unaudited)
March 31, December 31,
2009 2008
-------- -----------
Assets
Current assets:
Cash and cash equivalents ...................... $ 4,722 $ 6,227
Accounts receivable-net ........................ 44,130 53,582
Inventories-net ................................ 43,702 41,132
Income tax refunds ............................. 222 208
Deferred income taxes .......................... 5,334 5,301
Other current assets ........................... 3,105 3,588
--------- ---------
Total current assets ....................... 101,215 110,038
Property, plant and equipment - net ................. 6,716 6,879
Deferred income taxes ............................... 1,546 1,525
Goodwill ............................................ 25,564 25,684
Intangible assets - net ............................. 7,850 8,251
Other assets ........................................ 1,471 1,611
--------- ---------
Total Assets ............................. $ 144,362 $ 153,988
========= =========
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt .............. $ 1,139 $ 1,079
Borrowings under lines of credit ............... 7,700 8,800
Accounts payable ............................... 13,002 15,293
Accrued salaries and benefits .................. 7,015 8,360
Accrued expenses ............................... 3,034 3,962
Customer deposits .............................. 2,543 6,157
Deferred service revenue ....................... 16,160 16,318
--------- ---------
Total current liabilities .................. 50,593 59,969
--------- ---------
Long-term debt ...................................... 5,525 5,852
--------- ---------
Other long-term liabilities ......................... 1,750 1,910
--------- ---------
Shareholders' Equity:
Preferred stock, $.02 par value,
1,000,000 shares authorized .................. -- --
Common stock, $.02 par value,
29,000,000 shares authorized;
16,190,118 and 16,189,718 shares issued;
14,537,363 and 14,536,963 outstanding ........ 324 324
Capital in excess of par value ................. 40,441 40,173
Retained earnings .............................. 52,915 52,668
Accumulated other comprehensive loss ........... (1,677) (1,399)
Treasury stock, at cost, 1,652,755 shares ...... (5,509) (5,509)
--------- ---------
Total shareholders' equity ................. 86,494 86,257
--------- ---------
Total Liabilities and Shareholders' Equity $ 144,362 $ 153,988
========= =========
See notes to unaudited interim consolidated financial statements
PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
For the three months ended March 31,
------------------------------------
2009 2008
-------- --------
Cash flows from operating activities:
Net income (loss) ................................................ $ 247 $ (744)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization ............................... 1,045 1,029
Provision for bad debts ..................................... 531 460
Provision for obsolete inventory ............................ 487 407
Equity based compensation ................................... 267 104
Deferred income tax ......................................... 130 120
Changes in operating assets and liabilities:
Accounts receivable ..................................... 8,921 3,865
Inventories ............................................. (3,057) (1,808)
Income tax refunds ...................................... (14) (781)
Other current assets .................................... 483 (465)
Other assets ............................................ 140 (238)
Accounts payable ........................................ (2,291) (4,270)
Accrued salaries and benefits ........................... (1,345) (1,617)
Accrued expenses ........................................ (874) (597)
Customer deposits ....................................... (3,614) 304
Deferred service revenue ................................ (158) (116)
Other long-term liabilities ............................. (160) 245
------- -------
Net cash provided by (used in) operating activities ... 738 (4,102)
------- -------
Cash flows from investing activities:
Capital expenditures ............................................. (294) (178)
Capitalization of software costs ................................. (206) (250)
Contingent purchase price paid on prior year acquisitions ........ (54) (101)
Cash received from voluntary conversion of long-lived other assets -- 1,571
------- -------
Net cash provided by (used in) investing activities ... (554) 1,042
------- -------
Cash flows from financing activities:
Net borrowings (repayments) under line-of-credit agreements ...... (1,100) 2,104
Payments of long-term debt ....................................... (267) (174)
Proceeds from the exercise of stock options ...................... 1 20
------- -------
Net cash provided by (used in) financing activities ... (1,366) 1,950
------- -------
Effect of exchange rate changes on cash and cash equivalents ......... (323) 172
------- -------
Net decrease in cash and cash equivalents ............................ (1,505) (938)
Cash and cash equivalents at beginning of period ..................... 6,227 4,431
------- -------
Cash and cash equivalents at end of period ........................... $ 4,722 $ 3,493
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest ......................................................... $ 160 $ 185
Income taxes, net of refunds ..................................... 222 79
See notes to unaudited interim consolidated financial statements
PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited interim consolidated financial statements have
been prepared by PAR Technology Corporation (the "Company" or "PAR") in
accordance with U.S. generally accepted accounting principles for interim
financial statements and with the instructions to Form 10-Q and Regulation
S-X pertaining to interim financial statements. Accordingly, these interim
financial statements do not include all information and footnotes required
by U.S. generally accepted accounting principles for complete financial
statements. In the opinion of the Company, such unaudited statements
include all adjustments (which comprise only normal recurring accruals)
necessary for a fair presentation of the results for such periods. The
results of operations for the three months ended March 31, 2009 are not
necessarily indicative of the results of operations to be expected for any
future period. The consolidated financial statements and notes thereto
should be read in conjunction with the audited consolidated financial
statements and notes for the year ended December 31, 2008 included in the
Company's December 31, 2008 Annual Report to the Securities and Exchange
Commission on Form 10-K.
