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 June 30, 1997. 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 [ ]
The number of shares outstanding of registrant's common stock, as of August
13, 1997 - 8,848,965 shares.
PAR TECHNOLOGY CORPORATION
TABLE OF CONTENTS
FORM 10-Q
PART 1
FINANCIAL INFORMATION
Item Number
Item 1. Financial Statements
- Consolidated Statement of Income for
the Three and Six Months Ended
June 30, 1997 and 1996
- Consolidated Balance Sheet at
June 30, 1997 and December 31, 1996
- Consolidated Statement of Cash Flows
for the Six Months Ended
June 30, 1997 and 1996
- Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Signatures
Exhibit Index
Item 1.
Financial Statements
PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(In Thousands Except Per Share Amounts)
(Unaudited)
For the three For the six
months ended months ended
June 30, June 30,
------------------ ------------------
1997 1996 1997 1996
-------- -------- -------- --------
Net revenues:
Product ............................. $ 9,231 $ 15,170 $ 15,797 $ 26,050
Service ............................. 6,794 7,026 13,175 14,703
Contract ............................ 5,652 6,192 10,768 13,129
-------- -------- -------- --------
21,677 28,388 39,740 53,882
-------- -------- -------- --------
Costs of sales:
Product ............................. 7,058 9,401 12,572 16,179
Service ............................. 5,844 6,179 11,453 12,440
Contract ............................ 5,388 5,827 10,275 12,340
-------- -------- -------- --------
18,290 21,407 34,300 40,959
-------- -------- -------- --------
Gross margin .................. 3,387 6,981 5,440 12,923
-------- -------- -------- --------
Operating expenses:
Selling, general and administrative . 5,572 4,446 10,443 8,311
Research and development ............ 1,411 1,286 2,503 2,637
Non-recurring charges ............... 4,919 -- 4,919 --
-------- -------- -------- --------
11,902 5,732 17,865 10,948
-------- -------- -------- --------
Income (loss) from operations ............ (8,515) 1,249 (12,425) 1,975
Other income, net ........................ 111 115 253 236
-------- -------- -------- --------
Income (loss) before provision for
income taxes ........................... (8,404) 1,364 (12,172) 2,211
Provision (benefit) for income taxes ..... (3,059) 472 (4,435) 768
-------- -------- -------- --------
Net income (loss) ........................ $ (5,345) $ 892 $ (7,737) $ 1,443
======== ======== ======== ========
Earnings (loss) per common share ......... $ (.59) $ .11 $ (.85) $ .18
======== ======== ======== ========
Weighted average number of common
shares outstanding .................. 9,046 8,241 9,091 8,234
======== ======== ======== ========
PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In Thousands Except Share Amounts)
June 30,
1997 December 31,
(Unaudited) 1996
----------- ------------
Assets
- ------
Current Assets:
Cash .......................................... $ 7,928 $ 8,391
Accounts receivable-net ....................... 27,225 42,335
Inventories ................................... 26,683 21,988
Income tax refund claims ...................... 2,929 222
Deferred income taxes ......................... 2,814 1,096
Other current assets .......................... 1,532 1,261
-------- --------
Total current assets ...................... 69,111 75,293
Property, plant and equipment - net ................ 7,163 7,243
Other assets ....................................... 2,762 4,222
-------- --------
$ 79,036 $ 86,758
======== ========
Liabilities and Shareholders' Equity
Current Liabilities:
Notes payable ................................. $ 195 $ 185
Accounts payable .............................. 4,150 5,127
Accrued salaries and benefits ................. 3,515 2,750
Accrued expenses .............................. 3,069 2,883
Deferred service revenue ...................... 2,540 2,241
-------- --------
Total current liabilities ................. 13,469 13,186
-------- --------
Deferred income taxes .............................. 1,065 970
-------- --------
Shareholders' Equity:
Common stock, $.02 par value,
12,000,000 shares authorized;
9,451,471 and 9,416,721 shares issued
8,848,965 and 8,826,315 outstanding ......... 189 188
Preferred stock, $.02 par value,
250,000 shares authorized ................... -- --
Capital in excess of par value ................ 27,694 27,564
Retained earnings ............................. 39,942 47,679
Cumulative translation adjustment ............. (398) (67)
Treasury stock, at cost, 602,506 and
