<PAGE> 1
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 December 31, 1996
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
------------
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 December 31, 1996, there were 7,957,984 shares of Common Stock, $.025 par
value, outstanding.
1
<PAGE> 2
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended December 31, 1996
PART I - Financial Information
Item 1. Financial Statements.
General
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 its
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, 1996, as filed with the Securities and Exchange Commission.
With respect to the unaudited consolidated financial information for the three
and six month periods ended December 31, 1996 and 1995, Price Waterhouse LLP
has reported that it has applied limited procedures in accordance with
professional standards for a review of such information. However, its report
dated February 10, 1997, appearing herein, states that it did not audit and it
does not express an opinion on that unaudited consolidated financial
information. Price Waterhouse LLP has not conducted any significant or
additional audit tests beyond those which would have been necessary if its
report had not been included. Accordingly, the degree of reliance on its
reports 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 its 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> 3
MICROS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except per share data)
<TABLE>
<CAPTION>
December 31, June 30,
1996 1996
---- ----
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 13,970 $ 15,231
Accounts receivable, net of allowance for
doubtful accounts of $2,059 at December 31,
1996 and $2,016 at June 30, 1996 55,310 49,250
Inventories 18,172 15,138
Deferred income taxes 3,899 3,899
Prepaid expenses and other current assets 3,925 4,420
--------- ---------
Total current assets 95,276 87,938
Property, plant and equipment, net of accumulated
depreciation and amortization of $13,952 at
December 31, 1996 and $13,332 at June 30, 1996 16,980 15,623
Note receivable 225 225
Deferred income taxes, non-current 5,539 5,580
Goodwill and intangible assets, net of
accumulated amortization of $4,754 at
December 31, 1996 and $3,346 at June 30, 1996 19,665 20,746
Purchased and internally developed software costs,
net of accumulated amortization of $3,841 at
December 31, 1996 and $2,650 at June 30, 1996 8,889 6,287
Other assets 616 437
--------- ---------
Total assets $147,190 $136,836
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Bank lines of credit $ 13,486 $ 14,947
Current portion of long-term debt 3,984 5,238
Current portion of capital lease obligation 134 124
Accounts payable 14,296 12,726
Accrued expenses and other current liabilities 24,062 23,927
Income taxes payable 3,381 986
Deferred service revenue 12,805 9,295
--------- ---------
Total current liabilities 72,148 67,243
Long-term debt, net of current portion 5,022 6,704
Capital lease obligation, net of current portion 3,389 3,458
Deferred income taxes 2,595 2,588
Minority interests 1,449 648
--------- ---------
Total liabilities 84,603 80,641
--------- ---------
Commitments and contingencies
Shareholders' equity:
Common stock, $.025 par; authorized 10,000
shares; issued and outstanding 7,958 at
December 31, 1996 and 7,944 at June 30, 1996 199 199
Capital in excess of par 16,375 16,253
Retained earnings 46,132 39,794
Accumulated foreign currency translation
adjustments (119) (51)
--------- ---------
Total shareholders' equity 62,587 56,195
--------- ---------
Total liabilities and shareholders' equity $147,190 $136,836
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE> 4
MICROS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended December 31,
-------------------------------
1996 1995
---------- --------
<S> <C> <C>
Revenue:
Hardware and software $35,867 $29,646
Service 20,090 13,242
-------- --------
Total revenues 55,957 42,888
-------- --------
Costs and expenses:
Cost of sales
Hardware and software 17,613 16,207
Service 10,060 5,491
-------- --------
Total cost of sales 27,673 21,698
Selling, general and administrative
expenses 16,813 13,293
Research and development expenses 2,467 1,673
Purchased incomplete software technology 0 14,770
Depreciation and amortization 1,511 867
-------- --------
Total costs and expenses 48,464 52,301
-------- --------
Income (loss) from operations 7,493 (9,413)
Non-operating income (expense):
Interest income 113 263
Interest expense (371) (365)
Other income (expense), net 101 100
-------- --------
Income (loss) before taxes and minority