The preparation of consolidated financial statements requires management of
the Company to make a number of estimates and assumptions relating to the
reported amounts 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, equity based compensation, and valuation allowances
for receivables, inventories and deferred income taxes. Actual results
could differ from those estimates.
The economic conditions in late 2008 and year-to-date 2009 and the
volatility in the financial markets in late 2008 and 2009, both in the U.S.
and in many other countries where the Company operates, have contributed
and may continue to contribute to higher unemployment levels, decreased
consumer spending, reduced credit availability and/or declining business
and consumer confidence. Such conditions could have an impact on the
markets in which the Company's customers operate, which could result in a
reduction of sales, operating income and cash flows and could have a
material adverse impact on the Company's significant estimates discussed
above, specifically the fair value of the Company's reporting units used in
support of its annual goodwill impairment test.
2. Inventories are primarily used in the manufacture and service of
Hospitality products. The components of inventory, net of related reserves,
consist of the following:
(in thousands)
March 31, December 31,
2009 2008
---------- --------
Finished goods .......... $ 10,933 $ 7,761
Work in process ......... 1,928 1,425
Component parts ......... 12,430 13,661
Service parts ........... 18,411 18,285
---------- ---------
$ 43,702 $ 41,132
========== =========
At March 31, 2009 and December 31, 2008, the Company had recorded reserves
for shrinkage, excess and obsolete inventory of $3,405,000 and $3,267,000,
respectively.
3. The Company applies the fair value recognition provisions of Statement of
Financial Accounting Standards (SFAS) No. 123R Share-Based Payment (SFAS
123R). 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 the three months ended March 31, 2009 was
$267,000. At March 31, 2009, the unrecognized compensation expense related
to non-vested option awards was $864,000 (net of estimated forfeitures)
which is expected to be recognized as compensation expense in fiscal years
2009 through 2014.
4. Earnings per share is 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 per share data):
For the three months
ended March 31,
-----------------------
2009 2008
---------- ----------
Net income (loss) ................................... $ 247 $ (744)
========== ==========
Basic:
Shares outstanding at beginning of period ...... 14,471 14,372
Weighted average shares issued during the period 2 7
---------- ----------
Weighted average common shares, basic .......... 14,473 14,379
========== ==========
Earnings (loss) per common share, basic ........ $ .02 $ (.05)
========== ==========
Diluted:
Weighted average common shares, basic .......... 14,473 14,379
Dilutive impact of stock options and
restricted stock awards ...................... 248 --
---------- ----------
Weighted average common shares, diluted ........ 14,721 14,379
========== ==========
Earnings (loss) per common share, diluted ...... $ .02 $ (.05)
========== ==========
5. In September 2006, the Financial Accounting Standards Board (FASB) issued
Financial Accounting Standard FAS No. 157, "Fair Value Measurements". In
February 2008, the FASB issued FASB Staff Position 157-2, "Effective Date
of FASB Statement No. 157," which provides a one year deferral of the
effective date of FAS 157 for non-financial assets and liabilities (such as
goodwill), except those that are recognized or disclosed in the Company's
financial statements at fair value at least annually. Accordingly, the
Company adopted the provisions of FAS 157 only for its financial assets and
liabilities effective January 1, 2008, and adopted the provisions of FAS
157 for its non-financial assets and liabilities as of January 1, 2009. FAS
157 defines fair value as the exchange price that would be received for and
asset or paid for a liability in the principal or most advantageous market
for the asset or liability, in an orderly transaction between market
participants. FAS 157 describes a fair value hierarchy based upon three
levels of input, which are:
Level 1 - quoted prices in active markets for identical assets or
liabilities (observable) Level 2 - inputs other than Level 1 that are
observable, either directly or indirectly, such as quoted prices for
similar assets or liabilities, quoted prices in inactive markets, or other
inputs that are observable market data for essentially the full term of the
asset or liability (observable)
Level 3 - unobservable inputs that are supported by little or no market
activity, but are significant to determining the fair value of the asset or
liability (unobservable)
The adoption of the provisions of FAS 157 (at both January 1, 2008 and
2009) did not have a significant impact on the Company's consolidated
results of operations or financial condition.