590,406 shares .............................. (2,925) (2,762)
-------- --------
Total shareholders' equity ................ 64,502 72,602
-------- --------
Contingent liabilities
$ 79,036 $ 86,758
======== ========
PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands)
(Unaudited)
For the six months
ended June 30,
----------------------
1997 1996
---------- ----------
Cash flows from operating activities:
Net income (loss) .................................. $ (7,737) $ 1,443
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization .................... 1,222 1,224
Provision for obsolete inventory ................. 2,635 956
Translation adjustments .......................... (331) 187
Increase (decrease) from changes in:
Accounts receivable-net ......................... 15,110 6,313
Inventories ..................................... (7,330) (5,130)
Income tax refund claims ........................ (2,707) --
Other current assets ............................ (271) (401)
Other assets .................................... 1,687 (228)
Accounts payable ................................ (977) (624)
Accrued salaries and benefits ................... 765 (640)
Accrued expenses ................................ 186 (357)
Deferred service revenue ........................ 299 (147)
Income taxes payable ............................ -- (443)
Deferred income taxes ........................... (1,623) 164
-------- --------
Net cash provided by operating activities ...... 928 2,317
-------- --------
Cash flows from investing activities:
Capital expenditures .............................. (869) (392)
Capitalization of software costs .................. (500) (439)
-------- --------
Net cash used in investing activities .......... (1,369) (831)
-------- --------
Cash flows from financing activities:
Net borrowings under line-of-credit agreements .... 10 1,302
Proceeds from the exercise of stock options ....... 131 689
Acquisition of treasury stock ..................... (163) (1,628)
-------- --------
Net cash provided (used) by
financing activities .......................... (22) 363
-------- --------
Net increase (decrease) in cash and cash equivalents (463) 1,849
Cash and cash equivalents at beginning of year ..... 8,391 458
-------- --------
Cash and cash equivalents at end of period ......... $ 7,928 $ 2,307
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest ........................................ $ 9 $ 35
Income taxes, net of refunds .................... (188) 1,045
PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The statements for the three and six months ended June 30, 1997 and 1996
are unaudited; 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
consolidated financial statements for the year ending December 31, 1997 are
subject to adjustment at the end of the year when they will be audited by
independent accountants. The results of operations for the three and six
months ended June 30, 1997 are not necessarily indicative of the results of
operations to be expected for the year ending December 31, 1997. The
consolidated financial statements and notes thereto should be read in
conjunction with the financial statements and notes for the years ended in
December 31, 1996 and 1995 included in the Company's December 31, 1996
Annual Report to the Securities and Exchange Commission on Form 10-K.
Earnings per share are based on the weighted average number of shares
outstanding plus common stock equivalents under the Company's stock option
plans.
2. Inventories are used in the manufacture of Point-Of-Sale systems and other
commercial products. The components of inventory, net of related reserves,
consist of the following:
(In Thousands)
June 30, December 31,
1997 1996
------- -----------
Finished goods ......................... $ 7,247 $ 5,111
Work in process ........................ 4,624 3,538
Component parts ........................ 7,046 6,234
Service parts .......................... 7,766 7,105
------- -------
$26,683 $21,988
======= =======
At June 30, 1997 and December 31, 1996, the Company had recorded reserves
for obsolete inventory of $2,635,000 and $1,174,000, respectively.
3. During the second quarter of 1997, the Company recorded two non-recurring
charges. The first was $4 million ($2.6 million after tax or $.29 loss per
share) relating to Phoenix Systems and Technologies, Inc. (Phoenix). The
second charge was $900,000 ($580,000 after tax or $.06 loss per share)
relating to the Company's Corneal Topography System (CTS) business.