interest and equity in net earnings of
affiliates 7,336 (9,415)
Income tax expense (benefit) 2,938 (4,575)
-------- --------
Income (loss) before minority interest and
equity in net earnings of affiliates 4,398 (4,840)
Minority interest and equity in net
earnings of affiliates (387) (248)
-------- --------
Net income (loss) $ 4,011 $(5,088)
======== ========
Net income (loss) per common and common
equivalent share $ .50 $ (0.63)
======== ========
Weighted-average number of common and
common equivalent shares outstanding 8,055 8,015
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE> 5
MICROS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
<TABLE>
<CAPTION>
Six Months Ended December 31,
------------------------------
1996 1995
---------- ----------
<S> <C> <C>
Revenue:
Hardware and software $66,828 $54,410
Service 36,645 20,838
-------- --------
Total revenues 103,473 75,248
-------- --------
Costs and expenses:
Cost of sales
Hardware and software 32,581 28,950
Service 18,463 9,147
-------- --------
Total cost of sales 51,044 38,097
Selling, general and administrative
expenses 32,806 22,853
Research and development expenses 4,413 3,041
Purchased incomplete software technology 0 14,770
Depreciation and amortization 3,317 1,386
-------- --------
Total costs and expenses 91,580 80,147
-------- --------
Income (loss) from operations 11,893 (4,899)
Non-operating income (expense):
Interest income 219 602
Interest expense (782) (453)
Other income (expense), net 142 (68)
-------- --------
Income (loss) before taxes and minority
interest and equity in net earnings of
affiliates 11,472 (4,818)
Income tax expense (benefit) 4,592 (2,948)
-------- --------
Income (loss) before minority interest and
equity in net earnings of affiliates 6,880 (1,870)
Minority interest and equity in net
earnings of affiliates (542) 36
-------- --------
Net income (loss) $ 6,338 $(1,834)
======== ========
Net income (loss) per common and common
equivalent share $ .79 $ (0.23)
======== ========
Weighted-average number of common and
common equivalent shares outstanding 7,997 7,998
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE> 6
MICROS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Condensed and unaudited - in thousands)
<TABLE>
<CAPTION>
Six months ended December 31,
-----------------------------
1996 1995
--------- ----------
<S> <C> <C>
Net cash flows from operating activities: $10,283 $(8,920)
-------- --------
Cash flows from investing activities:
Purchases of property, plant and
equipment (3,100) (2,472)
Proceeds on dispositions of property,
plant and equipment 35 --
Purchased and internally developed
software costs (3,450) (430)
Sale of short-term investments -- 3,170
Dividends (to) minority owners and
received from affiliates (112) 581
Loan to affiliate -- (2,347)
Net cash paid for acquisitions and
minority interests (494) (27,036)
-------- --------
Net cash used in investing
activities (7,121) (28,534)
-------- --------
Cash flows from financing activities:
Principal payments on line of credit (1,451) --
Principal payments on long-term debt
and capital lease obligation (3,155) (214)
Proceeds from line of credit and long
term debt 59 22,044
Proceeds from issuance of stock 99 273
Income tax benefit from stock options
exercised 25 66
-------- --------
Net cash (used in) provided by
financing activities (4,423) 22,169
-------- --------
Net decrease in cash and cash
equivalents (1,261) (15,285)
Cash and cash equivalents at beginning of
period 15,231 23,215
-------- --------
Cash and cash equivalents at end of
period $13,970 $ 7,930
======== ========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 943 $ 337
======== ========
Income taxes $ 2,216 $ 3,244
======== ========
</TABLE>
Supplemental schedule of noncash financing and investing activities:
In August 1995, the Company purchased the remaining 77% of D.A.C.
Systemes/MICROS France and AD-Maintenance Informatique ("ADMI") for FF
14,000,000 (approximately $2,800,000 at exchange rates in effect at
the date of purchase), payable FF 8,000,000 at closing and FF
6,000,000 over the next four years, plus potential additional payments
based on earnings over the next four years. The unamortized discount
on the note, based on an imputed annual interest rate of 8.75%, is
$115,800 at December 31, 1996.
In October 1996, the Company purchased the remaining 30% interest in
one of its majority-owned subsidiaries for $399,000, payable $79,800
at closing and $319,200 over the next four years, beginning October 1,
1997. The note bears interest at the prime rate and is adjusted
annually each October 1st.
