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EX-32.1 - CERTIFICATION OF CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER AND VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND TREASURER - PAR TECHNOLOGY CORPexh-32_1.htm

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 September 30, 2012.  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 incorporation or organization)
 
(I.R.S. Employer Identification Number)
PAR Technology Park
 
 
8383 Seneca Turnpike
 
 
New Hartford, New York
 
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 þ  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter ) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes þ  No o

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 o
Accelerated Filer o
Non Accelerated Filer o
Smaller Reporting Company þ
(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 o No þ

The number of shares outstanding of registrant's common stock, as of October 27, 2012 – 15,353,484 shares.


PAR TECHNOLOGY CORPORATION

TABLE OF CONTENTS
FORM 10-Q

PART I
FINANCIAL INFORMATION

Item Number
 
 
Page
 
 
 
 
Item 1.
 
Financial Statements (unaudited)
 
 
 
 
 
 
 
Consolidated Statements of Operations for the three and nine months
ended September 30, 2012 and 2011
 
1
 
 
 
 
 
 
 
 
 
Consolidated Statements of Comprehensive Income (Loss)
for the three and nine months ended September 30, 2012 and 2011
 
2
 
 
 
 
 
 
 
 
 
 
Consolidated Balance Sheets at September 30, 2012 and
December 31, 2011
 
3
 
 
 
 
 
 
 
 
 
 
Consolidated Statements of Cash Flows for the nine months ended
September 30, 2012 and 2011
 
4
 
 
 
 
 
 
 
 
 
 
5
 
 
 
 
Item 2.
 
13
 
 
 
 
Item 3.
 
20
 
 
 
 
Item 4.
 
20
 
 
 
 
 
 
PART II
 
 
 
OTHER INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 1A.
 
21
 
 
 
 
Item 4.
 
21
 
 
 
 
Item 5.
 
21
 
 
 
 
Item 6.
 
22
 
 
 
 
 
 
23
 
 
 
 
 
 
24



PART I – FINANCIAL INFORMATION
Item 1.  Financial Statements
PAR TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)

 
For the three months
   
For the nine months
 
 
Ended September 30,
   
Ended September 30,
 
   
2012
   
2011
   
2012
   
2011
 
Net revenues:
               
Product
 
$
22,340
   
$
24,424
   
$
62,652
   
$
68,877
 
Service
   
16,720
     
18,510
     
48,113
     
51,594
 
Contract
   
21,992
     
15,756
     
67,965
     
48,836
 
     
61,052
     
58,690
     
178,730
     
169,307
 
Costs of sales:
                               
Product
   
14,681
     
15,754
     
39,699
     
42,888
 
Service
   
11,775
     
13,184
     
33,813
     
44,176
 
Contract
   
20,584
     
14,667
     
64,151
     
45,812
 
     
47,040
     
43,605
     
137,663
     
132,876
 
Gross margin
   
14,012
     
15,085
     
41,067
     
36,431
 
Operating expenses:
                               
Selling, general and administrative
   
9,410
     
8,745
     
28,844
     
27,730
 
Research and development
   
3,309
     
3,363
     
9,947
     
10,428
 
Impairment of goodwill and intangible assets
   
-
     
-
     
-
     
20,843
 
Amortization of identifiable intangible assets
   
138
     
257
     
441
     
667
 
     
12,857
     
12,365
     
39,232
     
59,668
 
Operating income (loss) from continuing operations
   
1,155
     
2,720
     
1,835
     
(23,237
)
Other income (expense), net
   
233
     
23
     
440
     
(106
)
Interest expense
   
(22
)
   
(48
)
   
(64
)
   
(163
)
Income (loss) from continuing operations before provision for income taxes
   
1,366
     
2,695
     
2,211
     
(23,506
)
(Provision) benefit for income taxes
   
(62
)
   
(1,099
)
   
(383
)
   
8,317
 
Income (loss) from continuing operations
   
1,304
     
1,596
     
1,828
     
(15,189
)
Discontinued operations
                               
Income (loss) on discontinued operations (net of tax)
   
50
     
(394
)
   
1,470
     
(1,053
)
Net income (loss)
 
$
1,354
   
$
1,202
   
$
3,298
   
$
(16,242
)
Basic Earnings per Share:
                               
Income (loss) from continuing operations
   
.09
     
.11
     
.12
     
(1.01
)
Income (loss) from discontinued operations
   
.00
     
(.03
)
   
.10
     
(.07
)
Net income (loss)
 
$
.09
   
$
.08
   
$
.22
   
$
(1.08
)
Diluted Earnings per Share:
                               
Income (loss) from continuing operations
   
.09
     
.11
     
.12
     
(1.01
)
Income (loss) from discontinued operations
   
.00
     
(.03
)
   
.10
     
(.07
)
Net income (loss)
 
$
.09
   
$
.08
   
$
.22
   
$
(1.08
)
Weighted average shares outstanding
                               
Basic
   
15,131
     
15,031
     
15,105
     
14,984
 
Diluted
   
15,207
     
15,118
     
15,179
     
14,984
 

See accompanying notes to consolidated financial statements

See
1


PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
(Unaudited)




 
For the three months
   
For the nine months
 
 
Ended September 30,
   
Ended September 30,
 
   
2012
   
2011
   
2012
   
2011
 
Net income (loss)
 
$
1,354
   
$
1,202
   
$
3,298
   
$
(16,242
)
Other comprehensive income (loss) net of tax:
                               
Foreign currency translation adjustments
   
(3
)
   
(444
)
   
(34
)
   
493
 
Comprehensive income (loss)
 
$
1,351
   
$
758
   
$
3,264
   
$
(15,749
)



See accompanying notes to consolidated financial statements

See
2


PAR TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)

 
September 30,
   
December 31,
 
 
 
2012
   
2011
 
Assets
Current assets:
       
Cash and cash equivalents
 
$
18,206
   
$
7,742
 
Accounts receivable-net
   
26,323
     
30,680
 
Inventories-net
   
25,469
     
25,260
 
Income tax refund
   
37
     
-
 
Deferred income taxes
   
9,503
     
10,240
 
Other current assets
   
3,958
     
3,088
 
Escrow receivable
   
956
     
-
 
Total current assets
   
84,452
     
77,010
 
Property, plant and equipment - net
   
6,099
     
5,259
 
Deferred income taxes
   
5,402
     
5,605
 
Goodwill
   
6,852
     
6,852
 
Intangible assets - net
   
16,779
     
15,888
 
Other assets
   
2,392
     
2,147
 
Assets of discontinued operations
   
-
     
3,182
 
Total Assets
 
$
121,976
   
$
115,943
 
Liabilities and Shareholders' Equity
               
Current liabilities:
               