In June 1992, the Company was approved under the Department of Defense
Mentor-Protege Program as a mentor for a minority-owned government
contractor, Phoenix. Under this program, the Company has guaranteed a bank
loan in the amount of $900,000. Additionally, concurrent with this
approval, the Company acquired a 44% interest in Phoenix which is accounted
for under the equity method.
The Company is a subcontractor to Phoenix on certain engineering service
contracts with the United States Government. Additionally, Phoenix rents
its office space from the Company. Phoenix is also a vendor to PAR
providing manufacturing and certain contract services. At December 31,
1996, the Company had recorded a receivable from Phoenix of $1.7 million,
net of a $903,000 allowance, as a result of these activities.
PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
During 1997, the Company's subcontracting activities expanded due to
increased government requirements. This coupled with Phoenix's failure to
make timely payments on amounts due have resulted in the growth of this
receivable to $4.2 million at June 30, 1997. On July 29, 1997, the Company
and Phoenix reached an agreement regarding repayment of amounts owed to
PAR. Under this agreement, the Company received $720,000 in cash payments.
The agreement also provides for certain payments to be made in the second
half of 1997 and a note for $1.5 million which bears interest at 8% and is
payable at the end of three years. This amount would be subordinate to the
claims of a bank lender. PAR would also be removed from the $900,000 loan
guarantee. PAR has relinquished its equity interest in Phoenix contingent
upon successful execution of a bank financing agreement. PAR retains
security interest in a portion of such stock as security for the repayment
of the subordinated debt. The execution of this plan is primarily
contingent upon Phoenix obtaining additional bank financing. Accordingly,
the Company has recorded reserves in the second quarter totaling $4
million. This amount includes the remaining exposure on the receivables,
($4.2 million less $900,000 allowance and the $720,000 cash payments); the
$900,000 loan guarantee and $500,000 for additional subcontracting efforts
that the Company has performed subsequent to June 30, 1997. Any future
amounts received under this agreement will be credited to income as
received or, in the case of the loan guarantee, when the Company is
relieved of its obligation. For full discussion on these events and the
impact on certain announcements made by the Company, see the Company's
Current Report on Form 8-K.
The Company also recorded a $900,000 charge pertaining to its CTS business.
The Company recently released a new CTS product and as a result certain
obsolete inventory is on hand.
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
QUARTER ENDED JUNE 30, 1997
COMPARED WITH
QUARTER ENDED JUNE 30, 1996
The Company reported a net loss of $5.3 million or a loss per share of $.59 for
the quarter ended June 30, 1997, compared to net income of $892,000 and earnings
per share of $.11 for the quarter ended June 30, 1996. Revenues were $21.7
million for the second quarter of 1997 versus $28.4 million for the same quarter
of 1996, a decrease of 24%.
These results for the second quarter of 1997 include an after tax charge of $2.6
million, or $.29 per share, relating to a receivable from and loan guarantee for
Phoenix Systems & Technologies, Inc. (Phoenix). This arises primarily from
accounts receivable due Rome Research Corporation (RRC), a wholly owned
subsidiary of PAR, from Phoenix, and a loan guarantee made by the Company, on
behalf of Phoenix, under the Department of Defense's Mentor Protege program.
Phoenix is in arrears on significant moneys owed to RRC as a result of a
sub-contractor relationship and Phoenix has been unable to obtain new financing
sources at the present time. As a result it is appropriate for a reserve to be
taken against the accounts receivable and also for the loan guarantee.
The results also include an after tax charge of $580,000 or $0.06 per share
pertaining to the CTS business. This charge primarily involves obsolete
inventory in the Company's CTS business. The Company recently released a new CTS
product and as a result certain obsolete inventory is on hand.
