Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarter ended March 31, 1995
Commission file number 0-9993
MICROS SYSTEMS, INC.
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(Exact name of Registrant as specified in its charter)
MARYLAND 52-1101488
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(State of incorporation) (I.R.S. Employer
Identification Number)
12000 Baltimore Avenue, Beltsville, Maryland 20705-1291
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: 301-210-6000
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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 report(s)), and (2) has been subject to such filing
requirements for the past 90 days.
YES x NO
----- -----
As of March 31, 1995, there were 7,848,761 shares of Common Stock, $.025 par
value, outstanding.
<PAGE>
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended March 31, 1995
PART I - Financial Information
Item 1. Financial Statements.
General
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The information contained in this report is furnished for the Registrant, MICROS
Systems, Inc., and its subsidiaries (referred to collectively herein as "MICROS"
or the "Company"). In the opinion of management, the information in this report
contains all adjustments, consisting only of normal recurring adjustments, which
are necessary for a fair statement of the results for the interim periods
presented. The financial information has been reviewed by the Company's
independent accountants, Price Waterhouse LLP, and a copy of their report is
attached.
The financial information presented herein should be read in conjunction with
the financial statements included in the Registrant's Form 10-K for the fiscal
year ended June 30, 1994, as filed with the Securities and Exchange Commission.
With respect to the unaudited consolidated financial information for the three
and nine month periods ended March 31, 1995 and 1994, Price Waterhouse LLP has
reported that they have applied limited procedures in accordance with
professional standards for a review of such information. However, their report
dated May 8, 1995, appearing herein, states that they did not audit and they do
not express an opinion on that unaudited consolidated financial information.
Price Waterhouse LLP has not carried out any significant or additional audit
tests beyond those which would have been necessary if their report had not been
included. Accordingly, the degree of reliance on their report on such
information should be restricted in light of the limited nature of the review
procedures applied. Price Waterhouse LLP is not subject to the liability
provisions of Section 11 of the Securities Act of 1933 for their report on the
unaudited consolidated financial information because such report is not a
"report" within the meaning of Sections 7 and 11 of the Securities Act of 1933.
2
<PAGE>
MICROS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, June 30,
1995 1994
------------- ------------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 25,219,100 $ 16,339,100
Accounts receivable, net of
allowance for doubtful
accounts of $941,300 at
March 31, 1995 and
$764,300 at June 30, 1994 18,305,300 17,690,200
Inventories 10,953,200 10,186,800
Deferred income taxes 1,481,300 924,800
Prepaid expenses and other
current assets 1,941,900 1,558,400
------------ ------------
Total current assets 57,900,800 46,699,300
------------ ------------
Property, plant and equipment:
Land 1,582,700 1,582,700
Buildings 4,820,600 4,820,600
Building improvements 322,900 320,300
Machinery and equipment 6,825,400 5,687,200
Furniture and fixtures 2,770,500 2,293,300
Leasehold improvements 342,900 236,700
------------ ------------
16,665,000 14,940,800
Accumulated depreciation
and amortization (6,963,500) (6,176,600)
------------ ------------
Net property, plant and
equipment 9,701,500 8,764,200
------------ ------------
Note receivable 654,400 3,151,500
Investments in affiliates 8,299,900 3,884,400
Other assets 3,052,000 3,691,200
------------ ------------
Total assets $ 79,608,600 $ 66,190,600
============ ============
The accompanying notes are an integral part of the
consolidated financial statements.
3
<PAGE>
MICROS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, June 30,
1995 1994
------------- ------------
LIABILITIES AND SHAREHOLDERS' (Unaudited)
EQUITY
Current liabilities:
Current portion of long-term debt $ 247,500 $ 218,900
Current portion of capital
lease obligation 101,100 88,400
Accounts payable 6,886,000 5,864,400
Accrued expenses and other
current liabilities 12,429,900 9,993,600
Income taxes payable 164,300 412,800
Deferred service revenue 3,963,200 2,995,100
------------ ------------
Total current liabilities 23,792,000 19,573,200
------------ ------------
Long-term debt, net of current
portion 1,551,700 1,807,800
Capital lease obligation, net of
current portion 3,610,600 3,687,700
Deferred income taxes payable 811,500 952,200
Minority interest 326,000 231,800
------------ ------------
Total liabilities 30,091,800 26,252,700
------------ ------------
Shareholders' equity:
Common stock, $.025 par value;
authorized 10,000,000 shares;
issued and outstanding 7,848,761
shares at March 31, 1995 and
7,787,577 shares at June 30, 1994 196,200 194,700
Capital in excess of par 14,406,300 13,760,800
Retained earnings 33,964,600 25,825,200
Accumulated foreign currency
translation adjustments 949,700 157,200
------------ ------------
Total shareholders' equity 49,516,800 39,937,900
------------ ------------
Total liabilities and
shareholders' equity $ 79,608,600 $ 66,190,600
============ ============
The accompanying notes are an integral part of the
consolidated financial statements.