Current portion of long-term debt
 
$
157
   
$
1,494
 
Accounts payable
   
17,164
     
15,773
 
Accrued salaries and benefits
   
6,628
     
7,002
 
Accrued expenses
   
3,792
     
2,609
 
Customer deposits
   
763
     
1,137
 
Deferred service revenue
   
12,880
     
10,412
 
Income taxes payable
   
-
     
138
 
Total current liabilities
   
41,384
     
38,565
 
Long-term debt
   
1,114
     
1,249
 
Other long-term liabilities
   
3,184
     
2,837
 
Liabilities of discontinued operations
   
104
     
925
 
Total liabilities
   
45,786
     
43,576
 
Commitments and contingencies
               
Shareholders' Equity:
               
Preferred stock, $.02 par value, 1,000,000 shares authorized
   
-
     
-
 
Common stock, $.02 par value, 29,000,000 shares authorized;
               
17,061,171 and 16,863,868 shares issued;
               
15,353,484 and 15,156,584 outstanding
   
341
     
337
 
Capital in excess of par value
   
43,547
     
42,990
 
Retained earnings
   
38,371
     
35,073
 
Accumulated other comprehensive loss
   
(235
)
   
(201
)
Treasury stock, at cost, 1,707,687 and 1,707,284 shares
   
(5,834
)
   
(5,832
)
Total shareholders' equity
   
76,190
     
72,367
 
Total Liabilities and Shareholders' Equity
 
$
121,976
   
$
115,943
 
 
 
               
See accompanying notes to consolidated financial statements
 


PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

 
For the nine months ended
 
 
September 30,
 
   
2012
   
2011
 
Cash flows from operating activities:
       
Net income (loss)
 
$
3,298
   
$
(16,242
)
(Income) loss from discontinued operations
   
(1,470
)
   
1,053
 
Adjustments to reconcile net income to net cash provided by (used in)
               
operating activities:
               
Impairment of goodwill and intangible assets
   
-
     
20,843
 
Depreciation and amortization
   
2,649
     
2,050
 
Provision for bad debts
   
101
     
328
 
Provision for obsolete inventory
   
2,330
     
9,875
 
Equity based compensation
   
534
     
434
 
Deferred income tax
   
1,170
     
(8,988
)
Changes in operating assets and liabilities:
               
Accounts receivable
   
4,256
     
(355
)
Inventories
   
(2,538
)
   
(1,230
)
Income tax refunds/payable
   
(175
)
   
115
 
Other current assets
   
(870
)
   
(16
)
Other assets
   
(245
)
   
50
 
Accounts payable
   
1,392
     
(5,450
)
Accrued salaries and benefits
   
(374
)
   
(1,324
)
Accrued expenses
   
1,184
     
(148
)
Customer deposits
   
(374
)
   
(1,039
)
Deferred service revenue
   
2,469
     
4,429
 
Other long-term liabilities
   
345
     
(39
)
Net cash provided by operating activities-continuing operations
   
13,682
     
4,346
 
Net cash used in operating activities-discontinued operations
   
(2,450
)
   
(458
)
Net cash provided by operating activities
   
11,232
     
3,888
 
Cash flows from investing activities:
               
Capital expenditures
   
(1,746
)
   
(651
)
Capitalization of software costs
   
(2,493
)
   
(7,048
)
Sale of investments
   
1,912
     
-
 
Escrow
   
(956
)
   
-
 
Proceeds from sale of business
   
4,000
     
-
 
Net cash provided by (used in) investing activities-continuing operations
   
717
     
(7,699
)
Net cash (used in) investing activities-discontinued operations
   
-
     
(69
)
Net cash provided by (used in) investing activities
   
717
     
(7,768
)
Cash flows from financing activities:
               
Net borrowings under line-of-credit agreements
   
-
     
1,500
 
Payments of long-term debt
   
(1,472
)
   
(1,226
)
Proceeds from the exercise of stock options
   
25
     
132
 
Net cash provided by (used in) financing activities-continuing operations
   
(1,447
)
   
406
 
Net cash (used in) financing activities-discontinued operations
   
-
     
-
 
Net cash provided by (used in) financing activities
   
(1,447
)
   
406
 
Effect of exchange rate changes on cash and cash equivalents
   
(38
)
   
44
 
Net increase (decrease) in cash and cash equivalents
   
10,464
     
(3,430
)
Cash and cash equivalents at beginning of period
   
7,742
     
6,781
 
Cash and cash equivalents at end of period
   
18,206
     
3,351
 
Less cash and equivalents of discontinued operations at end of period
   
-
     
(3
)
Cash and equivalents of continuing operations at end of period
 
$
18,206
   
$
3,348
 
Supplemental disclosures of cash flow information:
               
Cash paid during the period for:
               
Interest
   
64
     
176
 
Income taxes, net of (refunds)
   
175
     
92
 
 
See accompanying notes to consolidated financial statements
               

4


PAR TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS


Note 1 — Summary of Significant Accounting Policies

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 and nine months ended September 30, 2012 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, 2011  included in the Company's December 31, 2011 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 current economic conditions and the continued volatility in the U.S. and in many other countries in which the Company operates could contribute to decreased consumer confidence and continued economic uncertainty which may adversely impact the Company's operating performance.  Although the Company has seen an improvement in the markets which it serves, the continued volatility in these markets could have an impact on purchases of the Company's products, which could result in a reduction of sales, operating income and cash flows.  Reductions in these results could have a material adverse impact on the underlying estimates used in deriving the fair value of the Company's reporting units used in support of its annual goodwill impairment test.  These conditions may result in an impairment charge in future periods.

Certain amounts for prior periods have been reclassified to conform to the current period classification.

