<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 September 30, 1997
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 September 30, 1997, there were 8,006,763 shares of Common Stock, $.025
par value, outstanding.
1
<PAGE> 2
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended September 30, 1997
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 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, 1997, as filed with the Securities
and Exchange Commission.
2
<PAGE> 3
MICROS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except per share data)
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997
---- ----
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 9,366 $ 10,864
Accounts receivable, net of allowance for
doubtful accounts of $1,898 at September 30,
1997 and $2,508 at June 30, 1997 61,482 64,541
Inventories 25,031 23,855
Deferred income taxes 3,437 3,437
Prepaid expenses and other current assets 7,524 5,053
----- -----
Total current assets 106,840 107,750
Property, plant and equipment, net of accumulated
depreciation and amortization of $15,987 at
September 30, 1997 and $15,303 at June 30, 1997 20,395 19,297
Deferred income taxes, non-current 5,026 5,026
Goodwill and intangible assets, net of
accumulated amortization of $6,384 at
September 30, 1997 and $5,731 at June 30, 1997 19,390 20,806
Purchased and internally developed software,
net of accumulated amortization of $5,203 at
September 30, 1997 and $4,825 at June 30, 1997 10,359 9,872
Other assets 757 799
--- ---
Total assets $ 162,767 $ 163,550
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Bank lines of credit $ 11,059 $ 11,740
Current portion of long-term debt 2,619 2,846
Current portion of capital lease obligation 203 210
Accounts payable 18,224 16,797
Accrued expenses and other current liabilities 21,738 30,567
Income taxes payable 7,116 5,182
Deferred service revenue 17,388 12,570
------ ------
Total current liabilities 78,347 79,912
Long-term debt, net of current portion 2,356 3,368
Capital lease obligation, net of current portion 3,568 3,711
Deferred income taxes 3,321 3,321
Minority interests 1,554 1,511
------ ------
Total liabilities 89,146 91,823
------ ------
Commitments and contingencies
Shareholders' equity:
Common stock, $.025 par; authorized 10,000
shares; issued and outstanding 8,007 at
September 30, 1997 and 7,992 at June 30, 1997 200 200
Capital in excess of par 18,482 18,103
Retained earnings 59,141 56,126
Accumulated foreign currency translation
adjustments (4,202) (2,702)
------ ------
Total shareholders' equity 73,621 71,727
------ ------
Total liabilities and shareholders' equity $ 162,767 $ 163,550
========= =========
</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 September 30,
--------------------------------
1997 1996
-------- --------
<S> <C> <C>
Revenue:
Hardware and software $ 37,412 $ 30,961
Service 22,176 16,555
------ ------
Total revenue 59,588 47,516
------ ------
Costs and expenses:
Cost of sales
Hardware and software 18,422 14,969
Service 11,879 8,403
------ -----
Total cost of sales 30,301 23,372
Selling, general and administrative
expenses 18,859 15,992
Research and development expenses 3,158 1,946
Depreciation and amortization 1,882 1,806
----- -----
Total costs and expenses 54,200 43,116
------ ------
Income from operations 5,388 4,400
Non-operating income (expense):
Interest income 68 106
Interest expense (300) (412)
Other income, net 78 41
-- --
Income before taxes and minority
interest and equity in net earnings of
affiliates 5,234 4,135
Income tax expense 2,096 1,654
----- -----
Income before minority interest and
equity in net earnings of affiliates 3,138 2,481
Minority interest and equity in net
earnings of affiliates (123) (154)
---- ----
Net income $ 3,015 $ 2,327
======= =======
Net income per common and common
equivalent share $ 0.37 $ 0.29
======= =======
Weighted-average number of common and
common equivalent shares outstanding 8,245 7,971
===== =====
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE> 5
MICROS SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Condensed and unaudited - in thousands)
<TABLE>
<CAPTION>
Three Months Ended September 30,
1997 1996
<S> <C> <C>
Net cash flows from operating activities: $ 3,234 $ 6,328
------- -------
Cash flows from investing activities:
Purchases of property, plant and
equipment (2,266) (1,563)
Proceeds on dispositions of property,
plant and equipment --- 113
Purchased and internally developed
software (1,143) (1,151)
Net cash paid for acquisitions and
minority interests (238) (96)
---- ---
Net cash used in investing
activities (3,647) (2,697)
------ ------
Cash flows from financing activities:
Principal payments on line of credit --- (1,947)
Principal payments on long-term debt
and capital lease obligations (1,098) (2,146)
Proceeds from issuance of stock 316 100
Income tax benefit from stock options
exercised 63 25
-- --
Net cash used in financing
activities (719) (3,968)
---- ------
Effect of exchange rate changes on cash (366) ---
---- ---
Net decrease in cash and cash equivalents (1,498) (337)
Cash and cash equivalents at beginning of
period 10,864 15,231
------ ------
Cash and cash equivalents at end of period $ 9,366 $ 14,894
======= ========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 367 $ 548
===== =====
Income taxes $ 188 $ 471
===== =====
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE> 6
MICROS SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarter Ended September 30, 1997
(Unaudited)
1. Inventories
The components of inventories are as follows (in thousands):
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997
----------------- ---------------
<S> <C> <C>
Raw materials $ 8,146 $ 7,594
Work-in-process 3,131 3,515
Finished goods 13,754 12,746
----------------- ---------------
$ 25,031 $ 23,855
================= ===============
</TABLE>
2. 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 March 25, 1997, Budgetel Inns, Inc. ("Budgetel") filed suit
against MICROS in the United States Federal District Court in the
Eastern District of Wisconsin. Budgetel alleges, among other
things, that MICROS breached a March 1993 software support
agreement by failing to provide full support to this software
package licensed to Budgetel in 1993. MICROS will defend against
Budgetel's allegations, and has moved to have certain of the causes
of action dismissed. While the ultimate outcome of litigation is
uncertain, and while litigation is inherently difficult to predict,
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.