4
<PAGE>
MICROS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
----------------------------
March 31, March 31,
1995 1994
------------- -------------
Revenue:
Hardware and related software $ 18,938,000 $ 14,947,700
Service 6,248,200 4,333,300
------------- -------------
Total revenue 25,186,200 19,281,000
Costs and expenses:
Cost of sales
Hardware and related software 9,696,600 7,917,500
Service 2,853,400 1,748,500
------------- -------------
Total cost of sales 12,550,000 9,666,000
Selling, general and administra-
tive expenses 7,811,300 5,559,100
Research and development expenses 1,338,100 865,200
Depreciation and amortization 400,200 312,900
------------- -------------
Total costs and expenses 22,099,600 16,403,200
------------- -------------
Income from operations 3,086,600 2,877,800
Non-operating income (expense):
Interest income 288,200 148,900
Interest expense (85,800) (61,100)
Other, net 43,500 12,600
------------- -------------
Income before taxes and equity in
net earnings of affiliates 3,332,500 2,978,200
Income taxes 1,128,400 1,024,600
------------- -------------
Income before equity in net
earnings of affiliates 2,204,100 1,953,600
Equity in net earnings of affiliates 19,700 46,400
------------- -------------
Net income $ 2,223,800 $ 2,000,000
============= =============
Net income per common and
common equivalent share $ 0.28 $ 0.25
============= =============
Weighted-average number of
common and common equivalent
shares outstanding 7,954,330 7,932,287
============= =============
The accompanying notes are an integral part of the
consolidated financial statements.
5
<PAGE>
MICROS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months Ended
----------------------------
March 31, March 31,
1995 1994
------------- -------------
Revenue:
Hardware and related software $ 59,078,700 $ 43,330,000
Service 17,703,500 11,665,500
------------- -------------
Total revenue 76,782,200 54,995,500
Costs and expenses:
Cost of sales
Hardware and related software 30,448,400 22,372,700
Service 7,956,400 5,052,200
------------- -------------
Total cost of sales 38,404,800 27,424,900
Selling, general and administra-
tive expenses 22,102,300 15,965,400
Research and development expenses 3,515,200 2,479,300
Depreciation and amortization 1,102,600 888,100
------------- -------------
Total costs and expenses 65,124,900 46,757,700
------------- -------------
Income from operations 11,657,300 8,237,800
Non-operating income (expense):
Interest income 769,700 446,100
Interest expense (276,800) (89,300)
Other, net 174,400 (95,400)
------------- -------------
Income before taxes and equity in
net earnings of affiliates 12,324,600 8,499,200
Income taxes 4,207,000 2,761,000
------------- -------------
Income before equity in net
earnings of affiliates 8,117,600 5,738,200
Equity in net earnings of affiliates 21,800 80,400
------------- -------------
Net income $ 8,139,400 $ 5,818,600
============= =============
Net income per common and
common equivalent share $ 1.02 $ 0.74
============= =============
Weighted-average number of
common and common equivalent
shares outstanding 7,951,212 7,902,755
============= =============
The accompanying notes are an integral part of the
consolidated financial statements.
6
<PAGE>
MICROS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
----------------------------
March 31, March 31,
1995 1994
------------- -------------
Cash flows from operating activities:
Net income $ 8,139,400 $ 5,818,600
------------- -------------
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 1,102,600 888,100
Amortization of capitalized
software development costs 378,400 312,300
Provision for losses on
accounts receivable 318,600 203,700
Provision for inventory
obsolescence 375,500 253,600
Undistributed net earnings from
equity investments (21,800) (80,400)
Provision for deferred income
taxes (697,200) (508,700)
Currency translation gain
on equity investment and loan
receivable (192,800) (125,300)
Changes in assets and liabilities:
Increase in accounts receivable (788,200) (3,131,100)
Increase in inventories (1,087,300) (2,623,900)
(Increase) decrease in prepaid
expenses and other assets (621,900) 140,100
Increase (decrease) in accounts
payable 993,700 (680,500)
Increase (decrease) in accrued
expenses and other current
liabilities 2,384,700 (316,500)
Decrease in income taxes
payable (255,500) (268,500)
Increase in deferred service
revenue 925,900 1,826,300
------------- -------------
Total adjustments 2,814,700 (4,110,800)
------------- -------------
Net cash provided by
operating activities 10,954,100 1,707,800
------------- -------------
The accompanying notes are an integral part of the
consolidated financial statements.
7
<PAGE>
MICROS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
Nine Months Ended
----------------------------
March 31, March 31,
1995 1994
------------- -------------
Cash flows from investing activities:
Purchases of property, plant
and equipment (1,759,900) (685,600)
Capitalized software development
costs (16,100) (196,900)
Purchase of net district assets - (245,300)
Dividends received from affiliates 210,100 31,500
Purchase of equity interest in
affiliates (3,481,700) (431,600)
Proceeds from loan to affiliate 3,223,000 -
Loan to affiliate (604,600) -
Proceeds from sale of affiliate
stock - 108,500
------------- -------------
Net cash used in investing
activities (2,429,200) (1,419,400)
------------- -------------
Cash flows from financing activities:
Proceeds from issuance of stock 301,500 668,400
Principal payments on long-term
debt (291,900) (178,400)
Income tax benefit from stock
options exercised 345,500 342,000
------------- -------------
Net cash provided by
financing activities 355,100 832,000
------------- -------------
Net increase in cash
and cash equivalents 8,880,000 1,120,400
Cash and cash equivalents
at beginning of period 16,339,100 12,839,400
------------- -------------
Cash and cash equivalents
at end of period $ 25,219,100 $ 13,959,800
============= =============
The accompanying notes are an integral part of the
consolidated financial statements.