During the first quarter of fiscal year 2012, the Company sold substantially all of the assets of its Logistics Management business, PAR Logistics Management Systems Corporation (LMS) to ORBCOMM Inc., including but not limited to accounts receivable, inventory, equipment, intellectual property, and customer contracts.  The transaction closed on January 12, 2012.   The results of operations of LMS for fiscal years 2012 and 2011 have been recorded as discontinued operations in accordance with Accounting Standards Codification (ASC) 205-20, Presentation of Financial Statements – Discontinued Operations.
5

 
Note 2 — Discontinued Operations

On January 12, 2012, PAR Technology Corporation completed its previously announced sale of substantially all of the assets of the PAR Logistics Management Systems Corporation (LMS) to ORBCOMM Inc. ("ORBCOMM").

The consideration payable by ORBCOMM at the closing with respect to substantially all the assets of LMS aggregates $6,123,000 comprised of $4,000,000 in cash and $2,123,000 in shares of common stock of ORBCOMM Inc. (the Closing Consideration).  Of the equity consideration, $1,274,000 (based on the fair value as of the date of closing) was held in escrow to settle future claims, with release dates of August 2012 and April 2013.  During the second quarter, the Company liquidated its common stock investment of ORBCOMM Inc. which resulted in it recording a realized loss for the nine months ended September 30, 2012 of $210,000.  Of the total proceeds from the liquidation, $956,000 remains in escrow.  The Company recorded its loss on liquidation of its investment within other income (expense), net, on its Consolidated Statement of Operations.

In addition to the Closing Consideration, contingent consideration of up to $3,950,000 is payable by ORBCOMM to PAR post-closing in cash, ORBCOMM common stock or a combination of cash and ORBCOMM common stock, at ORBCOMM's option.  Up to $3,000,000 of the contingent consideration will be payable based on ORBCOMM achieving certain agreed-upon new subscriber targets for calendar year 2012 and up to $950,000 of the contingent consideration will be payable based on ORBCOMM achieving agreed-upon sales targets for calendar years 2012 through 2014.

If paid in stock, the number of ORBCOMM shares to be issued to PAR will be based upon the average 20-day closing price of ORBCOMM common stock prior to the payment due date for such contingent consideration.

As of September 30, 2012, the Company has not recorded any amount associated with this contingent consideration as it does not believe achievement of the related targets are probable.

Summarized financial information for the Company's discontinued operations is as follows (in thousands):
 
 
 
September 30,
   
December 31,
 
 
 
2012
   
2011
 
Assets
 
   
 
Cash
 
$
-
   
$
5
 
Accounts receivable - net
   
-
     
1,398
 
Inventories
   
-
     
1,355
 
Other assets
   
-
     
424
 
Total assets of discontinued operations
 
$
-
   
$
3,182
 
 
               
Liabilities
               
Accounts payable and accrued expenses
 
$
104
     
674
 
Accrued salaries and benefits
   
-
     
236
 
Other liabilities
   
-
     
15
 
Total liabilities of discontinued operations
 
$
104
   
$
925
 
 
               
6

Operations
 
For the three months ended September 30, 2012
   
For the three months ended September 30, 2011
 
Total revenues
 
$
-
   
$
1,075
 
 
               
Loss from discontinued operations before income taxes
 
$
(3
)
 
$
(695
)
Gain on disposition
   
-
     
-
 
(Provision) benefit for income taxes
   
53
     
301
 
Income (loss) from discontinued operations
 
$
50
   
$
(394
)


Operations
 
For the nine months ended September 30, 2012
   
For the nine months ended September 30, 2011
 
 
Total revenues
 
$
136
   
$
4,590
 
 
               
Loss from discontinued operations before income taxes
 
$
(264
)
 
$
(1,763
)
Gain on disposition
   
2,588
     
-
 
(Provision) benefit for income taxes
   
(854
)
   
710
 
Income (loss) from discontinued operations
 
$
1,470
   
$
(1,053
)

 
 
 
Note 3 — Accounts Receivable

(in thousands)
 
September 30,
 
December 31,
 
 
2012
 
2011
 
Government segment:
 
 
Billed
 
$
8,373
   
$
12,903
 
Advanced billings
   
(1,493
)
   
(1,552
)
 
   
6,880
     
11,351
 
Hospitality segment:
               
Accounts receivable - net
   
19,443
     
19,329
 
  
 
$
26,323
   
$
30,680
 


At September 30, 2012 and December 31, 2011, the Company had recorded allowances for doubtful accounts of $685,000 and $917,000, respectively, against Hospitality accounts receivable.
 
7

 
Note 4 — Inventories

Inventories are primarily used in the manufacture and service of Hospitality products.  The components of inventory consist of the following:


(in thousands)
 
September 30,
 
December 31,
 
 
2012
 
2011
 
Finished Goods
 
$
11,750
   
$
9,325
 
Work in process
   
1,567
     
1,007
 
Component parts
   
2,369
     
3,778
 
Service parts
   
9,783
     
11,150
 
 
 
$
25,469
   
$
25,260
 



 
Note 5 — Identifiable intangible assets

The Company capitalizes certain costs related to the development of computer software sold by its Hospitality segment. Software development costs incurred prior to establishing technological feasibility are charged to operations and included in research and development costs in the period the costs are incurred.  Software development costs incurred after establishing technological feasibility (as defined within ASC 985-20) are capitalized and amortized on a product-by-product basis when the product is available for general release to customers.  Software costs capitalized during the three and nine months ended September 30, 2012 were $871,000 and $2,493,000, respectively.  Capitalized software for the three and nine months ended September 30, 2011 were $1,952,000 and $7,048,000, respectively.

Annual amortization, charged to cost of sales when the product is available for general release to customers, is computed using the greater of (a) the straight-line method over the remaining estimated economic life of the product, generally three to seven years or (b) the ratio that current gross revenues for a product bear to the total of current and anticipated future gross revenues for that product. Amortization of capitalized software costs for the three and nine months ended September 30, 2012 was $402,000 and $1,166,000, respectively.  Amortization for the three and nine months ended September 30, 2011 was $112,000 and $395,000, respectively.