Product revenues were $9.2 million in the second quarter of 1997 versus $15.2
million in the second quarter of 1996, a decrease of 39%. The decrease was
primarily due to lower sales to Taco Bell as the Company fulfilled the majority
of this customer's current requirements in 1996. Partially offsetting this
decline was increased sales to Burger King as the Company began delivery of its
new POS 4 hardware systems under its contract with Burger King Corporation. The
Company anticipates an increase in product revenues in the second half of the
year based on the continuation of its Burger King contract business and the
anticipated acceptance of its new POS 4 products.
Service revenues decreased 3% to $6.8 million in the second quarter of 1997,
compared to $7.0 million for the second quarter of 1996. The decrease was due to
a special integration project requested by a customer in 1996 that did not recur
in 1997. Additionally, installation revenue decreased in 1997 related to the
lower product sales discussed above. Partially offsetting this decline was an
increase in activities under the Taco Bell exclusive integration contract in
1997 when compared to 1996.
Contract revenues were $5.7 million in the second quarter of 1997, a decrease of
9% from $6.2 million reported in the second quarter of 1996. This decrease was
due to the timing of material purchases on contracts and the cancellation for
convenience in 1996 of certain software development contracts of the Company by
the Department of Defense.
Gross margin on product revenues was 24% in the second quarter of 1997, compared
to 38% for the second quarter of 1996. The lower margin in the second quarter of
1997 was due to the lower than normal product revenues and the inability to
absorb certain manufacturing costs. In addition, product mix also affected the
margins in the second quarter of 1997.
Gross margin on service revenues was 14% for the three months ended June 1997
versus 12% for the same three months of 1996. This increase was primarily the
result of lower margins attributable to a special integration project requested
by a customer in the second quarter of 1996.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
QUARTER ENDED JUNE 30, 1997
COMPARED WITH
QUARTER ENDED JUNE 30, 1996
Gross margin on contract revenues was 5% in the second quarter of 1997 versus 6%
in the second quarter of 1996. The decline in margins was due to an unfavorable
contract mix in 1997 versus 1996.
Selling, general and administrative expenses were $5.6 million in the second
quarter of 1997, an increase of 25% from the $4.4 million reported in the second
quarter of 1996. This is primarily due to an increase in POS sales force costs
in 1997 versus 1996 and to certain bad debt reserves related to the Company's
government contract business.
Research and development expenses were $1.4 million in the second quarter of
1997 compared to $1.3 million in the second quarter of 1996, an increase of 10%.
The increase is primarily due to activity in the Company's
manufacturing/warehousing business. Research and development costs attributable
to government contracts are included in cost of contract revenues.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997
COMPARED WITH
SIX MONTHS ENDED JUNE 30, 1996
The Company reported a net loss of $7.7 million, or a loss per share of $.85, on
revenues of $39.7 million for the six months ended June 30, 1997. This compares
to net income of $1.4 million, or earnings per share of $.18, on revenues of
$53.9 million for the same six-month period of 1996.
Product revenues decreased 39% to $15.8 million for the first six months of 1997
versus $26.1 million for the same period of 1996. The decrease was primarily due
to the completion of the current system requirements for Taco Bell in 1996. This
was partially offset by the initial shipments under the Burger King Corporate
contract in 1997.
Service revenues decreased 10% to $13.2 million for the first six months of 1997
compared to $14.7 million for the same period of 1996. This decrease was due to
special service integration projects requested by a customer in 1996 and lower
Taco Bell installation activity. This was partially offset by an increase in
revenue attributable to the Taco Bell service integration contract.
Contract revenues were $10.8 million for the first six months of 1997, a
decrease of 18% from $13.1 million reported for the same period of 1996. The
decrease was primarily due to the timing of material purchases that are required
on certain contracts, and the cancellation for convenience in 1996 of certain
software development contracts of the Company by the Department of Defense.