8
<PAGE>
MICROS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
Nine Months Ended
----------------------------
March 31, March 31,
1995 1994
----------- ------------
Supplemental disclosure
of cash flow information:
Cash paid during the period for:
Interest $ 284,500 $ 78,200
=========== ============
Income taxes $ 4,557,600 $ 3,172,900
=========== ============
Supplemental schedule of noncash financing and investing activities:
The purchase of district assets (assets purchased from a dealer) in
September 1993 included a cash payment of $245,300 and the issuance of
a promissory note in the amount of $500,000. Annual payments in the
amount of $100,000 began on September 30, 1994, and are due on
September 30 of each succeeding year thereafter through September 30,
1998. The unamortized discount on the note, based on an imputed annual
interest rate of 5.75%, was $41,500 at March 31, 1995.
Disclosure of accounting policy:
For purposes of the statement of cash flows, the Company considers all
highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents.
Short-term investments are those with maturities in excess of three
months, but less than one year, from the date of purchase. These
interest-bearing investments are readily convertible to cash and are
valued at the lower of cost or market.
The accompanying notes are an integral part of the
consolidated financial statements.
9
<PAGE>
MICROS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
nine months ended March 31, 1995 and
year ended June 30, 1994
1. Inventories
The components of inventories are as follows:
March 31, June 30,
1995 1994
------------ ------------
(Unaudited)
Raw materials $ 2,732,000 $ 1,915,700
Work-in-process 1,742,700 1,319,400
Finished goods 6,478,500 6,951,700
------------ ------------
$ 10,953,200 $ 10,186,800
============ ============
2. Investments and note receivable
In fiscal 1992, the Company purchased a 15% interest in D.A.C. Systemes
of Paris, France (now D.A.C. Systemes/MICROS France), a MICROS
distributor which markets hospitality-related products to hotels and
restaurants throughout France and services such products. An additional
8% interest was purchased in October 1993. The equity interests were
acquired at an aggregate cost of $628,300, of which $383,300 represents
goodwill which is being amortized over 10 years. The total goodwill
amortized in the first nine months of fiscal 1995 and fiscal 1994 was
$28,600 and $22,800, respectively.
In fiscal 1993, MICROS purchased 15% of the capital stock of Fidelio
Software GmbH ("Fidelio") of Munich, Germany for $3,374,500 and
received an option to buy an additional 15% interest from individual
shareholders for a fixed amount of DM 5,000,000, which was exercised on
October 4, 1994. Additionally, the Company has the right to acquire all
or part of the remaining shares of Fidelio on or before December 31,
1999, at a price to be determined based on an agreed upon formula.
MICROS had accounted for its 15% investment as of September 30, 1994
under the cost method. However, effective October 4, 1994, the 30%
investment is accounted for under the equity method. Included in the
aggregate purchase price of the Company's 30% investment in Fidelio is
approximately $5.7 million representing goodwill at October 4, 1994,
which is being amortized over 10 years beginning on that date. The
investment was not restated since it would not have produced a
materially different result.
Additionally, in fiscal 1993, MICROS granted a loan to Fidelio in the
amount of DM 5,000,000. The loan bore interest at 7% per annum and was
repaid upon exercise of the option to acquire the additional 15%
interest in Fidelio. In connection with its
10
<PAGE>
MICROS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
nine months ended March 31, 1995 and
year ended June 30, 1994
2. Investments and note receivable (continued)
increase in ownership of Fidelio in October 1994 from 15% to 30%, the
Company loaned Fidelio DM 900,000, which bears interest at a variable
rate, and is obligated to make additional loans of up to DM 600,000,
all of which are to be repaid by December 31, 2000. The obligation of
the Company to make the further loans to Fidelio is conditioned on
Fidelio's other shareholders increasing their current loans to Fidelio
from DM 2.1 million to an aggregate amount of up to DM 3.5 million.
As a result of the fiscal 1993 DM 10.0 million combined investment and
loan being realizable only in Deutsche Marks, MICROS was subject to
currency risks between the Deutsche Mark and U.S. dollar through
September 30, 1994. MICROS continues to be subject to currency risks
between the Deutsche Mark and U.S. dollar with respect to the DM
900,000 loan which is realizable only in Deutsche Marks and which must
be repaid by December 31, 2000. As a result of the investment and
loans, a foreign currency translation gain of $193,000 and $126,000 was
recognized in the nine months ended March 31, 1995 and 1994,
respectively. The Company does not engage in any foreign exchange
hedging.