The Company acquired identifiable intangible assets in connection with its acquisitions in prior years.  Amortization of identifiable intangible assets for the three and nine months ended September 30, 2012 was $138,000 and $441,000, respectively.   Amortization for the three and nine months ended September 30, 2011 was $257,000 and $667,000, respectively.
8

 
The components of identifiable intangible assets are:

 
 
(in thousands)
 
 
 
September 30,
   
December 31,
 
 
 
2012
   
2011
 
Acquired and internally developed software costs
 
$
20,394
   
$
17,902
 
Customer relationships
   
4,519
     
4,519
 
Trademarks (non-amortizable)
   
2,100
     
2,100
 
Other
   
690
     
690
 
 
   
27,703
     
25,211
 
Less accumulated amortization
   
(10,924
)
   
(9,323
)
 
 
$
16,779
   
$
15,888
 


The future amortization of these intangible assets assuming straight-line amortization of capitalized software costs is as follows (in thousands):


2012
 
$
411
 
2013
   
2,584
 
2014
   
2,560
 
2015
   
2,268
 
2016
   
2,266
 
Thereafter
   
4,590
 
Total
 
$
14,679
 


 
Note 6 — Stock Based Compensation

The Company applies the fair value recognition provisions of ASC Topic 718 Stock-Based Compensation.  Total stock-based compensation expense included within operating expenses for the three and nine months ended September 30, 2012 was $135,000 and $534,000, respectively.  Total stock-based compensation expense included within operating expenses for the three and nine months ended September 30, 2011 was $203,000 and $434,000, respectively.  These amounts were recorded net of benefits of $61,000, as the result of forfeitures of unvested stock options prior to the completion of the requisite service period.  At September 30, 2012, the unrecognized compensation expense related to non-vested equity awards was $551,000 (net of estimated forfeitures), which is expected to be recognized as compensation expense in fiscal years 2012 through 2016.

On April 23, 2012, the Company's Compensation Committee of its Board of Directors approved the granting of 135,000 restricted stock awards and 67,000 incentive stock options to various employees of the Company under the 2005 Equity Incentive Plan.  The restricted stock awards are performance based and vest upon the achievement of financial goals from fiscal years 2012 through 2014.  These grant agreements expire if the related performance conditions are not met by December 31, 2014.

The incentive stock options granted are service based awards that vest ratably through fiscal year 2014.


9


 
Note 7 — Earnings per share

Earnings per share are calculated in accordance with ASC Topic 260, 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.

For the three and nine months ended September 30, 2012, there were 306,000 and 659,000, respectively, anti-dilutive stock options outstanding.  For the three and nine months ended September 30, 2011, there were 728,000 and 602,000, respectively anti-dilutive stock options outstanding.

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 September 30,
 
   
2012
   
2011
 
Income from continuing operations
 
$
1,304
   
$
1,596
 
                 
Basic:
               
Shares outstanding at beginning of period
   
15,119
     
15,009
 
Weighted average shares issued during the period, net
   
12
     
22
 
Weighted average common shares, basic
   
15,131
     
15,031
 
Earnings from continuing operations per common share, basic
 
$
0.09
   
$
0.11
 
Diluted:
               
Weighted average common shares, basic
   
15,131
     
15,031
 
Dilutive impact of stock options and restricted stock awards
   
76
     
87
 
Weighted average common shares, diluted
   
15,207
     
15,118
 
Earnings from continuing operations per common share, diluted
 
$
0.09
   
$
0.11
 
 
 
For the nine months
 
 
ended September 30,
 
   
2012
   
2011
 
Income (loss) from continuing operations
 
$
1,828
   
$
(15,189
)
                 
Basic:
               
Shares outstanding at beginning of period
   
15,051
     
14,909
 
Weighted average shares issued during the period, net
   
54
     
75
 
Weighted average common shares, basic
   
15,105
     
14,984
 
Earnings from continuing operations per common share, basic
 
$
0.12
   
$
(1.01
)
Diluted:
               
Weighted average common shares, basic
   
15,105
     
14,984
 
Dilutive impact of stock options and restricted stock awards
   
74
     
-
 
Weighted average common shares, diluted
   
15,179
     
14,984
 
Earnings from continuing operations per common share, diluted
 
$
0.12
   
$
(1.01
)
10

 
Note 8 — 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.  In addition, the Company also provides technology in support of food safety and task management.  This segment offers customer support including field service, installation, twenty-four hour telephone support and depot repair.  The Government segment develops and delivers geospatial and full motion video solutions to federal/state governments and industry; and provides communications and information technology support services to the United States Department of Defense.  Intersegment sales and transfers are not significant.

Information noted as "Other" primarily relates to the Company's corporate, home office operations.

Information as to the Company's segments is set forth below.  Amounts below exclude discontinued operations.


 
(in thousands)
   
(in thousands)
 
 
For the three months
   
For the nine months
 
 
ended September 30,
   
ended September 30,
 
 
2012
   
2011
   
2012
   
2011
 
Revenues:
               
Hospitality
 
$
39,060
   
$
42,934
   
$
110,765
   
$
120,471
 
Government
   
21,992
     
15,756
     
67,965
     
48,836
 
Total
 
$
61,052
   
$
58,690
   
$
178,730
   
$
169,307
 
                                 
Operating income (loss) from continuing operations:
                               
Hospitality
 
$
96
   
$
1,940
   
$
(1,096
)
 
$
(25,563
)
Government
   
1,193
     
937
     
3,465
     
2,760
 
Other
   
(134
)
   
(157
)
   
(534
)
   
(434
)
     
1,155
     
2,720
     
1,835
     
(23,237
)
Other income (expense), net
   
233
     
23
     
440
     
(106
)
Interest expense
   
(22
)
   
(48
)
   
(64
)
   
(163
)
Income (loss) from continuing operations before provision for income taxes
 
$
1,366
   
$
2,695
   
$
2,211
   
$
(23,506
)
                                 
Depreciation and amortization:
                               
Hospitality
 
$
790
   
$
558
   
$
2,315
   
$
1,715
 
Government
   
18
     
18
     
56
     
58
 
Other
   
97
     
86
     
278
     
277
 
Total
 
$
905
   
$
662
   
$
2,649
   
$
2,050
 
                                 
Capital expenditures:
                               
Hospitality
 
$
1,023
   
$
2,063
   
$
4,039
   
$
7,610
 
Government
   
-
     
-
     
-
     
20
 
Other
   
55
     
43
     
200
     
69
 
Total
 
$
1,078
   
$
2,106
   
$
4,239
   
$
7,699
 
                                 
Revenues by geographic area:
                               