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE> 7
MICROS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarter Ended December 31, 1996
(Unaudited)
1. Inventories
The components of inventories are as follows (in thousands):
<TABLE>
<CAPTION>
December 31, June 30,
1996 1996
----------------- -----------------
<S> <C> <C>
Raw materials $ 4,927 $ 3,528
Work-in-process 4,356 2,955
Finished goods 8,889 8,655
----------------- -----------------
$ 18,172 $ 15,138
================= =================
</TABLE>
2. Acquisitions
A. Fidelio Software GmbH
On November 30, 1995, the Company acquired the remaining 70% of
Fidelio Software GmbH ("Fidelio") for approximately $28.5 million in a
transaction which has been accounted for under the purchase method.
In fiscal 1993, 15% of the capital stock of Fidelio had been acquired
and an additional 15% was acquired in October 1994, at which time
MICROS began accounting for Fidelio under the equity method. Goodwill
related to these purchases aggregated $20.5 million at November 30,
1995 and is being amortized over nine years.
Unaudited pro forma information for the six-month period ended
December 31, 1995, as if the acquisition had occurred on the first day
of that period, but excluding a one-time write-off of the purchased
incomplete software technology is shown below. Such pro forma
information also reflects the pro forma effects of Fidelio's
acquisition of 100% of the common stock of Executive Technologies of
Southwest Florida, Inc. ("ETI") in October 1995 for $4,000,000.
<TABLE>
<CAPTION>
Six Months Ended December 31, 1995
(in thousands, except per share data)
-------------------------------------
<S> <C>
Revenue $ 99,910
Net income $ 6,055
Net income per share $ 0.76
</TABLE>
B. Minority Interests
The Company acquired the minority interests in several of its
subsidiaries during fiscal 1997 at a cost of approximately $700,000.
Goodwill approximated this total amount and is being amortized over
periods ranging from five to ten years.
3. Stock options
On November 22, 1996, the shareholders of the Company voted to approve
a proposal to increase the number of shares available under the 1991
Stock Option Plan by 600,000 with the aggregate number of shares that
can be issued under the plan being 1,150,000. Following shareholder
approval, the Company continued to grant options in accordance with the
terms of the 1991 Stock Option Plan, as amended.
Financial Accounting Standards Board Statement No. 123 ("SFAS 123"),
Accounting for Stock-Based Compensation, was issued in October 1995.
Adoption of SFAS 123 is required for the Company's fiscal 1997
year-end financial statements. Under SFAS 123, the Company will
continue to measure compensation expense for its stock-based
compensation plans using the intrinsic value method prescribed by APB
Opinion No. 25, Accounting for Stock Issued to Employees. Beginning
with financial statements
7
<PAGE> 8
MICROS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarter Ended December 31, 1996
(Unaudited)
3. Stock options, continued
for fiscal year ending June 30, 1997, the Company will provide pro
forma disclosures of net income and earnings per share as if the fair
value based method of accounting defined in SFAS 123 had been applied
to the Company's stock option grants made subsequent to fiscal 1995.
The impact of SFAS 123 on the Company's pro forma information to be
provided has not been determined.
4. Legal proceedings
MICROS is and has been involved in legal proceedings arising in the
normal course of business. The Company is of the opinion, based upon
presently available information and the advice of counsel concerning
pertinent legal matters, that any resulting liability should not have
a material adverse effect on the Company's results of operations or
financial position.
On May 24, 1996, Imperial Hotels Corp. ("Imperial") filed suit against
Executive Technologies of Southwest Florida, Inc. ("ETI"), MICROS and
Fidelio in the Superior Court of the State of California for the
County of Los Angeles. Imperial alleged, among other things, that
ETI, an indirect wholly owned subsidiary of MICROS, breached a
software license agreement ETI entered into with Imperial prior to
Fidelio's acquisition of ETI, and prior to MICROS' acquisition of
Fidelio. On November 20, 1996, the parties to the lawsuit amicably
settled all claims, and the litigation was dismissed with prejudice.
The settlement requires ETI to provide to Imperial certain software
upgrades to the central reservation system currently licensed by
Imperial. This settlement, for which an accrual had been established,
did not have a material effect on the Company's results of operations.
5. Reclassifications
Certain balances have been reclassified to conform to fiscal 1997
presentation.