3. Other assets
Other assets consist of the following:
March 31, June 30,
1995 1994
------------ ------------
(Unaudited)
Capitalized software
development costs, net of
accumulated amortization
of $1,750,300 and $1,371,900 $ 1,385,700 $ 1,748,000
Goodwill, net of accumulated
amortization of $175,000
and $445,200 795,600 1,191,500
Net district intangible assets 425,100 524,500
Deferred financing costs 96,700 103,500
License fee, net of accumulated
amortization of $87,500 212,500 -
Other 136,400 123,700
------------ ------------
$ 3,052,000 $ 3,691,200
============ ============
4. Line of credit
The Company has a $15.0 million unsecured committed line of credit,
effective February 9, 1995, at the bank's prime rate minus one quarter
of one percent, which expires December 31,
11
<PAGE>
MICROS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
nine months ended March 31, 1995 and
year ended June 30, 1994
4. Line of credit (continued)
1996. Prior to February 9, 1995, the Company had a similar line of
credit with the same bank with a borrowing capacity of $10.0 million.
There were no borrowings under the $10.0 million line of credit during
either of fiscal 1993 or fiscal 1994 or subsequent thereto, although
there was a $45,800 letter of credit issued thereunder and outstanding
at June 30, 1993. There have been no borrowings under the current line
of credit, although there was a $127,000 letter of credit issued
thereunder and outstanding at March 31, 1995. Under the terms of the
current loan agreement, the Company may borrow up to $15.0 million less
the amount of outstanding letters of credit. Amounts outstanding under
the line are payable on demand and are not secured by the assets of the
Company. The agreement requires the Company to maintain certain levels
of working capital and tangible net worth and a minimum debt to
tangible net worth ratio. In addition, the agreement limits the
incurrence of additional indebtedness and restricts the Company's
payment of dividends other than stock dividends.
5. Long-term debt
The components of long-term debt are as follows:
March 31, June 30,
1995 1994
------------ ------------
(Unaudited)
Note payable to bank $ 1,363,500 $ 1,461,000
Note payable for net district
assets 358,500 442,400
Obligation to minority share-
holder 77,200 123,300
------------ ------------
1,799,200 2,026,700
Less current portion 247,500 218,900
------------ ------------
$ 1,551,700 $ 1,807,800
============ ============
The interest rate on the note payable to the bank, which was issued in
connection with the Company's Industrial Revenue Bond obligation, is a
variable rate set weekly by the bank based on prevailing market
conditions up to a maximum rate of 15%. On March 31, 1995, the
effective interest rate was approximately 5.7%. The Company is repaying
the debt in equal monthly principal payments plus interest through
January 2006.
12
<PAGE>
MICROS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
nine months ended March 31, 1995 and
year ended June 30, 1994
5. Long-term debt (continued)
In September 1993, as part of the purchase of district assets, the
Company issued a promissory note in the amount of $500,000. Annual
payments in the amount of $100,000 began on September 30, 1994 and are
due on September 30 of each succeeding year thereafter through
September 30, 1998. The unamortized discount on the note, based on an
imputed annual interest rate of 5.75%, was $41,500 at March 31, 1995.
Annual maturities of long-term debt are as follows:
Twelve Months Ending March 31, Amount
------------------------------ ----------
1996 $ 247,500
1997 231,700
1998 219,400
1999 224,600
2000 130,000
2001 and thereafter 746,000
----------
$1,799,200
==========
The Company leases office and warehouse space under a 15 year capital
lease as of January 1994. The cost of the asset is included in land and
buildings at $1,000,000 and $2,837,800, respectively. Accumulated
depreciation on the building was $88,700 and $35,400 at March 31, 1995
and June 30, 1994, respectively.
The following represents future minimum lease payments under capital
lease obligations at March 31, 1995:
Twelve Months Ending March 31, Amount
------------------------------ ----------
1996 $ 357,800
1997 368,600
1998 379,600
1999 391,000
2000 402,700
2001 and thereafter 4,079,800
----------
5,979,500
Less amount representing
interest at 7% 2,267,800
----------
3,711,700
Current portion 101,100
----------
Long-term capital lease
obligation $3,610,600
==========
13
<PAGE>
MICROS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
nine months ended March 31, 1995 and
year ended June 30, 1994
6. Reclassifications
Certain prior year reclassifications have been made to conform to
current period classifications.
7. Subsequent Events
On January 25, 1995, the Company filed with the Securities and Exchange
Commission a Registration Statement on Form S-3 for the sale of up to
4,849,123 shares of Common Stock of the Company held directly or
indirectly by Westinghouse Electric Corporation ("Westinghouse" or the
"Selling Stockholder"), with all of the proceeds going to Westinghouse.
On May 3, 1995, the Company filed an amendment to the Registration
Statement on Form S-3 to permit the delayed offering of the shares of
Common Stock owned by Westinghouse. The Registration Statement has not
been declared effective yet. Westinghouse owns 4,849,123 shares of
Common Stock, representing 61.8% of the outstanding Common Stock as of
March 31, 1995. If all of the shares of Common Stock to which the
Registration Statement relates are sold, the Selling Stockholder will
not own any shares of Common Stock.
As of the effective date of the Registration Statement, A. L.