United States
 
$
53,097
   
$
51,062
   
$
155,667
   
$
148,087
 
Other Countries
   
7,955
     
7,628
     
23,063
     
21,220
 
Total
 
$
61,052
   
$
58,690
   
$
178,730
   
$
169,307
 

11

The following table represents identifiable assets by business segment:


(in thousands)
 
September 30,
 
December 31,
 
2012
 
2011
 
Identifiable assets:
       
Hospitality
 
$
95,144
   
$
89,135
 
Government
   
8,255
     
12,617
 
Other
   
18,577
     
11,009
 
Total
 
$
121,976
   
$
112,761
 


The following table represents identifiable assets by geographic area based on the location of the assets:


(in thousands)
 
September 30,
 
December 31,
 
2012
 
2011
 
United States
 
$
106,296
   
$
100,310
 
Other Countries
   
15,680
     
12,451
 
Total
 
$
121,976
   
$
112,761
 

The following table represents Goodwill by business segment:

(in thousands)
 
September 30,
 
December 31,
 
2012
 
2011
 
Hospitality
 
$
6,116
   
$
6,116
 
Government
   
736
     
736
 
Total
 
$
6,852
   
$
6,852
 
 

Customers comprising 10% or more of the Company's total revenues are summarized as follows:


 
For the Three Months Ended September 30,
   
For the Nine Months Ended September 30,
 
 
2012
   
2011
   
2012
   
2011
 
Hospitality segment:
               
McDonald's Corporation
   
20
%
   
31
%
   
18
%
   
30
%
Yum! Brands, Inc.
   
16
%
   
15
%
   
15
%
   
13
%
Government segment:
                               
U.S. Department of Defense
   
36
%
   
27
%
   
38
%
   
29
%
All Others
   
28
%
   
27
%
   
29
%
   
28
%
   
100
%
   
100
%
   
100
%
   
100
%
12

 
 
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, changes 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's technology solutions for the Hospitality segment feature software, hardware and support services tailored for the needs of restaurants, luxury hotels, resorts and spas, casinos, cruise lines, movie theatres, theme parks and retailers.  The Company's Government segment provides technical expertise in the contract development of advanced systems and software solutions for the U.S. Department of Defense and other federal agencies, as well as information technology and communications support services to the U.S. Department of Defense.

The Company's products sold in the Hospitality segment are utilized in a range of applications by thousands of customers.  The Company faces competition across all of its markets within the Hospitality segment, competing on the basis of product design, features and functionality, quality and reliability, price, customer service, and delivery capability.  PAR's global infrastructure and reach as a technology solutions provider to hospitality customers is an important competitive advantage, as it allows the Company to provide innovative systems, with significant global deployment capability, to its multinational customers.  PAR's continuing strategy is to provide complete integrated technology solutions and services with excellent customer service in the markets in which it participates.  The Company conducts its research and development efforts to create innovative technology offerings that meet and exceed customer requirements and also have a high probability for broader market appeal and success.

      
        The Company is focused on expanding four distinct parts of its Hospitality businesses.  First, it is investing in the market introduction and deployment of ATRIO, its next generation, cloud-based property management software for the Hotel/Resort/Spa market.  Second, we are investing in the enhancement of existing software and the development of the Company's SureCheck™ product for food safety and task management applications.  Third, the Company continues to work on building more robust and extensive third-party distribution channels.  Fourth, as the Company's customers continue to expand in international markets, PAR has created an international infrastructure focused on that expansion.

13

The QSR market, our primary market, continues to perform well for the majority of large, international companies, despite worldwide macroeconomic uncertainty.  However, the Company has seen an impact of current economic conditions on smaller, regional QSR organizations, whose business is slowing because of higher unemployment and lack of consumer confidence in certain regions.  The Company is continuing to reassess the alignment of its product and service offerings to support improved operational efficiency and profitability going forward.  These conditions could have a material adverse impact on the Company's significant estimates, specifically the fair value of its assets related to its legacy products.

Approximately 39% of the Company's revenues are generated by its Government business.  The Company's focus is to expand two separate aspects of its Government business: services and solutions. Through outstanding performance of existing service contracts and investing in enhancing its business development staff and processes, the Company is able to consistently win the renewal of expiring contracts, extend existing contracts, and win new efforts.  With its intellectual property and investment in new technologies, the Company provides solutions to the U.S. Department of Defense and other federal/state agencies with systems integration, products and highly-specialized services.  The general uncertainty in U.S. defense total workforce policies (military, civilian and contract), procurement cycles and spending levels for the next several years may impact the performance of this business segment.
 
 
Results of Operations —
Three Months Ended September 30, 2012 Compared to Three Months Ended September 30, 2011

During the first quarter of fiscal year 2012, the Company sold substantially all of the assets of its Logistics Management business, PAR Logistics Management Systems Corporation (LMS) to ORBCOMM Inc., including but not limited to accounts receivable, inventory, equipment, intellectual property, and customer contracts.  The transaction closed on January 12, 2012.   The results of operations of LMS for fiscal years 2012 and 2011 have been recorded as discontinued operations in accordance with Accounting Standards Codification (ASC) 205-20, Presentation of Financial Statements – Discontinued Operations.  All prior period amounts have been reclassified to conform to the current period presentation.  Refer to Note 2 "Discontinued Operations" in the Notes to the Consolidated Financial Statements for further discussion.

The Company reported revenues of $61.1 million for the quarter ended September 30, 2012, an increase of 4% from the $58.7 million reported for the quarter ended September 30, 2011.  The Company's net income from continuing operations was $1.3 million or $0.09 per diluted share for the third quarter of 2012 versus $1.6 million or $0.11 per diluted share for the same period in 2011.  During the quarter, the Company reported a net income from discontinued operations of $50,000 versus a net loss from discontinued operations of $394,000 or $0.03 loss per diluted share for the same period in 2011.

Product revenues were $22.3 million for the quarter ended September 30, 2012, a decrease of 8.5% from the $24.4 million recorded in 2011.  This decrease was the result of a decline in domestic sales to McDonald's as their significant technology upgrade program was completed in fiscal year 2011.  Partially offsetting this decrease was an increase in sales to YUM! Brands and Subway, commensurate with new store rollouts, as well as hardware in support of the Company's SureCheck solution.  Further offsetting this decline was an increase in international product revenue, which increased 8% versus the third quarter of 2011 as a result of increases in Central America, China and the Middle East.