8
<PAGE> 9
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended December 31, 1996
(Unaudited)
Item 2. Management's discussion and analysis of financial condition and
results of operations
Liquidity and Capital Resources
The Company has a $25.0 million unsecured committed line of credit
which was renewed December 31, 1996 for an additional one year period,
expiring on December 31, 1997. In addition, the Company obtained
additional lines of credit from three European banks aggregating DM
15.0 million (approximately $9.7 million at the December 31, 1996
exchange rate) as a result of its November 1995 acquisition of
Fidelio. At December 31, 1996, the Company had borrowed approximately
$13.5 million and has approximately $21.2 million available. As the
Company has significant international operations, its DM-denominated
borrowings do not represent a significant foreign exchange risk. The
Company does not engage in any foreign exchange hedging.
In addition, the Company has long-term debt, both current and
non-current, of approximately $9.0 million as of December 31, 1996.
The majority of this debt stems from the Fidelio acquisition.
Net cash provided by operating activities for the six months ended
December 31, 1996 was $10.3 million. In addition, the Company used
$6.6 million for the purchase of property, plant and equipment,
internally developed software as well as software purchased from a
third party. Financing activities for the first six months of fiscal
1997 used $4.4 million, primarily for debt repayment.
The Company anticipates that its cash flow from operations along with
available lines of credit, in conjunction with other lines of credit
for which the Company may be eligible or lines of credit to be
renewed, are sufficient to provide the working capital needs of the
Company for the foreseeable future. The Company anticipates that its
rate of property, plant and equipment expenditures for fiscal 1997
will continue to increase for the remainder of the fiscal year and
will exceed fiscal 1996 expenditures by approximately $1.0 to $1.5
million.
Results of Operations - Second Quarter and Six Month Comparisons
The Company recorded net income of $.50 per common share in the second
quarter of fiscal 1997, compared with a net loss of $.63 per common
share in the second quarter of fiscal 1996. Net income for the six
months ended December 31, 1996, was $.79 per common share compared
with a net loss of $.23 per common share for the first six months of
fiscal 1996. The second quarter and first six months of fiscal 1996
results include a one-time after tax charge of $8.1 million, or $1.01
per common share, for the write-off of purchased incomplete software
technology associated with the acquisition of Fidelio. Excluding this
one-time charge, the increased net income was primarily due to higher
sales volumes and improved gross margins, partially offset by higher
operating expenses, interest expense associated with debt financing,
and a higher tax rate attributed to increased foreign income.
Revenue of $55.9 million for the second quarter of fiscal 1997
increased $13.1 million, or 30.5%, compared to the same period last
year. For the first six months of fiscal 1997, revenue increased
$28.2 million to $103.5 million, or 37.5%, over the same period in
fiscal 1996. A comparison of the sales mix for fiscal years 1997 and
1996 is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Hardware 43.2% 54.9% 44.0% 59.5%
Software 20.9% 14.2% 20.6% 12.8%
Service 35.9% 30.9% 35.4% 27.7%
------ ------ ------ ------
100.0% 100.0% 100.0% 100.0%
====== ====== ====== ======
</TABLE>
9
<PAGE> 10
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended December 31, 1996
Results of Operations - Second Quarter and Six Month Comparisons,
Continued
While hardware sales represent a smaller proportion of total sales in
fiscal 1997 in comparison to the prior year, this category continued
to grow in absolute dollars. The increases in software and service
sales, relative to total sales are primarily due to the acquisition of
Fidelio on November 30, 1995.
Combined hardware and software revenues for the second quarter of
fiscal 1997 increased $6.2 million, or 21.0%, while service revenues
increased $6.9 million, or 51.7%, over the same period a year earlier.
On a year-to-date basis, hardware and software sales increased $12.4
million, or 22.8%, while service revenues increased $15.8 million, or
75.9%, over the same period a year earlier.
Cost of sales, as a percentage of revenue, decreased to 49.5% from
50.6% for the second quarter of fiscal 1997 compared to the second
quarter of fiscal 1996. For the first six months of fiscal 1997, cost
of sales, as a percentage of revenue, decreased to 49.3% from 50.6%
for the same period a year earlier. Cost of sales for hardware and
software products, as a percentage of related revenue, was 49.1% in
the second quarter of fiscal 1997 compared to 54.7% for the same
quarter a year earlier as a result of a favorable shift in sales
distribution from the indirect to direct sales channels and an
increase in higher-margin Fidelio software sales as a percentage of
total revenue. For the first six months of fiscal 1997, cost of sales
for hardware and software products, as a percentage of related
revenue, was 48.8% compared to 53.2% for the same period in fiscal
1996.