Giannopoulos, the Company's President and Chief Executive Officer, will
become a full-time employee of the Company. He is currently a full-time
employee of Westinghouse and is compensated by Westinghouse, receiving
no compensation from the Company. Mr. Giannopoulos' compensation
arrangement with the Company will extend through December 31, 1999 and
provide for a fiscal 1995 annual salary of $193,000 and a fiscal 1995
target bonus of $110,000, the actual amount of the bonus paid to be
based on certain performance criteria and not to exceed 200% of the
target bonus. Such annual salary and target bonus will each increase
$10,000 each July 1 hereafter.
In addition, Westinghouse, as an incentive to 11 key officers to remain
with the Company for a period of two years following the effective date
of the Registration Statement, has agreed to make payments to such
officers aggregating up to approximately $1.25 million, payable in
three equal installments promptly after such effective date and on the
first and second anniversaries of the such effective date (subject to
the officer remaining employed by the Company on the relevant payment
date). Even though such payments will be entirely funded by
Westinghouse and will not require any use of the Company's cash, for
accounting purposes, one-third of such payments will be required to be
reflected as compensation expense in the Company's financial statements
on the first payment date with the remainder to be reflected as
compensation expense over the 24-month period following the effective
date of the Registration Statement.
14
<PAGE>
MICROS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
nine months ended March 31, 1995 and
year ended June 30, 1994
7. Subsequent Events (continued)
In May 1995, the Company authorized the grant to certain plan
participants on the day after the effective date of the Registration
Statement, pursuant to the Company's 1991 Stock Option Plan, of options
to purchase an aggregate of 186,000 shares of Common Stock at an
exercise price equal to the closing sale price of the Common Stock on
the date of grant.
The Company has entered into a letter agreement dated May 2, 1995 with
Westinghouse which amends the Stock Unit Purchase Agreement dated as of
October 30, 1986 to permit Westinghouse to request a shelf registration
for the sale of shares of Common Stock owned by Westinghouse.
The Company obtains certain insurance coverage and other services
through arrangements negotiated by Westinghouse for itself and its
subsidiaries and affiliates. These arrangements will be replaced by the
Company with its own contracts as and when the Company elects to do so
or is no longer eligible to participate in such arrangements. The
Company estimates that the incremental cost to it of purchasing such
services without the benefit of participating in programs of
Westinghouse could total approximately $1.0 million per year on a
pre-tax basis. Westinghouse has indicated its willingness to work with
the Company to establish new service arrangements in efforts to
minimize any incremental costs thereof.
8. Commitments and Contingencies
In late January 1995, the Company received a claim that its touchscreen
product line may infringe a patent having counterparts in several
European countries, including France, Germany and the United Kingdom.
Preliminary investigation indicates that the asserted patents may be
invalid because products apparently using the technology disclosed by
these patents were in the market prior to the relevant "invention
dates". While the Company's investigation of this claim is in its
preliminary stages and the ultimate outcome of this matter is
uncertain, the Company does not believe that the claim will have a
material adverse effect on its business, financial condition or results
of operations.
15
<PAGE>
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended March 31, 1995
PART I - Financial Information
Item 2. Management's discussion and analysis of financial
condition and results of operations.
Liquidity and Capital Resources
-------------------------------
Effective February 9, 1995, the Company has a $15.0 million unsecured
committed line of credit with its bank which expires December 31, 1996.
Prior to February 9, 1995, the Company had a similar line of credit
with the same bank with a borrowing capacity of $10.0 million. There
were no borrowings under the $10.0 million line of credit facility
during either of fiscal 1993 or fiscal 1994 or subsequent thereto,
although there was a $45,800 letter of credit issued thereunder and
outstanding at June 30, 1993. There have been no borrowings under the
current line of credit, although there was a $127,000 letter of credit
issued thereunder and outstanding at March 31, 1995. The Company has
generated sufficient cash flow through its operations during these
periods and has significant funds available in cash and highly-liquid
investments to meet its immediate needs.
For the first nine months of fiscal 1995, net cash provided by
operating activities was $10,954,100. The sale of stock issued to
employees under the Company's incentive stock option plan provided
$301,500, while $345,500 was provided by the income tax benefit from
the exercise of non-qualified stock options. During this period, the
Company used cash of $2,429,200 in investing activities, including
$1,759,900 for the purchase of property, plant and equipment and
$3,481,700 primarily for the purchase of an additional 15% of Fidelio,
offset by $3,223,000 in net proceeds from the repayment of a loan to
Fidelio and $210,100 in dividends from affiliates. The Company made
debt repayments of $291,900 on its building loan and capital lease. As
a result, the cash position during the first nine months of fiscal 1995
increased $8,880,000, or 54.3%, to $25,219,100. The cash is being held
for the operation and expansion of the business.
Accounts receivable increased $615,100, or 3.5%, and inventories
increased $766,400, or 7.5%, in the first nine months of fiscal 1995
primarily due to increased sales volume.
In fiscal 1993, MICROS purchased 15% of the capital stock of Fidelio
Software GmbH ("Fidelio") of Munich, Germany for $3,374,500 and
received an option to buy an additional 15% interest from individual
shareholders for a fixed amount of DM 5,000,000, which was exercised on
October 4, 1994. Additionally, the Company has the right to acquire all
or part of the remaining shares of Fidelio on or before December 31,
1999, at a price to be determined based on an agreed upon formula.