Gross margin on product revenues was 20% for the first six months of 1997 versus
38% for the same period of 1996. The decline in margin was due to product mix
and the unfavorable impact of certain fixed manufacturing costs on the lower
product revenue in 1997.
Gross margin on service revenues was 13% for the six months ended June 30, 1997
versus 15% for the same six months of 1996. This decline was primarily the
result of lower margins attributable to product mix of the different revenue
offerings and higher than expected costs in the first quarter of 1997.
Gross margin on contract revenues was 5% for the first six months of 1997
compared to 6% for the same period in 1996. This decline is attributable to
contract mix.
Selling, general and administrative expenses were $10.4 million for the first
six months of 1997, compared to $8.3 million for the same period in 1996, an
increase of 26%. The increase is primarily due to greater POS sales and
marketing expenses and to certain bad debt reserves related to the Company's
government contract business.
Research and development expenses were $2.5 million for the first six months of
1997, compared to $2.6 million for the same period in 1996, a decrease of 5%.
Although the Company increased its POS and manufacturing/warehousing
expenditures, net research and development expenses declined due to the
requirement to capitalize certain software development costs under the Statement
of Financial Accounting Standards No. 86, Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed. The Company incurred more
software development costs meeting this requirement in 1997 than in 1996.
Research and developments costs attributable to government contracts are
included in cost of contract revenues.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997
COMPARED WITH
SIX MONTHS ENDED JUNE 30, 1996
Liquidity and Capital Resources
Cash flows to meet the Company's requirements for operating, investing and
financing activities for the six months ended June 30, 1997 and 1996 are
reported in the Consolidated Statement of Cash Flows.
The Company's primary source of liquidity has been from operations. Cash
provided by operating activities was $928,000 in the first six months of 1997,
compared to $2.3 million for the same period in 1996. The Company experienced
significant collections of accounts receivable in 1997 due to the volume of
sales generated in the fourth quarter of 1996. This was partially offset by the
build up of restaurant and service inventory in anticipation of future sales
orders and service requirements.
Cash used in investing activities was $1.4 million in the first six months of
1997, compared to $831,000 for the same period in 1996. In 1997, capital
expenditures were primarily for upgrades to the manufacturing facility. In 1996,
capital expenditures were for internal use computers and other miscellaneous
items.
Cash used in financing activities was $22,000 for the first six months of 1997
compared to cash provided of $363,000 for the same period in 1996. In 1997, the
Company acquired treasury stock at a cost of $163,000 and received $131,000 from
the exercise of stock options held by employees. In 1996, the Company had $1.3
million of net borrowings under its line-of-credit with banks and generated
$689,000 from the exercise of stock options. The Company also acquired treasury
stock at a cost of $1.6 million.
The Company has line-of-credit agreements with certain banks, which aggregate
$34.2 million, of which $195,000 was in use at June 30, 1997. The Company
believes that it has adequate financial resources to meet its future liquidity
and capital requirements.
Important Factors Regarding Future Results
Information provided by the Company, including information contained in this
Report, or by its spokespersons from time to time may contain forward-looking
statements. Forward-looking statements are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Investors
are cautioned that all forward-looking statements involve risks and
uncertainties, including without limitation, further delays in new product
introduction, risks in technology development and commercialization, risks in
product development and market acceptance of and demand for the Company's
products, risks of downturns in economic conditions generally, and in the quick
service sector of the restaurant market specifically, risks of intellectual
property rights associated with competition and competitive pricing pressures,
risks associated with foreign sales and high customer concentration and other
risks detailed in the Company's filings with the Securities and Exchange
Commission.
Item 6. Exhibits and Reports on Form 8-K
List of Exhibits
Exhibit No. Description of Instrument
----------- -------------------------
11 Statement re computation of per-share earnings
Reports on Form 8-K
None during the second quarter of 1997.
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: August 13, 1997
/S/RONALD J. CASCIANO
---------------------
Ronald J. Casciano
Vice President, Chief Financial Officer
and Treasurer