The Company's interest rate swap agreement is valued at the amount the
Company would have expected to pay to terminate the agreement. The fair
value determination was based upon the present value of expected future
cash flows using the LIBOR rate, plus an applicable interest rate spread, a
technique classified within Level 2 of the valuation hierarchy described
above. At March 31, 2009, the fair value of the Company's interest rate
swap included a realized loss of $366,000, and is included as a component
of accrued expenses within the consolidated balance sheet. The associated
fair value adjustment for the three months ended March 31, 2009 is $21,700
and is included as a decrease to interest expense.
6. 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 in point-of-sale, back of store and corporate office
applications as well as in the hotel/resort/spa marketplace. 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 Department of Defense and other
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. Intersegment sales and transfers are not significant.
Information as to the Company's segments is set forth below:
(in thousands)
For the three months
ended March,
-----------------------
2009 2008
-----------------------
Net revenues:
Hospitality .................. $ 37,802 $ 33,312
Government ................... 20,250 18,795
Other ........................ 2,416 --
-------- --------
Total .................. $ 60,468 $ 52,107
======== ========
Operating income (loss):
Hospitality .................. $ (396) $ (2,039)
Government ................... 938 930
Other ........................ (124) (104)
-------- --------
418 (1,213)
Other income, net ................. 107 314
Interest expense .................. (139) (348)
-------- --------
Income (loss) before provision
for income taxes ................ $ 386 $ (1,247)
======== ========
Depreciation and amortization:
Hospitality .................. $ 952 $ 907
Government ................... 20 27
Other ........................ 73 95
-------- --------
Total .................. $ 1,045 $ 1,029
======== ========
Capital expenditures:
Hospitality .................. $ 187 $ 102
Government ................... 31 35
Other ........................ 76 41
-------- --------
Total ................. $ 294 $ 178
======== ========
Revenues by geographic area:
United States ................ $ 54,853 $ 45,948
Other Countries .............. 5,615 6,159
-------- --------
Total .................. $ 60,468 $ 52,107
======== ========
The following table represents identifiable assets by business segment:
(in thousands)
March 31, December 31,
2009 2008
--------- --------
Identifiable assets:
Hospitality ................... $118,430 $127,678
Government .................... 13,405 13,532
Other ......................... 12,527 12,778
-------- --------
Total ............................. $144,362 $153,988
======== ========
The following table presents identifiable assets by geographic area based
on the location of the asset:
(in thousands)
March 31, December 31,
2009 2008
--------- --------
United States ..................... $133,008 $142,461
Other Countries ................... 11,354 11,527
-------- --------
Total ...................... $144,362 $153,988
======== ========
The following table represents Goodwill by business segment:
(in thousands)
March 31, December 31,
2009 2008
--------- --------
Hospitality ....................... $24,861 $24,981
Government ........................ 703 703
------- -------
Total ...................... $25,564 $25,684
======= =======
Customers comprising 10% or more of the Company's total revenues are
summarized as follows:
For the three months
ended March 31,
------------------------
2009 2008
--------- --------
Hospitality Segment:
McDonald's Corporation 25% 19%
YUM! Brands, Inc. 11% 13%
Government Segment:
Department of Defense 33% 36%
All Others 31% 32%
------ ------
100% 100%
====== ======
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward-Looking Statement
This document contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934. Any statements in this document that do not
describe historical facts are forward-looking statements. Forward-looking
statements in this document (including forward-looking statements regarding the
continued health of the Hospitality industry, future information technology
outsourcing opportunities, an expected increase in 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 Technology is a leading provider of hospitality technology solutions
including software, hardware and professional/lifecycle support services to
several industries including: restaurants, hotels/resorts/spas, cruise lines,
movie theatres, theme parks and specialty retailers. In addition, the Company
provides the Federal Government, and its agencies, applied technology and
technical outsourcing services primarily with the Department of Defense.