MICROS had
16
<PAGE>
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended March 31, 1995
Part I - Financial Information
Item 2. Management's discussion and analysis of financial
condition and results of operations. (Continued)
accounted for its 15% investment as of September 30, 1994 under the
cost method. However, effective October 4, 1994, the 30% investment is
accounted for under the equity method. Included in the aggregate
purchase price of the Company's 30% investment in Fidelio is
approximately $5.7 million representing goodwill at October 4, 1994,
which is being amortized over 10 years beginning on that date. The
investment was not restated since it would not have produced a
materially different result.
Additionally, in fiscal 1993, MICROS granted a loan to Fidelio in the
amount of DM 5,000,000. The loan bore interest at 7% per annum and was
repaid upon exercise of the option to acquire the additional 15%
interest in Fidelio. In connection with its increase in ownership of
Fidelio in October 1994 from 15% to 30%, the Company loaned Fidelio DM
900,000, which bears interest at a variable rate, and is obligated to
make additional loans of up to DM 600,000, all of which are to be
repaid by December 31, 2000. The obligation of the Company to make the
further loans to Fidelio is conditioned on Fidelio's other shareholders
increasing their current loans to Fidelio from DM 2.1 million to an
aggregate amount of up to DM 3.5 million.
As a result of the fiscal 1993 DM 10.0 million combined investment and
loan being realizable only in Deutsche Marks, MICROS was subject to
currency risks between the Deutsche Mark and U.S. dollar through
September 30, 1994. MICROS continues to be subject to currency risks
between the Deutsche Mark and U.S. dollar with respect to the DM
900,000 loan which is realizable only in Deutsche Marks and which must
be repaid by December 31, 2000. As a result of the investment and
loans, a foreign currency translation gain of $193,000 and $126,000 was
recognized in the nine months ended March 31, 1995 and 1994,
respectively. The Company does not engage in any foreign exchange
hedging.
17
<PAGE>
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended March 31, 1995
Part I - Financial Information
Item 2. Management's discussion and analysis of financial
condition and results of operations. (Continued)
Financial indicators of the Company's liquidity and capital resources
as of March 31, 1995 and June 30, 1994 were:
March 31, June 30,
1995 1994
------------ ------------
(Unaudited)
Cash and cash equivalents $ 25,219,100 $ 16,339,100
============ ============
Available line of credit $ 15,000,000 $ 10,000,000
Outstanding letters of credit 127,000 -
------------ ------------
Unused bank line of credit $ 14,873,000 $ 10,000,000
============ ============
Working capital $ 34,108,800 $ 27,126,100
============ ============
Long-term debt:
Current $ 348,600 $ 307,300
Non-current 5,162,300 5,495,500
------------ ------------
Total $ 5,510,900 $ 5,802,800
============ ============
Shareholders' equity $ 49,516,800 $ 39,937,900
============ ============
Current ratio 2.43 2.39
============ ============
18
<PAGE>
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended March 31, 1995
Part I - Financial Information
Item 2. Management's discussion and analysis of financial
condition and results of operations. (Continued)
Results of Operations - Third Quarter and Nine Month Comparisons
----------------------------------------------------------------
Revenue and Operating Income
Revenue for the third quarter of fiscal 1995 increased $5.9
million, or 30.6%, compared to the same period last year. For the first
nine months of fiscal 1995, revenue increased $21.8 million, or 39.6%,
over the same period in fiscal 1994. Sales increased in every
distribution channel worldwide, with a substantial portion of the
increase attributable to the Company's latest point-of-sale product,
the 8700 Hospitality Management System (HMS) released in September
1993.
Cost of sales, as a percentage of revenue, decreased slightly
to 49.8% from 50.1% for the third quarter of fiscal 1995 compared to
the third quarter of fiscal 1994. For the first nine months of fiscal
1995, cost of sales, as a percentage of revenue, increased slightly to
50.0% compared to 49.9% for the same period a year earlier. Cost of
sales for hardware and software products, as a percentage of related
revenue, decreased to 51.2% for the third quarter of fiscal 1995
compared to 53.0% for the same quarter of fiscal 1994, primarily due to
significantly higher software sales. Cost of sales for hardware and
software products as a percentage of related revenue decreased slightly
to 51.5% for the first nine months of fiscal 1995 compared to 51.6% for
the first nine months of fiscal 1994. Service costs, as a percentage of
service revenue, increased in the third quarter of fiscal 1995 to 45.7%
compared to 40.4% in the same period in fiscal 1994 primarily due to
subcontracting labor to meet the volume of 8700 HMS and Fidelio
installations and initial training costs related to increased
installation personnel. Service costs, as a percentage of service
revenue, for the first nine months of fiscal 1995 increased to 44.9%
from 43.3% in fiscal 1994 primarily due to the higher costs of
subcontracting labor to meet the volume of 8700 HMS installations.