Service costs, as a percentage of service revenue, increased to 50.1%
in the second quarter of fiscal 1997 compared to 41.4% in the same
quarter in fiscal 1996. Service costs, as a percentage of service
revenue, increased to 50.4% in the first six months of fiscal 1997
compared to 43.9% for the same period in fiscal 1996. The increased
costs for both the quarter and year-to-date were primarily due to
continued investment in the Company's service organization and
infrastructure.
Selling, general and administrative expenses increased $3.5 million,
or 26.5%, in the second quarter of fiscal 1997 compared to the same
period last year. As a percentage of revenue, selling, general and
administrative expenses decreased to 30.0% in the second quarter of
fiscal 1997 compared to 31.0% in the second quarter of fiscal 1996
as sales grew at a rate in excess of these expenses. For the first six
months of fiscal 1997, selling, general and administrative expenses,
as a percentage of revenue, were 31.7% compared to 30.4% for the same
period a year earlier. The year-to-date increase is primarily the
result of the continued expansion of the Company's infrastructure,
especially an increased emphasis on the sales and service
organizations, including the addition of Fidelio in November 1995,
three U.S. sales and service offices in fiscal 1996, D.A.C.
Systemes/MICROS France and AD-Maintenance Informatique in August 1995
and increased sales and service staffing worldwide.
Research and development expenses (exclusive of internally developed
software costs), which consist primarily of labor costs, increased
$794,000, or 47.5%, in the second quarter of fiscal 1997 compared to
the same period a year earlier. Actual research and development
expenditures, including internally developed software costs of $1.1
million in the second quarter of fiscal 1997 and $278,000 in the
second quarter of fiscal 1996, increased $1.6 million, or 82.5%,
compared to the same period a year earlier. For the first six months
of fiscal 1997, research and development expenses (exclusive of
internally developed software costs),which consist primarily of
labor costs, increased $1.4 million, or 45.1%, compared to the same
period a year earlier. Actual research and development expenditures
for the
10
<PAGE> 11
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended December 31, 1996
Results of Operations - Second Quarter and Six Month Comparisons,
Continued
first six months of fiscal 1997, including internally developed
software costs of $2.2 million, increased $3.2 million, or 91.9%,
compared to the same period a year earlier. The increase in
absolute dollars for both the three-month and six-month periods is
primarily due to Fidelio product development.
Purchased incomplete software technology was a result of the one-time
$14.8 million charge taken in the second quarter of fiscal 1996
associated with the acquisition of Fidelio.
Income from operations for the second quarter of fiscal 1997 was $7.5
million, or 13.4% of revenue, compared to a loss from operations of
$9.4 million in the same period a year earlier. Excluding the one-time
expense of $14.8 million mentioned above, income from operations for
last year's second quarter was $5.4 million. For the first six months
of fiscal 1997, income from operations was $11.9 million compared to a
loss of $4.9 million a year earlier or income of $9.9 million
excluding the one-time write-off. For both the second quarter and
first six months of fiscal 1997, the Company's improved income from
operations is primarily due to higher sales and stronger gross
margins.
Interest income for the second quarter of fiscal 1997 decreased
$150,000 to $113,000, or 57.0%, compared to $263,000 for the second
quarter of fiscal 1996. The decrease in interest income for the period
is primarily due to the use of cash to purchase Fidelio. Interest
expense increased $6,000 to $371,000 for the second quarter of fiscal
1997 from $365,000 for the same period a year ago. Last year's
results included a partial quarter of interest expense incurred on
the Fidelio debt acquired on November 30, 1995. The Company reduced
this debt subsequent to December 31, 1995. Interest income for the
first six months in fiscal 1997 was $219,000 compared to $602,000, a
decrease of 63.6%, for the comparable period in fiscal 1996 as a
result of lower investment balances during fiscal 1997. Interest
expense for the first six months in fiscal 1997 was $782,000 compared
to $453,000, an increase of 72.6%, for the comparable period in fiscal
1996 primarily due to the increase in the Company's overall debt
during the first six months of fiscal 1997 in comparison to the same
period in fiscal 1996.