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MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended September 30, 1997
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. Prior to this upcoming expiration date, the
Company anticipates that it will renew this line of credit for an
additional one year period. In addition, the Company has an additional
line of credit from one European bank aggregating DM 7.0 million
(approximately $3.9 million at the September 30, 1997 exchange rate) as a
result of its November 1995 acquisition of Fidelio. As of September 30,
1997, there were no borrowings against this line of credit. For both of
these lines of credit, at September 30, 1997, the Company had borrowed
approximately $11.1 million and has approximately $17.8 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 $5.0 million as of September 30,
1997. The majority of this debt stems from the Fidelio
acquisition.
Net cash provided by operating activities for the three months
ended September 30, 1997 was $3.2 million. In addition, the Company
used $3.6 million, primarily for the purchase of property, plant
and equipment and internally developed software. Net financing
activities for the first three months of fiscal 1998 used $0.7
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 property, plant and equipment expenditures for fiscal 1998
will continue to increase for the remainder of the fiscal year and
will approximately equal fiscal 1997 expenditures of $8.1 million.
Results of Operations - First Quarter Comparison
The Company recorded net income of $.37 per common share in the
first quarter of fiscal 1998, compared with net income of $.29 per
common share in the first quarter of fiscal 1997. For the quarter,
the increased net income was primarily due to higher sales volumes
and lower operating expenses as a percentage of sales, partially
offset by a decrease in gross margins.
Revenue of $59.6 million for the first quarter of fiscal 1998
increased $12.1 million, or 25.4%, compared to the same period last
year. A comparison of the sales mix for fiscal years 1998 and 1997
is as follows:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1997 1996
---- ----
<S> <C> <C>
Hardware 44.7% 44.9%
Software 18.1% 20.3%
Service 37.2% 34.8%
------ ------
100.0% 100.0%
====== ======
</TABLE>
7
<PAGE> 8
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended September 30, 1997
Results of Operations - First Quarter Comparison, Continued
Both hardware and software sales increased in absolute dollars in fiscal
1998 in comparison to the prior year, but declined as a percentage of total
revenue as their absolute increases were less than the increase in service
sales. Service sales increased in absolute dollars and as a proportion of
total sales for the first quarter in comparison to the prior year due to
increases in both the POS and hotel businesses.
Combined hardware and software revenues for the first quarter of fiscal
1998 increased $6.5 million, or 20.8%, while service revenues increased
$5.6 million, or 34.0%, over the same period a year earlier.
Cost of sales, as a percentage of revenue, increased to 50.9% from 49.2%
for the first quarter of fiscal 1998 compared to the first quarter of
fiscal 1997. Cost of sales for hardware and software products, as a
percentage of related revenue, was 49.2% in the first quarter of fiscal
1998 compared to 48.4% for the same quarter a year earlier. This increase
was the result of a greater increase in hardware sales, which generally
have lower gross margins, relative to the increase in software sales.
Service costs, as a percentage of service revenue, increased to 53.6% in
the first quarter of fiscal 1998 compared to 50.8% in the same quarter in
fiscal 1997. The first quarter increase in comparison to the prior year was
due to expansion of the Company's service organization and the initial
costs associated with adding additional personnel.
Selling, general and administrative expenses increased $2.9 million, or
17.9%, in the first quarter of fiscal 1998 compared to the same period last
year. As a percentage of revenue, selling, general and administrative
expenses decreased to 31.7% in the first quarter of fiscal 1998 compared to
33.7% in the first quarter of fiscal 1997 as sales grew at a rate in excess
of these expenses.
Research and development expenses (exclusive of capitalized software
development costs), which consist primarily of labor costs, increased $1.2
million, or 62.2%, in the first quarter of fiscal 1998 compared to the same
period a year earlier. Actual research and development expenditures,
including capitalized software development costs of $1.1 million in the
first quarter of fiscal 1998 and $1.2 million in the first quarter of
fiscal 1997, increased $1.2 million, or 38.9%, compared to the same period
a year earlier. The increase in absolute dollars for the three-month period
is due to increased expenditures in both the POS and hotel businesses.