Selling, general and administrative expenses increased $2.3
million, or 40.5%, in the third quarter of fiscal 1995 compared to the
same period last year. Selling, general and administrative expenses for
the first nine months of fiscal year 1995 increased $6.1 million, or
38.4%, compared to the same period in 1994. The increases were
primarily as a result of increased sales and support activities
required to support the
19
<PAGE>
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended March 31, 1995
Part I - Financial Information
Item 2. Management's discussion and analysis of financial
condition and results of operations. (Continued)
Company's increased level of sales. Selling, general and administrative
expenses, as a percentage of revenue, increased to 31.0% for the third
quarter of fiscal 1995 from 28.8% for the same period last year
primarily as a result of the increased emphasis on the Company's sales
and service organizations and lower than anticipated sales for the
quarter. Selling, general and administrative expenses, as a percentage
of revenue, decreased to 28.8% for the first nine months of fiscal 1995
compared to 29.0% for the same period in fiscal 1994. The decrease was
the result of effectively controlling the growth in expenses during the
period, partially offset by lower than anticipated sales in the third
quarter of fiscal 1995.
Research and development expenses (exclusive of capitalized
software development costs), which consist primarily of labor costs,
increased $472,900, or 54.7%, for the third quarter of fiscal 1995
compared to the same period in fiscal 1994. For the first nine months
of fiscal 1995, research and development expenses (exclusive of
capitalized software development costs) increased $1,035,900, or 41.8%,
compared to the same period in fiscal 1994. Actual research and
development expenditures, including capitalized software development
costs of $16,100 in fiscal 1995 and $196,900 for the 8700 HMS in the
first quarter of fiscal 1994, increased $855,100, or 32.0%, for the
first nine months of fiscal 1995 over the same period in fiscal 1994.
Income from operations was $3.1 million, or 12.3% of revenue,
for the third quarter of fiscal 1995, an increase of 7.3% over the same
period a year ago when income from operations was $2.9 million, or
14.9% of revenue. Income from operations was $11.7 million, or 15.2% of
revenue, for the first nine months of fiscal 1995, compared to $8.2
million, or 15.0% of revenue, for the first nine months of fiscal year
1994, an increase of 41.5%. This improvement resulted from the increase
in sales and a less than proportional increase in expenses.
Interest income for the third quarter of fiscal 1995 increased $139,300
to $288,200, or 93.6%, compared to $148,900 for the third quarter of
fiscal 1994. Interest income for the first nine months in fiscal 1995
was $769,700 compared to $446,100, an increase of 72.5%, for the
comparable period in fiscal 1994. The third quarter and nine-month
period improvements were the result of an increase in interest rates on
investments and an increase in the investment balances. Interest
expense increased $24,700 to $85,800 for the third quarter of
20
<PAGE>
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended March 31, 1995
Part II - Other Information
Item 2. Management's discussion and analysis of financial
condition and results of operations. (Continued)
fiscal 1995 from $61,100 for the same period a year ago. Interest
expense increased $187,500 to $276,800 for the nine months ended March
31, 1995 compared to the first nine months of fiscal 1994. The
increases were primarily the result of interest on the capital lease
entered into by the Company in January 1994.
The Company has recently experienced rapid revenue growth at a
rate that it believes has significantly exceeded that of the global
market for point-of-sale computer systems and property management
information systems products for the hospitality industry. Although the
Company currently anticipates continued revenue growth at a rate in
excess of such market, and therefore an increase in its overall market
share, it does not expect to maintain growth at recent levels and there
can be no assurance that any particular level of growth can be
achieved. In addition, due to the competitive nature of the market, the
Company recently has experienced greater gross margin pressure on its
products than it has in the past, and the Company expects this trend to
continue. There can be no assurance that the Company will be able to
sufficiently increase sales of its higher margin products, including
software and services, to prevent declines in the Company's overall
gross margin.
21
<PAGE>
INDEPENDENT ACCOUNTANTS REPORT
------------------------------
To the Board of Directors and
Shareholders of MICROS Systems, Inc.
We have reviewed the accompanying consolidated balance sheet of MICROS Systems,
Inc. and subsidiaries as of March 31, 1995, and the related consolidated
statements of operations and cash flows for the three and nine-month periods
ended March 31, 1995 and March 31, 1994. These financial statements are the
responsibility of the company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope that an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles. We previously audited in
accordance with generally accepted auditing standards, the consolidated balance
sheet as of June 30, 1994, and the related consolidated statements of
operations, cash flows and shareholders' equity for the year then ended (not
presented herein), and in our report dated August 17, 1994 we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the accompanying consolidated balance sheet information as of June 30, 1994, is
fairly stated in all material respects in relation to the consolidated balance
sheet from which it has been derived.
PRICE WATERHOUSE LLP
Baltimore, Maryland
May 8, 1995
THE ABOVE REPORT IS NOT A "REPORT" WITHIN THE MEANING OF SECTIONS 7 AND 11 OF
THE SECURITIES ACT OF 1933 AND THE INDEPENDENT ACCOUNTANTS LIABILITY PROVISIONS
OF SECTION 11 OF THE ACT DO NOT APPLY.