The effective tax rate for the second quarter of fiscal 1997 is 40.0%
compared to a benefit of 48.6% for the same quarter a year earlier.
Excluding the one-time expense for the purchase of incomplete software
technology and the related tax benefit, last year's second quarter's
effective tax rate would have been 38.7%. For the first six months of
fiscal 1997, the effective tax rate is 40.0% compared to a benefit of
61.2% for the first six months of fiscal 1996. Excluding the effect
for the purchase of incomplete software technology expense and the
related tax benefit, the six month tax rate for fiscal 1996 would have
been 37.2%. The increase in the tax rate is primarily due to a shift
in the mix of earnings on a country-by-country basis to those
countries with higher tax rates.
Summary
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, fueled in part by the
acquisitions consummated in calendar year 1995. 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
continues to experience gross margin
11
<PAGE> 12
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended December 31, 1996
Results of Operations - Second Quarter and Six Month Comparisons,
Continued
pressure on its products, and the Company expects this to continue.
There can be no assurance that the Company will be able to increase
sufficiently sales of its higher margin products, including software
and services, to prevent future declines in the Company's overall
gross margin.
Moreover, some of the statements contained herein not based on
historic facts are forward looking statements that involve risks and
uncertainties. Past performance is not necessarily a strong or
reliable indicator of future performance. Actual results could differ
materially from past results, estimates or projections. Some of the
additional risks and uncertainties are: product demand and market
acceptance, including demand and acceptance for the new 3400 QSA and
the new 3700 POS systems (see Part II, Item 5); adverse economic or
political conditions; unexpected currency fluctuations; impact of
competitive products and pricing on margins; product development
delays and technological difficulties; and controlling expenses.
Other risks are disclosed in the Company's releases and SEC filings,
including the Company's 1997 10-Q for the quarter ended September 30,
1996, and the Company's 1996 10-K.
12
<PAGE> 13
REPORT OF INDEPENDENT ACCOUNTANTS
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 December 31, 1996, and the related consolidated
statements of operations and cash flows for the three and six month periods
ended December 31, 1996 and December 31, 1995. 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 than 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, 1996, 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 September
20, 1996 we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the accompanying consolidated balance sheet
information as of June 30, 1996, 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
February 10, 1997
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.
13
<PAGE> 14
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended December 31, 1996
Part II - Other Information
Item 1. Legal Proceedings.
On May 24, 1996, Imperial Hotels Corp. ("Imperial") filed suit against
Executive Technologies of Southwest Florida, Inc. ("ETI"), MICROS and Fidelio
in the Superior Court of the State of California for the County of Los Angeles.
Imperial alleged, among other things, that ETI, an indirect wholly owned
subsidiary of MICROS, breached a software license agreement ETI entered into
with Imperial prior to Fidelio's acquisition of ETI, and prior to MICROS'
acquisition of Fidelio. On November 20, 1996, the parties to the lawsuit
amicably settled all claims, and the litigation was dismissed with prejudice.
The settlement requires ETI to provide to Imperial certain software upgrades to
the central reservation system currently licensed by Imperial. This
settlement, for which an accrual had been established, did not have a material
effect on the Company's results of operations.
Items 2 through 4.
No events occurred during the quarter covered by the report that would
require a response to any of these items.
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of shareholders was held on November 22, 1996. A
quorum was present and shareholders voted on the following matters:
1. Approval of an Amendment to the Articles of Incorporation
The shareholders voted 2,060,143 shares in the affirmative and 3,561,476 shares
in the negative with respect to a proposal to adopt an amendment to the
Company's Articles of Incorporation (the "Classified Board Amendment") to add a
new article which would classify the Board of Directors into three classes of
directors. A total of 17,692 shares abstained from the vote. There were
1,456,038 broker non-votes. The Classified Board Amendment provided for the
Board of Directors to be divided into three classes of directors serving
staggered three-year terms. As the requisite number of shares required for
approval was not obtained, the Classified Board Amendment was not approved and
the Directors were accordingly approved for one-year terms.