The Company's hospitality technology products are used in a variety of
applications by thousands of customers. PAR faces competition in all of its
markets (restaurants, hotels, etc.) and competes primarily on the basis of
product design/features/functions, product quality/reliability, price, customer
service, and delivery capability. Recently, the trend in the hospitality
industry has been to reduce the number of approved vendors in a specific concept
to companies that have global capabilities in sales, service and deployment, can
achieve quality and delivery standards, have multiple product offerings, R&D
capability, and can be competitive with their pricing. The Company's
international scope as a technology provider to hospitality customers is a
strategic competitive advantage as the Company can provide innovative solutions,
with significant global deployment capability, to its multinational customers
like McDonald's, Yum! Brands, Subway, CKE Restaurants and the Mandarin Oriental
Hotel Group. PAR's focus is to provide totally integrated technology products
and services with an industry leading customer service in the market segments in
which it competes. The Company continually initiates new research and
development efforts to create innovative technology that meets and exceeds our
customers' requirements and also has high probability for broader market appeal
and success. PAR's business focuses upon operating efficiencies and controlling
costs. This is achieved through investment in modern production technologies,
and by managing purchasing processes and functions.
The Company is currently focusing upon an internal investment strategy in
three distinct areas of its Hospitality segment. First, PAR has been
significantly investing in its development of next generation software. Second,
the Company concentrates on building a highly capable and further reaching
distribution channel. Third, as the Company's customers continue their expansion
into international markets, PAR has been creating a global infrastructure,
initially focusing on the Asia/Pacific rim due to the new restaurant growth and
concentration of PAR's customers in that region, but also one that will enhance
our deployment and support internationally.
Approximately 33% of the Company's revenues are generated in our Government
segment. PAR provides IT and communications support services to the U.S. Navy,
Air Force and Army. The Company also offers its services to several non-military
U.S. federal, state and local agencies by providing applied technology services
including radar, image and signal processing and geospatial services and
products. PAR's Government performance rating translates into the Company
consistently winning add-on and renewal business, and building long-term
client-vendor relationships. PAR can provide its clients the technical expertise
necessary to operate and maintain complex technology systems utilized by
government agencies.
The Company will continue to leverage its core technical capabilities and
performance into related technical areas and an expanding customer base. PAR
will seek to accelerate this growth through strategic acquisitions of businesses
that broaden the Company's technology and/or business base.
Summary
PAR believes it can continue to be successful in its two core business
segments -Hospitality and Government - due to its global capabilities and
industry expertise. The majority of the Company's business is in the quick-serve
restaurant sector of the hospitality market. In regards to the current economic
downturn, PAR believes that this sector will be resistant to the current
slowdown in consumer spending trends during this period of uncertainty. This is
a direct correlation to the value and convenience PAR's large quick-service
customers can and do provide.
A smaller sector of PAR's Hospitality segment is its hotel, resort and spa
business. This sector is being impacted by the current economic downturn and, as
a result, is experiencing a business slowdown which is expected to continue
through 2009.
It has been the Company's experience that their Government business is
resistant to economic cycles including reductions in the Federal defense
budgets. PAR's I/T outsourcing business focuses on cost-effective operations of
technology and telecommunication facilities which must function independent of
economic cycles.
Results of Operations --
Three Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2008
The Company reported revenues of $60.5 million for the quarter ended March
31, 2009, an increase of 16% from the $52.1 million reported for the quarter
ended March 31, 2008. The Company's net income for the quarter ended March 31,
2009 was $247,000, or $.02 diluted earnings per share, compared to a net loss of
$744,000 and a $.05 diluted net loss per share for the same period in 2008.