22
<PAGE>
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended March 31, 1995
Part II - Other Information
Items 1 through 4.
No events occurred during the quarter covered by the report that would
require a response to any of these items.
Item 5. Other Information
For a discussion of certain recent events, see Note 7 of Notes
to Consolidated Financial Statements.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10 - Letter Agreement dated May 2, 1995 between the
Company and Westinghouse amending the Stock Unit Purchase
Agreement dated as of October 30, 1986 between the Company and
Westinghouse constituting Exhibit 4d to the Registration
Statement on Form S-3 (Registration No. 33-88768) is incorporated
herein by reference to Exhibit 4e to the Registration Statement
on Form S-3 (Registration No. 33-88768).
Exhibit 11 - Computation of Earnings Per Share
Exhibit 15 - Letter Regarding Unaudited Interim Financial
Information
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated February 28,
1995, items 5 and 7.
23
<PAGE>
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended March 31, 1995
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.
MICROS SYSTEMS, INC.
-------------------------
(Registrant)
May 15, 1995 Gary C. Kaufman
- ------------------ --------------------------
Gary C. Kaufman
Vice President, Finance and
Administration/Chief Financial
Officer
24
<PAGE>
EXHIBIT INDEX
-------------
Sequentially
Exhibit Numbered Page
- ------- -------------
10. Letter Agreement dated May 2, 1995 between the
Company and Westinghouse amending the Stock Unit
Purchase Agreement dated as of October 30, 1986
between the Company and Westinghouse constituting
Exhibit 4d to the Registration Statement on Form
S-3 (Registration No. 33-88768) is incorporated
herein by reference to Exhibit 4e to the
Registration Statement on Form S-3 (Registration
No. 33-88768)
11. Computation of Earnings Per Share
15. Letter regarding Unaudited Interim Financial
Information
27. Financial Data Schedule
Exhibit 11
----------
MICROS SYSTEMS, INC. AND SUBSIDIARIES
three months ended March 31, 1995 and 1994
Exhibit 11 - Computation of Earnings Per Share
(Unaudited)
Three Months Ended
----------------------------
March 31, March 31,
1995 1994
------------- -------------
Weighted-average number
of common shares 7,845,283 7,773,381
Dilutive effect of outstanding
stock options 109,047 158,906
------------- -------------
Weighted-average number of
common and common equivalent
shares outstanding 7,954,330 7,932,287
============= =============
Net income per statements
of income $ 2,223,800 $ 2,000,000
============= =============
Net income per common and
common equivalent share $ 0.28 $ 0.25
============= =============
<PAGE>
MICROS SYSTEMS, INC. AND SUBSIDIARIES
nine months ended March 31, 1995 and 1994
Exhibit 11 - Computation of Earnings Per Share
(Unaudited)
Nine Months Ended
----------------------------
March 31, March 31,
1995 1994
------------- -------------
Weighted-average number
of common shares 7,828,489 7,717,327
Dilutive effect of outstanding
stock options 122,723 185,428
------------- -------------
Weighted-average number of
common and common equivalent
shares outstanding 7,951,212 7,902,755
============= =============
Net income per statements
of income $ 8,139,400 $ 5,818,600
============= =============
Net income per common and
common equivalent share $ 1.02 $ 0.74
============= =============
Exhibit 15
----------
Price Waterhouse LLP
7 St. Paul Street
Suite 1700
Baltimore, Maryland 21202
410-685-0542
May 8, 1995
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Dear Sirs:
We are aware that MICROS Systems, Inc. has incorporated by reference our
report dated May 8, 1995 (issued pursuant to the provisions of Statement on
Auditing Standards No. 71) in the Prospectus constituting part of its
Registration Statements on Forms S-8, No. 33-69782, No. 33-44481 and No.
33-33535, filed on September 30, 1993, December 12, 1991 and February 16, 1990,
respectively and Form S-3, No. 33-88768 filed on May 3, 1995. We are also aware
of our responsibilities under the Securities Act of 1933.
Yours very truly,
Price Waterhouse LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AND RELATED STATEMENT OF INCOME AS
OF MARCH 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> MAR-31-1995
<CASH> 3,091,300
<SECURITIES> 22,127,800
<RECEIVABLES> 19,246,600
<ALLOWANCES> 941,300
<INVENTORY> 10,953,200
<CURRENT-ASSETS> 57,900,800
<PP&E> 16,665,000
<DEPRECIATION> 6,963,500
<TOTAL-ASSETS> 79,608,600
<CURRENT-LIABILITIES> 23,792,000
<BONDS> 5,162,300
<COMMON> 196,200
0
0
<OTHER-SE> 49,320,600
<TOTAL-LIABILITY-AND-EQUITY> 79,608,600
<SALES> 76,782,200
<TOTAL-REVENUES> 76,782,200
<CGS> 38,404,800
<TOTAL-COSTS> 65,124,900
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 276,800
<INCOME-PRETAX> 12,324,600
<INCOME-TAX> 4,207,000
<INCOME-CONTINUING> 8,139,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,139,400
<EPS-PRIMARY> 1.02
<EPS-DILUTED> 1.02
</TABLE>