2. Election of Directors
The management of the Company nominated a slate of seven persons to serve on
the Board of Directors. No other nominations were made. The nominees received
the following votes:
<TABLE>
<CAPTION>
Nominee For Vote Withheld(Abstain)
------- --- -------------
<S> <C> <C>
Louis M. Brown, Jr. 6,992,657 102,692
Daniel Cohen 6,992,657 102,692
A.L. Giannopoulos 6,992,657 102,692
F. Suzanne Jenniches 6,992,657 102,692
John G. Puente 6,992,457 102,892
Alan M. Voorhees 6,992,457 102,892
Edward T. Wilson 6,992,557 102,792
</TABLE>
14
<PAGE> 15
The entire slate of directors nominated was elected by a majority of the shares
present in person or represented by proxy and entitled to vote.
3. Selection of Independent Public Accountants
The Board of Directors of the Company selected Price Waterhouse LLP as the
independent public accountants for the Company for the fiscal year ending June
30, 1997. A proposal (Proposal 3) to approve the selection of Price Waterhouse
LLP was approved by a majority of the shares present in person or represented
by proxy and entitled to vote. A total of 7,084,145 shares voted in the
affirmative; a total of 5,910 shares voted in the negative; and a total of
5,294 shares abstained from the vote.
4. Approval of Amendment to Stock Option Plan
The shareholders voted 4,413,495 shares in the affirmative and 1,009,683 shares
in the negative to approve a proposal to increase the number of shares
available under the 1991 Stock Option Plan by 600,000 with the aggregate number
of shares that can be issued under the plan being 1,150,000; a total of 77,884
shares abstained from the vote and there were 1,594,287 broker non-votes.
Item 5. Other Information
The Company introduced two new products in October 1996, the 3700 POS
and the 3400 QSA (Quick Service Advantage). Both software products run on
Microsoft's Windows 95 or Windows NT operating systems and operate on IBM
compatible personal computers. The 3700 POS is a table service restaurant
application software program. The product has been developed by MICROS. The
3400 QSA is a quick service restaurant application software program. The
product is licensed on a non-exclusive basis from a third party developer.
MICROS has development rights to the software to modify and customize as deemed
appropriate or necessary. Shipments of the 3700 POS commenced in the second
quarter of fiscal 1997. Shipments of the 3400 QSR are expected to commence in
the latter part of the third quarter of fiscal 1997.
15
<PAGE> 16
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended December 31, 1996
Part II - Other Information, continued
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10 - Material Contracts
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 - None
16
<PAGE> 17
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended December 31, 1996
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)
February 14, 1997 s/Gary C. Kaufman
- ----------------- -----------------
Gary C. Kaufman
Senior Vice President, Finance and
Administration/Chief Financial Officer
February 14, 1997 s/Roberta J. Watson
- ----------------- -------------------
Roberta J. Watson
Vice President and Controller
17
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered Page
- ------- -------------
<S> <C> <C>
10. Material Contracts 19
11. Computation of Earnings Per Share 21
15. Letter regarding Unaudited Interim 22
Financial Information
27. Financial Data Schedule N/A
</TABLE>
18
<PAGE> 1
EXHIBIT 10
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
This First Amendment to the Employment Agreement is made and effective
this 6th day of February, 1997 (the "First Amendment"), by and between MICROS
SYSTEMS, INC., a Maryland corporation, with offices located at 12000 Baltimore
Avenue, Beltsville, Maryland 20705 (hereinafter referred to as the "Company"),
and A. L. GIANNOPOULOS, whose address is 6125 Wooded Run Drive, Columbia,
Maryland 21044 (hereinafter referred to as the "Executive").
WHEREAS, the Executive and MICROS entered into an Employment Agreement
dated June 1, 1995 (the "Agreement"); and
WHEREAS, the parties hereto would like to amend the Agreement pursuant
to this First Amendment in an effort both: (i) to reflect the rapid growth
experienced by the Company, and the current status of the Company and the
Executive relative to other similarly positioned entities; and (ii) to reward
the Executive for achieving financial objectives for the first two quarters of
the Company's 1997 fiscal year.