Product revenues were $20.2 million for the quarter ended March 31, 2009,
an increase of 20% from the $16.9 million recorded in 2008. This increase was
due to a 31% improvement in domestic product sales primarily due to sales to
McDonald's and Subway restaurants. The increase was also due to sales of the
Company's logistics management products to several commercial customers. This
increase in domestic revenue was partially offset by a 13% decrease in
international product sales, due to the impact of a stronger U.S. dollar.
Customer service revenues include installation, software maintenance,
training, twenty-four hour help desk support and various depot and on-site
service options. Customer service revenues were $20 million for the quarter
ended March 31, 2009, a 22% increase from $16.4 million reported for the same
period in 2008. This increase is primarily due to a major service initiative
with a large restaurant customer. Also contributing to this growth was a rise in
software maintenance and professional services revenue.
Contract revenues were $20.2 million for the quarter ended March 31, 2009,
an increase of 8% when compared to the $18.8 million recorded in the same period
in 2008. This increase was primarily due to the start of new contracts in the
information technology outsourcing area, including the timing of subcontract
work and material purchases. 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 quarter ended March 31, 2009 were 35.4%, a decline
of 880 basis points from the 44.2% for the quarter ended March 31, 2008. This
decrease in margins was due to a shift in product mix as hardware sales
increased while software revenue decreased in 2009 when compared to 2008. The
lower software revenue was attributable to a drop in table service revenue as
the Company fulfilled the requirements of a major customer in 2008.
Customer service margins were 27.5% for the quarter ended March 31, 2009,
an increase of 350 basis points compared to 24% for the same period in 2008.
Service margins increased primarily due to higher software maintenance and
professional services revenue and due to a special initiative with a major
restaurant customer.
Contract margins were 5% for the quarter ended March 31, 2009, a decrease
of 10 basis points compared to 5.1% for the same period in 2008. This minor
decline was due to lower margins on certain new fixed price contracts. The most
significant components of contract costs in 2009 and 2008 were labor and fringe
benefits. For 2009, labor and fringe benefits were $13.6 million or 71% of
contract costs compared to $13.6 million or 76% of contract costs for the same
period in 2008.
Selling, general and administrative expenses for the quarter ended March
31, 2009 were $9.6 million, an increase of 6% from the $9.1 million for the same
period in 2008. This increase was primarily due to expenses associated with the
Company's Logistics Management business and an increase in stock-based
compensation expense under FAS 123R.
Research and development expenses were $3.3 million for the quarter ended
March 31, 2009, a decrease of 20% from the $4.1 million recorded in 2008. The
decrease was primarily attributable to cost reductions achieved in outsourcing
through strategic relationships. This was partially offset by the Company's
investment in its Logistics Management business.
Amortization of identifiable intangible assets was $365,000 for the quarter
ended March 31, 2009, compared to $390,000 reported in 2008. This decrease was
due to certain intangible assets becoming fully amortized in 2008.
Other income, net, was $107,000 for the quarter ended March 31, 2009
compared to $314,000 for the same period in 2008. Other income primarily
includes rental income and foreign currency gains and losses. The decrease is
primarily due to a decline in currency gains.
Interest expense represents interest charged on the Company's short-term
borrowing requirements from banks and from long-term debt. Interest expense was
$139,000 for the quarter ended March 31, 2009 as compared to $348,000 in 2008.
The decrease is primarily due to lower interest expense recognized on the
Company's interest rate swap agreement that it entered into in September 2007.
The decline was also due to a lower average borrowing rate in 2009 compared to
2008.
For the quarters ended March 31, 2009 and 2008, the Company's expected
effective income tax rate based on projected pre-tax income was 36.0% and 40.3%,
respectively. The variance from the federal statutory rate in 2009 was primarily
due to state income taxes and various nondeductible expenses partially offset by
the research and experimental tax credit. For 2008, the increase in effective
tax rate was primarily attributable to the expiration of the research and
experimental tax credit at the end of 2007. Also contributing to the increase in
effective tax rate was the taxable portion of the proceeds from the voluntary
conversion of a Company-owned life insurance policy in 2008.