Service revenue primarily includes installation, software maintenance, training, twenty-four hour help desk support and various depot and on-site service options.  Service revenues were $16.7 million for the quarter ended September 30, 2012, a decrease of 9.7% from the $18.5 million reported for the same period in 2011.  This decrease was associated with a decline in installation revenue commensurate with the related decline of product revenue in the Company's Hospitality businesses as well as a decline in call center revenue resulting from a modification to existing service contracts.  These decreases were partially offset by an increase in software maintenance and professional services revenue associated with the deployment of the Company's SureCheck product.

Contract revenues were $22.0 million for the quarter ended September 30, 2012, compared to $15.8 million reported for the same period in 2011.  This increase is mostly attributable to the Company's new Intelligence, Surveillance, and Reconnaissance (ISR) systems integration contract with the U.S. Army.

Product margins for the quarter ended September 30, 2012 were 34.3 %, a decrease from 35.5% for the same period in 2011.  This decrease was driven by an unfavorable product mix resulting from a decrease in the amount of terminals sold relative to lower margin peripheral devices.
14

Service margins were 29.6% for the quarter ended September 30, 2012, an increase from the 28.8% recorded for the same period in 2011 as a result of favorable margin earned on the Company's depot repair business.

Contract margins were 6.4% for the quarter ended September 30, 2012, compared to 6.9% for the same period in 2011.  This decrease was due to a less favorable contract mix as a result of the beginning of certain fixed price contracts.  The most significant components of contract costs in 2012 and 2011 were labor and fringe benefits.  For the third quarter of 2012, labor and fringe benefits were $9.6million or 46.4% of contract costs compared to $11.2 million or 76% of contract costs for the same period in 2011.  This decrease is mostly attributable to the amount of subcontract pass through revenue associated with the Company's new ISR systems integration contract with the U.S. Army.

Selling, general and administrative expenses for the quarter ended September 30, 2012 were $9.4 million, an increase from the $8.7 million recorded for the same period in 2011 attributable to an increase in costs associated primarily with international sales and marketing initiatives executed within the Company's Hospitality businesses.

Research and development expenses were $3.3 million for the quarter ended September 30, 2012, relatively flat with the $3.4 million recorded for the same period in 2011.  This slight decrease was associated with a reduction in the expense incurred in support of developers utilized towards the Company's hospitality software products combined with an increased in software development costs capitalized following the Company's establishment of technological feasibility in accordance with the related accounting guidance.

Amortization of identifiable intangible assets was $138,000 for the quarter ended September 30, 2012, compared to $257,000 for the same period in 2011.  This decrease was due to certain intangible assets that were fully amortized in 2011.

Other income, net was $233,000 for the quarter ended September 30, 2012 compared to income of $23,000 for the same period in 2011.  Other income primarily includes losses on the Company's investments, rental income, finance charges and foreign currency gains and losses.  This increase was partially associated with foreign currency gains recognized during the quarter.
 
Interest expense primarily represents interest charged on the Company's short-term borrowing requirements from banks and from long-term debt.  Interest expense was $22,000 for the quarter ended September 30, 2012 as compared to $48,000 for the same period in 2011.  This reduction is associated with a lower outstanding borrowing in 2012 as compared to the same period in 2011, combined with a favorable fair value adjustment on the Company's interest rate swap.
 
For the quarter ended September 30, 2012, the Company's expected effective income tax rate was 4.5 %, compared to a benefit of 40.8% for the same period in 2011.  The variance from the federal statutory rate in 2012 was due to an adjustment of the Company's tax accrual during the period, commensurate with the filing of its 2011 income tax return.  The variance from the federal statutory rate in 2011 was primarily due to state income taxes and various non-deductible expenses.
 
15

 
Results of Operations —
Nine Months Ended September 30, 2012 Compared to Nine Months Ended September 30, 2011

During the first quarter of fiscal year 2012, the Company sold substantially all of the assets of its Logistics Management business, PAR Logistics Management Systems Corporation (LMS) to ORBCOMM Inc., including but not limited to accounts receivable, inventory, equipment, intellectual property, and customer contracts.  The transaction closed on January 12, 2012.   The results of operations of LMS for fiscal years 2012 and 2011 have been recorded as discontinued operations in accordance with Accounting Standards Codification (ASC) 205-20, Presentation of Financial Statements – Discontinued Operations.  All prior period amounts have been reclassified to conform to the current period presentation.  Refer to Note 2 "Discontinued Operations" in the Notes to the Consolidated Financial Statements for further discussion.

The Company reported revenues of $178.7 million for the nine months ended September 30, 2012, an increase of 5.6% from the $169.3 million reported for the same period in 2011.  The Company's net income from continuing operations was $1.8 million or $0.12 per diluted share for 2012 versus a net loss from continuing operations of $15.2 million or $1.01 loss per diluted share for the same period in 2011.  During the nine months, the Company reported income from discontinued operations of $1.5 million or $0.10 per diluted share versus a loss of $1.1 million or $0.07 loss per diluted share for the same period in 2011.  Results of the nine months ended September 30, 2012 include a gain on the sale of LMS of $2.6 million, recorded as a component of income from discontinued operations for the period.

The results of 2011 include pre-tax non-recurring charges of $29.4 million.  Of this amount, $20.8 million was a non-cash charge related to the impairment of the Company's goodwill and intangible assets.  The remaining $8.6 million in charges was related to the write-down of certain inventory associated with discontinued products, as well as severance and office closure costs.
 
Product revenues were $62.7 million for the nine months ended September 30, 2012, a decrease of 9% from the $68.9 million recorded in 2011.  This decrease was the result of a decline in domestic sales to McDonald's as their significant technology upgrade program was completed in fiscal year 2011.  Partially offsetting this decrease was an increase in sales of the Company's SureCheck product to a significant launch customer during the year, as well increases in product sales to YUM! Brands and Subway, commensurate with new store rollouts and upgrades.  In addition, international product sales grew 9.6% primarily to Yum! Brands in Europe as well as an increase in sales to restaurants in Australia Central America, China and, the Middle East.