NOW, THEREFORE, MICROS and the Executive, for good and valuable
consideration, and pursuant to the terms, conditions, and covenants contained
herein, hereby agree as follows:
1. Section 4 of the Agreement is amended by deleting the salary chart therein
in its entirety and inserting the following in lieu thereof:
<TABLE>
<CAPTION>
Period Salary
------ ------
<S> <C>
Commencement Date through June 30, 1995 $32,170
July 1, 1995 through June 30, 1996 $203,000
July 1, 1996 through June 30, 1997 $250,000*
July 1, 1997 through June 30, 1998 $262,500
July 1, 1998 through June 30, 1999 $275,000
July 1, 1999 through December 31, 1999 $143,750
</TABLE>
*Upon execution of this First Amendment, the Executive shall immediately
receive a payment in the amount equal to the difference between the salary
received by the Executive in the Company's 1997 fiscal year to date, and the
amount the Executive would have received to date if the increased level had
been in effect as of the first day of the Company's 1997 fiscal year.
2. Section 5 of the Agreement is amended by deleting the target bonus chart
therein in its entirety and inserting the following in lieu thereof:
<TABLE>
<CAPTION>
Fiscal Year Ending Target Bonus
------------------ ------------
<S> <C>
June 30, 1995 $110,000
June 30, 1996 $120,000
June 30, 1997 $150,000
June 30, 1998 $163,500
June 30, 1999 $177,000
June 30, 2000 $95,250
</TABLE>
3. All other provisions of the Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties have executed this First Amendment as
of the dates indicated below, the effective date of this First Amendment being
the 6th day of February, 1997.
COMPANY:
19
<PAGE> 2
<TABLE>
<S> <C> <C>
ATTEST: MICROS SYSTEMS, INC.
By: /s/ Louis M. Brown, Jr. (SEAL)
------------------ -------------------------------
Louis M. Brown, Jr.
Chairman
[Corporate Seal]
EXECUTIVE:
WITNESS:
/s/ A. L. GIANNOPOULOS (SEAL)
------------------ -------------------------------
A. L. GIANNOPOULOS
</TABLE>
20
<PAGE> 1
EXHIBIT 11
MICROS SYSTEMS, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(unaudited - in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended
December 31,
1996 1995
----------- ----------
<S> <C> <C>
Weighted-average number of common shares 7,958 7,882
Dilutive effect of outstanding stock options 97 133
------ --------
Weighted-average number of common and common
equivalent shares outstanding 8,055 8,015
====== ========
Net income (loss) $4,011 $(5,088)
====== ========
Net income (loss) per common and common $ 0.50 $ (0.63)
equivalent share ====== ========
<CAPTION>
Six months ended
December 31,
1996 1995
----------- ----------
<S> <C> <C>
Weighted-average number of common shares 7,952 7,872
Dilutive effect of outstanding stock options 45 126
------ ---------
Weighted-average number of common and common 7,997 7,998
equivalent shares outstanding ====== =========
Net income (loss) $6,338 $ (1,834)
====== =========
Net income (loss) per common and common $ 0.79 $ (0.23)
equivalent share ====== =========
</TABLE>
21
<PAGE> 1
EXHIBIT 15
February 10, 1997
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 February 10, 1997 (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. 333-17725, No. 333-05125, No.
33-69782, No. 33-44481 and No. 33-33535). We are also aware of our
responsibilities under the Securities Act of 1933.
Yours very truly,
PRICE WATERHOUSE LLP
22
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED BALANCE SHEET AND RELATED STATEMENT OF INCOME AS OF
DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 10,413
<SECURITIES> 3,557
<RECEIVABLES> 57,369
<ALLOWANCES> 2,059
<INVENTORY> 18,172
<CURRENT-ASSETS> 95,276
<PP&E> 30,932
<DEPRECIATION> 13,952
<TOTAL-ASSETS> 147,190
<CURRENT-LIABILITIES> 72,148
<BONDS> 8,411
0
0
<COMMON> 199
<OTHER-SE> 62,388
<TOTAL-LIABILITY-AND-EQUITY> 147,190
<SALES> 66,828
<TOTAL-REVENUES> 103,473
<CGS> 32,581
<TOTAL-COSTS> 58,999
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 782
<INCOME-PRETAX> 11,472
<INCOME-TAX> 4,592
<INCOME-CONTINUING> 6,338
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,338
<EPS-PRIMARY> 0.79
<EPS-DILUTED> 0.79
</TABLE>