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 operations
was $738,000 for the three months ended March 31, 2009 compared to cash used by
operations of $4.1 million for 2008. In 2009, cash was generated by collection
of accounts receivable partially offset by an increase in inventory and a
decline in customer deposits. In 2008, cash was impacted by the operating loss
for the period and the timing of vendor and salary and benefit payments.
Cash used in investing activities was $554,000 for the three months ended
March 31, 2009 versus cash generated by investing activities of $1 million for
the same period in 2008. In 2009, capital expenditures were $294,000 and were
primarily for manufacturing and computer equipment. Capitalized software costs
relating to software development of Hospitality segment products were $206,000
in 2009. In 2008, the Company received $1.6 million from the voluntary
conversion of a Company-owned life insurance policy. In 2008, capital
expenditures were $178,000 and were principally for computer equipment.
Capitalized software costs relating to software development of Hospitality
segment products were $250,000 in 2008.
Cash used in financing activities was $1.4 million for the three months
ended March 31, 2009 versus cash provided of $1.9 million in 2008. In 2009, the
Company decreased its short-term borrowings by $1.1 million and decreased its
long-term debt by $267,000. In 2008, the Company increased its short-term bank
borrowings by $2.1 million and decreased its long-term debt by $174,000. The
Company also benefited $20,000 from the exercise of employee stock options in
2008.
The Company has a credit agreement with a bank under which the Company has
a borrowing availability up to $20,000,000 in the form of a line of credit. This
agreement allows the Company, at its option, to borrow funds at the LIBOR rate
plus the applicable interest rate spread (2% at March 31, 2009) or at the bank's
prime lending rate plus the applicable interest rate spread (3.25% at March 31,
2009). This agreement expires in June 2011. At March 31, 2009, there was
$7,700,000 outstanding under this agreement. The weighted average interest rate
paid by the Company was 2.5% during the first quarter of 2009. This agreement
contains certain loan covenants including leverage and fixed charge coverage
ratios. The Company is in compliance with these covenants at March 31, 2009.
This credit facility is secured by certain assets of the Company.
In 2006, the Company borrowed $6,000,000 under an unsecured term loan
agreement, executed as an amendment to one of its then bank line of credit
agreements, in connection with the asset 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 or at the bank's prime lending rate plus the
applicable interest rate spread (2% at March 31, 2009). The terms and conditions
of the line of credit agreement described in the preceding paragraph also apply
to the term loan.
In September 2007, the Company entered into an interest rate swap agreement
associated with the above $6,000,000 loan, with principal and interest payments
due through August 2012. At March 31, 2009, the notional principal amount
totaled $4,950,000. 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 within the consolidated statements of operations for the three months
ended March 31, 2009 was $21,700 and is recorded as a reduction in interest
expense.
The Company has a $1,731,000 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.
During fiscal year 2009, the Company anticipates that its capital
requirements will be approximately $1 to $2 million. The Company does not
usually enter into long term contracts with its major Hospitality segment
customers. The Company commits to purchasing inventory from its suppliers based
on a combination of internal forecasts and the actual orders from customers.
This process, along with good relations with suppliers, minimizes the working
capital investment required by the Company. Although the Company lists two major
customers, McDonald's and Yum! Brands, it sells to hundreds of individual
franchisees of these corporations, each of which is individually responsible for
its own debts. These broadly made sales substantially reduce the impact on the
Company's liquidity if one individual franchisee reduces the volume of its
purchases from the Company in a given year. The Company, based on internal
forecasts, believes its existing cash, line of credit facilities and its
anticipated operating cash flow will be sufficient to meet its cash requirements
through at least the next twelve months. However, the Company may be required,
or could elect, to seek additional funding prior to that time. The Company's
future capital requirements will depend on many factors including its rate of
revenue growth, the timing and extent of spending to support product development
efforts, expansion of sales and marketing, the timing of introductions of new
products and enhancements to existing products, and market acceptance of its
products. The Company cannot assure that additional equity or debt financing
will be available on acceptable terms or at all. The Company's sources of
liquidity beyond twelve months, in management's opinion, will be its cash
balances on hand at that time, funds provided by operations, funds available
through its lines of credit and the long-term credit facilities that it can
arrange.