Service revenue primarily includes installation, software maintenance, training, twenty-four hour help desk support and various depot and on-site service options.  Service revenues were $48.1 million for the nine months ended September 30, 2012, a decrease of 6.7% from the $51.6 million reported for the same period in 2011.  This decrease was associated with a decline in installation revenue commensurate with the related decline of product revenue in the Company's Hospitality businesses as well as a decline in call center revenue resulting from a modification to existing service contracts.  These decreases were partially offset by an increase in software maintenance and professional services revenue associated with the deployment of the Company's SureCheck product.
 
Contract revenues were $68.0 million for the nine months ended September 30, 2012, compared to $48.8 million reported for the same period in 2011.  This increase is mostly attributable to the Company's new Intelligence, Surveillance, and Reconnaissance (ISR) systems integration contract with the U.S. Army.

16

Product margins for the nine months ended September 30, 2012 were 36.6%, a decrease from the 37.7% recorded for the same period in 2011.  This decrease was the result of an unfavorable mix in product sales resulting from a decrease in the amount of terminals sold relative to lower margin peripheral devices, partially offset by an increase in software revenue driven by the Company's launch of its EverServ software.

Service margins were 29.7% for the nine months ended September 30, 2012, an increase from the 14.4% for the same period in 2011.  Results for the nine months ended September 30, 2011 included a charge of $7.7 million recorded towards the write down of service parts inventory related to discontinued products during 2011.  Exclusive of the aforementioned charges, service margins were relatively flat at 29.4%.

Contract margins were 5.6% for the nine months ended September 30, 2012, compared to 6.2% for the same period in 2011.  This decrease was due to a less favorable contract mix as a result of the beginning of certain fixed price contracts.  The most significant components of contract costs in 2012 and 2011 were labor and fringe benefits.  For the nine months ended September 30, 2012, labor and fringe benefits were $30.1 million or 47% of contract costs compared to $36.7 million or 79% of contract costs for the same period in 2011.  This decrease is mostly attributable to the amount of subcontract pass through revenue associated with the Company's new ISR systems integration contract with the U.S. Army.

Selling, general and administrative expenses for the nine months ended September 30, 2012 were $28.8 million, an increase from the $27.7 million recorded for the same period in 2011.  This increase was due to an increase in commission expense associated with the increase in software sales in the first quarter, as well as an increase in sales and marketing effort associated with the Company's Hospitality products.

During the nine months ended September 30, 2011, the Company recorded a non-cash impairment charge of $20.2 million to its goodwill, which was the result of the reduction in PAR's stock price through the second quarter of 2011.  As a result of this reduction, the Company determined an impairment of goodwill had occurred and in accordance with the relevant accounting rules, recorded the aforementioned charge.  In addition to the aforementioned goodwill impairment charge, as part of this analysis, the Company recorded an impairment charge of $580,000 associated with its indefinite lived intangible assets.

Research and development expenses were $9.9 million for the nine months ended September 30, 2012, a decrease from the $10.4 million for the same period in 2011.  This decrease was associated with a reduction in the expense incurred in support of developers utilized towards the Company's hospitality software products, combined with an increased in software development costs capitalized following the Company's establishment of technological feasibility in accordance with the related accounting guidance.

Amortization of identifiable intangible assets was $441,000 for the nine months ended September 30, 2012, compared to $667,000 for the same period in 2011.  This decrease was due to certain intangible assets that were fully amortized in 2011.

Other income, net was $440,000 for the nine months ended September 30, 2012 compared to other expense of $106,000 for the same period in 2011.  Other income primarily includes unrealized gains on the Company's investments, rental income, finance charges and foreign currency gains and losses.  The increase in 2012 was due to foreign currency gains and finance charges associated with the Company's Hospitality businesses.

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Interest expense primarily represents interest charged on the Company's short-term borrowing requirements from banks and from long-term debt.  Interest expense was $64,000 for the nine months ended September 30, 2012, as compared to $163,000 for the same period in 2011.  This reduction is associated with a lower outstanding borrowing in 2012 as compared to the same period in 2011.

For the nine months ended September 30, 2012, the Company's expected effective income tax rate was 17.3%, compared to a benefit of 35.4% for the same period in 2011.  The variance from the federal statutory rate in 2012 was due to an adjustment of the Company's tax accrual during the period, commensurate with the filing of its 2011 income tax return.  The variance from the federal statutory rate in 2011 was primarily due to state income taxes and various non-deductible expenses.

Liquidity and Capital Resources

The Company's primary sources of liquidity have been cash flow from operations and its bank line of credit.  Cash provided by operating activities of continuing operations was $13.7 million for the nine months ended September 30, 2012 compared to $4.3 million for the same period in 2011.  In 2012, cash was generated by the Company's net income plus the add back of non-cash charges, offset by reductions to changes in operating assets and liabilities.  The most significant changes to the Company's operating assets and liabilities were the decrease in accounts receivable primarily due to the timing of collections associated with the Company's ISR contract with the U.S. Government,  as well as an increase in deferred service revenue due to the timing of billing of customer service contracts.  These were partially offset by an increase in inventory due planned shipments that were delayed until the fourth quarter.   In 2011, cash was generated by the Company's net loss plus the add back of non-cash charges, offset by reductions to changes in operating assets and liabilities.  The most significant changes to the Company's operating assets and liabilities were associated with a decrease in accounts payable based on the timing of vendor payments, partially offset by an increase in deferred service revenue associated with the timing of contract billings.

Cash provided by investing activities from continuing operations was $717,000 for the nine months ended September 30, 2012 versus cash used in investing activities of $7.8 million for the same period in 2011.  In 2012, the Company received cash proceeds of $4 million related to the sale of its Logistics Management business, and generated $1.9 million from the maturity of its investments.  In addition, $956,000 of the proceeds generated from the Company's sale of its investment remains in escrow commensurate with the terms of the Company's agreement relative to the January 2012 sale of its Logistics Management business.  Capital expenditures were $1.7 million and were primarily for tooling associated with the Company's new hardware products, as well as for purchases of office and computer equipment.  Capitalized software was $2.5 million and was associated with the Company's next generation Hospitality software platforms.  In 2011, capital expenditures were $651,000 and were primarily for office and computer equipment.  Capitalized software was $7.0 million and was associated with the Company's next generation Hospitality software platforms.