Income from operations for the first quarter of fiscal 1998 was $5.4
million, or 9.0% of revenue, compared to income of $4.4 million, or 9.3% of
revenue, in the same period a year earlier. For the first quarter of fiscal
1998, the Company's higher dollar income from operations is primarily due
to higher sales and lower operating expenses as a percentage of sales,
partially offset by a decrease in the gross margin percentage.
Interest income for the first quarter of fiscal 1998 decreased $38,000 to
$68,000, or 35.8%, compared to $106,000 for the first quarter of fiscal
1997. The decrease in interest income for the period is primarily due to a
reduction in the Company's average cash balance during the first quarter of
fiscal 1998 compared to the first quarter of fiscal 1997 in order to meet
working capital needs. Interest expense decreased $112,000 to $300,000, or
27.2%, for the first quarter of fiscal 1998 from $412,000 for the same
period a year ago as the Company reduced its debt obligations.
8
<PAGE> 9
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended September 30, 1997
Results of Operations - First Quarter Comparison, Continued
The effective tax rate for the both the first quarter of fiscal years 1998
and 1997 is 40.0%. The Company has not experienced any significant shift in
its mix of earnings that would require a change in its effective tax rate.
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 pressure on its products and service offerings, and the Company
expects this to continue. There can be no assurance that the Company will
be able to continue 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;
implementation of a cost-effective service structure capable of servicing
increasingly complex software systems in increasingly more remote
locations; achieving increased sales of higher margin software products;
hiring and retention of qualified employees with sufficient technical
expertise; adverse economic or political conditions; unexpected currency
fluctuations; impact of competitive products and pricing on margins;
product development delays; technological difficulties associated with new
product releases, including those with respect to the Fidelio next
generation integrated property management and central reservation system
technologies; and controlling expenses. Other risks are disclosed in the
Company's releases and SEC filings.
9
<PAGE> 10
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended September 30, 1997
Part II - Other Information
Item 1. Legal Proceedings.
On March 25, 1997, Budgetel Inns, Inc. ("Budgetel") filed suit against
MICROS in the United States Federal District Court in the Eastern District of
Wisconsin. Budgetel alleges, among other things, that MICROS breached a March
1993 software support agreement by failing to provide full support to this
software package licensed to Budgetel in 1993. MICROS will defend against
Budgetel's allegations, and has moved to have certain of the causes of action
dismissed. While the ultimate outcome of litigation is uncertain, and while
litigation is inherently difficult to predict, 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.
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 5. Other Information
None.
10
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MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended September 30, 1997
Part II - Other Information, continued
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11 - Computation of Earnings Per Share
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K - None
11
<PAGE> 12
MICROS SYSTEMS, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended September 30, 1997
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)
November 14, 1997 s/ Gary C. Kaufman
- ----------------- ------------------
Gary C. Kaufman
Senior Vice President, Finance and
Administration/Chief Financial Officer
November 14, 1997 s/ Roberta J. Watson
- ---------------- --------------------
Roberta J. Watson
Vice President and Controller
12
<PAGE> 13
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered Page
- ------- -------------
<S> <C> <C>
11. Computation of Earnings Per Share 14
27. Financial Data Schedule N/A
</TABLE>
13
<PAGE> 1
EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE
MICROS SYSTEMS, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(Unaudited - in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1997 1996
---- ----
<S> <C> <C>
Weighted-average number of common shares 7,999 7,946
Dilutive effect of outstanding stock options 246 25
--- --
Weighted-average number of common and common
equivalent shares outstanding 8,245 7,971
===== =====
Net income $3,015 $2,327
====== ======
Net income per common and common
equivalent share $ 0.37 $ 0.29
====== ======
</TABLE>
14
<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
SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> SEP-30-1997
<CASH> 9,366
<SECURITIES> 0
<RECEIVABLES> 63,380
<ALLOWANCES> 1,898
<INVENTORY> 25,031
<CURRENT-ASSETS> 106,840
<PP&E> 36,382
<DEPRECIATION> 15,987
<TOTAL-ASSETS> 162,767
<CURRENT-LIABILITIES> 78,347
<BONDS> 8,745
0
0
<COMMON> 200
<OTHER-SE> 73,422
<TOTAL-LIABILITY-AND-EQUITY> 162,767
<SALES> 37,412
<TOTAL-REVENUES> 59,588
<CGS> 18,422
<TOTAL-COSTS> 35,778
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 300
<INCOME-PRETAX> 5,234
<INCOME-TAX> 2,096
<INCOME-CONTINUING> 3,015
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,015
<EPS-PRIMARY> 0.37
<EPS-DILUTED> 0.37
</TABLE>