Recent Accounting Pronouncements
In April 2009, the FASB issued FSP FAS 107-1, APB 28-1, "Interim
Disclosures About Fair Value of Financial Instruments" ("FSP FAS 107-1, APB
28-1"). FSP FAS 107-1, APB 28-1 requires fair value disclosures in both interim
as well as annual financial statements in order to provide more timely
information about the effects of current market conditions on financial
instruments. FSP FAS 107-1, APB 28-1 is effective for interim and annual periods
ending after June 15, 2009 and will be adopted by us in the second quarter of
2009. We currently do not expect adoption of this standard to have a material
effect on our consolidated financial position or results of operations.
Critical Accounting Policies
In our Annual Report on Form 10-K for the year ended December 31, 2008, we
disclose accounting policies, referred to as critical accounting policies, that
require management to use significant judgment or that require significant
estimates. Management regularly reviews the selection and application of our
critical accounting policies. There have been no updates to the critical
accounting policies contained in our Annual Report on Form 10-K for the year
ended December 31, 2008.
Off-Balance Sheet Arrangements
The Company did not have any off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
INFLATION
Inflation had little effect on revenues and related costs during the first
three months of 2009. Management anticipates that margins will be maintained at
acceptable levels to minimize the affects of inflation, if any.
INTEREST RATES
As of March 31, 2009, the Company has $3.9 million in variable long-term
debt and $8.7 million in variable short-term debt. The Company believes that an
adverse change in interest rates of 100 basis points would not have a material
impact on our business, financial condition, results of operations or cash
flows.
FOREIGN CURRENCY
The Company's primary exposures relate to certain non-dollar denominated
sales and operating expenses in Europe and Asia. These primary currencies are
the Euro, the Australian dollar and the Singapore dollar. Management believes
that foreign currency fluctuations should not have a significant impact on our
business, financial conditions, and results of operations or cash flows due to
the low volume of business affected by foreign currencies.
Item 4. Controls and Procedures
(a) 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) under the Securities Exchange Act of 1934) as of
March 31, 2009, the end of the period covered by this Quarterly Report on Form
10-Q (the "Evaluation Date"), 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, which 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, are effective as of the
Evaluation Date.
(b) Changes in Internal Control over Financial Reporting.
There was no change in the Company's internal controls over financial
reporting, as defined in Rule 13a-15(f) of the Exchange Act during the quarter
ended March 31, 2009 that has materially affected, or is reasonably likely to
materially affect, such internal controls over financial reporting.
PART II - OTHER INFORMATION
Item 1A. Risk Factors
The Company is exposed to certain risk factors that may effect operations
and/or financial results. The significant factors known to the Company are
described in the Company's most recently filed Annual Report on Form 10-K. There
have been no material changes from the risk factors as previously disclosed in
the Company's Annual Report on Form 10-K.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
On January 6, 2009, PAR Technology Corporation furnished a report on Form
8-K pursuant to Item 5.0 (Departure of Directors or Certain Officers; Election
of Directors; Appointment of Certain Officers; Compensatory Arrangements of
Certain Officers) and Item 9.01 (Financial Statements and Exhibits) of that Form
relating to its appointments of both Gregory T. Cortese to the position of
Executive Vice President Office of the Chairman of PAR Technology Corporation
and A. Edwin Soladay to the position of President of ParTech, Inc. as presented
in a press release of January 6, 2009 and furnished thereto as an exhibit.
On February 12, 2009, PAR Technology Corporation furnished a report on Form
8-K pursuant to Item 2.02 (Results of Operations and Financial Condition) of
that Form relating to its financial information for quarter ended December 31,
2008, as presented in a press release of February 12, 2009 and furnished thereto
as an exhibit.
Item 6. Exhibits
List of Exhibits
Exhibit No. Description of Instrument
----------- -------------------------
10(iii)(A) Employment Agreement Between ParTech, Inc.
and A. Edwin Soladay
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.
SIGNATURES
Pursuant to the requirements 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
--------------------------
(Registrant)
Date: May 11, 2009
RONALD J. CASCIANO
---------------------------------------
Ronald J. Casciano
Vice President, Chief Financial Officer
and Treasurer
Exhibit Index
Exhibit
- -------
10(iii)(A) Employment Agreement Between ParTech, Inc.
E-1 and A. Edwin Soladay
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.