Cash used in financing activities from continuing operations was $1.4 million  for the nine months ended September 30, 2012 versus cash provided of $406,000 in 2011.  In 2012, the Company decreased its long-term debt by $1.5 million and benefited $25,000 from the exercise of employee stock options.  In 2011, the Company increased its short-term borrowings by $1.5 million in support of its operating cash needs, and decreased its long-term debt by $1.2 million.  The Company also benefited $132,000 from the exercise of employee stock options.

The Company maintains a credit facility which provides it with borrowing availability up to $20 million (with the option to increase to $30 million) 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 (1.38% at September 30, 2012) or at the bank's prime lending rate (3.25 % at September 30, 2012).  This agreement expires in June 2014.  At September 30, 2012, the Company did not have any outstanding balance on this line of credit, nor did it borrow against this line at anytime during the nine months.  This agreement contains certain loan covenants including leverage and fixed charge coverage ratios.  In July 2011, this agreement was amended to exclude specific non-recurring charges recorded by the Company in the second quarter of 2011 from all debt covenant calculations in 2011 and through September 30, 2012.  The Company is in compliance with these amended covenants at September 30, 2012.  This credit facility is secured by certain assets of the Company.

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The Company has a $1.3 million mortgage, collateralized by certain real estate.  This mortgage matures on November 1, 2019.  In May 2012, the Company amended its mortgage to reduce the fixed interest rate to 4.05% through October 1, 2014.  Beginning on October 1, 2014 and through the maturity date of the loan, the fixed rate will be converted to a new rate equal to the then-current five year fixed advanced rate charged by the New York Federal Home Loan bank, plus 225 basis points.  The annual mortgage payment including interest through October 1, 2014 totals $207,000.

During fiscal year 2012, the Company anticipates that its capital requirements will not exceed approximately $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 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 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, potential growth through strategic acquisition, 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 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.

 
Recently Issued Accounting Pronouncements Not Yet Adopted

On July 27, 2012, the FASB issued Accounting Standards Update 2012-02, Intangibles – Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment ("ASU 2012-02"). ASU 2012-02 is intended to reduce the cost and complexity of the annual indefinite-lived intangible assets impairment testing by providing entities an option to perform a "qualitative" assessment to determine whether further impairment testing is necessary. As such, there is the possibility that quantitative assessments would not need to be performed if it is more likely than not that no impairment exists. The Company is required to adopt the provisions of ASU 2012-02, which is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The adoption of ASU 2012-02 is not expected to have a significant impact on the Company's financial position or results of operations.

Recently Adopted Accounting Pronouncements

In September 2011, FASB issued ASU No. 2011-08, Intangibles-Goodwill and Other: Testing Goodwill for Impairment, which amends FASB Topic ASC 350, Intangible Assets-Goodwill and Other. Under ASU No. 2011-08, an entity may elect the option to assess qualitative factors to determine whether it is necessary to perform the first step in the two-step impairment testing process. ASU No. 2011-08 was effective on January 1, 2012. The adoption of ASU No. 2011-08 did not have a material impact on the Company's consolidated financial statements.
In May 2011, FASB issued ASU No. 2011-04, Amendment to Achieve Common Fair Value Measurement and Disclosure Requirements, in U.S. GAAP and International Financial Reporting Standards (IFRS), which amends FASB Topic ASC 820, Fair value measurement. ASU No. 2011-04 modifies the existing standard to include disclosure of all transfers between Level 1 and Level 2 asset and liability fair value categories. In addition, ASU No. 2011-04 provides guidance on measuring the fair value of financial instruments managed within a portfolio and the application of premiums and discounts on fair value measurements. ASU No. 2011-04 requires additional disclosure for Level 3 measurements regarding the sensitivity of fair value to changes in unobservable inputs and any interrelationships between those inputs. ASU No. 2011-04 was effective on January 1, 2012.  The adoption of ASU No. 2011-04 did not have a material impact on the Company's consolidated financial statements.
Critical Accounting Policies
In our Annual Report on Form 10-K for the year ended December 31, 2011, 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, 2011.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements.
 
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Item 3.  Quantitative and Qualitative Disclosures about Market Risk

inflation
Inflation had little effect on revenues and related costs during the nine months ended September 30, 2012.  Management anticipates that margins will be maintained at acceptable levels to minimize the effects of inflation, if any.
interest rates
As of September 30, 2012, the Company does not have any variable debt.  As such, 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 Great British Pound, the Euro, the Australian dollar, the Singapore dollar and the Chinese Renminbi.  Management believes that foreign currency fluctuations should not have a significant impact on our business, financial condition, and results of operations or cash flows due to the current 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 September 30, 2012, 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 and designed to ensure that information required to be disclosed by the Company in the reports filed or submitted under the Exchange Act is accumulated and communicated to management including the chief executive and financial officers, as appropriate, to allow timely decisions regarding required disclosures, 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 September 30, 2012 that has materially affected, or is reasonably likely to materially affect, such internal controls over financial reporting.

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PART II - OTHER INFORMATION
Item 1A.  Risk Factors

The Company is exposed to certain risk factors that may affect 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.  Mine Safety Disclosures

Not applicable.

Item 5.  Other Information
On August 1, 2012, PAR Technology Corporation furnished a report on Form 8-K pursuant to Item 2.02 (Results of Operations and Financial Condition) of that Form relating to its financial information for the quarter ended June 30, 2012, as presented in the press release of August 1, 2011 and furnished thereto as an exhibit.
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Item 6.  Exhibits

List of Exhibits



Exhibit No.
Description of Instrument
 
10.1
 
 Notice of Stock Option Award
 
10.2
 
Notice of Stock Option Award - Long Term Incentive Program
 
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 Sr. 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.
 

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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:  November 13, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
/s/STEVEN M. MALONE
 
 
Steven M. Malone
 
 
Vice President, Controller, and Chief Accounting Officer

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Exhibit Index



 
Exhibit No.
 
Description of Instrument
 
Sequential Page Number
 
 
 Notice of Stock Option Award
 
E-1
 
 
 
 
 
Notice of Stock Option Award - Long Term Incentive Program
 
E-2
 
 
 
 
 
Certification of Chairman of the Board and Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
E-3
 
 
Certification of Vice President, Chief Financial Officer and Treasurer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
E-4
 
 
Certification of Chairman of the Board and Chief Executive Officer and Sr. 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.
 
 
 
 
E-5

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